SECURITIES
AND EXCHANGE COMMISSION
|
|
Washington,
D.C. 20549
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|
FORM
10-Q
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|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF
|
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For
the quarter ended June 30,
2008
|
|
Commission
file number 1-640
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|
NL INDUSTRIES, INC.
|
|
(Exact
name of Registrant as specified in its charter)
|
|
New Jersey
|
13-5267260
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification No.)
|
|
|
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5430
LBJ Freeway, Suite 1700
|
|
Dallas,
Texas 75240-2697
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(Address
of principal executive offices)
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Registrant's
telephone number, including area
code: (972) 233-1700
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Page
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||
number
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||
Part
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Financial
Statements
|
|
Condensed
Consolidated Balance Sheets -
|
||
December
31, 2007; June 30, 2008 (unaudited)
|
3
|
|
Condensed
Consolidated Statements of Operations (unaudited)-
|
||
Three
and six months ended June 30, 2007 and 2008
|
5
|
|
Condensed
Consolidated Statement of Stockholders' Equity
|
||
and
Comprehensive Income -
|
||
Six
months ended June 30, 2008 (unaudited)
|
6
|
|
Condensed
Consolidated Statements of Cash Flows (unaudited) -
|
||
Six
months ended June 30, 2007 and 2008
|
7
|
|
Notes
to Condensed Consolidated Financial Statements
|
||
(unaudited)
|
9
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial
|
|
Condition
and Results of Operations
|
21
|
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
34
|
Item
4.
|
Controls
and Procedures
|
34
|
Part
II.
|
OTHER
INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
36
|
Item
1A.
|
Risk
Factors
|
37
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
37
|
Item
6.
|
Exhibits
|
38
|
Items
2, 3 and 5 of Part II are omitted because there is no information to
report
|
ASSETS
|
December
31,
2007
|
June
30,
2008
|
||||||
(unaudited)
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 41,112 | $ | 30,849 | ||||
Restricted
cash and cash equivalents
|
4,970 | 9,794 | ||||||
Marketable
securities
|
5,860 | 5,503 | ||||||
Accounts
and other receivables, net
|
23,492 | 21,678 | ||||||
Inventories,
net
|
24,277 | 25,911 | ||||||
Prepaid
expenses and other
|
1,516 | 2,419 | ||||||
Deferred
income taxes
|
6,474 | 6,205 | ||||||
Total
current assets
|
107,701 | 102,359 | ||||||
Other
assets:
|
||||||||
Marketable
equity securities
|
113,393 | 148,598 | ||||||
Investment
in Kronos Worldwide, Inc.
|
147,119 | 144,120 | ||||||
Pension
asset
|
17,623 | 19,297 | ||||||
Goodwill
|
54,719 | 54,749 | ||||||
Assets
held for sale
|
3,117 | 2,817 | ||||||
Other
assets, net
|
7,856 | 8,022 | ||||||
Total
other assets
|
343,827 | 377,603 | ||||||
Property
and equipment:
|
||||||||
Land
|
12,346 | 12,785 | ||||||
Buildings
|
35,963 | 36,203 | ||||||
Equipment
|
127,801 | 127,056 | ||||||
Construction
in progress
|
2,659 | 3,172 | ||||||
178,769 | 179,216 | |||||||
Less
accumulated depreciation
|
105,536 | 106,510 | ||||||
Net
property and equipment
|
73,233 | 72,706 | ||||||
Total
assets
|
$ | 524,761 | $ | 552,668 |
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
December
31,
2007
|
June
30,
2008
|
||||||
(unaudited)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 8,769 | $ | 10,167 | ||||
Accrued
liabilities
|
27,188 | 28,405 | ||||||
Accrued
environmental costs
|
11,863 | 9,527 | ||||||
Income
taxes
|
136 | 163 | ||||||
Total
current liabilities
|
47,956 | 48,262 | ||||||
Non-current
liabilities:
|
||||||||
Note
payable to affiliate
|
49,730 | 49,230 | ||||||
Accrued
environmental costs
|
38,467 | 37,911 | ||||||
Accrued
postretirement benefit (OPEB) costs
|
9,865 | 9,643 | ||||||
Accrued
pension costs
|
1,665 | 1,492 | ||||||
Deferred
income taxes
|
91,124 | 103,144 | ||||||
Other
|
25,126 | 25,392 | ||||||
Total
non-current liabilities
|
215,977 | 226,812 | ||||||
Minority
interest
|
14,366 | 13,595 | ||||||
Stockholders'
equity:
|
||||||||
Common stock
|
6,073 | 6,074 | ||||||
Additional
paid-in capital
|
345,338 | 336,966 | ||||||
Retained
deficit
|
(6,525 | ) | (6,525 | ) | ||||
Accumulated
other comprehensive loss
|
(98,424 | ) | (72,516 | ) | ||||
Total
stockholders' equity
|
246,462 | 263,999 | ||||||
Total
liabilities, minority interest and stockholders’ equity
|
$ | 524,761 | $ | 552,668 |
Three
months ended
June 30,
|
Six
months ended
June 30,
|
|||||||||||||||
2007
|
2008
|
2007
|
2008
|
|||||||||||||
(unaudited)
|
||||||||||||||||
Net
sales
|
$ | 45,229 | $ | 43,708 | $ | 88,780 | $ | 84,228 | ||||||||
Cost
of sales
|
33,368 | 32,727 | 64,797 | 63,805 | ||||||||||||
Gross
margin
|
11,861 | 10,981 | 23,983 | 20,423 | ||||||||||||
Selling,
general and administrative expense
|
6,571 | 6,504 | 13,237 | 12,908 | ||||||||||||
Other
operating income (expense):
|
||||||||||||||||
Insurance
recoveries
|
109 | 1,601 | 2,586 | 1,684 | ||||||||||||
Other
expense, net
|
(732 | ) | (57 | ) | (792 | ) | (88 | ) | ||||||||
Corporate
expense
|
(8,515 | ) | (6,960 | ) | (13,444 | ) | (10,736 | ) | ||||||||
Loss
from operations
|
(3,848 | ) | (939 | ) | (904 | ) | (1,625 | ) | ||||||||
Equity
in earnings (losses) of Kronos Worldwide, Inc.
|
(10 | ) | 2,085 | 4,599 | 1,945 | |||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
and dividends
|
1,370 | 5,151 | 2,469 | 6,125 | ||||||||||||
Securities
transactions, net
|
(47 | ) | 20 | 56 | 10 | |||||||||||
Interest
expense
|
(48 | ) | (504 | ) | (102 | ) | (1,266 | ) | ||||||||
Income
(loss) before income taxes and minority interest
|
(2,583 | ) | 5,813 | 6,118 | 5,189 | |||||||||||
Provision
for income taxes (benefit)
|
(1,838 | ) | 1,563 | 207 | 1,013 | |||||||||||
Minority
interest in after-tax earnings
|
785 | 285 | 1,675 | 501 | ||||||||||||
Net
income (loss)
|
$ | (1,530 | ) | $ | 3,965 | $ | 4,236 | $ | 3,675 | |||||||
Net
income (loss) per basic and diluted share
|
$ | (.03 | ) | $ | .08 | $ | .09 | $ | .08 | |||||||
Cash
dividend per share
|
$ | .125 | $ | .125 | $ | .25 | $ | .25 | ||||||||
Weighted-average
shares used in the calculation of net income per share:
|
||||||||||||||||
Basic
|
48,589 | 48,595 | 48,587 | 48,594 | ||||||||||||
Dilutive
impact of stock options
|
- | 8 | 9 | 8 | ||||||||||||
Diluted
|
48,589 | 48,603 | 48,596 | 48,602 |
Accumulated
|
||||||||||||||||||||||||
Additional
|
Retained
|
other
|
Total
|
|||||||||||||||||||||
Common
|
paid-in
|
earnings
|
comprehensive
|
stockholders’
|
Comprehensive
|
|||||||||||||||||||
stock
|
capital
|
(deficit)
|
loss
|
equity
|
income
|
|||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||
Balance
at December 31, 2007
|
$ | 6,073 | $ | 345,338 | $ | (6,525 | ) | $ | (98,424 | ) | $ | 246,462 | ||||||||||||
Net
income
|
- | - | 3,675 | - | 3,675 | $ | 3,675 | |||||||||||||||||
Other
comprehensive income, net
|
- | - | - | 25,908 | 25,908 | 25,908 | ||||||||||||||||||
Issuance
of common stock
|
1 | 102 | - | - | 103 | - | ||||||||||||||||||
Dividends
|
- | (8,474 | ) | (3,675 | ) | - | (12,149 | ) | - | |||||||||||||||
Balance
at June 30, 2008
|
$ | 6,074 | $ | 336,966 | $ | (6,525 | ) | $ | (72,516 | ) | $ | 263,999 | ||||||||||||
Comprehensive
income
|
$ | 29,583 |
Six
months ended
June 30,
|
||||||||
2007
|
2008
|
|||||||
(unaudited)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 4,236 | $ | 3,675 | ||||
Depreciation
and amortization
|
5,695 | 4,770 | ||||||
Deferred
income taxes
|
(1,770 | ) | (1,538 | ) | ||||
Minority
interest
|
1,675 | 501 | ||||||
Equity
in earnings of Kronos Worldwide, Inc.
|
(4,599 | ) | (1,945 | ) | ||||
Dividends
from Kronos Worldwide, Inc.
|
8,758 | 8,758 | ||||||
Benefit
plan expense greater (less) than cash funding:
|
||||||||
Defined
benefit pension expense
|
(1,220 | ) | (1,485 | ) | ||||
Other
postretirement benefit expense
|
315 | 238 | ||||||
Other,
net
|
219 | 572 | ||||||
Change
in assets and liabilities:
|
||||||||
Accounts
and other receivables, net
|
(632 | ) | 81 | |||||
Inventories,
net
|
(3,565 | ) | (1,637 | ) | ||||
Prepaid
expenses and other
|
524 | (876 | ) | |||||
Accrued
environmental costs
|
(2,688 | ) | (2,892 | ) | ||||
Accounts
payable and accrued liabilities
|
718 | 1,165 | ||||||
Income
taxes
|
(587 | ) | (5 | ) | ||||
Accounts
with affiliates
|
(6,667 | ) | 2,120 | |||||
Other,
net
|
(1,613 | ) | (2,224 | ) | ||||
Net
cash provided by (used in) operating activities
|
(1,201 | ) | 9,278 | |||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(5,603 | ) | (3,476 | ) | ||||
Collection
of note receivable
|
1,306 | 1,306 | ||||||
Change
in restricted cash equivalents and marketable debt securities,
net
|
1,928 | (4,827 | ) | |||||
Proceeds
from disposal of:
|
||||||||
Marketable
securities
|
9,608 | 361 | ||||||
Property
and equipment
|
43 | 250 | ||||||
Purchase
of:
|
||||||||
CompX
common stock
|
- | (1,006 | ) | |||||
Marketable
securities
|
(5,861 | ) | - | |||||
Net
cash provided by (used in) investing activities
|
1,421 | (7,392 | ) |
Six
months ended
June 30,
|
||||||||
2007
|
2008
|
|||||||
(unaudited)
|
||||||||
Cash
flows from financing activities:
|
||||||||
Cash
dividends paid
|
$ | (12,147 | ) | $ | (12,149 | ) | ||
Distributions
to minority interest
|
(1,131 | ) | (412 | ) | ||||
Other,
net
|
203 | (50 | ) | |||||
Net
cash used in financing activities
|
(13,075 | ) | (12,611 | ) | ||||
Cash
and cash equivalents - net change from:
|
||||||||
Operating,
investing and financing activities
|
(12,855 | ) | (10,725 | ) | ||||
Currency
translation
|
695 | 462 | ||||||
Cash
and cash equivalents at beginning of period
|
52,742 | 41,112 | ||||||
Cash
and cash equivalents at end of period
|
$ | 40,582 | $ | 30,849 | ||||
Supplemental
disclosures – cash paid for:
|
||||||||
Interest
|
$ | 56 | $ | 1,305 | ||||
Income
taxes, net
|
9,003 | 425 | ||||||
Noncash
investing activity - receipt of TIMET shares
|
$ | 11,410 | $ | - | ||||
Accrual
for capital expenditures
|
1,232 | 293 |
December
31,
2007
|
June
30,
2008
|
|||||||
(In
thousands)
|
||||||||
Trade
receivables
|
$ | 21,129 | $ | 20,791 | ||||
Other
receivables
|
1,535 | 1,256 | ||||||
Receivable
from affiliates:
|
||||||||
Income
taxes – Valhi
|
1,271 | - | ||||||
Refundable
income taxes
|
217 | 233 | ||||||
Allowance
for doubtful accounts
|
(660 | ) | (602 | ) | ||||
Total
|
$ | 23,492 | $ | 21,678 |
December
31,
2007
|
June
30,
2008
|
|||||||
(In
thousands)
|
||||||||
Raw
materials
|
$ | 6,341 | $ | 9,156 | ||||
Work
in process
|
9,783 | 9,204 | ||||||
Finished
products
|
8,153 | 7,551 | ||||||
Total
|
$ | 24,277 | $ | 25,911 |
December
31,
2007
|
June
30,
2008
|
|||||||
(In
thousands)
|
||||||||
Current
assets (available-for-sale):
|
||||||||
Restricted
debt securities
|
$ | 5,301 | $ | 5,304 | ||||
Other
marketable securities
|
559 | 199 | ||||||
Total
|
$ | 5,860 | $ | 5,503 | ||||
Noncurrent
assets (available-for-sale):
|
||||||||
Valhi
common stock
|
$ | 75,064 | $ | 128,325 | ||||
TIMET
common stock
|
38,329 | 20,273 | ||||||
Total
|
$ | 113,393 | $ | 148,598 |
Amount
|
||||
(In
millions)
|
||||
Balance
at the beginning of the period
|
$ | 147.1 | ||
Equity
in earnings of Kronos
|
1.9 | |||
Dividends
received from Kronos
|
(8.7 | ) | ||
Other,
principally equity in other comprehensive income
items
of Kronos
|
3.8 | |||
Balance
at the end of the period
|
$ | 144.1 |
December
31,
2007
|
June
30,
2008
|
|||||||
(In
millions)
|
||||||||
Current
assets
|
$ | 621.7 | $ | 647.8 | ||||
Property
and equipment, net
|
526.5 | 559.1 | ||||||
Investment
in TiO2
joint venture
|
118.5 | 115.6 | ||||||
Other
noncurrent assets
|
188.3 | 207.6 | ||||||
Total
assets
|
$ | 1,455.0 | $ | 1,530.1 | ||||
Current
liabilities
|
$ | 224.5 | $ | 235.8 | ||||
Long-term
debt
|
590.0 | 658.7 | ||||||
Accrued
pension and postretirement benefits
|
149.9 | 151.9 | ||||||
Other
non-current liabilities
|
79.6 | 81.2 | ||||||
Stockholders’
equity
|
411.0 | 402.5 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 1,455.0 | $ | 1,530.1 |
Three
months ended
June 30,
|
Six
months ended
June 30,
|
|||||||||||||||
2007
|
2008
|
2007
|
2008
|
|||||||||||||
(In
millions)
|
(In
millions)
|
|||||||||||||||
Net
sales
|
$ | 342.6 | $ | 391.9 | $ | 656.6 | $ | 724.4 | ||||||||
Cost
of sales
|
279.0 | 332.7 | 522.6 | 608.1 | ||||||||||||
Income
from operations
|
23.6 | 9.7 | 52.9 | 19.4 | ||||||||||||
Net
income
|
- | 5.8 | 12.9 | 5.4 |
December
31,
2007
|
June
30,
2008
|
|||||||
(In
thousands)
|
||||||||
Employee
benefits
|
$ | 8,896 | $ | 7,899 | ||||
Professional
fees
|
4,322 | 5,455 | ||||||
Payable
to affiliates:
|
||||||||
Income
taxes – Valhi
|
- | 865 | ||||||
Note
payable to TIMET
|
250 | 750 | ||||||
Accrued
interest payable to TIMET
|
559 | 451 | ||||||
Other
|
340 | 322 | ||||||
Reserve
for uncertain tax positions
|
289 | 55 | ||||||
Other
|
12,532 | 12,608 | ||||||
Total
|
$ | 27,188 | $ | 28,405 |
December
31,
2007
|
June
30,
2008
|
|||||||
(In
thousands)
|
||||||||
Reserve
for uncertain tax positions
|
$ | 22,128 | $ | 22,538 | ||||
Insurance
claims and expenses
|
1,381 | 1,305 | ||||||
Other
|
1,617 | 1,549 | ||||||
Total
|
$ | 25,126 | $ | 25,392 |
Six
months ended
June 30,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Expected
tax expense at U.S. federal statutory income tax rate of
35%
|
$ | 2.1 | $ | 1.8 | ||||
Non-U.S.
tax rates
|
- | (.1 | ) | |||||
Incremental
U.S. tax and rate differences on equity in earnings of non-tax group
companies
|
(2.2 | ) | (1.2 | ) | ||||
U.S.
state income taxes, net
|
.4 | .4 | ||||||
Change
in reserve for uncertain tax positions, net
|
.1 | .1 | ||||||
Nondeductible
expenses
|
.1 | .2 | ||||||
Other,
net
|
(.3 | ) | (.2 | ) | ||||
Total
|
$ | .2 | $ | 1.0 |
Three
months ended
June 30,
|
Six
months ended
June 30,
|
|||||||||||||||
2007
|
2008
|
2007
|
2008
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Interest
cost
|
$ | 777 | $ | 787 | $ | 1,533 | $ | 1,554 | ||||||||
Expected
return on plan assets
|
(1,451 | ) | (1,561 | ) | (2,899 | ) | (3,121 | ) | ||||||||
Recognized
actuarial losses
|
74 | 41 | 146 | 82 | ||||||||||||
Total
|
$ | (600 | ) | $ | (733 | ) | $ | (1,220 | ) | $ | (1,485 | ) |
Three
months ended
June 30,
|
Six
months ended
June 30,
|
|||||||||||||||
2007
|
2008
|
2007
|
2008
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Interest
cost
|
$ | 182 | $ | 164 | $ | 363 | $ | 328 | ||||||||
Amortization
of prior service credit
|
(28 | ) | (45 | ) | (56 | ) | (90 | ) | ||||||||
Recognized
actuarial losses
|
4 | - | 8 | - | ||||||||||||
Total
|
$ | 158 | $ | 119 | $ | 315 | $ | 238 |
·
|
we
have never settled any of these
cases,
|
·
|
no
final, non-appealable verdicts have ever been entered against us,
and
|
·
|
we
have never ultimately been found liable with respect to any such
litigation matters.
|
·
|
complexity
and differing interpretations of governmental
regulations,
|
·
|
number
of PRPs and their ability or willingness to fund such allocation of
costs,
|
·
|
financial
capabilities of the PRPs and the allocation of costs among
them,
|
·
|
solvency
of other PRPs,
|
·
|
multiplicity
of possible solutions, and
|
·
|
number
of years of investigatory, remedial and monitoring activity
required.
|
Amount
|
||||
(In
thousands)
|
||||
Balance
at the beginning of the period
|
$ | 50,330 | ||
Additions
charged to expense, net
|
407 | |||
Payments,
net
|
(3,299 | ) | ||
Balance
at the end of the period
|
$ | 47,438 | ||
Amounts
recognized in the balance sheet at the end of the period:
|
||||
Current
liability
|
$ | 9,527 | ||
Noncurrent
liability
|
37,911 | |||
Total
|
$ | 47,438 |
·
|
facts
concerning historical operations,
|
·
|
the
rate of new claims,
|
·
|
the
number of claims from which we have been
dismissed,
|
·
|
and
our prior experience in the defense of these
matters,
|
·
|
Future
supply and demand for our products,
|
·
|
The
extent of the dependence of certain of our businesses on certain market
sectors,
|
·
|
The
cyclicality of our businesses (such as Kronos’ TiO2 operations),
|
·
|
Customer
inventory levels (such as the extent to which Kronos’ customers may, from
time to time, accelerate purchases of TiO2 in advance of
anticipated price increases or defer purchases of TiO2 in advance of
anticipated price decreases),
|
·
|
Changes
in raw material and other operating costs (such as energy
costs),
|
·
|
The
possibility of labor disruptions,
|
·
|
General
global economic and political conditions (such as changes in the level of
gross domestic product in various regions of the world and the impact of
such changes on demand for, among other things, TiO2 and
component products),
|
·
|
Competitive
products and substitute products, including increased competition from
low-cost manufacturing sources (such as
China),
|
·
|
Customer
and competitor strategies,
|
·
|
Potential
consolidation or solvency of our
competitors,
|
·
|
Demand
for high performance marine
components,
|
·
|
The
impact of pricing and production
decisions,
|
·
|
Competitive
technology positions,
|
·
|
Service
industry employment levels,
|
·
|
Possible
disruption of our business or increases in the cost of doing business
resulting from terrorist activities or global
conflicts,
|
·
|
The
introduction of trade barriers,
|
·
|
Fluctuations
in currency exchange rates (such as changes in the exchange rate between
the U.S. dollar and each of the euro, the Norwegian kroner and the
Canadian dollar),
|
·
|
Operating
interruptions (including, but not limited to, labor disputes, leaks,
natural disasters, fires, explosions, unscheduled or unplanned downtime
and transportation interruptions),
|
·
|
The
timing and amounts of insurance
recoveries,
|
·
|
The
ability to renew or refinance credit
facilities,
|
·
|
The
extent to which our subsidiaries were to become unable to pay us
dividends,
|
·
|
Potential
difficulties in integrating completed or future
acquisitions,
|
·
|
Decisions
to sell operating assets other than in the ordinary course of
business,
|
·
|
Uncertainties
associated with new product
development,
|
·
|
The
ultimate outcome of income tax audits, tax settlement initiatives or other
tax matters,
|
·
|
The
ultimate ability to utilize income tax attributes or change in income tax
rates related to such attributes, the benefit of which has been recognized
under the more likely than not recognition criteria (such as Kronos’
ability to utilize its German net operating loss
carryforwards),
|
·
|
Environmental
matters (such as those requiring compliance with emission and discharge
standards for existing and new facilities, or new developments regarding
environmental remediation at sites related to our former
operations),
|
·
|
Government
laws and regulations and possible changes therein (such as changes in
government regulations which might impose various obligations on present
and former manufacturers, including us, of lead pigment and lead-based
paint, with respect to asserted health concerns associated with the use of
such products),
|
·
|
The
ultimate resolution of pending litigation (such as our lead
pigment and environmental litigation)
and
|
·
|
Possible
future litigation.
|
·
|
higher
equity in earnings of Kronos in
2008,
|
·
|
higher
interest income in 2008,
|
·
|
lower
litigation and related expenses in 2008
and
|
·
|
higher
insurance recoveries in 2008.
|
·
|
interest
income of $.06 per diluted share related to certain escrow
funds,
|
·
|
income
included in our equity in earnings of Kronos of $.03 per diluted share
related to an adjustment of certain income tax attributes of Kronos in
Germany, and
|
·
|
income
of $.02 per diluted share related to certain insurance
recoveries.
|
·
|
lower
equity in earnings of Kronos in
2008,
|
·
|
lower
component products income from operations in
2008,
|
·
|
lower
insurance recoveries in 2008,
|
·
|
lower
litigation and related expenses in 2008
and
|
·
|
higher
interest income in 2008.
|
·
|
interest
income of $.06 per diluted share related to certain escrow
funds,
|
·
|
income
included in our equity in earnings of Kronos of $.03 per diluted share
related to an adjustment of certain income tax attributes of Kronos in
Germany, and
|
·
|
income
of $.02 per diluted share related to certain insurance
recoveries.
|
·
|
a
charge included in our equity in earnings of Kronos of $.04 per diluted
share related to an adjustment of certain income tax attributes of Kronos
in Germany, and
|
·
|
income
of $.03 per diluted share related to certain insurance
recoveries.
|
Three
months ended
|
Six
months ended
|
|||||||||||||||||||||||
June 30,
|
%
|
June 30,
|
%
|
|||||||||||||||||||||
2007
|
2008
|
Change
|
2007
|
2008
|
Change
|
|||||||||||||||||||
(In
millions)
|
(In
millions)
|
|||||||||||||||||||||||
CompX
|
$ | 4.4 | $ | 4.4 | - | % | $ | 9.9 | $ | 7.4 | (25 | )% | ||||||||||||
Insurance
recoveries
|
.1 | 1.6 | 1,369 | % | 2.6 | 1.7 | (35 | )% | ||||||||||||||||
Corporate
expense and other, net
|
(8.3 | ) | (6.9 | ) | (17 | )% | (13.4 | ) | (10.7 | ) | (20 | )% | ||||||||||||
Loss
from operations
|
$ | (3.8 | ) | $ | (.9 | ) | 76 | % | $ | (.9 | ) | $ | (1.6 | ) | (79 | )% |
Three
months ended
|
Six
months ended
|
|||||||||||||||||||||||
June 30,
|
%
|
June 30,
|
%
|
|||||||||||||||||||||
2007
|
2008
|
Change
|
2007
|
2008
|
Change
|
|||||||||||||||||||
(In
millions)
|
(In
millions)
|
|||||||||||||||||||||||
Net
sales
|
$ | 45.2 | $ | 43.7 | (3 | )% | $ | 88.8 | $ | 84.2 | (5 | )% | ||||||||||||
Cost
of sales
|
33.3 | 32.7 | (2 | )% | 64.8 | 63.8 | (2 | )% | ||||||||||||||||
Gross
margin
|
$ | 11.9 | $ | 11.0 | $ | 24.0 | $ | 20.4 | ||||||||||||||||
Income
from operations
|
$ | 4.4 | $ | 4.4 | - | % | $ | 9.9 | $ | 7.4 | (25 | )% | ||||||||||||
Percentage
of net sales:
|
||||||||||||||||||||||||
Cost
of sales
|
74 | % | 75 | % | 73 | % | 76 | % | ||||||||||||||||
Income
from operations
|
10 | % | 10 | % | 11 | % | 9 | % |
Three
months ended
June
30, 2008
vs. 2007
|
Six
months ended
June
30, 2008
vs. 2007
|
|||||||
(Increase
(decrease), in thousands)
|
||||||||
Impact
on:
|
||||||||
Net
sales
|
$ | 341 | $ | 1,011 | ||||
Income
from operations
|
215 | (360 | ) |
·
|
Our
security products line is the least affected by the softness in consumer
demand, as these products are sold to a diverse number of business
customers across a wide range of markets, most of which are not directly
impacted by changes in consumer demand. While demand may be
fairly stable for this business line, it is unclear as to when sales
growth will return.
|
·
|
Our
furniture components sales are primarily concentrated in the office
furniture, toolbox, home appliance and a number of other
industries. Several of these industries are more directly
affected by consumer demand than those served by our security products
line. We expect many of the markets served by furniture
components to continue to experience low demand in the short
term.
|
·
|
Our
marine line has been affected the most by the slowing economy as the
decrease in consumer confidence, the decline in home values, a tighter
credit market and higher fuel costs have resulted in a significant
reduction in consumer spending in the marine market. The marine
market is not currently expected to recover until consumer confidence
returns and home values stabilize. A continued
under-performance of the marine market over the next twelve to eighteen
months could negatively impact our required annual impairment evaluation
of the goodwill allocated to the marine line. An adverse outcome
from the evaluation could directly affect income from
operations.
|
·
|
litigation
and related costs of $5.6 million in 2008 compared to $7.6 million in
2007, and
|
·
|
environmental
expenses of $266,000 in 2008, compared to a credit of $337,000 in
2007.
|
·
|
litigation
and related costs of $8.7 million in 2008 compared to $11.7 million in
2007, and
|
·
|
environmental
expenses of $408,000 in 2008 compared to $633,000 in
2007.
|
Three
months ended
|
Six
months ended
|
|||||||||||||||||||||||
June 30,
|
%
|
June 30,
|
%
|
|||||||||||||||||||||
2007
|
2008
|
Change
|
2007
|
2008
|
Change
|
|||||||||||||||||||
(In
millions)
|
(In
millions)
|
|||||||||||||||||||||||
Kronos
historical:
|
||||||||||||||||||||||||
Net
sales
|
$ | 342.6 | $ | 391.9 | 14 | % | $ | 656.6 | $ | 724.4 | 10 | % | ||||||||||||
Cost
of sales
|
279.0 | 332.7 | 19 | % | 522.6 | 608.1 | 16 | % | ||||||||||||||||
Gross
margin
|
$ | 63.6 | $ | 59.2 | $ | 134.0 | $ | 116.3 | ||||||||||||||||
Income
from operations
|
$ | 23.6 | $ | 9.7 | (59 | )% | $ | 52.9 | $ | 19.4 | (63 | )% | ||||||||||||
Other,
net
|
.4 | .2 | 1.0 | .6 | ||||||||||||||||||||
Interest
expense
|
(9.8 | ) | (11.1 | ) | (19.3 | ) | (21.7 | ) | ||||||||||||||||
14.2 | (1.2 | ) | 34.6 | (1.7 | ) | |||||||||||||||||||
Income
tax expense (benefit)
|
14.2 | (7.0 | ) | 21.7 | (7.1 | ) | ||||||||||||||||||
Net
income
|
$ | - | $ | 5.8 | $ | 12.9 | $ | 5.4 | ||||||||||||||||
Percentage
of net sales:
|
||||||||||||||||||||||||
Cost
of sales
|
81 | % | 85 | % | 80 | % | 84 | % | ||||||||||||||||
Income
from operations
|
7 | % | 2 | % | 8 | % | 3 | % | ||||||||||||||||
Equity
in earnings of Kronos
Worldwide,
Inc.
|
$ | - | $ | 2.1 | $ | 4.6 | $ | 1.9 | ||||||||||||||||
TiO2
operating statistics:
|
||||||||||||||||||||||||
Sales
volumes*
|
137 | 141 | 3 | % | 262 | 269 | 3 | % | ||||||||||||||||
Production
volumes*
|
128 | 133 | 4 | % | 261 | 265 | 2 | % | ||||||||||||||||
Change
in Ti02
net sales:
|
||||||||||||||||||||||||
Ti02
product pricing
|
(1 | )% | (3 | )% | ||||||||||||||||||||
Ti02
sales volume
|
3 | % | 3 | % | ||||||||||||||||||||
Ti02
product mix
|
2 | % | 2 | % | ||||||||||||||||||||
Changes
in currency exchange rates
|
10 | % | 8 | % | ||||||||||||||||||||
Total
|
14 | % | 10 | % |
Three
months ended
June
30, 2008
vs. 2007
|
Six
months ended
June
30, 2008
vs. 2007
|
|||||||
(Increase
(decrease), in millions)
|
||||||||
Impact
on:
|
||||||||
Net
sales
|
$ | 33 | $ | 54 | ||||
Income
from operations
|
(8 | ) | (16 | ) |
·
|
lower
cash paid for income taxes in 2008 of $8.6 million due in part to income
tax payments we made in 2007 related to the capital gain generated from
Valhi’s previously-reported distribution of shares of TIMET common stock
in March 2007,
|
·
|
lower
net cash used by changes in receivables, inventories, prepaids, payables
and accrued liabilities in 2008 of $1.5 million due primarily to relative
changes in CompX’s working capital levels, as discussed
below,
|
·
|
higher
interest income of $3.7 million in 2008 due primarily to $4.3 million of
interest received from certain escrow
funds,
|
·
|
lower
income from operations in 2008 of $720,000
and
|
·
|
higher
cash paid for interest in 2008 of $1.2 million due to CompX’s issuance of
its note payable to an affiliate in the fourth quarter of
2007.
|
Six
months ended
June 30,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Cash
provided by (used in) operating activities:
|
||||||||
CompX
|
$ | 5.3 | $ | 5.4 | ||||
NL
Parent and wholly-owned subsidiaries
|
(3.8 | ) | 6.6 | |||||
Eliminations
|
(2.7 | ) | (2.7 | ) | ||||
Total
|
$ | (1.2 | ) | $ | 9.3 |
·
|
we
incurred $3.5 million of capital expenditures, substantially all of which
relates to CompX,
|
·
|
we
collected $1.3 million on a note
receivable,
|
·
|
we
used $4.3 million of cash to fund two new escrow accounts related to
environmental matters (such escrow funds are classified as restricted
cash) and
|
·
|
we
purchased approximately 126,000 shares of CompX common stock in market
transactions for $1.0 million.
|
Amount
|
||||
(In
millions)
|
||||
CompX
|
$ | 18.2 | ||
NL
Parent and wholly-owned subsidiaries
|
27.9 | |||
Total
|
$ | 46.1 |
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect transactions and dispositions of our
assets;
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that
receipts and expenditures are made only in accordance with authorizations
of our management and directors;
and
|
·
|
provide
reasonable assurance regarding prevention or timely detection of an
unauthorized acquisition, use or disposition of assets that could have a
material effect on our Condensed Consolidated Financial
Statements.
|
·
|
Cecil
H. Moore, Jr., Glenn R. Simmons, Harold C. Simmons, Thomas P. Stafford,
Steven L. Watson and Terry N. Worrell were elected as directors, each
receiving votes “For” his election from at least 94.6% of the
approximately 48.6 million shares of our common stock eligible to vote at
the meeting;
|
·
|
the
proposal to adopt an amendment to our certificate of incorporation to
remove Article XI (Requirements for Certain Business Transactions;
Exceptions) was approved, receiving a vote “For” such proposal
from:
|
o
|
at
least 99.4% of the votes cast for such
proposal;
|
o
|
at
least 97.5% of our outstanding shares of common stock eligible to vote at
the meeting; and
|
o
|
at
least 82.3% of the outstanding shares of our common stock eligible to vote
at the meeting excluding from the
number of shares deemed to be outstanding at the time of such vote and
from such vote those shares which were beneficially owned, directly or
indirectly, by Harold C. Simmons or his affiliates (which number of shares
of our common stock beneficially owned by Harold C. Simmons and his
affiliates was deemed to be 41,796,006 shares);
and
|
·
|
the
proposal to amend and restate our certificate of incorporation (including
the removal of Article XI (Requirements for Certain Business Transactions;
Exceptions) since it separately received the requisite vote for its
elimination), was approved, receiving a vote “For” such proposal
from:
|
o
|
at
least 95.7% of the votes cast for such proposal;
and
|
o
|
at
least 93.8% of our outstanding shares of common stock eligible to vote at
the meeting.
|
10.1 –
|
Third
Amendment Agreement Relating to a Facility Agreement dated June 25, 2002
executed as of May 26, 2008 by and among Deutsche Bank AG, as mandated
lead arranger, Deutsche Bank Luxembourg S.A., as agent, the participating
lenders, Kronos Titan GmbH, Kronos Europe S.A,/N.V, Kronos Titan AS,
Kronos Norge AS, Titania AS and Kronos Denmark ApS - incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K of Kronos
International, Inc. (File No. 333-100047) dated May 26,
2008. Certain schedules, exhibits, annexes and similar
attachments to this Exhibit 10.1 have not been filed; upon request, the
registrant will furnish supplementally to the Commission a copy of any
omitted exhibit, annex or
attachment.
|
31.1
-
|
Certification
|
31.2
-
|
Certification
|
32.1 -
|
Certification
|
Date August 4,
2008
|
/s/ Gregory M.
Swalwell
|
|
Gregory
M. Swalwell
|
||
(Vice
President, Finance and
Chief
Financial Officer,
Principal
Financial Officer)
|
||
Date August 4,
2008
|
/s/ Tim C. Hafer
|
|
Tim
C. Hafer
|
||
(Vice
President and Controller,
Principal
Accounting Officer)
|