SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1994 COMMISSION FILE NUMBER 1-5467
VALHI, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 87-0110150
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ FREEWAY, SUITE 1700, DALLAS, TEXAS 75240-2697
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 233-1700
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
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON OCTOBER 31, 1994: 115,004,214.
VALHI, INC. AND SUBSIDIARIES
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1993
and September 30, 1994 3-4
Consolidated Statements of Operations - Three months
and nine months ended September 30, 1993 and 1994 5
Consolidated Statement of Stockholders' Equity -
Nine months ended September 30, 1994 6
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1993 and 1994 7-8
Notes to Consolidated Financial Statements 9-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 16-28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 29
Item 6. Exhibits and Reports on Form 8-K. 29
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS December 31, September 30,
1993 1994
Current assets:
Cash and cash equivalents $ 22,189 $ 21,385
Marketable securities 28,518 23,706
Accounts and notes receivable 61,135 97,021
Receivable from affiliates 272 10,269
Inventories 276,125 94,466
Prepaid expenses 6,126 5,389
Deferred income taxes 75 258
Total current assets 394,440 252,494
Other assets:
Marketable securities 108,800 110,764
Investment in affiliates 74,897 56,128
Timber and timberlands 51,868 53,066
Deferred income taxes 27,723 33,848
Other 42,887 36,951
Total other assets 306,175 290,757
Property and equipment:
Land 18,822 21,748
Buildings 43,522 48,973
Equipment 341,868 351,506
Construction in progress 17,344 54,173
421,556 476,400
Less accumulated depreciation 218,300 234,026
Net property and equipment 203,256 242,374
$903,871 $785,625
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, September 30,
1993 1994
Current liabilities:
Notes payable $117,753 $ 43,947
Current maturities of long-term debt 16,086 22,930
Accounts payable 163,338 100,044
Accrued liabilities 60,190 60,200
Payable to affiliates 43 67
Income taxes 4,916 3,601
Deferred income taxes 2,494 -
Total current liabilities 364,820 230,789
Noncurrent liabilities:
Long-term debt 302,490 308,521
Deferred income taxes 1,732 3,033
Other 27,328 27,332
Total noncurrent liabilities 331,550 338,886
Stockholders' equity:
Common stock 1,244 1,245
Additional paid-in capital 33,409 33,342
Retained earnings 222,810 222,890
Adjustments:
Currency translation (17,776) (11,637)
Marketable securities 41,075 42,811
Pension liabilities (1,619) (1,535)
Common stock reacquired (71,642) (71,166)
Total stockholders' equity 207,501 215,950
$903,871 $785,625
[FN]
Commitments and contingencies (Note 13)
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended Nine months ended
September 30, September 30,
1993 1994 1993 1994
Revenues and other income:
Net sales $213,214 $232,549 $ 577,974 $632,295
Other, net 2,690 1,960 10,693 6,653
215,904 234,509 588,667 638,948
Costs and expenses:
Cost of sales 158,726 177,978 439,953 481,353
Selling, general and administrative 30,506 32,270 85,955 91,003
Interest 8,645 8,146 30,399 25,988
197,877 218,394 556,307 598,344
Income of consolidated companies
before income taxes 18,027 16,115 32,360 40,604
Equity in losses of affiliates (16,052) (9,547) (130,770) (30,463)
Income (loss) before income taxes 1,975 6,568 (98,410) 10,141
Provision for income taxes (benefit) 807 1,880 (32,210) 3,202
Income before extraordinary item 1,168 4,688 (66,200) 6,939
Extraordinary item - debt prepayment (3,200) - (3,200) -
Net income (loss) $ (2,032) $ 4,688 $ (69,400) $ 6,939
Income (loss) per common share:
Before extraordinary item $ .01 $ .04 $(.58) $ .06
Extraordinary item (.03) - (.03) -
Net income (loss) $(.02) $ .04 $(.61) $ .06
Cash dividends per share $ - $ .02 $ .05 $ .06
Weighted average common shares
outstanding 114,110 114,318 114,093 114,299
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
ADDITIONAL ADJUSTMENTS
COMMON PAID-IN RETAINED CURRENCY MARKETABLE PENSION
STOCK CAPITAL EARNINGS TRANSLATION SECURITIES LIABILITIES
Balance at December 31, 1993 $1,244 $33,409 $222,810 $(17,776) $41,075 $(1,619)
Net income - - 6,939 - - -
Cash dividends - - (6,859) - - -
Adjustments, net - - - 6,139 1,736 84
Other, net 1 (67) - - - -
Balance at September 30, 1994 $1,245 $33,342 $222,890 $(11,637) $42,811 $(1,535)
COMMON TOTAL
STOCK STOCKHOLDERS'
REACQUIRED EQUITY
Balance at December 31, 1993 $(71,642) $207,501
Net income - 6,939
Cash dividends - (6,859)
Adjustments, net - 7,959
Other, net 476 410
Balance at September 30, 1994 $(71,166) $215,950
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1994
(IN THOUSANDS)
1993 1994
Cash flows from operating activities:
Net income (loss) $ (69,400) $ 6,939
Depreciation, depletion and amortization 17,215 18,779
Noncash interest expense 7,642 8,117
Deferred income tax benefit (42,732) (11,598)
Equity in losses of affiliates 130,770 30,463
Other, net 4,444 846
47,939 53,546
Change in assets and liabilities:
Accounts and notes receivable (17,073) (36,433)
Inventories 175,250 181,659
Accounts payable and accrued liabilities (110,936) (80,737)
Accounts with affiliates (521) 27
Other, net 903 492
Marketable trading securities:
Sale proceeds - 29,375
Purchases - (25,000)
Net cash provided by operating activities 95,562 122,929
Cash flows from investing activities:
Capital expenditures (23,469) (58,052)
Marketable securities:
Sale proceeds 381,395 -
Purchases (264,930) -
Purchases of stock of affiliates - (1,381)
Loans to affiliates:
Loans (8,500) (13,050)
Collections 8,500 3,050
Other, net 3,346 3,912
Net cash provided (used) by investing activities 96,342 (65,521)
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1994
(IN THOUSANDS)
1993 1994
Cash flows from financing activities:
Notes payable and long-term debt:
Additions $ 710,231 $ 278,032
Principal payments (912,424) (329,578)
Loans from affiliates:
Loans 12,162 -
Repayments (12,162) -
Dividends paid (5,704) (6,859)
Other, net 53 229
Net cash provided (used) by financing activities (207,844) (58,176)
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities (15,940) (768)
Currency translation (164) (36)
(16,104) (804)
Balance at beginning of period 44,538 22,189
Balance at end of period $ 28,434 $ 21,385
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 32,891 $ 15,090
Income taxes 9,054 16,420
VALHI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The consolidated balance sheet of Valhi, Inc. and Subsidiaries
(collectively, the "Company") at December 31, 1993 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at September 30, 1994 and the consolidated statements
of operations, cash flows and stockholders' equity for the interim periods ended
September 30, 1993 and 1994 have been prepared by the Company, without audit.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position, results of operations and cash flows have been made. The results of
operations for the interim periods are not necessarily indicative of the
operating results for a full year or of future operations.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted. The accompanying consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Annual Report").
Contran Corporation holds, directly or through subsidiaries, approximately
90% of Valhi's outstanding common stock.
NOTE 2 - BUSINESS SEGMENT INFORMATION:
BUSINESS SEGMENT PRINCIPAL ENTITIES
Consolidated operations (100%-owned)
Refined sugar The Amalgamated Sugar Company
Forest products Medite Corporation
Hardware products National Cabinet Lock, Inc.
Fast food Sybra, Inc.
Unconsolidated operations
Chemicals NL Industries, Inc. (49%-owned)*
Titanium metals Tremont Corporation (48%-owned)
[FN]
* Tremont holds an additional 18% of NL.
Three months ended Nine months ended
September 30, September 30,
1993 1994 1993 1994
(In millions)
Net sales:
Refined sugar $120.8 $137.4 $ 318.3 $353.9
Forest products 48.2 49.6 131.7 143.0
Hardware products 16.2 17.0 46.6 52.5
Fast food 28.0 28.6 81.4 82.9
$213.2 $232.6 $ 578.0 $632.3
Operating income:
Refined sugar $ 13.8 $ 8.5 $ 28.0 $ 25.0
Forest products 6.8 10.8 19.6 27.5
Hardware products 4.2 4.6 11.2 14.7
Fast food 2.2 2.2 6.2 6.1
27.0 26.1 65.0 73.3
General corporate and other items:
Securities earnings 1.4 1.4 5.4 2.5
General expenses, net (1.7) (3.2) (8.1) (9.2)
Business unit disposition - - .5 -
Interest expense (8.6) (8.2) (30.4) (26.0)
Income of consolidated companies
before income taxes 18.1 16.1 32.4 40.6
Equity in losses of affiliates:
NL Industries (11.5) (4.8) (37.0) (20.1)
Tremont (4.6) (4.8) (9.8) (10.4)
Provision for market value decline
of NL common stock - - (84.0) -
(16.1) (9.6) (130.8) (30.5)
Income (loss) before income taxes $ 2.0 $ 6.5 $ (98.4) $ 10.1
NINE MONTHS ENDED SEPTEMBER 30,
DEPRECIATION,
DEPLETION AND CAPITAL
AMORTIZATION EXPENDITURES
1993 1994 1993 1994
(IN MILLIONS)
Refined sugar $ 4.4 $ 5.6 $ 7.4 $20.1
Forest products 6.7 7.2 11.8 26.8
Hardware products 1.3 1.4 1.4 2.9
Fast food 4.7 4.5 2.7 8.1
Corporate .1 .1 .2 .2
$17.2 $18.8 $23.5 $58.1
NOTE 3 - MARKETABLE SECURITIES:
DECEMBER 31, SEPTEMBER 30,
1993 1994
(IN THOUSANDS)
Current assets (trading securities):
U.S. Treasury securities $ 28,518 $ -
Global bond investments - 23,706
$ 28,518 $ 23,706
Noncurrent assets (available-for-sale) -
Dresser Industries common stock $108,800 $110,764
The global bond investments consist of fixed income government securities
denominated in various currencies and related currency forward and option
contracts obtained to hedge exchange rate risk on the equivalent of
approximately $6 million of bond principal amount denominated primarily in
Deutsche marks and British pounds. Realized and unrealized gains and losses on
trading securities, including related global bond investment currency gains and
losses, are reported as a component of securities earnings. At September 30,
1994, the amortized cost of the Company's portfolio of trading securities
approximated $24.4 million.
Valhi holds 5.5 million shares of Dresser common stock with a quoted market
price of $20.25 at September 30, 1994, or an aggregate market value of $111
million (cost $44 million). The Company's Dresser stock (held in escrow for the
benefit of the Company's LYONs holders) is exchangeable for the LYONs at the
option of the LYONs holder, and the carrying value of the Dresser stock is
limited to the accreted LYONs obligation.
NOTE 4 - INVESTMENT IN AFFILIATES:
DECEMBER 31, September 30,
1993 1994
(IN THOUSANDS)
NL Industries $60,170 $50,425
Tremont 14,727 5,703
$74,897 $56,128
At September 30, 1994, the Company held 24.9 million shares of NL common
stock and 3.5 million shares of Tremont common stock. At such date, the quoted
per share market prices of NL and Tremont common stock were $11.00 and $10.50,
respectively, or an aggregate quoted market value of $312 million. Summarized
information relating to the results of operations, financial position and cash
flows of NL and Tremont is presented in Item 2 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
NOTE 5 - INVENTORIES:
DECEMBER 31, SEPTEMBER 30,
1993 1994
(IN THOUSANDS)
Raw materials:
Sugarbeets $ 51,689 $ 4,320
Forest products 14,704 12,887
Hardware products 1,034 1,031
Fast food 1,329 1,319
68,756 19,557
In process products:
Refined sugar and by-products 56,798 6,575
Forest products 1,450 1,579
Hardware products 3,179 3,955
61,427 12,109
Finished products:
Refined sugar and by-products 107,158 18,645
Forest products 1,260 1,919
Hardware products 1,901 2,272
110,319 22,836
Supplies 35,623 39,964
$276,125 $94,466
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
DECEMBER 31, SEPTEMBER 30,
1993 1994
(IN THOUSANDS)
Accounts payable:
Sugarbeet purchases $126,430 $ 44,034
Other 36,908 56,010
$163,338 $100,044
Accrued liabilities:
Sugar processing costs $ 22,301 $ 3,092
Inventory replacement reserve * - 10,476
Employee benefits 17,657 17,161
Interest 3,987 6,607
Other 16,245 22,864
$ 60,190 $ 60,200
[FN]
* Effect of temporary reductions in LIFO inventory quantities expected to be
replaced by year-end.
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT:
DECEMBER 31, SEPTEMBER 30,
1993 1994
(IN THOUSANDS)
Notes payable - Amalgamated:
U.S. Government loans $ 75,518 $ -
Bank credit agreements 42,235 43,947
$117,753 $ 43,947
Long-term debt:
Valhi LYONs $108,800 $116,416
Valcor Senior Notes 100,000 100,000
Amalgamated bank term loan 15,000 14,000
Medite:
U.S. bank credit agreement 61,000 67,000
Irish bank credit agreements 8,441 20,134
State of Oregon term loan 4,328 4,189
Other 267 247
74,036 91,570
Sybra:
Bank credit agreements 13,387 2,800
Capital lease obligations 7,133 6,482
Other 41 33
20,561 9,315
National Cabinet Lock 179 150
318,576 331,451
Less current maturities 16,086 22,930
$302,490 $308,521
NOTE 8 - ACCOUNTS WITH AFFILIATES:
DECEMBER 31, SEPTEMBER 30,
1993 1994
(IN THOUSANDS)
Receivable from affiliates:
Demand loan to Contran $ - $10,000
Income taxes 44 259
Other 228 10
$272 $10,269
Payable to affiliates - other $ 43 $ 67
NOTE 9 - OTHER NONCURRENT ASSETS:
DECEMBER 31, SEPTEMBER 30,
1993 1994
(IN THOUSANDS)
Intangible assets:
Goodwill $ 5,500 $ 5,374
Franchise fees 7,257 6,557
Other 8,323 7,836
21,080 19,767
Deferred financing costs 7,817 7,163
Prepaid pension cost 4,864 5,293
Other 9,126 4,728
$42,887 $36,951
NOTE 10 - OTHER NONCURRENT LIABILITIES:
DECEMBER 31, SEPTEMBER 30,
1993 1994
(IN THOUSANDS)
Accrued OPEB cost $17,705 $18,332
Insurance claims and expenses 5,141 4,064
Other 4,482 4,936
$27,328 $27,332
NOTE 11 - OTHER INCOME:
NINE MONTHS ENDED
SEPTEMBER 30,
1993 1994
(IN THOUSANDS)
Securities earnings:
Interest and dividends $ 4,074 $ 4,479
Securities transactions 1,270 (2,057)
5,344 2,422
Business unit disposition 500 -
Other, net 4,849 4,231
$10,693 $ 6,653
NOTE 12 - INCOME TAXES:
NINE MONTHS ENDED
SEPTEMBER 30,
1993 1994
(IN MILLIONS)
Provision for income taxes (benefit):
Expected tax expense (benefit) at 35% $(34.4) $ 3.5
Non-U.S. tax rates (1.0) (1.4)
Incremental U.S. tax on income of companies not
included in the consolidated tax group 2.5 1.6
State income taxes, net 1.3 .3
Nontaxable income and other, net (.6) (.8)
$(32.2) $ 3.2
Comprehensive provision for income taxes (benefit):
Taxes currently payable $ 8.8 $14.8
Deferred tax benefit (44.7) (7.5)
$(35.9) $ 7.3
Allocable to:
Income (loss) before income taxes $(32.2) $ 3.2
Extraordinary item (1.7) -
Stockholders' equity, principally deferred taxes
allocable to adjustment components (2.0) 4.1
$(35.9) $ 7.3
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
At September 30, 1994, the estimated cost to complete capital projects in
process approximated $22 million, principally sugar extraction equipment at
Amalgamated, an expansion of Medite's medium density fiberboard plant in Ireland
and new Sybra stores. Medite's Irish subsidiary has entered into certain
currency forward contracts to hedge exchange rate risk on the equivalent of
approximately $3 million of equipment purchase commitments denominated primarily
in German Deutsche marks. At September 30, 1994, the fair value of such
currency contracts approximated the contract value.
Medite has entered into interest rate swap agreements effectively to
convert $26 million of term debt due 1998 to 2000 from a LIBOR-based floating
rate to fixed interest rates averaging 7.6%. At September 30, 1994, the
estimated fair value of such swap agreements was $2 million, which represents
the estimated payment Medite would receive if the swap agreements were
terminated at that date.
For information concerning certain legal proceedings, income tax and other
commitments and contingencies, see (i) Item 2 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations," (ii) Part II, Item 1
- -- "Legal Proceedings", (iii) Valhi's 1994 Quarterly Reports on Form 10-Q and
(iv) the 1993 Annual Report, including certain information concerning NL's and
Tremont's legal proceedings incorporated therein by reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
GENERAL
Net income was $4.6 million, or $.04 per share, for the third quarter of
1994 compared to a net loss of $2.0 million, or $.02 per share, in the 1993
quarter. For the nine month year-to-date period, net income was $6.9 million,
or $.06 per share, $76.3 million better than the net loss of $69.4 million, or
$.61 per share, for the first nine months of 1993. Higher product prices at
Medite (MDF) and NL Industries (TiO2) were primary factors in the Company's
improved results of operations, as discussed below.
REFINED SUGAR
Three months ended Nine months ended
September 30, September 30,
1993 1994 % Change 1993 1994 % Change
(In millions) (In millions)
Net sales:
Refined sugar $117.0 $134.6 +15% $294.7 $330.5 +12%
By-products and other 3.8 2.8 23.6 23.4
$120.8 $137.4 +14% $318.3 $353.9 +11%
Operating income:
FIFO basis $ 9.1 $ 9.0 - 0% $ 18.2 $ 22.1 +22%
LIFO adjustment 4.7 (.5) 9.8 2.9
LIFO (reporting) basis $ 13.8 $ 8.5 -38% $ 28.0 $ 25.0 -10%
Operating income margin:
FIFO accounting method 7.5% 6.6% 5.7% 6.3%
LIFO accounting method 11.4% 6.2% 8.8% 7.1%
The increase in sugar sales resulted primarily from higher volumes, which
were up 17% in the third quarter and 13% in the 1994 year-to-date period.
Average selling prices in the 1994 periods were slightly lower than in the
comparable periods of last year.
Sugar sales volume comparisons can be affected by relative timing of sales
during the crop year, which runs from October 1 to September 30. Volumes can
also be affected by United States Department of Agriculture marketing allotments
which limit the amount of domestic raw and refined sugar which each sugarcane
and sugarbeet processor can sell. Amalgamated's preliminary allotment for the
new crop year is approximately 4% lower than the volume of sugar sold during the
crop year ended September 30, 1994 when no marketing allotments were imposed.
As a result, Amalgamated expects to report comparatively lower refined sugar
sales volumes during the 12-month period ending September 30, 1995. The
government's restriction of supply through imposition of marketing allotments
should result in higher selling prices than would be realized absent the
allotments.
Amalgamated's cost of sales is determined under the last-in, first-out
accounting method. Sugarbeet purchase cost is the largest cost component of
producing refined sugar and the price Amalgamated pays for sugarbeets is, under
the terms of its contracts with sugarbeet growers, a function of the average net
sugar selling price during the crop year. As a result, changes in sugar selling
prices impact costs as well as revenues, and related LIFO adjustments can
significantly affect operating income and margin comparisons relative to FIFO
basis earnings comparisons.
The harvesting and processing of the 1994 crop is proceeding at an average
pace with preliminary indications of an average sugar content of the beets and
an above average yield per acre. Amalgamated currently believes that its sugar
production during the crop year will be higher than its marketing allotment and
thus result in some comparative increase in inventory levels.
The Company has tentatively agreed to sell its sugar business to an
agricultural cooperative of its growers for $325 million cash. The transaction
is subject to financing and other conditions and there can be no assurance that
it will be consummated.
FOREST PRODUCTS
Three months ended Nine months ended
September 30, % September 30, %
1993 1994 Change 1993 1994 Change
(In millions) (In millions)
Net sales:
Medium density fiberboard $29.2 $34.2 +17% $ 82.4 $97.7 + 19%
Solid wood products 19.2 15.7 -18% 50.5 46.2 - 9%
Eliminations (.2) (.3) (1.2) (.9)
$48.2 $49.6 + 3% $131.7 $143.0 + 9%
Operating income:
Medium density fiberboard $ 3.9 $ 7.2 +87% $ 9.5 $20.2 +114%
Solid wood products 2.9 3.6 +20% 10.1 7.3 - 28%
$ 6.8 $10.8 +58% $ 19.6 $27.5 + 40%
Operating income margins:
MDF 13.3% 21.2% 11.5% 20.7%
Solid wood 15.5% 22.7% 20.1% 15.8%
Total 14.2% 21.8% 14.9% 19.2%
Medium density fiberboard. The significant improvements in MDF earnings
and margins were primarily price-driven, with average selling prices up 22% for
the quarter and up 17% for the first nine months of 1994. Sales of higher-
priced specialty MDF products have continued to increase and represented 31% of
MDF sales dollars in the first nine months of 1994, up from 22% during the 1993
period. While per-unit wood fiber costs have increased only slightly, resin
cost increases have added about 5% to aggregate MDF cost of sales in 1994.
Medite's primary strategic focus is to continue its expansion in the
growing market for MDF, including further penetration of higher-margin specialty
MDF markets. Medite's MDF plants have been operating at a very high rate of
capacity. The expanded Irish plant, which will increase Medite's total MDF
capacity by about 25%, is expected to produce marketable product in the fourth
quarter and to be fully operational by early 1995.
Solid wood products. Medite actively manages its timber resources and
varies its manufacture of wood products such as lumber and veneer, and
emphasizes or de-emphasizes the direct sale of logs, depending upon market
conditions. Solid wood sales and earnings fluctuations were in large part a
result of market-based volume decisions made by the Company, including reducing
the volume of logs offered for sale during 1994 and curtailing veneer and lumber
production during a portion of the second and third quarters of 1994.
Solid wood earnings in 1994 were aided by lower average log costs
(resulting primarily from a change in mix of timber sources) while earnings in
early 1993 were aided by higher volumes related to reductions in certain
inventories following the closure of Medite's plywood operations in January
1993.
HARDWARE PRODUCTS
Three months ended Nine months ended
September 30, September 30,
1993 1994 % Change 1993 1994 % Change
(In millions) (In millions)
Net sales $16.2 $17.0 +5% $46.6 $52.5 +13%
Operating income 4.2 4.6 +9% 11.2 14.7 +31%
Operating income margin 26.2% 27.4% 24.1% 28.1%
Sales, operating income and margins all improved as volumes increased in
each of the three major product lines (locks, computer keyboard support arms and
drawer slides). Keyboard support arm sales were up 15% and accounted for about
one-fourth of year-to-date hardware product sales. National Cabinet Lock
continues to add new products to its STOCK LOCKS product line as well as to its
keyboard support and drawer slide lines.
FAST FOOD
Three months ended Nine months ended
September 30, September 30,
1993 1994 % Change 1993 1994 % Change
(In millions) (In millions)
Net sales $28.0 $28.6 +2% $81.4 $82.9 +2%
Operating income 2.2 2.2 -4% 6.2 6.1 -3%
Operating income margin 7.8% 7.3% 7.6% 7.3%
Arby's restaurants operated:
At end of period 158 159 +1% 158 159 +1%
Average during the period 158 159 +1% 159 158 -1%
Aggregate fast food results were comparable to last year as new store sales
more than offset sales of stores closed. Comparable store sales were up about
1% year-to-date and were down nominally during the third quarter. The fast food
industry is very competitive. The increased usage of lower-margin value-priced
sandwiches, the market responsive introduction of higher cost new menu items and
the training costs associated with the increased number of new stores opened
have slightly dampened operating margins.
OTHER
General corporate and other items. Lower securities earnings in 1994
resulted primarily from a first quarter 1994 decline in the market value of
fixed-income investments. General expenses increased as higher legal-related
expenses were only partially offset by lower environmental-related charges. The
business unit disposition gain in 1993 related to a change in estimate of the
loss related to the closure of Medite's plywood operations.
The redemptions of Valhi's 121/2% Senior Subordinated Notes during 1993,
funded in part using proceeds of lower-cost borrowings, were a principal reason
for the decline in interest expense. Approximately $137 million of subsidiary
indebtedness bears interest at fixed rates averaging 9.2%. The average interest
rate on floating rate subsidiary borrowings outstanding at September 30, 1994
was 6.7%. Periodic cash interest payments are not required on Valhi's 9.25%
deferred coupon LYONs.
Provision for income taxes. See Note 12 to the Consolidated Financial
Statements. Income tax rates vary by jurisdiction (country and/or state), and
relative changes in the geographic source of the Company's pre-tax earnings can
result in fluctuations in the Company's consolidated effective income tax rate.
Extraordinary item. The 1993 loss related to the prepayment of 121/2%
Notes.
UNCONSOLIDATED COMPANIES - NL AND TREMONT
The Company's equity in losses of NL and Tremont is different than its
percentage ownership in their separately-reported results due to amortization of
accounting basis differences that generally reduce earnings, or increase losses,
as reported by Valhi. The Company's loss attributable to affiliates in the 1993
nine-month period also included an $84 million first quarter charge for an
"other than temporary" decline in the market value of NL common stock. Under
current accounting rules, a market value writedown of an investment accounted
for by the equity method is not reversed if the market value subsequently
recovers. At September 30, 1994, the Company's per share net carrying value of
NL was $2.02 (market at November 10, 1994 - $12.00) and of Tremont was $1.61
(market at November 10, 1994 - $13.00).
The information included below related to NL and Tremont has been
summarized from the separate reports filed with the Securities and Exchange
Commission by NL (File No. 1-640) and Tremont (File No. 1-10126), which reports
contain more detailed information concerning such companies, including financial
statements and contingencies.
NL Industries. NL's chemical operations consist of its titanium dioxide
pigments ("TiO2") business conducted by Kronos and its specialty chemicals
business conducted by Rheox. NL's return to profitability, and timing thereof,
is dependant in large part upon improved pricing for TiO2. NL's results
improved significantly during the first nine months of 1994, as discussed below,
and NL anticipates that TiO2 prices will further improve in 1995.
Three months ended Nine months ended
September 30, September 30,
1993 1994 Change 1993 1994 Change
(In millions, except percentages)
Net sales:
Kronos $174.0 $194.1 + 12% $539.3 $574.9 + 7%
Rheox 28.1 31.1 + 11% 82.7 89.3 + 8%
$202.1 $225.2 + 11% $622.0 $664.2 + 7%
Operating income:
Kronos $ 5.8 $ 18.8 +227% $ 30.4 $ 51.7 +70%
Rheox 7.0 8.3 + 18% 20.6 23.9 +16%
12.8 27.1 +112% 51.0 75.6 +48%
General corporate items:
Securities earnings 1.5 1.3 5.7 2.1
Expenses, net (7.2) (10.0) (29.1) (28.3)
Interest expense (23.2) (21.0) (76.0) (63.1)
(16.1) (2.6) $13.5 (48.4) (13.7) $34.7
Income tax expense (2.4) (1.9) (11.3) (12.2)
Minority interest (.2) (.1) (.5) (.6)
Net loss $(18.7) $ (4.6) $14.1 $(60.2) $(26.5) $33.7
Valhi's equity in NL's losses, including
amortization of basis differences (*) $(11.5) $ (4.8) $ 6.7 $(37.0) $(20.1) $16.9
[FN]
(*) Excludes market value impairment provision in the first quarter of 1993.
See Note 2 to the Consolidated Financial Statements.
Kronos' operating income and margins increased due to higher TiO2 sales
volumes and prices, slightly lower per unit operating costs and higher
technology fee income. TiO2 sales volumes were up 4% in the third quarter and
7% in the nine-month period while average selling prices (in billing currencies)
were up 6% and 1%, respectively. Prices improved in all of Kronos' major
markets and third quarter 1994 selling prices were 3% higher than in the second
quarter of 1994. Rheox's operating results improved primarily as a result of
higher sales volume and lower operating costs.
Year-to-date corporate expenses, net were lower as a $20 million gain
related to the first quarter 1994 settlement of NL's lawsuit against Lockheed
Corporation was partially offset by increased provisions for environmental
remediation and other costs. Interest expense declined due to lower debt
outstanding and lower average interest rates on Deutsche mark denominated debt,
partially offset by the higher interest rates on NL's Senior Notes issued in
October 1993.
NL's operations are conducted on a worldwide basis. In both 1993 and 1994,
income tax expense was impacted by losses in certain countries for which no
current refund is available and for which NL believes recognition of a deferred
tax asset is not currently appropriate.
Tremont Corporation. Tremont's titanium metals operations are conducted by
its 75%-owned TIMET subsidiary. Tremont also holds approximately 18% of NL's
outstanding common stock and reports its interest in NL by the equity method.
As a result, Tremont's overall results are significantly impacted by NL's
results, which have improved in 1994, as discussed above. TIMET's 1994
operating results have been adversely impacted by strikes at its two principal
production facilities, mechanical difficulties at its new vacuum distillation
process ("VDP") titanium sponge plan in Nevada and continued depressed aerospace
demand for titanium products. TIMET continues to focus on improving
manufacturing processes, reducing overall costs, developing new markets for
titanium products and evaluating strategic opportunities, including acquisitions
and joint ventures, as part of its efforts to return to profitability; however,
it expects to report a significant loss for the fourth quarter of 1994.
Three months ended Nine months ended
September 30, September 30,
1993 1994 Change 1993 1994 Change
(In millions, except percentages)
Net sales $ 34.1 $ 32.8 - 4% $113.4 $111.2 - 2%
Operating income (loss) $(10.5) $ (8.4) $ 2.1 $(11.8) $(12.4) $ (.6)
General corporate items, net (1.1) (1.9) 3.7 (4.0)
Interest expense (1.2) (1.5) (3.2) (4.0)
(12.8) (11.8) (11.3) (20.4)
Equity in loss of NL:
Equity in NL's loss (4.0) (1.6) (13.1) (7.1)
Provision for market value impairment - - (29.0) -
(4.0) (1.6) (42.1) (7.1)
Loss before income taxes (16.8) (13.4) (53.4) (27.5)
Income tax benefit (expense) 4.5 - 4.9 (.2)
Minority interest - 2.6 - 4.4
Loss from continuing operations (12.3) (10.8) (48.5) (23.3)
Other, net 7.3 - 7.5 (.8)
Net loss $ (5.0) $(10.8) $(5.8) $(41.0) $(24.1) $(16.9)
Valhi's equity in Tremont's losses,
including amortization of basis
differences (*) $ (4.6) $ (4.8) $ (.2) $ (9.8) $(10.4) $ (.6)
[FN]
* Excludes Valhi's $14 million share of Tremont's first quarter 1993 market
value impairment provision, which equity is reported as a component of
Valhi's $84 million impairment charge related to NL. See Note 2 to the
Consolidated Financial Statements.
TIMET's 1994 sales were slightly lower than in the comparable 1993 periods
as higher sales for industrial applications partially offset the impact of lower
aerospace volume. The majority of TIMET's sales continue to be to aerospace
markets, where volume remains depressed. TIMET's operating results and margins
have deteriorated in 1994; its third quarter 1993 operating loss included a $4.7
million restructuring charge related to certain cost reduction measures. Higher
unit production costs, in part due to certain mechanical difficulties at the
Nevada VDP plant and strikes at its Nevada and Ohio plants, contributed to
TIMET's increased operating losses in the 1994 periods. Both strikes have been
settled and TIMET is continuing to make modifications at the VDP plant to bring
production and processing reliability up to acceptable levels.
The nine-month Nevada strike ended in July 1994, with the union accepting
TIMET's last contract proposal. The 21/2 month Ohio strike ended in October
1994. TIMET and the Ohio union agreed to extend, until at least April 30, 1995,
the expired labor agreements with certain modifications intended to give TIMET
greater flexibility in operations and allowing TIMET to implement its proposed
lower cost medical program. As part of the Ohio settlement, the union agreed
not to object to restructuring actions currently under consideration by TIMET
which include subcontracting and relocation of certain Ohio production to
TIMET's Tennessee facility. TIMET anticipates that certain of these
restructuring measures, if implemented, would result in a charge to operations
in the fourth quarter. TIMET also agreed to certain pension benefits that would
be triggered in the event of workforce reductions.
General corporate items, net in the 1993 nine-month period include a $5.5
million gain from the sale of Tremont's interest in a gold mining venture. In
both 1993 and 1994, Tremont's income tax provision was impacted by losses,
including amounts related to NL, for which no benefit is currently available and
for which Tremont believes recognition of a deferred tax asset is not currently
appropriate.
LIQUIDITY AND CAPITAL RESOURCES:
CONSOLIDATED CASH FLOWS
Operating activities. The Company's improved operating results resulted in
increased cash flow from operating activities, before working capital changes.
Changes in working capital levels result primarily from the timing of
production, sales and purchases, including, among other things, the significant
seasonal fluctuations related to Amalgamated's refined sugar operations
discussed below and the relative timing of certain semi-annual interest
payments. Such net changes in assets and liabilities in the 1994 year-to-date
period accounted for approximately $69 million of operating cash flow, up from
approximately $48 million in the 1993 period.
Investing and financing activities. The higher levels of capital
expenditures in 1994 relate principally to capacity projects, including
Amalgamated's sugar productivity-enhancing equipment, Medite's Irish MDF plant
expansion and Sybra's new restaurants. The Company's total capital expenditures
for the fourth quarter of 1994 are estimated at approximately $9 million,
principally for these Amalgamated, Medite and Sybra programs. Such capital
expenditures are expected to be financed primarily from operations or existing
credit facilities. Capital budgets for 1995 have not yet been finalized,
however capital spending is expected to be lower in 1995 than in 1994 due to
completion of the Irish MDF plant expansion.
Net repayments of debt relate principally to (i) seasonal fluctuations in
Amalgamated's short-term borrowings in both periods and (ii) Valhi's redemption
of an aggregate of $185 million principal amount of 121/2% Notes and $60 million
of net new borrowings under Medite's secured timber financing in 1993. Net
sales of marketable securities in 1993 included sales made in conjunction with
the redemption of 121/2% Notes. Demand loans to affiliates, made principally
for cash management purposes, are supported by the affiliates' borrowing
availability under third-party credit agreements.
At September 30, 1994, unused revolving credit available to the Company's
subsidiaries aggregated $57 million. In addition, Amalgamated has $17 million
of term loan availability to complete certain capital projects. Medite's $15
million U.S. revolving bank credit agreement was recently extended one year to
September 1996, and its $12 million Irish revolving credit agreement was
extended to April 1995. In October 1994, Valhi obtained a new $20 million two-
year revolving bank credit facility, collateralized by the stock of Amalgamated,
which is available for general corporate purposes.
CONSOLIDATED COMPANIES
Refined Sugar. Amalgamated's cash requirements are seasonal in that a
major portion of the total payments for sugarbeets is made, and the costs of
processing the sugarbeets are incurred, in the fall and winter of each year.
Accordingly, Amalgamated's operating activities use significant amounts of cash
in the first and fourth calendar quarters and provide significant cash flow in
the second and third quarters of each year. To meet its seasonal cash needs,
Amalgamated obtains short-term borrowings pursuant to the Government's sugar
price support loan program and bank credit facilities. Borrowings under the
Government loan program are secured by refined sugar inventory and are otherwise
nonrecourse to Amalgamated. The borrowing rate per pound exceeds the per pound
net book value of refined sugar inventory.
Forest Products. As discussed above, the expansion of Medite's Irish MDF
plant will increase plant capacity by approximately 75% and increase its
worldwide MDF production capacity approximately 25%. Medite is evaluating other
long-range strategic opportunities to further expand its worldwide MDF
production capacity.
Hardware Products. National Cabinet Lock's major plants are operating at a
high rate of capacity and capital spending continues to address market demands.
In this regard, a new $1.8 million plating line designed to increase capacity,
reduce costs and improve quality in the Canadian drawer slide line is expected
to be completed before year-end. The Company continues to explore additional
expansion opportunities for its high-margin hardware products.
Fast Food. Sybra opened four new Arby's restaurants during the first nine
months of 1994 with three more to open by year-end. Sybra's required new store
opening schedule under its Development Agreement with Arby's, Inc. includes
eight stores in 1995 and an additional 13 stores by various dates through 1997.
Sybra currently anticipates that its expansion program will meet or exceed this
schedule. Sybra continually evaluates the profitability of its restaurants, and
in this regard closed five stores early in 1994 and may close five to seven
stores in late 1994 or early 1995.
The parent company of Arby's, Inc. has announced that it is acquiring the
Long John Silver's seafood chain and that it may make dual-branding available to
franchisees of both chains. The Company may consider such concept when
available.
General corporate. Valhi's operations are conducted through its wholly-
owned subsidiaries (Amalgamated and Valcor) and through NL and Tremont,
publicly-held affiliates which Valhi may be deemed to control. Valcor is an
intermediate parent company with operations conducted through its wholly-owned
subsidiaries (Medite, National Cabinet Lock and Sybra). Accordingly, Valhi's
and Valcor's long-term ability to meet their respective corporate obligations is
dependent in large measure on the receipt of dividends or other distributions
from their respective subsidiaries, the realization of their investments through
the sale of interests in such entities and investment income. Various credit
agreements to which subsidiaries are parties contain customary limitations on
the payment of dividends, typically a percentage of net income or cash flow;
however, such restrictions have not significantly impacted the Company's ability
to service parent company level obligations. Valhi has not guaranteed any
indebtedness of its subsidiaries or of NL or Tremont, nor has Valcor guaranteed
any indebtedness of its subsidiaries.
Valhi owns 5.5 million shares of Dresser common stock, which shares are
held in escrow for the benefit of holders of the LYONs. Valhi receives the
quarterly dividends on the escrowed shares, currently $.17 per Dresser share.
The LYONs are exchangeable, at the option of the holder, for the Dresser shares
owned by Valhi. Exchanges of LYONs for Dresser stock would result in the
Company reporting income related to the disposition of the Dresser stock for
both financial reporting and income tax purposes, although no cash proceeds
would be generated by such exchanges.
The Company has tentatively agreed to sell Amalgamated's sugar business,
for $325 million cash, to an agricultural cooperative comprised of sugarbeet
growers in Amalgamated's area of operation. The proposed transaction is subject
to significant conditions, including financing, grower commitments and execution
of a definitive purchase agreement, and no assurance can be given that the
transaction will be consummated. The net proceeds from the proposed sale, if
completed, would be available for general corporate purposes, including
expansion of Valhi's other businesses.
The Company routinely compares its liquidity requirements and alternative
uses of capital against the estimated future cash flows to be received from its
subsidiaries and affiliates, and the estimated sales value of those units. As a
result of this process, the Company has in the past and may in the future seek
to raise additional capital, refinance or restructure indebtedness, modify its
dividend policy, consider the sale of interests in subsidiaries or affiliates,
business units, marketable securities or other assets, or take a combination of
such steps or other steps, to increase liquidity, reduce indebtedness and fund
future activities. Such activities have in the past and may in the future
involve related companies. The Company routinely evaluates acquisitions of
interests in, or combinations with, companies, including related companies,
perceived by management to be undervalued in the marketplace. These companies
may or may not be engaged in businesses related to the Company's current
businesses. The Company intends to consider such acquisition activities in the
future and, in connection with this activity, may consider issuing additional
equity securities and increasing the indebtedness of the Company, its
subsidiaries and related companies. From time to time, the Company and related
entities also evaluate the restructuring of ownership interests among their
respective subsidiaries and related companies.
UNCONSOLIDATED COMPANIES - NL AND TREMONT
Balance sheet and cash flow information of NL and Tremont is summarized
below.
NL INDUSTRIES TREMONT CORPORATION
DEC. 31, SEPT. 30, DEC.31, SEPT.30,
1993 1994 1993 1994
(IN MILLIONS)
Cash, equivalents and securities $ 147.6 $ 219.6 $ 20.3 $ 11.7
Inventories 194.2 167.8 52.6 52.3
Receivables and other current assets 125.7 173.7 41.1 40.6
Noncurrent securities 18.4 20.5 7.7 8.9
Investment in NL - - 22.3 18.5
Investment in joint ventures 190.8 188.4 13.6 14.4
Other noncurrent assets 151.2 58.5 18.3 12.0
Property and equipment, net 378.6 409.1 147.3 144.2
$1,206.5 $1,237.6 $323.2 $302.6
Current liabilities $ 232.5 $ 256.0 $ 66.0 $ 57.7
Long-term debt 835.2 791.0 43.5 51.8
Accrued OPEB cost 68.3 65.9 51.7 51.9
Accrued pension cost 72.6 79.5 .2 .5
Deferred income taxes 139.0 204.6 - -
Other noncurrent liabilities 121.3 132.9 16.2 21.0
Minority interest 2.4 2.9 27.2 22.7
Stockholders' equity (deficit):
Capital and retained earnings (143.4) (168.5) 126.7 102.9
Adjustments, principally currency translation (121.4) (126.7) (8.3) (5.9)
(264.8) (295.2) 118.4 97.0
$1,206.5 $1,237.6 $323.2 $302.6
NINE MONTHS ENDED SEPTEMBER 30,
NL TREMONT
1993 1994 1993 1994
(IN MILLIONS)
Net cash provided (used) by:
Operating activities:
Before working capital changes $(24.7) $ 33.3 $ (.9) $(13.9)
German tentative tax refunds and
other working capital changes (2.3) 153.6 (.4) 8.1
(27.0) 186.9 (1.3) (5.8)
Investing activities:
Capital expenditures (33.5) (25.1) (15.3) (3.8)
Other, net 69.3 3.2 14.0 .3
Financing activities:
Net borrowings (repayments) (23.4) (85.1) (5.6) 6.3
Other - (.2) (.2) .4
$(14.6) $ 79.7 $ (8.4) $ (2.6)
Cash, equivalents and securities at end
of period $119.6 $ 219.6 $ 18.2 $ 11.7
Cash paid for:
Interest, net of amounts capitalized $ 75.2 $ 43.3 $ - $ 4.0
Income taxes (received) 10.0 (112.1) (2.8) .1
NL Industries. The TiO2 industry is cyclical, with the previous peak in
selling prices in early 1990 and the latest trough in the third quarter of 1993.
NL's operations used significant amounts of cash during such TiO2 down cycle.
Receipt of $127 million of tentative German income tax refunds, discussed below,
significantly increased NL's cash flow from operating activities during the 1994
period and was a major factor in NL's improved liquidity. Relative changes in
inventories, receivables and payables also contributed to cash provided by
operations. Certain seasonal working capital fluctuations and semi-annual
interest payments on NL's Senior Notes are expected to use operating cash in the
fourth quarter of 1994.
NL has reduced its "net debt" (notes payable and long-term debt less cash,
equivalents and securities) by $271 million during the last 12 months, and
currently expects to have sufficient liquidity to meet its obligations including
operations, capital expenditures and debt service. In addition to the $220
million of cash, equivalents and securities held at September 30, 1994, $192
million was available for borrowing under existing credit facilities, of which
$109 million is available only for (i) permanently reducing NL's DM term loan or
(ii) paying future German tax assessments, as described below.
Certain of NL's U.S. and non-U.S. income tax returns, including Germany,
are being examined and tax authorities have or may propose tax deficiencies.
During the first nine months of 1994, the German tax authorities withdrew
certain tax assessment reports and remitted tax refunds aggregating DM 211
million ($127 million), including interest, on a tentative basis. NL applied
DM 168 million of the tentative tax refund to reduce outstanding borrowings
under its DM revolving bank credit facility. Examination of NL's German income
tax returns continues. NL has received certain assessment reports proposing tax
deficiencies and understands the German tax authorities intend to issue
additional assessment reports. Although NL believes it will ultimately prevail,
NL has granted a DM 100 million ($65 million) lien on its Nordenham, Germany
TiO2 plant until the assessment reports proposing tax deficiencies are resolved.
NL believes that it has adequately provided accruals for additional income taxes
and related interest expense which may ultimately result from all such
examinations.
NL has been named as a defendant, potentially responsible party, or both,
in a number of legal proceedings associated with environmental matters,
including waste disposal sites or facilities currently or formerly owned,
operated or used by NL, many of which disposal sites or facilities are on the
U.S. Environmental Protection Agency's Superfund National Priorities List or
similar state lists. NL believes it has provided adequate accruals ($84 million
at September 30, 1994) for reasonably estimable costs of such matters, and has
estimated that the upper end of the range of reasonably possible costs to NL for
sites for which it is possible to estimate costs is approximately $142 million.
NL 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. Based on, among other things, the results of such litigation
to date, NL believes that the pending lead pigment litigation is without merit
and has not accrued any amounts for the pending lead pigment litigation. NL
currently believes the disposition of all claims and disputes, individually and
in the aggregate, should not have a material adverse effect on NL'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.
In addition, various legislation and administrative regulations have, from time
to time, been enacted or proposed at the state, local and federal levels that
seek to 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 effectively overturn court decisions in which
NL and other pigment manufacturers have been successful.
Tremont Corporation. Tremont, with its 75% equity interest in TIMET and
18% equity interest in NL, is principally a holding company. NL discontinued
dividends in 1992 and provisions of TIMET's bank credit agreement currently
prohibits dividend payments. At September 30, 1994, Tremont had parent-level
cash, equivalents and marketable securities of approximately $9 million. At
September 30, 1994, Tremont's per share net carrying value of its investment in
NL was $2.04 (market price at November 10, 1994 - $12.00).
During the past few years, TIMET's combined operations, capital
expenditures and debt service have consumed significant amounts of cash,
including approximately $15 million used by such items in the first nine months
of 1994. TIMET's consumption of cash has been exacerbated by the strikes and
VDP production difficulties discussed above. The continued consumption of cash
would have a further adverse effect on TIMET's liquidity and financial
condition. As of November 10, 1994, TIMET had less than $1 million of combined
cash and borrowing availability under its bank credit agreement. Borrowings
under this agreement are collateralized by substantially all of TIMET's assets
and the agreement, among other things, limits TIMET's additional indebtedness.
TIMET has taken and continues to take measures to manage its near-term and
long-term liquidity requirements including, among other things, refinancing
certain debt, restructuring its operations, continued cost reduction efforts,
deferral and reduction of capital expenditures, sale of certain assets, deferral
of certain payments and other efforts to reduce noncash working capital. TIMET
is negotiating with its lenders to increase its credit lines, however, no
assurance can be given that these negotiations will be successful. Tremont has
indicated it is willing to advance additional funds to TIMET. TIMET has also
discussed with Tremont and TIMET's other (25%) stockholder, Union Titanium
Sponge Corporation ("UTSC"), a plan by which its stockholders would invest
additional funds in TIMET as equity capital. TIMET believes that it will be
able, through some combination of the aforementioned measures, to satisfy its
needs for liquidity in order to meet its near-term obligations.
Neither Tremont nor UTSC has guaranteed any TIMET debt nor are they
obligated to provide additional funds to TIMET. Tremont has, however, agreed to
purchase from UTSC, under certain conditions, TIMET's debt owed to UTSC ($6
million at September 30, 1994). Nevertheless, Tremont may elect to provide
additional funds to TIMET in the future if TIMET's efforts to sufficiently
increase its liquidity from other sources are not successful. In that event,
Tremont may seek to borrow against a portion of its investment in NL, although
no such arrangements have been made at this time. Tremont believes it will have
sufficient liquidity to meet its near-term obligations.
General. NL and Tremont periodically evaluate their respective liquidity
requirements, capital needs and availability of resources in view of, among
other things, debt service requirements, capital expenditure requirements and
estimated future operating cash flows. As a result of this process, such
companies may seek to raise additional capital, restructure ownership interests,
refinance or restructure indebtedness, sell interests in subsidiaries or other
assets, or take a combination of such steps or other steps to increase their
respective liquidity and capital resources. Such activities have in the past
and may in the future involve related companies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the 1993 Annual Report and the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994 for
descriptions of certain legal proceedings.
Information called for by this Item regarding NL's legal proceedings is
incorporated herein by reference to Part II, Item 1 -- "Legal Proceedings" of
NL's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994,
attached hereto as Exhibit 99.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 - Financial Data Schedule for the nine-month period ended
September 30, 1994.
99.1 - Part II, Item 1 of NL's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994 (File No. 1-640).
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended September 30, 1994 and the
month of October 1994:
July 1, 1994 - Reported Items 5 and 7.
July 6, 1994 - Reported Items 5 and 7.
July 20, 1994 - Reported Items 5 and 7.
July 28, 1994 - Reported Items 5 and 7.
September 1, 1994 - Reported Items 5 and 7.
October 26, 1994 - Reported Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALHI, INC.
(Registrant)
Date November 10, 1994 By /s/ William C. Timm
William C. Timm
Vice President - Finance and
Treasurer
(Principal Financial Officer)
Date November 10, 1994 By /s/ J. Thomas Montgomery, Jr.
J. Thomas Montgomery, Jr.
Vice President and Controller
(Principal Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALHI, INC.
(Registrant)
Date November 10, 1994 By
William C. Timm
Vice President - Finance and
Treasurer
(Principal Financial Officer)
Date November 10, 1994 By
J. Thomas Montgomery, Jr.
Vice President and Controller
(Principal Accounting Officer)
5
1,000
9-MOS
DEC-31-1994
JAN-01-1994
SEP-30-1994
21,385
23,706
97,447
774
94,466
252,494
476,400
234,026
785,625
230,789
308,521
1,245
0
0
214,705
785,625
632,295
632,295
481,353
481,353
0
222
25,988
10,141
3,202
6,939
0
0
0
6,939
.06
.06
Exhibit 99.1 - Part II, Item 1 of NL's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 1994 (File No. 1-640).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1993 Annual Report and the Company's Quarterly
Report on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994 for
descriptions of certain previously-reported legal proceedings.
HANO. In October 1994, the Company moved for summary judgment in one of
the eight remaining third-party complaints filed by HANO.
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. In
May 1994, the trial court granted the defendants' motion to dismiss the
plaintiffs' restitution and indemnification claims. The plaintiffs filed a
notice of appeal. Defendants have moved for summary judgment on the remaining
fraud claim.
NL Industries, Inc. v. Commercial Union Insurance Cos., et al. The
defendant, Commercial Union, has appealed the previously-reported order
requiring it to pay certain previously-incurred Company defense costs.
Wagner, et al. v. Anzon and NL Industries, Inc. Defendants' motion for
summary judgment was denied; jury trial in this class action began in September
1994 and a jury verdict is expected in November 1994.
Granite City. In August 1994, the U.S. Environmental Protection Agency
("U.S. EPA") recommended a limited cleanup of the residential yard soils in
Granite City. In October 1994, the U.S. EPA released a proposed plan for
residential soil cleanup and reopened the administrative record for public
comment. The period for public comment has not yet expired. In the proposed
plan, the U.S. EPA also indicated that it is developing remedial plans for the
remaining industrial area and for groundwater.
Batavia, New York. In August 1994, the U.S. EPA issued a proposed plan for
remediation of the landfill. The estimated cost of the proposed remedy is $12
million. No allocation of the remedial costs among the Company and the other
potentially responsible parties ("PRPs") has been determined.
Cherokee County. In August 1994, the U.S. EPA issued a proposed remedial
plan for the Baxter Springs and Treece subsites. The estimated cost of the
proposed remedies is $6 million. The allocation among PRPs, including the
Company, has not yet been determined. Remedial plans have not been proposed for
the remaining subsites in Cherokee County.
Flacke v. NL Industries, Inc. In August 1994, the court denied the State's
and the Company's motions for summary judgment.
Portland. In September 1994, the PRPs submitted to the U.S. EPA a focused
feasibility study proposing changes in the remedy at this site. The estimated
cost of the remedies analyzed ranged from approximately $15 million to $57
million.
Exxon Chemical Company v. NL Industries, Inc. The Company has agreed in
principle to settle this matter, within previously accrued amounts, and the
Court has dismissed the case. The parties are negotiating a settlement
agreement, execution of which is a condition of the settlement, and the
plaintiff has sought to reinstate the case pending completion of those
negotiations.
