SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the quarter ended September 30, 1995 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.) Two Greenspoint Plaza, 16825 Northchase Dr., Suite 1200, Houston, TX 77060-2544 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 423-3300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of common stock outstanding on October 25, 1995: 51,071,118 NL INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets - December 31, 1994 and September 30, 1995 3-4 Consolidated Statements of Operations - Three and nine months ended September 30, 1994 and 1995 5 Consolidated Statement of Shareholders' Deficit - Nine months ended September 30, 1995 6 Consolidated Statements of Cash Flows - Nine months ended September 30, 1994 and 1995 7-8 Notes to Consolidated Financial Statements 9-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19-20 Item 6. Exhibits and Reports on Form 8-K 20 NL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) <TABLE> <CAPTION> ASSETS December 31, September 30, 1994 1995 <S> <C> <C> Current assets: Cash and cash equivalents $ 131,124 $ 152,795 Marketable securities 25,165 - Accounts and notes receivable 137,753 169,539 Refundable income taxes 1,162 8,626 Inventories 185,173 208,958 Prepaid expenses 3,878 7,676 Deferred income taxes 2,177 2,254 Total current assets 486,432 549,848 Other assets: Marketable securities 21,329 26,819 Investment in joint ventures 187,480 185,863 Prepaid pension cost 19,329 21,712 Deferred income taxes 2,746 711 Other 37,267 32,961 Total other assets 268,151 268,066 Property and equipment: Land 20,665 22,523 Buildings 147,370 163,961 Machinery and equipment 582,138 636,605 Mining properties 87,035 91,691 Construction in progress 9,579 17,934 846,787 932,714 Less accumulated depreciation and depletion 438,960 484,181 Net property and equipment 407,827 448,533 $1,162,410 $1,266,447 </TABLE> NL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands) <TABLE> <CAPTION> LIABILITIES AND SHAREHOLDERS' DEFICIT December 31, September 30, 1994 1995 <S> <C> <C> Current liabilities: Notes payable $ - $ 21,707 Current maturities of long-term debt 42,887 41,149 Accounts payable and accrued liabilities 168,327 175,330 Payable to affiliates 11,348 9,631 Income taxes 20,762 11,368 Deferred income taxes 1,590 1,510 Total current liabilities 244,914 260,695 Noncurrent liabilities: Long-term debt 746,762 750,683 Deferred income taxes 178,332 207,769 Accrued pension cost 76,242 75,295 Accrued postretirement benefits cost 65,299 62,026 Other 141,518 144,643 Total noncurrent liabilities 1,208,153 1,240,416 Minority interest 2,425 2,830 Shareholders' deficit: Common stock 8,355 8,355 Additional paid-in capital 759,281 759,281 Adjustments: Currency translation (125,494) (124,876) Pension liabilities (1,635) (1,635) Marketable securities (12) 3,294 Accumulated deficit (567,041) (515,551) Treasury stock (366,536) (366,362) Total shareholders' deficit (293,082) (237,494) $1,162,410 $1,266,447 </TABLE> Commitments and contingencies (Note 13) NL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) <TABLE> <CAPTION> Three months ended Nine months ended September 30, September 30, 1994 1995 1994 1995 <S> <C> <C> <C> <C> Revenues and other income: Net sales $225,200 $255,339 $664,162 $789,688 Other, net 8,365 7,060 36,579 16,075 233,565 262,399 700,741 805,763 Costs and expenses: Cost of sales 168,033 169,058 493,914 526,722 Selling, general and administrative 47,162 48,317 157,423 142,937 Interest 20,923 20,325 63,059 62,053 236,118 237,700 714,396 731,712 Income (loss) before income taxes and minority interest (2,553) 24,699 (13,655) 74,051 Income tax expense (1,901) (7,413) (12,204) (22,215) Income (loss) before minority interest (4,454) 17,286 (25,859) 51,836 Minority interest (124) 140 (620) (346) Net income (loss) $ (4,578) $ 17,426 $(26,479) $ 51,490 Net income (loss) per share of common stock $ (.09) $ .34 $ (.52) $ 1.00 Weighted average common and common equivalent shares outstanding 51,040 51,628 51,014 51,522 </TABLE> NL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT Nine months ended September 30, 1995 (In thousands) <TABLE> <CAPTION> Additional Adjustments Common paid-in Currency Pension Marketable stock capital translation liabilities securities <S> <C> <C> <C> <C> <C> Balance at December 31, 1994 $8,355 $759,281 $(125,494) $(1,635) $ (12) Net income - - - - - Adjustments - - 618 - 3,306 Treasury stock reissued - - - - - Balance at September 30, 1995 $8,355 $759,281 $(124,876) $(1,635) $3,294 </TABLE> <TABLE> <CAPTION> Accumulated Treasury deficit stock Total <S> <C> <C> <C> Balance at December 31, 1994 $(567,041) $(366,536) $(293,082) Net income 51,490 - 51,490 Adjustments - - 3,924 Treasury stock reissued - 174 174 Balance at September 30, 1995 $(515,551) $(366,362) $(237,494) </TABLE> NL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 1994 and 1995 (In thousands) <TABLE> <CAPTION> 1994 1995 <S> <C> <C> Cash flows from operating activities: Net income (loss) $(26,479) $ 51,490 Depreciation, depletion and amortization 26,752 29,208 Noncash interest expense 13,415 14,368 Deferred income taxes 35,479 18,245 Other, net (2,458) (8,382) 46,709 104,929 Change in assets and liabilities: Accounts and notes receivable (24,721) (23,161) Inventories 37,605 (14,067) Accounts payable and accrued liabilities 4,475 (2,905) Income taxes 89,285 (18,217) Other, net 19,247 (5,096) Marketable trading securities, net 14,262 26,337 Net cash provided by operating activities 186,862 67,820 Cash flows from investing activities: Capital expenditures (25,061) (42,572) Investment in joint ventures, net 2,600 1,664 Other, net 563 68 Net cash used by investing activities (21,898) (40,840) </TABLE> NL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Nine months ended September 30, 1994 and 1995 (In thousands) <TABLE> <CAPTION> 1994 1995 <S> <C> <C> Cash flows from financing activities: Indebtedness: Borrowings $ 44,505 $ 38,840 Principal payments (129,553) (47,401) Other, net (202) 159 Net cash used by financing activities (85,250) (8,402) Cash and cash equivalents: Net change from: Operating, investing and financing activities 79,714 18,578 Currency translation 7,779 3,093 Balance at beginning of period 106,593 131,124 Balance at end of period $ 194,086 $152,795 Supplemental disclosures - cash paid (received) for: Interest, net of amounts capitalized $ 43,251 $ 37,079 Income taxes (112,066) 22,388 </TABLE> NL INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION: NL Industries, Inc. conducts its operations primarily through its wholly- owned subsidiaries, Kronos, Inc. (titanium dioxide pigments, or "TiO2") and Rheox, Inc. (specialty chemicals). Valhi, Inc. and Tremont Corporation, each affiliates of Contran Corporation, hold 53% and 18%, respectively, of NL's outstanding common stock. Contran holds, directly or indirectly, approximately 91% of Valhi's and 44% of Tremont's outstanding common stock. The consolidated balance sheet of NL Industries, Inc. and Subsidiaries (collectively, the "Company") at December 31, 1994 has been condensed from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at September 30, 1995 and the consolidated statements of operations, shareholders' deficit and cash flows for the interim periods ended September 30, 1994 and 1995, have been prepared by the Company, without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Certain prior year amounts have been reclassified to conform to the 1995 presentation. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Annual Report"). NOTE 2 - NET INCOME (LOSS) PER SHARE OF COMMON STOCK: Net income (loss) per share of common stock is based on the weighted average number of common shares and equivalents outstanding. Common stock equivalents, consisting of non-qualified stock options, are excluded from the computation when their effect is antidilutive. NOTE 3 - BUSINESS SEGMENT INFORMATION: The Company's operations are conducted in two business segments - TiO2 conducted by Kronos and specialty chemicals conducted by Rheox. <TABLE> <CAPTION> Three months ended Nine months ended September 30, September 30, 1994 1995 1994 1995 (In thousands) <S> <C> <C> <C> <C> Net sales: Kronos $194,146 $222,799 $574,813 $689,520 Rheox 31,054 32,540 89,349 100,168 $225,200 $255,339 $664,162 $789,688 Operating income: Kronos $ 18,746 $ 40,828 $ 51,769 $120,381 Rheox 8,347 9,762 23,879 29,726 27,093 50,590 75,648 150,107 General corporate income (expense): Securities earnings, net 1,254 1,489 2,097 5,884 Expenses, net (9,977) (7,055) (28,341) (19,887) Interest expense (20,923) (20,325) (63,059) (62,053) $ (2,553) $ 24,699 $(13,655) $ 74,051 </TABLE> NOTE 4 - INVENTORIES: <TABLE> <CAPTION> December 31, September 30, 1994 1995 (In thousands) <S> <C> <C> Raw materials $ 30,118 $ 32,195 Work in process 7,655 8,541 Finished products 112,410 132,028 Supplies 34,990 36,194 $185,173 $208,958 </TABLE> NOTE 5 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS: <TABLE> <CAPTION> December 31, September 30, 1994 1995 (In thousands) <S> <C> <C> Current - U.S. Treasury securities: Unrealized losses $(1,124) $ - Cost 26,289 - Aggregate market $25,165 $ - Noncurrent - marketable equity securities: Unrealized gains $ 3,357 $ 5,067 Unrealized losses (3,374) - Cost 21,346 21,752 Aggregate market $21,329 $26,819 </TABLE> The Company has classified its U.S. Treasury securities as trading securities and its marketable equity securities as available-for-sale. Net gains and losses from securities transactions are composed of: <TABLE> <CAPTION> Three months ended Nine months ended September 30, September 30, 1994 1995 1994 1995 (In thousands) <S> <C> <C> <C> <C> Unrealized gains (losses) $ - $ 7 $ (871) $1,122 Realized gains (losses) (96) - (438) 50 $(96) $ 7 $(1,309) $1,172 </TABLE> NOTE 6 - INVESTMENT IN JOINT VENTURES: <TABLE> <CAPTION> December 31, September 30, 1994 1995 (In thousands) <S> <C> <C> TiO2 manufacturing joint venture $185,122 $183,458 Other 2,358 2,405 $187,480 $185,863 </TABLE> NOTE 7 - OTHER NONCURRENT ASSETS: <TABLE> <CAPTION> December 31, September 30, 1994 1995 (In thousands) <S> <C> <C> Intangible assets, net $13,957 $12,583 Deferred financing costs, net 16,079 14,163 Other 7,231 6,215 $37,267 $32,961 </TABLE> NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES: <TABLE> <CAPTION> December 31, September 30, 1994 1995 (In thousands) <S> <C> <C> Accounts payable $ 74,903 $ 56,502 Accrued liabilities: Employee benefits 34,209 42,299 Environmental costs 10,433 10,433 Interest 6,485 17,068 Miscellaneous taxes 7,336 3,006 Other 34,961 46,022 93,424 118,828 $168,327 $175,330 </TABLE> NOTE 9 - OTHER NONCURRENT LIABILITIES: <TABLE> <CAPTION> December 31, September 30, 1994 1995 (In thousands) <S> <C> <C> Environmental costs $ 93,655 $103,312 Insurance claims and expenses 14,716 14,555 Employee benefits 12,322 13,557 Deferred technology fee income 18,305 11,112 Other 2,520 2,107 $141,518 $144,643 </TABLE> NOTE 10 - NOTES PAYABLE AND LONG-TERM DEBT: <TABLE> <CAPTION> December 31, September 30, 1994 1995 (In thousands) <S> <C> <C> Notes payable - Kronos $ - $ 21,707 Long-term debt: NL Industries: 11.75% Senior Secured Notes $250,000 $250,000 13% Senior Secured Discount Notes 116,409 127,897 366,409 377,897 Kronos: DM bank credit facility (DM 397,609) 255,703 276,498 Joint venture term loan 88,715 77,143 Other 10,507 14,441 354,925 368,082 Rheox: Bank term loan 67,500 45,263 Other 815 590 68,315 45,853 789,649 791,832 Less current maturities 42,887 41,149 $746,762 $750,683 </TABLE> NOTE 11 - INCOME TAXES: The difference between the provision for income tax expense attributable to income before income taxes and minority interest and the amount that would be expected using the U.S. federal statutory income tax rate of 35% is presented below. <TABLE> <CAPTION> Nine months ended September 30, 1994 1995 (In thousands) <S> <C> <C> Expected tax benefit (expense) $ 4,779 $(25,918) Non-U.S. tax rates 3,838 1,501 Incremental tax on income of companies not included in NL's consolidated U.S. federal income tax return (982) (1,007) Valuation allowance (18,987) 3,183 U.S. state income taxes (410) (584) Other, net (442) 610 Income tax expense $(12,204) $(22,215) </TABLE> NOTE 12 - OTHER INCOME, NET: <TABLE> <CAPTION> Three months ended Nine months ended September 30, September, 30, 1994 1995 1994 1995 (In thousands) <S> <C> <C> <C> <C> Securities earnings: Interest and dividends $1,350 $1,482 $ 3,406 $ 4,712 Securities transactions (96) 7 (1,309) 1,172 1,254 1,489 2,097 5,884 Litigation settlement gains 1,200 - 21,240 - Technology fee income 2,519 2,685 7,781 7,990 Currency transaction gains, (losses), net 379 1,122 745 (795) Other, net 3,013 1,764 4,716 2,996 $8,365 $7,060 $36,579 $16,075 </TABLE> NOTE 13 - COMMITMENTS AND CONTINGENCIES: For descriptions of certain legal proceedings, income tax and other commitments and contingencies related to the Company, reference is made to (i) Part II, Item 1 -"Legal Proceedings," (ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995, and (iii) the 1994 Annual Report. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company's chemical operations are conducted in two business segments - TiO2 conducted by Kronos and specialty chemicals conducted by Rheox. The Company's results improved significantly during the first nine months of 1995, as discussed below, and the Company expects to remain profitable in the fourth quarter and in 1996. <TABLE> <CAPTION> Three months ended % Nine months ended % September 30, Change September 30, Change 1994 1995 1994 1995 (In millions) (In millions) <S> <C> <C> <C> <C> <C> <C> Net sales: Kronos $194.1 $222.8 +15% $574.9 $689.5 +20% Rheox 31.1 32.5 +5% 89.3 100.2 +12% $225.2 $255.3 +13% $664.2 $789.7 +19% Operating income: Kronos $ 18.8 $ 40.8 +118% $ 51.7 $120.4 +133% Rheox 8.3 9.8 +17% 23.9 29.7 +24% $ 27.1 $ 50.6 +87% $ 75.6 $150.1 +98% Percent changes in TiO2: Sales volume -6% -1% Average selling prices (in billing currencies) +18% +16% </TABLE> Kronos' operating income in the first nine months of 1995 increased compared to the 1994 period due to higher average selling prices, partially offset by lower sales volumes and slightly higher production costs. Kronos' TiO2 operating income in the third quarter of 1995 increased from the third quarter of 1994 primarily due to higher average selling prices. Kronos' average TiO2 selling prices in the third quarter of 1995 were 18% higher than the third quarter of 1994 as a result of increased pricing in all major markets. Average selling prices in the third quarter of 1995 were 2% higher than the second quarter of 1995 with increases in all major markets except the U.S. market, where selling prices remained flat. Kronos' third quarter 1995 sales volumes were 6% below the third quarter of 1994 and year-to-date sales volumes for 1995 were slightly lower than sales volumes for the same period in 1994. Economies worldwide have continued growing in 1995, but at lower rates than 1994. Kronos believes this contributed to its 1% lower sales volumes in the first nine months of 1995 compared to the same period in 1994. Rheox's operating results for both the third quarter and first nine months of 1995 improved compared to the 1994 periods primarily as a result of higher sales volumes and average selling prices. A significant amount of sales are denominated in currencies other than the U.S. dollar, and fluctuations in the value of the U.S. dollar relative to other currencies increased the dollar value of sales for the third quarter and first nine months of 1995 by $12 million and $46 million, respectively, compared to the 1994 periods. The following table sets forth certain information regarding general corporate income (expense). <TABLE> <CAPTION> Three months ended Nine months ended September 30, Difference September 30, Difference 1994 1995 1994 1995 <S> <C> <C> <C> <C> <C> <C> Securities earnings $ 1.3 $ 1.5 $ .2 $ 2.1 $ 5.9 $ 3.8 Corporate expenses, net (10.0) (7.1) 2.9 (28.3) (19.9) 8.4 Interest expense (20.9) (20.3) .6 (63.1) (62.1) 1.0 $(29.6) $(25.9) $3.7 $(89.3) $(76.1) $13.2 </TABLE> Corporate expenses, net in the nine months ended September 30, 1995 were lower than the comparable 1994 period due to lower provisions for environmental remediation and other costs, partially offset by the effect of a $20 million gain related to a first-quarter 1994 settlement of a lawsuit. Corporate expenses, net in the third quarter of 1995 were lower than 1994 due to reduced provisions for environmental remediation. Interest expense in the first nine months of 1995 was slightly lower due to the lower level of debt partially offset by the impact of changes in currency exchange rates and higher variable U.S. interest rates. The Company's operations are conducted on a worldwide basis. In 1994, the Company's income tax expense was impacted by losses in certain countries for which no current benefit was available and for which the Company believed recognition of a deferred tax asset was not appropriate. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated cash flows from operating, investing and financing activities for the nine months ended September 30, 1994 and 1995 are presented below. <TABLE> <CAPTION> Nine months ended September 30, 1994 1995 (In millions) <S> <C> <C> Net cash provided (used) by: Operating activities $186.8 $ 67.8 Investing activities (21.9) (40.8) Financing activities (85.2) (8.4) Net cash provided by operating, investing and financing activities $ 79.7 $ 18.6 </TABLE> 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. Excluding the effects of the receipt of the German tentative tax refunds in the first nine months of 1994, the Company's cash flows from operations improved during the first nine months of 1995 compared to the 1994 period, primarily due to the improvement in Kronos' operating results and proceeds from the sale of $26 million of U.S. Treasury securities. Net changes in the Company's inventories, receivables and payables (excluding the effect of currency translation) used cash in the first nine months of 1995 and provided cash in the same period in 1994. Certain of the Company's income tax returns in various U.S. and non-U.S. jurisdictions, including Germany, are being examined and tax authorities have proposed tax deficiencies. Additional substantial German proposed tax deficiency assessments are expected. Although the Company believes that it will ultimately prevail, the Company has granted a DM 100 million ($70 million at September 30, 1995) lien on its Nordenham, Germany TiO2 plant and may be required to provide additional security in favor of the German tax authorities until the assessments proposing tax deficiencies are resolved. The Company believes that it has adequately provided accruals for additional income 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. During the first nine months of 1995, non-U.S. subsidiaries borrowed $33 million under short-term lines of credit. Repayments of indebtedness in the first nine months of 1995 include payments of $22 million on the Rheox bank term loan, $12 million on the joint venture term loan and $11 million on short-term borrowings. Net repayments of indebtedness in the first nine months of 1994 include payments of DM 168 million of the DM credit facility ($103 million), $11 million on the Rheox bank term loan and $12 million on the joint venture term loan, and borrowings under the DM bank credit facility of DM 75 million ($45 million). At September 30, 1995, the Company had cash and cash equivalents aggregating $153 million (34% held by non-U.S. subsidiaries) including restricted cash and cash equivalents of $16 million. The Company's subsidiaries had $212 million available for borrowing under existing credit facilities, of which $87 million is available only for (i) permanently reducing the DM term loan or (ii) paying future German income tax assessments, as described above. The Company has been named as a defendant, potentially responsible party ("PRP"), or both, in a number of legal proceedings associated with environmental matters, including waste disposal sites or facilities currently or formerly owned, operated or used by the Company, many of which disposal sites or facilities are on the U.S. Environmental Protection Agency's (the "U.S. EPA") Superfund National Priorities List or similar state lists. The Company believes it has adequate accruals ($95 million at September 30, 1995) for reasonably estimable costs of such matters. It is 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 $168 million. 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. The Company is also a defendant in a number of legal proceedings seeking damages for personal injury and property damage arising from the sale of lead pigments and lead-based paints. Based on, among other things, the results of such litigation to date, the Company believes that the pending lead pigment litigation is without merit and has not accrued any amounts for such pending lead pigment litigation. 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. 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 to effectively overturn court decisions in which the Company and other pigment manufacturers have been successful. 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 has in the past and may in the future seek to reduce, refinance or restructure indebtedness, raise additional capital, 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 of businesses and assets in the chemicals industry. In the event of any future acquisition, 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to the 1994 Annual Report and the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995 for descriptions of certain previously-reported legal proceedings. NL Industries, Inc. v. Commercial Union Insurance Cos., et al. In September 1995, the U.S. Court of Appeals for the Third Circuit reversed and remanded for further consideration the previously-reported decision by the trial court that Commercial Union was obligated to pay the Company's reasonable defense costs in certain of the lead pigment cases. The trial court had made its decision applying New Jersey law; the appeals court concluded that New York and not New Jersey law applied and remanded the case to the trial court for a determination under New York law. HANO Third-Party Complaints. The time in which plaintiffs may file an appeal of the District Court's June 1995 grant of summary judgment in favor of the defendants in several of the remaining cases has expired with no appeals having been filed. Two cases remain pending. The Company has received a copy of a complaint from plaintiffs' counsel in the HANO cases, but has not been served with the complaint. The complaint, Jefferson v. Lead Industry Association, et al. (No. 95-2835), filed in the U.S. District Court for the Eastern District of Louisiana, asserts claims against the LIA and the lead pigment defendants on behalf of a class of allegedly injured children in Louisiana. The complaint purports to allege claims for strict liability, negligence, failure to warn, breach of alleged warranties, fraud and misrepresentation, and conspiracy, and seeks actual and punitive damages. The complaint asserts several theories of liability, including joint and several and market share liability. New York City, et al. v. Lead Industries Association, et al. In August 1995, the trial court denied defendants' motion for summary judgment on the remaining fraud count. Defendants have noticed an appeal. Skipworth v. Sherwin-Williams Co., et al. In October 1995, the Supreme Court of Pennsylvania affirmed the previously-reported grant of defendants' motion for summary judgment. The time in which plaintiffs may seek review by the Pennsylvania Supreme Court has not yet expired. Granite City: United States of America v. NL Industries, Inc. et al. In September 1995, U.S. EPA released its decision selecting cleanup remedies for the Granite City site. The cost of the remedies selected by the U.S. EPA aggregates, in its estimation, $40.8 million to $67.8 million, although its decision states that the higher amount is not considered to be representative of expected costs. The Company believes that certain components of the U.S. EPA's estimated costs may be erroneous and presently intends to challenge portions of the U.S. EPA's selection of the remedy. There is no allocation among the PRPs for these costs. Batavia Landfill. In September 1995, the U.S. EPA and certain PRPs entered into an administrative order on consent for the remedial design phase of the remedy for operable unit one. The Company and other PRPs entered into an interim cost sharing arrangement for this phase of work. In re Asbestos III (subsequently redesignated as In re Asbestos IV). All claims in this matter have been dismissed or settled. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 10.1 - 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.) 27.1 - Financial Data Schedule for the nine-month period ended September 30, 1995. (b) REPORTS ON FORM 8-K Reports on Form 8-K for the quarter ended September 30, 1995 and for the period up to the date of this report. July 20, 1995 - reported Items 5 and 7. October 19, 1995 - 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. NL INDUSTRIES, INC. (Registrant) Date: October 26, 1995 By /s/ Joseph S. Compofelice Joseph S. Compofelice Vice President and Chief Financial Officer Date: October 26, 1995 By /s/ Dennis G. Newkirk Dennis G. Newkirk Vice President and Controller (Principal Accounting Officer)