SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the fiscal year ended December 31, 2000
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
---------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------------------ ------------------------
Common stock ($.125 par value) New York Stock Exchange
Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 9, 2001 approximated $191 million.
There were 50,086,684 shares of common stock outstanding at March 9, 2001.
Documents incorporated by reference:
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
Forward-Looking Information.
The statements contained in this Annual Report on Form 10-K ("Annual
Report") which are not historical facts, including, but not limited to,
statements found (i) under the captions "Industry," "Products and operations,"
"Manufacturing process and raw materials," "Competition," "Patents and
Trademarks," "Foreign Operations," and "Regulatory and Environmental Matters,"
all contained in Item 1. Business; (ii) under the captions "Lead pigment
litigation," "Environmental matters and litigation," and "Other Litigation," all
contained in Item 3. Legal Proceedings; (iii) under the captions "Results of
Operations" and "Liquidity and Capital Resources," both contained in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations; and (iv) under the captions "Currency exchange rates," "Marketable
equity security prices," and "Other," all contained in Item 7A. Quantitative and
Qualitative Disclosures About Market Risk, 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 that could significantly affect expected
results, and actual future results could differ materially from those described
in such forward-looking statements.
Among the factors that could cause actual future results to differ
materially are the risks and uncertainties discussed in this Annual Report and
those described from time to time in the Company's other filings with the
Securities and Exchange Commission. While it is not possible to identify all
factors, the Company continues to face many 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, competitive technology positions,
operating interruptions (including, but not limited to, labor disputes, leaks,
fires, explosions, unscheduled downtime and transportation interruptions), 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 the Company's
filings with the Securities and Exchange Commission. 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 assumes no duty to
update any forward-looking statements whether as a result of new information,
future events or otherwise.
PART I
ITEM 1. BUSINESS
General
NL Industries, Inc., organized as a New Jersey corporation in 1891,
conducts its continuing operations through its principal wholly owned
subsidiary, Kronos, Inc. Kronos is the world's fifth largest producer of
titanium dioxide pigments ("TiO2") with an estimated 12% share of worldwide TiO2
sales volume in 2000. Approximately one-half of Kronos' 2000 sales volume was in
Europe, where Kronos is the second largest producer of TiO2. NL and its
consolidated subsidiaries are sometimes referred to herein collectively as the
"Company."
The Company's primary objective is to maximize total shareholder return.
The Company has taken a number of steps towards achieving its objective,
including (i) increasing its regular quarterly dividend to $.20 per share, (ii)
controlling costs, (iii) investing in certain cost effective debottlenecking
projects to increase TiO2 production capacity and efficiency, and (iv) improving
its capital structure. The Company periodically considers mergers or
acquisitions within the chemical industry and acquisitions of additional TiO2
production capacity to meet its objective.
Industry
Titanium dioxide pigments are chemical products used for imparting
whiteness, brightness and opacity to a wide range of products, including paints,
plastics, paper, fibers and ceramics. TiO2 is considered a "quality-of-life"
product with demand affected by gross domestic product in various regions of the
world.
Pricing within the global TiO2 industry is cyclical, and changes in
industry economic conditions can significantly impact the Company's earnings and
operating cash flows. The Company's average TiO2 selling price on a billing
currency basis increased from the preceding quarter during each quarter of 2000,
continuing the upward trend in prices that began in the fourth quarter of 1999.
Industry-wide demand for TiO2 was strong throughout most of 2000, but weakened
in the fourth quarter of 2000. The Company believes that the weaker demand in
the fourth quarter was due to a softening worldwide economy and customers
reducing inventory levels.
Kronos has an estimated 18% share of European TiO2 sales volume and an
estimated 12% share of North American TiO2 sales volume. Per capita consumption
of TiO2 in the United States and Western Europe far exceeds that in other areas
of the world and these regions are expected to continue to be the largest
consumers of TiO2. Significant regions for TiO2 consumption could emerge in
Eastern Europe, the Far East or China if the economies in these regions develop
to the point that quality-of-life products, including TiO2, are in greater
demand. Kronos believes that, due to its strong presence in Western Europe, it
is well positioned to participate in growth in consumption of TiO2 in Eastern
Europe. Geographic segment information is contained in Note 3 to the
Consolidated Financial Statements.
Products and operations
TiO2 is produced in two crystalline forms: rutile and anatase. Rutile
TiO2 is a more tightly bound crystal that has a higher refractive index than
anatase TiO2 and, therefore, better opacification and tinting
-1-
strength in many applications. Although many end-use applications can use either
form of TiO2, rutile TiO2 is the preferred form for use in coatings, plastics
and ink. Anatase TiO2 has a bluer undertone and is less abrasive than rutile
TiO2, and it is often preferred for use in paper, ceramics, rubber and man-made
fibers.
The Company believes that there are no effective substitutes for TiO2.
However, extenders such as kaolin clays, calcium carbonate and polymeric
opacifiers are used in a number of Kronos' markets. Generally, extenders are
used to reduce to some extent the utilization of higher-cost TiO2. The use of
extenders has not significantly changed TiO2 consumption over the past decade
because, to date, extenders generally have failed to match the performance
characteristics of TiO2. As a result, the Company believes that the use of
extenders will not materially alter the growth of the TiO2 business in the
foreseeable future.
Kronos currently produces over 40 different TiO2 grades, sold under the
Kronos trademark, which provide a variety of performance properties to meet
customers' specific requirements. Kronos' major customers include domestic and
international paint, plastics and paper manufacturers.
Kronos is one of the world's leading producers and marketers of TiO2.
Kronos and its distributors and agents sell and provide technical services for
its products to over 4,000 customers with the majority of sales in Europe and
North America. TiO2 is distributed by rail, truck and ocean carrier in either
dry or slurry form. Kronos' manufacturing facilities are located in Germany,
Canada, Belgium and Norway and Kronos owns a one-half interest in a TiO2
manufacturing joint venture located in Louisiana, U.S.A. Kronos has sales and
marketing activities in over 100 countries worldwide. Kronos and its
predecessors have produced and marketed TiO2 in North America and Europe for
over 80 years. As a result, Kronos believes that it has developed considerable
expertise and efficiency in the manufacture, sale, shipment and service of its
products in domestic and international markets. By volume, approximately
one-half of Kronos' 2000 TiO2 sales were to Europe, with 37% to North America
and the balance to export markets.
Kronos is also engaged in the mining and sale of ilmenite ore (a raw
material used as a feedstock by sulfate-process TiO2 plants) and has estimated
ilmenite reserves that are expected to last at least 20 years. Kronos is also
engaged in the manufacture and sale of iron-based water treatment chemicals
(derived from co-products of the pigment production processes). Water treatment
chemicals are used as treatment and conditioning agents for industrial effluents
and municipal wastewater, and in the manufacture of iron pigments.
Manufacturing process and raw materials
TiO2 is manufactured by Kronos using both the chloride process and the
sulfate process. Approximately two-thirds of Kronos' current production capacity
is based on its chloride process which generates less waste than the sulfate
process. The sulfate process is a batch chemical process that uses sulfuric acid
to extract TiO2. Sulfate technology normally produces either anatase or rutile
pigment. The chloride process is a continuous process in which chlorine is used
to extract rutile TiO2. In general, the chloride process is also less intensive
than the sulfate process in terms of capital investment, labor and energy.
Because much of the chlorine is recycled and higher titanium-containing
feedstock is used, the chloride process produces less waste. Once an
intermediate TiO2 pigment has been produced by either the chloride or sulfate
process, it is `finished' into products with specific performance
characteristics for particular end-use applications through proprietary
processes involving various chemical surface treatments and intensive milling
and micronizing.
-2-
Due to environmental factors and customer considerations, the proportion
of TiO2 industry sales represented by chloride-process pigments has increased
relative to sulfate-process pigments and, in 2000, chloride-process production
facilities represented almost 60% of industry capacity.
Kronos produced a record 441,000 metric tons of TiO2 in 2000, compared
to 411,000 metric tons produced in 1999 and its previous record 434,000 metric
tons in 1998. Kronos' average production capacity utilization rate in 2000 was
near full capacity, up from 93% in 1999, primarily due to the Company's decision
to return to higher production levels to meet strengthening demand after
curtailing production volume at the beginning of the first quarter of 1999 to
manage inventory levels. Kronos believes its current annual attainable
production capacity is approximately 450,000 metric tons, including its one-half
interest in the joint venture-owned Louisiana plant (see "TiO2 manufacturing
joint venture"). The Company expects its production capacity will be increased
by approximately 15,000 metric tons primarily at its chloride facilities, with
moderate capital expenditures, bringing Kronos' capacity to approximately
465,000 metric tons during 2002.
The primary raw materials used in the TiO2 chloride production process
are titanium-containing feedstock derived from beach sand ilmenite, natural
rutile ore, chlorine and coke. Chlorine and coke are available from a number of
suppliers. Titanium-containing feedstock suitable for use in the chloride
process is available from a limited number of suppliers around the world,
principally in Australia, South Africa, Canada, India and the United States.
Kronos purchases slag refined from beach sand ilmenite from Richards Bay
Iron and Titanium (Proprietary) Limited (South Africa), a 51%-owned subsidiary
of Rio Tinto plc (U.K.), under a long-term supply contract that expires at the
end of 2003. Natural rutile ore is purchased primarily from Iluka Resources,
Inc. (Australia), a wholly owned subsidiary of Westralian Sands Limited
(Australia), under a long-term supply contract that expires at the end of 2005.
The Company does not expect to encounter difficulties obtaining long-term
extensions to existing supply contracts prior to the expiration of the
contracts. Raw materials purchased under these contracts and extensions thereof
are expected to meet Kronos' chloride feedstock requirements over the next
several years.
The primary raw materials used in the TiO2 sulfate production process
are titanium-containing feedstock derived primarily from rock and beach sand
ilmenite and sulfuric acid. Sulfuric acid is available from a number of
suppliers. Titanium-containing feedstock suitable for use in the sulfate process
is available from a limited number of suppliers around the world. Currently, the
principal active sources are located in Norway, Canada, Australia, India and
South Africa. As one of the few vertically integrated producers of
sulfate-process pigments, Kronos operates a rock ilmenite mine in Norway, which
provided all of Kronos' feedstock for its European sulfate-process pigment
plants in 2000. For its Canadian sulfate-process plant, Kronos also purchases
sulfate grade slag from Q.I.T. Fer et Titane Inc. (Canada), a wholly owned
subsidiary of Rio Tinto, under a long-term supply contract which expires in
2003.
Kronos believes the availability of titanium-containing feedstock for
both the chloride and sulfate processes is adequate for the next several years.
Kronos does not expect to experience any interruptions of its raw material
supplies because of its long-term supply contracts. However, political and
economic instability in certain countries from which the Company purchases its
raw material supplies could adversely affect the availability of such feedstock.
Should Kronos' vendors not be able to meet their contractual obligations or
should Kronos be otherwise unable to obtain necessary raw materials, the Company
may incur higher costs for raw materials or may be required to reduce production
levels, which may have a material adverse effect on the Company's financial
position, results of operations or liquidity.
-3-
TiO2 manufacturing joint venture
Subsidiaries of Kronos and Huntsman ICI Holdings ("Huntsman") each own a
50%-interest in a manufacturing joint venture, Louisiana Pigment Company
("LPC"). LPC owns and operates a chloride-process TiO2 plant located in Lake
Charles, Louisiana. Production from the plant is shared equally by Kronos and
Huntsman (the "Partners") pursuant to separate offtake agreements.
A supervisory committee, composed of four members, two of whom are
appointed by each Partner, directs the business and affairs of LPC including
production and output decisions. Two general managers, one appointed and
compensated by each Partner, manage the operations of the joint venture acting
under the direction of the supervisory committee.
The manufacturing joint venture operates on a break-even basis and,
accordingly, the Company reports no equity in earnings of the joint venture.
Kronos' cost for its share of the TiO2 produced is equal to its share of the
joint venture's costs. Kronos' share of the joint venture's interest expense in
1998 was reported as a component of interest expense. Kronos' share of all other
net costs is reported as cost of sales as the related TiO2 acquired from the
joint venture is sold.
Competition
The TiO2 industry is highly competitive. Kronos competes primarily on
the basis of price, product quality and technical service, and the availability
of high performance pigment grades. Although certain TiO2 grades are considered
specialty pigments, the majority of Kronos' grades and substantially all of
Kronos' production are considered commodity pigments with price generally being
the most significant competitive factor. During 2000 Kronos had an estimated 12%
share of worldwide TiO2 sales volume, and Kronos believes that it is the leading
seller of TiO2 in a number of countries, including Germany and Canada.
Kronos' principal competitors are E.I. du Pont de Nemours & Co.
("DuPont"); Millennium Chemicals, Inc.; Huntsman; Kerr-McGee Corporation; and
Ishihara Sangyo Kaisha, Ltd. Kronos' five largest competitors have estimated
individual shares of TiO2 production capacity ranging from 23% to 5%, and an
estimated aggregate 70% share of worldwide TiO2 production volume. DuPont has
about one-half of total U.S. TiO2 production capacity and is Kronos' principal
North American competitor. In 2000 Kerr-McGee acquired Kemira Pigments Oy's TiO2
businesses in the Netherlands and the U.S.
Capacity additions that are the result of construction of greenfield
plants in the worldwide TiO2 market require significant capital and substantial
lead time, typically three to five years in the Company's experience. No
greenfield plants have been announced, but industry capacity can be expected to
increase as Kronos and its competitors debottleneck existing plants. Based on
the factors described under the caption "Industry" above, the Company expects
that the average annual increase in industry capacity from announced
debottlenecking projects will be less than the average annual demand growth for
TiO2 over the next three to five years.
No assurance can be given that future increases in the TiO2 industry
production capacity and future average annual demand growth rates for TiO2 will
conform to the Company's expectations. If actual developments differ from the
Company's expectations, the Company and the TiO2 industry's performance could be
unfavorably affected.
-4-
Discontinued operations
On January 30, 1998, the Company sold its specialty chemicals business
for $465 million. The Company has reported its specialty chemicals business as
discontinued operations.
Research and Development
The Company's expenditures for research and development and certain
technical support programs, excluding discontinued operations, have averaged
approximately $6 million annually during the past three years. Research and
development activities are conducted principally at the Leverkusen, Germany
facility. Such activities are directed primarily toward improving both the
chloride and sulfate production processes, improving product quality and
strengthening Kronos' competitive position by developing new pigment
applications.
Patents and Trademarks
Patents held for products and production processes are believed to be
important to the Company and to the continuing business activities of Kronos.
The Company continually seeks patent protection for its technical developments,
principally in the United States, Canada and Europe, and from time to time
enters into licensing arrangements with third parties.
The Company's major trademarks, including Kronos, are protected by
registration in the United States and elsewhere with respect to those products
it manufactures and sells.
Foreign Operations
The Company's chemical businesses have operated in non-U.S. markets
since the 1920s. Most of Kronos' current production capacity is located in
Europe and Canada with non-U.S. net property and equipment aggregating $316
million at December 31, 2000. Net property and equipment in the U.S., including
50% of the property and equipment of the TiO2 manufacturing joint venture, was
$140 million at December 31, 2000. Kronos' European operations include
production facilities in Germany, Belgium and Norway. Approximately $639 million
of the Company's 2000 consolidated sales were to non-U.S. customers, including
$106 million to customers in areas other than Europe and Canada. Sales to
customers in the U.S. aggregated $283 million in 2000. Foreign operations are
subject to, among other things, currency exchange rate fluctuations and the
Company's results of operations have, in the past, been both favorably and
unfavorably affected by fluctuations in currency exchange rates. Effects of
fluctuations in currency exchange rates on the Company's results of operations
are discussed in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Item 7A. "Quantitative and Qualitative
Disclosures about Market Risk."
Political and economic uncertainties in certain of the countries in
which the Company operates may expose it to risk of loss. The Company does not
believe that there is currently any likelihood of material loss through
political or economic instability, seizure, nationalization or similar event.
The Company cannot predict, however, whether events of this type in the future
could have a material effect on its operations. The Company's manufacturing and
mining operations are also subject to extensive and diverse environmental
regulation in each of the foreign countries in which they operate. See
"Regulatory and Environmental Matters."
-5-
Customer Base and Seasonality
The Company believes that neither its aggregate sales nor those of any
of its principal product groups are concentrated in or materially dependent upon
any single customer or small group of customers. Kronos' largest ten customers
accounted for 24% of net sales in 2000. Neither the Company's business as a
whole nor that of any of its principal product groups is seasonal to any
significant extent. Due in part to the increase in paint production in the
spring to meet the spring and summer painting season demand, TiO2 sales are
generally higher in the second and third calendar quarters than in the first and
fourth calendar quarters.
Employees
As of December 31, 2000, the Company employed approximately 2,500
persons, excluding the joint venture employees, with approximately 100 employees
in the United States and approximately 2,400 at sites outside the United States.
Hourly employees in production facilities worldwide, including the TiO2
manufacturing joint venture, are represented by a variety of labor unions, with
labor agreements having various expiration dates. The Company believes its labor
relations are good.
Regulatory and Environmental Matters
Certain of the Company's businesses are and have been engaged in the
handling, manufacture or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable environmental laws. As with
other companies engaged in similar businesses, certain past and current
operations and products of the Company have the potential to cause environmental
or other damage. The Company has implemented and continues to implement various
policies and programs in an effort to minimize these risks. The policy of the
Company is to maintain compliance with applicable environmental laws and
regulations at all its facilities and to strive to improve its environmental
performance. It is possible that future developments, such as stricter
requirements of environmental laws and enforcement policies thereunder, could
adversely affect the Company's production, handling, use, storage,
transportation, sale or disposal of such substances as well as the Company's
consolidated financial position, results of operations or liquidity.
The Company's U.S. manufacturing operations are governed by federal
environmental and worker health and safety laws and regulations, principally the
Resource Conservation and Recovery Act ("RCRA"), the Occupational Safety and
Health Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act,
the Toxic Substances Control Act and the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act ("CERCLA"), as well as the state counterparts of these
statutes. The Company believes the Louisiana plant owned and operated by the
joint venture and a slurry facility owned by the Company are in substantial
compliance with applicable requirements of these laws or compliance orders
issued thereunder. The Company has no other U.S. plants. From time to time, the
Company's facilities may be subject to environmental regulatory enforcement
under such statutes. Resolution of such matters typically involves the
establishment of compliance programs. Occasionally, resolution may result in the
payment of penalties, but to date such penalties have not involved amounts
having a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
-6-
The Company's European and Canadian production facilities operate in an
environmental regulatory framework in which governmental authorities typically
are granted broad discretionary powers which allow them to issue operating
permits required for the plants to operate. The Company believes that all its
plants are in substantial compliance with applicable environmental laws.
While the laws regulating operations of industrial facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European Union (the "EU"). Germany and Belgium are members of the EU and follow
its initiatives. Norway, although not a member, generally patterns its
environmental regulatory actions after the EU. The Company believes that Kronos
is in substantial compliance with agreements reached with European regulatory
authorities and with an EU directive to control the effluents produced by TiO2
production facilities.
The Company has a contract with a third party to treat certain effluents
of its German sulfate-process plants. Either party may terminate the contract
after giving four years advance notice with regard to its Nordenham, Germany
plant. Under certain circumstances, Kronos may terminate the contract after
giving six months notice with respect to treatment of effluents from the
Leverkusen, Germany plant.
The Company completed in 2000 an $8 million landfill expansion for its
Belgian plant which is expected to provide the plant with twenty years of
storage space for neutralized chloride-process solids.
The Company's capital expenditures related to its ongoing environmental
protection and improvement programs are currently expected to be approximately
$6 million in 2001 and $5 million in 2002.
The Company has been named as a defendant, potentially responsible party
("PRP"), or both, pursuant to CERCLA and similar state laws in approximately 75
governmental and private actions associated with waste disposal sites, mining
locations and facilities currently or previously owned, operated or used by the
Company, or its subsidiaries, or their predecessors, certain of which are on the
U.S. Environmental Protection Agency's ("U.S. EPA") Superfund National
Priorities List or similar state lists. See Item 3. "Legal Proceedings."
Principal Shareholders
At December 31, 2000, Valhi, Inc. and Tremont Corporation, each
affiliates of Contran Corporation, held approximately 60% and 20%, respectively,
of NL's outstanding common stock. At December 31, 2000, Contran and its
subsidiaries held approximately 93% of Valhi's outstanding common stock, and a
subsidiary of Valhi and 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 the 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.
ITEM 2. PROPERTIES
Kronos currently operates four TiO2 facilities in Europe (Leverkusen and
Nordenham, Germany; Langerbrugge, Belgium; and Fredrikstad, Norway). In North
America, Kronos has a facility in Varennes, Quebec, Canada and, through the
manufacturing joint venture described above, a one-half interest in a plant in
Lake Charles, Louisiana. The Company also owns a slurry plant in Lake Charles,
Louisiana. The
-7-
Company's Fredrikstad TiO2 plant has a lien on it that secures a claim by
Norwegian tax authorities, pending resolution of certain tax litigation. See
Notes 9 and 12 to the Consolidated Financial Statements.
Kronos' principal German operating subsidiary leases the land under its
Leverkusen TiO2 production facility pursuant to a lease expiring in 2050. The
Leverkusen facility, with about one-third of Kronos' current TiO2 production
capacity, is located within an extensive manufacturing complex owned by Bayer
AG. Kronos is the only unrelated party so situated. Under a separate supplies
and services agreement expiring in 2011, Bayer provides some raw materials,
auxiliary and operating materials and utilities services necessary to operate
the Leverkusen facility. Both the lease and the supplies and services agreement
have certain restrictions regarding Kronos' ability to transfer ownership or use
of the Leverkusen facility.
All of Kronos' principal production facilities described above are
owned, except for the land under the Leverkusen facility. Kronos has a
governmental concession with an unlimited term to operate its ilmenite mine in
Norway.
The Company has under lease various corporate and administrative offices
located in the U.S. and various sales offices located in the U.S., France, the
Netherlands, Denmark and the U.K.
ITEM 3. LEGAL PROCEEDINGS
Lead pigment litigation
The Company was formerly involved in the manufacture of lead pigments
for use in paint and lead-based paint. The Company has been named as a defendant
or third party defendant in various legal proceedings alleging that the Company
and other manufacturers are responsible for personal injury, property damage and
governmental expenditures allegedly associated with the use of lead pigments.
The Company is vigorously defending such litigation. Considering the Company's
previous involvement in the lead pigment and lead-based paint businesses, there
can be no assurance that additional litigation, similar to that described below,
will not be filed. In this regard, the Company is aware that the City Council of
the City of Milwaukee, Wisconsin has authorized the filing of litigation against
former lead pigment manufacturers. While the suit has not yet been filed, the
Company believes that the suit may seek to recover costs associated with
diagnosing and treating children who have been exposed to lead-based paint and
the cost of abating lead-based paint in the City's public housing. In addition,
it is possible that other governmental entities may take similar action in the
future.
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. While no legislation or
regulations have been enacted to date which are expected to have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity, the imposition of market share liability or other
legislation could have such an effect.
-8-
The Company has not accrued any amounts for the pending lead pigment and
lead-based paint litigation. 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
lead-based paint litigation is without merit. Liability that may result, if any,
cannot reasonably be estimated.
In 1989 and 1990 the Housing Authority of New Orleans ("HANO") filed
third-party complaints for indemnity and/or contribution against the Company,
other alleged manufacturers of lead pigment (together with the Company, the
"pigment manufacturers") and the Lead Industries Association (the "LIA") in 14
actions commenced by residents of HANO units seeking compensatory and punitive
damages for injuries allegedly caused by lead pigment. The actions, which were
pending in the Civil District Court for the Parish of Orleans, State of
Louisiana, were dismissed by the district court in 1990. Subsequently, HANO
agreed to consolidate all the cases and appealed. In March 1992 the Louisiana
Court of Appeals, Fourth Circuit, dismissed HANO's appeal as untimely with
respect to three of these cases. With respect to the other cases included in the
appeal, the court of appeals reversed the lower court decision dismissing the
cases. These cases were remanded to the District Court for further proceedings.
In November 1994 the District Court granted defendants' motion for summary
judgment in one of the remaining cases and in June 1995 the District Court
granted defendants' motion for summary judgment in several of the remaining
cases. After such grant, only two cases remain pending and have been inactive
since 1992, Hall v. HANO, et al. (No. 89-3552) and Allen v. HANO, et al. (No.
89-427) Civil District Court for the Parish of Orleans, State of Louisiana.
In June 1989 a complaint was filed in the Supreme Court of the State of
New York, County of New York, against the pigment manufacturers and the LIA.
Plaintiffs seek damages, contribution and/or indemnity in an amount in excess of
$50 million for monitoring and abating alleged lead paint hazards in public and
private residential buildings, diagnosing and treating children allegedly
exposed to lead paint in city buildings, the costs of educating city residents
to the hazards of lead paint, and liability in personal injury actions against
the City and the Housing Authority based on alleged lead poisoning of city
residents (The City of New York, the New York City Housing Authority and the New
York City Health and Hospitals Corp. v. Lead Industries Association, Inc., et
al., No. 89-4617). In December 1991 the court granted the defendants' motion to
dismiss claims alleging negligence and strict liability and denied the remainder
of the motion. In January 1992 defendants appealed the denial. In May 1993 the
Appellate Division of the Supreme Court affirmed the denial of the motion to
dismiss plaintiffs' fraud, restitution and indemnification claims. In May 1994
the trial court granted the defendants' motion to dismiss the plaintiffs'
restitution and indemnification claims, and plaintiffs appealed. In June 1996
the Appellate Division reversed the trial court's dismissal of plaintiffs'
restitution and indemnification claims, reinstating those claims. In December
1998 plaintiffs moved for partial summary judgment on their claims of market
share, alternative liability, enterprise liability, and concert of action. In
February 1999 plaintiffs New York City and New York City Health and Hospital
Corporation dismissed with prejudice all their claims and were no longer parties
to the case. Also in February 1999 the New York City Housing Authority dismissed
with prejudice all of its claims except for claims for damages relating to two
housing projects. In September 1999 the trial court denied the plaintiffs'
motions for summary judgment on market share and conspiracy issues and denied
defendants' April 1999 motion for summary judgment on statute of limitations
grounds. In September 2000 the First Department denied plaintiffs' appeal of the
trial court's denial of plaintiffs' motion for summary judgment on the market
share issue. Discovery is proceeding.
-9-
In August 1992 the Company was served with an amended complaint in
Jackson, et al. v. The Glidden Co., et al., Court of Common Pleas, Cuyahoga
County, Cleveland, Ohio (Case No. 236835). Plaintiffs seek compensatory and
punitive damages for personal injury caused by the ingestion of lead, and an
order directing defendants to abate lead-based paint in buildings. Plaintiffs
purport to represent a class of similarly situated persons throughout the State
of Ohio. The amended complaint asserts causes of action under theories of strict
liability, negligence per se, negligence, breach of express and implied
warranty, fraud, nuisance, restitution, and negligent infliction of emotional
distress. The complaint asserts several theories of liability including joint
and several, market share, enterprise and alternative liability. Plaintiffs
moved for class certification in October 1998, and all briefing on the issue was
completed in April 1999. No decision regarding class certification has been
issued by the trial court.
In November 1993 the Company was served with a complaint in Brenner, et
al. v. American Cyanamid, et al., (No. 12596-93) Supreme Court, State of New
York, Erie County alleging injuries to two children purportedly caused by lead
pigment. The complaint seeks $24 million in compensatory and $10 million in
punitive damages for alleged negligent failure to warn, strict liability, fraud
and misrepresentation, concert of action, civil conspiracy, enterprise
liability, market share liability, and alternative liability. In June 1998
defendants moved for partial summary judgment dismissing plaintiffs' market
share and alternative liability claims. In January 1999 the trial court granted
defendants' summary judgment motion to dismiss the alternative liability and
enterprise liability claims, but denied defendants' motion to dismiss the market
share liability claim. In May 1999 defendants appealed the denial of their
motion to dismiss the market share liability claim. The Fourth Department
intermediate appellate court in December 1999 reversed the trial court and
dismissed the market share claim. The case was remanded to the trial court for
further proceedings on the remaining claims and in June 2000 the trial court
dismissed all remaining claims. Plaintiffs have filed a notice of appeal.
In April 1997 the Company was served with a complaint in Parker v. NL
Industries, et al. (Circuit Court, Baltimore City, Maryland, No. 97085060
CC915). Plaintiff, now an adult, and his wife, seek compensatory and punitive
damages from the Company, another former manufacturer of lead paint and a local
paint retailer, based on claims of negligence, strict liability and fraud, for
plaintiff's alleged ingestion of lead paint as a child. In February 1998 the
Court dismissed the fraud claim. In June 2000, following a two-week trial, the
jury returned a verdict for the Company. Plaintiffs have abandoned their appeal.
In December 1998 the Company was served with a complaint on behalf of
four children and their guardians in Sabater, et al. v. Lead Industries
Association, et al. (Supreme Court of the State of New York, County of Bronx,
Index No. 25533/98). Plaintiffs purport to represent a class of all children and
mothers similarly situated in New York City. The complaint alleges against the
Company, the LIA, and other former manufacturers of lead pigment various causes
of action including negligence, strict products liability, fraud and
misrepresentation, concert of action, civil conspiracy, enterprise liability,
market share liability, breach of warranties, nuisance, and violation of New
York State's consumer protection act. The complaint seeks damages for
establishment of property abatement and medical monitoring funds and
compensatory damages for alleged injuries to plaintiffs. In February 2000 the
trial court granted defendants' motions to dismiss the product defect, express
warranty, nuisance and consumer fraud statute claims. In October 2000 defendants
filed a third-party complaint against the Federal Home Loan Mortgage Corporation
(FHLMC), and FHLMC removed the case to federal court in the Southern District of
New York and moved to dismiss the claims. Plaintiffs have moved to remand the
case to state court.
-10-
In September 1999 an amended complaint was filed in Thomas v. Lead
Industries Association, et al. (Circuit Court, Milwaukee, Wisconsin, Case No.
99-CV-6411) adding as defendants the Company and seven other companies alleged
to have manufactured lead products in paint to a suit originally filed against
plaintiff's landlords. Plaintiff, a minor, alleges injuries purportedly caused
by lead on the surfaces of premises in homes in which he resided. Plaintiff
seeks compensatory and punitive damages. Plaintiff alleges strict liability,
negligence, negligent misrepresentation and omissions, fraudulent
misrepresentations and omissions, concert of action, civil conspiracy, and
enterprise liability causes of action against the Company, seven other alleged
former manufacturers of lead products contained in paint, and the LIA. In
January 2000 the Company filed an answer denying all wrongdoing and liability.
In June 2000 the trial court granted defendants' January 2000 motion to dismiss
the product defect and Wisconsin consumer protection statute claims. Discovery
is proceeding.
In October 1999 the Company was served with a complaint in State of
Rhode Island v. Lead Industries Association, et al. (Superior Court of Rhode
Island, No. 99-5226). Rhode Island, by and through its Attorney General, seeks
compensatory and punitive damages for medical, school, and public and private
building abatement expenses that the State alleges were caused by lead paint,
and for funding of a public education campaign and screening programs. Plaintiff
seeks judgments of joint and several liability against the Company, seven other
companies alleged to have manufactured lead products in paint, and the LIA.
Plaintiffs allege public nuisance, violation of the Rhode Island Unfair Trade
Practices and Consumer Protection Act, strict liability, negligence, negligent
misrepresentation and omissions, fraudulent misrepresentation and omissions,
civil conspiracy, unjust enrichment, indemnity, and equitable relief to protect
children. In January 2000 defendants moved to dismiss all claims. The court has
not ruled.
In October 1999 the Company was served with a complaint in Cofield, et
al. v. Lead Industries Association, et al. (Circuit Court for Baltimore City,
Maryland, Case No. 24-C-99-004491). Plaintiffs, six homeowners, seek to
represent a class of all owners of nonrental residential properties in Maryland.
Plaintiffs seek compensatory and punitive damages for the existence of
lead-based paint in their homes, including funds for monitoring, detecting and
abating lead-based paint in those residences. Plaintiffs allege that the
Company, fourteen other companies alleged to have manufactured lead pigment,
paint and/or gasoline additives, the LIA, and the National Paint and Coatings
Association are jointly and severally liable for alleged negligent product
design, negligent failure to warn, supplier negligence, strict
liability/defective design, strict liability/failure to warn, nuisance,
indemnification, fraud and deceit, conspiracy, concert of action, aiding and
abetting, and enterprise liability. Plaintiffs seek damages in excess of $20,000
per household. In October 1999 defendants removed the case to Maryland federal
court. In February 2000 defendants moved to dismiss the design defect, fraud and
deceit, indemnification and nuisance claims. In March 2000 the Federal trial
court (No. MJG-99-3277) denied plaintiffs' motion to remand to State Court. In
April 2000 defendants filed an additional motion to dismiss all claims for lack
of product identification. In August 2000 the federal court dismissed the fraud
and deceit, indemnification, and nuisance claims, and remanded the case to
Maryland state court. In August 2000 plaintiffs also filed a third amended
complaint, with the case renamed Young, et al. v. Lead Industries, Association,
et al.. In November 2000 defendants filed motions to dismiss all remaining
claims except conspiracy and aiding and abetting. The court has not ruled. Class
discovery is proceeding.
In October 1999 the Company was served with a complaint in Smith, et al.
v. Lead Industries Association, et al. (Circuit Court for Baltimore City,
Maryland, Case No. 24-C-99-004490). Plaintiffs, six minors, each seek
compensatory damages of $5 million and punitive damages of $10 million.
Plaintiffs allege that the Company, fourteen other companies alleged to have
manufactured lead pigment, paint and/or
-11-
gasoline additives, the LIA, and the National Paint and Coatings Association are
jointly and severally liable for alleged negligent product design, negligent
failure to warn, supplier negligence, fraud and deceit, conspiracy, concert of
action, aiding and abetting, strict liability/ failure to warn, and strict
liability/defective design. In October 1999 defendants removed the case to
Maryland federal court and in November 1999 the case was remanded to state
court. In February 2000 the Company answered the complaint and denied all
wrongdoing and liability, and all defendants filed motions to dismiss the
product defect and fraud and deceit claims. In June 2000 defendants moved to
dismiss all claims for lack of product identification. The court has not ruled.
In February 2000 the Company was served with a complaint in City of St.
Louis v. Lead Industries Association, et al. (Missouri Circuit Court 22nd
Judicial Circuit, St. Louis City, Cause No. 002-245, Division 1). The City of
St. Louis seeks compensatory and punitive damages for its expenses discovering
and abating lead, detecting lead poisoning and providing medical care,
educational programs for City residents, and the costs of educating children
suffering injuries due to lead exposure. Plaintiff seeks judgments of joint and
several liability against the Company, eight other companies alleged to have
manufactured lead products for paint, and the LIA. Plaintiff alleges claims of
public nuisance, product liability, negligence, negligent misrepresentation,
fraudulent misrepresentation, civil conspiracy, unjust enrichment, and
indemnity. In March 2000 defendants removed the case to Missouri federal court.
In April 2000 plaintiff filed a motion to remand to State Court and an amended
complaint seeking to add additional Missouri defendant residents. In May 2000
defendants moved to dismiss all claims. The court has not ruled.
In April 2000 the Company was served with a complaint in County of Santa
Clara v. Atlantic Richfield Company, et al. (Superior Court of the State of
California, County of Santa Clara, Case No. CV788657). The County of Santa Clara
seeks to represent a class of California governmental entities (other than the
state and its agencies). The County seeks from defendants, eight present or
former pigment or paint manufacturing companies and the LIA, compensatory
damages for funds the plaintiffs have expended for medical treatment,
educational expenses, abatement or other costs due to exposure to, or potential
exposure to, lead paint, disgorgement of profit, and punitive damages. Plaintiff
alleges causes of action for violations of the California Business and
Professions Code, strict product liability, negligence, fraud and concealment,
unjust enrichment, and indemnity, and includes market share liability
allegations. Defendants filed demurrers to the original complaint in August 2000
and to the first amended complaint in October 2000. In December 2000 the Court
dismissed all claims except the claim for fraud, but granted plaintiffs leave to
amend. The plaintiffs filed a second amended complaint in January 2001 that
included as plaintiffs: Santa Cruz, Solano, Alameda, San Francisco, and Kern
counties; the cities of San Francisco and Oakland; the Oakland and San Francisco
unified school districts and housing authorities; and the Oakland Redevelopment
Agency. The second amended complaint omits indemnification and unjust enrichment
claims, but adds public and private nuisance claims.
In June 2000 two complaints were filed in Texas state court, Spring
Branch Independent School District v. Lead Industries Association, et al.
(District Court of Harris County, Texas, No. 2000-31175), and Houston
Independent School District v. Lead Industries Association, et al. (District
Court of Harris County, Texas, No. 2000-33725). The School Districts seek past
and future damages and exemplary damages for costs they have allegedly incurred
due to the presence of lead-based paint in their buildings from the Company, the
LIA and seven other companies sued as former manufacturers of lead-based paint.
Plaintiffs allege claims for design defect and marketing defect, negligent
product design and failure to warn, fraudulent misrepresentation, negligent
misrepresentation, concert of action, conspiracy, and indemnity. In October
-12-
2000 the Company filed answers in both cases denying all allegations of
wrongdoing and liability. Discovery is proceeding.
In June 2000 a complaint was filed in Illinois state court, Lewis, et
al. v. Lead Industries Association, et al. (Circuit Court of Cook County,
Illinois, County Department, Chancery Division, Case No. 00CH09800). Plaintiffs
seek to represent two classes, one of all minors between ages six months and six
years who resided in housing in Illinois built before 1978, and one of all
individuals between ages six and twenty years who lived between ages six months
and six years in Illinois housing built before 1978 and had blood lead levels of
10 micrograms/deciliter or more. The complaint seeks a medical screening fund
for the first class to determine blood lead levels, a medical monitoring fund
for the second class to detect the onset of latent diseases, and a fund for a
public education campaign. The complaint seeks to hold jointly and severally
liable the Company, the LIA, and seven other companies sued as former
manufacturers of lead pigment and/or lead paint. Plaintiffs allege claims for
negligent product design, negligent failure to warn, strict products liability,
violation of the Illinois Consumer Fraud Act, fraud by omission, market share
liability, civil conspiracy, concert of action, enterprise liability and
alternative liability. In October 2000 defendants moved to dismiss all claims.
In November 2000 plaintiffs moved to amend the complaint. Plaintiffs filed an
amended complaint in January 2001.
In October 2000 the Company was served with a complaint filed in
California state court. Justice, et al. v. Sherwin-Williams Company, et al.
(Superior Court of California, County of San Francisco, No. 314686). Plaintiffs
are two minors who seek general, special and punitive damages for injuries
alleged to be due to ingestion of paint containing lead in their residence.
Defendants are the Company, the LIA, and nine other companies sued as former
manufacturers of lead paint. Plaintiffs allege claims for negligence, strict
products liability, concert of action, market share liability, and intentional
tort. The Company answered the complaint in December 2000 denying all
allegations of wrongdoing and liability.
In January 2001 the Company was served with a complaint in Gaines, et
al., v. The Sherwin-Williams Company, et al. (Circuit Court of Jefferson County,
Mississippi, Civil Action No. 2000-0604). The complaint seeks joint and several
liability for compensatory and punitive damages from the Company, Sherwin-
Williams, and four local retailers on behalf of a minor and his mother alleging
injuries due to lead pigment and/or paint. The complaint alleges strict
liability, negligence, and fraudulent concealment and misrepresentation claims.
In February 2001 the Company removed the case to federal court. In March 2001
the Company moved to dismiss the negligence and fraudulent concealment and
misrepresentation claims.
In February 2001 the Company was served with a complaint in Borden, et
al. v. The Sherwin-Williams Company, et al. (Circuit Court of Jefferson County,
Mississippi, Civil Action No. 2000-587). The complaint seeks joint and several
liability for compensatory and punitive damages from more than 40 manufacturers
and retailers of lead pigment and/or paint, including the Company, on behalf of
18 adult residents of Mississippi who were allegedly exposed to lead during
their employment in construction and repair activities. The complaint asserts
strict liability, negligence, fraudulent concealment and misrepresentation, and
medical monitoring claims. The Company intends to deny all allegations of
wrongdoing and liability.
The Company believes that the foregoing lead pigment actions are without
merit and intends to continue to deny all allegations of wrongdoing and
liability and to defend such actions vigorously.
-13-
The Company has filed actions seeking declaratory judgment and other
relief against various insurance carriers with respect to costs of defense and
indemnity coverage for certain of its environmental and lead pigment litigation.
NL Industries, Inc. v. Commercial Union Insurance Cos., et al., Nos. 90-2124,
- -2125 (HLS) (District Court of New Jersey). The action relating to lead pigment
litigation defense costs filed in May 1990 against Commercial Union Insurance
Company ("Commercial Union") sought to recover defense costs incurred in the
City of New York lead pigment case and two other lead pigment cases which have
since been resolved in the Company's favor. The action relating to lead paint
litigation defense costs has been settled. The Company has also settled
insurance coverage claims concerning environmental claims with certain of the
defendants in the New Jersey environmental coverage litigation, including the
Company's principal former carriers, as more fully described below. The settled
claims are to be dismissed from the New Jersey litigation in accordance with the
terms of the settlement agreements. The Company also continues to negotiate with
several other insurance carriers with respect to possible settlement of claims
that are being asserted in the New Jersey environmental litigation, although
there can be no assurance that settlement agreements can be reached with these
other carriers. No further material settlements relating to litigation
concerning environmental remediation coverage are expected.
Other than granting motions for summary judgment brought by two excess
liability insurance carriers, which contended that their policies contained
absolute pollution exclusion language, and certain summary judgment motions
regarding policy periods and ruling regarding choice of law issues, the Court
has not made any final rulings on defense costs or indemnity coverage with
respect to the Company's pending environmental litigation. Nor has the Court
made any final ruling on indemnity coverage in the lead pigment litigation. No
trial dates have been set. Other than rulings to date, the issue of whether
insurance coverage for defense costs or indemnity or both will be found to exist
depends upon a variety of factors, and there can be no assurance that such
insurance coverage will exist in other cases. The Company has not considered any
potential insurance recoveries for lead pigment or environmental litigation in
determining related accruals.
Environmental matters and litigation
The Company has been named as a defendant, PRP, or both, pursuant to
CERCLA and similar state laws in approximately 75 governmental and private
actions associated with waste disposal sites, mining locations and facilities
currently or previously owned, operated or used by the Company, or its
subsidiaries, or their predecessors, certain of which are on the U.S. EPA's
Superfund National Priorities List or similar state lists. These proceedings
seek cleanup costs, damages for personal injury or property damage, and/or
damages for injury to natural resources. Certain of these proceedings involve
claims for substantial amounts. Although the Company may be jointly and
severally liable for such costs, in most cases it is only one of a number of
PRPs who may also be jointly and severally liable.
The extent of CERCLA liability cannot accurately be determined until the
Remedial Investigation and Feasibility Study ("RIFS") is complete, the U.S. EPA
issues a record of decision and costs are allocated among PRPs. The extent of
liability under analogous state cleanup statutes and for common law equivalents
are subject to similar uncertainties. The Company believes it has provided
adequate accruals for reasonably estimable costs for CERCLA matters and other
environmental liabilities. At December 31, 2000, the Company had accrued $110
million for those environmental matters which are reasonably estimable. The
Company determines the amount of accrual on a quarterly basis by analyzing and
estimating the range of possible costs to the Company. Such costs include, among
other things, expenditures for remedial investigations, monitoring, managing,
studies, certain legal fees, cleanup, removal and remediation. It is
-14-
not possible to estimate the range of costs for certain sites. The Company has
estimated that 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 estimate of such liability has not been discounted
to present value and the Company has not reduced its accruals for any potential
insurance recoveries. No assurance can be given that actual costs will not
exceed either accrued amounts or the upper end of the range for sites for which
estimates have been made, and no assurance can be given that costs will not be
incurred with respect to sites as to which no estimate presently can be made.
The imposition of more stringent standards or requirements under environmental
laws or regulations, new developments or changes with respect to site cleanup
costs or allocation of such costs among PRPs, or a determination that 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. More detailed descriptions of certain legal proceedings relating to
environmental matters are set forth below.
In June 2000 the Company recognized a $43 million net gain from a
settlement with one of the two principal former insurance carriers, and in
December 2000 the Company recognized a $26.5 million net gain from a settlement
with certain members of the other principal former insurance carrier. The
settlement gains are stated net of $3.1 million in commissions, and the gross
settlement proceeds of $72.6 million were transferred by the carriers to special
purpose trusts established to pay future remediation and other environmental
expenditures of the Company. A settlement with remaining members of the second
carrier group was reached in January 2001, and the Company expects to recognize
a $10 million gain in the first quarter of 2001. The settlements resolved court
proceedings that the Company initiated to seek reimbursement for legal defense
expenditures and indemnity coverage for certain of its environmental remediation
expenditures.
In July 1991 the United States filed an action in the U.S. District
Court for the Southern District of Illinois against the Company and others
(United States of America v. NL Industries, Inc., et al., Civ. No. 91-CV 00578)
with respect to the Granite City, Illinois lead smelter formerly owned by the
Company. The complaint seeks injunctive relief to compel the defendants to
comply with an administrative order issued pursuant to CERCLA, and fines and
treble damages for the alleged failure to comply with the order. The Company and
the other parties did not implement the order, believing that the remedy
selected by the U.S. EPA was invalid, arbitrary, capricious and was not selected
in accordance with law. The complaint also seeks recovery of past costs and a
declaration that the defendants are liable for future costs. Although the action
was filed against the Company and ten other defendants, there are 330 other PRPs
who have been notified by the U.S. EPA. Some of those notified were also
respondents to the administrative order. In September 1995 the U.S. EPA released
its amended decision selecting cleanup remedies for the Granite City site. In
September 1997 the U.S. EPA informed the Company that past and future cleanup
costs are estimated to total approximately $63.5 million. In 1999 the U.S. EPA
and certain other PRPs entered into a consent decree settling their liability at
the site for approximately 50% of the site costs. The Company and the U.S. EPA
reached an agreement in principle in 1999 to settle the Company's liability at
the site for $31.5 million. The Company and the U.S. EPA are negotiating a
consent decree embodying the terms of this agreement in principle.
The Company reached an agreement in 1999 with the other PRPs at a
formerly owned lead smelter site in Pedricktown, New Jersey to settle the
Company's liability for $6 million, of which $3.2 million has been paid as of
December 31, 2000. The settlement does not resolve issues regarding the
Company's potential liability in the event site costs exceed $21 million. The
Company does not presently expect site costs to exceed such amount and has not
provided accruals for such contingency.
-15-
In 1998 the Company reached an agreement to settle litigation with the
other PRPs at a lead smelter site in Portland, Oregon that was formerly owned by
the Company. Under the agreement, the Company agreed to pay a portion of future
cleanup costs. In 2000 the construction of the remediation was completed and is
now in the operation and maintenance phase.
In 2000 the Company reached an agreement with the other PRPs at the
Baxter Springs subsite in Cherokee County, Kansas, to resolve the Company's
liability. The Company and others formerly mined lead and zinc in the Baxter
Springs subsite. Under the agreement, the Company agreed to pay a portion of the
cleanup costs associated with the Baxter Springs subsite. The U.S. EPA has
estimated the total cleanup costs in the Baxter Springs subsite to be $5.4
million. The remedial design phase of the cleanup is underway.
In 1996 the U.S. EPA ordered the Company to perform a removal action at
a formerly owned facility in Chicago, Illinois. The Company has complied with
the order and has completed the on-site work at the facility. The Company is
conducting an investigation regarding potential offsite contamination.
Residents in the vicinity of the Company's former Philadelphia lead
chemicals plant commenced a class action allegedly comprised of over 7,500
individuals seeking medical monitoring and damages allegedly caused by emissions
from the plant. Wagner, et al. v. Anzon, Inc. and NL Industries, Inc., No. 87-
4420, Court of Common Pleas, Philadelphia County. The complaint sought
compensatory and punitive damages from the Company and the current owner of the
plant, and alleged causes of action for, among other things, negligence, strict
liability, and nuisance. A class was certified to include persons who resided,
owned or rented property, or who work or have worked within up to approximately
three-quarters of a mile from the plant from 1960 through the present. The
Company answered the complaint, denying liability. In December 1994 the jury
returned a verdict in favor of the Company. Plaintiffs appealed to the
Pennsylvania Superior Court and in September 1996 the Superior Court affirmed
the judgment in favor of the Company. In December 1996 plaintiffs filed a
petition for allowance of appeal to the Pennsylvania Supreme Court, which was
declined. Residents also filed consolidated actions in the United States
District Court for the Eastern District of Pennsylvania, Shinozaki v. Anzon,
Inc. and Wagner and Antczak v. Anzon and NL Industries, Inc. Nos. 87-3441,
87-3502, 87-4137 and 87-5150. The consolidated action is a putative class action
seeking CERCLA response costs, including cleanup and medical monitoring,
declaratory and injunctive relief and civil penalties for alleged violations of
the RCRA, and also asserting pendent common law claims for strict liability,
trespass, nuisance and punitive damages. The court dismissed the common law
claims without prejudice, dismissed two of the three RCRA claims as against the
Company with prejudice, and stayed the case pending the outcome of the state
court litigation.
In 2000 the Company reached an agreement with the other PRPs at the
Batavia Landfill Superfund Site in Batavia, New York to resolve the Company's
liability. The Batavia Landfill is a former industrial waste disposal site.
Under the agreement, the Company agreed to pay 40% of the future remedial
construction costs, which the U.S. EPA has estimated to be approximately $11
million. Under the settlement, the Company is not responsible for costs
associated with the operation and maintenance of the remedy. In connection with
the settlement, the U.S. EPA waived approximately $4 million in past response
costs. In addition, the Company received approximately $2 million from settling
PRPs. The remedial design phase of the remedy is underway.
In October 2000 the Company was served with a complaint in Pulliam, et
al. v. NL Industries, Inc., et al., No. 49DO20010CT001423, filed in superior
court in Marion County, Indiana, on behalf of an alleged
-16-
class of all persons and entities who own or have owned property or have resided
within a one-mile radius of an industrial facility formerly owned by the Company
in Indianapolis, Indiana. Plaintiffs allege that they and their property have
been injured by lead dust and particulates from the facility and seek
unspecified actual and punitive damages and a removal of all alleged lead
contamination. In December 2000 the Company filed an answer denying all
allegations of wrongdoing and liability. Discovery is proceeding.
See Item 1. "Business - Regulatory and Environmental Matters."
Other litigation
The Company has been named as a defendant in various lawsuits in a
variety of jurisdictions alleging personal injuries as a result of occupational
exposure to asbestos, silica and/or mixed dust in connection with formerly owned
operations. Various of these actions remain pending, including the following
matters.
In March 1997 the Company was served with a complaint in Ernest Hughes,
et al. v. Owens-Corning Fiberglass, Corporation, et al., No. 97-C-051, filed in
the Fifth Judicial District Court of Cass County, Texas, on behalf of
approximately 4,000 plaintiffs and their spouses alleging injury due to exposure
to asbestos and seeking compensatory and punitive damages. The Company has filed
an answer denying the material allegations. The case has been inactive since
1998.
In February 1999 and October 2000 the Company was served with complaints
in Cosey, et al. v. Bullard, et al., No. 95-0069, and Pierce, et al. v. GAF, et
al., No. 2006-150, filed in the Circuit Court of Jefferson County, Mississippi,
on behalf of approximately 1,600 plaintiffs and 275 plaintiffs, respectively,
alleging injury due to exposure to asbestos and/or silica and seeking
compensatory and punitive damages. The Cosey case was removed to federal court
and has been transferred to the eastern district of Pennsylvania for
consolidated proceedings. The Company has filed answers in both cases denying
the material allegations of the complaint.
In addition, the Company is a defendant in various asbestos cases
pending in Ohio, Indiana and West Virginia on behalf of approximately 4,600
personal injury claimants.
In August and September 2000 the Company and one of its subsidiaries,
NLO, Inc. ("NLO"), were named as defendants in four lawsuits filed in federal
court in the western district of Kentucky against the Department of Energy
("DOE") and a number of other defendants alleging that nuclear material supplied
by, among others, the Feed Material Production Center ("FMPC") in Fernald, Ohio,
owned by the DOE and formerly managed under contract by NLO, harmed employees
and others at the DOE's Paducah, Kentucky Gaseous Diffusion Plant ("PGDP"). With
respect to each of the cases listed below, the Company believes that the DOE is
obligated to provide defense and indemnification pursuant to its contract with
NLO, and pursuant to its statutory obligation to do so, as the DOE has in
several previous cases relating to management of the FMPC, and the Company has
so advised the DOE. Answers in the four cases have not been filed. The Company
and NLO have moved to dismiss Rainer I. The Company and NLO intend to deny all
allegations of wrongdoing and liability and to defend the cases vigorously.
* In Rainer, et al. v. E.I. du Pont de Nemours, et al., ("Rainer I") No.
5:00CV-223-J, plaintiffs purport to represent a class of former
employees at the PGDP and members of their households and seek
-17-
actual and punitive damages of $5 billion each for alleged negligence,
infliction of emotional distress, ultra-hazardous activity/strict
liability and strict products liability.
* In Rainer, et al. v. Bill Richardson, et al., No. 5:00CV-220-J,
plaintiffs purport to represent the same classes regarding the same
matters alleged in Rainer I, and allege a violation of constitutional
rights and seek the same recovery sought in Rainer I.
* In Dew, et al. v. Bill Richardson, et al., No. 5:00CV00221R,
plaintiffs purport to represent classes of all PGDP employees who
sustained pituitary tumors or cancer as a result of exposure to
radiation and seek actual and punitive damages of $2 billion each for
alleged violation of constitutional rights, assault and battery, fraud
and misrepresentation, infliction of emotional distress, negligence,
ultra-hazardous activity/strict liability, strict products liability,
conspiracy, concert of action, joint venture and enterprise liability,
and equitable estoppel.
* In Shaffer, et al. v. Atomic Energy Commission, et al., No.
5:00CV00307M, plaintiffs purport to represent classes of PGDP
employees and household members, subcontractors at PGDP, and
landowners near the PGDP and seek actual and punitive damages of $1
billion each and medical monitoring for the same counts alleged in
Dew.
The Company is also involved in various other environmental,
contractual, product liability and other claims and disputes incidental to its
present and former businesses, and the disposition of past properties and former
businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 2000.
-18-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
NL's common stock is listed and traded on the New York Stock Exchange
and the Pacific Exchange under the symbol "NL." As of March 9, 2001, there were
approximately 6,000 holders of record of NL common stock. The following table
sets forth the high and low sales prices for NL common stock on the New York
Stock Exchange ("NYSE") Composite Tape. On March 9, 2001, the closing price of
NL common stock according to the NYSE Composite Tape was $19.63.
Dividends
High Low Declared
--------- ---------- ----------
Year ended December 31, 1999:
First quarter $14-15/16 $ 8-3/4 $ .035
Second quarter 13-9/16 9-1/16 .035
Third quarter 13-5/16 11-1/8 .035
Fourth quarter 15-7/16 9-3/4 .035
Year ended December 31, 2000:
First quarter $ 16-3/8 $ 13 $ .15
Second quarter 19 13-1/8 .15
Third quarter 24-3/8 15-1/2 .15
Fourth quarter 25 18-15/16 .20
The Company's indenture to its Senior Notes limits the ability of the
Company to pay dividends, acquire treasury shares and make other restricted
payments, as defined. The aggregate amount of dividends and other restricted
payments since October 1993 may not exceed 50% of the aggregate consolidated net
income, as defined in the indenture, since October 1993. At December 31, 2000,
$20 million was available for restricted payments including dividends,
acquisition of treasury shares and affiliate stock purchases.
In October 2000 the Company increased the regular quarterly dividend to
$.20 per share and subsequently paid a $.20 per share cash dividend in the
fourth quarter of 2000. On February 7, 2001, the Company's Board of Directors
declared a regular quarterly dividend of $.20 per share to shareholders of
record as of March 14, 2001 to be paid on March 28, 2001. The declaration and
payment of future dividends is discretionary, and the amount, if any, will be
dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Company's
Board of Directors.
Pursuant to its share repurchase program, the Company purchased
1,682,000 shares of its common stock at an aggregate cost of $30.9 million in
2000 and 552,000 shares of its common stock in the open market at an aggregate
cost of $7.2 million in 1999. Approximately 766,000 additional shares are
available for purchase under the Company's share repurchase program. The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.
-19-
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read
in conjunction with the Consolidated Financial Statements and Notes thereto, and
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Certain amounts have been reclassified to conform with the
current year's consolidated financial statement presentation.
Years ended December 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(In millions, except per share amounts)
INCOME STATEMENT DATA:
Net sales .................................... $ 922.3 $ 908.4 $ 894.7 $ 837.2 $ 851.2
Operating income ............................. 212.5 145.7 171.2 82.5 71.6
Income (loss) from continuing operations ..... 155.3 159.8 89.9 (29.9) (11.7)
Net income (loss) ............................ 154.6 159.8 366.7 (9.5) 10.8
Earnings per share:
Basic:
Income (loss) from continuing operations . $ 3.08 $ 3.09 $ 1.75 $ (.58) $ (.23)
Net income (loss) ........................ 3.07 3.09 7.13 (.19) .21
Diluted:
Income (loss) from continuing operations . $ 3.06 $ 3.08 $ 1.73 $ (.58) $ (.23)
Net income (loss) ........................ 3.05 3.08 7.05 (.19) .21
Cash dividends ............................... $ .65 $ .14 $ .09 $ -- $ .30
BALANCE SHEET DATA at year end:
Cash, cash equivalents, current marketable
securities, current and noncurrent restricted
cash equivalents ............................ $ 207.6 $ 151.8 $ 163.1 $ 106.1 $ 114.1
Current assets ............................... 553.8 506.4 546.8 454.9 500.2
Total assets ................................. 1,120.8 1,056.2 1,155.6 1,098.5 1,221.4
Current liabilities .......................... 298.0 264.8 310.7 276.7 290.3
Long-term debt including current maturities .. 196.1 244.5 357.6 744.2 829.0
Shareholders' equity (deficit) ............... 344.5 271.1 152.3 (222.3) (203.5)
CASH FLOW DATA:
Operating activities ......................... $ 139.7 $ 108.3 $ 45.1 $ 89.2 $ 16.5
Investing activities ......................... (56.2) (38.4) 417.3 (11.1) (68.4)
Financing activities ......................... (95.7) (88.0) (396.2) (82.6) 26.6
Operating, investing and financing activities (12.2) (18.1) 66.2 (4.5) (25.3)
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (1) ................................... $ 286.3 $ 162.5 $ 187.4 $ 67.6 $ 90.7
OTHER DATA:
Net debt at year end (2) ..................... $ 58.5 $ 149.8 $ 226.7 $ 652.0 $ 740.7
Interest expense, net (3) .................... 22.9 30.3 43.1 63.0 64.6
Cash interest expense, net (4) ............... 23.8 28.6 24.8 39.9 44.2
Capital expenditures ......................... 31.1 35.6 22.4 28.2 64.2
-20-
Years ended December 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(In millions, except per share amounts)
TiO2 OPERATING STATISTICS:
Average selling price in billing currencies
index (1983=100) ............................. 162 153 154 133 139
Sales volumes (metric tons in thousands) ....... 436 427 408 427 388
Production volume (metric tons in thousands) ... 441 411 434 408 373
Production capacity at beginning of year
(metric tons in thousands) ................... 440 440 420 400 390
Production rate as a percentage of capacity .... Full 93% Full Full 95%
(1) EBITDA, as presented, represents operating income less corporate
expense, plus (i) litigation settlement gains, net, (ii) other corporate
income and (iii) depreciation, depletion and amortization. EBITDA is
presented as a supplement to the Company's operating income and cash
flow from operations because the Company believes that EBITDA is a
widely accepted financial indicator of cash flows and the ability to
service debt. EBITDA should not be considered as an alternative to, or
more meaningful than, operating income or net income determined under
generally accepted accounting principles ("GAAP") as an indicator of the
Company's operating performance, or cash flows from operating, investing
and financing activities determined under GAAP as a measure of
liquidity. EBITDA is not intended to depict funds available for
reinvestment or other discretionary uses, as the Company has significant
debt requirements and other commitments. Investors should consider
certain factors in evaluating the Company's EBITDA, including interest
expense, income taxes, noncash income and expense items, changes in
assets and liabilities, capital expenditures, investments in joint
ventures and other items included in GAAP cash flows as well as future
debt repayment requirements and other commitments, including those
described in Notes 9, 12 and 17 to the Consolidated Financial
Statements. The Company believes that the trend of its EBITDA is
consistent with the trend of its GAAP operating income, except in (i)
1997 when EBITDA decreased and operating income increased from 1996
amounts due to a $30 million noncash charge related to the Company's
adoption of SOP 96-1, "Environmental Remediation Liabilities" and (ii)
2000 when $70 million of net litigation settlement gains are included in
EBITDA and excluded from operating income, which treatment results in a
higher percentage increase over 1999 for EBITDA as compared to the
percentage increase over 1999 for operating income. See "Management's
Discussion and Analysis" for a discussion of operating income and cash
flows during the last three years and the Company's outlook. EBITDA as a
measure of a company's performance may not be comparable to other
companies, unless substantially all companies and analysts determine
EBITDA as computed and presented herein.
(2) Net debt represents notes payable and long-term debt less cash, cash
equivalents, current marketable securities and current and noncurrent
restricted cash equivalents.
(3) Interest expense, net represents interest expense less general corporate
interest and dividend income.
(4) Cash interest expense, net represents interest expense, net as defined
in (3) above less noncash interest expense plus noncash interest income.
Noncash interest expense includes deferred interest expense on the
Senior Secured Discount Notes in 1996 through 1998 and amortization of
deferred financing costs. Noncash interest income includes interest
income on restricted cash in 2000.
-21-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
The Company's continuing operations are conducted by Kronos in the TiO2
business segment. As discussed below, average TiO2 selling prices in billing
currencies increased in 2000 and slightly decreased in 1999 compared to the
prior year. Kronos' operating income increased $66.8 million in 2000 and
declined $25.5 million in 1999. Gross profit margins were 34% in 2000, 27% in
1999 and 31% in 1998.
Many factors influence TiO2 pricing levels, including (i) industry
capacity, (ii) worldwide demand growth, (iii) customer inventory levels and
purchasing decisions and (iv) relative changes in foreign currency exchange
rates. Kronos believes that the TiO2 industry has long-term growth potential, as
discussed in "Item 1. Business - Industry" and "- Competition."
Years ended December 31, % Change
------------------------- -----------------
2000 1999 1998 2000-99 1999-98
----- ---- ---- ------- -------
(In millions)
Net sales and operating income
Net sales ................................... $922.3 $908.4 $894.7 +2% +2%
Operating income ............................ $212.5 $145.7 $171.2 +46% -15%
Operating income margin percentage .......... 23% 16% 19%
TiO2 operating statistics
Percent change in average selling prices
(in billing currencies) ................... +6% -1%
Sales volume (metric tons in thousands) ..... 436 427 408 +2% +5%
Production volume (metric tons in thousands). 441 411 434 +7% -5%
Production rate as a percent of capacity .... Full 93% Full
Kronos' operating income for 2000 was higher than 1999 due to higher
average TiO2 selling prices in billing currencies and higher production and
sales volumes. Kronos' operating income in 1999 was lower than 1998, primarily
due to lower average TiO2 selling prices and lower production volume, partially
offset by higher sales volume.
Average TiO2 selling prices in billing currencies (which excludes the
effects of foreign currency translation) during 2000 were 6% higher than in 1999
with higher prices in all major regions with the greatest improvement being
realized in the European and export markets. Pigment prices increased from the
preceding quarter during each quarter of 2000, continuing the upward trend that
began in the fourth quarter of 1999. The rate of price increases slowed in the
fourth quarter to 1% over the third quarter of 2000, and prices at the end of
the fourth quarter of 2000 were slightly lower than the average for the quarter.
Since prices began to increase in the fourth quarter of 1999, prices have
increased an aggregate of 16% in Europe and 3% in North America over the
five-quarter period. Average TiO2 selling prices in 1999 were 1% lower than 1998
with higher prices in North America offset by lower prices in Europe and export
markets.
-22-
Record sales volume of 436,000 metric tons of TiO2 in 2000 was 2% higher
than 1999, primarily due to higher sales in Europe and North America. Kronos'
sales volume in the fourth quarter of 2000 decreased 16% from the record fourth
quarter of 1999. Approximately one-half of Kronos' 2000 TiO2 sales volume was
attributable to markets in Europe with approximately 37% attributable to North
America, and the balance to other regions. Sales volume in 1999 was 5% higher
than 1998 with growth in all major regions. Industry-wide demand was strong for
the first half of 1998, before moderating in the second half of 1998 and early
1999. Demand in the second half of 1999 and the first three quarters of 2000 was
stronger than comparable year-earlier periods as a result of, among other
things, customers buying in advance of anticipated price increases. Demand
softened in the fourth quarter of 2000.
The Company's record production volume of 441,000 metric tons in 2000
was 7% higher than the 411,000 metric tons produced in 1999. Operating rates
were near full capacity in 2000 compared to 93% in 1999. Kronos' production
volume in 1999 was 5% lower than the 434,000 metric tons produced in 1998 with
operating rates near full capacity in 1998. Production volume was curtailed in
the beginning of the first quarter of 1999 in order to manage inventory levels.
Finished goods inventory levels increased in the fourth quarter of 2000 and at
the end of 2000 represent about two months of sales.
The Company's efforts to debottleneck Kronos' production facilities to
meet long-term demand continue to prove successful. The Company expects Kronos'
production capacity of 450,000 metric tons at the end of 2000 will be increased
to approximately 465,000 metric tons during 2002, primarily at its chloride
facilities, with moderate capital expenditures.
Industry demand in 2001 is expected to heavily depend upon worldwide
economic conditions. The Company believes 2001 sales and production volumes
should approximate 2000 levels. The price increase that was originally scheduled
for October 2000 in North America has not been implemented due to market
conditions. The Company recently announced a European price increase of euro 140
per metric ton scheduled to be implemented late in the first quarter and early
in the second quarter of 2001. The Company believes that its average 2001 prices
will approximate its average 2000 prices. The extent to which Kronos can realize
these or other price increases in 2001 will depend on market conditions.
Kronos expects its operating income in the first quarter of 2001 will be
comparable to the first quarter of 2000. Operating income for the balance of
2001 will depend on worldwide economic conditions. If the economy continues to
soften, selling prices and sales volume could be lower than expected and full
year 2001 operating income would likely be below 2000 levels factoring in higher
anticipated costs, particularly energy. However, if demand strengthens later in
the year the Company should be able to realize price increases. Kronos believes
this would put its operating income closer to or above the 2000 level. The
Company's expectations as to the future prospects of the Company and the TiO2
industry are based upon a number of factors beyond the Company's control,
including continued worldwide growth of gross domestic product, competition in
the market place, unexpected or earlier-than-expected capacity additions and
technological advances. If actual developments differ from the Company's
expectations, the Company's performance could be unfavorably affected.
Excluding the effects of foreign currency translation, which reduced the
Company's expenses in both 2000 and 1999 compared to the year-earlier periods,
Kronos' cost of sales in 2000 was lower than 1999 primarily due to lower unit
costs, which resulted primarily from higher production levels. Kronos' cost of
sales in 1999 was higher than 1998 due to higher sales volume and higher unit
costs, which resulted primarily from lower production levels. Cost of sales, as
a percentage of net sales, decreased in 2000 primarily due to the
-23-
impact on net sales of higher average selling prices and lower unit costs, and
increased in 1999 primarily due to the impact on net sales of lower average
selling prices and higher unit costs.
Excluding the effects of foreign currency translation, which reduced the
Company's expense in both 2000 and 1999 compared to the year-earlier periods,
selling, general and administrative expenses ("SG&A"), excluding corporate
expenses, increased in 2000 from the year-earlier period primarily due to higher
variable compensation expense and higher selling and distribution expenses
associated with higher 2000 sales volumes. SG&A, excluding corporate expenses,
increased in 1999 from the year-earlier period due to higher selling and
distribution expenses associated with higher 1999 sales volume. SG&A, excluding
corporate expenses, as a percentage of net sales, was 12% in each of 2000, 1999
and 1998. See discussion of corporate expenses below.
The Company has substantial operations and assets located outside the
United States (principally Germany, Norway, Belgium and Canada). The Company's
non-U.S. sales and operating costs are subject to currency exchange rate
fluctuations which may impact reported earnings and may affect the comparability
of period-to-period revenues and expenses expressed in U.S. dollars. A
significant amount of the Company's sales (59% in 2000) are denominated in
currencies other than the U.S. dollar, principally the euro, other major
European currencies and the Canadian dollar. Certain purchases of raw materials,
primarily titanium-containing feedstocks, are denominated in U.S. dollars, while
labor and other production costs are primarily denominated in local currencies.
Fluctuations in the value of the U.S. dollar relative to other currencies,
primarily a stronger U.S. dollar compared to the euro, decreased sales by $68
million and $15 million during 2000 and 1999, respectively, compared to the
year-earlier period. When translated to U.S. dollars using currency exchange
rates prevailing during the respective periods, Kronos' average selling prices
for 2000 decreased 1% from 1999. Kronos' average selling prices in U.S. dollars
for 1999 decreased 3% from 1998. The effect of the stronger U.S. dollar on
Kronos' operating costs that are not denominated in U.S. dollars reduced
operating costs in 2000 and 1999 compared to the respective prior year. In
addition, sales to export markets are typically denominated in U.S. 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 2000 and 1999, excluding the 1999 $5.3
million foreign currency transaction gain, was not significant when compared to
the year-earlier periods.
-24-
General corporate
The following table sets forth certain information regarding general
corporate income (expense).
Years ended December 31, Change
----------------------------- ------------------
2000 1999 1998 2000-99 1999-98
------- ------- ------- ------- -------
(In millions)
Securities earnings:
Interest and dividends $ 8.3 $ 6.6 $ 14.9 $ 1.7 $ (8.3)
Securities gains, net 2.5 -- -- 2.5 --
Corporate income ......... 73.7 4.6 4.4 69.1 .2
Corporate expense ........ (29.6) (21.5) (22.7) (8.1) 1.2
Interest expense ......... (31.2) (36.9) (58.1) 5.7 21.2
------- ------- ------- ------- -------
$ 23.7 $ (47.2) $ (61.5) $ 70.9 $ 14.3
======= ======= ======= ======= =======
Corporate interest and dividend income, including noncash interest
income on restricted cash balances, fluctuate in part based upon the amount of
funds invested and yields thereon. Average funds invested in 2000 were higher
than 1999 primarily due to the increase in restricted cash related to the $43.0
million litigation settlement in July 2000. Average funds invested in 1999 were
lower than 1998 primarily due to the repayment of certain of the Company's debt
in the last half of 1998.
Securities gains, net in 2000 includes a second-quarter $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 and a fourth-quarter $3.1 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 4 to the Consolidated Financial Statements.
Corporate income in 2000 includes a $69.5 million net gain from
settlements with former insurance carriers. In January 2001 the Company reached
a $10 million settlement with the remaining group of its principal former
insurance carriers and expects to report the gain in the first quarter of 2001.
No further material settlements relating to litigation concerning environmental
remediation coverage are expected. See Note 14 to the Consolidated Financial
Statements. The Company recognized $4.0 million in both 2000 and 1999 and $3.7
million in 1998 of income related to the straight-line, five-year amortization
of $20 million of proceeds received in conjunction with the sale of its
specialty chemicals business attributable to a five-year agreement by the
Company not to compete in the rheological products business.
Corporate expense in 2000 was higher than 1999, primarily as a result of
higher legal and environmental expenses. The Company expects corporate expense
in 2001 will be slightly lower than 2000 primarily due to lower legal and
environmental expenses.
Interest expense in 2000 declined compared to 1999 primarily due to
reduced levels of outstanding euro-denominated debt. Interest expense in 1999
declined compared to 1998 due to the prepayment of the Company's former Deutsche
mark bank credit facility in 1999 and prepayments of outstanding indebtedness in
1998, principally the Senior Secured Discount Notes, a joint venture term loan
and a portion of the Company's former DM bank credit facility. Assuming no
significant change in interest rates, interest expense in 2001 is expected to be
lower compared to 2000 due to (i) lower levels of outstanding indebtedness and
-25-
(ii) 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.
Provision for income taxes
The principal reasons for the difference between the U.S. federal
statutory income tax rates and the Company's effective income tax rates are
explained in Note 12 to the Consolidated Financial Statements. The Company's
operations are conducted on a worldwide basis and the geographic mix of income
can significantly impact the Company's effective income tax rate. In 2000 the
Company's effective income tax rate varied from the normally expected rate
primarily due to the geographic mix of income, changes in the German income tax
"base" rate and the recognition of certain deductible tax assets which
previously did not meet the "more-likely-than-not" recognition criteria. In 1999
and 1998 the Company's effective tax rate varied from the normally expected rate
due predominantly to the recognition of certain deductible tax attributes which
previously did not meet the "more-likely-than-not" recognition criteria. Also in
2000, 1999 and 1998, the Company recognized certain one-time benefits related to
German tax settlements.
Effective January 1, 2001, the Company and its qualifying subsidiaries
will be included in the consolidated United States federal tax return of Contran
(the "Contran Tax Group"). As a member of the Contran Tax Group, the Company is
a party to a tax sharing agreement (the "Contran Tax Agreement"). The Contran
Tax Agreement provides that the Company compute its provision for U.S. income
taxes on a separate company basis using the tax elections made by Contran.
Pursuant to the Contran Tax Agreement, and using the tax elections made by
Contran, the Company will make payments to or receive payments from Valhi in
amounts it would have paid to or received from the Internal Revenue Service had
it not been a member of the Contran Tax Group. Refunds are limited to amounts
previously paid under the Contran Tax Agreement.
Other
Minority interest primarily relates to the Company's majority-owned
environmental management subsidiary, NL Environmental Management Services, Inc.
("EMS"). EMS was established in 1998, at which time EMS contractually assumed
certain of the Company's environmental liabilities. EMS' earnings are based, in
part, upon its ability to favorably resolve these liabilities on an aggregate
basis. The minority interest shareholders of EMS actively manage the
environmental liabilities and share in 39% of EMS' cumulative earnings, as
defined in the formation documents. The Company includes liabilities
contractually assumed by EMS in its consolidated balance sheet.
Discontinued operations in 1998 represent the Company's former specialty
chemicals operation which was sold in January 1998. The extraordinary items in
2000 and 1998 resulted from early extinguishment of debt.
-26-
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows, including certain discontinued
operations in 1998, for each of the past three years are presented below.
Years ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities ..... $ 153.1 $ 115.7 $ 137.0
Changes in assets and liabilities ............ (13.4) (7.4) (91.9)
-------- -------- --------
139.7 108.3 45.1
Investing activities ........................... (56.2) (38.4) 417.3
Financing activities ........................... (95.7) (88.0) (396.2)
-------- -------- --------
Net cash provided (used) by operating, investing
and financing activities ........................ $ (12.2) $ (18.1) $ 66.2
======== ======== ========
Operating cash flows
Certain items included in the determination of net income do not
represent current inflows or outflows of cash. For example, the $3.1 million
security transaction loss recognized in 2000 for an other-than-temporary decline
in value of certain marketable securities held by the Company, did not result in
a current outflow of cash. Depreciation, depletion and amortization is another
noncash expense item. Noncash interest expense consists of amortization of
original issue discount on certain indebtedness and amortization of deferred
financing costs. Certain other items included in the determination of net income
have an impact on cash flows from operating activities, but the impact of such
items on cash will differ from their impact on net income. For example, the
amount of income or expense recorded for pension and OPEB assets and obligations
(which depend upon a number of factors, including actuarial assumptions used to
value obligations) will generally differ from the outflows of cash for such
benefits. See Note 10 to the Consolidated Financial Statements.
The TiO2 industry is cyclical and changes in economic conditions within
the industry significantly impact the earnings and operating cash flows of the
Company. Cash flow from operations, before changes in assets and liabilities
increased $37.4 million in 2000 and decreased $21.3 million in 1999 from the
preceding year.
Operating cash flows in 2000 compared to 1999 were favorably affected by
$66.8 million higher operating income and $4.8 million of lower cash interest
expense, net, partially offset by $5.3 million of higher payments to fund the
Company's pension plans, $8.2 million of higher corporate expenses, $16.1
million of higher current tax expense, and $6.1 million of lower distributions
from the TiO2 manufacturing joint venture.
Operating cash flows in 1999 compared to 1998 were unfavorably affected
by $25.5 million of lower operating income, $7.4 million of higher current tax
expense and $3.8 million of higher cash interest expense, net, partially offset
by $13.7 million of distribution from the joint venture.
-27-
Changes in the Company's assets and liabilities (excluding the effect of
currency translation) used cash in 2000, 1999 and 1998 primarily due to
increases in inventory levels in 2000 and 1998 and increases in receivable
levels in 1999 due to high year-end demand.
Investing cash flows
The Company's capital expenditures were $31 million, $36 million and $22
million in 2000, 1999 and 1998, respectively. Capital expenditures in 1999 were
higher due to $6 million of expenditures for a landfill expansion for the
Company's Belgian facility. Capital expenditures of the 50%-owned manufacturing
joint venture were $4 million in each of 2000, 1999 and 1998 and are not
included in the Company's capital expenditures.
The Company's capital expenditures during the past three years include
an aggregate of $24 million ($8 million in 2000) for the Company's ongoing
environmental protection and compliance programs. The Company's estimated 2001
and 2002 capital expenditures are $37 million for each year, and include $6
million and $5 million, respectively, in the area of environmental protection
and compliance.
During 2000 the Company purchased 1,000,000 shares of Tremont's common
stock in market transactions for an aggregate of $26 million. See Notes 1 and 4
to the Consolidated Financial Statements. Tremont owns 10.2 million shares, or
20%, of NL's outstanding common stock.
In February 2001 NL Environmental Management Services, Inc., a
majority-owned subsidiary of the Company, loaned $13.4 million to Tremont. The
loan bears interest at prime plus 2%, is due March 31, 2003 and is
collateralized by 10.2 million shares of NL common stock owned by Tremont.
The Company sold the net assets of its specialty chemicals business in
January 1998 for $465 million and recognized an after-tax gain of approximately
$286 million on the sale of this business segment.
Financing cash flows
In the second and third quarters of 2000 the Company repaid euro 17.9
million ($16.7 million when paid) and euro 13.0 million ($12.2 million when
paid), respectively, of its euro-denominated short-term debt with cash flow from
operations. In December 2000 the Company borrowed $43 million of short-term non-
U.S. dollar-denominated bank debt and used the proceeds along with cash on hand
to redeem $50 million (par value) of the Company's 11.75% Senior Secured Notes.
In the first quarter of 1999 the Company prepaid the remaining balance
of DM 107 million ($60 million when paid) of a term loan that was part of the
Company's previous DM bank credit facility, principally by drawing DM 100
million ($56 million when drawn) on the revolving portion of the DM credit
facility. In the second and third quarters of 1999, the Company repaid DM 60
million ($33 million when paid) of the DM revolving credit facility with cash
provided from operations. The revolver's outstanding balance of DM 120 million
was further reduced in October 1999 by DM 20 million ($11 million when paid). In
December 1999 the Company borrowed $26 million of short-term unsecured
euro-denominated bank debt and used the proceeds along with cash on hand to
prepay the remaining balance of DM 100 million ($52 million when paid) of the
revolving portion of the DM credit facility. The DM credit facility was then
terminated, which released collateral and eliminated certain restrictive loan
covenants.
-28-
Borrowings in 1998 included DM 35 million ($19 million when borrowed)
under the Company's short-term non-U.S. credit facilities and DM 20 million ($11
million when borrowed) under the Company's DM revolving credit facility.
Repayments in 1998 included DM 40 million ($23 million when paid) of the DM
revolving credit facility and DM 81 million ($44 million when paid) of its DM
term loan. The Company's borrowings and principal repayments excludes activity
related to the Company's discontinued operations.
With a majority of the $380 million after-tax net proceeds from the sale
of its specialty chemicals business, the Company (i) prepaid $118 million of the
Rheox term loan (included as Discontinued operations, net, on the Company's
Consolidated Statements of Cash Flows), (ii) prepaid $42 million of Kronos'
tranche of the LPC joint venture term loan, (iii) made $65 million of
open-market purchases of the Company's 13% Senior Secured Discount Notes at
prices ranging from $101.25 to $105.19 per $100 of their principal amounts, (iv)
purchased $6 million of the Senior Secured Notes and $61,000 of the Senior
Secured Discount Notes at a price of $100 and $96.03 per $100 of their principal
amounts, respectively, pursuant to a June 1998 pro rata tender offer to Note
holders as required under the terms of the indenture, and (v) redeemed $121
million of 13% Senior Secured Discount Notes outstanding on October 15, 1998 at
the redemption price of 106% of the principal amount, in accordance with the
terms of the Senior Secured Discount Notes indenture.
Dividends paid during 2000, 1999 and 1998 totaled $32.7 million, $7.2
million and $4.6 million, respectively. At December 31, 2000, the Company had
$20 million available for payment of dividends, acquisition of treasury shares,
acquisition of affiliate stock and other restricted payments as defined in the
Senior Secured Notes indenture. On February 7, 2001, the Company's Board of
Directors declared a regular quarterly dividend of $.20 per share to
shareholders of record as of March 14, 2001 to be paid on March 28, 2001.
Pursuant to its share repurchase program, the Company purchased
1,682,000 shares of its common stock at an aggregate cost of $30.9 million in
2000 and 552,000 shares of its common stock in the open market at an aggregate
cost of $7.2 million in 1999. Approximately 766,000 additional shares are
available for purchase under the Company's share repurchase program. The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.
In 1998, as a result of the settlement of a shareholder derivative
lawsuit on behalf of the Company, Valhi transferred $14.4 million in cash to the
Company, and the Company paid plaintiffs' attorneys' fees and expenses of $3.2
million.
Cash, cash equivalents, restricted cash and borrowing availability
At December 31, 2000, the Company had cash and cash equivalents
aggregating $120 million (38% held by non-U.S. subsidiaries) and $87 million of
restricted cash equivalents held by U.S. subsidiaries, of which $18 million was
classified as a noncurrent asset. At December 31, 2000, the Company's
subsidiaries had $16 million available for borrowing under non-U.S. credit
facilities. At December 31, 2000, the Company had complied with all financial
covenants governing its debt agreements.
Based upon the Company's expectations for the TiO2 industry and
anticipated demands on the Company's cash resources as discussed herein, the
Company expects to have sufficient liquidity to meet its near-term obligations
including operations, capital expenditures, debt service and current dividend
policy. To the extent that actual developments differ from Company's
expectations, the Company's liquidity could be adversely affected.
-29-
Income taxes
A reduction in the German "base" income tax rate from 30% to 25%,
enacted in October 2000, became effective January 1, 2001. The reduction in the
German income tax rate resulted in $5.7 million of additional deferred income
tax expense in the fourth quarter of 2000 due to a reduction of the Company's
deferred income tax asset related to certain German tax attributes. The Company
does not expect its future current income tax expense to be affected by the rate
change in Germany.
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 has received tax assessments from the Norwegian tax
authorities proposing tax deficiencies including related interest of
approximately NOK 38 million ($4.3 million at December 31, 2000) relating to
1994 and 1996. The Company is currently litigating the primary issue related to
the 1994 assessment and in February 2001 the Norwegian Appeals Court ruled in
favor of the Norwegian tax authorities. The Company has appealed the case to the
Norwegian Supreme Court and believes that the outcome of the 1996 case is
dependent on the eventual outcome of the 1994 case. The Company has granted a
lien for the 1994 and 1996 tax assessments 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 12.7 million ($11.8 million at December
31, 2000). 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 are without merit.
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.
At December 31, 2000, the Company had net deferred tax liabilities of
$136 million. The Company operates in numerous tax jurisdictions, in certain of
which it has temporary differences that net to deferred tax assets (before
valuation allowance). The Company has provided a deferred tax valuation
allowance of $190 million at December 31, 2000, principally related to Germany,
partially offsetting deferred tax assets which the Company believes do not
currently meet the "more-likely-than-not" recognition criteria.
Environmental matters and litigation
The Company has been named as a defendant, 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. EPA's
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 for reasonably estimable costs of such matters, but the
Company's ultimate liability may be affected
-30-
by a number of factors, including changes in remedial alternatives and costs and
the allocation of such costs among PRPs.
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. The Company currently believes the disposition of all claims and
disputes, individually and in the aggregate, should not have a material adverse
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 3. "Legal Proceedings" and Note 17 to the
Consolidated Financial Statements.
Foreign operations
As discussed above, the Company has substantial operations located
outside the United States for which the functional currency is not the U.S.
dollar. As a result, the reported amount of the Company's assets and liabilities
related to its non-U.S. operations, and therefore the Company's consolidated net
assets, will fluctuate based upon changes in currency exchange rates. At
December 31, 2000, the Company had substantial net assets denominated in the
euro, Canadian dollar, Norwegian kroner and United Kingdom pound sterling.
Euro currency
Beginning January 1, 1999, certain members of the European Union ("EU"),
including Germany, Belgium, the Netherlands and France, adopted a new European
currency unit (the "euro") as their common legal currency. Following the
introduction of the euro, the participating countries' national currencies
remain legal tender as denominations of the euro from January 1, 1999 through
January 1, 2002, and the exchange rates between the euro and such national
currency units are fixed.
The Company conducts substantial operations in Europe. As of January 1,
2001, the functional currency of the Company's German, Belgian, Dutch and French
operations have been converted to the euro from their respective national
currencies. The Company has assessed and evaluated the impact of the euro
conversion on its business and made the necessary system conversions. The euro
conversion may impact the Company's operations including, among other things,
changes in product pricing decisions necessitated by cross-border price
transparencies. Such changes in product pricing decisions could impact both
selling prices and purchasing costs and, consequently, favorably or unfavorably
impact results of operations, financial condition or liquidity.
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
-31-
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
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. See Note 9 to the Consolidated Financial
Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
The Company is exposed to market risk from changes in currency exchange
rates, interest rates and equity security prices. In the past, the Company has
periodically entered into interest rate swaps or other types of contracts in
order to manage a portion of its interest rate market risk. Otherwise, the
Company has not generally entered into forward or option contracts to manage
such market risks, nor has the Company entered into any such contract or other
type of derivative instrument for trading purposes. The Company was not a party
to any forward or derivative option contracts related to currency exchange
rates, interest rates or equity security prices at December 31, 2000 or 1999.
See Notes 2 and 18 to the Consolidated Financial Statements.
Interest rates
The Company is exposed to market risk from changes in interest rates,
primarily related to indebtedness. At December 31, 2000, the Company's aggregate
indebtedness was split between 73% of fixed-rate instruments and 27% of
variable-rate borrowings (1999 -81% fixed-rate and 19% variable-rate). The large
percentage of fixed-rate debt instruments minimizes earnings volatility which
would result from changes in interest rates. The following table presents
principal amounts and weighted-average interest rates, by contractual maturity
dates, for the Company's aggregate indebtedness at December 31, 2000 and 1999.
At December 31, 2000 and 1999, all outstanding fixed-rate indebtedness was
denominated in U.S. dollars, and all outstanding variable-rate indebtedness was
denominated in either euros or Norwegian kroner. Information shown below for
such euro- and kronor-denominated indebtedness is presented in its U.S. dollar
equivalent at December 31, 2000 using that date's exchange rate of 1.08 euro per
U.S. dollar (1999 - .99 euro per U.S. dollar) and 8.90 kroner per U.S. dollar
(1999-n/a). Certain kroner-denominated capital leases totaling $2.1 million in
2000 and $.5 million in 1999 have been excluded from the table below.
-32-
Fair Value at
Contractual Maturity Date December 31,
--------------------------------------------- -------------
December 31, 1999: 2000 2001 2002 2003 Total 1999
------ ------ ------ -------- -------- -------------
(In millions)
Fixed-rate debt (U.S. dollar- denominated):
Principal amount ........................ $ -- $ -- $ -- $ 244.0 $ 244.0 $ 253.2
Weighted-average interest rate .......... -- -- -- 11.75% 11.75%
Variable-rate debt (euro- denominated):
Principal amount ........................ $57.1 $ -- $ -- $ -- $ 57.1 $ 57.1
Weighted-average interest rate .......... 3.6% -- -- -- 3.6%
December 31, 2000: N/A 2001 2002 2003 Total 2000
------ ------ ------ -------- -------- -------------
(In millions)
Fixed-rate debt (U.S. dollar-denominated):
Principal amount ....................... $ -- $ -- $ 194.0 $ 194.0 $ 195.9
Weighted-average interest rate ......... -- -- 11.75% 11.75%
Variable-rate debt (Non-U.S ..............
dollar-denominated):
Principal amount ..................... $70.0 $ -- $ -- $ 70.0 $ 70.0
Weighted-average interest rate ....... 6.3% -- -- 6.3%
Currency exchange rates
The Company is exposed to market risk arising from changes in currency
exchange rates as a result of manufacturing and selling its products worldwide.
Earnings are primarily affected by fluctuations in the value of the U.S. dollar
relative to the euro, Canadian dollar, Norwegian kroner and the United Kingdom
pound sterling. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of risks and uncertainties
related to the conversion of certain of these currencies to the euro.
At December 31, 2000, the Company had $48 million of indebtedness
denominated in euros (1999 - $58 million) and $24 million of indebtedness
denominated in Norwegian kroner (1999-$.5 million) The potential increase in the
U.S. dollar equivalent of the principal amount outstanding resulting from a
hypothetical 10% adverse change in exchange rates would be approximately $7
million (1999 - $6 million).
Marketable equity security prices
The Company is exposed to market risk due to changes in prices of the
marketable securities which are held. The fair value of such equity securities
at December 31, 2000 and 1999 was $47 million and $15 million, respectively. The
potential change in the aggregate fair value of these investments, assuming a
10% change in prices, would be $4.7 million and $1.5 million, respectively.
Other
The Company believes there are certain shortcomings in the sensitivity
analyses presented above, which analyses are required under the Securities and
Exchange Commission's regulations. For example, the hypothetical affect of
changes in interest rates discussed above ignores the potential effect on other
variables which affect the Company's results of operations and cash flows, such
as demand for the Company's products, sales volumes and selling prices and
operating expenses. Contrary to the above assumptions, changes in interest rates
rarely result in simultaneous parallel shifts along the yield curve.
Accordingly, the amounts presented above are not necessarily an accurate
reflection of the potential losses the Company would incur assuming the
hypothetical changes in market prices were actually to occur.
-33-
The above discussion and estimated sensitivity analysis amounts include
forward-looking statements of market risk which assume hypothetical changes in
market prices. Actual future market conditions will likely differ materially
from such assumptions. Accordingly, such forward-looking statements should not
be considered to be projections by the Company of future events, gains or
losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is contained in a separate section
of this Annual Report. See "Index of Financial Statements and Schedules" on page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "NL Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the NL Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the NL Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the NL Proxy Statement. See also Note 16 to the Consolidated Financial
Statements.
-34-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d)Financial Statements and Schedules
The consolidated financial statements and schedules listed by
the Registrant on the accompanying Index of Financial
Statements and Schedules (see page F-1) are filed as part of
this Annual Report.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended December 31, 2000
and thereafter through the date of this report.
October 18, 2000 - reported Items 5 and 7.
(c) Exhibits
Included as exhibits are the items listed in the Exhibit
Index. NL will furnish a copy of any of the exhibits listed
below upon payment of $4.00 per exhibit to cover the costs to
NL of furnishing the exhibits. Instruments defining the rights
of holders of debt issues which do not exceed 10% of
consolidated total assets will be furnished to the Securities
and Exchange Commission upon request.
-35-
Item No. Exhibit Index
3.1 By-Laws, as amended on June 28, 1990 - incorporated by reference
to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990.
3.2 Certificate of Amended and Restated Certificate of Incorporation
dated June 28, 1990 - incorporated by reference to Exhibit 1 to
the Registrant's Proxy Statement on Schedule 14A for the annual
meeting held on June 28, 1990.
4.1 Registration Rights Agreement dated October 30, 1991, by and
between the Registrant and Tremont Corporation - incorporated by
reference to Exhibit 4.3 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991.
4.2 Indenture dated October 20, 1993 governing the Registrant's
11.75% Senior Secured Notes due 2003, including form of Senior
Note - incorporated by reference to Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
4.3 Senior Mirror Notes dated October 20, 1993 - incorporated by
reference to Exhibit 4.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
4.4 Senior Note Subsidiary Pledge Agreement dated October 20, 1993
between Registrant and Kronos, Inc. - incorporated by reference
to Exhibit 4.4 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993.
4.5 Third Party Pledge and Intercreditor Agreement dated October 20,
1993 between Registrant, Chase Manhattan Bank (National
Association) and Chemical Bank - incorporated by reference to
Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993.
10.1 Lease Contract dated June 21, 1952, between Farbenfabrieken Bayer
Aktiengesellschaft and Titangesellschaft mit beschrankter Haftung
(German language version and English translation thereof) -
incorporated by reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1985.
10.2 Contract on Supplies and Services among Bayer AG, Kronos
Titan-GmbH and Kronos International, Inc. dated June 30, 1995
(English translation from German language document) -
incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995.
10.3** Richards Bay Slag Sales Agreement dated May 1, 1995 between
Richards Bay Iron and Titanium (Proprietary) Limited and Kronos,
Inc. - incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.4** Amendment to Richards Bay Slag Sales Agreement dated May 1, 1999
between Richards Bay Iron and Titanium (Proprietary) Limited and
Kronos, Inc. - incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999.
-36-
10.5 Formation Agreement dated as of October 18, 1993 among Tioxide
Americas Inc., Kronos Louisiana, Inc. and Louisiana Pigment
Company, L.P. - incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10.6 Joint Venture Agreement dated as of October 18, 1993 between
Tioxide Americas Inc. and Kronos Louisiana, Inc. - incorporated
by reference to Exhibit 10.3 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993.
10.7 Kronos Offtake Agreement dated as of October 18, 1993 between
Kronos Louisiana, Inc. and Louisiana Pigment Company, L.P. -
incorporated by reference to Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
10.8 Amendment No. 1 to Kronos Offtake Agreement dated as of December
20, 1995 between Kronos Louisiana, Inc. and Louisiana Pigment
Company, L.P. - incorporated by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.9 Tioxide Americas Offtake Agreement dated as of October 18, 1993
between Tioxide Americas Inc. and Louisiana Pigment Company, L.P.
- incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
10.10 Amendment No. 1 to Tioxide Americas Offtake Agreement dated as of
December 20, 1995 between Tioxide Americas Inc. and Louisiana
Pigment Company, L.P. - incorporated by reference to Exhibit
10.24 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
10.11 TCI/KCI Output Purchase Agreement dated as of October 18, 1993
between Tioxide Canada Inc. and Kronos Canada, Inc. -
incorporated by reference to Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
10.12 TAI/KLA Output Purchase Agreement dated as of October 18, 1993
between Tioxide Americas Inc. and Kronos Louisiana, Inc. -
incorporated by reference to Exhibit 10.7 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
10.13 Master Technology Exchange Agreement dated as of October 18, 1993
among Kronos, Inc., Kronos Louisiana, Inc., Kronos International,
Inc., Tioxide Group Limited and Tioxide Group Services Limited -
incorporated by reference to Exhibit 10.8 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
10.14 Parents' Undertaking dated as of October 18, 1993 between ICI
American Holdings Inc. and Kronos, Inc. - incorporated by
reference to Exhibit 10.9 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
-37-
10.15 Allocation Agreement dated as of October 18, 1993 between Tioxide
Americas Inc., ICI American Holdings, Inc., Kronos, Inc. and
Kronos Louisiana, Inc. - incorporated by reference to Exhibit
10.10 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.16 Form of Director's Indemnity Agreement between NL and the
independent members of the Board of Directors of NL -
incorporated by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1987.
10.17* 1989 Long Term Performance Incentive Plan of NL Industries, Inc.
- incorporated by reference to Exhibit B to the Registrant's
Proxy Statement on Schedule 14A for the annual meeting of
shareholders held on May 8, 1996.
10.18* NL Industries, Inc. Variable Compensation Plan - incorporated by
reference to Exhibit A to the Registrant's Proxy Statement on
Schedule 14A for the annual meeting of shareholders held on May
8, 1996.
10.19* NL Industries, Inc. Retirement Savings Plan, as amended and
restated effective April 1, 1996 - incorporated by reference to
Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.
10.20* Amendment to NL Industries, Inc. Retirement Savings Plan
effective as of January 1, 2000 - incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000
10.21* NL Industries, Inc. 1992 Non-Employee Director Stock Option Plan,
as adopted by the Board of Directors on February 13, 1992 -
incorporated by reference to Appendix A to the Registrant's Proxy
Statement on Schedule 14A for the annual meeting of shareholders
held April 30, 1992.
10.22* NL Industries, Inc. 1998 Long-Term Incentive Plan - incorporated
by reference to Appendix A to the Registrant's Proxy Statement on
Schedule 14A for the annual meeting of shareholders held on May
6, 1998.
10.23 Intercorporate Services Agreement by and between Valhi, Inc. and
the Registrant effective as of January 1, 2000 - incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000.
10.24 Intercorporate Services Agreement by and between Contran
Corporation and the Registrant effective as of January 1, 2000 -
incorporated by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.
10.25 Intercorporate Service Agreement by and between Titanium Metals
Corporation and the Registrant effective as of January 1, 2000 -
incorporated by reference to Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.
-38-
10.26 Intercorporate Services Agreement by and between Tremont
Corporation and the Registrant effective as of January 1, 2000 -
incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.
10.27 Intercorporate Services Agreement by and between CompX
International, Inc. and the Registrant effective as of January 1,
2000 - incorporated by reference to Exhibit 10.6 to the
Registrant's Quarterly Report of Form 10-Q for the quarter ended
June 30, 2000.
10.28 Insurance Sharing Agreement, effective January 1, 1990, by and
between the Registrant, NL Insurance, Ltd. (an indirect
subsidiary of Tremont Corporation) and Baroid Corporation -
incorporated by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.29* Executive severance agreement effective as of March 9, 1995 by
and between the Registrant and Lawrence A. Wigdor - incorporated
by reference to Exhibit 10.3 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
10.30* Executive severance agreement effective as of July 24, 1996 by
and between the Registrant and J. Landis Martin - incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.
10.31* Supplemental Executive Retirement Plan for Executives and
Officers of NL Industries, Inc. effective as of January 1, 1991 -
incorporated by reference to Exhibit 10.26 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.32* Agreement to Defer Bonus Payment dated February 20, 1998 between
the Registrant and Lawrence A. Wigdor and related trust agreement
- incorporated by reference to Exhibit 10.48 to the Registrant's
Annual Report of Form 10-K for the year ended December 31, 1997.
10.33* Agreement to Defer Bonus Payment dated February 20, 1998 between
the Registrant and J. Landis Martin and related trust agreement -
incorporated by reference to Exhibit 10.49 to the Registrant's
Annual Report of Form 10-K for the year ended December 31, 1997.
10.34 Revolving Loan Note dated February 9, 2001 with Tremont
Corporation as Maker and NL Environmental Management Services,
Inc. as Payee.
10.35 Security Agreement dated February 9, 2001 by and between Tremont
Corporation and NL Environmental Management Services, Inc.
10.36 Tax Agreement between Valhi, Inc. and NL Industries, Inc.
effective as of January 1, 2001.
10.37 Subscription Agreement by and among Valhi, Inc., Tremont
Holdings, LLC and Tremont Group, Inc. effective as of December
31, 2000.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
-39-
99.1 Annual Report of NL Industries, Inc. Retirement Savings Plan
(Form 11-K) to be filed under Form 10-K/A to the Registrant's
Annual Report on Form 10-K within 180 days after December 31,
2000.
All documents in the Exhibit Index above that have been incorporated by
reference were previously filed by the Registrant under SEC File Number 1-640.
* Management contract, compensatory plan or arrangement.
** Portions of the exhibit have been omitted pursuant to a request
for confidential treatment.
-40-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ J. Landis Martin
-------------------------------------
J. Landis Martin, March 9, 2001
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ J. Landis Martin /s/ Harold C. Simmons
- ------------------------------- ---------------------------------
J. Landis Martin, March 9, 2001 Harold C. Simmons, March 9, 2001
Director, President and Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
/s/ Glenn R. Simmons /s/ Steven L. Watson
- ------------------------------- ---------------------------------
Glenn R. Simmons, March 9, 2001 Steven L. Watson, March 9, 2001
Director Director
/s/ Kenneth R. Peak /s/ Dr. Lawrence A. Wigdor
- ------------------------------ ---------------------------------
Kenneth R. Peak, March 9, 2001 Dr. Lawrence A. Wigdor, March 9, 2001
Director Director, President and Chief
Executive Officer of Kronos
/s/ General Thomas P. Stafford /s/ Susan E. Alderton
- ----------------------------------------- ---------------------------------
General Thomas P. Stafford, March 9, 2001 Susan E. Alderton, March 9, 2001
Director Vice President and Chief Financial
Officer
(Principal Financial Officer)
/s/ Robert D. Hardy
---------------------------------
Robert D. Hardy, March 9, 2001
Vice President and Controller
(Principal Accounting Officer)
-41-
NL INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
Items 8, 14(a) and 14(d)
Index of Financial Statements and Schedules
-------------------------------------------
Financial Statements Pages
- -------------------- -----
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 2000 and 1999 F-3 / F-4
Consolidated Statements of Income - Years ended
December 31, 2000, 1999 and 1998 F-5 / F-6
Consolidated Statements of Comprehensive Income - Years
ended December 31, 2000, 1999 and 1998 F-7
Consolidated Statements of Shareholders' Equity - Years
ended December 31, 2000, 1999 and 1998 F-8
Consolidated Statements of Cash Flows - Years ended
December 31, 2000, 1999 and 1998 F-9 / F-11
Notes to Consolidated Financial Statements F-12 / F-53
Financial Statement Schedules
Report of Independent Accountants S-1
Schedule I - Condensed Financial Information of Registrant S-2 / S-7
Schedule II - Valuation and qualifying accounts S-8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of NL Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income, shareholders'
equity and cash flows present fairly, in all material respects, the consolidated
financial position of NL Industries, Inc. at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Houston, Texas
February 28, 2001
F-2
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(In thousands, except per share data)
ASSETS 2000 1999
---------- ----------
Current assets:
Cash and cash equivalents ........................ $ 120,378 $ 134,224
Restricted cash equivalents ...................... 69,242 17,565
Accounts and notes receivable,
less allowance of $2,222 and $2,075 ............ 131,540 143,768
Receivable from affiliates ....................... 214 747
Refundable income taxes .......................... 12,302 4,473
Inventories ...................................... 205,973 191,184
Prepaid expenses ................................. 2,458 2,492
Deferred income taxes ............................ 11,673 11,974
---------- ----------
Total current assets ......................... 553,780 506,427
---------- ----------
Other assets:
Marketable securities ............................ 47,186 15,055
Investment in TiO2 manufacturing joint venture ... 150,002 157,552
Prepaid pension cost ............................. 22,789 23,271
Restricted cash equivalents ...................... 17,942 --
Other ............................................ 4,707 5,410
---------- ----------
Total other assets ........................... 242,626 201,288
---------- ----------
Property and equipment:
Land ............................................. 24,978 23,678
Buildings ........................................ 129,019 133,682
Machinery and equipment .......................... 530,920 550,842
Mining properties ................................ 67,134 71,952
Construction in progress ......................... 4,586 6,805
---------- ----------
756,637 786,959
Less accumulated depreciation and depletion ...... 432,255 438,501
---------- ----------
Net property and equipment ................... 324,382 348,458
---------- ----------
$1,120,788 $1,056,173
========== ==========
F-3
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 2000 and 1999
(In thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
----------- -----------
Current liabilities:
Notes payable .................................... $ 69,970 $ 57,076
Current maturities of long-term debt ............. 730 212
Accounts payable and accrued liabilities ......... 147,877 143,132
Payable to affiliates ............................ 10,634 11,240
Accrued environmental costs ...................... 53,307 47,228
Income taxes ..................................... 13,616 5,605
Deferred income taxes ............................ 1,822 326
----------- -----------
Total current liabilities .................... 297,956 264,819
----------- -----------
Noncurrent liabilities:
Long-term debt ................................... 195,363 244,266
Deferred income taxes ............................ 145,673 108,226
Accrued environmental costs ...................... 57,133 64,491
Accrued pension cost ............................. 21,220 32,946
Accrued postretirement benefits cost ............. 29,404 37,105
Other ............................................ 23,272 29,330
----------- -----------
Total noncurrent liabilities ................. 472,065 516,364
----------- -----------
Minority interest .................................... 6,279 3,903
----------- -----------
Shareholders' equity:
Preferred stock - 5,000 shares authorized,
no shares issued or outstanding ................ -- --
Common stock - $.125 par value; 150,000
shares authorized; 66,839 shares issued ........ 8,355 8,355
Additional paid-in capital ....................... 777,528 774,304
Retained earnings ................................ 141,073 19,150
Accumulated other comprehensive income (loss):
Currency translation ........................... (190,757) (160,022)
Marketable securities .......................... 8,885 2,857
Pension liabilities ............................ -- (1,756)
Treasury stock, at cost (16,787 and 15,555 shares) (400,596) (371,801)
----------- -----------
Total shareholders' equity ................... 344,488 271,087
----------- -----------
$ 1,120,788 $ 1,056,173
=========== ===========
Commitments and contingencies (Notes 12 and 17)
See accompanying notes to consolidated financial statements.
F-4
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2000, 1999 and 1998
(In thousands, except per share data)
2000 1999 1998
----------- ----------- -----------
Revenues and other income:
Net sales ................................ $ 922,319 $ 908,387 $ 894,724
Litigation settlement gains, net ......... 69,465 -- --
Other, net ............................... 23,283 23,646 25,453
----------- ----------- -----------
1,015,067 932,033 920,177
----------- ----------- -----------
Costs and expenses:
Cost of sales ............................ 610,449 662,315 618,447
Selling, general and administrative ...... 137,178 134,342 133,970
Interest ................................. 31,243 36,884 58,070
----------- ----------- -----------
778,870 833,541 810,487
----------- ----------- -----------
Income from continuing operations before
income taxes and minority interest ... 236,197 98,492 109,690
Income tax expense (benefit) ................. 78,420 (64,601) 19,788
----------- ----------- -----------
Income from continuing operations before
minority interest .................... 157,777 163,093 89,902
Minority interest ............................ 2,436 3,322 40
----------- ----------- -----------
Income from continuing operations ...... 155,341 159,771 89,862
Discontinued operations ...................... -- -- 287,396
Extraordinary items - early extinguishment of
debt, net of tax benefit of $394 and $5,698 (732) -- (10,580)
----------- ----------- -----------
Net income ............................. $ 154,609 $ 159,771 $ 366,678
=========== =========== ===========
F-5
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
Years ended December 31, 2000, 1999 and 1998
(In thousands, except per share data)
2000 1999 1998
---------- ---------- ----------
Basic earnings per share:
Continuing operations ............. $ 3.08 $ 3.09 $ 1.75
Discontinued operations ........... -- -- 5.59
Extraordinary items ............... (.01) -- (.21)
---------- ---------- ----------
Net income ...................... $ 3.07 $ 3.09 $ 7.13
========== ========== ==========
Diluted earnings per share:
Continuing operations ............. $ 3.06 $ 3.08 $ 1.73
Discontinued operations ........... -- -- 5.52
Extraordinary items ............... (.01) -- (.20)
---------- ---------- ----------
Net income ...................... $ 3.05 $ 3.08 $ 7.05
========== ========== ==========
Weighted average shares used in the
calculation of earnings per share:
Basic ............................. 50,415 51,774 51,460
Dilutive impact of stock options .. 334 93 540
---------- ---------- ----------
Diluted ........................... 50,749 51,867 52,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-6
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
--------- --------- ---------
Net income ................................... $ 154,609 $ 159,771 $ 366,678
--------- --------- ---------
Other comprehensive income (loss), net of tax:
Marketable securities adjustment:
Unrealized holding gains (losses) arising
during the period ....................... 4,064 (1,641) 201
Add: reclassification adjustment for
loss included in net income ......... 1,964 -- --
--------- --------- ---------
6,028 (1,641) 201
Minimum pension liabilities adjustment ... 1,756 1,431 (3,187)
Currency translation adjustment .......... (30,735) (26,582) 370
--------- --------- ---------
Total other comprehensive loss ......... (22,951) (26,792) (2,616)
--------- --------- ---------
Comprehensive income ..................... $ 131,658 $ 132,979 $ 364,062
========= ========= =========
See accompanying notes to consolidated financial statements.
F-7
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998
(In thousands)
Accumulated other
comprehensive income (loss)
Additional Retained -------------------------------------
Common paid-in earnings Currency Pension Marketable
Stock capital (deficit) translation liabilities securities
--------- ---------- ---------- ----------- ------------ -----------
Balance at December 31, 1997 .......................... $ 8,355 $ 759,281 $(495,421) $(133,810) $ -- $ 4,297
Net income ............................................ -- -- 366,678 -- -- --
Other comprehensive income (loss), net of tax ......... -- -- -- 370 (3,187) 201
Common dividends declared - $.09 per share ........... -- -- (4,636) -- -- --
Cash received upon settlement of shareholder derivative -- 11,211 -- -- -- --
lawsuit, net of $3,198 in legal fees and expenses
Tax benefit of stock options exercised ................ -- 3,796 -- -- -- --
Treasury stock reissued (544 shares) .................. -- -- -- -- -- --
-------- --------- -------- --------- --------- ---------
Balance at December 31, 1998 .......................... 8,355 774,288 (133,379) (133,440) (3,187) 4,498
Net income ............................................ -- -- 159,771 -- -- --
Other comprehensive income (loss), net of tax ......... -- -- -- (26,582) 1,431 (1,641)
Common dividends declared - $.14 per share ........... -- -- (7,242) -- -- --
Tax benefit of stock options exercised ................ -- 16 -- -- -- --
Treasury stock:
Acquired (552 shares) ............................. -- -- -- -- -- --
Reissued (25 shares) .............................. -- -- -- -- -- --
-------- --------- -------- --------- --------- ---------
Balance at December 31, 1999 .......................... 8,355 774,304 19,150 (160,022) (1,756) 2,857
Net income ............................................ -- -- 154,609 -- -- --
Other comprehensive income (loss), net of tax ......... -- -- -- (30,735) 1,756 6,028
Common dividends declared - $.65 per share ............ -- -- (32,686) -- -- --
Tax benefit of stock options exercised ................ -- 3,224 -- -- -- --
Treasury stock:
Acquired (1,682 shares) ........................... -- -- -- -- -- --
Reissued (450 shares) ............................. -- -- -- -- -- --
-------- --------- -------- --------- --------- ---------
Balance at December 31, 2000 .......................... $ 8,355 $ 777,528 $ 141,073 $(190,757) $ -- $ 8,885
Treasury
stock Total
---------- ---------
Balance at December 31, 1997 .......................... $(364,971) $(222,269)
Net income ............................................ -- 366,678
Other comprehensive income (loss), net of tax ......... -- (2,616)
Common dividends declared - $.09 per share ........... -- (4,636)
Cash received upon settlement of shareholder derivative -- 11,211
lawsuit, net of $3,198 in legal fees and expenses
Tax benefit of stock options exercised ................ -- 3,796
Treasury stock reissued (544 shares) .................. 170 170
--------- ---------
Balance at December 31, 1998 .......................... (364,801) 152,334
Net income ............................................ -- 159,771
Other comprehensive income (loss), net of tax ......... -- (26,792)
Common dividends declared - $.14 per share ........... -- (7,242)
Tax benefit of stock options exercised ................ -- 16
Treasury stock:
Acquired (552 shares) ............................. (7,210) (7,210)
Reissued (25 shares) .............................. 210 210
--------- ---------
Balance at December 31, 1999 .......................... (371,801) 271,087
Net income ............................................ -- 154,609
Other comprehensive income (loss), net of tax ......... -- (22,951)
Common dividends declared - $.65 per share ............ -- (32,686)
Tax benefit of stock options exercised ................ -- 3,224
Treasury stock:
Acquired (1,682 shares) ........................... (30,886) (30,886)
Reissued (450 shares) ............................. 2,091 2,091
--------- ---------
Balance at December 31, 2000 .......................... $(400,596) $ 344,488
See accompanying notes to consolidated financial statements.
F-8
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income ........................................ $ 154,609 $ 159,771 $ 366,678
Depreciation, depletion and amortization .......... 29,733 33,730 34,545
Noncash interest income on restricted cash ........ (1,531) -- --
Noncash interest expense .......................... 599 1,682 18,393
Deferred income taxes ............................. 40,186 (86,772) 4,988
Minority interest ................................. 2,436 3,322 40
Net (gains) losses from:
Securities transactions ......................... (2,531) -- --
Disposition of property and equipment ........... 1,562 429 768
Pension cost, net ................................. (11,816) (4,702) (5,566)
Other postretirement benefits, net ................ 1,062 (5,459) (6,299)
Distributions from TiO2 manufacturing joint venture 7,550 13,650 --
Litigation settlement gains, net .................. (69,465) -- --
Discontinued operations, net ...................... -- -- (287,396)
Extraordinary items ............................... 732 -- 10,580
Other, net ........................................ -- -- 317
--------- --------- ---------
153,126 115,651 137,048
Discontinued operations, net ...................... -- -- (30,587)
Change in assets and liabilities:
Accounts and notes receivable ................... 1,417 (22,289) (2,012)
Inventories ..................................... (23,395) 20,663 (49,839)
Prepaid expenses ................................ (244) (463) 436
Accounts payable and accrued liabilities ........ 9,301 7,315 (2,741)
Income taxes .................................... 4,843 6,729 (12,976)
Accounts with affiliates ........................ (123) (3,572) 2,286
Other noncurrent assets ......................... (168) 1,090 (178)
Other noncurrent liabilities .................... (5,002) (16,816) 3,650
--------- --------- ---------
Net cash provided by operating activities ... 139,755 108,308 45,087
--------- --------- ---------
F-9
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ............................... $ (31,089) $ (35,559) $ (22,392)
Purchase of Tremont Corporation common stock ....... (26,040) -- --
Change in restricted cash equivalents, net ......... 630 (5,176) (2,638)
Proceeds from disposition of property and equipment. 139 2,344 769
Proceeds from disposition of marketable securities . 158 -- 6,875
Other, net ......................................... (33) -- (372)
Proceeds from sale of specialty chemicals business . -- -- 435,080
Discontinued operations, net ....................... -- -- (26)
--------- --------- ---------
Net cash provided (used) by investing activities (56,235) (38,391) 417,296
--------- --------- ---------
Cash flows from financing activities:
Indebtedness:
Borrowings ....................................... 44,923 82,038 30,491
Principal payments ............................... (79,162) (155,787) (315,892)
Dividends paid ..................................... (32,686) (7,242) (4,636)
Treasury stock:
Purchased ........................................ (30,886) (7,210) --
Reissued ......................................... 2,091 210 170
Settlement of shareholder derivative lawsuit, net .. -- -- 11,211
Distributions to minority interests ................ (6) (6) (2)
Discontinued operations, net ....................... -- -- (117,500)
--------- --------- ---------
Net cash used by financing activities .......... (95,726) (87,997) (396,158)
--------- --------- ---------
Net change during the year from operating
investing and financing activities ........... $ (12,206) $ (18,080) $ 66,225
========= ========= =========
F-10
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
--------- --------- ---------
Cash and cash equivalents:
Net change during the year from:
Operating, investing and financing
activities ........................ $(12,206) $ (18,080) $ 66,225
Currency translation ................ (1,640) (2,649) (36)
Sale of discontinued operation ...... -- -- (7,630)
--------- --------- ---------
(13,846) (20,729) 58,559
Balance at beginning of year .... 134,224 154,953 96,394
--------- --------- ---------
Balance at end of year .......... $ 120,378 $ 134,224 $ 154,953
========= ========= =========
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized .. $ 32,354 $ 35,540 $ 37,965
Income taxes .......................... 33,398 14,963 54,230
See accompanying notes to consolidated financial statements.
F-11
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 December 31,
2000, Valhi, Inc. and Tremont Corporation, each affiliates of Contran
Corporation, held approximately 60% and 20%, respectively, of NL's outstanding
common stock. At December 31, 2000, Contran and its subsidiaries held
approximately 93% of Valhi's outstanding common stock, and a subsidiary of Valhi
and 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.
Note 2 - Summary of significant accounting policies:
Principles of consolidation and management's estimates
The accompanying consolidated financial statements include the accounts
of NL and its majority-owned subsidiaries (collectively, the "Company"). All
material intercompany accounts and balances have been eliminated. Certain
prior-year amounts have been reclassified to conform to the current year
presentation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Ultimate actual results may in some instances differ from
previously estimated amounts.
Translation of foreign currencies
Assets and liabilities of subsidiaries whose functional currency is
other than the U.S. dollar are translated at year-end rates of exchange and
revenues and expenses are translated at weighted average exchange rates
prevailing during the year. Resulting translation adjustments are included in
other comprehensive income (loss), net of related income taxes. Currency
transaction gains and losses are recognized in income currently.
Cash equivalents
Cash equivalents include U.S. Treasury securities purchased under
short-term agreements to resell and bank deposits with original maturities of
three months or less.
F-12
Restricted cash equivalents
At December 31, 2000, restricted cash equivalents of approximately $17
million collateralized undrawn letters of credit, and restricted cash
equivalents of approximately $70 million was held by special purpose trusts
established to pay future environmental remediation obligations and other
environmental expenditures of the Company. Restricted cash equivalents are
primarily invested in U.S. government securities and money market funds that
invest primarily in U.S. government securities. At December 31, 1999, restricted
cash equivalents of approximately $18 million collateralized undrawn letters of
credit. Restricted cash is classified as either a current or noncurrent asset
depending upon the classification of the liability to which the restricted cash
relates.
Marketable securities and securities transactions
Marketable securities are carried at market based on quoted market
prices. Unrealized gains and losses on available-for-sale securities are
included in other comprehensive income (loss), net of related deferred income
taxes. See Note 4. Gains and losses on available-for-sale securities are
recognized in income upon realization and are computed based on specific
identification of the securities sold.
Inventories
Inventories are stated at the lower of cost (principally average cost)
or market. Amounts are removed from inventories at average cost.
Investment in TiO2 manufacturing joint venture
Investment in a 50%-owned manufacturing joint venture is accounted for
by the equity method.
Intangible assets
Intangible assets, included in other noncurrent assets, are amortized by
the straight-line method over the periods expected to be benefitted, not
exceeding ten years. At December 31, 2000 and 1999, accumulated amortization of
intangible assets was $20.4 million and $22.1 million, respectively.
Property, equipment, depreciation and depletion
Property and equipment are stated at cost. Interest costs related to
major, long-term capital projects are capitalized as a component of construction
costs. Expenditures for maintenance, repairs and minor renewals are expensed;
expenditures for major improvements are capitalized.
Depreciation is computed principally by the straight-line method over
the estimated useful lives of ten to forty years for buildings and three to
twenty years for machinery and equipment. Depletion of mining properties is
computed by the unit-of-production and straight-line methods.
F-13
Long-term debt
Long-term debt is stated net of unamortized original issue discount
("OID"). OID is amortized over the period during which cash interest payments
are not required and deferred financing costs are amortized over the term of the
applicable issue, both by the interest method.
Employee benefit plans
Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 10.
The Company accounts for stock-based employee compensation in accordance
with Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock
Issued to Employees," and its various interpretations. Under APBO No. 25, no
compensation cost is generally recognized for fixed stock options in which the
exercise price is not less than the market price on the grant date. Compensation
cost recognized by the Company in accordance with APBO No. 25 was $1.7 million
in 2000 and nil in each of 1999 and 1998.
Environmental remediation costs
Environmental remediation costs are accrued when estimated future
expenditures are probable and reasonably estimable. The estimated future
expenditures generally are not discounted to present value. Recoveries of
remediation costs from other parties, if any, are reported as receivables when
their receipt is deemed probable. At December 31, 2000 and 1999, no receivables
for recoveries have been recognized.
Net sales
The Company adopted the Securities and Exchange Commission's ("SEC")
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," as amended, in
2000. Revenue generally is realized or realizable and earned when all of the
requirements of SAB 101 are met, including when title and the risks and rewards
of ownership passes to the customer. The impact of adopting SAB 101 was not
material. Amounts charged to customers for shipping and handling are included in
net sales.
Repair and maintenance costs
The Company performs planned major maintenance activities during the
year. Repair and maintenance costs estimated to be incurred in connection with
planned major maintenance activities are accrued in advance and are included in
cost of goods sold.
Shipping and handling costs
Shipping and handling costs are included in selling, general and
administrative expense and were $50 million in 2000 and $54 million in each of
1999 and 1998.
F-14
Income taxes
Deferred income tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the income tax
and financial reporting carrying amounts of assets and liabilities, including
investments in subsidiaries and unconsolidated affiliates not included in the
Company's U.S. tax group (the "NL Tax Group"). The Company periodically
evaluates its deferred tax assets and adjusts any related valuation allowance.
The Company's valuation allowance is equal to the amount of deferred tax assets
which the Company believes do not meet the "more-likely-than-not" recognition
criteria.
Effective January 1, 2001, the Company and its qualifying subsidiaries
will be included in the consolidated United States federal tax return of Contran
(the "Contran Tax Group"). As a member of the Contran Tax Group, the Company is
a party to a tax sharing agreement (the "Contran Tax Agreement"). The Contran
Tax Agreement provides that the Company compute its provision for U.S. income
taxes on a separate-company basis using the tax elections made by Contran.
Pursuant to the Contran Tax Agreement and using the tax elections made by
Contran, the Company will make payments to or receive payments from Valhi in
amounts it would have paid to or received from the Internal Revenue Service had
it not been a member of the Contran Tax Group. Refunds are limited to amounts
previously paid under the Contran Tax Agreement.
Interest rate swaps and contracts
The Company periodically uses interest rate swaps and contracts (such as
caps and floors) to manage interest rate risk with respect to financial assets
or liabilities. The Company has not entered into these contracts for speculative
purposes in the past, nor does it currently anticipate doing so in the future.
Any cost associated with the swap or contract designated as a hedge of assets or
liabilities is deferred and amortized over the life of the agreement as an
adjustment to interest income or expense. If the swap or contract is terminated,
the resulting gain or loss is deferred and amortized over the remaining life of
the underlying asset or liability. If the hedged instrument is disposed of, the
swap or contract agreement is marked to market with any resulting gain or loss
included with the gain or loss from the disposition. The Company was not a party
to any such contracts at December 31, 2000 or 1999.
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. The weighted average number of
outstanding stock options which were excluded from the calculation of diluted
earnings per share because their impact would have been antidilutive aggregated
222,000, 1,511,000 and 483,000 in 2000, 1999 and 1998, respectively. There were
no adjustments to income from continuing operations or net income in the
computation of the diluted earnings per share amounts.
New accounting principles not yet adopted
The Company will adopt 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 will be
F-15
recognized as either assets or liabilities and measured at fair value. The
accounting for changes in fair value of derivatives will depend upon the
intended use of the derivative, and such charges will be recognized either in
net income or other comprehensive income. As permitted by the transition
requirements of SFAS No. 133, as amended, the Company will exempt from the scope
of SFAS No. 133 all host contracts containing embedded derivatives which were
issued, acquired or not substantially modified prior to January 1, 1999. The
Company is not a party to any significant derivative or hedging instrument
covered by SFAS No. 133 at December 31, 2000. The adoption of SFAS No. 133 will
not have a material effect on the Company's consolidated financial position,
liquidity or results of operations.
Note 3 - Business and geographic segments:
The Company's operations are conducted by Kronos in one operating
business segment - the production and sale of TiO2. Titanium dioxide pigments
are used to impart whiteness, brightness and opacity to a wide variety of
products, including paints, plastics, paper, fibers and ceramics. Discontinued
operations consists of the Company's former specialty chemicals business which
was sold in January 1998. See Note 20. At December 31, 2000 and 1999, the net
assets of non-U.S. subsidiaries included in consolidated net assets approximated
$352 million and $375 million, respectively.
The Company evaluates its TiO2 segment performance based on operating
income. Operating income is defined as income from continuing operations before
minority interest, income taxes, interest expense, certain nonrecurring items
and certain general corporate items. Corporate items excluded from operating
income include interest and dividend income not attributable to TiO2 operations,
litigation settlement gains and securities transaction gains and losses. The
accounting policies of the TiO2 segment are the same as those described in Note
2. Interest income included in the calculation of TiO2 operating income is
disclosed in Note 13 as "Trade interest income."
Segment assets are comprised of all assets attributable to the
reportable operating segment. The Company's investment in the TiO2 manufacturing
joint venture (see Note 6) is included in TiO2 business segment assets.
Corporate assets are not attributable to the TiO2 operating segment and consist
principally of cash, cash equivalents, restricted cash equivalents and
marketable securities. For geographic information, net sales are attributed to
the place of manufacture (point of origin) and the location of the customer
(point of destination); property and equipment are attributed to their physical
location.
F-16
Years ended December 31,
2000 1999 1998
--------- --------- ---------
(In thousands)
Business segment - TiO2
Net sales ............................... $ 922,319 $ 908,387 $ 894,724
Other income, excluding corporate ....... 8,167 12,484 6,110
--------- --------- ---------
930,486 920,871 900,834
Cost of sales ........................... 610,449 662,315 618,447
Selling, general and administrative,
excluding corporate .................... 107,554 112,888 111,206
--------- --------- ---------
Operating income .................... 212,483 145,668 171,181
General corporate income (expense):
Securities earnings:
Interest and dividends .......... 8,346 6,597 14,921
Securities gains, net ........... 2,531 -- --
Litigation settlement gains,
net and other income ............... 73,704 4,565 4,421
Corporate expense ................... (29,624) (21,454) (22,763)
Interest expense .................... (31,243) (36,884) (58,070)
--------- --------- ---------
$ 236,197 $ 98,492 $ 109,690
========= ========= =========
Capital expenditures:
Kronos .............................. $ 31,066 $ 32,703 $ 22,310
General corporate ................... 23 2,856 82
--------- --------- ---------
$ 31,089 $ 35,559 $ 22,392
========= ========= =========
Depreciation, depletion and amortization:
Kronos .............................. $ 28,989 $ 33,047 $ 34,341
General corporate ................... 744 683 204
--------- --------- ---------
$ 29,733 $ 33,730 $ 34,545
========= ========= =========
F-17
Years ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(In thousands)
Geographic areas
Net sales - point of origin:
Germany ......................... $ 444,050 $ 459,467 $ 451,061
United States ................... 313,426 299,520 289,701
Canada .......................... 154,579 162,746 158,967
Belgium ......................... 137,829 138,671 159,558
Norway .......................... 98,300 88,277 91,112
Other ........................... 92,691 90,442 96,912
Eliminations .................... (318,556) (330,736) (352,587)
--------- --------- ---------
$ 922,319 $ 908,387 $ 894,724
========= ========= =========
Net sales - point of destination:
Europe .......................... $ 480,388 $ 478,652 $ 493,942
United States ................... 283,327 268,037 246,209
Canada .......................... 53,060 60,834 66,843
Latin America ................... 27,104 35,308 35,281
Asia ............................ 45,922 41,612 21,042
Other ........................... 32,518 23,944 31,407
--------- --------- ---------
$ 922,319 $ 908,387 $ 894,724
========= ========= =========
December 31,
----------------------------------------
2000 1999 1998
---------- ---------- ----------
(In thousands)
Identifiable assets
Net property and equipment:
Germany ....................... $ 173,385 $ 190,292 $ 223,605
Canada ........................ 57,929 62,334 60,574
Belgium ....................... 46,778 49,146 51,683
Norway ........................ 38,361 39,845 42,336
Other ......................... 7,929 6,841 3,961
---------- ---------- ----------
$ 324,382 $ 348,458 $ 382,159
========== ========== ==========
Total assets:
Kronos ........................ $ 893,340 $ 972,549 $ 997,893
General corporate ............. 227,448 83,624 157,752
---------- ---------- ----------
$1,120,788 $1,056,173 $1,155,645
========== ========== ==========
F-18
Note 4 - Marketable securities and securities transactions:
December 31,
---------------------
2000 1999
-------- --------
(In thousands)
Available-for-sale marketable equity securities:
Unrealized gains ................................. $ 14,912 $ 6,700
Unrealized losses ................................ (1,244) (2,304)
Cost ............................................. 33,518 10,659
-------- --------
Aggregate fair value ......................... $ 47,186 $ 15,055
======== ========
During 2000 the Company purchased 1,000,000 shares of Tremont's common
stock in market transactions for an aggregate of $26 million. Before the close
of business on December 31, 2000, the Company held 16% of Tremont's outstanding
common stock, including approximately 36,000 shares previously held by the
Company, and Valhi held an additional 64% of Tremont's outstanding common stock.
Effective with the close of business on December 31, 2000, the Company
contributed substantially all of its Tremont shares, and Valhi contributed all
of its Tremont shares, to a newly formed company, Tremont Group, Inc., in return
for a 20% and 80% respective ownership interest in Tremont Group. After the
contributions, Tremont Group held the 80% of Tremont previously owned by the
Company and Valhi.
The Company's stock of Tremont Group is redeemable at the option of the
Company for fair value based upon the value of the underlying Tremont shares,
and the Company accounts for its investment in Tremont Group as an
available-for-sale marketable security. The Company also held approximately 1%
of Valhi's outstanding common stock at December 31, 2000 and 1999. The Company
accounts for investments in its parent companies as "available-for-sale"
marketable securities carried at fair value. See Note 1.
In 2000 the Company received approximately 390,000 shares of common
stock pursuant to the demutualization of an insurance company from which the
Company had purchased certain insurance policies. The Company recognized a $5.6
million securities gain based on the insurance company's initial public offering
price of $14-1/4 per share. The shares were placed in a Voluntary Employees'
Beneficiary Association ("VEBA") trust, the assets of which may only be used to
pay for certain retiree benefits. The Company accounted for the $5.6 million
contribution of the insurance company's common stock to the trust as a reduction
of its accrued postretirement benefits cost liability. The shares were sold by
the trust in 2000 for $7.8 million or $20 per share. See Notes 10 and 13.
In 2000 the Company recognized a $3.1 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 13.
F-19
Note 5 - Inventories:
December 31,
-------------------
2000 1999
-------- --------
(In thousands)
Raw materials ............................................ $ 66,061 $ 54,861
Work in process .......................................... 7,117 8,065
Finished products ........................................ 107,120 100,824
Supplies ................................................. 25,675 27,434
-------- --------
$205,973 $191,184
======== ========
Note 6 - Investment in TiO2 manufacturing joint venture:
Kronos Louisiana, Inc. ("KLA"), a wholly owned subsidiary of Kronos,
owns a 50% interest in Louisiana Pigment Company, L.P. ("LPC"). LPC is a
manufacturing joint venture that is also 50%-owned by Tioxide Americas Inc.
("Tioxide"), a subsidiary of Huntsman ICI Holdings, a 70%-owned subsidiary of
Huntsman Corporation. LPC owns and operates a chloride-process TiO2 plant in
Lake Charles, Louisiana.
KLA is required to purchase one-half of the TiO2 produced by LPC. LPC
operates on a break-even basis and, accordingly, the Company reports no equity
in earnings of LPC. Kronos' cost for its share of the TiO2 produced is equal to
its share of LPC's costs. Kronos' share of LPC's interest expense in 1998 was
reported as a component of interest expense. Kronos' share of all other net
costs is reported as cost of sales as the related TiO2 acquired from LPC is
sold.
LPC made cash distributions of $15.1 million in 2000 and $27.3 million
in 1999, equally split between the partners.
Summary balance sheets of LPC are shown below.
December 31,
-----------------------
2000 1999
-------- --------
(In thousands)
ASSETS
Current assets ................................... $ 56,063 $ 55,999
Property and equipment, net ...................... 264,918 279,567
-------- --------
$320,981 $335,566
======== ========
LIABILITIES AND PARTNERS' EQUITY
Other liabilities, primarily current ............. $ 18,749 $ 18,234
Partners' equity ................................. 302,232 317,332
-------- --------
$320,981 $335,566
======== ========
F-20
Summary income statements of LPC are shown below.
Years ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Revenues and other income:
Kronos ........................... $ 92,530 $ 85,304 $ 90,392
Tioxide .......................... 93,366 86,309 89,879
Interest ......................... 578 569 753
-------- -------- --------
186,474 172,182 181,024
-------- -------- --------
Cost and expenses:
Cost of sales .................... 186,045 171,829 178,803
General and administrative ....... 429 353 348
Interest ......................... -- -- 1,873
-------- -------- --------
186,474 172,182 181,024
-------- -------- --------
Net income ................... $ -- $ -- $ --
======== ======== ========
Note 7 - Accounts payable and accrued liabilities:
December 31,
---------------------------
2000 1999
-------- --------
(In thousands)
Accounts payable ......................... $ 64,553 $ 56,597
-------- --------
Accrued liabilities:
Employee benefits .................... 34,160 35,243
Interest ............................. 5,019 6,761
Deferred income ...................... 4,000 4,000
Other ................................ 40,145 40,531
-------- --------
83,324 86,535
-------- --------
$147,877 $143,132
======== ========
F-21
Note 8 - Other noncurrent liabilities:
December 31,
-------------------------
2000 1999
------- -------
(In thousands)
Insurance claims expense ................... $10,314 $11,688
Employee benefits .......................... 7,721 7,816
Deferred income ............................ 4,333 8,333
Other ...................................... 904 1,493
------- -------
$23,272 $29,330
======= =======
Note 9 - Notes payable and long-term debt:
December 31,
---------------------
2000 1999
-------- --------
(In thousands)
Notes payable ........................................ $ 69,970 $ 57,076
======== ========
Long-term debt:
NL Industries - 11.75% Senior Secured Notes ...... $194,000 $244,000
Kronos ........................................... 2,093 478
-------- --------
196,093 244,478
Less current maturities .......................... 730 212
-------- --------
$195,363 $244,266
======== ========
The Company's $194 million of 11.75% Senior Secured Notes due 2003 (the
"Notes") are collateralized by a series of intercompany notes from Kronos
International, Inc. ("KII"), a wholly owned subsidiary of Kronos, to NL, the
interest rate and payment terms of which mirror those of the respective Notes
(the "Mirror Notes"). The Notes are also collateralized by a 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 full and unconditional guarantee of the
Notes by Kronos. In lieu of providing separate audited financial statements of
Kronos, the Company has included condensed consolidating financial information
in accordance with Rule 3-10 (e) of the SEC's Regulation S-X. See Note 21.
The Company redeemed $50 million (par value) of the Notes on December
29, 2000 at 101.5%. The remaining Notes are redeemable, at the Company's option,
at a redemption price of 101.5% of the principal amount, declining to 100% in
October 2001. In the event of a Change of Control, as defined in the indenture,
the Company would be required to make an offer to purchase the Notes at 101% of
the principal amount of the Notes. The Notes are issued pursuant to an indenture
which contains a number of covenants and restrictions which, among others,
restrict the ability of the Company and its subsidiaries to incur debt, incur
liens, pay dividends, merge or consolidate with, or sell or transfer all or
substantially all of their assets to another entity. At December 31, 2000, $20
million was available for payment of dividends pursuant to
F-22
the terms of the indenture. The quoted market price of the Notes per $100
principal amount was $101 and $103.75 at December 31, 2000 and 1999,
respectively.
Notes payable consist of short-term borrowings denominated in non-U.S.
currencies due within one year from non-U.S. banks. Borrowings total $70 million
(euro 51 million and NOK 200 million) at December 31, 2000 and $57million (euro
57 million) at December 31, 1999. Interest rates on notes payable ranged from
5.33% to 7.92% at December 31, 2000 and from 3.03% to 4.30% at December 31,
1999.
Unused lines of credit available for borrowing under the Company's
non-U.S. credit facilities approximated $16 million at December 31, 2000.
During 1998 the Company redeemed (i) $6 million principal amount of its
Senior Secured Notes at par value pursuant to a tender offer; and (ii) the
entire issue of its 13% Senior Secured Discount Notes ($187.5 million principal
amount at maturity) with premiums ranging between 1.25% and 6% in market
transactions or pursuant to a tender offer.
The aggregate maturities of long-term debt at December 31, 2000 are
shown in the table below.
Years ending December 31, Amount
--------------
(In thousands)
2001 $ 730
2002 627
2003 194,549
2004 61
2005 66
2006 60
--------
$196,093
========
Note 10 - Employee benefit plans:
Company-sponsored pension plans
The Company maintains various defined benefit and defined contribution
pension plans covering substantially all employees. Non-U.S. employees are
covered by plans in their respective countries and a majority of U.S. employees
are eligible to participate in a contributory savings plan.
The Company contributes to eligible U.S. employees' accounts an amount
equal to approximately 4% (3% in 1999 and 1998) of the employee's annual
eligible earnings and partially matches employee contributions to the U.S.
contributory savings plan. The Company also has an unfunded, nonqualified
defined contribution plan covering certain executives, and participants' account
balances are credited based on a formula involving eligible earnings. The
Company's expense related to these plans included in continuing operations was
$1.6 million in 2000, $1.1 million in 1999 and $1.3 million in 1998. Expense
related to these plans included in discontinued operations was nil in 1998.
F-23
Certain actuarial assumptions used in measuring the defined benefit
pension assets, liabilities and expenses are presented below.
December 31,
-----------------------------------
2000 1999 1998
---- ---- ----
(Percentages)
Discount rate ................................. 6.0 to 7.8 5.8 to 7.5 5.5 to 8.5
Rate of increase in future compensation levels. 3.0 to 4.5 2.5 to 4.5 2.5 to 6.0
Long-term rate of return on plan assets ....... 7.0 to 9.0 6.0 to 9.0 6.0 to 9.0
During 1998 the Company curtailed certain U.S. employee pension benefits
and recognized a gain of $1.5 million, which is included in discontinued
operations. Plan assets are comprised primarily of investments in U.S. and
non-U.S. corporate equity and debt securities, short-term investments, mutual
funds and group annuity contracts.
SFAS No. 87, "Employers' Accounting for Pension Costs" requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit obligation exceeds the unfunded accrued pension liability. Variances
from actuarially assumed rates will change the actuarial valuation of accrued
pension liabilities, pension expense and funding requirements in future periods.
The components of the net periodic defined benefit pension cost,
excluding curtailment (gain) loss and discontinued operations, are set forth
below.
Years ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Net periodic pension cost:
Service cost benefits ............................... $ 4,063 $ 3,942 $ 3,835
Interest cost on projected benefit obligation ("PBO") 15,088 16,170 15,669
Expected return on plan assets ...................... (15,403) (15,567) (15,172)
Amortization of prior service cost .................. 238 267 332
Amortization of net transition obligation ........... 530 578 173
Recognized actuarial losses ......................... 226 1,144 385
-------- -------- --------
$ 4,742 $ 6,534 $ 5,222
======== ======== ========
F-24
The funded status of the Company's defined benefit pension plans is set
forth below.
December 31,
----------------------
2000 1999
--------- ---------
(In thousands)
Change in PBO:
Beginning of year ................................ $ 260,186 $ 296,013
Service cost ..................................... 4,063 3,942
Interest ......................................... 15,088 16,170
Participant contributions ........................ 1,027 939
Actuarial (gain) loss ............................ 1,022 (14,303)
Benefits paid .................................... (16,993) (16,345)
Change in currency exchange rates ................ (16,038) (26,230)
--------- ---------
End of year .................................. 248,355 260,186
--------- ---------
Change in fair value of plan assets:
Beginning of year ................................ 218,942 221,035
Actual return on plan assets ..................... 11,762 21,444
Employer contributions ........................... 16,558 11,236
Participant contributions ........................ 1,027 939
Benefits paid .................................... (16,993) (16,345)
Change in currency exchange rates ................ (14,312) (19,367)
--------- ---------
End of year .................................. 216,984 218,942
--------- ---------
Funded status at year end:
Plan assets less than PBO ........................ (31,371) (41,244)
Unrecognized actuarial loss ...................... 24,191 21,603
Unrecognized prior service cost .................. 1,693 2,137
Unrecognized net transition obligation ........... 786 514
--------- ---------
$ (4,701) $ (16,990)
========= =========
Amounts recognized in the balance sheet:
Prepaid pension cost ............................. $ 22,789 $ 23,271
Accrued pension cost:
Current ...................................... (6,270) (9,071)
Noncurrent ................................... (21,220) (32,946)
Accumulated other comprehensive income (loss) .... -- 1,756
--------- ---------
$ (4,701) $ (16,990)
========= =========
Selected information related to the Company's defined benefit pension
plans that have accumulated benefit obligations in excess of fair value of plan
assets is presented below. At December 31, 2000, 76% of the projected benefit
obligations of such plans relate to non-U.S. plans (1999 - 75%).
F-25
December 31,
-------------------------
2000 1999
-------- --------
(In thousands)
Projected benefit obligation ................. $190,141 $194,204
Accumulated benefit obligation ............... 169,077 164,262
Fair value of plan assets .................... 149,767 146,435
Incentive bonus programs
Certain employees are eligible to participate in the Company's various
incentive bonus programs. The programs provide for annual payments, which may be
in the form of cash or NL common stock. The amount of the annual payment paid to
an employee, if any, is based on formulas involving the profitability of Kronos
in relation to the annual operating plan and, for most of these employees,
individual performance.
Postretirement benefits other than pensions
In addition to providing pension benefits, the Company currently
provides certain health care and life insurance benefits for eligible retired
employees. Certain of the Company's Canadian employees may become eligible for
such postretirement health care and life insurance benefits if they reach
retirement age while working for the Company. In 1989 the Company began phasing
out such benefits for currently active U.S. employees over a ten-year period and
U.S. employees retiring after 1998 are not entitled to any such benefits. The
majority of all retirees are required to contribute a portion of the cost of
their benefits and certain current and future retirees are eligible for reduced
health care benefits at age 65. With the exception of the $5.6 million
contributed to the VEBA trust discussed in Note 4, the Company's policy is to
fund medical claims as they are incurred, net of any contributions by the
retirees.
For measuring the OPEB liability at December 31, 2000, the expected rate
of increase in health care costs is 8.5% in 2001 decreasing to 5.5% in 2007.
Other weighted-average assumptions used to measure the liability and expense are
presented below.
December 31,
-----------------------
2000 1999 1998
---- ---- ----
(Percentages)
Discount rate ....................................... 7.3 7.5 6.5
Long-term rate for compensation increases ........... 6.0 6.0 6.0
Long-term rate of return on plan assets ............. 7.7 9.0 9.0
Variances from actuarially assumed rates will change accrued OPEB
liabilities, net periodic OPEB expense and funding requirements in future
periods. If the health care cost trend rate was increased (decreased) by one
percentage point for each year, postretirement benefit expense would have
increased approximately $.1 million (decreased by $.1 million) in 2000, and the
projected benefit obligation at December 31, 2000 would have increased by
approximately $1.7 million (decreased by $1.5 million). During 1998, as a result
of the sale of Rheox, the Company settled certain U.S. employee OPEB benefits
and recognized a $3.2 million gain, all of which is included in discontinued
operations.
F-26
The components of the Company's net periodic postretirement benefit
cost, excluding curtailment and settlement gains and discontinued operations,
are set forth below. The net periodic postretirement benefit costs included in
discontinued operations excluding the settlement gain was nil in 1998.
Years ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
(In thousands)
Net periodic OPEB cost (benefit):
Service cost benefits .................. $ 84 $ 40 $ 43
Interest cost on PBO ................... 2,646 2,069 2,393
Expected return on plan assets ......... (521) (526) (583)
Amortization of prior service cost ..... (2,075) (2,075) (2,075)
Recognized actuarial losses (gains) .... 24 (573) (811)
------- ------- -------
$ 158 $(1,065) $(1,033)
======= ======= =======
December 31,
-----------------------
2000 1999
-------- --------
(In thousands)
Change in PBO:
Beginning of year ............................ $ 37,354 $ 33,812
Service cost ................................. 84 40
Interest cost ................................ 2,646 2,069
Actuarial losses ............................. 1,672 5,714
Benefits paid from:
Company funds ............................ (1,790) (3,316)
Plan assets .............................. (2,859) (1,078)
Change in currency exchange rates ............ (67) 113
-------- --------
End of year .............................. 37,040 37,354
-------- --------
Change in fair value of plan assets:
Beginning of year ............................ 5,968 6,365
Actual return on plan assets ................. 2,705 206
Employer contributions ....................... 6,028 475
Benefits paid ................................ (2,859) (1,078)
-------- --------
End of year .............................. 11,842 5,968
-------- --------
Funded status at year end:
Plan assets less than PBO .................... (25,198) (31,386)
Unrecognized actuarial gain .................. (1,135) (575)
Unrecognized prior service cost .............. (7,858) (9,933)
-------- --------
$(34,191) $(41,894)
======== ========
Amounts recognized in the balance sheet:
Current ...................................... $ (4,787) $ (4,789)
Noncurrent ................................... (29,404) (37,105)
-------- --------
$(34,191) $(41,894)
======== ========
F-27
Note 11 - Shareholders' equity:
Common stock
Shares of common stock
----------------------------------
Treasury
Issued stock Outstanding
------ -------- -----------
(In thousands)
Balance at December 31, 1997 .......... 66,839 15,572 51,267
Treasury shares reissued .......... -- (544) 544
------ ------ ------
Balance at December 31, 1998 .......... 66,839 15,028 51,811
Treasury shares acquired .......... -- 552 (552)
Treasury shares reissued .......... -- (25) 25
------ ------ ------
Balance at December 31, 1999 .......... 66,839 15,555 51,284
Treasury shares acquired .......... -- 1,682 (1,682)
Treasury shares reissued .......... -- (450) 450
------ ------ ------
Balance at December 31, 2000 .......... 66,839 16,787 50,052
====== ====== ======
Pursuant to its share repurchase program, the Company purchased
1,682,000 shares of its common stock at an aggregate cost of $30.9 million in
2000 and 552,000 shares of its common stock in the open market at an aggregate
cost of $7.2 million in 1999. Approximately 766,000 additional shares are
available for purchase under the Company's share repurchase program. The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.
The Company reinstated a regular quarterly dividend in June 1998 and
subsequently paid three quarterly $.03 per share cash dividends in 1998. In
February 1999 the Company increased the regular quarterly dividend to $.035 per
share and subsequently paid four quarterly $.035 per share cash dividends in
1999. In February 2000 the Company increased the regular quarterly dividend to
$.15 per share and subsequently paid three quarterly $.15 per share cash
dividends in the first nine months of 2000. In October 2000 the Company
increased the regular quarterly dividend to $.20 per share and subsequently paid
a quarterly $.20 per share cash dividend in the fourth quarter of 2000. On
February 7, 2001, the Company's Board of Directors declared a regular quarterly
dividend of $.20 per share to shareholders of record as of March 14, 2001 to be
paid on March 28, 2001.
Common stock options
The NL Industries, Inc. 1998 Long-Term Incentive Plan (the "NL Option
Plan") provides for the discretionary grant of restricted common stock, stock
options, stock appreciation rights ("SARs") and other incentive compensation to
officers and other key employees of the Company. Although certain stock options
granted pursuant to a similar plan which preceded the NL Option Plan ("the
Predecessor Option Plan") remain outstanding at December 31, 2000, no additional
options may be granted under the Predecessor Option Plan.
Up to five million shares of NL common stock may be issued pursuant to
the NL Option Plan and, at December 31, 2000, 4,147,000 shares were available
for future grants. The NL Option Plan provides for the grant of options that
qualify as incentive options and for options which are not so qualified.
Generally, stock options and SARs (collectively, "options") are granted at a
price equal to or greater than 100% of the
F-28
market price at the date of grant, vest over a five year period and expire ten
years from the date of grant. Restricted stock, forfeitable unless certain
periods of employment are completed, is held in escrow in the name of the
grantee until the restriction period expires. No SARs have been granted under
the NL Option Plan.
In addition to the NL Option Plan, the Company had a stock option plan
for its nonemployee directors that expired in 1998. At December 31, 2000, there
were options to acquire 2,000 shares of common stock outstanding under this
plan, all of which were fully vested. Future grants to directors are expected to
be granted from the NL Option Plan.
Changes in outstanding options granted pursuant to the NL Option Plan,
the Predecessor Option Plan and the nonemployee director plan are summarized in
the table below.
Exercise price Amount
per share payable
-------------------- upon
Shares Low High exercise
------ --------- --------- --------
(In thousands, except per share amounts)
Outstanding at December 31, 1997 2,845 $ 4.81 $ 24.19 $ 34,761
Granted .................... 474 17.97 21.97 9,334
Exercised .................. (960) 4.81 17.25 (8,740)
Forfeited .................. (240) 5.00 19.97 (4,336)
----- --------- --------- --------
Outstanding at December 31, 1998 2,119 5.00 24.19 31,019
Granted .................... 410 11.28 15.19 5,377
Exercised .................. (25) 5.00 11.81 (209)
Forfeited .................. (67) 8.69 22.63 (1,244)
----- --------- --------- --------
Outstanding at December 31, 1999 2,437 5.00 24.19 34,943
Granted .................... 432 14.25 14.44 6,165
Exercised .................. (918) 5.00 17.97 (9,508)
Forfeited .................. (349) 8.69 24.19 (7,237)
----- --------- --------- --------
Outstanding at December 31, 2000 1,602 $ 5.00 $ 21.97 $ 24,363
===== ========= ========= ========
At December 31, 2000, 1999 and 1998 options to purchase 363,480,
1,255,901 and 957,861 shares, respectively, were exercisable and options to
purchase 340,800 shares become exercisable in 2001. All of the exercisable
options at December 31, 2000 had exercise prices less than the Company's
December 31, 2000 quoted market price of $24.25 per share. Outstanding options
at December 31, 2000 expire at various dates through 2010, with a
weighted-average remaining life of eight years.
The pro forma information required by SFAS No. 123, "Accounting for
Stock-Based Compensation," is based on an estimation of the fair value of
options issued subsequent to January 1, 1995. The weighted-average fair values
of options granted during 2000, 1999 and 1998 were $4.83, $6.94 and $9.78 per
share, respectively. The fair values of employee stock options were calculated
using the Black-Scholes stock option valuation model with the following weighted
average assumptions for grants in 2000, 1999 and 1998: stock price volatility of
48%, 50% and 51% in 2000, 1999 and 1998, respectively; risk-free rate of return
of
F-29
5% in 2000, 6% in 1999 and 4% in 1998; dividend yield of 4.9% in 2000, 1.2% in
1999 and .9% in 1998; and an expected term of 9 years in 2000 and 1999 and 8
years in 1998. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period.
The Company's pro forma net income and basic net income per common share
were as follows. The pro forma impact on earnings per common share for 2000,
1999 and 1998 is not necessarily indicative of future effects on earnings per
share.
Years ended December 31,
-------------------------------------------
2000 1999 1998
----------- ----------- -----------
(In thousands except per share amounts)
Net income - as reported ...................... $ 154,609 $ 159,771 $ 366,678
Net income - pro forma ........................ $ 152,201 $ 156,868 $ 363,843
Net income per basic common share - as reported $ 3.07 $ 3.09 $ 7.13
Net income per basic common share - pro forma . $ 3.02 $ 3.03 $ 7.07
Preferred stock
The Company is authorized to issue a total of five million shares of
preferred stock. The rights of preferred stock as to dividends, redemption,
liquidation and conversion are determined upon issuance.
Note 12 - Income taxes:
The components of (i) income from continuing operations before income
taxes and minority interest ("pretax income"), (ii) the difference between the
provision for income taxes attributable to pretax income and the amounts that
would be expected using the U.S. federal statutory income tax rate of 35%, (iii)
the provision for income taxes and (iv) the comprehensive tax provision are
presented below.
Years ended December 31,
------------------------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Pretax income:
U.S ..................... $ 73,646 $ 23,642 $ 57,638
Non-U.S ................. 162,551 74,850 52,052
-------- -------- --------
$236,197 $ 98,492 $109,690
======== ======== ========
F-30
Years ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Expected tax expense ..................................... $ 82,669 $ 34,472 $ 38,391
Non-U.S. tax rates ....................................... (6,445) 6,119 2,507
Resolution of German income tax audits ................... (5,500) (36,490) --
Change in valuation allowance:
Corporate restructuring in Germany and other ......... -- (77,580) --
Change in German income tax law ...................... -- 24,070 --
Recognition of certain deductible tax attributes which
previously did not meet the "more-likely-than-not" . (2,600) (15,807) (19,143)
recognition criteria
Incremental tax on income of companies not included in the
NL Tax Group ........................................... 1,943 2,747 4,277
German rate change adjustment of deferred taxes .......... 5,695 -- --
Refund of prior-year German dividend withholding taxes ... -- -- (8,219)
U.S. state income taxes .................................. 1,348 (680) 307
Other, net ............................................... 1,310 (1,452) 1,668
-------- -------- --------
Income tax expense (benefit) ......................... $ 78,420 $(64,601) $ 19,788
======== ======== ========
Provision for income taxes:
Current income tax expense (benefit):
U.S. federal ..................................... $ (8,255) $ 193 $ 850
U.S. state ....................................... 622 (2,489) 307
Non-U.S .......................................... 45,867 24,467 13,643
-------- -------- --------
38,234 22,171 14,800
-------- -------- --------
Deferred income tax expense (benefit):
U.S. federal ..................................... 32,128 (47,426) 2,112
U.S. state ....................................... 726 1,809 --
Non-U.S .......................................... 7,332 (41,155) 2,876
-------- -------- --------
40,186 (86,772) 4,988
-------- -------- --------
$ 78,420 $(64,601) $ 19,788
======== ======== ========
Comprehensive provision (benefit) for
income taxes allocable to:
Pretax income ...................................... $ 78,420 $(64,601) $ 19,788
Discontinued operations ............................ -- -- 87,000
Extraordinary item ................................. (394) -- (5,698)
Additional paid-in capital ......................... (3,224) (16) (3,796)
Other comprehensive income - marketable securities . 3,244 (883) 108
-------- -------- --------
$ 78,046 $(65,500) $ 97,402
======== ======== ========
F-31
The components of the net deferred tax liability are summarized below:
December 31,
--------------------------------------------------------
2000 1999
---- ----
Deferred tax Deferred tax
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
(In thousands)
Tax effect of temporary differences relating to:
Inventories ................................. $ 4,027 $ (2,966) $ 4,025 $ (2,086)
Property and equipment ...................... 61,738 (53,753) 96,548 (53,313)
Accrued postretirement benefits cost ........ 13,145 -- 14,575 --
Accrued (prepaid) pension cost .............. 4,348 (22,928) 6,288 (24,830)
Accrued environmental costs ................. 37,761 -- 37,439 --
Noncompete agreement ........................ 2,917 -- 4,317 --
Other accrued liabilities and deductible
differences ............................... 18,327 -- 16,878 --
Other taxable differences ................... -- (122,561) -- (87,041)
Tax on unremitted earnings of non-U.S
subsidiaries .................................. -- (4,396) -- (20,727)
Tax loss and tax credit carryforwards ........... 119,064 -- 144,985 --
Valuation allowance ............................. (190,312) -- (233,595) --
--------- --------- --------- ---------
Gross deferred tax assets (liabilities) ..... 71,015 (206,604) 91,460 (187,997)
Reclassification, principally netting by
tax jurisdiction .............................. (59,109) 59,109 (79,445) 79,445
--------- --------- --------- ---------
Net total deferred tax assets (liabilities) . 11,906 (147,495) 12,015 (108,552)
Net current deferred tax assets (liabilities) 11,673 (1,822) 11,974 (326)
--------- --------- --------- ---------
Net noncurrent deferred tax assets
(liabilities).............................. $ 233 $(145,673) $ 41 $(108,226)
========= ========= ========= =========
Changes in the Company's deferred income tax valuation allowance are
summarized below. The deductible temporary differences in 1998 include items
that have been reported as discontinued operations.
Years ended December 31,
---------------------------------------
2000 1999 1998
--------- --------- ---------
(In thousands)
Balance at the beginning of year .................................. $ 233,595 $ 134,477 $ 188,585
Recognition of certain deductible tax attributes which
previously did not meet the "more-likely-than-not"
recognition criteria ........................................ (2,600) (70,946) (64,274)
Increase in certain deductible temporary differences which
the Company believes do not meet the "more-likely-than-
not" recognition criteria ................................... -- 1,629 6,964
Offset to the change in gross deferred income tax assets
due principally to redeterminations of certain tax attributes
and implementation of certain tax planning strategies ....... (24,955) 183,150 (3,734)
Foreign currency translation .................................. (15,728) (14,715) 6,936
--------- --------- ---------
Balance at the end of year ........................................ $ 190,312 $ 233,595 $ 134,477
========= ========= =========
F-32
A reduction in the German "base" income tax rate from 30% to 25%,
enacted in October 2000, became effective January 1, 2001. The reduction in the
German income tax rate resulted in $5.7 million of additional deferred income
tax expense in the fourth quarter of 2000 due to a reduction of the Company's
deferred income tax asset related to certain German tax attributes. The Company
does not expect its future current income tax expense to be affected by the rate
change in Germany.
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 has received tax assessments from the Norwegian tax
authorities proposing tax deficiencies including related interest of
approximately NOK 38 million ($4.3 million at December 31, 2000) relating to
1994 and 1996. The Company is currently litigating the primary issue related to
the 1994 assessment and in February 2001 the Norwegian Appeals Court ruled in
favor of the Norwegian tax authorities. The Company has appealed the case to the
Norwegian Supreme Court and believes that the outcome of the 1996 case is
dependent on the eventual outcome of the 1994 case. The Company has granted a
lien for the 1994 and 1996 tax assessments 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 12.7 million ($11.8 million at December
31, 2000). 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 are without merit.
No assurance can be given that the Company's tax matters will be
favorably resolved due to the inherent uncertainties involved in 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.
The Company recognized a $90 million noncash income tax benefit in 1999
related to (i) a favorable resolution of the Company's previously reported tax
contingency in Germany ($36 million) and (ii) a net reduction in the Company's
deferred income tax valuation allowance due to a change in estimate of the
Company's ability to utilize certain income tax attributes under the
"more-likely-than-not" recognition criteria ($54 million).
The $54 million net reduction in the Company's deferred income tax
valuation allowance is comprised of (i) a $78 million decrease in the valuation
allowance to recognize the benefit of certain deductible income tax attributes
which the Company now believes meets the recognition criteria as a result of,
among other things, a corporate restructuring of the Company's German
subsidiaries offset by (ii) a $24 million increase in the valuation allowance to
reduce the previously recognized benefit of certain other deductible income tax
attributes which the Company now believes do not meet the recognition criteria
due to a change in German tax law.
At December 31, 2000, the Company had, for U.S. federal income tax
purposes, a net operating loss carryforward of approximately $3 million which
expires in 2019. The Company also has approximately $315 million of income tax
loss carryforwards in Germany with no expiration date. In 1998 the Company
utilized $13 million of alternative minimum tax credit carryforwards (the
benefit of which was recognized in
F-33
discontinued operations) to reduce U.S. federal income tax expense. Unutilized
foreign tax credit carryovers of $2 million and $6 million expired in 1999 and
1998, respectively.
Note 13 - Other income, net:
Years ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Securities earnings:
Interest and dividends ........... $ 8,346 $ 6,597 $ 14,921
Securities gains, net ............ 2,531 -- --
-------- -------- --------
10,877 6,597 14,921
Currency transaction gains, net ...... 6,499 10,161 4,157
Noncompete agreement income .......... 4,000 4,000 3,667
Trade interest income ................ 2,333 2,365 2,115
Disposition of property and equipment (1,562) (429) (768)
Other, net ........................... 1,136 952 1,361
-------- -------- --------
$ 23,283 $ 23,646 $ 25,453
======== ======== ========
The Company received a $20 million fee as part of the sale of Rheox in
January 1998 in payment for entering into a five-year covenant not to compete in
the rheological products business. The Company is amortizing the fee to income
using the straight-line method over the five-year noncompete period beginning
January 30, 1998.
Note 14 - Litigation settlement gains, net:
In June 2000 the Company recognized a $43 million net gain from a
settlement with one of its two principal former insurance carriers, and in
December 2000 the Company recognized a $26.5 million net gain from a settlement
with certain members of the other principal former insurance carrier. The
settlement gains are stated net of $3.1 million in commissions, and the gross
settlement proceeds of $72.6 million were transferred by the carriers to special
purpose trusts established to pay future remediation and other environmental
expenditures of the Company. A settlement with remaining members of the second
carrier group was reached in January 2001, and the Company expects to recognize
a $10 million gain in the first quarter of 2001. The settlements resolved court
proceedings that the Company initiated to seek reimbursement for legal defense
expenditures and indemnity coverage for certain of its environmental remediation
expenditures.
Note 15 - Other items:
Advertising expense included in continuing operations is expensed as
incurred and was $1 million in each of 2000, 1999 and 1998.
Research, development and certain sales technical support costs included
in continuing operations is expensed as incurred and approximated $6 million in
2000 and $7 million in each of 1999 and 1998.
Interest capitalized related to continuing operations in connection with
long-term capital projects was nil in each of 2000 and 1999 and $1 million in
1998.
F-34
Note 16 - Related party transactions:
The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions such as guarantees,
management and expense sharing arrangements, shared fee arrangements, tax
sharing agreements, joint ventures, partnerships, loans, options, advances of
funds on open account, and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties and (b) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases, and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and
have included transactions which resulted in the acquisition by one related
party of a publicly held minority equity interest in another related party.
While no transactions of the type described above are planned or proposed with
respect to the Company other than as set forth in this Annual Report on Form
10-K, the Company from time to time considers, reviews and evaluates and
understands that Contran, Valhi and related entities consider, review and
evaluate, such transactions. Depending upon the business, tax and other
objectives then relevant, and restrictions under the indentures and other
agreements, it is possible that the Company might be a party to one or more such
transactions in the future.
It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.
The Company is a party to an intercorporate services agreement with
Contran (the "Contran ISA") whereby Contran provides certain management services
to the Company on a fee basis. Intercorporate services fee expense related to
the Contran ISA was and $1.0 million in each of 2000, 1999 and 1998.
The Company is a party to an intercorporate services agreement with
Valhi (the "Valhi ISA") whereby Valhi and the Company provide certain
management, financial and administrative services to each other on a fee basis.
Net intercorporate services fee expense related to the Valhi ISA was $.2 million
in 2000, $.1 million in 1999 and nil in 1998.
The Company is party to an intercorporate services agreement with
Tremont (the "Tremont ISA"). Under the terms of the contract, the Company
provides certain management and financial services to Tremont on a fee basis.
Intercorporate services fee income related to the Tremont ISA was $.1 million in
each of 2000, 1999 and 1998.
The Company is party to an intercorporate services agreement (the "Timet
ISA") with Titanium Metals Corporation ("Timet"), approximately 47% of the
outstanding common stock of which is currently held by Tremont and another
entity related to Harold C. Simmons. Under the terms of the contract, the
Company provides certain management and financial services to Timet on a fee
basis. Intercorporate services fee income related to the Timet ISA was $.3
million in each of 2000, 1999 and 1998.
The Company is party to an intercorporate services agreement (the "CompX
ISA") with CompX International, Inc. ("CompX"), a subsidiary of Valhi. Under the
terms of the contract, the Company provides certain management and
administrative services to CompX on a fee basis. Intercorporate services fee
income related to the CompX ISA was $.2 million in 2000 and $.1 million in each
of 1999 and 1998.
Purchases of TiO2 from LPC were $92.5 in 2000, $85.3 million in 1999 and
$89.0 million in 1998.
F-35
The Company and Tall Pines Insurance Company ("Tall Pines") (formerly NL
Insurance, Ltd. of Vermont), a wholly owned subsidiary of Tremont, are parties
to an Insurance Sharing Agreement with respect to certain loss payments and
reserves established by Tall Pines that (i) arise out of claims against other
entities for which the Company is contractually responsible and (ii) are subject
to payment by Tall Pines under certain reinsurance contracts. Also, Tall Pines
will credit the Company with respect to certain underwriting profits or credit
recoveries that Tall Pines receives from independent reinsurers that relate to
retained liabilities. At December 31, 2000, the Company has $9.7 million of
restricted cash that collateralizes certain of Tall Pines' outstanding letters
of credit.
Tall Pines, Valmont and EWI RE, Inc. ("EWI") provide for or broker
certain of the Company's, its joint venture's and its affiliates' insurance
policies. Valmont is a wholly owned insurance company of Valhi. Parties related
to Contran own all of the outstanding common stock of EWI. Through December 31,
2000, a son-in-law of Harold C. Simmons managed the operations of EWI.
Subsequent to December 31, 2000, such son-in-law provides advisory services to
EWI as requested by EWI. Consistent with insurance industry practices, Tall
Pines, Valmont and EWI receive commissions from the insurance and reinsurance
underwriters for the policies that they provide or broker. The Company and its
joint venture paid approximately $5.7 million, $3.7 million and $3.0 million in
2000, 1999 and 1998, respectively, for policies provided or brokered by Tall
Pines, Valmont and EWI. These amounts principally included payments for
reinsurance and insurance premiums paid to unrelated third parties, but also
included commissions paid to Tall Pines, Valmont and EWI. In the Company's
opinion, the amounts that the Company paid for these insurance policies and the
allocation among the Company and its affiliates of relative insurance premiums
are reasonable and similar to those they could have obtained through unrelated
insurance companies and/or brokers. The Company expects that these relationships
with Tall Pines, Valmont and EWI will continue in 2001.
In February 2001 NL Environmental Management Services, Inc., a
majority-owned subsidiary of the Company, loaned $13.4 million to Tremont. The
loan bears interest at prime plus 2%, is due March 31, 2003 and is
collateralized by 10.2 million shares of NL common stock owned by Tremont.
During 2000 the Company purchased 414,000 shares of its common stock
from officers and directors of the Company for an aggregate of $9.4 million.
Such purchases were at market prices on the respective dates of purchase.
F-36
Amounts receivable from and payable to affiliates are summarized in the
following table.
December 31,
------------------------
2000 1999
------- -------
(In thousands)
Receivable from affiliates:
Timet .................................... $ 1 $ 310
CompX .................................... 82 176
Other .................................... 131 261
------- -------
$ 214 $ 747
======= =======
Payable to affiliates:
Tremont Corporation ...................... $ 1,923 $ 2,859
LPC ...................................... 8,711 8,381
------- -------
$10,634 $11,240
======= =======
Amounts payable to LPC are generally for the purchase of TiO2 (see Note
6), and amounts payable to Tremont principally relate to the Company's Insurance
Sharing Agreement described above.
Note 17 - Commitments and contingencies:
Leases
The Company leases, pursuant to operating leases, various manufacturing
and office space and transportation equipment. Most of the leases contain
purchase and/or various term renewal options at fair market and fair rental
values, respectively. In most cases management expects that, in the normal
course of business, leases will be renewed or replaced by other leases.
Kronos' principal German operating subsidiary leases the land under its
Leverkusen TiO2 production facility pursuant to a lease expiring in 2050. The
Leverkusen facility, with approximately one-third of Kronos' current TiO2
production capacity, is located within the lessor's extensive manufacturing
complex, and Kronos is the only unrelated party so situated. Under a separate
supplies and services agreement expiring in 2011, the lessor provides some raw
materials, auxiliary and operating materials and utilities services necessary to
operate the Leverkusen facility. Both the lease and the supplies and services
agreements restrict the Company's ability to transfer ownership or use of the
Leverkusen facility.
F-36
Net rent expense included in continuing operations aggregated $9 million
in each of 2000 and 1999 and $7 million in 1998. At December 31, 2000, minimum
rental commitments under the terms of noncancellable operating leases, excluding
discontinued operations, were as follows:
Years ending December 31, Real Estate Equipment
----------- ---------
(In thousands)
2001 $ 1,985 $ 1,496
2002 1,780 808
2003 1,630 464
2004 1,243 295
2005 1,094 77
2006 and thereafter 18,886 20
------- -------
$26,618 $ 3,160
======= =======
Capital expenditures
At December 31, 2000, the estimated cost to complete capital projects in
process approximated $16 million, including $4 million to complete an expansion
project increasing finishing capacity at the Company's Belgian facility.
Purchase commitments
The Company has long-term supply contracts that provide for the
Company's chloride feedstock requirements through 2003. The agreements require
the Company purchase certain minimum quantities of feedstock with average
minimum annual purchase commitments aggregating approximately $155 million.
Legal proceedings
Lead pigment litigation. Since 1987 the Company, other former
manufacturers of lead pigments for use in paint and lead-based paint, and the
Lead Industries Association have been named as defendants in various legal
proceedings seeking damages for personal injury and property damage allegedly
caused by the use of lead-based paints. Certain of these actions have been filed
by or on behalf of states, large United States cities or their public housing
authorities and certain others have been asserted as class actions. These legal
proceedings seek recovery under a variety of theories, including negligent
product design, failure to warn, strict liability, breach of warranty,
conspiracy/concert of action, enterprise liability, market share liability,
intentional tort, and fraud and misrepresentation.
The plaintiffs in these actions generally seek to impose on the
defendants responsibility for lead paint abatement and asserted health concerns
associated with the use of lead-based paints, including damages for personal
injury, contribution and/or indemnification for medical expenses, medical
monitoring expenses and costs for educational programs. Most of these legal
proceedings are in various pre-trial stages; some are on appeal.
F-38
The Company believes that these actions are without merit, intends to
continue to deny all allegations of wrongdoing and liability and to defend all
actions vigorously. The Company has not accrued any amounts for the pending lead
pigment litigation. Considering the Company's previous involvement in the lead
and lead pigment businesses, there can be no assurance that additional
litigation similar to that currently pending will not be filed.
Environmental matters and litigation. Some of the Company's current and
former facilities, including several divested secondary lead smelters and former
mining locations, are the subject of civil litigation, administrative
proceedings or investigations arising under federal and state environmental
laws. Additionally, in connection with past disposal practices, the Company has
been named a potential responsible party ("PRP") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act ("CERCLA") in approximately 75
governmental and private actions associated with hazardous waste sites and
former mining locations, certain of which are on the U.S. Environmental
Protection Agency's Superfund National Priorities List. These actions seek
cleanup costs, damages for personal injury or property damage and/or damages for
injury to natural resources. While the Company may be jointly and severally
liable for such costs, in most cases it is only one of a number of PRPs who are
also jointly and severally liable. In addition, the Company is a party to a
number of lawsuits filed in various jurisdictions alleging CERCLA or other
environmental claims.
At December 31, 2000, the Company had accrued $110 million for those
environmental matters which are reasonably estimable. It is not possible to
estimate the range of costs for certain sites. The upper end of the range of
reasonably possible costs to the Company for sites which it is possible to
estimate costs is approximately $170 million. The Company's estimates of such
liabilities have not been discounted to present value, and the Company has not
recognized any potential insurance recoveries other than the settlements in 2000
discussed in Note 14.
The imposition of more stringent standards or requirements under
environmental laws or regulations, new developments or changes respecting site
cleanup costs or allocation of such costs among PRPs, or a determination that
the Company is potentially responsible for the release of hazardous substances
at other sites could result in expenditures in excess of amounts currently
estimated by the Company to be required for such matters. No assurance can be
given that actual costs will not exceed accrued amounts or the upper end of the
range for sites for which estimates have been made and no assurance can be given
that costs will not be incurred with respect to sites as to which no estimate
presently can be made. Further, there can be no assurance that additional
environmental matters will not arise in the future.
Certain of the Company's businesses are and have been engaged in the
handling, manufacture or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable environmental laws. As with
other companies engaged in similar businesses, certain past and current
operations and products of the Company have the potential to cause environmental
or other damage. The Company has implemented and continues to implement various
policies and programs in an effort to minimize these risks. The policy of the
Company is to maintain compliance with applicable environmental laws and
regulations at all of its facilities and to strive to improve its environmental
performance. It is possible that future developments, such as stricter
requirements of environmental laws and enforcement policies thereunder, could
adversely affect the Company's production, handling, use, storage,
transportation, sale or disposal of such substances as well as the Company's
consolidated financial position, results of operations or liquidity.
F-39
Other litigation. The Company is also involved in various other
environmental, contractual, product liability and other claims and disputes
incidental to its present and former businesses.
The Company currently believes the disposition of all claims and
disputes individually or in the aggregate, should not have a material adverse
effect on the Company's consolidated financial condition, results of operations
or liquidity.
Concentrations of credit risk
Sales of TiO2 accounted for more than 90% of net sales from continuing
operations during each of the past three years. The remaining sales result from
the mining and sale of ilmenite ore (a raw material used in the sulfate pigment
production process), and the manufacture and sale of iron-based water treatment
chemicals (derived from co-products of the TiO2 production processes). TiO2 is
generally sold to the paint, plastics and paper industries. Such markets are
generally considered "quality-of-life" markets whose demand for TiO2 is
influenced by the relative economic well-being of the various geographic
regions. TiO2 is sold to over 4,000 customers, with the top ten customers
approximating 25% of net sales in each of the last three years. Approximately
one-half of the Company's TiO2 sales by volume were to Europe in each of the
past three years and approximately 37% in each of 1998, 1999 and 2000 of sales
were attributable to North America.
Consolidated cash, cash equivalents, current and noncurrent restricted
cash equivalents includes $159 million and $78 million invested in U.S. Treasury
securities purchased under short-term agreements to resell at December 31, 2000
and 1999, respectively, of which $67 million and $58 million, respectively, of
such securities are held in trust for the Company by a single U.S. bank.
Note 18 - Financial instruments:
Summarized below is the estimated fair value and related net carrying
value of the Company's financial instruments.
December 31, December 31,
2000 1999
-------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(In millions)
Cash, cash equivalents, current and noncurrent
restricted cash equivalents .......................... $ 207.6 $ 207.6 $ 151.8 $ 151.8
Marketable securities - classified as available-for-sale 47.2 47.2 15.1 15.1
Notes payable and long-term debt:
Fixed rate with market quotes - Senior Secured Notes $ 194.0 $ 195.9 $ 244.0 $ 253.2
Variable rate debt ................................. 72.1 72.1 57.6 57.6
Common shareholders' equity ............................ $ 344.5 $ 1,213.8 $ 271.1 $ 774.1
Fair value of the Company's marketable securities and Notes are based
upon quoted market prices and the fair value of the Company's common
shareholder's equity is based upon quoted market prices for NL's common stock at
the end of the year. The Company held no derivative financial instruments at
December 31, 2000 or 1999.
F-40
Note 19 - Quarterly financial data (unaudited):
Quarter ended
-----------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(In thousands, except per share amounts)
Year ended December 31, 2000:
Net sales .................................. $231,009 $251,126 $242,309 $197,875
Cost of sales .............................. 159,265 164,033 159,021 128,130
Operating income ........................... 46,235 62,743 57,511 45,994
Income from continuing operations .......... 23,708 63,438 30,169 38,026(a)
Net income ................................. 23,708 63,438 30,169 37,294(a)
Earnings per share:
Basic:
Income from continuing operations .. $ .47 $ 1.26 $ .60 $ .76(a)
======== ======== ======== ========
Net income ......................... $ .47 $ 1.26 $ .60 $ .75(a)
======== ======== ======== ========
Diluted:
Income from continuing operations .. $ .46 $ 1.25 $ .60 $ .75(a)
======== ======== ======== ========
Net income ......................... $ .46 $ 1.25 $ .60 $ .74(a)
======== ======== ======== ========
Weighted average common shares and potential
common shares outstanding:
Basic .................................. 50,920 50,499 50,203 50,045
Diluted ................................ 51,154 50,850 50,606 50,385
Year ended December 31, 1999:
Net sales .................................. $201,569 $232,568 $242,621 $231,629
Cost of sales .............................. 147,040 167,779 181,745 165,751
Operating income ........................... 30,961 44,136 34,759 35,812
Net income ................................. 13,940 111,823 17,146 16,862
Earnings per share - net income:
Basic .................................. $ .27 $ 2.16 $ .33 $ .33
======== ======== ======== ========
Diluted ................................ $ .27 $ 2.16 $ .33 $ .33
======== ======== ======== ========
Weighted average common shares and potential
common shares outstanding:
Basic .................................. 51,819 51,826 51,835 51,614
Diluted ................................ 51,870 51,883 51,943 51,758
(a) Income from continuing operations in the fourth quarter of 2000 includes
a $26.5 million pretax net litigation settlement gain (see Note 14) and
a $3.1 million noncash securities loss (see Note 4). Net income in the
fourth quarter of 2000 also includes a $.7 million extraordinary item
for early extinguishment of debt, net of tax.
F-41
Note 20 - Discontinued operations:
The Company sold the net assets of its Rheox specialty chemical business
to Elementis plc for $465 million cash (before fees and expenses) in January
1998, including $20 million attributable to a five-year agreement by the Company
not to compete in the rheological products business. The Company recognized an
after-tax gain of approximately $286 million on the sale of this business
segment. As a result of the sale, the Company has presented the results of this
business segment as discontinued operations.
Condensed income statement related to discontinued operations for the
month ended January 31, 1998 is as follows. Interest expense has been allocated
to discontinued operations based on the amount of debt specifically attributed
to Rheox's operations.
Month ended
January 31,
1998
--------------
(In thousands)
Net sales ...................................................... $ 12,630
Other expense, net ............................................. (50)
---------
12,580
---------
Cost of sales .................................................. 6,969
Selling, general and administrative ............................ 2,737
Interest expense ............................................... 771
---------
10,477
---------
Income before income taxes ................................. 2,103
Income tax expense ............................................. 778
---------
1,325
Gain from sale of Rheox, net of tax expense of $86,222 ......... 286,071
---------
$ 287,396
=========
Condensed cash flow data for Rheox (excluding dividends paid to,
contributions received from and intercompany loans with NL) is presented below.
Month ended
January 31,
1998
--------------
(In thousands)
Cash flows from:
Operating activities ...................................... $ (30,587)
Investing activities - capital expenditures ............... (26)
Financing activities - indebtedness, net .................. (117,500)
---------
Net change from operating, investing and
financing activities ................................ $(148,113)
=========
F-42
Note 21 - Condensed consolidating financial information:
The Company's 11.75% Senior Secured 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 such 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 audited 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 audited 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. The elimination entries eliminate the parent's investment in
subsidiaries and the equity in earnings of subsidiaries, intercompany payables
and receivables and other transactions between subsidiaries.
F-43
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
December 31, 2000
(In thousands)
Combined
NL 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 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
=========== =========== =========== =========== ===========
F - 44
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet, (Continued)
December 31, 2000
(In thousands)
Combined
NL 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 29,144 123,555 48,485 -- 201,184
Payable to affiliates .................. 2,140 14,073 612 (6,191) 10,634
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 pension cost ................... 1,438 19,782 -- -- 21,220
Accrued postretirement benefits cost ... 15,039 14,365 -- -- 29,404
Other .................................. 22,189 16,511 41,705 -- 80,405
----------- ----------- ----------- ----------- -----------
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
=========== =========== =========== =========== ===========
F - 45
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
December 31, 1999
(In thousands)
Combined Combined
NL Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ...... $ 13,415 $ 113,062 $ 7,747 $ -- $ 134,224
Restricted cash equivalents .... 17,565 -- -- -- 17,565
Accounts and notes receivable .. 61 143,647 60 -- 143,768
Receivable from affiliates ..... 11,668 -- 562 (11,483) 747
Refundable income taxes ........ 317 4,155 1 -- 4,473
Inventories .................... -- 191,184 -- -- 191,184
Prepaid expenses ............... 227 2,265 -- -- 2,492
Deferred income taxes .......... 5,774 6,200 -- -- 11,974
----------- ----------- ----------- ----------- -----------
Total current assets ....... 49,027 460,513 8,370 (11,483) 506,427
----------- ----------- ----------- ----------- -----------
Other assets:
Investment in subsidiaries ..... 558,898 -- 285 (559,183) --
Marketable securities .......... 2,600 -- 12,455 -- 15,055
Notes receivable from affiliates 244,000 185,839 78,000 (507,839) --
Investment in joint venture .... -- 157,552 -- -- 157,552
Prepaid pension cost ........... -- 24,127 -- (856) 23,271
Deferred income taxes .......... 3,992 41 -- (3,992) 41
Other .......................... 2,620 2,749 -- -- 5,369
----------- ----------- ----------- ----------- -----------
Total other assets ......... 812,110 370,308 90,740 (1,071,870) 201,288
----------- ----------- ----------- ----------- -----------
Property and equipment, net ........ 5,174 343,284 -- -- 348,458
----------- ----------- ----------- ----------- -----------
$ 866,311 $ 1,174,105 $ 99,110 $(1,083,353) $ 1,056,173
=========== =========== =========== =========== ===========
F - 46
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet, (Continued)
December 31, 1999
(In thousands)
Combined Combined
NL Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------- ------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable .......................... $ -- $ 57,076 $ -- $ -- $ 57,076
Current maturities of long-term debt ... -- 212 -- -- 212
Accounts payable and accrued liabilities 30,397 114,512 45,451 -- 190,360
Payable to affiliates .................. 3,444 20,368 614 (13,186) 11,240
Income taxes ........................... 1,470 4,135 -- -- 5,605
Deferred income taxes .................. -- 326 -- -- 326
----------- ----------- ----------- ----------- -----------
Total current liabilities .......... 35,311 196,629 46,065 (13,186) 264,819
----------- ----------- ----------- ----------- -----------
Noncurrent liabilities:
Long-term debt ......................... 244,000 266 -- -- 244,266
Notes payable to affiliate ............. 263,839 244,000 -- (507,839) --
Deferred income taxes .................. -- 111,932 286 (3,992) 108,226
Accrued pension cost ................... 8,410 25,392 -- (856) 32,946
Accrued postretirement benefits cost ... 21,625 15,480 -- -- 37,105
Other .................................. 22,039 21,076 50,706 -- 93,821
----------- ----------- ----------- ----------- -----------
Total noncurrent liabilities ....... 559,913 418,146 50,992 (512,687) 516,364
----------- ----------- ----------- ----------- -----------
Minority interest .......................... -- 312 3,591 -- 3,903
----------- ----------- ----------- ----------- -----------
Shareholders' equity (deficit) ............. 271,087 559,018 (1,538) (557,480) 271,087
----------- ----------- ----------- ----------- -----------
$ 866,311 $ 1,174,105 $ 99,110 $(1,083,353) $ 1,056,173
=========== =========== =========== =========== ===========
F - 47
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
Year ended December 31, 2000
(In thousands)
Combined Combined
NL Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------- ------------ ------------
Revenues and other income:
Net sales .................................. $ -- $ 922,319 $ -- $ -- $ 922,319
Interest and dividends ..................... 31,598 25,587 5,937 (52,443) 10,679
Equity in income of subsidiaries ........... 173,620 -- -- (173,620) --
Litigation settlement gains, net ........... 69,465 -- -- -- 69,465
Other income, net .......................... 12,595 5,834 -- (5,825) 12,604
----------- ----------- ----------- ----------- -----------
287,278 953,740 5,937 (231,888) 1,015,067
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales .............................. -- 610,449 -- -- 610,449
Selling, general and administrative ........ 25,381 112,429 (632) -- 137,178
Interest ................................... 52,701 30,985 -- (52,443) 31,243
----------- ----------- ----------- ----------- -----------
78,082 753,863 (632) (52,443) 778,870
----------- ----------- ----------- ----------- -----------
Income before income taxes, minority
interest and extraordinary item ...... 209,196 199,877 6,569 (179,445) 236,197
Income tax expense ............................. 53,855 22,850 12 1,703 78,420
----------- ----------- ----------- ----------- -----------
Income before minority interest and
extraordinary item ................... 155,341 177,027 6,557 (181,148) 157,777
Minority interest .............................. -- 47 2,389 -- 2,436
----------- ----------- ----------- ----------- -----------
Income before extraordinary item ....... 155,341 176,980 4,168 (181,148) 155,341
Extraordinary item-early extinguishment of debt,
net of tax benefit of $394 ................... (732) -- -- -- (732)
----------- ----------- ----------- ----------- -----------
Net income ............................. $ 154,609 $ 176,980 $ 4,168 $ (181,148) $ 154,609
=========== =========== =========== =========== ===========
F - 48
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
Year ended December 31, 1999
(In thousands)
Combined Combined
NL Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------- ------------ ------------
Revenues and other income:
Net sales ......................... $ -- $ 908,387 $ -- $ -- $ 908,387
Interest and dividends ............ 30,843 24,425 6,823 (53,129) 8,962
Equity in income of subsidiaries .. 154,625 -- -- (154,625) --
Other income, net ................. 4,565 10,119 -- -- 14,684
--------- --------- --------- --------- ---------
190,033 942,931 6,823 (207,754) 932,033
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ..................... -- 662,315 -- -- 662,315
Selling, general and administrative 16,037 116,138 2,167 -- 134,342
Interest .......................... 49,872 40,141 -- (53,129) 36,884
--------- --------- --------- --------- ---------
65,909 818,594 2,167 (53,129) 833,541
--------- --------- --------- --------- ---------
Income before income taxes
and minority interest ....... 124,124 124,337 4,656 (154,625) 98,492
Income tax benefit .................... 35,647 26,955 1,999 -- 64,601
--------- --------- --------- --------- ---------
Income before minority interest 159,771 151,292 6,655 (154,625) 163,093
Minority interest ..................... -- 48 3,274 -- 3,322
--------- --------- --------- --------- ---------
Net income .................... $ 159,771 $ 151,244 $ 3,381 $(154,625) $ 159,771
========= ========= ========= ========= =========
F - 49
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
Year ended December 31, 1998
(In thousands)
Combined Combined
NL Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Revenues and other income:
Net sales .................................... $ -- $ 894,724 $ -- $ -- $ 894,724
Interest and dividends ....................... 57,901 18,481 3,559 (62,905) 17,036
Equity in income of subsidiaries ............. 73,839 -- -- (73,839) --
Other income, net ............................ 10,056 4,069 (1,997) (3,711) 8,417
--------- --------- --------- --------- ---------
141,796 917,274 1,562 (140,455) 920,177
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ................................ -- 618,754 -- (307) 618,447
Selling, general and administrative .......... 10,756 122,523 691 -- 133,970
Interest ..................................... 55,078 70,762 -- (67,770) 58,070
--------- --------- --------- --------- ---------
65,834 812,039 691 (68,077) 810,487
--------- --------- --------- --------- ---------
Income from continuing operations before
income taxes and minority interest ..... 75,962 105,235 871 (72,378) 109,690
Income tax expense (benefit) ..................... (13,900) 33,601 -- 87 19,788
--------- --------- --------- --------- ---------
Income from continuing operations before
minority interest ...................... 89,862 71,634 871 (72,465) 89,902
Minority interest ................................ -- 40 -- -- 40
--------- --------- --------- --------- ---------
Income from continuing operations ........ 89,862 71,594 871 (72,465) 89,862
Discontinued operations .......................... 287,396 285,385 -- (285,385) 287,396
Extraordinary item - early extinguishment of debt,
net of tax benefit of $5,698 ................... (10,580) 999 -- (999) (10,580)
--------- --------- --------- --------- ---------
Net income ............................... $ 366,678 $ 357,978 $ 871 $(358,849) $ 366,678
========= ========= ========= ========= =========
F - 50
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2000
(In thousands)
Combined Combined
NL Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ -------------- ------------ ------------
Net cash provided (used) by operating activities ....... $ 12,318 $ 177,642 $ 4,795 $ (55,000) $ 139,755
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures ............................... (23) (31,066) -- -- (31,089)
Purchase of Tremont Corporation common stock ....... (26,040) -- -- -- (26,040)
Change in restricted cash .......................... 4,480 -- (3,850) -- 630
Loans to affiliates ................................ 50,000 (115,856) 55,000 10,856 --
Other, net ......................................... 107 77 -- 80 264
--------- --------- --------- --------- ---------
Net cash provided (used) by investing activities 28,524 (146,845) 51,150 10,936 (56,235)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Indebtedness:
Borrowings ..................................... -- 44,923 -- -- 44,923
Principal payments ............................. (50,000) (29,162) -- -- (79,162)
Treasury stock:
Purchased ...................................... (30,886) -- -- -- (30,886)
Reissued ....................................... 2,091 -- -- -- 2,091
Dividends, net ..................................... (32,686) (55,000) -- 55,000 (32,686)
Loans from affiliates .............................. 60,856 (50,000) -- (10,856) --
Other, net ......................................... -- (6) 80 (80) (6)
--------- --------- --------- --------- ---------
Net cash provided (used) by financing activities (50,625) (89,245) 80 44,064 (95,726)
--------- --------- --------- --------- ---------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities .. (9,783) (58,448) 56,025 -- (12,206)
Currency translation ........................... -- (1,635) (5) -- (1,640)
--------- --------- --------- --------- ---------
(9,783) (60,083) 56,020 -- (13,846)
Balance at beginning of year ....................... 13,415 113,062 7,747 -- 134,224
--------- --------- --------- --------- ---------
Balance at end of year ............................. $ 3,632 $ 52,979 $ 63,767 $ -- $ 120,378
========= ========= ========= ========= =========
F - 51
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 1999
(In thousands)
Combined Combined
NL Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------- ------------ ------------
Net cash provided (used) by operating activities ....... $ 28,742 $ 134,937 $ (5,371) $ (50,000) $ 108,308
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures ............................... (2,856) (32,703) -- -- (35,559)
Change in restricted cash .......................... (12,065) -- 6,889 -- (5,176)
Other, net ......................................... (17) 2,334 -- 27 2,344
--------- --------- --------- --------- ---------
Net cash provided (used) by investing activities (14,938) (30,369) 6,889 27 (38,391)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Indebtedness:
Borrowings ..................................... -- 82,038 -- -- 82,038
Principal payments ............................. -- (155,787) -- -- (155,787)
Treasury stock purchased ........................... (7,000) -- -- -- (7,000)
Dividends, net ..................................... (7,242) (50,030) 30 50,000 (7,242)
Other, net ......................................... -- (6) 27 (27) (6)
--------- --------- --------- --------- ---------
Net cash provided (used) by financing activities (14,242) (123,785) 57 49,973 (87,997)
--------- --------- --------- --------- ---------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities .. (438) (19,217) 1,575 -- (18,080)
Currency translation ........................... -- (2,649) -- -- (2,649)
(438) (21,866) 1,575 -- (20,729)
Balance at beginning of year ....................... 13,853 134,928 6,172 -- 154,953
--------- --------- --------- --------- ---------
Balance at end of year ............................. $ 13,415 $ 113,062 $ 7,747 $ -- $ 134,224
========= ========= ========= ========= =========
F - 52
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 1998
(In thousands)
Combined Combined
NL Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------- ------------ ------------
Net cash provided (used) by operating activities .............. $ 92,846 $ 35,899 $ (68,658) $ (15,000) $ 45,087
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures ...................................... (82) (22,310) -- -- (22,392)
Proceeds from disposition of securities ................... 6,875 -- -- -- 6,875
Change in restricted cash ................................. (566) 4,817 (6,889) -- (2,638)
Loans to affiliates ....................................... -- (224,660) -- 224,660 --
Proceeds from sale of specialty chemicals business ........ -- 435,080 -- -- 435,080
Other, net ................................................ 87 284 -- -- 371
--------- --------- --------- --------- ---------
Net cash provided (used) by investing activities ...... 6,314 193,211 (6,889) 224,660 417,296
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Indebtedness:
Borrowings ............................................ -- 30,491 -- -- 30,491
Principal payments .................................... (193,498) (108,113) (14,281) -- (315,892)
Settlement of shareholder derivative lawsuit, net ......... 11,211 -- -- -- 11,211
Dividends, net ............................................ (4,636) (15,000) -- 15,000 (4,636)
Loans from affiliates ..................................... 89,839 38,821 96,000 (224,660) --
Discontinued operations, net .............................. -- (117,500) -- -- (117,500)
Other, net ................................................ 170 (2) -- -- 168
--------- --------- --------- --------- ---------
Net cash provided (used) by financing activities ...... (96,914) (171,303) 81,719 (209,660) (396,158)
--------- --------- --------- --------- ---------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities ......... 2,246 57,807 6,172 -- 66,225
Currency translation .................................. -- (36) -- -- (36)
Sale of discontinued operation ........................ -- (7,630) -- -- (7,630)
--------- --------- --------- --------- ---------
2,246 50,141 6,172 -- 58,559
Balance at beginning of year .............................. 11,607 84,787 -- -- 96,394
--------- --------- --------- --------- ---------
Balance at end of year .................................... $ 13,853 $ 134,928 $ 6,172 $ -- $ 154,953
========= ========= ========= ========= =========
F - 53
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of NL Industries, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated February 28, 2001 appearing on page F-2 in the 2000 Annual Report
to Shareholders on Form 10-K of NL Industries, Inc. (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedules
listed in Item 14(a) and (d) of this Form 10-K. In our opinion, these financial
statement schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
Houston, Texas
February 28, 2001
S-1
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
December 31, 2000 and 1999
(In thousands)
2000 1999
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 3,632 $ 13,415
Restricted cash equivalents .................... 69,242 17,565
Accounts and notes receivable .................. 172 61
Receivable from subsidiaries ................... 6,189 11,668
Refundable income taxes ........................ 10,512 317
Prepaid expenses ............................... 347 227
Deferred income taxes .......................... 6,394 5,774
---------- ----------
Total current assets ....................... 96,488 49,027
---------- ----------
Other assets:
Marketable securities .......................... 452 2,600
Notes receivable from subsidiary ............... 194,000 244,000
Investment in subsidiaries ..................... 687,300 558,898
Deferred income taxes .......................... -- 3,992
Restricted cash equivalents .................... 17,942 --
Prepaid pension cost ........................... 1,772 --
Other .......................................... 1,739 2,620
---------- ----------
Total other assets ......................... 903,205 812,110
---------- ----------
Property and equipment, net ........................ 4,425 5,174
---------- ----------
$1,004,118 $ 866,311
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ....... $ 29,144 $ 30,397
Payable to affiliates .......................... 2,140 3,444
Income taxes ................................... -- 1,470
---------- ----------
Total current liabilities .................. 31,284 35,311
---------- ----------
Noncurrent liabilities:
Long-term debt ................................. 194,000 244,000
Notes payable to affiliates .................... 324,695 263,839
Deferred income taxes .......................... 70,985 --
Accrued pension cost ........................... 1,438 8,410
Accrued postretirement benefits cost ........... 15,039 21,625
Other .......................................... 22,189 22,039
---------- ----------
Total noncurrent liabilities ............... 628,346 559,913
---------- ----------
Shareholders' equity ............................... 344,488 271,087
---------- ----------
$1,004,118 $ 866,311
========== ==========
Contingencies (Note 4)
S-2
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Income
Years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
--------- --------- ---------
Revenues and other income:
Equity in income from continuing
operations of subsidiaries ........ $ 173,620 $ 154,625 $ 73,839
Interest and dividends .............. 2,961 1,184 1,812
Interest income from subsidiaries ... 28,637 29,659 56,089
Securities gains, net ............... 8,356 -- 5,635
Litigation settlement gains, net .... 69,465 -- --
Other income, net ................... 4,239 4,565 4,421
--------- --------- ---------
287,278 190,033 141,796
--------- --------- ---------
Costs and expenses:
General and administrative .......... 25,381 16,037 10,756
Interest ............................ 52,701 49,872 55,078
--------- --------- ---------
78,082 65,909 65,834
--------- --------- ---------
Income from continuing operations
before income taxes ........... 209,196 124,124 75,962
Income tax expense (benefit) ............ 53,855 (35,647) (13,900)
--------- --------- ---------
Income from continuing operations 155,341 159,771 89,862
Discontinued operations ................. -- -- 287,396
Extraordinary items ..................... (732) -- (10,580)
--------- --------- ---------
Net income ...................... $ 154,609 $ 159,771 $ 366,678
========= ========= =========
S-3
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income ......................................... $ 154,609 $ 159,771 $ 366,678
Equity in income of subsidiaries:
Continuing ..................................... (173,620) (154,625) (73,839)
Discontinued ................................... -- -- (287,396)
Distributions from subsidiaries .................... 55,000 50,000 15,000
Noncash interest income, net ....................... (932) (390) (8,660)
Deferred income taxes .............................. 71,837 (18,071) (3,862)
Securities gains, net .............................. (8,356) -- (3,711)
Litigation settlement gains, net ................... (69,465) -- --
Other, net ......................................... (4,399) (3,164) (3,382)
--------- --------- ---------
24,674 33,521 828
Change in assets and liabilities, net .............. (12,356) (4,779) 92,018
--------- --------- ---------
Net cash provided by operating activities ...... 12,318 28,742 92,846
--------- --------- ---------
Cash flows from investing activities:
Change in restricted cash equivalents, net ......... 4,480 (12,065) (566)
Capital expenditures ............................... (23) (2,856) (82)
Purchase of Tremont Corporation common stock ....... (26,040) -- --
Loans to affiliates ................................ 50,000 -- --
Investments in subsidiaries ........................ (80) (27) --
Proceeds from disposition of marketable securities . 158 -- 6,875
Other, net ......................................... 29 10 87
--------- --------- ---------
Net cash provided (used) by investing activities 28,524 (14,938) 6,314
--------- --------- ---------
S-4
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Cash Flows (Continued)
Years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
--------- --------- ---------
Cash flows from financing activities:
Dividends ....................................... $ (32,686) $ (7,242) $ (4,636)
Treasury stock:
Purchased ................................... (30,886) (7,210) --
Reissued .................................... 2,091 210 170
Indebtedness - principal payments ............... (50,000) -- (193,498)
Loans from affiliates ........................... 60,856 -- 89,839
Settlement of shareholder derivative lawsuit, net -- -- 11,211
--------- --------- ---------
Net cash used by financing activities ....... (50,625) (14,242) (96,914)
--------- --------- ---------
Net change from operating, investing and
financing activities .......................... (9,783) (438) 2,246
Balance at beginning of year .................... 13,415 13,853 11,607
--------- --------- ---------
Balance at end of year .......................... $ 3,632 $ 13,415 $ 13,853
========= ========= =========
S-5
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Notes to Condensed Financial Information
Note 1 - Basis of presentation:
The Consolidated Financial Statements of NL Industries, Inc. (the
"Company") and the related Notes to Consolidated Financial Statements are
incorporated herein by reference.
Note 2 - Net receivable from (payable to) subsidiaries and affiliates:
December 31,
---------------------------
2000 1999
--------- ---------
(In thousands)
Current:
Receivable from:
Kronos:
Income taxes ................... $ 1,260 $ 3,790
Other, net ..................... 4,103 6,507
Timet .............................. 1 310
CompX .............................. 82 176
Other .............................. 743 885
--------- ---------
$ 6,189 $ 11,668
========= =========
Payable to:
Tremont ............................ $ (1,925) $ (2,859)
NLEMS .............................. (146) (562)
Other .............................. (69) (23)
--------- ---------
$ (2,140) $ (3,444)
========= =========
Noncurrent:
Notes receivable from Kronos ........... $ 194,000 $ 244,000
========= =========
Notes payable to:
Kronos ............................. $(301,695) $(185,839)
NLEMS .............................. (23,000) (78,000)
--------- ---------
$(324,695) $(263,839)
========= =========
S-6
Note 3 - Long-term debt:
See Note 9 of the Consolidated Financial Statements for a description of
the Notes. The Company's $194 million of Senior Secured Notes at December 31,
2000 are due October 2003. The Company has guaranteed Kronos' non-U.S.
dollar-denominated notes payable of $70 million.
Note 4 - Contingencies:
See Legal proceedings in Note 17 to the Consolidated Financial Statements.
S-7
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Charges
(credits)
Balance at to costs Currency
beginning and translation Balance at
Description of year expenses Deductions adjustments end of year
----------- ---------- --------- ----------- ----------- -----------
Year ended December 31, 2000:
Allowance for doubtful accounts and notes receivable $ 2,075 $ 342 $ (67) (a) $ (128) $ 2,222
======== ======== ========= ======== ========
Amortization of intangibles ........................ $ 22,095 $ 113 $ -- $ (1,779) $ 20,429
======== ======== ========= ======== ========
Year ended December 31, 1999:
Allowance for doubtful accounts and notes receivable $ 2,377 $ 140 $ (180) (a) $ (262) $ 2,075
======== ======== ========= ======== ========
Amortization of intangibles ........................ $ 23,704 $ 1,851 $ -- $ (3,460) $ 22,095
======== ======== ========= ======== ========
Year ended December 31, 1998:
Allowance for doubtful accounts and notes receivable $ 2,828 $ (208) $ (363) (a)(b) $ 120 $ 2,377
======== ======== ========= ======== ========
Amortization of intangibles ........................ $ 22,366 $ 2,438 $ (2,757) (b) $ 1,657 $ 23,704
======== ======== ========= ======== ========
- ---------------------------------------------
(a) Amounts written off, less recoveries.
(b) Sale of Rheox's assets.
S-8
Exhibit 10.34
REVOLVING LOAN NOTE
$13,400,000 February 9, 2001
FOR VALUE RECEIVED, the undersigned, Tremont Corporation, a Delaware
corporation ("Maker"), promises to pay, on or before March 31, 2003 (the
"Maturity Date"), to the order of NL Environmental Management Services, Inc., a
New Jersey corporation ("Payee") or any subsequent holder, at its offices at
16825 Northchase Drive, Suite 1200, Houston TX 77060, or such other place
designated by holder in writing, the principal sum of THIRTEEN MILLION FOUR
HUNDRED THOUSAND DOLLARS ($13,400,000), or such lesser amount as shall equal the
aggregate principal amount of all revolving loans made to Maker by Payee
hereunder (the "Revolving Loans"), together with interest from the date hereof
on the unpaid balance of this Note as it may exist from time to time at the rate
(herein called the "Applicable Rate") of prime plus two percent per annum,
determined at the beginning of each calendar quarter, and in no event shall the
Applicable Rate exceed the maximum interest rate permitted to be charged from
time to time under applicable law (herein called the "Maximum Rate"). The
Applicable Rate shall be determined based upon the published prime rate. Accrued
interest on the unpaid principal of this Note shall be computed on the basis of
a 360-day year applied to the actual number of days in each calendar month
payable on the last business day of each calendar quarter. Notwithstanding the
foregoing, if at any time the Applicable Rate exceeds the Maximum Rate, the rate
of interest payable under this Note shall be limited to the Maximum Rate as
provided above.
Subject to the terms and conditions set forth in this Note, Payee shall
make Revolving Loans to Maker at any time and from time to time from the date of
this Note until the Maturity Date, in an aggregate principal amount not to
exceed at any one time the Maximum Revolving Loan Amount (as defined below) at
such time. Revolving Loans made under this Note shall be in an integral multiple
of $200,000 and shall be wired by Payee to the account of Maker requested by
Maker prior to 3:00 p.m., New York time, on the date proposed by Maker. Maker
shall give Payee irrevocable written notice of all proposed Revolving Loans not
later than three business days prior to the proposed borrowing (a "Borrowing
Notice"). Such Borrowing Notice shall specify the aggregate principal amount of
the Revolving Loan that Maker is requesting Payee to make and the requested
effective date of the proposed Revolving Loan. Each Revolving Loan shall bear
interest on the outstanding principal balance thereof from the date such
Revolving Loan is made at the Applicable Rate. The "Maximum Revolving Loan
Amount" shall mean Thirteen Million Four Hundred Thousand Dollars ($13,400,000),
subject to reduction in accordance with the provisions of this Note.
The Maximum Revolving Loan Amount shall be permanently reduced by the
amount of $250,000 on the last day of each calendar quarter beginning on June
30, 2001 (a "Reduction Date") and any principal and accrued interest shall be
due and payable on each Reduction Date to the extent that the Revolving Loans
then outstanding would otherwise exceed the Maximum Revolving Loan Amount. Payee
shall, and is hereby authorized by Maker to, endorse on the schedule attached
hereto an appropriate notation evidencing the date and amount of each Revolving
Loan from Payee and the
Page 1 of 7
date and amount of each payment and prepayment with respect thereto; provided
that the failure of the Payee to make such a notation on this Note or any error
in such notation shall not affect the obligations of Maker under this Note.
Maker shall pay Payee on each Reduction Date, in immediately available
funds, a revolving loan commitment fee (the "Fee") equal to 1/2 of 1% per annum
on the average unused amount of the Maximum Revolving Loan Amount for each
quarter ending on a Reduction Date. Such Fee shall be computed on the basis of
the actual number of days elapsed over a year of 360 days. Such Fee shall
commence on the date of this Note and cease to accrue on the earlier of the
Maturity Date or any termination of Payee's commitment to make Revolving Loans.
Maker shall have the right at any time, in its sole discretion and upon
not less than 10 days written notice to Payee, to further permanently reduce or
terminate the Maximum Revolving Loan Amount, provided, however, that each
partial reduction thereof shall be in an integral multiple of $250,000. Any
reduction of the Maximum Revolving Loan Amount shall be accompanied by payment
in full of any principal over the Maximum Revolving Loan Amount plus accrued
interest and accrued Fee computed as provided in the previous paragraph.
The principal balance of this Note may be prepaid and discharged in whole
or in part by Maker at any time and from time to time, without premium, penalty
or fee. Notwithstanding the prior sentence, all interest that is accrued and
unpaid with respect to the prepaid principal amount and the Fee accrued and
unpaid with respect to the unpaid Maximum Revolving Loan Amount shall be paid at
the time of the prepayment.
The Maker, signers, sureties, guarantors and endorsers of this Note,
jointly and severally, except as otherwise expressly set forth herein, waive
demand, presentment, notice of nonpayment or dishonor, diligence in collecting,
grace, notice of any protest, and consent to all extensions for any periods of
time and partial payments, before or after maturity.
If this Note is not paid at maturity, howsoever such maturity may be
brought about, and the same is placed in the hands of an attorney for
collection, or if this Note is collected by suit or through bankruptcy, probate
or other legal proceedings, Maker agrees to pay holder's costs of collection,
when incurred, including reasonable attorney's fees.
No delay in the payments to holder or in the exercise of any power or
right under this Note, or under any instrument securing payment hereof or
executed in connection herewith, shall operate as a waiver thereof, nor shall a
single or partial exercise of any power or right preclude other or further
exercise thereof or exercise of any other power or right.
Payment of the indebtedness evidenced by this Note is secured by the
security interests established by the following documents (the "Security
Documents"), to wit:
A Security Agreement dated as of February 9, 2001 executed by the
Maker and Payee covering certain securities owned by Maker.
Page 2 of 7
If at any time the Payee shall notify the Maker that a Collateral
Deficiency (as hereinafter defined) exits, then within 5 days of its receipt of
such notice, the Maker shall, at its option, do one of the following:
(a) prepay principal amounts outstanding under this Note, together with
accrued and unpaid interest on such principal amount to the date of
prepayment, so that immediately following such prepayment no
Collateral Deficiency exists, or
(b) provide the Payee with additional collateral under the Security
Documents reasonably acceptable to the Payee so that immediately
following delivery of such additional collateral no Collateral
Deficiency exists.
In the event a Collateral Deficiency occurs, Payee's commitment to make
further Revolving Loans shall be terminated without notice, at the option of the
Payee, until such time as no Collateral Deficiency shall exist.
For purposes of this Note,
(a) a Collateral Deficiency exists at any time when the outstanding
principal amount together with accrued and unpaid interest on the Note
and the Fee exceeds 20% of the Collateral Value,
(b) Collateral Value is defined as the Current Market Value of all
securities pledged under the Security Documents, and
(c) Current Market Value is defined as, with respect to any security, the
most recent closing price of such security on the New York Stock
Exchange or any other nationally recognized securities exchange, or if
such security is not listed on a national securities exchange, the
closing price of such security as reported on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), or, if
applicable, the average of the closing bid and ask quotation for such
security as reported on the NASDAQ.
The term default shall include any or all of the following:
(a) The assignment, voluntary or involuntary conveyance of legal or
beneficial interest, mortgage, pledge or grant of a security interest in
any of the Collateral (as defined in the Security Agreement); or
(b) The filing or issuance of a notice of any lien, warrant for
distraint or notice of levy for taxes or assessment against the Collateral
(except for those which are being contested in good faith and for which
adequate reserves have been created); or
(c) Maker's nonpayment of any installment of principal, interest or
the Fee under this Note; or
Page 3 of 7
(d) The adjudication of Maker as bankrupt, or the taking of any
voluntary action by Maker or any involuntary action against Maker seeking
an adjudication of Maker as bankrupt, or seeking relief by or against
Maker under any provision of the Bankruptcy Code;
(e) Maker failing to comply with any other covenant in this Note or
in the Security Documents;
(f) Maker's default in any payment (regardless of amount) of
principal of or interest on any other indebtedness for borrowed money; or
(g) Maker's default in the observance or performance of any other
agreement or condition relating to any such other indebtedness for
borrowed money or contained in any instrument evidencing, securing or
relating thereto or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder of the indebtedness to cause, such other indebtedness
for borrowed money to become due prior to its stated maturity.
An "Event of Default" shall be deemed to have occurred immediately upon
any default described in clause (d) or (g) above, if any default described in
clauses (c) or (f) above is not cured within 5 days, and if any default
described in clauses (a), (b), or (e) is not cured within 30 days after written
notice from Payee to Maker.
If an Event of Default has occurred and is continuing, the entire
principal balance and accrued interest owing hereof shall at once become due and
payable and the commitment to make Revolving Loans shall be terminated without
notice, at the option of the Payee, and the property covered by the Security
Documents shall be subject to foreclosure under applicable law. Failure to
exercise this option shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default. In the event any payment, including
interest or principal, required to be made under this Note is not made when due,
interest on the overdue sum shall accrue at a rate of prime plus four percent.
So long as the Note shall remain unpaid, the Maker shall furnish to the
Payee:
(a) as soon as available and in any event not later than 45 days after the
end of each of the first three quarters of each fiscal year of the
Maker, the consolidated balance sheet of the Maker as of the end of
such quarter and the consolidated statements of income and retained
earnings and cash flows of the Maker for the period commencing at the
end of the previous year and ending with the end of such quarter, all
in reasonable detail and duly certified with respect to such
consolidated statements (subject to year-end adjustments) by an
officer of the Maker as having been prepared in accordance with
generally accepted accounting principles;
(b) as soon as available and in any event not later than 90 days after the
end of each fiscal year of the Maker, a copy of the annual audit
report for such year for the Maker, including therein consolidated
balance sheets of the Maker as of the end of such fiscal year and
consolidated statements of income and retained earnings
Page 4 of 7
and of cash flows of the Maker for such fiscal year, in each case
certified by PricewaterhouseCoopers LLP or other independent certified
public accountants of recognized standing reasonably acceptable to
Payee.
This Note shall be construed in accordance with the laws of the State of
New Jersey and the laws of the United States applicable to transactions in New
Jersey.
Page 5 of 7
IN WITNESS WHEREOF, the undersigned Maker has executed this Note as of the
9th day of February, 2001.
Tremont Corporation
By: /s/ Robert E. Musgraves
------------------------------------
Robert E. Musgraves
Its: Vice President
------------------------------------
Acknowledged and agreed to by the undersigned solely with respect to its
obligations in the second and third paragraph of this Note:
NL Environmental Management Services, Inc.
By: /s/ Robert D. Hardy
-------------------------------------
Robert D. Hardy
Its: Assistant Treasurer
-------------------------------------
Page 6 of 7
SCHEDULE OF REVOLVING LOANS
Type of Transaction
(Loan or Payment) Date Amount
- ------------------- ---- ------
Page 7 of 7
Exhibit 10.35
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), dated this 9th day of February,
2001, by and between Tremont Corporation, a Delaware Corporation (hereinafter
called "Pledgor"), whose principal office is at 1999 Broadway, Suite 4300,
Denver, Colorado 80202 and NL Environmental Management Services, Inc., a New
Jersey Corporation (the "Secured Party"), in its capacity as the holder of the
Note (as defined below).
Section 1. Security Interest. For value received, Pledgor hereby grants to
Secured Party, upon the terms and conditions of this Agreement, a security
interest in and to any and all present or future rights of Pledgor in and to all
of the following rights, interests and property (all of the following being
herein sometimes called the "Pledged Shares"):
10,215,541 shares of NYSE-traded NL Industries, Inc. ("NL") common
stock, par value of $1.25 per share.
As used in this Agreement, the "Collateral" shall include the Pledged Shares
together with any and all products and proceeds of the Pledged Shares,
including, without limitation, all dividends, cash, instruments, subscriptions,
warrants and any other rights and options and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares.
Section 2. Loan Agreement. This Agreement is being executed and delivered
pursuant to the terms, conditions and requirements of that certain revolving
note, dated as of February 9, 2001 ("Revolving Note"), pursuant to which Secured
Party has loaned monies to Tremont Corporation ("Tremont"). The security
interests herein granted ("Security Interests") shall secure full payment and
performance of: (a) that certain Revolving Note of even date herewith in the
principal amount of $13,400,000, made by Tremont and payable to the order of
Secured Party (such note and any notes given in modification, renewal, extension
or substitution thereof being herein sometimes collectively referred to as the
"Notes" and individually as the "Note"); and (b) the due and punctual observance
and performance of each and every agreement, covenant and condition on Pledgor's
part to be observed or performed under this Agreement or the Note (all of which
debts, duties, liabilities and obligations hereinbefore described and covered by
this Agreement and the Note are hereinafter referred to as the "Obligation").
Section 3. Priority. Pledgor represents and warrants that the Security
Interests are first and prior security interests in and to all of the
Collateral, subject to the following liens thereon or security interests therein
in existence prior to the Pledgor's acquisition of the Collateral:
[NONE]
Section 4. Title to Collateral. Pledgor represents and warrants to Secured
Party that: (a) Pledgor is the owner of the Collateral; (b) no dispute, right of
offset, counterclaim, or defense to the Security Interests exists with respect
to all or any part of the Collateral; and (c) Pledgor will defend the Collateral
against the claims and demands of all persons other than any subordinate claims
or liens acknowledged by Secured Party.
Section 5. Pledgor's Obligations. So long as the Note is outstanding,
Pledgor covenants and agrees with Secured Party: (a) not to permit any material
part of the Collateral to be levied upon under any legal process; (b) not to
dispose of any of the Collateral without the prior written consent of Secured
Party; (c) to comply with all applicable federal, state and local statutes,
laws, rules and regulations, the noncompliance with which could have a material
and adverse effect on the value of the Collateral; and (d) to pay all taxes
accruing after the Closing Date which constitute, or may constitute, a lien
against the Collateral, prior to the date when penalties or interest would
attach to such taxes; provided, that Pledgor may contest any such tax claim if
done diligently and in good faith.
Section 6. Event of Default. As used herein, the term default shall
include any or all of the following:
(a) The assignment, voluntary or involuntary conveyance of legal or
beneficial interest, mortgage, pledge or grant of a security interest in
any of the Collateral; or
(b) The filing or issuance of a notice of any lien, warrant for
distraint or notice of levy for taxes or assessment against the Collateral
(except for those which are being contested in good faith and for which
adequate reserves have been created); or
(c) Nonpayment of any installment of principal or interest under the
Notes; or
(d) The adjudication of Tremont as bankrupt, or the taking of any
voluntary action by Tremont or any involuntary action against Tremont
seeking an adjudication of Tremont as bankrupt, or seeking relief by or
against Tremont under any provision of the Bankruptcy Code; or
(e) Pledgor failing to comply with any other covenant contained in
the Notes or this Agreement; or
(f) Pledgor's default in any payment (regardless of amount) of
principal of or interest on any other indebtedness for borrowed money; or
(g) Pledgor's default in the observance or performance of any other
agreement or condition relating to any such other indebtedness for
borrowed money or contained in any instrument evidencing, securing or
relating thereto or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder of the indebtedness to cause, such other indebtedness
for borrowed money to become due prior to its stated maturity.
An "Event of Default" shall be deemed to have occurred immediately upon any
default described in clause (d) or (g) above, if any default described in
clauses (c) or (f) above is not cured within 5 days, and if any default
described in clauses (a), (b), or (e) is not cured within 30 days after written
notice from Secured Party to Pledgor.
-2-
Section 7. Remedies. Upon the occurrence and during the continuation of an
Event of Default as defined herein, in addition to any and all other rights and
remedies which Secured Party may then have hereunder or under the Note, under
the Uniform Commercial Code of the State of New Jersey or of any other pertinent
jurisdiction (the "Code"), or otherwise, Secured Party may, at its option: (a)
reduce its claim to judgment or foreclosure or otherwise enforce the Security
Interests, in whole or in part, by any available judicial procedure; (b) sell,
or otherwise dispose of, at the office of Secured Party, or elsewhere, all or
any part of the Collateral, and any such sale or other disposition may be as a
unit or in parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale of any part of the Collateral shall not
exhaust the Secured Party's power of sale, but sales may be made from time to
time, and at any time, until all of the Collateral has been sold or until the
Obligation has been paid and performed in full); (c) at its discretion, retain
the Collateral in satisfaction of the Obligation whenever the circumstances are
such that Secured Party is entitled to do so under the Code or otherwise; and
(d) exercise any and all other rights, remedies and privileges he may have under
the Note and the other documents defining the Obligation.
Section 8. Application of Proceeds by Secured Party. Any and all proceeds
ever received by Secured Party from any sale or other disposition of the
Collateral, or any part thereof, or the exercise of any other remedy pursuant
hereto shall be applied by Secured Party to the Obligation in such order and
manner as Secured Party, in its sole discretion, may deem appropriate,
notwithstanding any directions or instructions to the contrary by Pledgor;
provided that the proceeds and/or accounts shall be applied toward satisfaction
of the Obligation. Any proceeds received by Secured Party under this Agreement
in excess of those necessary to fully and completely satisfy the Obligation
shall be distributed to Pledgor.
Section 9. Notice of Sale. Reasonable notification of the time and place
of any public sale of the Collateral, or reasonable notification of the time
after which any private sale or other intended disposition of the Collateral is
to be made, shall be sent to Pledgor and to any other persons entitled under the
Code to notice; provided, that if any of the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Secured Party may sell, pledge, assign or otherwise dispose of the Collateral
without notification, advertisement or other notice of any kind. It is agreed
that notice sent or given not less than ten (10) calendar days prior to the
taking of the action to which the notice relates is reasonable notification and
notice for the purposes of this paragraph.
Section 10. Right to Vote Collateral; Receipt of Dividends, Etc.
(a) Unless an Event of Default shall have occurred and be continuing, the
Pledgor shall have the right, from time to time, to vote and to give consents,
ratifications and waivers with respect to the Collateral, and the Secured Party
shall, upon receiving a written request from the Pledgor, which request shall be
deemed to be a representation and warranty by the Pledgor that no Event of
Default has occurred and is continuing, deliver to the Pledgor or, as specified
in such request, such proxies, powers of attorney, consents, ratifications and
waivers in respect of any Collateral which are registered in the name of the
Secured Party or a nominee as shall be specified in such request and be in form
and substance satisfactory to the Secured Party.
-3-
(b) If an Event of Default shall have occurred and be continuing, all
rights of the Pledgor to exercise the voting and other consensual rights which
it would otherwise be entitled to exercise pursuant to Section 10 (a) above
shall end upon five days' notice from the Secured Party to the Pledgor and
thereafter the Secured Party shall have the right to the extent permitted by
law, and the Pledgor shall take all such action as may be necessary or
appropriate to give effect to such right, to vote and to give consents,
ratifications and waivers, and take any other action with respect to all
Collateral with the same force and effect as if the Secured Party were the
absolute and sole owner thereof.
(c) Unless an Event of Default shall have occurred and be continuing, the
Pledgor shall be entitled to receive all regular quarterly cash dividends. Any
other dividends or distributions or proceeds therefrom on account of the
Collateral shall, if received by the Pledgor, be received in trust for the
benefit of the Secured Party, be segregated from the other property or funds of
the Pledgor, and be forthwith delivered to the Secured Party as collateral in
the same form as so received (with any necessary endorsement).
Section 11. Delivery of Notices. Any notice or demand required to be given
hereunder shall be in writing and shall be deemed to have been duly given and
received, if given by hand, when a writing containing such notice is received by
the person to whom addressed or, if given by mail, two (2) business days after a
certified or registered letter containing such notice, with postage prepaid, is
deposited in the United States mails, addressed to:
If to Secured Party:
NL Environmental Management Services, Inc.
16825 Northchase Drive
Suite 1200
Houston TX 77060
Attn: Vice President and Secretary
If to Pledgor:
Tremont Corporation
1999 Broadway
Suite 4300
Denver, Colorado 80202
Attn: General Counsel
Any such address may be changed from time to time by serving notice to the other
party as above provided. A business day shall mean a day of the week which is
not a Saturday or Sunday or a holiday recognized by national banking
associations.
Section 12. Binding Effect. This Agreement shall be binding upon Pledgor,
its successors and assigns, and shall inure to the benefit of Secured Party, its
heirs, successors, assigns, executors, administrators, and personal or legal
representatives.
-4-
Section 13. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the state of New Jersey.
Section 14. Severability. In the event that any one or more of the
provisions contained in this Agreement are held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement.
-5-
EXECUTED as of the day and year first herein set forth.
SECURED PARTY:
NL Environmental Management Services, Inc.
By: /s/ Robert D. Hardy
---------------------------------
Robert D. Hardy
Title: Assistant Treasurer
---------------------------------
PLEDGOR:
Tremont Corporation
By: /s/ Robert E. Musgraves
---------------------------------
Robert E. Musgraves
Title: Vice President
---------------------------------
-6-
Exhibit 10.36
TAX AGREEMENT
between
VALHI, INC.
and
NL INDUSTRIES, INC.
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, will be 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: 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.
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.
Page 2
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.
Any balance owed with
Page 3
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. 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.
Page 4
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.
Page 5
15. Effective Date. This Agreement shall be effective as of January 1,
2001.
Page 6
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
[Seal]
ATTEST:
CONTRAN CORPORATION
By:
/s/ William J. Lindquist
--------------------------------
William J. Lindquist
Senior Vice President
[Seal]
ATTEST:
NL INDUSTRIES, INC.
By:
/s/ Robert D. Hardy
--------------------------------
Robert D. Hardy
Vice President and Controller
ATTEST:
Page 7
EXHIBIT 10.37
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement") is made and entered into
as of December 31, 2000, among Valhi, Inc., a Delaware corporation ("Valhi"),
Tremont Holdings, LLC, a Delaware limited liability company ("TRE Holdings" and
together with Valhi, the "Purchasers"), and Tremont Group, Inc., a Delaware
corporation ("TGI").
Recitals
A. The Purchasers are beneficial owners of shares (the "Tremont
Shares") of the common stock, par value $1.00 per share, of Tremont Corporation,
a Delaware corporation ("Tremont").
B. Each of the Purchasers wishes to subscribe for and purchase one
thousandth of a share of common stock, par value $0.01 per share, of TGI (the
"TGI Shares"), for each Tremont Share they contribute to TGI on the terms and
subject to the conditions of this Agreement (each time a contribution is made
shall be referred to as a "Transaction").
C. The certificate of incorporation and the bylaws of TGI, to which the
Stockholders have agreed in connection with the transactions contemplated by
this Agreement are attached as Exhibits A and B, respectively, to this
Agreement.
Agreement
The parties agree as follows:
ARTICLE I.
THE TRANSACTION
Section 1.1. Initial Contribution of Tremont Shares for TGI Shares. In
consideration of TGI's issuance of one thousandth of a TGI Share for each
Tremont Share the Purchasers contribute to TGI on the date hereof, each of Valhi
and TRE Holdings hereby sells, transfers, assigns and delivers to TGI 4,113,421
and 1,028,000 Tremont Shares, respectively. Certificates representing such
Tremont Shares are hereby delivered accompanied by stock powers duly endorsed in
blank.
Section 1.2. Subsequent Contributions of Tremont Shares for TGI Shares.
In consideration of TGI's issuance of one thousandth of a TGI Share for each
Tremont Share the Purchasers may contribute to TGI in the future, each of the
Purchasers may in the future sell, transfer, assign and deliver Tremont Shares
to TGI. Certificates representing such Tremont Shares shall be delivered
accompanied by stock powers duly endorsed in blank on the date of the respective
contribution.
Section 1.3. Voting Agreement. Each of the parties as a condition to
all Transactions shall execute and deliver to the other parties a Voting
Agreement substantially in the form of Exhibit C attached hereto (the "Voting
Agreement").
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers hereby individually represents and warrants to
TGI as of the date of this Agreement, and each time a Purchaser subsequently
contributes Tremont Shares to TGI as though made on the date of such
contribution, as follows.
Section 2.1. Authority. It is validly existing and in good standing
under the laws of the state of its incorporation or formation. It has the power
and authority, without the consent or approval of any other person, to execute
and deliver this Agreement and to consummate the respective Transaction. All
action required to be taken by or on behalf of it to authorize the execution,
delivery and performance of this Agreement and the respective Transaction has
been duly and properly taken.
Section 2.2. Validity. This Agreement is duly executed and delivered by
it and constitutes its lawful, valid and binding obligation, enforceable in
accordance with its terms. The execution and delivery of this Agreement and the
consummation of the respective Transaction by it are not prohibited by, do not
violate or conflict with any provision of, and do not result in a default under
(a) its charter, bylaws or company agreement, as applicable; (b) any material
contract, agreement or other instrument to which it is a party or by which it is
bound; (c) any order, writ, injunction, decree or judgment of any court or
governmental agency applicable to it; or (d) any law, rule or regulation
applicable to it, except in each case for such prohibitions, violations,
conflicts or defaults that would not have a material adverse consequence to the
respective Transaction.
Section 2.3. Ownership of Tremont Shares. It is the beneficial owner of
the Tremont Shares it will contribute to TGI in the respective Transaction and
upon consummation of the respective Transaction TGI will acquire good and
marketable title to such Tremont Shares free and clear of any liens,
encumbrances, security interests, restrictive agreements, claims or
imperfections of any nature whatsoever, other than restrictions on transfer
imposed by applicable securities laws.
Section 2.4. Purchase for Investment. It is purchasing the TGI Shares
issued and delivered to it in the respective Transaction for investment solely
for its own account and not with a view to, or for resale in connection with,
the distribution thereof. It understands that such TGI Shares are restricted
securities under the Securities Act of 1933, as amended (the "Securities Act"),
and that such TGI Shares must be held indefinitely unless they are registered
under the Securities Act and any applicable state securities or blue sky laws or
an exemption from such registration is available.
Section 2.5. Nature of Purchaser. It has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the purchase of TGI Shares issued and delivered to it in the
respective Transaction.
-2-
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF TGI
TGI hereby represents and warrants to each of the Purchasers as of the
date of this Agreement, and each time a Purchaser subsequently contributes
Tremont Shares to TGI as though made on the date of such contribution, as
follows.
Section 3.1. Authority. It is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation.
It has the corporate power and authority, without the consent or approval of any
other person, to execute and deliver this Agreement and to consummate the
respective Transaction. All corporate action required to be taken by or on
behalf of it to authorize the execution, delivery and performance of this
Agreement and the respective Transaction has been duly and properly taken.
Section 3.2. Validity. This Agreement is duly executed and delivered by
it and constitutes its lawful, valid and binding obligation, enforceable in
accordance with its terms. The execution and delivery of this Agreement and the
consummation of the respective Transaction by it are not prohibited by, do not
violate or conflict with any provision of, and do not result in a default under
(a) its charter or bylaws; (b) any material contract, agreement or other
instrument to which it is a party or by which it is bound; (c) any order, writ,
injunction, decree or judgment of any court or governmental agency applicable to
it; or (d) any law, rule or regulation applicable to it, except in each case for
such prohibitions, violations, conflicts or defaults that would not have a
material adverse consequence to the respective Transaction.
Section 3.3. Issuance of TGI Shares. Upon the consummation of each
Transaction, the TGI Shares issued in such Transaction will be validly issued,
fully paid and non-assessable shares and the respective Purchaser receiving such
shares will acquire good and marketable title to such shares free and clear of
any liens, encumbrances, security interests, restrictive agreements, claims or
imperfections of any nature whatsoever, other than restrictions on transfer
imposed by applicable securities laws, except that Valhi's TGI Shares will be
subject to the restrictions of the Voting Agreement.
Section 3.4. Purchase for Investment. It is purchasing the Tremont
Shares sold and delivered to it in the respective Transaction for investment
solely for its own account and not with a view to, or for resale in connection
with, the distribution thereof. It understands that such Tremont Shares are
restricted securities under the Securities Act and that such Tremont Shares must
be held indefinitely unless they are registered under the Securities Act and any
applicable state securities or blue sky laws or an exemption from such
registration is available.
Section 3.5. Nature of TGI. It has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the purchase of the Tremont Shares sold and delivered to it in the
respective Transaction.
-3-
ARTICLE IV.
GENERAL PROVISIONS
Section 4.1. Restricted Shares. Each of the Purchasers hereby consents
to the placing of a legend on any stock certificates evidencing TGI Shares
issued to it in a Transaction stating that such TGI Shares are restricted
securities. Valhi agrees to the placing of a legend on any stock certificates
evidencing its TGI Shares stating that such TGI Shares are subject to the Voting
Agreement.
Section 4.2. Access to Information. Each of the Purchasers shall
provide TGI and its representatives access to all information with respect to
the business of Tremont possessed by such party and reasonably requested by TGI.
TGI shall provide each of the Purchasers and its respective representatives
access to all information with respect to the business of TGI possessed by TGI
and reasonably requested by such Purchaser.
Section 4.3. Survival. The representations and warranties set forth in
this Agreement shall survive the execution of this Agreement and the
consummation of the transactions contemplated herein.
Section 4.4. Amendment and Waiver. No amendment or waiver of any
provision of this Agreement shall in any event be effective unless the same
shall be in a writing referring to this Agreement and signed by the parties
hereto, and then such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
Section 4.5. Parties and Interest. This Agreement shall bind and inure
to the benefit of the parties named herein and their respective successors and
assigns.
Section 4.6. Entire Agreement. This Agreement contains the entire
understanding among the parties with respect to the transactions contemplated
hereby and supersedes all other agreements and understandings among the parties
with respect to the subject matter of this Agreement.
Section 4.7. Applicable Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the state of Delaware, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the state of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the state of Delaware.
Section 4.8. Severability. If any provision of this Agreement is found
to violate any statute, regulation, rule, order or decree of any governmental
authority, court, agency or exchange, such invalidity shall not be deemed to
effect any other provision hereof or the validity of the remainder of this
Agreement and such invalid provision shall be deemed deleted to the minimum
extent necessary to cure such violation.
Section 4.9. Notice. All notices and other communications that are
required to be or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or transmitted
by confirmed telecopy or upon receipt after dispatch by overnight courier or by
-4-
certified or registered mail, postage prepaid, to the party to whom the notice
is given. Notices shall be given to the address for the respective party
appearing under the party's signature to this Agreement or to such other address
as such party may designate by giving notice of such change of address to the
other parties to this Agreement.
Section 4.10. Headings. The sections and other headings contained in
this Agreement are for reference purposes only and shall not effect in any way
the meaning or interpretation of this Agreement.
Section 4.11. Counterparts. This Agreement may be executed in
counterparts each of which will be an original and all of which taken together
shall constitute one and the same agreement.
Section 4.12. Expenses. Except as otherwise expressly provided herein,
each party to this Agreement shall pay its own costs and expenses in connection
with the transactions contemplated hereby.
-5-
The parties hereto have caused this Agreement to be executed by their
duly authorized officers as of the date first written above.
VALHI, INC.
By: /s/ Steven L. Watson
-----------------------------------------
Steven L. Watson, President
Address: Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
FAX: 972.448.1445
Attention: General Counsel
TREMONT HOLDINGS, LLC
By: /s/ Robert D. Hardy
-----------------------------------------
Robert D. Hardy, Vice President
Address: Two Greenspoint Plaza
16825 Northchase Drive
Suite 1200
Houston, Texas 77060-2544
FAX: 281.423.3333
Attention: General Counsel
TREMONT GROUP, INC.
By: /s/ Steven L. Watson
-----------------------------------------
Steven L. Watson, President
Address: Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
FAX: 972.448.1445
Attention: General Counsel
-6-
EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
TREMONT GROUP, INC.
- --------------------------------------------------------------------------------
ARTICLE I.
NAME
The name of the corporation is TREMONT GROUP, INC. (the "Corporation").
ARTICLE II.
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the state of
Delaware is Corporation Service Company, 2711 Centerville Road, Suite 400, city
of Wilmington, county of New Castle, state of Delaware 19808. The name of the
Corporation's registered agent at such address is Corporation Service Company.
ARTICLE III.
PURPOSE
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful business, act or activity for which
corporations may be organized under the General Corporation Law of the state of
Delaware.
ARTICLE IV.
AUTHORIZED STOCK
The Corporation shall have authority to issue six thousand five hundred
(6,500) shares of common stock having a par value of one cent ($0.01) per share
(the "Common Stock"). The rights of the holders of common stock are set forth
below.
Section 1. Voting Rights. The holders of Common Stock shall be
entitled to one vote per share on all matters to be voted on by the
stockholders of the Corporation.
Section 2. Dividends. The holders of Common Stock shall be
entitled to participate in such dividends and other distributions or
proceeds in cash, stock or property of the Corporation ratably on a per
share basis as the board of directors may declare out of assets or
funds legally available therefor.
Section 3. Liquidation. The holders of Common Stock shall be
entitled to participate ratably on a per share basis in all
distributions to the holders of Common Stock in any liquidation,
dissolution or winding up of the Corporation.
-1-
Section 4. Redemption. The Corporation shall redeem shares of
Common Stock on a date (the "Redemption Date") that is on or prior to
the 45th day (if such 45th day is a business day, and if not, the next
successive business day) after the date (the "Redemption Notice Date")
that the Corporation and each other holder of shares of Common Stock
receives written notice (a "Redemption Notice") from a holder of shares
of Common Stock (the "Holder") setting forth the number of shares the
Holder wants the Corporation to redeem (the "Redemption Shares"). After
the Redemption Notice Date, the Holder shall only be entitled to
receive from the Corporation on the Redemption Date the fair market
value of the Redemption Shares on the Redemption Notice Date (the
"Redemption Price").
In the Redemption Notice, the Holder may elect (a "Tremont
Share Election") to receive as part of the Redemption Price such number
of shares of the common stock, par value $1.00 per share, of Tremont
Corporation, a Delaware Corporation (the "Tremont Common Stock"), equal
to the product of 1,000 and the number of Redemption Shares.
After a Redemption Notice Date but before the Redemption Date,
the board of directors shall determine in good faith and in its best
business judgment the Redemption Price. In determining the Redemption
Price, the board of directors shall value each share of Tremont Common
Stock held by the Corporation on the Redemption Notice Date at the
volume weighted average sales price of a share of Tremont Common Stock
as reported on the New York Stock Exchange composite transactions
reporting system for the ten trading days ending on the Redemption
Notice Date, if such date is a trading day, and if not, on the
immediately prior trading day (the "Tremont Common Stock Value").
If the Holder does not make a Tremont Share Election, on the
Redemption Date the Corporation may pay the Redemption Price, in whole
or in part, in cash, shares of Tremont Common Stock or other property,
which other property the board of directors shall value in good faith
and in its best business judgment. In determining the fair market value
of securities traded on an exchange that are used to pay the Redemption
Price, the board of directors shall value each such security on the
Redemption Notice Date at the volume weighted average sales price of
such security as reported on the applicable exchange for the ten
trading days ending on the Redemption Notice Date, if such date is a
trading day, and if not, on the immediately prior trading day.
If shares of Tremont Common Stock are used to pay all or part
of the Redemption Price, on the Redemption Date:
(a) if the Tremont Common Stock Value for such shares
is less than or equal to the Redemption Price, the Corporation
shall transfer such shares to the Holder and such additional
cash or property in an amount equal in value on the Redemption
Notice Date, as the board of directors determines in good
faith and in its best business judgment, to the excess, if
any, of the Redemption Price over the Tremont Common Stock
Value for such shares;
(b) if the Tremont Common Stock Value for such shares
is greater than the Redemption Price, the Corporation shall
transfer such shares to the Holder and the Holder shall pay in
-2-
cash to the Corporation an amount equal to the excess of the
Tremont Common Stock Value for such shares over the Redemption
Price; and
(c) the Corporation shall deliver to the holder a
stock certificate representing the shares of Tremont Common
Stock comprising the Redemption Price accompanied by a stock
power duly endorsed in blank and the holder shall acquire good
and marketable title to such shares free and clear of any
liens, encumbrances, security interests, restrictive
agreements, claims or imperfections of any nature whatsoever,
other than restrictions on transfer imposed by applicable
securities laws.
On the Redemption Date, the Holder shall deliver to the
Corporation a stock certificate representing the Redemption Shares
accompanied by a stock power duly endorsed in blank and the Corporation
shall acquire good and marketable title to such shares free and clear
of any liens, encumbrances, security interests, restrictive agreements,
claims or imperfections of any nature whatsoever, other than
restrictions on transfer imposed by applicable securities laws.
After the Redemption Notice Date, the Redemption Shares shall
not be deemed to be outstanding and the Holder will only hold a
contractual right from the Corporation to receive the Redemption Price.
Section 5. Protective Provision. The Corporation shall not
amend this Article IV without obtaining the approval of the holders of
90% of the outstanding shares of Common Stock.
Section 6. Record Holders. The Corporation shall be entitled
to treat the person in whose name any share of its stock is registered
as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable law.
ARTICLE V.
EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VI.
BYLAWS
In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to adopt, amend or
repeal the bylaws or adopt new bylaws.
-3-
ARTICLE VII.
MEETINGS OF STOCKHOLDERS
BOOKS OF CORPORATION
ELECTION OF DIRECTORS
Meetings of stockholders may be held within or without the state of
Delaware, as the bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the state of Delaware at such place or places as
may be designated from time to time by the board of directors or in the bylaws
of the Corporation. Election of directors need not by written ballot unless the
bylaws of the Corporation so provide.
ARTICLE VIII.
BOARD OF DIRECTORS
The number of directors constituting the board of directors of the
Corporation shall be five. The Corporation shall not change the number of
directors on the board of directors from five members without obtaining the
approval of the holders of 90% of the outstanding shares of Common Stock.
The name and address of each of the persons to serve as a director
until the first annual meeting of the stockholders or until his successor has
been duly elected and qualified or his earlier resignation, removal or death,
is:
Name Mailing Address
- ------------------------- ----------------------------------------
Harold C. Simmons Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
Glenn R. Simmons Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
Steven L. Watson Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
William J. Lindquist Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
J. Landis Martin 1999 Broadway, Suite 4300
Denver, Colorado 80202
-4-
ARTICLE IX.
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by law,
indemnify any and all officers and directors of the Corporation, and may, to the
fullest extent permitted by law or to such lesser extent as is determined in the
discretion of the board of directors, indemnify all other persons from and
against all expenses, liabilities or other matters and advance expenses to all
persons whom it shall have the power to indemnify.
ARTICLE X.
DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for such liability as is expressly not subject to
limitation under the Delaware General Corporation Law, as the same exists or may
hereafter be amended to further limit or eliminate such liability. Any repeal or
modification of this ARTICLE by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ARTICLE XI.
CERTAIN BUSINESS COMBINATIONS
The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.
ARTICLE XII.
SETTLEMENTS WITH CREDITORS OR STOCKHOLDERS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the state of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all creditors
or class of creditors, and/or on all the stockholders or class of stockholders,
of the Corporation, as the case may be, and also on the Corporation.
-5-
ARTICLE XIII.
AMENDMENT
The Corporation shall have the right, subject to any express provisions
or restrictions contained in this certificate of incorporation or bylaws of the
Corporation, from time to time, to amend this certificate of incorporation or
any provision thereof in any manner now or hereafter provided by law, and all
rights and powers of any kind conferred upon a director or stockholder of the
Corporation by this certificate of incorporation or any amendment thereof are
conferred subject to such right.
ARTICLE XIV.
INCORPORATOR
The name and mailing address of the sole incorporator of the
Corporation is A. Andrew R. Louis, Three Lincoln Centre, 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240-2697.
THE UNDERSIGNED, being the sole incorporator of the Corporation, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the state of Delaware, does make this certificate to acknowledge, declare and
certify that this certificate of incorporation is his act and deed and the facts
stated in this certificate of incorporation are true, and accordingly executes
this certificate of incorporation this 21st day of December, 2000.
/s/ A. Andrew R. Louis
-------------------------------------
A. Andrew R. Louis, Sole Incorporator
-6-
EXHIBIT B
BYLAWS
OF
TREMONT GROUP, INC.
a Delaware Corporation
(Incorporated on December 21, 2000)
As of December 31, 2000
TABLE OF CONTENTS
Page
TABLE OF CONTENTS.................................................................................................i
ARTICLE I. REGISTERED AGENT AND OFFICES..........................................................................1
Section 1.1. Registered Agent and Office................................................................1
Section 1.2. Other Offices..............................................................................1
ARTICLE II. MEETINGS OF STOCKHOLDERS.............................................................................1
Section 2.1. Place and Time of Meetings.................................................................1
Section 2.2. Notice.....................................................................................1
Section 2.3. List of Stockholders.......................................................................1
Section 2.4. Quorum.....................................................................................1
Section 2.5. Proxies....................................................................................2
Section 2.6. Order of Business..........................................................................2
Section 2.7. Appointment of Inspectors of Election......................................................2
Section 2.8. Informal Action............................................................................2
Section 2.9. Fixing A Record Date.......................................................................3
Section 2.10. Telephone Meetings........................................................................4
Section 2.11. Minutes...................................................................................4
ARTICLE III. DIRECTORS...........................................................................................4
Section 3.1. Number, Qualifications and Term of Office..................................................4
Section 3.2. Removals...................................................................................4
Section 3.3. Vacancies..................................................................................4
Section 3.4. Annual Meeting.............................................................................4
Section 3.5. Other Meetings and Notice..................................................................4
Section 3.6. Quorum.....................................................................................4
Section 3.7. Committees.................................................................................4
Section 3.8. Committee Rules............................................................................5
Section 3.9. Telephonic Meetings........................................................................5
Section 3.10. Presumption of Assent.....................................................................5
Section 3.11. Informal Action...........................................................................5
Section 3.12. Compensation..............................................................................5
Section 3.13. Minutes...................................................................................5
ARTICLE IV. OFFICERS.............................................................................................5
Section 4.1. Number.....................................................................................5
Section 4.2. Election and Term of Office................................................................5
Section 4.3. The Chairman of the Board..................................................................6
Section 4.4. The Vice Chairman of the Board.............................................................6
Section 4.5. The President..............................................................................6
Section 4.6. Vice Presidents............................................................................6
Section 4.7. The Secretary and Assistant Secretary......................................................6
Section 4.8. The Treasurer and Assistant Treasurer......................................................7
Section 4.9. Vacancies..................................................................................7
Section 4.10. Other Officers, Assistant Officers and Agents.............................................7
ARTICLE V. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND OTHERS.......................................7
Section 5.1. Indemnification............................................................................7
Section 5.2. Advancement of Expenses....................................................................7
Section 5.3. Expenses of Contested Indemnification Claims...............................................8
Section 5.4. Indemnification Not Exclusive..............................................................8
Section 5.5. Survival of Indemnification and Advancement of Expenses....................................8
-i-
Section 5.6. Permissive Indemnification of Employees, Agents and Others.................................8
Section 5.7. Contract Right.............................................................................8
Section 5.8. Insurance..................................................................................8
Section 5.9. Certain References Under Article V.........................................................8
ARTICLE VI. CERTIFICATES OF STOCK................................................................................8
Section 6.1. Form.......................................................................................8
Section 6.2. Transfers..................................................................................9
Section 6.3. Lost or Destroyed Certificates.............................................................9
Section 6.4. Registered Stockholders....................................................................9
ARTICLE VII. CERTAIN BUSINESS COMBINATIONS.......................................................................9
ARTICLE VIII. GENERAL PROVISIONS..................................................................................9
Section 8.1. Dividends..................................................................................9
Section 8.2. Moneys.....................................................................................9
ARTICLE IX. NOTICES..............................................................................................9
Section 9.1. General....................................................................................9
Section 9.2. Waivers...................................................................................10
Section 9.3. Attendance as Waiver......................................................................10
Section 9.4. Omission of Notice to Stockholders........................................................10
-ii-
BYLAWS
OF
TREMONT GROUP, INC.
a Delaware Corporation
(Incorporated on December 21, 2000)
As of December 31, 2000
- --------------------------------------------------------------------------------
ARTICLE I.
REGISTERED AGENT AND OFFICES
Section 1.1. Registered Agent and Office. The registered agent and
office of the corporation shall be such person or entity and located at such
place within the state of Delaware as the board of directors may from time to
time determine.
Section 1.2. Other Offices. The corporation may also have offices at
such other places, both within and without the state of Delaware, as the
corporation's board of directors may from time to time determine or the business
of the corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 2.1. Place and Time of Meetings. All meetings of the
stockholders shall be held on such date and at such time and place, within or
without the state of Delaware, as shall be determined from time to time, by the
board of directors. The place at which a meeting of stockholders shall be held
shall be stated in the notice and call of the meeting or a duly executed waiver
of notice thereof. Special meetings of stockholders may be called by the
chairman of the board, the president, the board of directors or the holders of
at least ten percent of the shares of the corporation that would be entitled to
vote at such a meeting.
Section 2.2. Notice. Notice of the time and place of an annual meeting
of stockholders and notice of the time, place and purpose or purposes of a
special meeting of the stockholders shall be given by mailing written or printed
notice of the same not less than ten, nor more than sixty, days prior to the
meeting, with postage prepaid, to each stockholder of record of the corporation
entitled to vote at such meeting, and addressed to the stockholder's last known
post office address or to the address appearing on the corporate books of the
corporation.
Section 2.3. List of Stockholders. The officer or agent having charge
of the stock transfer books of the corporation shall make, at least ten days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote at such meeting arranged in alphabetical order, specifying the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. The original stock transfer books shall be the only evidence as to who
are the stockholders entitled to examine such list or transfer book or to vote
at any such meeting of stockholders.
Section 2.4. Quorum. The holders of a majority of the votes entitled to
be cast at any meeting of stockholders, counted as a single class if there be
more than one class of stock entitled to vote at such meeting, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders except as otherwise provided by statute or by the certificate of
incorporation. Once a quorum is present at a meeting of the stockholders, the
stockholders represented in person or by proxy at the meeting may conduct such
business as may be properly brought before the meeting until it is adjourned,
and the subsequent withdrawal from the meeting by any stockholder or the refusal
of any stockholder represented in person or by proxy to vote shall not affect
the presence of a quorum at the meeting. If a quorum is not present, the holders
of the shares present in person or represented by proxy at the meeting, and
entitled to vote thereat, shall have the power, by the affirmative vote of the
holders of a majority of such shares, to adjourn the meeting to another time
and/or place. Unless the adjournment is for more than thirty days or unless a
new record date is set for the adjourned meeting, no notice of the adjourned
meeting need be given to any stockholder provided that the time and place of the
adjourned meeting were announced at the meeting at which the adjournment was
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting.
Section 2.5. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. A telegram, telex, cablegram or similar transmission by the stockholder,
or a photographic, photostatic, facsimile or similar reproduction of a writing
executed by the stockholder shall be treated as an execution in writing for
purposes of this section. No proxy shall be valid after three years from the
date of its execution unless otherwise provided in the proxy. Each proxy shall
be revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
Section 2.6. Order of Business. The order of business at each such
stockholders meeting shall be as determined by the chairman of the meeting. One
of the following persons, in the order in which they are listed (and in the
absence of the first, the next, and so on), shall serve as chairman of the
meeting: the chairman of the board, vice chairman of the board, president, vice
presidents (in the order of their seniority if more than one) and secretary. The
chairman of the meeting shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts and things as are
necessary or desirable for the proper conduct of the meeting, including, without
limitation, the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted to questions or comments on the affairs
of the corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof, and the opening and closing of the
voting polls.
Section 2.7. Appointment of Inspectors of Election. The board of
directors shall appoint one or more inspectors of election ("inspectors") to act
at such meeting or any adjournment or postponement thereof and make a written
report thereof. The board of directors may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is so appointed or if no inspector or alternate is able to act, the
chairman of the board shall appoint one or more inspectors to act at such
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors may be directors, officers or employees of the
corporation.
Section 2.8. Informal Action.
(a) Any action to be taken at a meeting of the stockholders,
may be taken without a meeting, without prior notice, and without a
vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holder or holders of shares having not
less than the minimum number of votes that would be necessary to take
such action at a meeting at which the holders of all shares entitled to
vote on the action were present and voted.
(b) Every written consent of the stockholders shall bear the
date of signature of each stockholder who signs the consent. No written
consent shall be effective to take the action that is the subject of
the consent unless, within sixty days after the date of the earliest
dated consent delivered to the corporation as provided below, a consent
or consents signed by the holder or holders of shares having not less
than the minimum number of votes that would be necessary to take the
-2-
action that is the subject of the consent are delivered to the
corporation by delivery to its registered office, its principal place
of business, or an officer or agent of the corporation having custody
of the books in which proceedings of meetings of the stockholders are
recorded. Such delivery shall be made by hand or by certified or
registered mail, return receipt requested, and in the case of delivery
to the corporation's principal place of business, shall be addressed to
the president of the corporation.
(c) A telegram, telex, cablegram or similar transmission by a
stockholder, or a photographic, photostatic, facsimile or other similar
reproduction of a writing signed by a stockholder, shall be regarded as
signed by the stockholder for the purposes of this section.
(d) Prompt notice of the taking of any action by stockholders
without a meeting by less than unanimous written consent shall be given
to those stockholders who did not consent in writing to the action and
who, if the action had been taken at a meeting, would have been
entitled to notice of the meeting if the record date for such meeting
had been the date that written consents signed by a sufficient number
of holders to take the action were delivered to the corporation.
Section 2.9. Fixing A Record Date.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the board or directors may fix
a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less
than ten days before the date of such meeting. If no record is fixed by
the board of directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be
at the close of business on the day next preceding the day on which
notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; providing, however, that the board of directors may fix a new
record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without
a meeting, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which date shall
not be more than ten days after the date upon which the resolution
fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date
for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the board of
directors is required by this chapter, shall be the first date on which
a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered
office in this State, its principal place of business, or an officer or
agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been
fixed by the board of directors and prior action by the board of
directors is required by this chapter, the record date for determining
stockholders entitled to consent to corporate action in writing without
a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the board of
directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on
the day on which the board of directors adopts the resolution relating
thereto.
-3-
Section 2.10. Telephone Meetings. Stockholders may participate in and
hold a meeting by means of conference telephone or similar communication
equipment by means of which all persons participating in the meeting can hear
each other. Participation in such a meeting shall constitute presence in person
at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 2.11. Minutes. The stockholders shall keep regular minutes of
their proceedings, and such minutes shall be placed in the minute book of the
corporation.
ARTICLE III.
DIRECTORS
Section 3.1. Number, Qualifications and Term of Office. The business
and affairs of the corporation shall be managed by a board of directors
consisting of five members. Each director shall be elected at the annual meeting
of the stockholders, except as provided in Section 3.3, and each director
elected shall hold office until the next annual meeting of stockholders and
until his or her successor is duly elected and qualified or until his or her
earlier death, resignation or removal.
Section 3.2. Removals. Subject to the preferential voting rights of the
holders of preferred stock or any other class of capital stock of the
corporation or any series of any of the foregoing that is then outstanding, each
director may be removed from office at any time by the stockholders, with or
without cause, by the affirmative vote of the holders of at least a majority of
the voting power of all of the shares of the corporation entitled to vote for
the election of such director.
Section 3.3. Vacancies. Subject to the preferential voting rights of
the holders of preferred stock or any other class of capital stock of the
corporation or any series of any of the foregoing that is then outstanding and
except as otherwise required by law, all vacancies in the board of directors,
whether caused by resignation, death or otherwise, may be filled by a majority
of the remaining directors though less than a quorum. Each director so chosen
shall hold office for the unexpired term of his or her predecessor and until his
or her successor is elected and qualified or until his or her earlier death,
resignation or removal.
Section 3.4. Annual Meeting. The annual meeting of the board of
directors may be held without notice immediately after the annual meeting of
stockholders at the location of the stockholders' meeting. If not held
immediately after the annual meeting of the stockholders, the annual meeting of
the board of directors shall be held as soon thereafter as may be convenient.
Section 3.5. Other Meetings and Notice. Regular meetings of the board
of directors may be held without notice at such time and at such place as shall
from time to time be determined by the board of directors. Special meetings of
the board of directors may be called by or at the request of the chairman of the
board or the president and shall be called by the chairman of the board on the
written request of a majority of directors, in each case on at least twenty-four
hours notice to each director.
Section 3.6. Quorum. A majority of the total number of directors shall
be necessary at all meetings to constitute a quorum for the transaction of
business. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. At such adjourned meeting at which a quorum shall be present,
any business may be transacted that might have been transacted at the meeting as
originally notified and called.
Section 3.7. Committees. Standing or temporary committees consisting of
one or more directors of the corporation may be appointed by the board of
directors from time to time, and the board of directors may from time to time
invest such committees with such powers as it may see fit, subject to
-4-
limitations imposed by statute and such conditions as may be prescribed by the
board of directors. An executive committee may be appointed by resolution passed
by a majority of the entire board of directors and if appointed it shall have
all the powers provided by statute, except as specially limited by the board of
directors. All committees so appointed shall keep regular minutes of the
transactions of their meetings and shall cause them to be recorded in books kept
for that purpose in the office of the corporation, and shall report the same to
the board of directors at its next meeting. The board of directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. The board shall
have the power at any time to change the membership of, to increase or decrease
the membership of, to fill all vacancies in and to discharge any committee of
the board, or any member thereof, either with or without cause.
Section 3.8. Committee Rules. Each committee of the board of directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by the resolution of the board
of directors designating such committee, but in all cases the presence of at
least a majority of the members of such committee shall be necessary to
constitute a quorum.
Section 3.9. Telephonic Meetings. Members of the board of directors or
any committee designated by the board of directors may participate in any
meeting of the board of directors or such committee by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such a
meeting shall constitute presence in person at such meeting.
Section 3.10. Presumption of Assent. A director of the corporation who
is present at a meeting of the board of directors or any committee thereof at
which action on any corporate matter is taken shall be deemed to have assented
to the action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless he or she shall file his or her written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
Section 3.11. Informal Action. Any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof may
be taken without a meeting if all members of the board of directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board of directors or
committee. Action taken pursuant to such written consent of the board of
directors or of any committee thereof shall have the same force and effect as if
taken by the board of directors or the committee, as the case may be, at a
meeting thereof.
Section 3.12. Compensation. The board of directors shall have the
authority to fix the compensation of directors.
Section 3.13. Minutes. The board of directors shall keep regular
minutes of its proceedings, and such minutes shall be placed in the minute book
of the corporation.
ARTICLE IV.
OFFICERS
Section 4.1. Number. The officers of the corporation shall be a
chairman of the board, a vice chairman of the board, a president, one or more
vice presidents, a secretary, a treasurer, and such other officers and assistant
officers as the board of directors may, by resolution, appoint. Any two or more
offices may be held by the same person. In its discretion, the board of
directors may choose not to fill any office for any period as it may deem
advisable, except the offices of president and secretary.
Section 4.2. Election and Term of Office. The officers of the
corporation shall be elected annually by the board of directors at the annual
meeting of the board of directors. If the election of officers shall not be held
-5-
at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until the next annual meeting of the
board of directors and until his or her successor is duly elected and qualified
or until his or her earlier death, resignation or removal as hereinafter
provided.
Section 4.3. The Chairman of the Board. The chairman of the board shall
preside at all meetings of the stockholders and directors. He or she shall be
the chief executive officer of the corporation and shall have general and active
management of the business of the corporation, shall see that all orders and
resolutions of the board of directors are carried into effect and, in connection
therewith, shall be authorized to delegate to the vice chairman of the board,
president and other officers such of his or her powers and duties as chairman of
the board at such time and in such manner as he or she may deem to be advisable.
The chairman of the board shall be an ex officio member of all standing
committees and he or she shall have such other powers and duties as may from
time to time be assigned by the board of directors.
The chairman of the board may, from time to time, appoint an
attorney-in-fact or attorneys-in-fact, or an agent or agents, of the corporation
in the name and on behalf of the corporation to cast as a stockholder, in any
other corporation, any of the securities that may be held by the corporation, at
meetings of the holders of such securities of such corporation, or to consent in
writing to any such action by any such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or the
giving of any consent, or may execute or cause to be executed on behalf of the
corporation and under its corporate seal or otherwise such written proxies,
consents, waivers, or other instruments as he or she may deem necessary or
proper, or he or she may attend any meeting of the holders of such securities of
any such other corporation and thereat vote or exercise any or all other powers
of the corporation as the holder of such securities of such corporation.
Section 4.4. The Vice Chairman of the Board. The vice chairman of the
board shall be the corporation's executive officer next in authority to the
chairman of the board. The vice chairman of the board shall assist the chairman
of the board in the management of the business of the corporation, and, in the
absence or disability of the chairman of the board, shall preside at all
meetings of the stockholders and the board of directors and exercise the other
powers and perform the other duties of the chairman of the board or designate
the executive officers of the corporation by whom such other powers shall be
exercised and other duties performed. The vice chairman of the board shall be an
ex officio member of all standing committees and he or she shall have such other
powers and duties as may from time to time be assigned by the board of directors
or by the chairman of the board. In addition to the foregoing, the vice chairman
of the board shall have such other powers, duties and authority as may be set
forth elsewhere in these bylaws.
Section 4.5. The President. The president shall be the corporation's
executive officer next in authority to the vice chairman of the board and shall
be its chief operating officer unless otherwise determined by the board of
directors. The president shall assist the chairman of the board in the
management of the business of the corporation, and, in the absence or disability
of the chairman of the board and the vice chairman of the board, shall preside
at all meetings of the stockholders and the board of directors and exercise the
other powers and perform the other duties of the chairman of the board or
designate the executive officers of the corporation by whom such other powers
shall be exercised and other duties performed. The president shall be an ex
officio member of all standing committees and he or she shall have such other
powers and duties as may from time to time be assigned by the board of directors
or by the chairman of the board. In addition to the foregoing, the president
shall have such other powers, duties, and authority as may be set forth
elsewhere in these bylaws. If the board of directors does not elect a chairman
or vice chairman of the board, the president shall also have the duties and
responsibilities, and exercise all functions, of the chairman and the vice
chairman of the board as provided in these bylaws.
Section 4.6. Vice Presidents. Each vice president shall have such
powers and discharge such duties as may be assigned from time to time by the
chairman of the board. During the absence or disability of the president, one
such vice president, when designated by the board of directors, shall exercise
all the functions of the president.
Section 4.7. The Secretary and Assistant Secretary. The secretary or
the chairman of the board shall issue notices for all meetings. The secretary
shall keep minutes of all meetings, shall have charge of the seal and the
-6-
corporate books and shall make such reports and perform such other duties as are
incident to the office, and perform such other duties designated or properly
required by the chairman of the board. The assistant secretary shall be vested
with the same powers and duties as the secretary, and any act may be done or
duty performed, by the assistant secretary with like effect as though done or
performed by the secretary. The assistant secretary shall have such other powers
and perform such other duties as may be assigned by the chairman of the board.
Section 4.8. The Treasurer and Assistant Treasurer. The treasurer shall
have the custody of all moneys and securities of the corporation and shall keep
regular books of account. He or she shall disburse the funds of the corporation
in payment of just demands against the corporation, or as may be ordered by the
chairman of the board or by the board of directors, taking proper vouchers for
such disbursements, and shall render to the board of directors from time to time
as may be required of him or her, an account of all transactions as treasurer
and of the financial condition of the corporation. The treasurer shall perform
all duties incident to the office, and perform such other duties designated or
properly required by the chairman of the board. The assistant treasurer shall be
vested with the same powers and duties as the treasurer, and any act may be
done, or duty performed by the assistant treasurer with like effect as though
done or performed by the treasurer. The assistant treasurer shall have such
other powers and perform such other duties as may be assigned by the chairman of
the board.
Section 4.9. Vacancies. Vacancies in any office arising from any cause
may be filled by the directors for the unexpired portion of the term with a
majority vote of the directors then in office. In the case of the absence or
inability to act of any officer of the corporation and of any person herein
authorized to act in his or her place, the board of directors may from time to
time delegate the powers or duties of such officer to any other officer or any
director or other person whom it may select.
Section 4.10. Other Officers, Assistant Officers and Agents. Officers,
assistant officers, and agents, if any, other than those whose duties are
provided for in these bylaws shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board of directors. Unless the board of directors decides otherwise,
if an officer title is one commonly used for officers of a business corporation
formed under the Delaware General Corporation Law or any successor or similar
statute, the assignment of such title shall constitute the delegation to such
officer of the authority and duties that are normally associated with that
office, subject to any specific delegation of authority and duties made to such
officer by the board of directors.
ARTICLE V.
INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND OTHERS
Section 5.1. Indemnification. To the fullest extent permitted by
Delaware law the corporation shall, indemnify any and all officers and directors
of the corporation, from and against all expenses (including attorneys' fees),
liabilities or other matters arising out of their status as such or their acts,
omissions or services rendered by such persons in such capacities or otherwise
while serving at the request of the corporation. Unless specifically addressed
in a repeal or amendment of Delaware law with regard to a corporation's ability
to indemnify its officers and directors, no such repeal or amendment shall
adversely affect any indemnification rights of any person existing at the time
of such repeal or amendment.
Section 5.2. Advancement of Expenses. Reasonable expenses (including
attorneys' fees) incurred by a director or officer who was, is or is threatened
to be made a named defendant or respondent in a proceeding by reason of his or
her status as a director or officer of the corporation or services rendered by
such persons in such capacities or otherwise at the request of the corporation
or incurred by a director or officer for prosecuting a claim under Section 5.3
shall be paid by the corporation in advance of the final disposition of such
proceeding upon receipt of a written affirmation by the director or officer of
his or her good faith belief that he or she has met the standard of conduct
necessary for indemnification and a written undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the corporation as
authorized in this Article.
-7-
Section 5.3. Expenses of Contested Indemnification Claims. If a
claimant makes a claim on the corporation under Section 5.1 or 5.2 and the
corporation does not pay such claim in full within thirty days after it has
received such written claim, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall also be entitled to be paid
the expenses of prosecuting such claim.
Section 5.4. Indemnification Not Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any other
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
Section 5.5. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article shall continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
Section 5.6. Permissive Indemnification of Employees, Agents and
Others. To the fullest extent of Delaware law, the corporation may grant rights
of indemnification and advancement of expenses to any person who is not at the
time a current director or officer of the corporation.
Section 5.7. Contract Right. Each of the rights of indemnification and
advancement of expenses provided by, or granted pursuant to, this Article shall
be a contract right and any repeal or amendment of the provisions of this
Article shall not adversely affect any such right of any person existing at the
time of such repeal or amendment with respect to any act or omission occurring
prior to the time of such repeal or amendment, and further, shall not apply to
any proceeding, irrespective of when the proceeding is initiated, arising from
the service of such person prior to such repeal or amendment.
Section 5.8. Insurance. To the fullest extent of Delaware law, the
corporation shall have power to purchase and maintain insurance on behalf of any
person, including one who is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify him or her against such liability under the
provisions of this Article.
Section 5.9. Certain References Under Article V. For purposes of this
Article, references to "the corporation," "proceeding" and "serving at the
request of the corporation" shall have the meanings given such terms in Section
145 of the Delaware General Corporation Law or any successor or similar statute.
ARTICLE VI.
CERTIFICATES OF STOCK
Section 6.1. Form. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
chairman of the board, the president or any vice president and the secretary,
any assistant secretary, the treasurer or any assistant treasurer, certifying to
the number of shares owned by such stockholder. Where, however, such certificate
is signed by a transfer agent or an assistant transfer agent or by a transfer
clerk acting on behalf of the corporation, and a registrar or by an agent acting
in the dual capacity of transfer agent and registrar, the signatures of any of
the above-named officers may be facsimile signatures. In the event that any
officer who has signed, or whose facsimile signature has been used on, a
certificate has ceases to be an officer before the certificate has been
delivered, such certificate may nevertheless be adopted and issued and delivered
by the corporation, as though the officer who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be such officer of the corporation.
-8-
Section 6.2. Transfers. Transfers of stock shall be made only upon the
transfer books of the corporation or respective transfer agents designated to
transfer the several classes of stock, and before a new certificate is issued,
the old certificate shall be surrendered for cancellation.
Section 6.3. Lost or Destroyed Certificates. The corporation may issue
a new certificate of stock in place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the corporation shall,
except as otherwise determined by the board of directors, the chairman of the
board, the president, any vice president or other authorized officer, require
the owner of the lost, stolen or destroyed certificate, or his or her legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
Section 6.4. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of another person, whether or not the
corporation shall have express or other notice thereof, except as otherwise
provided by the laws of the state of Delaware.
ARTICLE VII.
CERTAIN BUSINESS COMBINATIONS
The provision of Section 203 of the Delaware General Corporation Law
shall not apply to the corporation.
This Article VII shall be amended, altered or repealed only as provided
in Section 203 of the Delaware General Corporation Law.
ARTICLE VIII.
GENERAL PROVISIONS
Section 8.1. Dividends. Dividends upon the capital stock of the
corporation, subject to any applicable provisions of the certificate of
incorporation, may be declared by the board of directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property or
in shares of the capital stock, subject to the applicable provisions of the
certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think in the best interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 8.2. Moneys. The moneys of the corporation shall be deposited
in the name of the corporation in such bank or banks or trust company or trust
companies as the board of directors shall designate, and shall be drawn out only
by check signed by the chairman of the board or the president and countersigned
by the secretary, assistant secretary, treasurer or the assistant treasurer, or
signed and countersigned by such other persons as shall be designated by
resolution of the board of directors, except that the chairman of the board may
designate one or more officers to transfer by letter or wire funds from an
account of the corporation in one bank to an account of the corporation or a
subsidiary in another bank and the chairman of the board shall have the
authority on bank accounts to designate that one signature of an officer or
other person shall be sufficient.
ARTICLE IX.
NOTICES
Section 9.1. General. Whenever the provisions of any statute or these
bylaws require notice to be given to any director, officer or stockholder, such
notice may be given personally or in writing by facsimile, by telegraph or by
-9-
depositing the same in the United States mail with postage prepaid addressed to
each director, officer or stockholder at his or her address, as the same appears
in the books of the corporation, and the time when the same shall be personally
given, sent by facsimile or telegraph or mailed shall be deemed to be the time
of the giving of such notice.
Section 9.2. Waivers. Whenever any notice whatever is required to be
given under provisions of law or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
Section 9.3. Attendance as Waiver. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 9.4. Omission of Notice to Stockholders. Any notice required to
be given to any stockholder under any statutory provision, the certificate of
incorporation or these bylaws need not be given to the stockholder if:
(a) notice of two consecutive annual meetings and all notices
of meetings held or actions by written consent taken during the period
between those annual meetings, if any, or
(b) all, and at least two, payments (if sent by first class
mail) of distributions or interest on securities during a twelve month
period
have been mailed to that person, addressed at his or her address as shown on the
share transfer records of the corporation, and have been returned undeliverable.
Any action or meeting taken or held without notice to such a person shall have
the same force and effect as if the notice had been duly given. If such a person
delivers to the corporation a written notice setting forth his or her then
current address, the requirement that notice be given to that person shall be
reinstated.
ADOPTED BY THE BOARD OF DIRECTORS AS
OF DECEMBER 31, 2000
/s/ A. Andrew R. Louis
---------------------------------------------
A. Andrew R. Louis, Secretary
-10-
EXHIBIT C
VOTING AGREEMENT
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
December 31, 2000, among Valhi, Inc., a Delaware corporation ("Valhi"), Tremont
Holdings, LLC, a Delaware limited liability company ("TRE Holdings" and together
with Valhi, the "Stockholders"), and Tremont Group, Inc., a Delaware corporation
("TGI"). Unless otherwise provided in this Agreement, certain capitalized terms
used herein are defined in Section 8.
Recitals
The parties hereto desire to enter into this Agreement to establish a
mechanism to elect as a director of TGI one person designated in writing by TRE
Holdings.
Agreement
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows.
Section 1. Voting for Directorship. Valhi agrees to vote all of its TGI
Shares, and will take all other necessary or desirable actions within its
control, to elect as a director of TGI one person designated in writing by TRE
Holdings. The parties agree that the initial person designated by TRE Holdings
to be elected a director of TGI is J. Landis Martin. If in the future more than
one person holds TRE Holdings' TGI Shares, such persons must jointly agree on
one designee that they desire to have Valhi elect as a director of TGI and
notify Valhi in writing of such designee before Valhi is obligated to elect such
designee under this section.
Section 2. Size of Board of Directors; Governing Instruments. The
Stockholders hereby agree (a) that the board of directors shall be comprised of
five (5) persons as directors, and each Stockholder shall take or cause to be
taken all action to require that the certificate of incorporation and bylaws of
TGI shall so provide and (b) to ensure at all times that the certificate of
incorporation and bylaws of TGI are not at any time inconsistent with the
provisions of this Agreement.
Section 3. Impairment. Valhi agrees that it will not vote or otherwise
consent or take action with respect to its TGI Shares to amend TGI's certificate
of incorporation or bylaws in a manner that would affect the voting rights of
TGI's stockholders.
Section 4. Transfer of Shares. Valhi agrees that the agreement relating
to the voting of its TGI Shares evidenced by this Agreement shall encumber such
shares, and that any permitted successor, assignee, or transferee shall take
such shares subject to this Agreement. In addition, each party agrees to cause
any permitted successor, assignee, or transferee of such party to become a party
to this Agreement.
Section 5. Term. Unless earlier terminated by agreement of the parties,
this Agreement shall remain in effect for as long as TRE Holdings or its
permitted successors, assigns and transferees hold TGI Shares.
Section 6. Legend. Each certificate evidencing Valhi's TGI Shares and
each certificate issued in exchange for or upon the transfer of such TGI Shares
(if such shares remain subject to the terms of this Agreement after such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT ("AGREEMENT") DATED AS OF DECEMBER 31, 2000 AMONG THE ISSUER
OF SUCH SECURITIES (THE "ISSUER") AND THE ISSUER'S SECURITY HOLDERS. A
COPY OF SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER
TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
The legend set forth above shall be removed from the certificates evidencing TGI
Shares that cease to be subject to the terms of this Agreement or the
termination of this Agreement.
Section 7. Specific Performance. Valhi agrees that the remedy at law
for any breach by it of this Agreement will be inadequate and that, in addition
to any other remedies TRE Holdings might have, TRE Holdings shall be entitled,
without the necessity of proving actual damages, to specific performance and
injunctive relief to prevent the breach of any provisions of this Agreement.
Section 8. Definitions.
"Common Stock" means TGI's common stock, par value $0.01 per
share.
"Stockholder" means any stockholder of TGI who is subject to
the terms of this Agreement.
"TGI Shares" means any Common Stock and any other voting
securities of TGI purchased or otherwise acquired by any Stockholder.
As to any particular shares constituting TGI Shares, such shares will
cease to be subject to this Agreement if and when they have been
repurchased by TGI.
Section 9. Miscellaneous.
(a) Amendment and Waiver. Except as otherwise provided herein,
no modification, amendment or waiver of any provision of this Agreement
will be effective against a Stockholder, unless such modification,
amendment or waiver is approved in writing by such Stockholder. The
failure of any party to enforce any of the provisions of this Agreement
will in no way be construed as a waiver of such provisions and will not
affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
-2-
(b) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is
held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality
or unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
(c) Entire Agreement. This Agreement contains the entire
understanding among the parties with respect to the transactions
contemplated hereby and supersedes all other agreements and
understandings among the parties with respect to the subject matter of
this Agreement.
(d) Successors and Assigns. Except as otherwise provided
herein, this Agreement will bind and inure to the benefit of and be
enforceable by TGI and its successors and assigns, and the Stockholders
and any subsequent holders of TGI Shares, and the respective successors
and assigns of each of them, so long as they hold TGI Shares.
(e) Counterparts. This Agreement may be executed in
counterparts each of which will be an original and all of which taken
together shall constitute one and the same agreement.
(f) Notice. All notices and other communications that are
required to be or may be given under this Agreement shall be in writing
and shall be deemed to have been duly given when delivered in person or
transmitted by confirmed telecopy or upon receipt after dispatch by
overnight courier or by certified or registered mail, postage prepaid,
to the party to whom the notice is given. Notices shall be given to the
address for the respective party appearing under the party's signature
to this Agreement or to such other address as such party may designate
by giving notice of such change of address to the other parties to this
Agreement.
(g) Applicable Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the state of
Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the state of Delaware or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the state of Delaware.
(h) Headings. The sections and other headings contained in
this Agreement are for reference purposes only and shall not effect in
any way the meaning or interpretation of this Agreement.
-3-
The parties hereto have caused this Agreement to be executed by their
duly authorized officers as of the date first written above.
TREMONT GROUP, INC.
By: /s/ Steven L. Watson
-----------------------------------------
Steven L. Watson, President
Address: Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
FAX: 972.448.1445
Attention: General Counsel
VALHI, INC.
By: /s/ Steve L. Watson
-----------------------------------------
Steven L. Watson, President
Address: Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
FAX: 972.448.1445
Attention: General Counsel
TREMONT HOLDINGS, LLC
By: /s/ Robert D. Hardy
-----------------------------------------
Robert D. Hardy, Vice President
Address: Two Greenspoint Plaza
16825 Northchase Drive
Suite 1200
Houston, Texas 77060-2544
FAX: 281.423.3333
Attention: General Counsel
-4-
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of
incorporation % of Voting
NAME OF CORPORATION or organization Securities Held
- -------------------------------------------- --------------- ---------------
Kronos, Inc. Delaware 100
Kronos (US) Inc. Delaware 100
Kronos International, Inc. Delaware 100
NL Industries GmbH & Co. OHG Germany 100
Kronos Titan GmbH & Co. OHG Germany 100
Unterstutzungskasse Kronos Titan-GmbH Germany 100
Kronos Chemie-GmbH Germany 100
Kronos World Services S.A./N.V. Belgium 100
Kronos Canada, Inc. Canada 100
2969157 Canada Inc. Canada 100
Bentone Sud, S.A. France 100
Societe Industrielle Du Titane, S.A. France 94
Kronos Limited United Kingdom 100
Kronos Denmark ApS Denmark 100
Kronos Europe S.A./N.V. Belgium 100
Kronos B.V. Holland 100
Kronos Norge A/S Norway 100
Kronos Titan A/S Norway 100
Titania A/S Norway 100
The Jossingfjord Manufacturing
Company A/S Norway 100
Kronos Louisiana, Inc. Delaware 100
Louisiana Pigment Company, L.P. Delaware 50(a)
NL Capital Corporation Delaware 100(b)
Other:
NL Industries (USA), Inc. Texas 100
NLO, Inc. Ohio 100
Salem Lead Company Massachusetts 100
Sayre & Fisher Land Company New Jersey 100
RK Export, Inc. Barbados 100(c)
153506 Canada Inc. Canada 100
NL Industries Chemie, GmbH Germany 100
Tremont Holdings, LLC Delaware 100
NL Environmental Management Services, Inc. New Jersey 78(d)
The 1230 Corporation California 100
United Lead Company New Jersey 100
(a) Unconsolidated joint venture accounted for by the equity method.
(b) On February 1, 2000, NL Capital Corporation merged into Kronos
International, Inc.
(c) Liquidated in December 2000.
(d) Registrant directly owns 56% and indirectly owns 22% via 153506 Canada,
Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the:
(i) Registration Statement No. 33-29287 on Form S-8 and related
Prospectus with respect to the 1989 Long Term Performance Incentive
Plan of NL Industries, Inc.; and
(ii) Registration Statement No. 33-25913 on Form S-8 and related
Prospectus with respect to the NL Industries, Inc. Retirement Savings
Plan; and
(iii)Registration Statement No. 333-65817 on Form S-8 and related
Prospectus with respect to the NL Industries, Inc. 1998 Long-Term
Incentive Plan; and
(iv) Registration Statement No. 33-48145 on Form S-8 and related
Prospectus with respect to the NL Industries, Inc. 1992 Non-Employee
Directors Stock Option Plan.
of our report dated February 28, 2001 on our audits of the consolidated
financial statements and financial statement schedules of NL Industries, Inc. as
of December 31, 2000 and 1999, and for each of the three years in the period
ended December 31, 2000, which report is included in this Annual Report on Form
10-K.
PricewaterhouseCoopers LLP
Houston, Texas
March 9, 2001
