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NL Industries Inc.Valhi, Inc. Three Lincoln Centre 5430 LBJ Freeway, Suite 1700 Dallas, TX 75240-2697 (972) 233-1700 (972) 448-1445 (Fax) VALHI 2007 ANNUAL REPORT VALHI, INC. CORPORATE AND OTHER INFORMATION Board of Directors Corporate Officers Operating Management of Subsidiaries Thomas E. Barry (b) (c) Vice President Southern Methodist University Norman S. Edelcup (b) (c) Mayor Sunny Isles Beach, Florida W. Hayden McIlroy (b) Private Investor Glenn R. Simmons (a) Vice Chairman Harold C. Simmons (a) Chairman J. Walter Tucker, Jr. President Tucker & Branham, Inc. Harold C. Simmons Chairman Glenn R. Simmons Vice Chairman Steven L. Watson President and Chief Executive Officer William J. Lindquist Senior Vice President Bobby D. O’Brien Vice President and Chief Financial Officer Gregory M. Swalwell Vice President and Controller J. Mark Hollingsworth Vice President and General Counsel Steven L. Watson (a) President and Chief Executive Officer Kelly D. Luttmer Vice President and Tax Director Board Committees (a) Executive Committee (b) Audit Committee (c) Management Development and Compensation Committee John A. St.Wrba Vice President and Treasurer Robert D. Graham Vice President A. Andrew R. Louis Secretary and Associate General Counsel Kronos Worldwide, Inc. Harold C. Simmons Chairman and Chief Executive Officer Steven L. Watson Vice Chairman Lawrence A. Wigdor Chief Operations Management Consultant NL Industries, Inc. Harold C. Simmons Chairman and Chief Executive Officer CompX International Inc. Glenn R. Simmons Chairman David A. Bowers Vice Chairman, President and Chief Executive Officer Waste Control Specialists LLC Harold C. Simmons Chairman William J. Lindquist Chief Executive Officer Rodney A. Baltzer President Stock and Bond Exchanges Annual Meeting Transfer Agent Valhi's common shares are listed on the New symbol "VHI." York Stock Exchange under the Kronos’ common shares are listed on the New York Stock Exchange under the symbol "KRO." NL's common shares are listed on the New York Stock Exchange under the symbol "NL." CompX's Class A common shares are listed on the New York Stock Exchange under the symbol "CIX." International’s 6.5% Senior Kronos Secured Notes Due 2013 are listed on the Luxembourg Stock Exchange and are quoted ine the over-the-counter market in the U.S. The 2008 Annual Meeting of Stockholders will be held on Thursday, May 29, 2008, at 10:00 a.m., at the office of the Company, Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. Notice of the meeting, proxy statement and form of proxy will be mailed to stockholders in advance of the meeting. Form 10-K Report The Company's Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission, is printed as part of this Annual Report. Additional copies are available without charge upon written request to: A. Andrew R. Louis, Secretary Valhi, Inc. Three Lincoln Centre 5430 LBJ Freeway, Suite 1700 Dallas, Texas 75240-2697 Computershare Investor Services, L.L.C. acts as transfer agent, registrar and dividend paying agent for the Company's common stock. Communications regarding stockholder accounts, dividends and change of address should be directed to: Computershare Investor Services, L.L.C. P.O. Box 43036 Providence, RI 02940-3036 (312) 360-5239 Visit us on the Web http: //www.valhi.net SECI'RITIES AIID EXCITANGE COMMISSION D . C . 2 0 5 4 9 W a s h i n g t o n , A}INUAIJ REPORT PURSUAIiTT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCIIA}IGE A e T O F L 9 3 4 - F o r t h e f i s c a l y e a r e n d e d D e c e m b e r 3 1 , 2 0 0 7 FORM 10 -K Connrission file nurnber L-5467 (Exact name of Regist rant as epec ifi ed i n i ts char ter) vAr,HI, INC. Delaware ( S t a b e o r o t h e r Incorlroration j u r i s d i c t i o n or organizat,ion) o f 8 7 - 0 1 1 0 1 5 0 ( IRS Enrployer I d e n t i f i c a t i o n N o . ) 5 4 3 0 L B J F r e e w a y , S u i t e 1 7 0 0 , D a 1 1 a s , T e x a s (Address of pri nci pal executive off ice s) 7 5240 -2697 (zip Code) Registrant's telephone nurnber, including area code: ( 9 7 2 ) 2 3 3 - 1 7 0 0 Securities registered pursu ant to S ecti on 12 (b) of t h e A c t , : T i t l e o f e a c h c l a s s Name of each exchange on w h i c h r e g i s t e r e d C o m m o n s t o c k ( $ . 0 1 p a r v a l u e p e r s h a r e ) m e w Y o r k S t o c k E x c h a n g e S e c u r i t i e s r e g i s t e r e d p u r s u a n t t o S e c t i o n t 2 ( g ) o f t h e A c L : N o n e . Indicate by check mark: I f o f t h e R e g i s t r a n t t h e S e c u r i t i e s i s A c t . a w e l l - k n o w n s e a s o n e d i s s u e r r € l s d e f i n e d i n R u I e 4 0 5 Y e s N o X I f S e c t i o n t h e R e g i s t r a n t 1 5 ( d ) o f i s n o t t h e A c t . r e q u i r e d Y e s t o f i l e r e p o r t s p u r s u a n t t o S e c t i o n 1 3 o r Whether Section preceding required to requirements th e Regi strant 13 or 15 (d) of (or L2 months such fi le for N o X fi led al l (1) h as th e S ecuri ti es for rep orts) , such shorter and report s E xcha nge period required Act of that to be filed L934 during the Registrant by the was (2) has been subj ect to suc h fi li ng the past 90 days. Yes X No of deli nquent contai ned If disclosure not is Registrant's incorporated this Form 10-K. Yes X knowledge, by reference herein, No fi ler s a nd w il l purs uant to noE be cont ained, IE em 405 of R egulat ion S-K of the bes t to defi ni tiv e in in Part III of pror ry or i nformat ion this Form 10 -K or any amendment to st atenen ts t h e R e g i s t r a n t W h e t h e r o r a n o n - a c c e l e r a t e d R u I e L 2 b - 2 o f non-accelerated filer t h e A c t ) . i s f i l e r a l a r g e a c c e l e r a t e d f i l e r , a n a c c e l e r a t e d f i l e r o r a s m a l l e r L a r g e a c c e l e r a t e d reporting - smaller r e p o r t i n g f i l e r .o*p"tt[ c o m p a n y ( a s d e f i n e d A c c e l e r a t e d f i l e r i n X Whether A c t ) . Y e s N o X the Registr".; a shell company (as defined in RuIe L2b-2 of the The aggregate market held by nonaffiLiates the Registrant of $ 1 1 9 . 7 m i l l i o n . of value of Va1 hi, the 7.3 million In c. as of shares of voting ,.I une 30, 2007 (the conunon etock l ast busi nes s d ay I s most recently-completed second fiscal quart,er) approximated A s o f F e b r u a r y 2 9 , 2 0 0 8 , 1 1 3 , 6 7 9 , 2 7 8 s h a r e s o f were outstanding. t h e R e g i s t r a n t r s c o l l E n o n e t o c k Document.s incorporated by reference required information The Registrant 's pursuant year covered by definitive to Regulation this report. by Part proxy III is s batement incorporated be to fi led than LzO days after 14A not Later by reference the the C ormnis eion from w ith the end of the fiscal . c n I , i h l a V ) I : H V E S Y N ( 7 0 0 2 , 1 r 3 e b m e c e D l o r t n o C e t s a W C L L s t s i l a i c e p S ) t n e m e g a n a M e t s a W ( . c n , I s e i r t s u d n I L N : ) L N E S Y N ( . c n I , e d i w d l r o W s o n o r K ) s l i a c m e h C ( ) : O R K E S Y N ( l I . c n a n o i t a n r e t n I X p m o C ) X I : C E S Y N ( ) s t c u d o r t P n e n o p m o C ( ITE}T 1. BUSINESS PART I Inc . (NYSE : VHI ) i s p r i m a r i l y a h o l d i n g c o m p a n y . W e o p e r a t e Valhi , our I n c . , P r i o r whol ly-owned and maj ori ty-ow ned K r o n o s W o r l - d w i d e , L L C ( " W C S " ) s h a r e h o l d e r o f T i t a n i u m M e t a l s C o r p o r a t i o n through I n d u s t r i e s , C o n t r o l - S p e c i a l i s t s l a r g e s t l-ess than a maj ority t h e e q u i t y m e t h o d . special d i v i d e n d w a s p a i d o n M a r c h 2 5 , 2 0 0 7 t o s t o c k h o l d e r s 2007. primarily Statements . Kronos p e r i o d i c interest O n F e b r u a r y 2 8 , 2 0 0 7 through our NL subsidiary . an d w e acc ounted t h e U . S . S e c u r i t i e s th e di vi dend, r e p o r t s w i t h completion dividend of all After of of th e TIME T com mon st ock w e ow ned. The special o f w e ow n approx imat ely r e c o r d a s o f M a r c h L 2 , 1? of TIM ET Fi nancial- (NYSE: KRO) , N L (l uyS n: N L) and C ompX (N yS n: C IX) eac h f ile S ee N ote 3 to our C onsol idated a n d E x c h a n g e C o m m i s s i o n ( * S E C " ) . sub sid iari es, I n c . , C o m p X f n t e r n a t i o n a l NL I n c . a n d W a s t e t o M a r c h 2 5 , 2 0 0 7 w e w e r e a L s o t h e ( " T I M E T " ) , a l t h o u g h w e o w n e d i n TIME T by d e c l - a r e d a i nvest ment o u r b o a r d o f d i r e c t o r s i ncl uding for our O u r p r i n c i p a l e x e c u t i v e o f f i c e s a r e L B J F r e e w a y , S u i t e 1 7 0 0 , D a 1 l a s , T e x a s 7 5 2 4 0 . O u r t e l e p h o n e n u m b e r i s 2 3 3 - 1 7 0 0 . W e m a i n t a i n a w o r l - d w i d e w e b s i t e a t v a T h i . n e t . l - o c a t e d a t T h r e e L i n c o l n C e n t e r , 5 4 3 0 ( S l z 1 B r i e f H i s t o r y L L C C o r p o r a t i o n , o u r l e g a l p r e d e c e s s o r , w a s i n c o r p o r a t e d controll-ed t h e s u c c e s s o r c o m p a n y o f of Contran, which owns approx imat ely 1 9 3 2 . W e a r e another entity subsidiary s t o c k a t D e c e m b e r 3 1 , 2 0 0 7 . S u b s t a n t i a l l y f o r t r u s t s s t o c k grandchil-dren o r Simmons. Consequently, Mr. Sim mons may be deemed t.o cont rol- C ontran and us. W e are maj orit y 93? of our outs tandi ng a I l o f C o n t r a n ' s o u t s t a n d i n g of Harol-d C. Sim mons (for w hic h Mr. S imm ons i s t h e L 9 8 7 m e r g e r o f L L C C o r p o r a t i o n by Con tran C orporati on. b y M r . S i m m o n s o r o t h e r p e r s o n s o r r e l a t . e d c o m p a n i e s t o M r . i s h e l d d i r e c t l y i s h e l d b y e s t a b l - i s h e d t h e b e n e f i t o f c e r t a i n the sol e c h i l d r e n trus te e) com mon v o t i n g a n d i n D e l - a w a r e i n a n d ow ned by a K e y e v e n t s i n o u r h i s t o r y i n c l u d e : ]-979 Contran acquires o o 1 9 8 1 - C o n t r a n a c q u i r e s c o n t r o l o cont rol- of LLC ; o f c o n t r o ] a c q u i r e s I n c . , a p r e d e c e s s o r ] - 9 8 2 - C o n t r a n I n d u s t r i e s , 1 9 8 4 - K e y s t o n e s p i n s - o f f b e c o m e C o m p X ; t h i s e n t i t y 1 9 8 5 - C o n t r a n a c q u i r e s c o n t r o l - o f N L , w h i c h a t o f K r o n o s a n d a 5 0 ? i n t e r e s t L987 - LLC and another C ontran V a l h i , t o C o m p X ; o u r c u r r e n t cont rol- ]ed i n T f M E T ; c o r p o r a t e s t r u c t u r e ; o r . o o f o u r o t h e r p r e d e c e s s o r c o m p a n y ; C o n s o l i d a t e d K e y s t o n e a n e n t i t y t h a t s u b s e q u e n t l y m e r g e s w i t h L L C ; i n c l u d e s w h a t i s t o t h e t i m e o w n s l - 0 0 3 com pany merge to for m 1 9 8 8 T I M E T ; N L s p i n s - o f f a n e n t i t y t . h a t . i n c l u d e s i t s i n v e s t m e n t i n o 1 9 9 5 o 1 9 9 6 e 2 0 0 3 W C S b e g i n s s t a r t - u p T I M E T c o m p l e t e s a n i n i t i a l N L c o m p l e t e s o f K r o n o s s h a r e s t h e s p i n - o f f t o o p e r a t i o n s ; p u b l i c o f f e r i n g ; o f K r o n o s t h r o u g h t h e p r o - r a t a i t s s h a r e h o l - d e r s K r o n o s i n c l u d i n g s h a r e s u s ; t o i t s 2 0 0 5 i n c l u d i n g - N L d i s t r i b u t e s u s , a l l t h r o u g h q u a r t e r l y d i v i d e n d s ; a n d o f o u r T I M E T c o m m o n s t o c k t o o u r o W e d i s t r i b u t e d i s t r i b u t i o n 2 0 0 4 t h r o u g h s h a r e h o l - d e r s , 2 0 0 7 s h a r e h o l - d e r s t h r o u g h a s t o c k d i v i d e n d . U n l e s s ttour" rgfer otherwise indicated, ref erenc es i n t o V a l h i , I n c . a n d i t s s u b s i d i a r i e s , thi s report to t a k e n a s a w h o l e . r\w e" , " us " or contai ns f orw ard-look in g st atements w ithi n L i t i g a t i o n th at f u t u r e R e f o r m A c t o f 1 9 9 5 . S t a t e m e n t s are not hi stori cal - t h a t a r e n o t s t a t e m e n t s o f h i s t o r i c a l - i n natur e are i n c l u d i n g , b u t n o t l i m i t e d Forvtrard- Looking S t,atements - our beli efs I t e m 7 represent and Resul-ts i n n a t u r e a b o u t o u r f o u n d 1 This Annual Report o f t h e P r i v a t e S e c u r i t i e s Annual- Report on Form 10-K l o o k i n g S t a t e m e n t s a r e f o u n d l t e m i n P r o c e e d i n g s , " Condition Q u a l - i t a t i v e that i n f o r m a t i o n . b y " a n t i c i p a t e s , strategies or forward-lookin g w i l l b e s u b s t a n t i a l - r e s u l - t s . A c t u a l W h i l e i t risks and unce rtainties. r e s u l t . s uncertainties time f o l l o w i n g : t o d i f f e r m a t e r i a l l y discussed i s n o t p o s s i b l e c o r r e c t . r i s k s in our other trends. f u t u r e fi lings in r r i n t h i s " B u s i n e s s , " r e p o r t I t e m 1 A " R i s k r t M a n a g e m e n E ' s D i s c u s s i o n of Operati onstr Ite m D i s c l - o s u r e s A b o u t M a r k e t R i s k , " a r e and f n s o m e c a s e s y o u c a n i d e n t i f y t h e s e t h e u s e o f w o r d s s u c h a s " b e l - i e v e s , t t t ' e x p e c t e d ' r o r c o m p a r a b l e ' r i n t e n d s , r r " m a y , t ' t e r m i n o l o g y , and ass umpti ons bas ed on the exp ectati ons statements are re asonabl e, w e do not kno w i f Although w e bel -iev e Forw ard-look i ng a n d u n c e r t a i n t i e s r e s u l t s st atements thei r c o u l d s i g n i f i c a n t l y by t h a t t o c o u l - d d i f f e r m a t e r i a l l y a l - l - f a c t o r s , w € fac tors that t h o s e d e s c r i b e d i d e n t i f y Am ong the f r o m cou ld h e r e i n the meaning i n t h i s forw ar d- f a c t . t o , s t a t e m e n t s - t ' L e g a 1 o f F i n a n c i a l - and s t a t e m e n t s ava il able s t a t e m e n t s I ' c o u l d r r l f t e m 3 F a c t o r s , " a n d A n a l y s i s - 7A rrQ uantit ativ e f o r w a r d - l o o k i n g cur rentl y f o r w a r d - l o o k i n g " s h o u I d , t t o r b y d i s c u s s i o n s ref l ected thes e expe ct,at ions i nvol- ve natur e i m p a c t e x p e c t e d o f i n such f r o m c o n t i n u e t h o s e p r e d i c t e d . t o f a c e m a n y caus e act ual- fut ur e a r e t h e r i s k s a n d t o t he ti me to, th is A nnual- R eport and thos e desc ri bed from with the sE c i ncl uding, but not l imi ted ( s u c h a s K r o n o s ' T i o 2 to w hic h K ronos' cus tomer s o f T i O 2 i n a d v a n c e o f o f T i O 2 i n a d v a n c e o f c o s t s ( s u c h a s e n e r g y (s uch as cha nges t he the w orld and t he i n regi ons of t h i n g s , T i O z ) ; i n t h e c o s t o f d o i n g o r g l o b a I c o n f l - i c t s ; o o o o o O o o O o O o o o o p u r c h a s e s t o o f c e r t a i n r e s u l t i n g o r d e f e r cond iti ons p u r c h a s e s i n var ious l-e vefs t i m e , inventory t i m e o f o u r b u s i n e s s e s a n d o t h e r o p e r a t i n g pro ducts and subst itut e (s uch as the ext ent a c c e l - e r a t e p r i c e i n c r e a s e s p r i c e d e c r e a s e s ; r a w m a t e r i a l Future supply and demand for our products; T h e c y c l i c a l i t y o p e r a t i o n s ; Customer f f i a y , f r o m a n t i c i p a t e d a n t i c i p a t e d C h a n g e s i n o u r c o s t s ) ; T h e p o s s i b i l i t y o f f a b o r d i s r u p t i o n s ; General- glob a1 econom ic and pol iti cal level- of gro ss dom estic product . i m p a c t o f s u c h c h a n g e s o n d e m a n d f o r , a m o n g o t h e r Competitive P o s s i b l e d i s r u p t i o n b u s i n e s s Customer and competitor The impact of pri ci ng Competitive The introduction Restructuring Potential- The extent d i v i d e n d s ; U n c e r t a i n t i e s Fl-uctuations exchange r a t e b e t w e e n t h e U . S . d o l - l - a r a n d and the Canad ian dol-Iar) ; O p e r a t i n g l - e a k s , n a t u r a l d . i s a s t e r s , d o w n t i m e a n d t r a n s p o r t a t i o n T h e t i m i n g a n d a m o u n t s o f ( i n c l u d i n g , f i r e s , i n t e r r u p t i o n s ) strat egies ; and produc ti on ; trade barri ers ; to which our s ubsi diar ies b u t n o t e x p l o s i o n s , a s s o c i a t e d w i t h n e w o f o u r b u s i n e s s o r te chn ology positi ons of our com petit ors; f r o m t e r r o r i s t consol-idation i n t e r r u p t i o n s transactions in currency r e c o v e r i e s ; i n s u r a n c e dec isi ons; a c t i v i t i e s produc ts ; w ere of ; i n c r e a s e s i nvol -vi ng us and our af f i l-i ates ; to beco me unabl -e to pay us produc t deve lopment ; rates each of the euro, (s uch as chan ges i n the exc han ge the N orweg ian kr oner l i m i t e d l - a b o r d j - s p u t e s , u n s c h e d u l e d o r u n p l a n n e d t o , o o o u r a b i l i t y T h e u l - t i m a t e o u t . c o m e o f o t h e r t a x m a t t e r s ; t o r e n e w o r r e f i n a n c e c r e d i t f a c i l i t i e s ; i n c o m e t a x a u d i t s , t a x s e t t l e m e n t i n i t i a t i v e s o r o T h e u l t i m a t e a b i l i t y t o u t i l - i z e i n c o m e t a x a t t r i b u t e s r e l - a t e d t o s u c h a t t r i b u t e s , t h e b e n e f i t u n d e r t h e m o r e l i k e I y a b i l i t y t o u t i l - i z e t h a n n o t r e c o g n i t i o n c r i t e r i a i t s G e r m a n n e t o p e r a t i n g l o s s o r c h a n g e s i n o f w h i c h h a s t a x r a t e s i n c o m e b e e n ( s u c h a s K r o n o s ' carryforwards r e c o g n i z e d ) ; r Environm ental - matters a n d d i s c h a r g e developments f o r m e r o p e r a t i o n s ) ; reg arding s t a n d a r d s (such as f o r thos e e x i s t i n g requi ri ng com pli ance w ith emi ssion a n d n e w f a c i l i t i e s , environment al- remed iati on at si tes rel ated o r n e w to our l-a ws and in govern ment and reg ulati ons fo rmer manufac turers reg ulati ons i n c l u d i n g N L , w i t h r e s p e c t t h e u s e o f s u c h p r o d u c t s ) ; r e s o f u t i o n o Government changes on pre sent p a i n t , w i t h T h e u ] t i m a t e J - i t i g a t i o n Tremont ) ,. and r P o s s i b l _ e f u t u r e I a n d l i t i g a t i o n s u r r o u n d i n g l i t i g a t i o n . and poss ibl e w hic h mi ght cha nges ther ein (s uch as i mpose var ious obl igat ions of l ead-based. t o a s s e r t e d h e a l t h c o n c e r n s a s s o c i a t e d l -ead pi gment and o f p e n d i n g l i t i g a t i o n ( s u c h a s N L ' s e n v i r o n m e n t a l m a t t e r s l _ e a d p i g m e n t o f N L a n 6 Shoul-d one or more of development worse n), a c t u a l - r e s u l t s expected. forward-looking e v e n t s o r o t h e r w i s e . we disclaim c o u l d th ese shoul-d risks mater ial tze the underl yi ng f r o m m a t e r i a l l y or d i f f e r any intenti on or obl igat ion t h o s e (or ass umpti ons the con sequences of such pi ove i ncorrec t, c u r r e n t l y to update or f o r e c a s t e d rev is e o r any i nformat ion, fut ur e statement whether as a res ul-t of cha nges i n 3 Segrments W e h a v e t h r e e c o n s o l - i d a t e d o p e r a t i n g s e g m e n t s a t D e c e m b e r 3 1 , 2 Q 0 7 z Chemicals K r o n o s W o r l d w i d e , I n c . Component Products C o m p X I n t e r n a t i o n a l I n c . Waste Management, W a s t e C o n t r o l S p e c i a ] i s t s L L C d i o x i d e t i t a n i u m T i o 2 , w h i c h a n d o p a c i t y , i s operat ed ow nershi p of K ronos. Our che mic al-s seg ment through our maj orit y K rono s i s a l e a d i n g g l o b a I p r o d u c e r a n d m a r k e t e r p i g m e n t s o f v a l - u e - a d d e d ( " T i o 2 ' ) i m p a r E s w h i t e n e s s , b r i g h t n e s s u s e d v a r i e t y a p p l i c a t i o n s p a p e r i n c l u d i n g : o t h e r K ronos p r o d u c t i o n A meri ca K r o n o s ' s a l e s a n d has i n E u r o p e a n d N o r t h 9 0 t o f f a c i l i t i e s T i O 2 s a l e s w e r e o v e r m a n u f a c t u r i n g i n d u s t r i a l i n 2 0 0 7 . p l a s t i c s , p r o d u c t s . p a i n t s , f o r o f i s a i n i n com puter p r e c i s i o n p r o d u c t s , com ponent product s ow nershi p of of b a l l b e a r i n g supp or t W e operat e the i ndustry throu gh our maj ori ty C ompX. C ompX i s a l eading manuf acturer s e c u r i t y sl -i des and u s e d s y s t e m s t r a n s p o r t a t i o n , a p p l i a n c e i n d u s t r i e s . m a n u f a c t u r e r s y s t e m s , g a u g e s a n d t h r o t t l - e the perf ormance mari ne h a s p r o d u c t i o n f a c i l i t i e s a n d A s i a . ergono mic t h e p o s t a l , a C ompX s t o r a g e , o t h e r l eading s t e e l - e x h a u s t f o r C ompX o f al -so a i n N o r t h A m e r i c a v a r i e t y i s s t a i n l - e s s c o n t r o l - s f u r n i t u r e , i ndustr y. o f f i c e t o o l a n d o f sub sid iary w hich W CS i s our w holl y-ow ned ow ns and operat es t h e p r o c e s s i n g , f o r d i s p o s a l ty pes of i s i n regul atory l ow-l -evel - and mi xed w a s t e h a n d l i n g c a p a b i l i t i e s . o f h a z a r d o u s , l -ow-I evel t h e p r o c e s s o f author iz ation a W est Texas t r e a t m e n t , t o x i c radi oact ive s e e k i n g to l -ow-l eveI fac il it y s t o r a g e a n d a n d c e r t a i n w aste. WCS t o o b t a i n it s expa nd radi oact ive For addi tiona1 I I informa tion about our segm ents and equi ty i nves tments see I t e m 7 . M a n a g e m e n t ' s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l - C o n d i t i o n t o o u r C o n s o l - i d a t e d F i n a n c i a l - a n d N o t e s 2 a n d 7 o f O p e r a t i o n s " " P a r t a n d R e s u l t s S t a t e m e n t s . - 4 CHEMICAIJS SEGMENT - KRONOS WORIJDWIDE, INC . Thro ugh our maj orit y p r o d u c e r a n d m a r k e t e r o f v a l - u e - a d d e d T i O 2 , w h i c h - g l o b a l s u c h a s Business Overvi ew l e a d i n g i n o r g a n i c a r e a w h i t e p r o d u c t . s c o s m e t i c s . N o r t h A m e r i c a a n d E u r o p e l i f e ' overal-l- econ omic conditions i n f a c i l i t i e s f o u r o n e f a c i l i t y i l m e n i t e , t h e r a w m a t e r i a l K r o n o s a n d t h e U . S . i n p i g m e n t u s e d i m p a r t w h i t e n e s s , c o a t i n g s , t o p l a s t i c s , p r e d e c e s s o r s f o r o v e r 8 0 y e a r s . i t s p r o d u c t w i t h d e m a n d a n d g r o w t h a f f e c t e d regi ons f a c i l i t i e s i s o w n e d b y a 5 0 / 5 0 j o i n t t h e p r o d u c t i o n in var ious i n E u r o p e a n d t w o u s e d i n t h a t p a p e r , b r i g h t n e s s ow ned subs idi ary , K ronos, we i s a f o r a n d h a v e p r o d u c e d a n d m a r k e t e d T i O 2 i n o f T i O 2 i s c o n s i d e r e d a " q u a l i t y b y g r o s s d o m e s t i c p r o d u c t a n d W e produc e TiO 2 of a n d o p a c i t y c e r a m i c s f i b e r s , f o o d , the w orld. i n N o r t h A m e r i c a , i n c l u d i n g v e n t u r e . W e a l s o m i n e o f T i O 2 , i n N o r w a y . i s t h e t o t h e T j - O r ' s v a l - u e i s a b i l i t y T i O 2 it w h i c h i s e f f i c i e n t l y . vo1ume because p r o d u c e d w h i t e p i g m e n t d u e t o T i O 2 h a s e x c e l l e n t t h e r m a l - s t a b i l i t . y o u r c u s t o m e r s c a r r i e r . i n e i t h e r r e s i s t a n c e a n d r e s i s t a n c e i n i t s w h i t e n i n g p r o p e r t i e s a n d h i d i n g p o w e r ( o p a c i t y ) , c o v e r o r m a s k o t h e r m a L e r i a l s l a r g e s t c o m m e r c i a l l y u s e d w h i t e n i n g e f f e c t i v e l y a n d p i g m e n t b y provi des more hi ding pow er r e f r a c t i v e than any other r a t i n g . i n d e x com merci ally I n a d d i t i o n , i t s h i g h t o t o u l t r a v i o l e t i n t e r a c t i o n a p o w d e r o r s l u r r y w i t h o t h e r d e g r a d a t i o n . f o r m v i a r a i l - , g o o d c h e m i c a l s , W e s h i p T i O 2 t o o r o c e a n t r u c k A p p r o x i m a t e l y w e a r e 2 0 2 o f E u r o p e a n T i O 2 s a l - e s v o l - u m e s . W e e s t i m a t e d w e h a d o f o u r 2 O O 7 T i O 2 s a l - e s v o l u m e s w a s t o E u r o p e . W e a n l - 5 t o f i n E u r o p e , w i t h o f T i O 2 p r o d u c e r o n e - h a l f b e l i e v e e s t i m a t e d N o r t h A m e r i c a n T i O 2 s a l - e s v o l - u m e s . s e c o n d - l a r g e s t t h e P e r c a p i t a t h e s e m a r k e t s Western Europe and e x p e c t f u t u r e . n e a r E a s t e r n E u r o p e , r e g i o n s c o n t i n u e I t i s p r o b a b l e t h e F a r E a s t , t o d e v e l o p . c o n s u m p t i o n o f T i O 2 i s g r e a t e s t exceeds con sumpti on t o b e t h e t o c o n t i n u e fa r i n other l a r g e s t m a r k e t s i n t h e U n i t e d S t a t e s a n d the w orl-d . We areas of c o n s u m e r s o f T i O 2 f o r f o r T i O 2 c o u l d e m e r g e s i g n i f i c a n t I n d i a o r C h i n a , d s t h e e c o n o m i e s i n t h e i n t h e s e Ti O2 usi ng t .wo i n f o r t h e c h l - o r i d e p r o c e s s a n d t h e s u l - f a t e p r o c e s s . r u t i l e W e produc e Operations and Products l - e s s l - a b o r i n t e n s i v e , n e w e r t e c h n o l - o g y , l - e s s w a s t e . t h e m a j o r i t y r a w n a t u r a l - i s T h e c h l o r i d e o f c u s t o m e r a p p l i c a t i o n s Manufacturing, d i f f e r e n t m e t h o d s : p r o c e s s , w h i c h b e g i n s w i t h b a s e , u t i l i z e s a n d r e s u l - t s p r e f e r r e d u n d e r t o n e a n d h i g h e r p r o c e s s r u t i l e e n d - u s e m a r k e t s . l a r g e s t w e p r o d u c e b a s e d T i O 2 s a l - e s h a v e l - a s t s e v e r a l - y e a r s . p u r c h a s e d s l a g a s a b a s e , p r o d u c e s b o t h i s a m u c h s m a l - l e r p e r c e n t a g e o f a n n u a l g l o b a l T i O 2 p r o d u c t i o n f o r u s e c o s m e t i c s a p p l i c a t i o n s i n c r e a s e d T h e s u l - f a t e p r o c e s s , w h i c h b e g i n s w i t h f o r u s e A s a r e s u l - t a p p r o x i m a t e l y t h a n s u l - f a t e p r o c e s s i n c o a t i n g s i s c h l - o r i d e b a s e d r u t i l e . i n s e l - e c t e d p a p e r , T i O 2 i s p r e f e r r e d p r o c e s s p r o d u c e s c e r a m i c s , d u r a b i l i t y r e l - a t i v e r u b b e r F o r . t h r e e - f o u r t h s i t b e c a u s e T i O 2 . r u t i l - e a n d p l a s t i c s , t h e o v e r a l l - T i O 2 i n d u s t r y , t o s u l - f a t e p r o c e s s p i g m e n t s o v e r t h e i l - m e n i t e o r e o r r u t i l - e a n d a n a L a s e T i O 2 . A n a t . a s e T i O 2 T h e c h l - o r i d e t h e l - e s s e n e r g y i s h a s a b l u e r C h l o r i d e t w o t h e t h e T i O 2 c h l o r i d e o f o r e o r p u r c h a s e d s l a g a s r e q u i r e s r u t i l e T i O 2 w h i c h t i r e s , m a n - m a d e f i b e r s , f o o d a n d a n d i s p r e f e r r e d A f t e r t h e f o r involving o r s u l - f a t e p r o c e s s , c h a r a c t e r i s t i c s processes m i c r o n i z l n g sol-d under our Kronos'u p r o p e r t i e s i n c l - u d e d o m e s t i c a n d t h r o u g h D i r e c t l y ( m i I l i n g ) . a n d i n t e r m e d i a t e i t i s T i O 2 p i g m e n t i s p r o d u c e d b y e i t h e r " f i n i s h e d " i n t o p r o d u c t s w i t h s p e c i f i c t h r o u g h a p p l i c a t i o n s e n d - u s e t h e c h l - o r i d e p e r f o r m a n c e p r o p r i e t a r y p a r t i c u L a r variou s chemi cal - sur f ace trea tments W e c u r r e n t l y trademark , p r o d u c e o v e r 4 0 d i f f e r e n t w hic h prov ide a var iety and i nt.ens i ve T i o 2 g r a d e s , of perf orma nce O u r m a j o r c u s t o m e r s . a n d p a p e r m a n u f a c t u r e r s a n d p r o v i d e w e s e l l - t o m e e t o u r c u s t o m e r s ' i n t e r n a t i o n a l - o u r s p e c i f i c p a i n t , r e q u i r e m e n t s . p l a s t i c s a n d a g e n t s , d i s t r i b u t o r s - 5 t e c h n i c a l - c o u n t r i e s , s e r v i c e s w i t h f o r t h e m a j o r i t y o u r p r o d u c t s t o o v e r 4 , 0 0 0 c u s t o m e r s i n o v e r 1 0 0 o f o u r s a l - e s i n E u r o p e a n d N o r t h A m e r i c a . t h e r e a r e n o e f f e c t i v e W e b e l - i e v e a s k a o l - i n c 1 a y s , n u m b e r o f e n d - u s e m a r k e t s a s w h i t e p i g m e n t s , p r o d u c t s T h e r e f o r e , w e b e l i e v e s u b s t i t u t e s c a r b o n a t e a n d p o l y m e r i c t o d u p l i c a t e t h e s e p r o d u c t s a r e n o t a n e f f e c t i v e t h e p e r f o r m a n c e i s n o t a b l e c a l c i u m h o w e v e r t h e o p a c i t y c h a r a c t e r i s t i c s s u b s t i t u t e f o r T i O 2 . E x t e n d e r s , a r e u s e d o p a c i f i e r s , s u c h i n a t h e s e i n o f T i O 2 . f o r T i O 2 . 10 years w e have foc used on expa nding Over last th e c a p a c i t y p r o d u c t i o n p l a n t s e x i s t i n g 5 1 - 2 , 0 0 0 m e t r i c p r o d u c t i o n o w n e d L o u i s i a n a 2 0 0 8 i s a p p r o x i m a t e l y 5 3 2 , 0 0 0 m e t r i c a v a i l a b l e i n 2 0 0 9 , r e c o r d s f a c i l i t y . b y o b t a i n i n g t h r o u g h m o d e s t c a p i t a l t o n s o f T i O 2 c o m p a r e d t o 5 1 5 , 0 0 0 m e t r i c e x p e n d i E u r e s . a d d i t i o n a l - o p e r a t i n g i n c l u d e o u r 5 0 ? s h a r e o f T i O 2 p r o d u c e d a t o u r p r o d u c t i o n o u r a t t a i n a b l - e W e b e l i e v e t h r o u g h o u r c o n t i n u e d d e b o t t l e n e c k i n g e f f o r t s . our annual- a t o u r e f f i c i e n c i e s I n 2 0 0 7 , w € p r o d u c e d t o n s 2 Q Q 5 . O u r j o i n t - v e n t u r e c a p a c i t y f o r a d d i t i o n a l - c a p a c i t y t o n s w i t h s o m e s l i g h t r e m a i n i n g 1 0 8 o f o u r a r e c o m p l e m e n t a r y T i O 2 s a l - e s w e r e a b o u t 9 0 * o f o u r t o t a l - c h e m i c a l - s a l e s t o t a l - C h e m i c a l s s a l - e s i n 2 0 0 7 . i s c o m p r i s e d o f o t h e r p r o d u c t s T h e t h a t t o o u r T i 0 2 b u s i n e s s . T h e s e p r o d u c t s a r e a s f o l - l - o w s : a n i lmeni te a s e c o n d m i n e l - o c a t e d n e a r We own and operate mi ne governmental- concessi on w ith an unl imi ted e x c a v a t i n g r a w m a t e r i a l - u s e d d i r e c t l y T i O 2 p l a n t s , a l l W e a l s o o r e c o m p e t i t o r s . t o e x p e c t e d i n c l u d i n g i l m e n i t e T h e m i n e s h a v e e s t i m a t e d f o r a t s e l - 1 l - a s t t h e l - e a s t a n o t h e r 5 0 y e a r s . f e e d s t o c k a s a o f o u r E u r o p e a n s u l - f a t e - p r o c e s s t o b y s o m e s u l - f a t e - p r o c e s s p l a n t s . t h i r d - p a r t i e s , s o m e o f w h o m a r e o u r a r e r e s e r v e s t h a t a g g r e g a t e i n N orway purs uant term , and w e are cur rently f i r s t m i n e . I l - m e n i t e to i s a a W e m a n u f a c t u r e a n d s e I I a n d p r o c e s s e d T h e s e c o - p r o d u c t a n d a r e u s e d p r i m a r i l y i n d u s t r i a l - m a n u f a c t u r e o f c o - p r o d u c t s o f c h e m i c a l - s a r e m a r k e t e d a s t r e a t m e n t e f f l - u e n t s a n d m u n i c i p a l w a s t e w a t e r i r o n p i g m e n t s , c e m e n t a n d a g r i c u l t u r a l - a s w e l l - a s p r o d u c t s . i r o n - b a s e d c h e m i c a l s , w h i c h a r e c o - p r o d u c t s p r o c e s s . t h e T i O 2 p i g m e n t p r o d u c t i o n t h r o u g h o u r E c o c h e m d i v i s i o n , a n d c o n d i t i o n i n g a g e n t s i n f o r t h e ti tani um and sel-1 We man uf actu re w h i c h a r e s i d e - s t r e a m p r o d u c t s i n s p e c i a l t y o x y c h l o r i d e p e a r l e s c e n t p r o d u c t i o n c e l - l - p h o n e s a n d o t h e r e l - e c t r o n i c a r e u s e d p r i m a r i l y i s u s e d p i g m e n t s , o f e l - e c t r o c e r a m i c d e v i c e s . i n p e a r l e s c e n t p i g m e n t s . T i t a n y l f r o m oxy chl ori de t h e p r o d u c t i o n i n a p p l i c a t i o n s and ti tany l o f T i O 2 . t h e sul -f a te, t i t a n i u m f o r m u l a t i o n c a p a c i t o r s o f f o r s u l - f a t e p r o d u c t s Our Chemical s Segment operat ed the fol low i ng Ti O2 fac il it ies, tw o sl ur ry f a c i l i t i e s a n d a n i l - m e n i t e m i n e a t D e c e m b e r 3 1 , 2 0 0 7 . L o c a t i o n D e s c r i p t i o n Leverkusen, Germany ( 1) Nordenham, Germany Langerbrugge, Bel gium F r e d r i k s t a d , N o r w a y ( 2 ) Varennes, Qu ebec Chl -ori de and su1 fate proc ess Ti O2 produc ti on S u l - f a t e p r o c e s s T i O 2 p r o d u c t i o n Chl -ori de proc ess Ti O2 produc ti on S u l - f a t e p r o c e s s T i O 2 p r o d u c t i o n Chl -ori de and sul fate proc ess Ti O2 produc ti on, s l u r r y f a c i l i t y L a k e C h a r l e s , L o u i s i a n a Lake Charl-es, Louisiana Hauge I Dal-ane , Norway (4) ( 3 ) Chl oride proc ess Ti O2 produc ti on f a c i l i t y S l u r r y Il -meni te mi ne ( 1 ) T h e L e v e r k u s e n o w n e d c o m p l e x f a c i l i t y b y B a y e r i s l o c a t e d A G . W e o w n w i t h i n t h e a n e x t e n s i v e L e v e r k u s e n m a n u f a c t u r i n g f a c i l i t y , w h i c h - 6 abou t one-third represents we l-e ase th e 1and unde r agreement which expires n e g o t i a t e d w i t h B a y e r Bayer pro vides o p e r a t i n g m a t e r i a l s , Leverkusen (2) The Fredrikstad the i n fac il it y 2050. f o r p e r i o d s some raw mater ial s, u t i l i t i e s fa cil ity plant is of our cur rent Ti 02 produc ti on from B ayer A G under a Leas e paym ents are peri odi call y capa cit y, l ong but ter m t w o y e a r s a t a aux il iary t o o p e r a t e under sepa rate supp li es and ser vi ces agreem ents. chl ori ne, n e c e s s a r y a n d s e r v i c e s i ncl uding o f a t l e a s t t i m e . and t h e 201,3, with an option ( 3 ) W e o p e r a t e t h i s Hol-dings LLC. See Note 7 to f a c i l i t y l -ocated on publ ic i s l -ease f or an addi tio nal- l and and the to ext end i n the C onsol -idated Fi nanci al- S tatement s . a sec ond mi ne l -ocated near our cur rent m ine v e n t u r e w i t h H u n t s m a n a 5 0 / 5 0 j o i n t l -eased unt il 50 yea rs. excavating (4) We are currently in Norway. iro n-based We produce our and we produce our C h e m i c a l s S e g m e n t a l - s o l e a s e s v a r i o u s i n t h e U . S . a n d v a r i o u s s a l - e s o f f i c e s ti tani um chemi cal -s produc ts c o r p o r a t e t h e U . S . a n d E u r o p e . chemic als produc ts i n Germ any, N orway and B elgi um , our i n i n B elgi um and C anada. a n d a d m i n i s t r a t i v e o f f i c e s use d Raw Materia ls - The pri mary raw mater ial s ( n a t u r a l - and coke f e e d s t o c k i s a n d c o k e . r u t i l - e avail-abl-e f e e d s t o c k p r i n c i p a l l y t h e w o r l d , are s u i t a b l e t i t a n i u m - c o n t a i n i n g Chl-orine T i t a n i u m - c o n t a i n i n g f r o m a a v a i l - a b l - e a r e c h l - o r i n e s u p p l i e r s . p r o c e s s a r o u n d t h e U n i t e d S t . a t e s . W e p u r c h a s e d c h l - o r i d e p r o c e s s g r a d e s l a g Tinto e n d o f 2 0 1 1 . W e p u r c h a s e n a t u r a l l - , i m i t e d u n d e r a l o n g - t e r m e x p e c t . t . o s u c c e s s f u l l y s u p p l y p u r c h a s e d r e q u i r e m e n t s o v e r o b t a i n p r i o r t o t h e i r t h e s e c o n t r a c t s t h e n e x t s e v e r a l y e a r s . l o n g - t e r m e x t e n s i o n s e x p i r a t i o n . i n c r e a s i r g , S o u t h A f r i c a , l i m i t e d , b u t i n A u s t r a l i a , W e e x p e c t c h l - o r i d e r u t i l - e o r e p r i m a r i l y c o n t r a c t s u n d e r Iron and Titanium, under a l ong-term t h a t e x p i r e s a t s u p p l y c o n t r a c t supp ly cont ract t o m e e t o u r t o f o r u s e i n chl ori de o r e o r p u r c h a s e d f rom i n n u m b e r o f C a n a d a , proc ess TiO2 s l a g ) , of number a t h e c h l - o r i d e s u p p l i e r s I n d i a a n d i n 2 0 0 7 f r o m R i o at. t he l l u k a R e s o u r c e s , that exp ires f r o m t h e e n d o f 2 0 0 9 . W e t h o s e a n d o t h e r e x i s t i n g t h e p r o c e s s r a w m a t e r i a l - s f e e d s t o c k u s e d i l - m e n i t e i n s u L f a t e p r o c e s s T i O 2 a r e f r o m o u r N o r w e g i a n m i n e o r p u r c h a s e d i n f e e d s t o c k s u i t a b l - e n u m b e r o f l i m i t e d f o r u s e s u p p l i e r s , W e a r e o n e p r o d u c e r s o f s u l - f a t e p r o c e s s T i O 2 . W e o w n i n N o r w a y w h i c h s u p p l i e d I n d i a a n d S o u t h A f r i c a . t i t a n i u m - f r o m a T h e p r i m a r y r a w m a t e r i a l s ( p r i m a r i l y i s i n a c i d . s u l f a t e p r o c e s s f e e d s t o c k f e w v e r t i c a l l y o u r E u r o p e a n i n N o r w a y , C a n a d a , A u s t r a l i a , i n t e g r a t e d i l - m e n i t e m i n e T i t a n i u m - c o n t a i n i n g a v a i l a b l e c o n t a i n i n g s l a g ) a n d s u l - f u r i c t h e p r i n c i p a l l y o f t h e a n d o p e r a t e a r o c k u s e d p r o d u c t i o n r e q u i r e m e n t s T i O 2 , w € p u r c h a s e s u l f a t e g r a d e s l a g , p r i m a r i l y ( a l s o a s u b s i d i a r y c o n t r a c t N o r w a y u n d e r a s u p p l y c o n t r a c t p r o c e s s w i l l m e e t o u r s u l f a t e S u l - f u r i c a c i d f r o m o u r m i n e t h e t h a t e x p i r e s f e e d s t o c k o f R i o T i n t o f o r e s e e a b l e s u l f a t e p r o c e s s e x p i r e s f u t u r e . t h a t f o r a t T i O 2 r e q u i r e m e n t s i s a v a i l - a b l - e f r o m a n u m b e r o f s u p p l i e r s . r r o n a n d T i t a n i u m ) , t o m e e t o u r E u r o p e a n s u l f a t e i n a l l t h e 2 0 0 7 . W e e x p e c t i l m e n i t e i l - m e n i t e f e e d s t o c k F o r o u r C a n a d i a n s u l - f a t e p r o c e s s f n c . f r o m Q . I . T . F e r e t T i t a n e s u p p l y I r o n K S o f u n d e r a l o n g - t e r m p r o c e s s a n d t h e s e c o n t r a c t s f e w y e a r s . o v e r t h e n e x t i n 2 0 1 - 0 . W e e x p e c t t h e e n d o f 2 0 0 9 a n d T i n f o s T i t a n required a d j u s t m e n t feedstock m a t e r i a l - p r i c i n g i n Many of our to purchase, raw material - although con tract s thes e con tract s t h e q u a n t i t y p u r c h a s e d . cont ain f i xed w e ar e al -low for an upw ard or dow nward t o p u r c h a s e quanti t. ies r e q u i r e d W e a r e n o t in excess of amou nts w e w oul-d reas onably i s g e n e r a l l y t h e s e a g r e e m e n t s u n d e r cons ume i n a yea r. a n n u a l I y . n e g o t i a t e d Raw - 7 The f ollow ing ta bl-e summ ariz es our raw mate rial -s proc ured or mi ned in 2 0 0 7 P r o d u c t i o n P r o c e s s / R a w M a t e r i a l - C h l o r i d e p r o c e s s p l a n t s p u r c h a s e d s l a g o r n a t . u r a l r u t , i l e o r e S u l f a t e p r o c e s s p l a n t s : R a w i l m e n i t e i n t e r n a l 1 y P u r c h a s e d s l a q o r e m i n e d a n d u s e d Ti02 Manuf aeturing iloint Venture R a w M a t e r i a l s P r o c u r e d o r M i n e d t . h o u s a n d s o f m e t r i c ( I n t , o n s ) 4 7 0 3 1 1 2 5 joint manufacturing H UN). T he joint venture L a k e C h a r 1 e s , L o u i s i a n a . Hunt.sman pursuant ventu re with a sub sid iary - We hold interest of H untsman C orporati on 5OE a in a (N YSE: owns and operat es a chl -ori de proc ess Ti O2 fac il it y f r o m W e s h a r e p r o d u c t i o n in e q u a l l y w i t h f a c i l i t y t h e to separa te offtake agreem ents. A supervisory committee and two of whom are appo inted by H untsman, di rects joint the includ ing managers, venture operations venture, one we appoint and one appointed composed of actin g under the di recti on product ion of and output four members, the bus ines s and aff airs two of whom we appoint of Tw o general j oint the dec isi ons. by Huntsman, manage the sup ervi sory com mitt ee. of f o r o u r Financial therefore We are req uired to purchase one-hal f Because we do not contr ol- venture. in our Consolidated a c c o u n t and With grades produced, we share all j oint venture equal ly with Huntsman. O ur sha re of as cost o f s a l e s a s t h e r e l - a t e d T i O 2 i s s o l - d . S e e N o t e 7 t o o u r C o n s o l - i d a t e d F i n a n c i a l Statements j oin t i s not con sol -idat ed t o v e n t u r e o p e r a t e s o n a b r e a k - e v e n b a s i s , vent ure. the pi gment the Ti O2 produc ed by vent ure, i t i nstead w e use we do not have an y equi ty cos ts and pack aging the equi ty meth od of report ed the net cos ts the exception raw material expe nditures i n earni ngs and cap ital Stat ements; for addi tional- T h e j o i n t i nformat ion. fi nancial- i n t e r e s t . cost s cos ts from j oint j oint the the the the for of i s Patents and Trademarks fo r t h i r d p a r t i e s . th e date of Canada and Europe, p r o c e s s e s w h i c h w e b e l - i e v e a r e We seek patent pro tecti on States, a r r a n g e m e n t s w i t h 2Q years from 1 9 y e a r s . W e a c t i v e l y patent p r o t e c t i o n r ely and other proprietary and our busi ness t r a d e s e c r e t s u s e d i n chl-oride pro duction p r o t e c t ti me on unpate nted trade secrets a n d u s e o f pro prietary and from rights, t h i s to We hold i m p o r t a n t patents t o o u r c o n t i n u i n g for and te ch nic al- dev elopment s, pri nci pall y ti me w e enter to p a t e n t s g e n e r a l l y from O u r e x i s t i n g ti me fi ling, and have remai ni ng i n t e l l - e c t u a l - p r o p e r t y o u r time w e are engaged i n di sputes term s products and product.ion b u s i n e s s a c t i v i t i e s . i n i nto the U nited l ic ensi ng r i g h t s , rangi ng h a v e t e r m s o f from 2 t o o u r rel ati ng the t o o u r p r o d u c t s . W e a l - s o tec hnologi cal i nnovati on i n c l u d i n g to i n t e l l e c t u a l p r o p e r t y r e l a t i n g know -how , cont inui ng to develop and mai ntai n pr oces s i s an i mportant part of our our com peti tiv e pos iti on. coul-d be harmed i f w e f ai l to mai ntai n conf i denti al-i tv Our tec hnol- ogy, of t e c h n o l o g y . Our maj or trademarks, includi ng K ronosN , are prot ected by regi str ation in the United States and el-se where for produc ts w e manuf act ure and sel l -. U - SaTes We sel-l - to a diverse cus tomer base , w ith no si ngl e cus tomer ma kes u p m o r e t h a n 1 0 ? o f o u r C h e m i c a l s S e g m e n t ' s s a l - e s i n 2 0 0 7 . C h e m i c a l s S e g m e n t c u s t o m e r s a c c o u n t e d S e g m e n t ' s 2 0 0 7 s a l - e s . D u e i n p a r t t o spring s e a s o n a l w i t h T i O 2 s a l e s g e n e r a l l y h i g h e r f o r a p p r o x i m a t e l y i n c r e a s e t h e to mee t spring and summer pai nt.i ng h a l f o f f i r s t t h e i n O u r t e n l a r g e s t 2 7 * o f i n p a i n t p r o d u c t i o n t h e C h e m i c a l s t h e i n seas on demand, our sal es are sl i ghtly t h e y e a r . Compet,it,ion u s . f o u r i n c l u d i n g Incorpo rated p r o d u c e r s N e m o u r s & C o . Tronox n e x t s h a r e s o f T i O 2 p r o d u c t i o n DuPont) , and an est.imated aggregat e i n e x c e s s o f 6 0 8 . p r o d u c t i o n p r o d u c e r c a p a c i t y l a r g e s t - The TiO2 indus try O u r i s hi ghly com petit iv e, w ith l a r g e s t c o m p e t i t o r s a r e : E . I . ( " D u P o n t " ) , N a t i o n a l - T i t a n i u m D i o x i d e C o m p a n y L t d . com petit ors, h a v e e s t i m a t e d I s h i h a r a S a n g y o K a i s h a , L t d . , and Huntsman. l argest Thes e four r a n g i n g f r o m 4 Z ( f o r I s h i h a r a ) fi ve ma jor d u P o n t d e ( C r i s t a l - ) , t he pl us i n d i v i d u a l t o 2 2 2 ( f o r D u P o n t h a s a b o u t . o n e - h a l - f o f sha re of w orl- dwi de Ti O2 produc ti on vol -um e t o t a l N o r t h A m e r i c a n T i O 2 c a p a c i t y a n d i s o u r p r i n c i p a l N o r t h A m e r i c a n c o m p e t i t o r . We compe te pri marily on th e bas is of pri ce, produc t qual it y and service, th e avail-abilit.y c e r t a i n T i O 2 g r a d e s a r e c o n s i d e r e d s p e c i a l t y grades and p i g m e n t s w i t h p r i c e We believe we are G e r m a n y , w i t h a n e s t i m a t e d O v e r a l l , w e a r e t h e w o r l - d ' s f i f t h - l a r g e s t substantially g e n e r a l l y al-1 o f leadi ng our th e produc ti on are b e i n g t h e m o s t s i g n i f i c a n t sel -l -er of Ti O2 i n sev eral a 2 Z o f w o r l d w i d e T i O 2 s a l e s p r o d u c e r o f T i O 2 . of hi gh perf orman ce pi gment grades . p i g m e n t s , t h e m a j o r i t y con sid ered c o m p e t i t i v e coun tries , v o l - u m e s o f o u r T i O 2 com modit y f a c t o r . i ncl udin g i n 2 0 0 7 . and tec hnic al A ltho ugh Worl-dw ide capacity of gre enfield t i m e l e a d construction s u b s t a n t i a l are not aware of any TiO2 plants announced its when construction a v a i l - a b l e u n t i l intenti on will 2 0 I I , d t to build begi n and ( t 1 p i c a I l y i t t h e e a r l i e s t . addi tio ns plants i n requi re t h r e e t o f i v e the si gni fic ant y e a r s res ulti ng Ti O2 mark et cap ital expe nditures i n o u r e x p e r i e n c e ) . from and W e D uPont has i s not cl -ear any produc t w oul-d be i n C hina, but i t under cons truc tion. i s not 1i ke1y that cur rentl y a Ti O2 fac il it y We expect th at industry cap aci ty w il l i ncreas e as w e and our com peti tor s than years. continue increase less five production w i l l e x p e c t a t i o n s , a f f e c t e d . c o n f o r m to debottl-eneck our existi ng in indu stry capacity fac il it ies . W e exp ect fr om announc ed debott l-enec ki ng the average annual- demand growth However, we do not know i f fut ure for TiO2 during i ncreas es i n proj ects the ave rage ann ual- to be to the next the Ti O2 i ndustry three capacity and fu ture ave rage annual - demand grow th rate s t o o u r e x p e c t a t . i o n s . o u r s a n d t h e T i O 2 i n d u s t r y ' s I f a c t u a L d e v e l o p m e n t s d i f f e r p e r f o r m a n c e s c o u l d b e u n f a v o r a b l y for TiO 2 f r o m o u r Research and DeveTopment and development activities are on improving imp roving pro duct qual ity - Our both research the chl -ori de and st rengtheni ng sul fate and our com petit iv e our produc ti on posi ti on new pigment app li cati ons. W e cond uct res earch pri marily at our Lev erkus en, Ger many fac il it y. $ 9 m i L l - i o n i n 2 0 0 5 , $ 1 1 m i l l - i o n i n 2 0 0 6 a n d $ I 2 m i l - l - i o n and certain tec hnic al- supp ort progr ams. and W e spent i n 2 0 0 7 prima rily developing focused processes, by development acti vities a p p r o x i m a t e l y on these activities We are conti nually imp roving the qual it y at develop ing new grades the need s of our custom ers and f o r h a v e a d d e d L 4 n e w g r a d e s i ncreas e p l a s t i c s , of our for exi st ing fi nis hed grades , and we produc t and new appl ic ati ons cy c1e. l ife S in ce o r p a p e r c o a t i n g s , f i b e r have been successful to meet 2 0 0 2 , w € l a m i n a t e a p p l i c a t i o n s . ReguTatory enviro nmental - and Environmental Matters l-a ws and re gulat ions . enga ged in that may be considered enviro nmental - th e hand li ng, laws and regul ati ons. tox ic manufac ture - Our operations are governed C ertai n of our operat ions or use of by are, or or the meani ng of A s w ith other com panies engaged subs tances or haz ardous w ithi n various have been, compounds applicable - 9 t h e s e r i s k s . certain businesses, the potential to in similar have and continue m i n i m i z e environmental- l-a ws and reg ulations improve environmental our development s, such e n f o r c e m e n t p o l i c i e s , s t o r a g e , c o n s o l - i d a t e d f i n a n c i a l - p o s i t i o n , t r a n s p o r t a t i o n , stricter as O u r p o l i c y of our pas t and cur rent operat ions to cause environmentaL impl ement various pol ic ies or other damage. We have and progra ms i n and produc t s implemented t o an eff ort i s at al l t o m a i n t a i n of our performance. I t c o m p l i a n c e w i t h a p p l i c a b l e fac il it ies i s D o s s i b l e and to st riv e t h a t t o f u t u r e c o u l d a d v e r s e l y s a l e o r d i s p o s a l requi rements a f f e c t of env ironment al- o u r p r o d u c t i o n , and u s e , o f s u c h s u b s t a n c e s a s w e l l - a s o u r l i q u i d i t y . h a n d l i r g , l aws o f o p e r a t . i o n s o r r e s u l t s ope rati ons are gov erned by Our U.S. man ufacturing and worker heal-th and saf ety Conservation and Recovery Act the C1ean Air Act, Substances Control Act Compensat ion and Liabi lity R e a u t h o r i z a t i o n s t a t u t e s . Ti O 2 slurry requirement s o u r o n l y U . S . f a c i l i t i e s . l-a ws and regul ati ons, ("RC RA "; , th e Clea n Water A ct, envi ronment .a l pri nci pall y the R esour ce the Oc cupati onal S afety and H eal-t h Ac t, the S afe D rink ing W ater A ct, the Toxic ("TSC A"), and the C omprehensi ve E nvi ronmental - R espon se, the S uperfund A mendments and o f t h e s e a n d a L o u i s i a n a appl ic able These ar e j o i n t we own are sub stanti al laws or com pli ance orders com pli ance w ith ther eunder. A c t W e b e l i e v e o u r v e n t u r e L o u i s i a n a T i O 2 f a c i l i t y ( " C E R C L A " ) , a s w e l l - a s as amended by fa cil ity of c o u n t e r p a r t s t h e s t a t e feder al i ssued th ese Act, i n W h i l e t h e 1 a w s r e g u l a t i n g o p e r a t i o n s o f i n d u s t r i a l from country vary European Union initiatives. environment al required permits envj-ronmenta l- req uirements to country, a common regulatory framework ("EU'') Ge rma ny and B elgi um are membe rs of Norway, although no t a membe r of reg ulations after and we are the E U. i n sub stanti al W e bel iev e com pli ance the E U, general ly fo r our E uropean and C anadian fac il it ies . f a c i l i t i e s is provided i n E u r o p e the by the E U and fol l_o w its its al-1 patt erns w e have obtai ned w ith appl ic able A t o u r s u l f a t e p l a n t f a c i l i t i e s i n G e r m a n y , w € t h r o u g h c o n t r a c t s w i t h a c i d e i t h e r o u r N o r w e g i a n p 1 a n t , w € s h i p s p e n t a c i d t r e a t e d c o n t r a c t e d w i t h Eit.her a d v a n c e n o t i c e , t r e a t con tract d e p e n d i n g o n t h e c o n t r a c t . a n d d i s p o s e d . party may te rminate t h i r d th e t o a A t o u r G e r m a n s u l - f a t e p a r t y t o a t h i r d t h i r d p a r t i e s o r a t o u r o w n f a c i l i t i e s . r e c y c l e w e a k s u l - f u r i c A t i s w e h a v e l o c a t i o n w h e r e i t f a c i l i t i e s p a r t y p r o c e s s c e r t a i n aft er s u l f a t e - p r o c e s s or three gi vi ng e f f l u e n t s . four yea rs From ti me to ti me, our fac il it ies e n f o r c e m e n t u n d e r U . S . a n d f o r e i g n to resol ve suc h matt ers. programs r e g u l a t o r y compliance penalti-es, o u r c o n s o l - i d a t e d b e l - i e v e a l l - o f o u r envi-ronmental ]a ws. but to date such pena lt ies p o s i t i o n , a r e f i n a n c i a l - f a c i l i t i e s s t a t u t e s . may be subj ect envi ronment al- T 1 p i c a l l y w e e s t a b 1 i s h w e may pay Oc casi onal ly, have not had a mater ial - adve rse ef f ect on W e r e s u l t s o f o p e r a t i o n s l i q u i d i t y . o r to i n s u b s t a n t i a l c o m p l i a n c e w i t h a p p l i c a b l e c o m p l i a n c e , c u r r e n t l y Capital expenditures in 2007 rel -ated to ongoi ng env ironment al p r o t e c t i o n a n d i m p r o v e m e n t p r o g r a m s w e r e $ s . 0 m i l 1 i o n , a n d a r e e x p e c t e d t o b e a p p r o x i m a t e l y $ l m i l - l i o n i n 2 0 0 8 . EmpToyees - As of December 31, 2007, our C hemic al-s S egment empl oyed t he following number of peopl e: Europe Canada u n i t e d s t a t e s ( 1 ) Total L , 9 4 0 4 t_0 5 0 2 , 4 0 0 (1) Excl-udes emp loyees of our Louisiana j oint ven ture. Our hourly TiO2 joint venture, empl oyees are rep resente d in produc ti on fac il it ies by a var iety of - 1 0 w orldw ide, i ncl uding l abor uni ons under t he l abor p r o d u c t o u r t o locking agreements with covered by master colLecti ve that col-l-ective bargaini ng renewed annuaIly. variou s are expira tion dates . our E uropean uni on empl oyees ar e bargai ni ng Our Canadian union agreem ents i n the che mic al-s i ndustr y employees are covered by a agreement th at exp ires i n ,J une 2010. COMPONENT PRODUCTS SEGMENT - COMPX INTERNATIONAI, TNC. Business Overvi ew - Throu gh our maj orit y-ow ned subs idi ary , and erg onomic computer s upport s t o r a g e , t o o l o f s e c u r i t y p r o d u c t s , sy stem s use d a p p l i a n c e p r e c i s i o n i n the off ice a n d a v a r i e t y C ompX, w € ar e b e a r i n g b a l l furn itur e, l e a d i n g m a n u f a c t u r e r f o r c o n t r o l s t w o p e r f o r m a n c e m a n u f a c t u r e r s t h e C o n s o l - i d a t e d F i n a n c i a l t h e p e r f o r m a n c e m a r i n e o f s t a i n l e s s o f o t h e r s t e e l - e x h a u s t a s a i n d u s t r y i n A u g u s t 2 0 0 5 a n d O u r S t a t e m e n t s . d e s i g n e d f o r u s e i n m e d i u m - t o h i g h - e n d q u a l i t y a n d d u r a b i l i t y a r e c r i t i c a l - g l o b a l m a n u f a c t u r e r W e a r e a l - s o a p o s t a l , l e a d i n g a slides, t r a n s p o r t a t i o n , i n d u s t r i e s . s y s t e m s , g a u g e s a n d t h r o t t l e r e s u l - t o f A p r i l p r o d u c t s a p p l i c a t i o n s , c u s t o m e r s . a r e p r i n c i p a l l y t h e a c q u i s i t i o n S e e N o t e 3 2 0 0 6 . w h e r e d e s i g n , o f t o Manufacturing, OperaEions and Products b a n k i n g , m e c h a n i s m s a n d o t h e r s e c u r i t y v e n d i n g , f u r n i t u r e , North American marke t lead er o t h e r a p p l i c a t i o n s m a c h i n e s , o f f i c e i n c l u d i n g p a r k i n g m e t e r s , l o c k i n g m e c h a n i s m s . f u r n i t u r e p r o d u c t s a n d o t h e r in the manuf acture f o r s a l - e t o i n d u s t r i e s . W e b e l j - e v e and sal -e of cab inet - We manufacture t h e p o s t a l , t r a n s p o r t a t i o n , O u r s e c u r i t y p r o d u c t s s y s t e m s , m a i l - b o x e s , i g n i t i o n v e n d i n g a r e u s e d i n a v a r i e t y t h a t w e a r e a l -ock s and o f a n d g a m i n g c o m p a r t m e n t s , c i r c u i t a n d m e d i c a l - c a b i n e t s e c u r i t y . e l e c t r i c a l - p a n e l s , s t o r a g e T h e s e p r o d u c t s i n c l u d e : tumb ler t u m b l e r t h e d i s c r e p r e s e n t pin u s e d i n a p p l i c a t i o n s KeySet high security o n a s i n g l e and l - o c k s , w h i c h p r o v i d e m o d e r a t e l o w e s t . c o s t l - o c k t o p r o d u c e ; s e c u r i t y a n d g e n e r a l l y locking mechani sms , w hic h are more cos tl y r e q u i r i n g system , w hic h al l-ow s h i g h e r the use r l - e v e l - s o f s e c u r i t y , l o c k 6 4 t i m e s w i t h o u t r e m o v i n g t h e l o c k to produc e and ar e o u r i n c l u d i n g the key ing i t s e n c l o s u r e , ' to cha nge f r o m i n n o v a t i v e o u r s e c u r i t y t h r o u g h c r e d e n t i a l - s . a n d a u d i t u s e t h e e l ' o c k @ t r a i l o f a e l e c t r o n i c c a p a b i l i t y p r o x i m i t y l - o c k s , f o r c a r d , d r u g w h i c h p r o v i d e s t a n d a l - o n e s t o r a g e m a g n e t i c a n d o t h e r s t r i p e , v a l u a b l - e s e t k e y p a d A s u b s t a n t i a l w i t h p r o d u c t s s p e c i f i c a t i o n s , product line American distrib ution l o c k d i s t r i b u t o r s p o r t i o n s p e c i a l i z e d s o m e o f w h i c h a r e a d a p t . a t . i o n s l i s t e d o f o u r s e c u r i t y p r o d u c t s ' t o i n d i v i d u a l s a l e s o f c o n s i s t m a n u f a c t u r e r ' s a b o v e . W e a l - s o h a v e a s t a n d a r d i z e d a N ort h t o i s off ered our S TOCK LOC KS di stri buti on throu gh suitabl-e fo r man y cus tomers w hic h network wi th a n d f o r s m a l l e r o r i g i n a l e q u i p m e n t m a n u f a c t u r e r s progr am ( " O E M s " 1 W e m a n u f a c t u r e a c o m p l e t e l i n e o f f u r n i t u r e c o m p o n e n t s ( p r e c i s i o n b a l l b e a r i n g s l - i d e s a n d e r g o n o m i c c o m p u t e r s u p p o r t s y s t e m s ) s u c h a s c o m p u t e r f i l e a p p l i c a t i o n s d e s k d r a w e r s , a u t o m a t e d . T h e s e p r o d u c t s e q u i p m e n t , c a b i n e t s , i n c l - u d e : r e l a t e d t o o l s t o r a g e c a b i n e t s , t e l - 1 e r m a c h i n e s , a p p l i a n c e s i m a g i n g e q u i p m e n t , a n d o t h e r f o r u s e i n a p p l i c a t i o n s t o t h e s a m e t i m e ; p a t e n t e d o u r m a n u f a c t u r e r a t o u r p a t e n t e d f i l l e d movement,' d r a w e r s , I n t e g r a t e d r e d u c e S f i d e t h e p o s s i b i l i t y L o c k , w h i c h a I l o w s a f i l e c a b i n e t o f m u l - t i p I e d r a w e r s b e i n g o p e n e d a d j u s t a b l e B a l - l - L o c k , w h i c h s u c h a s a u t o m e c h a n i c r e d u c e s t o o 1 b o x e s , r i s k t h e f r o m o p e n i n g w h i l e o f h e a v i l y - i n o u r S e l f - C T o s i n g i s u s e d a n d i n a p p l i c a t i o n s S L i d e , w h i c h i s d e s i g n e d t o a s s i s t i n c l o s i n g a d r a w e r s u c h a s b o t t o m m o u n t f r e e z e r s ; - 1 1 t h e w o r k p l a c e a n d h o m e o f f i c e a n d s t r e s s LeverL 'ock c o m p u t e r k e y b o a r d s u p p o r t a r m s ( d e s i g n e d a r t i c u l - a t i n g i n s t r a i n s patented adjustment C P U s t o r a g e d e v i c e s w h i c h m i n i m i z e a d v e r s e e f f e c t s and c o m p l i m e n t a r y a c c e s s o r i e s , supports and fl at of an ergonomic key board arm easi er; a n d m a x i m i z e u s a b 1 e w o r k s p a c € ) , arm, w hic h s u c h a s e r g o n o m i c w r i s t screen comput er moni tor e n v i r o n m e n t s keyboard i s sup port arms . t o a t t a c h t o a l l e v i a t e t o d e s k s p o s s i b l e des igned a l o n g w i t h to mak e o u r t he o f d u s t a n d m o i s t u r e ; r e s t a i d s , m o u s e p a d We al-so manu facture and di stri bute a c c e s s o r i e s a r e h i g h p e r f o r m a n c e c o m p o n e n t s d e s i g n e d i n f o r p e r f o r m a n c e b o a t s . c o r r o s i v e m a r i n e e n v i r o n m e n t . t h e h i g h l y mari ne i nstrum ents, O u r s p e c i a l t y m a r i n e c o m p o n e n t p r o d u c t s t o l - e r a n c e s hardw are a nd t o o p e r a t e w i t h i n T h e s e p r o d u c t s p r e c i s e i n c l - u d e : e q u i p m e n t p i p e s , o r i g i n a l e x h a u s t a c c e s s o r i e s ; a n d high s p e e d o m e t e r s , performance a n d a f t e r m a r k e t o t h e r m u f f l - e r s , s t a i n l - e s s e x h a u s t s t e e l e x h a u s t c o m p o n e n t s a n d h e a d e r s , b i l l e t gaug es and rel ated com ponents suc h a S G P S t h r o t t l e s , c o n t r o l s , t a c h o m e t e r s a n d p a n e l _ s . Our Component Products segment operat ed t h e f o l l o w i n g m a n u f a c t u r i n g f a c i l i t i e s a t D e c e m b e r 3 1 , 2 0 0 7 . F u r n i t u r e C o m p o n e n t s B y r o n C e n t e r , M I T a i p e i , T a i w a n S e c u r i t y P r o d u c t s M a u l - d i n , S C G r a y s l - a k e , I L Mari ne C omponents N e e n a h , W I G r a y s l a k e , I L W e a l - s o l e a s e a d i s t r i b u t i o n f a c i l i t v ] o c a t e d i n C a l i f o r n i a Raw Ltaterials Our pri mary ra w mate rial -s are: o o t h e m a n u f a c t u r e o f ( u s e d i n ( u s e d i n z i n c c o i l - e d s t e e l - a n d e r g o n o m i c c o m p u t e r s u p p o r t s y s t e m s ) ; ( u s e d s t a i n l - e s s a n d o t h e r m a r i n e c o m p o n e n t s ) ; a n d p l a s t i c ergonomic computer support ( u s e d f o r sy stem s) . r e s i n s s t e e l - i n l o c k i n g m e c h a n i s m s ) ; t h e m a n u f a c t . u r e o f p r e c i s i o n b a l l b e a r i n g s ] i d e s t h e m a n u f a c t u r e o f e x h a u s t h e a d e r s a n d p i p e s i n j e c t i o n m o l d e d p l a s t i c s i n t h e m a n u f a c t u r e o f T h e s e avail-abl-e f rom nume rous sources. r a w m a t e r i a l s a r e p u r c h a s e d f r o m s e v e r a l - s u p p l i e r s a n d a r e r e a d i l y We occasionally i m p a c t o f price s, generally s h o r t - t e r m arrangements they specified raw material quantities. s u b j e c t na ture of a l l i n c r e a s e s raw material- af f ected by such cycIical, refl ecting c o n s u m i n g i n d u s t r i e s do not necessarily pro vide arrang ements enter f u t u r e into i n c r e a s e s raw mater ial i n com mit us the r a w m a t e r i a l t h e s e c o s t s . to a mi nimum vol ume of purc hase s, pri ces of to st abil -:-z e o ur pro vided we meet. the spe cif ied mi nimum monthl y purc has e thes e arrang ements are som etim es base d upon ach iev ement to mi tig ate stated W h i l e uni t fo r purchase vol-umes. We uE il -i ze purc hase arran gements Raw material -s purchase d outs ide of t o u n a n t i c i p a t e d a n d s u d d e n p r i c e i n c r e a s e s . D u e t o the markets served by our produc ts , i t i s oft en di ffi cul -t r a w m a t e r i a l - c o s t s t h r o u g h i n surcharqes. Cons equentl y, i n c r e a s e d p r o d u c t s e l l i n g ove ral-l - operat ing raw materia l- c ost pres sures . S teel - and z: -r:rc pri ces t h e c o m p e t i t i v e rec over to p r i c e s o r can be a re in dev elopment s margi ns overal -L eco nomic trend s and spec if ic a n d a r e c u r r e n t l y a t h i s t o r i c a l l y h i g h l e v e l s . - 1 2 Patents and Trademarks t o r e l a t i n g t o o u r c o n t i n u i n g i t s c o m p o n e n t p r o d u c t s , b u s i n e s s a c t i v i t y . a n d o u r p a t e n t s h a v e r e m a i n i n g Our Component Products Segment hol-ds a number o f w h i c h w e b e l i e v e a r e h a v e a t e r m t h a n o n e r a n g i n g t,rademarks and brand names t e r m s our maj or P a t e n t s g e n e r a l l y c e r t a i n f r o m l e s s t o 1 5 y e a r s a t D e c e m b e r 3 1 , 2 0 0 7 . o f p a t e n t s i m p o r t a n t o f 2 0 y e a r s , y e a r i n c l - u d e : F u r n i - t u r e C o m p o n e n t s S e c u r i t y P r o d u c t s CompX WaterToo@ CompX ErgonomX@ CompX DurISLide@ Dynas 7 ide@ W a t e r L o o F u r n i t u r e Components Linited@ Products@ Lock@ CompX Security /Va Lr onaT Cabinet Lock@ Fort Tinberl-rne@ C h i c a g o L o c k @ STOCK LOCKS@ KeSe t @ TuBar@ ACE TT@ e L o c k s @ Livorsi Marine@ CMI Industrial C ustom Mari ne Exhaust'u The #t Choice Performance Mega Rjm'u Race Rim'u Muf f l-ers'u S t a r n L e s s i n B o a t i n g @ Sales - Ou r Com ponent Produc ts S egment sel -l -s di rectl y t h r o u g h w o r k i n g o u r i n f a c t o r y - b a s e d s a l e s c o n c e r t w i t h f i e l d a n d m a r k e t i n g s a l e s p e o p l e r e p r e s e n t a t i v e s . W e s e l e c t m a n u f a c t u r e r s ' a n d r e p r e s e n t a t i v e s i n c e r t a i n m a r k e t s o r r e l - a t i o n s h i p s w i t h to p r o f e s s i o n a l - s l arge OEM a n d i n d e p e n d e n t b a s e d o r c u r r e n t c u s t o m e r s e n g i n e e r s m a n u f a c t u r e r s ' s p e c i a l o n p o t e n t i a l s k i l l s c u s t o m e r s . A s i g n i f i c a n t p o r t i o n o f o u r s a l - e s a r e a l - s o m a d e t h r o u g h d i s t r i b u t o r s . c h a n n e l . W e s u p p o r t o u r d i s t r i b u t o r W e h a v e a s i g n i f i c a n t . m a r k e t s h a r e o f c a b i n e t l - o c k s m i t h d i s t r i b u t i o n o f s t a n d a r d i z e d T h e s e p r o d u c t s h a n d l i n g L O C K S i n v e n t o r y programs have been support systems within t h e s e c u r i t y for p r o d u c t s a r e p r o g r a m w i t h i n a n d e n d u s e r s . b y d i s t r i b u t o r s impl emented di stri butor u s e d b y fu rniture p a c k a g e d a n d m e r c h a n d i s e d l a r g e s t t h e th e l o c k s a l - e s a s a r e s u l t t h e s a l - e s w i t h a 1 i n e t h e m a r k e t p l a c e . o f s e g m e n t s o f f o r e a s y a v a i l a b i t i t y a n d D u e t o o u r s u c c e s s w i t h p r o d u c t s b u s i n e s s u n i t , of ergonom ic sal es t h e S T O C K s i m i l a r com put er com ponents busi nes s uni t. I n 2 0 0 7 , o u r c u s t o m e r s a c c o u n t e d s a l - e s , ' h o w e v e r , n o o n e c u s t o m e r a c c o u n t e d l a r g e s t t e n t o t a l o u r i n 2 0 A 7 . O f t h e 3 1 ? , t o o f o p e r a t i o n s . f u r n i t u r e a n y s i n g l e l - 3 t w a s r e l a t e d c o m p o n e n t s a n d o v e r a l l , f o r a p p r o x i m a t e l y 3 1 ? o f f o r s a l - e s o f 1 0 ? o r m o r e t o s e c u r i t y p r o d u c t s a n d 1 8 t w a s r e l - a t e d l o s s o n o u r o u r c u s t o m e r b a s e i s d i v e r s e a n d t h e a d v e r s e e f f e c t c u s t o m e r w o u l d n o t h a v e a m a t e r i a l - Competition The marke ts i n w hic h our C omponent P roduct s S egment c o m p e t i t i v e . e r g o n o m i c i n c l u d i n g p r i c e , o n t h e m i d d l - e a n d h i g h - e n d o D - t i m e d e l i v e r y , c o m p e t e s a r e h i g h l y d e s i g n , d u r a b i l i t y , o u r e f f o r t s d e s i g n , c u s t o m e r . q u a l i t y , W e c o m p e t e p r i m a r i l y o n t h e b a s i s o f p r o d u c t a n d a e s t h e t i c f a c t o r s , s e r v i c e a n d t e c h n i c a l s e g m e n t s o f p r o d u c t q u a l i t y a n d s u p p o r t . W e f o c u s t h e m a r k e t , w h e r e p r o d u c t d u r a b i l i t y a n d s e r v i c e a r e p l a c e d a t a p r e m i u m b y t . h e O u r p e r f o r m a n c e m a r i n e c o m p o n e n t s b u s i n e s s u n i t ' s a n d i s m i n i m a l l y f u r n i t u r e a f f e c t e d c o m p o n e n t s b u s i n e s s u n i t s ' p r o d u c t s b y f o r e i g n c o m p e t e w i t h c o m p e t i t o r s . a n u m b e r o f d o m e s t i c a n d f o r e i g n m a n u f a c t u r e r s . a n d p r o d u c t s s m a l l - d o m e s t i c m a n u f a c t u r e r s O u r s e c u r i t y c o m p e t e a g a i n s t p a r t i c u l a r l y p r i c e l o w e r m a n u f a c t u r e o f s o m e p r o d u c t s c o s t s o p e r a t i o n a l - p r o c e s s p r e s s u r e o n o u r p r o d u c t s . c o s t i m p r o v e m e n t s a n d g a i n f o r e i g n f o r e i g n t h e i n m a n u f a c t u r e r s . f u r n i t u r e c o m p o n e n t s s u p p l i e r s , I n s o m e c a s e s , w € h a v e r e s p o n d e d W e h a v e l - o w e r c o s t h a v e p u t l - o s t s a l e s t o s h i f t i n g t o b y t w o r k i n g f a c i l i t i e s ; t h r o u g h w o r k f o r c e t o o u r e f f i c i e n c i e s r e d u c t i o n s a n d b y w o r k i n g w i t h a l - 1 o f o u r f a c i l i t i e s ; p r o d u c t s S u p p l i e r s , i n t e n s e t h e s e t h e r e d u c e a n d o u r - 1 3 c u s t o m e r s t h e i r s u p p o r t s e r v i c e s w h i c h t o b e v a l _ u e - a d d e d s u p p l i e r a r e s u p p l i e r s f o r e i g n o f c h o i c e b y o f f e r i n g c u s t o m e r g e n e r a l l y u n a b l e t o p r o v i d e . l o c a l f e d e r a l - , s t a t e , s t o r a g e , h a n d 1 i . g , d i s p o s a l , r e m e d i a t i o n s u b s t a n c e s , m a t e r i a l - s l - o c a l a n d f o r e i g n W e b e l i e v e r e g u l a t i o n s . regulations r e s u l - t s . r e l a t i n g m a y r e q u i r e u s t o w e a r e W e c u r r e n t l y T o d a t e , Regulatory and Environrnent,al a n d f o r e i g n Matters l a w s a n d r e g u l a t i o n s - O u r f a c i l - i t i e s a r e s u b j e c t t . o t h e u s e , g e n e r a t i o n , t r a n s p o r t a t , i o n , o f , a n d e x p o s u r e t o , a n d w a s t e s . W e a r e a l - s o s u b j e c t t r e a t m e n t , r e l a t i n g t o e m i s s i o n , d i s c h a r g e , h a z a r d . o u s a n d n o n - h a z a r d o u s s t a t e , t o w o r k e r h e a l t h a n d s a f e t y . f e d e r a l - , t o l a w s a n d r e g u l a t i o n s i n s u b s t a n t i a l r e l a t i n g c o m p l i a n c e t h e c o s t s o f m a i n t a i n i n g have not significantly d o n o t a n t i c i p a t e t o s u c h m a t t e r s , ' h o w e v e r , i n c u r s i g n i f i c a n t w i t h l - a w s a n d c o m p l i a n c e w i t h s u c h l a w s a n d i mpacted our C omponent P roduct s S egment , s c o s t s o r e x p e n s e s a n y s i g n i f i c a n t s u c h a l 1 i s p o s s i b l e i t a d d i t i o n a l e x p e n d i t u r e s . f u t u r e l a w s a n d r e g u l a t i o n s EmpToyees - As of December 31, 2007, w € empl oyed the p e o p l e : fol lo wi ng number of U n i t e d S t a t e s Canad .a(1) Taiwan Total 6 3 6 2 5 9 L 3 4 1 , 0 2 9 (1) Approximately union labor ' J a n u a r y 2 0 0 9 w h i c h p r o v i d e s t . e r m o f t h e c o n t r a c t . covered 752 of o ur C anad.i an empl oyees are agreem ent by a coll-e cti ve bargai ning f o r a n n u a l - w a g e i n c r e a s e s f r o m 1 t repres ented that exp ires t o 2 . s Z o v e r by a in t h e W e b e l i e v e o u r l a b o r r e l - a t i o n s a r e g o o d a t a l l o f o u r f a c i l i t i e s WASTE MA}IAGEMENT SEGMElillT - WASTE EOMTROI, SPECIAIJISTS I'LC Business Overview 1 - 9 9 7 w e c o m p l e t e d c o n s t r u c t i o n o f i n W e s t T e x a s . T h e f a c i l i t y Our Waste Managem ent S egment w as form ed. i n 1995 a nd p h a s e o f o u r w a s t e f o r t h e p r o c e s s i n g , f a c i l i t y t h e s t o r a g e a n d d i s p o s a l f i r s t w a s t e s a u t h o r i z a t i o n s and mixed o f c e r t a i n f o r d i s p o s a l t o l-o w- level - i n c l - u d e W e i n 1 9 9 7 . S u b s e q u e n t l y , w € h a v e e x p a n d e d t r e a t m e n t a n d s t o r a g e and of t h e p r o c e s s i n g , w astes t o x i c w a s t e s . d.i spos al the radi oact ive i n i t i a l i s d e s i g n e d h a z a r d o u s a n d i n e a r l y d i s p o s a l t r e a t m e n t , r e c e i v e d t h e o u r p e r m i t t i n g of l-ow- level- c e r t a i n t y p e s o f e x e m p t l - o w - l e v e I r a d i o a c t i v e w a s t e s . W e c u r r e n t l y o p e r a t e o u r w a s t e d i s p o s a l b a s i s w h i l - e w e n a v i g a t e p e r m i t s t h e d i s p o s a l r a n g e o f f o r o f b y p r o d u c t l o w - l - e v e l a n d m i x e d l o w - l e v e l - t h e r e g u l a t . o r y f a c i l i t y l i c e n s i n g l i m i t e d r e c e i v e r f . e ( 2 ) w a s t e m a t e r i a l - a n d f o r a b r o a d r a d i o a c t i v e o n a r e l - a t i v e l y t o r e q u i r e m e n t s w a s t e s . ProLection and S ervi ces FaciTity, operations p e r m i t s b y t h e T e x a s C o m m i s s i o n o n E n v i r o n m e n t a l - Q u a l i t y Environmenta l Agen cy governed by RCRA and TSCA. n e w t e n - y e a r a u t h o r i z a t i o n T S C A a u t h o r i z a t i o n w e r e m a i n - Our W aste Management S egment h as ( " T C E Q ' ' ; a n d t h e U . S . to acc ept haza rdous and tox ic w astes In October 2005, our R CR A permi t w as renew ed. for a 2 0 0 5 , T S C A a n d r e n e w a l s b y t h e a g e n c i e s a s s u m i n g i n f o r a n e w f i v e - y e a r t o a d d i t i o n a l t h e p r o v i s i o n s o u r O u r R C R A p e r m i t p e r i o d . w a s r e n e w e d i n c o m p l i a n c e w i t h a r e s u b j e c t ( ,,E pA ,, ) S e p t e m b e r t h e p e r m i t s . f i v e - y e a r L i k e w i s e p e r i o d . o f I n ( " T D S H S " ) s t o r a g e , w a s t e s . N o v e m b e r i s s u e d b u t I n n o t J u n e 2 0 0 7 , 1 - 9 9 7 , a 1 i c e n s e d i s p o s a l T e x a s t h e o f t o W a s t e C o n t r o l - S p e c i a l i s t s , D e p a r t m e n t l - o w - l e v e l o f a n d m i x e d a u t h o r i t y t h e T D S H S r e g u l a t o r y L + S t a t e f o r l o w - l e v e l t h i s t h e f o r H e a l t h S e r v i c e s t r e a t m e n t a n d r a d i o a c t i v e l i c e n s e w a s t r e a t m e n t t o a c c e p t s u c h w a s t e s t o T C E Q . T h e c u r r e n t p r o v i s i o n s f o r i n c l u d i n g t r a n s f e r r e d u s f e d e r a l - g e n e r a t o r s , g o v e r n m e n t a l a g e n c i e s . 1 9 9 8 . W e h a v e o b t a i n e d a d d i t i o n a l - o f m a t e r i a l - m a t e r i a l n o t e x c e e d c e r t a i n l - i c e n s i r g ) t h e a u t h o r i t y i n c l u d i n g ( " N O R M " ) a n d e x e m p t - l - e v e l - m a t e r i a l s W e a c c e p t e d r a d i o a c t i v e r a d i o a c t i v e l o w - 1 e v e l s p e c i f i e d . t h e D e p a r t m e n t o f E n e r g y f i r s t o f t h i s a n d s t o r a g e l i c e n s e g e n e r a l l y e n a b l - e f r o m U . S . c o m m e r c i a l a n d ( " D O E " ) a n d o t h e r i n s u c h w a s t e s s h i p m e n t s o f t o d i s p o s e o f c e r t a i n n a t . u r a l l y - o c c u r r i n g c a t e g o r i e s r a d i o a c t i v e ( r a d i o a c t i v e c o n c e n t r a t i o n s m a t e r j - a l - s a n d a r e e x e m p t t h a t d o f r o m O u r w a s t e d i s p o s a l f o r m a t e r i a l - t h a t a s m a n d a t e d b y t h e E P A o r o t h e r r e q u i r e s f a c i l i t y a l s o o t h e r s e r v e s a s a s t a g i n g t r e a t m e n t f o r m s o f r e g u l a t o r y b o d i e s . t r e a t m e n t f a c i l i t y p r o v i d e s t r e a t m e n t / s t a b i l i z a t i o n , f o r w a s t e f o r h a z a r d o u s , t o b u l - k , a n d b u l k t r e a t m e n t f a c i l i t i e s d r u m w a s t e s , c a p a b i l i t i e s . T r e a t m e n t one or more chemical- or other a n d c h e m i c a l - w a s L e b e i n g d i s p o s e d t r e a t m e n t u s e s t o x i c a n d m i x e d t o d r u m m a t e r i a l - s i n v o 1 v e o p e r a t i o n s Lreat ment metho ds, dependi ng upon a n d c u s t o m e r p r o c e s s i n g r e q u i r e m e n t s . r e g u l a t o r y o x i d a t i o n a n d p r o c e s s i n g p r i o r f i n a l - t o O u r 2 0 , 0 0 0 s q u a r e w a r e h o u s e f o w - l - e v e L a n d w a s t e s t he h a n d l i n g a n d a n d n e u t r a l - i z a t i o n r e d u c t i o n , h y d r o l y s i s t h e i n t r a n s f o r m a t i o n o f w a s t e t h e s e c h e m i c a l - p r o c e s s e s . C e r t a i n c h e m i c a l a n d o f a c i d i n t o i n e r t t r e a t m e n t o f h e a v y m e t a l s , a n d w a s t e s , t h r o u g h o n e o r m o r e o f i n v o l v e r e s u l t s t e c h n o l o g y w h i c h w e m a y a c q u i r e , l i c e n s e o r s u b c o n t r a c t f r o m l o c a t i o n d i s p o s a l f o o t s t o r a g e , r a d i o a c t i v e r e p a c k a g i n g through p a r t i c u l a r C h e m i c a l - p r e c i p i t a t i o n a l k a l i n e m a t e r i a l - s p r o c e s s e s t h i r d p a r t i e s . O n c e t r e a t e d a n d s t a b i l i z e d , s t o r e d o n s i t e i n d r u m s o r o t h e r s p e c i a l i z e d c o n t a i n e r s w a s t e i s e i t h e r ( i ) p l a c e d t h i r d - p a r t y f a c i l i t i e s f o r f i n a l d i s p o s i t i o n . O n l y w a s t e i n o u r ( i i i ) o r l - a n d f i l - l - , s h i p p e d t h a t m e e t s s p e c i f i e d l - a n d f i I I , r e g u l a t o r y r e q u i r e m e n t s i n c l u d e s a l e a c h a t e c o l l e c t i o n w h i c h s y s t e m . c a n b e d i s p o s e d o f i n o u r f u l l y - ( f i ) t o c e r t a i n l i n e d l a n d f i l l s i t e , f o r c h a r a c t e r i s t i c s W e s t T e x a s , w h i c h w e o w n . o f a i r s p a c e a L s o o w n a p p r o x i m a t e l y p e r m i t t e d a v a i - 1 a b l - e g e o l o g i c a l f o r r e m o t e a n d a r i d underground water c o m p o s e d o f t r i a s s i c u n d e r g r o u n d a q u i f e r s p a r t o n e x t e n s j - v e d r i l l i n g s e c t i o n ta bl-e t h i s W e o p e r a t e o n e W a s t e M a n a g e m e n t f a c i l i t y c a p a c i t y T h e s i t e f o r 1 3 , 5 0 0 a s m a l l - p o r t i o n f u t u r e e x p a n s i o n . i s p e r m i t t e d t h e d i s p o s a l o f a c r e s o f w h i c h i s a d d i t i o n a l l o c a t e d o u r W e b e l i e v e f a c i l i t y h a s w h i c h m a k e i t a n e n v i r o n m e n t a l l y - d e s i r a b l - e l - a n d s u r r o u n d i n g i n N e w M e x i c o , w h i c h t h e i s s u p e r i o r l - o c a t i o n l o c a t e d o n a 1 , 3 3 8 - a c r e s i t e i n f o r 5 . 4 m i l - l - i o n c u b i c y a r d s o f R C R A a n d T S C A w a s t e s . W e t y p e o f w a s t e d i s p o s a l . T h e f a c i l i t y T h e p o s s i b i l i t y i s l - o c a t e d i n a r e l - a t i v e l y l e a k a g e o f W e s t T e x a s . is i n t o a n y the ground is t h e r e a r e a n y r e d b e d c 1 a y . o r o t h e r u s a b l - e s o u r c e s o f w a t e r b e l - o w t h e s i t e b a s e d i n H o w e v e r , w e d o n o t b e l - i e v e remot e beca use consi dered hi ghly o f b y t h e o i l a n d g a s i n d u s t r y a n d o u r o w n t e s t w e l l s . .9a.l,es Ou r Wast.e Man agement S egmenL's targ et cus tomers are i ndustr ial i n c l u d i n g c o m p a n i e s , g o v e r n m e n t a l - a g e n c i e s , l e v e l r a d i o a c t i v e o u r s e r v i c e s t o p o t e n t i a l c u s t o m e r s . c h e m i c a l , i n c l u d i n g a n d o t h e r w a s t e s . W e e m p l o y o u r o w n s a l - e s p e o p l e a e r o s p a c e a n d t h e D O E , w h i c h g e n e r a t e h a z a r d o u s , m i x e d l - o w - t o m a r k e t a n d e L e c t r o n i c s b u s i n e s s e s - T h e h a z a r d o u s w a s t e i n d u s t r y ( o t h e r t h a n l - o w - l e v e l a n d C o m p e t i t i o n l - o w - l e v e l - b y a n u m b e r o f m i x e d c a u s e d e n v i r o n m e n t a l t h e p a r t o n s i t e i n c r e a s e d s e r v i c e s . s t o r a g e c e r t a i n a t r a d i o a c t i v e w a s t e ) c u r r e n t l y h a s f a c t o r s , i n c l u d i n g a g e n e r a t i n g r e l a t i v e h a z a r d o u s w a s t e s r e m e d i a t i o n o f w a s t e g e n e r a t o r s p r o j e c t s t o r e d u c e t h e i r p r i c e f a c i l - i t i e s . p r e s s u r e W h i l e w e b e l i e v e f o r o u r b r o a d l - o w - l - e v e l - a n d m i x e d - l - e v e l a d v a n t a g € s , o f c o m p e t i t i v e T h e s e n o n - r a d i o a c t i v e f a c t o r s t h e v o l - u m e o f w a s t e t o h a v e h a z a r d o u s f o r o f p e r m i t s l e d r a n g e r a d i o a c t i v e w a s t e a k e y e l - e m e n t o f o u r l o n g - t e r m i n d u s t r y c a p a c i t y i n t . h e n u m b e r o f a n d e f f o r t s o n a n d / o r m a n a g e w a s t e d e m a n d a n d r e d u c e d m a n a g e m e n t w a s t e a n d t h e u s s t r e a m s t o t r e a t m e n t p r o v i d e s s t r a t e g y i s e x c e s s d e c l i n e - 1 5 p r o v i d e r a d i o a c t i v e a d d i t i o n a l - r r o n e - s t o p s h o p p i n g " f o r h a z a r d o u s , w a s t e s . r e g u l a t o r y T o o f f e r a u t h o r i z a t i o n s t h i s s e r v i c e f o r w h i c h w e h a v e a p p l i e d . l - o w - l - e v e l w e w i l l a n d m i x e d h a v e t o l o w - 1 e v e 1 o b t a i n t h e r e s p e c t f a c i l i t y o n W e e x p e c t p r i c e W i t h p r i m a r i l y s e r v i c e . w a s t e s . c o m p e t i t o r s F i x E n v i r o n m e n t a l S e r v i c e s , greater have signif p o t e n t i a l f a c t o r s t o c o m p e t i t i v e level broad t o o u r icant.ly o u r a d v a n t a g € s , f a c i l i t y C o m p e t i t i o n w i t h i n t h e h a z a r d o u s w a s t e i n d u s t r y l - o c a t i o n / p r o x i m i t y c o m p e t i t i o n t o c u s t o m e r s , t o b e i n t e n s e t o o u r c u r r e n t l y - p e r m i t t e d i s d i v e r s e p r i c i n g a n d b a s e d a n d c u s t o m e r f o r R C R A - a n d T S C A - r e l a t e d a c t i v i t i e s , o u r p r i n c i p a l a r e E n e r g y S o l u t i o n s , I n c . resourc es c u s E o m e r s . L L C , A m e r i c a n E c o l o g y C o r p o r a t i o n T h e s e c o m p e t i t o r s than w e do, w hic h W e b e l - i e v e a r e w e 1 l - e s t a b l i s h e d coul -d be w e m a y h a v e i n c l u d i n g o u r of Local- communi ty support, a n d o u r c a p a b i l i t y f o r a rai l- e n v i r o n m e n t a l - 1 y - d e s i r a b l - e trans portat ion s i t e e x p a n s i o n . f u t u r e netw ork a n d P e r m a - a n d i mporta nt c e r t a i n l - o c a t i o n , l eading MaEters - While by feder al, requi res W aste Management busi nes ses regul ati on, the waste management has also i t st ate and focal- t o gov ernmental - regul ati on cov eri ng var ious rev ocati on, i n the grant ing t h e p e r m i L t i n g of permi ts . asp ects of modi fi cati on their or p r o c e s s . I n by di scr etion t o o b t a i n a n d The l -oss of exe rci se the i s p o s s i b l e of broad o u r a b i l i t y i n to obtai n a permi t fut ure. the cou ld have a si gni fic ant pl ans, fi nanci al- operat ing ReguTatory and Environmental from and retain has benefited any of which num erous operati ng govern mental - a r e s u b j e c t to exten sive The reg ulatory as wel-l- as compani es may oppos e increas ed and evo lvi ng proc ess permi ts coul-d be sub jec t industry become subject authorities. obtain operations, to d e n i a l - . R e g u l a t i o n s a l - s o a l - l o w p u b l i c p a r t i c i p a t i o n Individual-s addit.ion, r e g u l a t . o r s ret.ain permits on a ti mely basis coul d be i mpair ed an individual th e impact on our Wa ste Man agement S egment' s c o n d i t i o n , and operate one disposal a u t h o r i t i e s p r e m a t u r e l y permit T S C A a u t h o r i z a t i o n authorizat j-ons the application o n o u r p e r m i t c l o s e o u r poli cie s t o c h a n g e . a p p l i c a t i o n s o r r e s u l - t s o f o p e r a t i o n s ren ewed subj ect f a c i l i t y from permit or and I t l i q u i d i t y , and our l-i ce nse r e s t r i c t fa il-ur e e x p i r e fut ure site . o r t o th e TC EQ, ds amended, 2 0 1 0 . to com pli ance w ith S u c h i n p e r m i t s , the to exp ire i n 2075 and our a n d of l i c e n s e s requi rements can be proce ss and approv al by the TC EQ or E PA , as appl ic abl-e. For exam ple, adv erse dec isi ons e s p e c i a l l y c o u l - d c a u s e u s o p e r a t i o n s . b e c a u s e w e o n l y o w n by gov ernment al- t o a b a n d o n p r o j e c t s , W e e x p e c t o u r R C R A P r i o r t o J u n e 2 0 0 3 , T e x a s s t a t e issuing a l ic ense l-o w-l-evel- radi oact ive l a w p r o h i b i t e d for the di spos al w aste to t h e a p p l i c a b l e of a broad T e x a s range of a pri vate enter pris e f a c i l i t y . issue a l -ow-L evel I n J u n e 2 0 0 3 , a n e w T e x a s s t a t e radi oact ive w aste di spos al l a w w a s e n a c t e d t o l -ic ense such as us. Our W aste Management S egment i s l-i ce nse with complete by th e TC EQ i n Februar y 2005. t h e a p p l i c a t i o n i n M a y 2 0 0 5 . t h e T C E Q h a d p r e p a r e d a d r a f t the TC EQ. The appl ic ation The TC EQ began the onl y entit y w as decl ar ed its I n O c t o b e r 2 0 0 7 w e r e c e i v e d o f l - i c e n s e a n d m a d e t h e p r e l i m i n a r y t h i s a s t o r e q u i r e m e n t s . L i c e n s e and act upon o ur s t a t e a g e n c y b y p r o d u c t w a s t e o n b e l - i e v e o n o u r a p p l i c a t i o n t h e d r a f t b y p r o d u c t w a s t e m a t e r i a l d e c i s i o n W e a r e u n c e r t a i n r e c e i v e a f i n a l - d e c i s i o n t h e a p p l i c a b l e t h e d i s p o s a l rev iew s thei r t h a t to com plete f o r f o r t o l - o w - l e v e l - r a d i o a c t i v e b e s u c c e s s f u L w a s t e d i s p o s a l i n o b t a i n i n g t h e s e f a c i l i t y a n d r e g u l a t o r y t a k e f o r fo r agen cie s W e c u r r e n t l y d e c i s i o n l - a t e 2 0 0 8 , a n d w e d o n o t e x p e c t l - o w - l e v e l - a n d m i x e d W e d o n o t k n o w i f w e w i l l from such a r e v i e w o f a d i s p o s a l agency and mixed regulatory low-l-evel- o p e r a t i n g that all-ows th e TCEQ to a pr iv at e entity, to apply for administ rative ly t e c h n i c a l - n o t i f i c a t i o n b y p r o d u c t m a t e r i a l - a t o u r l - i c e n s e m e t a l l - s t a t u t o r y t h e to become final l - i c e n s e a p p l i c a t i o n s . o t h e r w i l l n o t m a t e r i a l - u n t i l o u r a p p l i c a t i o n u n t i l l - i c e n s e s . l e n g t h o f i t w i l l 2 0 0 9 . i s s u e E h a t f i n a l t i m e and f o r a From ti me ti me to types of adopted other including l-aws and fe deral, st ate and l ocal autho riti es have propos ed or l-a ws and r egulat ions for the w aste management i ndustr y, reg ulations res tri cti ng or banni ng the i nterst ate or - L 6 have issued s h i p m e n t s , intrastate l-icense, s t a t e h a z a r d o u s a n d states t h a t p a r t i c u l a r The U. S. Cong ress f a c i l - i t a t e nature of regulations d i f f i - c u l t political we will o r regulations r e g u l a t i o n s be able imposing high er shipme nt of certain w aste, chan ging r e c l a s s i f y i n g r e g u l a t i n g reg ulat.ions ta xes on out- of-st ate c e r t a i n regul atory the w aste shi pments com pared to agenc y c a t e g o r i e s in- o f h a z a r d o u s w a s t e a s n o n - C e r t a i n t.h at at. tempt E o prev ent w aste generat ed w ith in s t a t e . s i t e s t o d i s p o s a l a s p u b l i c f a c i l - i t i e s u t i l i t i e s . o u t s i d e i ssui ng t h a t a d i s p o s a l s t a t e f r o m b e i n g s e n t has al-so con sid ered l egis l-at ion that s u c h b a n s , industry reg ulation, r e s t r i c t i o n s , t a x e s a n d r e g u l a t i o n s . of exi st ing impl ementati on l-e ve Is of gov ernment coul -d be i ncons is tent by dif f ere nt f o r e s e e . W h i l e w e a t L e m p t t o and legal developments t.o do so. t h a t m a y b e e n a c t e d , that aff ect. Nor c an w e predi ct to be enacte d, ffidy affect our operat ions the t o m o n i t o r a n d a n t i c i p a t e i ndustry , the ext ent f a i l u r e i n o f fut ure. a n y the o t w e can not ass ure you to w hic h l egis lat ion l e g i s l a t i o n o r w ould D u e t o or fut ure enabl e or t h e c o m p l e x l aws and and r e g u l a t o t y , T h e d e m a n d f o r c e r t a i n l a r g e p a r t u p o n t h e e x i s t e n c e laws h a z a r d o u s w a s t e s e r v i c e s w e i n t e n d a n d e n f o r c e m e n t o f gov erning i n d u s t r y r e g u l a t i o n s i s s t a t e of a s a w h o L e c o u l d b e a r e a m e n d e d o r t h e e n v i r o n m e n t . W e a n d t h e l - a w s o r t h e e x t e n t regul ati ons t o p r o v i d e di sch arge f e d e r a l , i n t o a nd the t o l-ocal- environmenta l i n d e p e n d e n t and h a z a r d o u s w a s t e a d v e r s e l y r e p e a l e d o r a f f e c t e d t h e i r e n f o r c e m e n t i s s u c h l - e s s e n e d . t h e h i g h d e g r e e o f p u b l i c th e waste mana geme nt busi nes s may be, B e c a u s e o f in b u s i n e s s , s u b j e c t companies t h e i r t o Government.aL agencies may seek m o d i f y a n y a p p l i c a b l - e p a r t i e s a m o n g o t h e r l - i c e n s e a u L h o r i z a t i o n s a n d s p e c i a l t h i n g s , i n t e r e s t a v i o l a t i o n o p e r a t i n g . to j u d i c i a l i mpose p e r m i t s a n d f i nes or o r g r o u p s c o u l - d b r i n g a c t i o n s l i c e n s e s . a w a r e n e s s o f e n v i r o n m e n t a l - i n i s s u e s , the normal cou rse of p r o c e e d i n g s . rev oke, deny renew al- of , or a d m i n i s t r a t i v e p r i v a t e I n a d d i t i o n , a g a i n s t u s a l l e g i n g , o f o p e r a t i n g p e r m i t s o r o p p o s i t i o n t o n e w E m p T o y e e s r e l - a t i o n s - A t D e c e m b e r 3 1 , 2 0 Q 7 , w € h a d 1 1 0 e m p l o y e e s a r e g o o d . l a b o r W e bel -iev e our TTTA}ITIIM METAIJS - TTTA}ITI'M METALS CORPORATION i n N o t e 3 A s d i s c u s s e d F i n a n c i a l - S t a t e m e n t s , w e c o m p l e t e d a s p e c i a l d i v i d e n d o f o u r T I M E T c o m m o n s t o c k o n M a r c h 2 6 , 2 0 Q 7 . W e n o w o w n a p p r o x i m a t e l y i n v e s t m e n t c a r r i e d a t i n T I M E T ' s c o m m o n s t o c k a s a v a i l - a b l - e - f o r - s a l e m a r k e t a b l - e s e c u r i t i e s f a i r v a l - u e . 1 ? o f T I M E T ' s c o m m o n s t o c k , t h e C o n s o l i d a t e d a n d w e a c c o u n t f o r o u r t o OTHER IfE Industries, In c. 3 6 2 o f K r o n o s . N L a l s o o w n s 1 0 0 8 o f E W f R E , f n c . , r i s k m a n a g e m e n t s e r v i c e s a n d o t h e r f o r a d d i t i o n a l - i n v e s t m e n t s . i n f o r m a t i o n . c o m p a n y a n d a l s o h o l d s c e r t a i n m a r k e t a b l e s e c u r i t i e s S e e N o t e 1 6 t o o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s - At D ecember 31, 2007, N L ow ned 85t of C ompX and i n s u r a n c e b r o k e r a g e a n d d r Tremont, IJI'C - Tremont i n d i r e c t , o w n e r s h i p is primarily a holding i n t e r e s t s i n B a s i c M a n a g e m e n t , I n c . u t i l i t y s e r v j - c e s t o , a n d o w n s p r o p e r t y ( t h e f a c i l i t y i s e n g a g e d i n e f f o r t s a n d r e s i d e n t i a l i n N e v a d a , a n d T h e L a n d w e l - l - C o m p a n y L . P . t o d e v e l o p c e r t a i n p u r p o s e s s u r r o u n d i n g l - a n d h o l d i n g s t h e B M I C o m p l e x . company through which we ( " B M I " ) , w h i c h " B M I C o m p l e x " ) a d j a c e n t ( " L a n d w e l l " ) , f o r c o m m e r c i a l , h o l d p r o v i d e s t o , T I M E T ' s w h i c h i n d u s t r i a l Business Strategy uses of - We routinely aga ins t capita l f r o m o u r s u b s i d i a r i e s th ose businesses. s e e k rep urchase t o r a i s e indeb tednes s al-ternat. ive r e c e i v e d sal-es val-ue of t h e indebtedness, f u t u r e , a n d u n c o n s o l i d a t e d compare our the est imat ed liquidity fut ure a f f i l i a t e s , A s a res ul-t , w € hav e i n c a p i t a l , the mark et or other wi se, modi fy our and f l ows to be cas h a n d t h e e s t i m a t e d the past , and may in requirements r e s t r u c t u r e r e f i n a n c e o r a d d i t i o n a l - i n - L 7 t h e p o l i c y , c o n s i d e r d i v i d e n d b u s i n e s s u n i t s , m a r k e t a b l - e s e c u r i t i e s increas e these future companr_es. restruct uring We expect to interests th is acti vity to which have in From owne rshi p or other activities, to contin ue steps, ti me, ti me s a l e o f o u r i n t e r e s t o r o t h e r a s s e t s , o t l iqui dit y, reduc e o u r s u b s i d i a r i e s , i n t a k e a c o m b i n a t i o n o f fund and i ndebtedness fut ure i nvol ve the past and may i n w € and our the rel -ated among our sub sid iari es enti ti es and rel ated rel ated con sid er com panie s. i n the fut ure. be cont roll -ed in r e l - a t e d to e v a l u a t e to be underval-ued that may be deemed We and other entitie s in, or combi nations with, com panies , the marketpl-ace . w i t h M r . H a r o l - d C . S i m m o n s r o u t i n e l y a f f i l i a t e d j-nterests perceive b e e n g a g e d i n b u s i n e s s e s we activel-y mana ge th e businesses w e acq uire w ith a foc us on max imi zi ng on-investment e f f i c i e n c i e s , marginal p r o d u c t i v e company prior future e q u i t y s e c u r i t i e s control. and ffidy, in connecti on with suc h act iv iti es, i n d e b t e d n e s s . by or o f com panies , we i ncl uding These companies may or may not I n s o m e i n s t a n c e s retur n- i mproved operat in g d i s p o s i t i o n i n s t a n c e s , w e h a v e d i s p o s e d o f o u r o f to mor e i n a t he suc h act .i vit ies i ssui ng t o a d d r e s s m a r k e t n i c h e s , t o o u r c u r r e n t b u s i n e s s e s . th rough cost s e l e c t i v e operations, a s s e t s . i n addi ti onal- use of I n o t h e r a n d i n c r e a s i n g o u r expe nditures , redepl oym ent to con sid er a c q u i s i t i o n s to gain ing red uctions, m a r k e t i n g W e i ntend lev erage cons ider i n t e r e s t rel ated capi tal cap ital and of Information with we fi le Websit,e and AvaiTable Our f iscal- year ends December 31 . We our report s annual - con taini ng i nformaE ion w ith annual , quarte rly statements and ot her subsidiaries rep orts, stockholders In addi tion, fi le and other the SEC. We al-so make our an nual- report on Form 10-K , quart erly (Kronos, N L and C ompX) al so st atements furnish statements. and information consol-idated and current with Form 10-Q, current o f c h a r g e a f t e r t h e y h a v e b e e n f i 1 e d w i t h f f i a 1 s o p r o v i d e t o a n y o n e , w i t h o u t charge, directed c o v e r p a g e o f t h r o u g h o u r w e b s i t e a t w w w . v a l h i . n e t on Form 8-K and amendm ents ther eto, such document s upon w ritt en th e C orporate S ecretar v t h i s F o r m 1 0 - K . th e attention and cur rent proxy and i nformati on reques t. rep orts copies of of to audi ted fi nanci al- pro xy the S EC . C ertai n of our report s, annual , quarte rly i nformat ion report s on free avai l able R equests shou ld be t he at our addres s on a s s o o n a s r e a s o n a b l y p r a c t i c a l Additional informa tion, inc ludi ng our A udit C ommit tee cha rter, and our C orporate Gov ernance Gui del ines , In format ion cont ained on our w ebsi te our Code can i s not pa rt of Business Condu ct and Ethics al-so be found on our website. of this Annua1 Repo rt. The general publ ic may rea d and cop y any mater ial s t h e S E C ' s P u b l i c R e f e r e n c e R o o m a t o n i n f o r m a t i o n a t T h e p u b l i c m a y o b t a i n R o o m b y c a l l i n g S E C m a i n t a i n s a n d e l e c t r o n i c a l l y i n f o r m a t i o n w i t h s t a t e m e n t s a n d o t h e r t h e S E C , i n c l u d i n g u s . t h e S E C a t 1 - - 8 0 0 - S E C - 0 3 3 0 . W e a r e a n e l - e c t r o n i c a n I n t e r n e t w e b s i t e a t w w w . s e c . g o v w e fi le w iLh the SEC l - 0 0 F S t r e e t , N E , W a s h i n g t o n , D C 2 0 5 4 9 . t h e P u b l i c R e f e r e n c e t h e o p e r a t i o n T h e p r o x y f i l e t h a t c o n t a i n s r e g a r d i n g r e p o r t s , i n f o r m a t i o n i s s u e r s f i l - e r . t h a t o f ITEM 1,A. RTSK FACTORS L i s t e d b e l o w a r e b u s i n e s s e s . d i s c u s s e d b e l - o w , d n y l - o s s e s , o t o p e r a t i n g a b i l i t y a d v e r s e l y a f f e c t t o s e r v i c e I n a d d i t i o n r i s k r e d u c e d o u r l i a b i l i t i e s t h e q u o t e d m a r k e t p r i c e s r i s k c e r t a i n t o e f f e c t f a c t o r w h i c h c o u l - d r e s u l t t h e p o t e n t i a l f a c t o r s l i q u i d i t y , c o u l d o r p a y d i v i d e n d s i n u s a n d o u r a s s o c i a t e d w i t h t h e s e r e d u c e d e a r n i n g s f a c t o r s o r o u r o n o u r c o m m o n s t o c k o r t u r n a d v e r s e l y a f f e c t o f i n r i s k f o r o u r s e c u r i t i e s . Our assets consist pri mari ly of i nvest ments i n our operat ing o u r subsidiaries, s e r v i c e o w n e r s h i p c a s h l i a b i l i t i e s l i a b i l i t i e s . and we are depe ndent upon di etri butions t o o f o f o u r t o s e r v i c e o u r a n d t o p a y d i v i d e n d s o n o u r c o m m o n s t o c k d e p e n d s t o a l a r g e e x t e n t A s i g n i f i c a n t i n o u r s u b s i d i a r i e s o f o u r a s s e t s c o n s i s t s from our subs idi ari es a n d o u r a b i l i t y a n d a f f i l - i a t e s A m a j o r i t y p o r t i o n f l o w s a r e g e n e r a t e d b y o u r s u b s i d i a r i e s , i n t e r e s t . s . - 1 8 o r t h e a n d c a s h r e s t r i c t i o n s a s a r e s u l t o r o t h e r a b i l i t y d i v i d e n d s O u r s u b s i d i a r i e s u p o n s u b s i d i a r i e s . e n t i t i e s d i v i d e n d s s u b s i d i a r i e s ' t o r e s t r i c t i o n s i n c l u d i n g c o n t r o l , a d v e r s e l y i m p a c t o t h e r d i s t r i b u t i o n s s u f f i c i e n t our a f f e c t e d . receive r e q u i r e d s u b s i d i a r i e s l i a b i l i t i e s , which we woul-d not be abl-e to o f s u c h a s s e t s . from our subsidiaries l i q u i d a t e o r t h e a b i l i t y t o u s . a f f i l - i a t e s w € m a y b e r e q u i r e d I n a d d i t i o n , liabilities and t h e t o i f a n y o f i n o t h e r d i s t r i b u t i o n s w e a n d a f f i l - i a t e s a r e s e p a r a t e a n d d i s t i n c t t h e y h a v e n o o b l i g a t i o n , d i s t r i b u t i - o n s t o u s . c o n t i n g e n t , o r o t h e r w i s e , a d d i t i o n , I n i n t o p a y d i v i d e n d s o r o t h e r d i s t r i b u t i o n s a p p l i c a b 1 e o f d e b t c o v e n a n t s , i m p o s e d b y c u r r e n t o r f u t u r e a g r e e m e n t s . c h a n g e s i n g e n e r a l b u s i n e s s a n d e c o n o m i c c o n d i t i o n s , f r o m r e c e i v e s o m e c a s e s o u r 1 e g a l t o p a y c a s h o u r c o u l - d b e s u b j e c t l a w s o r o t h e r t a x E v e n t s b e y o n d o u r c o u l d c a s h d i v i d e n d s o r o t h e r d i s t r i b u t i o n s to pay dividends on our com mon st ock o f o u r s u b s i d i a r i e s I f o u r s u b s i d i a r i e s t o p a y d i v i d e n d s o r m a k e s h o u l d b e c o m e u n a b l - e t o m a k e t o u s , o u r a b i l i t y t o s e r v i c e coul -d be adve rsely a n d o t h e r d i s t r i b u t i o n s t h e f u n d s w e l -evel - that . w e were o u r s e c u r i t i e s o u r t o a t a t i m e o r t i m e s a t value to be the act ual s a t i s f y o f l - e v e l - o f d i v i d e n d s we re to decr ease to suc h a o u r i n v e s t m e n t s o r d e r t o i n g e n e r a t e t o s e l l - s u c h s e c u r i t i e s re al-i ze w hat w e bel -iev e Demand to t, and price s of, cer tain of our produet s are cy cl ic al pro J.onged depressed mark et con diti ons for our produc ts, may experience m a y r e s u l t i n o u r r e v e n u e s i n d u s t r y c o n d i t i o n s , i m p a c t o u r e a r n i n g s e a r n i n g s o r o p e r a t i n g t h e e s p e c i a l l y o v e r r e d u c e d e a r n i n g s o r o p e r a t i n g l o e s e s . A s i g n i f i c a n t i s a t t r i b u t a b l e t o s a l - e s o f T i O 2 . P r i c i n g w i t h i n l o n g t e r m i s c y c 1 i c a l , i n W e s t e r n a n d o p e r a t i n g l - o s s e s . i n d u s t r i a l i z e d c a s h f l o w s . a n d c h a n g e s i n n a t i o n s , T h i s m a y r e s u l t and we w hich p o r t i o n o f t h e g l o b a I T i O 2 e c o n o m i c i n d u s t r y c a n s i g n i f i c a n t l y i n r e d u c e d H i s t o r i c a l l y , t h e m a r k e t s i n c r e a s i n g f o r o u r p r o d u c t s p e r i o d s o f p r i c e s l e v e l - o f o u r p r o f i t a b i l i t y . a l - t e r n a t i n g t h e s e l l i n g t h e p r i c e s a n d p r o f i t m a r g i n s g e n e r a l l y w i l l d e c r e a s i n g decrease. a n y f u t u r e b e s u s t a i n e d c a p a c i t y a d d i t i o n s o f e x c e s s f u r t h e r o r o t h e r e v e n t s . o r m a y b e p r i c e s d e m a n d o u r s e l l i n g Future growt.h in demand f or Ti O2 may not be suf f i ci ent c o n d i t i o n s i n d u s t r y c a p a c i t y , m a r g i n s g e n e r a l l y i n c r e a s e , w h i l - e i n p e r i o d s o f t o to al -l- evi ate a n d s u c h c o n d i E i o n s m a y n o t t o a n d p r o f i t t e n d t e n d a g g r a v a t e d b y a n t i c i p a t e d o r u n a n t i c i p a t e d f o r m a n y o f o u r p r o d u c t s h a v e e x p e r i e n c e d a n d d e c r e a s i n g d e m a n d . R e l - a t i v e c h a n g e s i n i s o n e o f T n p e r i o d s o f t h e m a i n i n c r e a s i n g f a c t o r s t h a t a f f e c t s d e m a n d , o u r s e l l i n g The dem and TiO2 during fo r s e a s o n a l - f l u c t u a t i o n s . t h e y e a r . spr ing 7 . O p e r a t i o n s " to annu al- h a l f o f t h e S ee Item " M a n a g e m e n t ' s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l - C o n d i t i o n a n d R e s u l - t s o f o n p r o d u c t i o n i s h i g h e r i n i n p a i n t th e spr ing and sum mer pai ntin g T i O 2 s a l e s a r e g e n e r a l l y i n p a r t f i r s t t h e p r o d u c t i o n seas on. t o meet dema nd during aLs o sub jec t d i s c u s s i o n a n d p r i c e i n c r e a s e c h a n g e s . i s d u e a gi ven f u r t h e r T h i s yea r t h e f o r t o i n We seI1 several of our produc ts i n matu re and hi ghly com peti tive and fa ee price pre ssures in red uce d earnings i ndustries may result K r o n o s , C o m p X a n d W C S o p e r a t , e C o m p e t i t i o n a n d s e r v i c e . p r o d u c t s b e c a u s e o u r c o m p e t i t o r s ' t h a n o u r changes quickly r e q u i r e m e n t s . of p r o d u c t s o r m a k e i t m o r e d i f f i c u l t a d d i t i o n , t h e i r in market than we can a n d conditions. t h e i r f i n a n c i a l - , p r o d u c t i o n r e s o u r c e s , industries F u r t h e r , e x i s t i n g the i n the mark ets or operat ing l osses . i n w hic h w e operat e, w hich i n w hich The mark ets t h e i r b u s i n e s s e s a r e h i g h l y c o m p e t i t i v e . p r o d u c t q u a l i t y i s b a s e d o n a n u m b e r o f f a c t o r s , s u c h a s p r i c e , S o m e o f o u r c o m p e t i t o r s m a y b e a b l e c o s t s a r e 1 o w e r t h a n o u r c o s t s . t e c h n o l o g i c a l a n d o t h e r t h e s e c o m p e t i t o r s m a y b e b e t t e r t o d r i v e d o w n p r i c e s I n a d d i t i o n , f o r o u r s o m e o f r e s o u r c e s m a y b e g r e a t e r a b l - e t o w i t h s t a n d to new or emergi ng c o n s o l - i d a t i o n Our com peti tors may be abl -e tec hnol- ogies o f o u r c o m p e t i t o r s in which we c ompet e may res ul-t i n to and cha nges o r c u s t o m e r s res pond mor e i n cus Lomer i n a n y reduc ed demand for our f n c o u 1 d e m e r g e b y m o d i f y i n g t h a t i n s o m e o f o u r b u s i n e s s e s n e w c o m p e t i t o r s f a c i l i t i e s s o t h e y c o u l d m a n u f a c t u r e p r o d u c t s f o r u s t o c o m p e t e w i t h o u r c o m p e t i t o r s . - l _ 9 c o m p e t e w i t h o u r p r o d u c t s . i n r e d u c e d e a r n i n g s o r o p e r a t i n g l o s s e s . T h e o c c u r r e n c e o f a n y o f t h e s e e v e n t s c o u l d r e s u L t Higher costs or limited avai l abil it y of our raw mater ial s may reduc e our earnings o f c e r t a i n w h i c h o u r s u i t a b l e s u p p l i e r s c o u n t r i e s a f f e c t t h e i r c o n t r a c t u a l raw material-s or operating g r o s s m a r g i n s w h i c h m a y d e c r e a s e o p e r a t i o n s . t h e i r and decrease our r a w m a t e r i a l - s a r e f a c i l i t i e s liqui dity. i s s p e c i f i c l o c a t e d . i n p r o d u c i n g o u r T i o 2 a r e a v a i l a b l e f o r u s e a r o u n d f r o m w h i c h w e p u r c h a s e o u r t , h e w o r l d . P o l - i t i c a l - t o F o r e x a m p l e , g e o g r a p h i c a l - t h e p a r t i c u l - a r The number of sou rces and ava il abil ity i n r e g i o n s f e e d s t o c k s n u m b e r o f t h e c o u l - d a d v e r s e l y f r o m a l i m i t e d i n s t a b i l i t y t i t a n i u m - c o n t a i n i n g a n d e c o n o m i c r a w m a t e r i a l s u p p l i e s i n a v a i l a b i l i t y . o b l i g a t i o n s if we wou1 d have to pay more for our I f o u r w o r l - d w i d e v e n d o r s w e r e n o t a b l e a n d w e w e r e o t h e r w i s e u n a b l e costs, w€ may be req uire d to reduc e produc ti on i f w e w e r e u n a b l e o u r l i q u i d i t y t o p a s s p r i c e i n c r e a s e s a n d o p e r a t i n g t o m e e t t o o b t a i n n e c e s s a r y raw mate rial s and oth er l -evel -s or reduc e our o n t o o u r c u s t o m e r s , o f r e s u l t s i n c o m e a n d have been named as defen dants l ead pi gments to for incur Iegal cos t,s rel ated seeking pers onal n u i s a n c e , significant proceedings e x p e n d i t u r e s c a u s e d b y o f NI-, f ormerl-y manuf act ured We could r em ediat ion matters. NL and others pigment manu facturers legaI dama ges g o v e r n m e n t a l a l l e g e d 1 y T h e s e l - a w s u i t s s e e k r e c o v e r y u n d e r a v a r i e t y p r i v a t e n e g l i g e n t l i a b i l i t y , a b e t t i t g , i n t e n t i o n a l - p r o t e c t i o n i n L e a d p a i n t a b a t e m e n t a n d h e a l - t h c o n c e r n s a s s o c i a t e d w i t h p a i n t s , i n d e m n i f i c a t i o n f o r e d u c a t i o n a l - u n c e r t a i n . a l - s o f t e m 3 . f o r m e d i c a l e x p e n s e s , m e d i c a l m o n i t o r i n g p r o g r a m s . b r e a c h e n t e r p r i s e t o r t , f r a u d a n d m i s r e p r e s e n t a t i o n , p r o d u c t d e s i g n , n e g l i g e n t o f w a r r a n t y , l i a b i l i t y , t h e s e a c t i o n s g e n e r a l l y c o n s p i r a c y / c o n c e r t m a r k e t s h a r e o r r i s k v i o l a t i o n s i njury , t h e u s e o f t h e o r i e s , A n y l i a b i l i t y l e g a l t h e N L m i g h t s t a t u t e s , i n c l u d i n g d a m a g e s p e r s o n a l A s w i t h s u p p l i e r s e e k t o i n j u r y , f u t u r e i n c u r f o r a l l i n n e g l i g e n c e a n d s i m i l - a r c l - a i m s . i m p o s e o n t h e d e f e n d a n t s p r o c e e d i n g s , and env ironment al f or use i n pai nt . i n var ious damage and proper ty l - e a d - b a s e d p a i n t s . i n c l u d i n g p u b l i c a n d f a i l - u r e o f c o n t r i b u t i o n a c t i o n , t o w a r n , s t r i c t a i d i n g a n d l i a b i l i t y , o f s t a t e c o n s u m e r T h e p l a i n t i f f s t h e u s e o f c o n t r i b u t i o n r e s p o n s i b i l i t y f o r l e a d - b a s e d a n d / o r e x p e n s e s a n d c o s t s t h e o u t . c o m e i s S e e c o u l d b e m a t e r i a l . o f s u b j e c t u n d e r v a r i o u s r e m e d i a t i o n i n j u r y s u b s t a n t i a L e s t i m a t e remediation l i a b i l i t y f o r C e r t a i n p r o p e r t i e s l i t i g a t i o n , a n d f a c i l - i t i e s a d m i n i s t r a t i v e e n v i r o n m e n t a l c o s t . s , p e r s o n a l l a w s . i n j u r y u s e d i n o u r p r o c e e d i n g s o r T h e s e p r o c e e d i n g s o r p r o p e r t y i n v e s t i g a t i o n s s e e k d a m a g e s a n d / o r j - n v e s t i g a t i o n f o r m e r b u s i n e s s e s a r e t h e a r i s i n g t o n a t u r a l r e s o u r c e s . S o m e o f t h e s e p r o c e e d i n g s i n v o l - v e c l a i m s a m o u n t s . E n v i r o n m e n t a l o b l i g a t i o n s r e a s o n s , a n d w e m a y i n c u r a r e d i f f i c u l - t c o s t s f o r a n d d a m a g e s f o r f o r t o a s s e s s a n d e n v i r o n m e n t a l in t h e exc ess of f u t u r e c o u l d b e m a t e r i a l . amount s cur rentl -y est imat ed. Any n u m e r o u s th e in w e m i g h t fu ture j - n c u r i n Our failure to enter our current si gni fic ant manufac turi ng compoenent i mpact, of on i ndustry into resul t new markets with i n cont inued the the off ic e t o furn itur e r e d u c e o u r d e p e n d e n c e o n t h e o f f i c e would m a r k e t c e r t a i n r e s u l t s . businesses I n a n e f f o r t in dem and within producte fluctuat,ions o u r o p e r a t , i n g f u r n i t u r e f o r o t h e r m a r k e t s , w e h a v e b e e n d e v o t i n g a n d d e v e l o p i n g o f f i c e t h e s e u n c e r t a i n t i e s t h e s e m a r k e t s , t h e s e m a r k e t s . a p p l i c a t i o n s S i g n i f i c a n t e x i s t s f u r n i t u r e n e w a p p l i c a t i o n s t i m e m a y b e r e q u i r e d n e w a p p l i c a t i o n s f o r l i m i t e d a s w e l l - a s d u e t o o u r t h e e x t e n t i n d u s t r y , a s t o o u r f o r t o w h i c h w e w i l l t o f o r a n d i n c r e a s e p r o d u c t s o u r p a r t i c i p a t i o n r e s o u r c e s t o t h o s e p r o d u c t s i n n e w c u s t o m e r s t h e s u c h a s h o m e a p p l i a n c e s a n d t o o l b o x e s . D e v e l o p i n g a n d i n i n n e w c u s t o m e r s o r e x p e r i e n c e w i t h c u s t . o m e r s a n d a p p l i c a t i o n s c o m p e t i t o r s w h o a r e a l r e a d y e s t a b l i s h e d i d e n t i f y i n g i n m a r k e t s o u t s i d e o f s u b s t a n t i a l p r o d u c t s i n v o l v e s r i s k i n d e v e l o p i n g t h e t o d e v e l o p n e w a p p l i c a t i o n s i n f a c e c o m p e t i t i o n o f f i c e f u r n i t u r e i n d u s t r y . a n d u n c e r t a i n t y r e g a r d . t h i s f a c i n g W e m a y n o t b e s u c c e s s f u l o f o u r p r o d u c t s o u t s i d e - 2 0 Our development of new cornponent products a n d custom engin eered component pro ducts b y i n t r o d u c t i o n manu facturi ng c u s t o m e r s . f a c t o r s a n d s p a c e u t i l i z a t i o n o f n e w p r o d u c t s for our current C o m p o n e n t P r o d u c t , S e g m e n t s a l e s . added t e c h n o l o g y i n t r o d u c t i o n design, p o t e n t i a l a f f e c t e d t h e o p p o r t u n i t i e s , w i l l a c h i e v e e x i s t i n g i n c r e a s e q u a l i t y . v o l u m e s , p e r s o n n e l f u t u r e , v o l u m e w i t h o u t i m p a c t o u r t h e p r o d u c t s . p r o d u c t i o n M a n u f a c t u r e r s t h e r e c a n b e n o a s s u r a n c e e n c o u n t e r i n g s a m e d e g r e e o f I n t r o d u c t i o n v o l u m e o n a d e l a y s , q u a l i t y r a w m a t e r i a l s . o f t h e r e f i n a n c i a L i n c l u d i n g c o n d i t i o n o r i s cr iti cal H i s t o r i c a f f y , compo nent produc ts as weII as innovative to sus tai ning o u r a b i l i t y requi rements h a s b e e n a k e y e l - e m e n t o f o u r s u c c e s s . addres s that f e a t u r e s of r e q u i r e s suc h produc ts t h e c o o r d i n a t i o n w ith i mplem ent suc h coo rdinat ion W h i l e w e w i l - l c o n t i n u e features and grow in g o ur t o p r o v i d e v a l u e - of T h e t h e and may be t o e m p h a s i z e cur rent o f o f t e n e n c o u n t e r d i f f i c u l - t i e s t h a t t a r g e t c u s t o m e r - s p e c i f i c s u c c e s s o f n e w p r o d u c t s t h a t a n y n e w p r o d u c t s w e i n t r o d u c e t h a t w e h a v e a c h i e v e d w i t h o u r u s t o p r o d u c t p r o d u c t i o n i n c o n t r o L p r o b l e m s a n d s h o r t a g e s o f q u a l i f i e d t y p i c a l l y b a s i s w h i l e m a i n t a i n i n g i n c r e a s i n g r e q u i r e s t i m e l y A s w e a t t e m p t n e w p r o d u c t s i n c r e a s e p r o d u c t i o n t h e s e o r o t h e r p r o b l e m s , w h i c h m i g h t n e g a t i v e l y i n t r o d u c e b e a b l e t h a t w e w i l l t o t o i n t h e o r r e s u l - t s o f o p e r a t i o n s . and mark eti ng The abil it y b e y o n d o u r c o n t r o l . to i n n o v a t i v e c a n b e n o a s s u r a n c e n e w p r o d u c t s Our leverage may impa ir our fi nanci al W e h a v e a s i g n i f i c a n t cond iti on or a m o u n t o f d e b t , l imi t o p e r a t e o u r b u s i n e s s e s . a l l o f w h i c h r e l - a t e s River Sugar Com pany. Ou r o u r s t o c k h o l - d e r s a n d c r e d i t o r s , t o K r o n o s ' S e n i o r S e c u r e d N o t e s a n d o u r i mportant l-e ve l o f debt cou ld hav e i n c l u d i n g : our abi li ty t o s u b s t a n t i a l l y l - o a n s f r o m S n a k e t o con sequences o m a k i n g i t m o r e d i f f i c u l - t f o r u s t o s a t i s f y o u r o b l i g a t i o n s w i t h r e s p e c t o o o f l - o w t o o u r v u l - n e r a b i l i t y t o o u r l i a b i l i t i e s ; i n c r e a s i n g c o n d i t i o n s , ' r e g u i r i n g t.he payment of c a s h o u r c o m m o n s t o c k , a c q u i s i t i o n s l i m i t i n g o u r a b i l i t y w o r k i n g c a p i t a l , r e q u i r e m e n t s ; l i m i t i n g b u s i n e s s a n d t h e p l a c i n g u s l e v e r a g e d c o m p e t i t o r s i n d u s t r y a f l e x i b i l i t y c a p i t a l o u r a t . t o a d v e r s e g e n e r a l e c o n o m i c a n d i n d u s t r y t h a t a p o r L i o n o f o u r c a s h on our debt, c a p i t a l , interest f u n d w o r k i n g f l - o w f r o m reduc ing o p e r a t i o n s our abi li ty c a p i t a l e x p e n d i t u r e s , f o r b e u s e d to use our o n d i v i d e n d s a n d g e n e r a l c o r p o r a t e t o o b t a i n a d d i t i o n a l f i n a n c i n g e x p e n d i t u r e s , a c q u i s i t i o n s r e q u i r e m e n t s ; f u n d t o f u t u r e o r g e n e r a l c o r p o r a t e i n p l a n n i n g f o r , o r r e a c t i n g t o , c h a n g e s i n o u r i n w h i c h w e o p e r a t e , . a n d d i s a d v a n t a g e r e l a t i v e c o m p e t i t i v e t o o t h e r l - e s s r n a d d i t i o n t o o u r i n d e b t e d n e s s , w e a r e p a r t y t o v a r i o u s l e a s e a n d o t h e r o u r a b i l i t y t o w h i c h w e a r e c o m m i t t e d $ 3 6 2 t o m a k e p a y m e n t s o n a n d r e f j - n a n c e o u r d e b t , a n d t o g e n e r a t e c a s h d e p e n d s o n o u r a b i l i t y t o p a y a p p r o x i m a t e l y T o s o m e e x t e n t , i n 2 0 0 8 . f u n d p l a n n e d c a p i t a l a g r e e m e n t s p u r s u a n t m i l l i o n t o f l - o w . c o m p e t i t i v e , c o n t r o l - . s u b s i d i a r i e s ' s u b s i d i a r i e s ' c e r t a i n l e g i s l a t i v e , I n a d d i t i o n , c r e d i t a b i l i t . y f i n a n c i a l e x p e n d i t u r e s , i s t h i s r e g u l a t o r y o u r a b i l i t y w i l l t o m a i n t a i n f a c i l i t i e s s u b j e c t t o g e n e r a l f a c t o r s e c o n o m i c , t h a t a n d o t . h e r t o b o r r o w a d d i t i o n a l - a r e b e y o n d o u r f u n d s u n d e r o u r i n s o m e i n s t a n c e s d e p e n d i n p a r t o n o u r s p e c i f i e d a n d s a t i s f y f i n a n c i a l - r a t i o s f i n a n c i a l , c o v e n a n t s c o n t a i n e d i n t h e a p p l i c a b l e c r e d i t a g r e e m e n t s . O u r b u s i n e s s m a y n o t g e n e r a t e s u f f i c i e n t c a s h f l o w s to pay ou r debts w hen they bec ome due and to l i q u i d i t y to all-ow us activities o t h e r of our debt before maturity. i n a t i m e l y m a n n e r o n f a v o r a b l e sufficient m a t e r i a l - a d v e r s e e f f e c t fl -ows or o n o u r cash to n e e d s . A s a r e s u l - t , w € m a y n e e d t o r e f i n a n c e refi nanc e A n y i n a b i l i t y We may not be ab1e to i f a t a l l . t e r m s , refina nce our debt on fav orabl- e f r o m o p e r a t i n g fund o ur a l l o r a p o r t i o n any of our debt t o g e n e r a t e term s cou ld hav e a f i n a n c i a l - c o n d i t i o n . - 2 L ITEM 78. UNRESOIJVED STAFF COMMETiES N o n e . TTEM 2. PROPERTIES l K ronos, C ompX, W CS and N L l ease off ic e We along with our subsidiar ies : f o r e x e c u t i v e e a c h o f o u r p r i n c i p a l s p a c e o p e r a t i n g f a c i l i t i e s a p p l i c a b l e b u s i n e s s s e c t i o n s o f are generally adeq uate and suitabl- e f o r o f f i c e s o u r i n D a 1 l a s , s u b s i d i a r i e s T e x a s . A d e s c r i b e d i s l i s t i n o f t h e I t e m 1 - " B u s i n e s s . " W e b e l i e v e o u r f a c i l i t i e s for thei r res pecti ve use s. ITEM 3. I'EGAIJ PROCEEDTNGS We are invol-ved in variou s l egaI proc eedings . b e l o w , c e r t a i n i n f o r m a t i o n c a l l e d f o r b y to our Consolidated Finan ci al- S tatement s, w hic h i s In addi ti on I t e m t h i s to i s i ncorpor ated i nformat io n i n c l - u d e d i n here in i n c l u d e d Note t7 b y r e f e r e n c e . Lead pigment Titigat,ion - M N L ' s lega1 proce edings f o r m e r o p e r a t i o n s a n d f o r u s e p a i n t i n p i g m e n t s m a n u f a c t u r e r s " ) d i s c o n t i n u e d various and governmental- p a i n t s . c o u n t i e s , c e r t a i n o t h e r s r e c o v e r y u n d e r a v a r i e t y n e g l i g e n t o f w a r r a n t y , l i a b i l i t y , f r a u d a n d m i s r e p r e s e n t a t i o n , s u p p l i e r n e g l i g e n c e a n d s i m i l a r C e r t a i n o f c i t i e s o r expenditures s h a r e o r m a r k e t o f i n c l u d e d t h e m a n u f a c t u r e o f l - e a d - b a s e d p a i n t . N L , o t h e r i n p a i n t a n d l - e a d - b a s e d p a i n t L e a d a n d b u s i n e s s f o r m e r m a n u f a c t u r e r s ( t o g e t h e r , A s s o c i a t i o n i n 2 0 0 2 , h a v e b e e n n a m e d a s d e f e n d a n t s t h e o p e r a t i o n s I n d u s t r i e s t h e o f l e a d p i g m e n t s f o r u s e l - e a d " f o r m e r p i g m e n t ( * L I A " ) , w h i c h i n damage l -ead-based b y o r o n b e h a l f o f s t a t e s , i njury , the proper ty use of a n d s c h o o l - d i s t r i c t s , l - a w s u i t s T h e s e a n d s e e k seeking damages for pers onal- a11egedl y caus ed by t h e s e a c t i o n s h a v e b e e n f i l e d t h e i r p u b l i c h o u s i n g a u t h o r i t i e s h a v e b e e n a s s e r t e d a s c l - a s s a c t i o n s . t h e o r i e s , i n c l u d i n g p r o d u c t d e s i g n , n e g l i g e n t c o n s p i r a c y / c o n c e r t f a i l - u r e o f a c t i o n , p u b l i c t o w a r n , s t r i c t a n d p r i v a t e l i a b i l i t y , a i d i n g a n d a b e t t i r g , r i s k v i o l - a t i o n s c l a i m s . c o n t r i b u t i o n l i a b i l i t y , i n t e n t i o n a l o f s t a t e c o n s u m e r p r o t e c t i o n n u i s a n c e , b r e a c h e n t e r p r i s e t o r t , s t a t u t e s , T h e p J - a i n t i f f s i n r e s p o n s i b i l i t y t h e u s e o f a n d / o r e x p e n s e s a n d c o s t s c o n t r i b u t i o n d e f e n d a n t s a s s o c i a t e d w i t h i n j u r y , m o n i t o r i n g i n a c t i v e i n v a r i o u s s u m m a r y j u d g m e n t I n a d d i t i o n , s e e k i n g p a i n t . c a s e s m a y h a v e a n f u t u r e . s e e k p a i n t g e n e r a l l y a c t i o n s l e a d t h e s e f o r l - e a d - b a s e d p a i n t s , i n d e m n i f i c a t i o n f o r e d u c a t i o n a l - p r o g r a m s . M o s t o f S o m e a r e o n a p p e a l t h e a n d h e a l t h c o n c e r n s a b a t e m e n t d a m a g e s f o r p e r s o n a l i n c l u d i n g f o r m e d i c a l - e x p e n s e s , m e d i c a l A n u m b e r o f c a s e s a r e t h e r e m a i n i n g c a s e s a r e o r f o l l o w i n g i m p o s e o n t o o r h a v e b e e n d i s m i s s e d o r w i t h d r a w n . s t a g e s . i n f a v o r o f e i t h e r p r e - t r i a l r u l i n g s v a r i o u s o t h e r c a s e s a r e p e n d i n g r e c o v e r y i n j u r y A l t h o u g h w e a r e n o t a d e f e n d a n t a l l e g e d l y f o r i n c a u s e d b y i m p a c t o n c a s e s t h a t m i g h t b e d i s m i s s a l t h e p l a i n t i f f s . t h e d e f e n d a n L s o r ( i n w h i c h w e a r e n o t a d e f e n d a n t ) l e a d - b a s e d t h e s e t h e l - e a d p i g m e n t a n d t h e o u t c o m e o f t h e s e c a s e s , a g a i n s t f i l e d u s i n W e b e l - i e v e t h a t t h e s e a c t i o n s a r e w i t h o u t m e r i t , c o n t i n u e t o d e n y a l l a g a i n s t a l l - a c t i o n s v i g o r o u s f y . have any d i s c u s s i o n C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s . final- adverse a l l e g a t i o n s judgments agai nst b e l - o w i n T h e S t a t e o f R h o d e I s l - a n d c a s e . us been enter ed. o f w r o n g d o i n g a n d l i a b i l i t y W e h a v e n e v e r s e t t l - e d a n y o f a n d w e a n d i n t e n d t o t o d e f e n d t h e s e c a s e s , n o r t he H owev er, see S e e a l - s o N o t e L 7 t o o u r l - e a d - b a s e d p a i n t We have not accrued any amount s l i t i g a t i o n c a s e s , for any of the pendi ng Lead pi gment and i n c l u d i n g t h e R h o d e I s l - a n d c a s e . L i a b i l i t y - 2 2 i f i n c u r l i a b i l i t y t h a t m a y r e s u l t , c a s e s m a y c o n t i n u e n o t l i t i g a t i o n r u l i n g s . a n e t i n c o m e r e c o g n i z e d , c o n d i t i o n l-oss contingency a . r r ! , c a n n o t b e r e a s o n a b l y t o b e f i l e d t h e t h e i n i n v i e w o f f u t u r e i n h e r e n t T h e r e s o l - u t i o n o f a n y o f accrual i n t e r i m I n a d d i t i o n , r e s p e c t o f a n y o f u n c e r t a i n t i e s e s t i m a t e d . a g a i n s t u s . W e c a n n o t . a s s u r e y o u t h a t w e w i l l t h e p e n d i n g o r p o s s i b l e i n c o u r t a n d j u r y r e c o g n i t i o n i n o f i mpact on our adve rse i s f i n a n c i a l - d u r i n g w h i c h s u c h o n o u r th at o r a n n u a l p e r i o d i m p a c t t . h e s e c a s e s c o u l - d r e s u l t . cou l-d hav e a mate rial c o n s o l i d a t e d i n v o l v e d a d v e r s e l i a b i l i t y a n d a m a t e r i a l t h e a n d l i q u i d i t y . f o r i n n e w € t f n S e p L e m b e r 1 9 9 9 , d D a m e n d e d c o m p l a i n t w a s a l . I n d u s t r i e s A s s o c i a t i o n , 99-CV-641-1-) addin g as defendants o r i g i n a l l y f i l e d a g a i n s t p l a i n t i f i n j u r i e s w h i c h h e r e s i d e d . c a s e w a s v e r d i c t p l a i n t i f f ' s f a v o r o f a l l m o t i o n p u r p o r t e d l y c a u s e d b y P l a i n t i f f t r i e d i n f o r a n e w t r i a l . i n O c t o b e r 2 0 0 7 , a n d d e f e n d a n t s . the f ' s l e a d o n i n T h o m a s v . L e a d f i l e d ( C i r c u i t C o u r t , M i l w a u k e e , W i s c o n s i n , C a s e N o . form er pi gment manuf acturers to a suit l - a n d l - o r d s . P l - a i n t i f f , a m i n o r , d l l e g e d i n h o m e s i n T h e r e t u r n e d a j u d g e d e n i e d t h e s u r f a c e s o f p r e m i s e s s o u g h t c o m p e n s a t o r y a n d p u n i t i v e i n N o v e m b e r 2 0 0 7 , J a n u a r y 2 0 0 8 , f o r a p p e a l h a s n o t y e t e x p i r e d . d a m a g e s . T h e t i m e j u r y t h e t h e f n A 2 Q O 2 t r i a l o n a c o m p l a i n t ( S u p e r i o r C o u r t o f R h o d e I s l a n d , i n S t a t e o f R h o d e abatem ent expe nses and fundi n g d a m a g e s , d s w e l l a s € t t h e t h e t r i a } bui ldi ng r e s u l - t e d i n pai nt w h e n t h e p r e j u d i c e . A s e c o n d fo r publi c t r i a l - o n of whether A s s o c i a t i o n , I n O c t o b e r 1 , 9 9 9 , w € w e r e s e r v e d w i t h a l " . c o m m e n c e d a g a i n s t q u e s t i o n , I n 2 0 0 5 , t h e c a s e , e n r i c h m e n t . a n d t h e S t a t e d i s m i s s e d n u i s a n c e o n f a v o r . i n d e m n i t y a n d u n j u s t e n r i c h m e n t . T h e S t a t e s o u g h t c o m p e n s a t o r y a n d p u n i t i v e l-e ad pi gment i n a m i s t r i a l w i t h t h e I s L a n d v . L e a d I n d u s t r i e s N o . 9 9 - 5 2 2 6 ) . reimbursemen t and priv ate o f a p u b l i c e d u c a t i o n c a m p a i g n a n d h e a l t h s c r e e n i n g p r o g r a m s . the sol-e question i s a p u b l i c a v e r d i c t d e f e n d a n t s r w i t h p r e j u d i c e , w i t h o u t d e f e n d a n t s o n N o v e m b e r 1 - , 2 0 0 5 n u i s a n c e , i t s o f u n j u s t d e f e n d a n t s s u b s t a n t i a l l y r e s u l - t o f buildings d e f e n d a n t s t r i a l - , M a r c h 2 0 0 7 , a p p e a l . p a s t a n d p u n i t i v e Oral- argument on th e appe al has been sc hedul ed i s p r o c e s s . d e f e n d a n t s ' n a m e d t w o s p e c i a l m a s t e r s abatement rem edv. j u d g m e n t a n d o r d e r w a s e n t e r e d , t h e S t a t e c r o s s - a p p e a l e d d a m a g e s , d s w e l l a s t h e d i s m i s s a l to mov e t h e S t . a t e s u b m i t t e d i n D e c e m b e r 2 0 0 7 . t h e c o l - l - e c t i v e p r e s e n c e o f in Rhode f sl-an d. court trial I n S e p t e m b e r 2 Q 0 7 , I n F e b r u a r y 2 0 0 6 , c o n t r i b u t e d t o t . h e t r i a l t h e I n e p r i l f ound t h e p u b l i c s h o u l d b e o r d e r e d c o u r t d i s m i s s e d c o u r t d i s m i s s e d forw ard i t s i n d e t e r m i n i n g l - e a d p i g m e n t s t h e S t a t e ' s j ury al -so t h e S t a t e ' s a r e s p o n s e r e m a i n i n g t o a s s i s t t o a b a t e conti nues pending, 2 0 0 7 , j u d g e t r i a l - f i n a l f i l e d The t h e t h e th e on R hode Is l-and bui ldi ngs t o j u r y j u r y w a s u n a b l e d e a d l o c k e d t h e c o n s p i r a c y r e a c h r e p o r t e d l y i n c o u r t d i s m i s s e d c l a i m i t s U n f a i r T r a d e P r a c t i c e s A c t c l a i m o t h e r t h r e e c l a i m s o f p u b l i c p r e s e n t a t i o n t h e S t a t e ' s F o l l o w i n g u s a n d 4 - 2 j u r y t h e S t a t e ' s c l - a i m s o f f o u n d a n d t h e t w o o t h e r t h e c r e a t j - o n o f a p u b l i c n u i s a n c e a s a o n t h a t w e a n d a n d c o a t i n g s i n d e m n i t y i n p a i n t s that w e and n u i s a n c e . the F o l l o w i n g tw o oth er t h e I n a n i s s u e o f e x c l - u s i o n o f d a m a g e s . f i l e d a n d d e f e n d a n t s c l - a i m f o r p u n i t i v e o f o n e o f for May 2008. W hil e the t h e d e f e n d a n t s . the appeal abatem ent p l a n o f a b a t e m e n t a n d t h e J u d g e t h e s c o p e o f a n y I n D e c e m b e r 2 0 0 7 , on f n O c t o b e r 1 9 9 9 , w € w e r e s e r v e d w i t h a c o m p l a i n t I n d u s t r i e s C o u r t A s s o c i a t i o n , a l - . € t i n S n i t h , f o r B a l t i m o r e C a s e N o . 2 4 - C - 9 9 - 0 0 4 4 9 0 ) . e a c h s e e k c o m p e n s a t o r y i n j u r i e s a l l e g e d f o r f o r m e r p i g m e n t a n d / o r p a i n t A s s o c i a t i o n I n F e b r u a r y c a s e a n d d u e m a n u f a c t , u r e r s g a s o l i n e a r e 2 0 0 6 , s e v e r i n g j o i n t l y t h e ( C i r c u i t P l - a i n t i f f s , s e v e n m i n o r s d a m a g e s o f $ 5 m i l - l - i o n a n d p u n i t i v e l - e a d - b a s e d p a i n t . t o a n d o t h e r c o m p a n i e s a d d i t i v e s , a n d s e v e r a l l y c o u r t t r i a l t h e L I A a n d l i a b l e . i s s u e d o r d e r s a n d s t a y i n g t h e c a s e s o f t h e a l l e g e P l - a i n t i f f s a l l e g e d t h e N a t i o n a l t o h a v e P a i n t W e h a v e d e n i e d t h e d i s m i s s i n g o t h e r t h r e e e t a l - . v . C i t y , f o u r f r o m d a m a g e s o f L e a d M a r y l a n d , f a m i l i e s , $ 1 0 m i l l i o n t h a t m a n u f a c t u r e d a n d C o a t i n g s l i a b i l i t y . S m i t h f a m i l - i e s t h e f a m i l y ' s I n M a r c h 2 0 0 6 , t h e p l a i n t i f f s a p p e a l e d . I n A u g u s t 2 0 0 7 , t . h e - 2 3 S p e c i a l C o u r t o f A p p e a l s d i s m i s s e d C o u r t o f A p p e a l s a c c e p t e d r e v i e w . t h e a p p e a l I n D e c e m b e r 2 0 0 7 , t h e M a r y l a n d o f t o , t h a n ( o t h e r I n A p r i l a g a i n s t e x p o s u r e to s t a t e repre sent i t s t h e L I A a n d c e r t a i n p a i n t m a n u f a c t u r e r s . t h e th e plai ntiffs R i c h f i e T d C o m p a n y , e t a l . a cl -as s of C ali forni a a g e n c i e s ) a n d t o have expe nded or w il l C o u n t y o f S a n t a C l - a r a , C a s e N o . C V 7 B 8 6 5 7 ) b r o u g h t 2 0 0 0 , w € w e r e s e r v e d w i t h a c o m p l a i n t ( S u p e r i o r fu nds t r e a t m e n t , t o , o r p o t e n t i a l d a m a g e s . t h e c i t i e s r e c o v e r i n the e d u c a t i o n a l - e x p e n s e s , a b a t e m e n t o r o t h e r l e a d p a i n t , i n C o u n t y o f S a n t a C l a r a t h e S t . a t e o f C o u r t t h e T h e gov ernment al- c o m p e n s a t o r y expend c o s t s d u e t o a n d S o l a n o , A l - a m e d a , S a n F r a n c i s c o , M o n t e r e y a n d S a n M a t e o o f S a n F r a n c i s c o , O a k 1 a n d , L o s A n g e l e s a n d S a n D i e g o , t h e a n d I n s u m m a r y j u d g m e n t , w h i c h w a s t h e L a w c l a i m a n d t h e h o u s i n g f o r g o v e r n m e n t - v . A t L a n t i c C a l i f o r n i a , f o r m e r p i g m e n t m a n u f a c t u r e r s , County of Santa Cl-ara seeks e n t i t . i e s damages for f o r m e d i c a l e x p o s u r e p u n i t i v e c o u n t i e s , o a k l - a n d a n d S a n F r a n c i s c o u n i f i e d t h e O a k l a n d R e d e v e l o p m e n t A g e n c y h a v e F e b r u a r y g r a n t e d 2 0 0 3 . d i s m i s s a l - o f p l a i n t i f f s ' p u b l i c n u i s a n c e c l - a i m d i s m i s s a l - o f p r o p e r t i e s , o w n e d b u i l d i n g s amended t.he complai nt I n A p r i l c l - a i m . a r r a n g e m e n t b e t w e e n p l a i n t i f f s p l a i n t i f f s r e s o l - u t i o n o f g o v e r n m e n t - o w n e d p r o p e r t i e s , f o r to dro p all of t r i a l t h e a n d t h e i r nui sance f e e c o n t i n g e n c y a n d i n M a y 2 O O 7 , a n d h o u s i n g a u t h o r i t i e s c a s e a s p l a i n t i f f s . n u i s a n c e n e g l i g e n c e a n d s t r i c t c l - a i m . I n J a n u a r y 2 0 0 7 , p l a i n t i f f s I n M a r c h 2 0 0 6 , t r e s p a s s c l a i m , U n f a i r C o m p e t i t i o n have been st ayed pending d i s g o r g e m e n t o f p r o f i t , c o u n s e l w a s i l l e g a l . , the cl ai ms exc ept 2 0 0 3 , d e f e n d a n t s r u l - e d t h a t t h e The proc eedings c l - a i m l i a b i l i t y s c h o o l d i s t r i c t s t h e a p p e l l - a t e a n d p l a i n t i f f s ' r e s i d e n t i a l - t h i s a p p e a l . the publ ic p l a i n t i f f s ' a m o t i o n a p p e a l e d r e v e r s e d a f f i r m e d p l a i n t i f c l a i m s p u b l i c j o i n e d r u l i n g . fut ure 2 0 0 7 , f r a u d c o u r t c o u r t f i l e d J u l y t h e t h e b u t f s ' f o r f o r for i n € t i n I n d u s t r i e s i n h o u s i n g A s s o c i a t i o n , I n J u n e 2 0 0 0 , a c o m p l a i n t w a s f i l e d I l l i n o i s i n ( C i r c u i t a L . C h a n c e r y D i v i s i o n , L e w i s , e t s t a t e c o u r t , C o u r t o f C o o k C o u n t y , C a s e N o . 0 O C H O 9 8 0 0 ) . o f m i n o r s b e t w e e n t h e I l l - i n o i s t w o c l - a s s e s , o n e c o n s i s t i n g C o u n t y D e p a r t m e n t , s e e k t o r e p r e s e n t a L . v . L e a d I l l i n o i s , P l a i n t i f f s a g e s o f s i x m o n t h s a n d s i x y e a r s w h o r e s i d e d b e f o r e 1 9 7 8 , a n d a n o t h e r c o n s i s t i n g t w e n t y y e a r s w h o l i v e d f l l i n o i s between 1 - 0 m i c r o g r a m s / d e c i l i t e r s e v e r a l l y m e d i c a l - s c r e e n i n g m e d i c a l - m o n i t o r i n g d i s e a s e s , c o u r t a p p e l L a t e p l a i n t i f f s , d e f e n d a n t s c o u n t , w h i c h w a s g r a n t e d r e v e r s e d a p p e a l s t r i a l f o r o f i n d i v i d u a l - s b e t w e e n t h e a g e s o f s i x a n d h o u s i n g b u i l t b e f o r e 1 , 9 7 8 w h e n t h e y w e r e the ages of six months a nd si x yea rs and w ho had bl -ood l -ead l -evel -s of T h e c o m p l a i n t a n d a a l - a t e n t t h e t h e t h e I n M a y 2 0 0 4 , c o n s p i r a c y t h e c o u r t o f t h e c a s e a n d r e m a n d e d t h e c a s e t h e c o n s p i r a c y c o u n t . s u m m a r y j u d g m e n t o n p l a i n t i f f s ' I n F e b r u a r y 2 0 0 6 , f o r m e r p i g m e n t m a n u f a c t u r e r s f i r s t a n d a d i s m i s s e d c o u r t b u t f i l e d t h e L I A c l - a s s t o d e t . e r m i n e b l o o d I n M a r c h 2 0 0 2 , J u n e 2 0 0 3 c o u n t s o f i n F e b r u a r y 2 0 0 5 . c o u r t ' s f u n d a l - l a f f i r m e d r e v e r s e d t h e s e c o n d c l a s s e d u c a t i o n f o r a p u b l i c c l a i m s . t o e s t a b l - i s h l e v e l s , l e a d s e e k s d a m a g e s j o i n t l y T h e c a s e i s n o w p r o c e e d i n g t o d e t e c t c a m p a i g n . a p p e a l e d , o f t h e d i s m i s s a l - o f t h e d i s m i s s a l o f i n t h e t r i a l c o u r t . t h e o n s e t o f d i s m i s s a l - o f p r o c e e d i n g s . o r m o r e . P L a i n t i f f s a n d t h e a m o t i o n i n s i x f u r t h e r f u n d f r o m f u n d b u i l t f i v e a n d f o r t h e t h e t h e f o r f o r i n I n F e b r u a r y 2 0 0 L , w € w e r e s e r v e d w i t h a c o m p l a i n t €t C i v i l A c t i o n N o . 2 O O O - 5 8 7 , a n d f o r m e r l y Com pany, aJ . (C irc ui t C ourt The Sherwin-willia ms M i s s i s s i p p i , vs . The Sherwin-Wil-l-iams several- liability m a n u f a c t u r e r s b e h a l f o f 1 8 a d u l t d u r i n g t h e i r a l - 1 b u t o n e o f r e s p e c t t o u s . fo r a n d r e t a i l - e r s Company, compe nsatory €t al. . ) . and puni tiv e damages o f L e a d p i g m e n t a n d / o r p a i n t , The complaint r e s j - d e n t s o f M i s s i s s i p p i w h o w e r e a l I e g e d l y e m p l o y m e n t i n c o n s t r u c t i o n a n d r e p a i r a c t i v i t i e s . t h e p l a i n t i f f s h a v e b e e n d i s m i s s e d w i t h o u t of Jef ferson i n B a r k e r , e t a L . v . C ount y, k n o w n a s B o r d e n , e t a l . and than 40 u s , o n l - e a d T h e c l a i m s o f w i t h seeks from more i n c l u d i n g e x p o s e d t o p r e j u d i c e j oint - 2 4 fn May 2001-, w€ were served w ith a com plai nt I n c . I n d u s t r r i e s , a n d M a u t z P a i n t C o u n t y , W i s c o n s i n , C a s e N o . 0 1 C V O 0 3 0 5 5 ) . P l a i n t i f f e q u i t a b l e i t h a s s p e n t a n d J u n e 2 0 0 7 , a n d i n J u n e 2 0 0 7 , I n D e c e m b e r 2 Q 0 7 , p l a i n t i f f f i l e d l - e a d a n d p u n i E i v e d a m a g e s . r e t u r n e d t h e a n o t i c e o f a p p e a l . l e a d h a z a r d s t o a b a t e r e l - i e f j u r y ( C i r c u i t f o r C o u r t , C i v i l D i v i s i o n , i n C ity of Mi l-w aukee v. Nl M i l - w a u k e e s o u g h t c o m p e n s a t o r y a n d f o r a m o u n t s i n M a y f a v o r o f N L . T h e c a s e w a s t r i e d a v e r d i c t i n i n M i l - w a u k e e h o m e s , r e s t i t u t i o n In Nove mber 2003 , w€ were ser ved w ith a com plai nt ( C i r c u i t C o u r t o f C o o k C o u n t y , I n c . , e t a l . I n d u s t r i e s , D e p a r t m e n t , L a w D i v i s i o n , a g a i n s t l o c a l u s a n d a l l e g e d t o t o r e s i d e n c e . p r o c e e d i n g C a s e N o . 0 3 L 0 1 - 2 4 2 5 ) . p r o p e r t y e x p o s u r e W e h a v e d e n i e d a l l - a l l e g a t i o n s t h e t w o b e d u e l e a d c o u r t . t r i a l - t o i n p a i n t o w n e r s o n b e h a l f o f i n Lauren B rown v. NI 1 1 1 i n o i s , C o u n t y s e e k s d a m a g e s T h e c o m p l a i n t o f a m i n o r i n c o n t a i n e d l i a b i l i t y . f o r i n j u r i e s t h e m i n o r ' s i s T h e c a s e f n J a n u a r y 2 0 0 6 , w € w e r e s e r v e d w i t h a c o m p l a i n t i n H e s s , e t a f . I n d u s t r i e s , L o u i s C i t y , a 1 I e g e w h i c h t h e y d e n i e d a l I c o u r t . I n c . , e t a l - . C a u s e N o . 0 5 2 - ] - ] - 7 9 9 ) . ( M i s s o u r i C i r c u i t P l a i n t i f C o u r t 2 2 n d J u d i c i a ] t w o m i n o r f s a r e i n j u r i e s p u r p o r t e d l y c a u s e d b y l e a d o n t h e s u r f a c e s o f r e s i d e d . a l l e g a t i o n s P l a i n t i f f s o f l i a b i l i t y . s e e k c o m p e n s a t o r y a n d p u n i t i v e i s p r o c e e d i n g T h e c a s e v . N l S t . C i r c u i t , c h i l - d r e n w h o t h e h o m e i n d a m a g e s . W e i n t r i a l - t h e f n D e c e m b e r 2 0 0 6 a n d J a n u a r y 2 0 0 7 , w € w e r e s e r v e d w i t h O h i o , c i t i e s p r e j u d i c e , to dismiss O f o n e w a s d i s m i s s e d b y i n w i t h o u t t h e S t a t e o f O h i o . and no appea l w as tak en, v a r i o u s p l a i n t i f f s motion Cit y, Ohio v. Sherwin-Wi TLi ams Company et al . C o u n t y , C a s e N o . c o m p e n s a t o r y a n d p u n i t i v e s c h o o l s , h o s p i t a l s a c c e s s i b l e a n d h e a l t h l i a b i l i t y d e n y l i a b i l i t y t o c h i l d r e n s c r e e n i n g p r o g r a m s . t h e a n d d a m a g e s f o r P l a i n t i f f f o r m e r p i g m e n t m a n u f a c t u r e r s 0 6 C V H - 1 - 2 - I 5 4 8 0 ) . d a m a g e s , d e t e c t i o n a n d t o d e f e n d a g a i n s t a l l o f a n d p r i v a t e a n d p u b l i c a g a i n s t The C itrr a n d a b a t e m e n t of b u i l d i n g s w i t h i n f u n d i n g o f a p u b l i c t h e s e , e i g h t w e r e d i s m i s s e d b y t e n c o m p l a i n t s b y t h e t h e c o u r t o n d e f e n d a n t s ' and one remai ns pendi ng: C ol-um bus (C ourt of C ommon P l-eas , Frank l in C ol-um bus seeks r e s j - d e n c e s , i n t h e C i t y w h i c h a r e c a m p a i g n e d u c a t i o n a n d s e v e r a l - t o s e e k s j u d g m e n t s o f j o i n t a n d t h e L I A . W e i n t e n d t h e c l - a i m s v i g o r o u s l y . In ,January and Febru ary o f w h i c h w e r e 2007, w € w ere ser ved w ith f i l e d I n s o m e c a s e s , c o m p l a i n t s h a v e b e e n f i l e d C o u r t i n C i r c u i t t h e s u r f a c e s ( s ) a r e m i n o r c h i l d r e n w h o a l l e g e t h e h o m e s i n w h i c h d a m a g e s . T h e d e f e n d a n t s t h e m a j o r i t y W i s c o n s i n . T h e p l a i n t i f f l e a d o n o f c o m p e n s a t o r y a n d p u n i t i v e A m e r i c a n C y a n a m i d C o m p a n y , A r m s t r o n g C o n t a i n e r s , & Company, Mil -lennium Hold ings, W i l l i a m s C o m p a n y , C o n a g r a F o o d s , a n d F a m i l y S e r v i c e s . a n d / o r p r o p e r t y those cases a l l l i a b i l i t y w i t h o u t b e e n r e m o v e d t o F e d e r a l - c o u r t . l-eve l- . o w n e r s a r e a 1 s o d e f e n d a n t s . in which we have been requi red i n p r e j u d i c e , t . h e o t h e r c a s e s . r e m a i n p e n d i n g . f n s o m e c a s e s , a n d 2 I O f i n j u r i e s t h e y r e s i d e . i n LLC , A tla nta R ic hfiel d C ompany, The S herwin- I n c . a n d t h e W i s c o n s i n D e p a r t m e n t o f H e a l - t h a d d i t i o n a l - W e h a v e d e n i e d a l l to ans wer and, w e i ntend l - e a d p a i n t m a n u f a c t u r e r s i n to deny t h e s e c a s e s , n i n e h a v e b e e n d i s m i s s e d c a s e s h a v e c o u r t r e m a i n i n g t h e S e v e n o f l i a b i l i t y t r i a l - t h e T h e s e c a s e s a r e p r o c e e d i n g a t sev eral com plai nts, e l s e w h e r e p u r p o r t e d l y i n M i l w a u k e e C o u n t y , i n W i s c o n s i n . c a u s e d b y s e e k i n c l - u d e u s , P l - a i n t i f f s t h e s e c a s e s I n c . , E . I . D u P o n t d e N e m o u r s U n i v e r s i t y 1 3 4 7 0 / 0 2 ) . l i a b i l i t y , f o r i n w h i c h c l a i m s , o f a p p e a l . i n j u r i e s I n J a n u a r y 2 0 0 7 , w € w e r e s e r v e d w i t h a c o m p l a i n t A v e n u e C o r p . e t a 7 . ( S u p r e m e C o u r t , S t a t e P l a i n t i f f s , a n d b r e a c h p u r p o r t e d l y r e s i d e d . t h e y o f w a r r a n t y t w o m i n o r s a n d t h e i r m o t h e r , a n d s e e k c o m p e n s a t o r y l e a d p a i n t I n M a r c h 2 0 0 7 , w € o n f i l e d c a u s e d b y t h e s u r f a c e s t h e a p a r t m e n t a n d p u n i t i v e o f a m o t i o n t o d i s m i s s t h e i n S m i t h e L a f . o f N e w Y o r k , d l 1 e g e n e g l i g e n c e , v . 2 3 2 8 C a s e N o . s t r i c t d a m a g e s w h i c h w a s d e n i e d i n O c t o b e r 2 0 0 7 . I n N o v e m b e r 2 0 0 7 , w € f i l e d a n o t i c e - 2 5 f n M a y 2 0 0 7 , w € w e r e s e r v e d w i t h a c o m p l a i n t i n S t a t e o f O h i o , e x r e 7 . o f O h i o , E a s t e r n D i v i s i o n , Marc Dann Attorney Ge neraL v. Sherw in- Wi l-l -i ams C ompany et al - , C o u r t , S o u t h e r n D i s t r i c t The State seeks compensat,ory and puni ti ve r e s i d e n c e s , State c a m p a i g n a n d h e a l t h and several- liabi lity In f i l e d form er pi gment manuf acturers to Federa1 cou rt , and C a s e N o . 2 z O 9 - c v - 0 7 9 ) . in t h e f undi ng of a pubJ -ic educ atio n j o i n t the LI A. ,fanuary 2 0 0 8 , a m o t i o n th e case was r emoved s c r e e n i n g p r o g r a m s . damages , detec ti on and damages f or j u d g m e n t s o f and abatem ent (U . S . D is trict a n d p r i v a t e to chil-dren a n d p u b l i c i n February we accessibl-e t o d i s m i s s t h e c l a i m s . h o s p i t a l s b u i l d i n g s s c h o o l s , P l a i n t i f f again st w i t h i n s e e k s and the In October 2007, w€ were ser ved w ith a com plai nt ,J oaquin Coe e t a J - . ( S u p e r i o r C o u r t o f N e w J e r s e y , E s s e x C o u n t y , C a s e N o . E S X - L - 9 9 0 0 - 0 6 ) . P l a i n t i f f c a u s e d b y a minor. b u i l d i n g T h e m a t t e r s e e k s c o m p e n s a t o r y a n d p u n i t i v e l e a d p a i n t o n t h e s u r f a c e s o f r n D e c e m b e r 2 0 0 7 , N L d e n i e d a l 1 the apart ment l i a b i l i t y . i n w h i c h h e r e s i d e d a s defendants i n t h i s t h e a p a r t m e n t s Other i s s u e i s p r o c e e d i n g d a m a g e s f o r ow ners of p u r p o r t e d l y ,J ones v. c a s e . t h e inc l -ude i n j u r i e s form er three c o u r t . t r i a l - a t i n i n I n a d d i t i o n t o t h e f o r e g o i n g t h e u s e o f s u c h p r o d u c t s a n d i n w h i c h w e a n d o t h e r p i g m e n t m a n u f a c t u r e r s h a v e , l - e a d - b a s e d p a i n t obli gations r e g u l a t i o n s impose vario us a n d a d m i n i s t r a t i v e (a) p i g m e n t a s s o c i a t e d w i t h d e c i s i o n s E x a m p l e s o f s u c h p r o p o s e d l i a b i l i t y d a m a g e s o n p l a i n t i f f s a n d b i l - I s w h i c h w o u l - d r e v i v e W h i l e l e g i s l a t i o n e x p e c t e d p o s i t i o n , l i a b i l i t y t o h a v e a m a t e r i a l - r e s u l t s o r o t h e r t o p r o v e o f o p e r a t i o n s l e g i s l a t i o n t h a t f o r n o o r f r o m t i m e on pres ent. and w i t h r e s p e c t l i t i g a t i o n , t o v a r i o u s t i m e , b e e n p r o p o s e d f ormer manuf act urers h e a l - t h a s s e r t e d t o ( b ) e f f e c t i v e l y l e g i s l a t i o n a n d t h a t s e e k t o l -ead of c o n c e r n s c o u r t h a v e b e e n s u c c e s s f u l , . c i v i l r e q u i r i n g o v e r t u r n t h a n r a t h e r s h a r e , i n c l - u d e b i l l s w h i c h w o u l - d p e r m i t p r o d u c t b a r r e d b y h a v e b e e n e n a c t e d c a u s e d t h e s t a t u t e d a m a g e , t h e a l l e g e d o f t o d a t e c o n s o l - i d a t e d l i m i t a t i o n s . t h a t f i n a n c i a l a r e a d v e r s e e f f e c t o n o u r o r l i q u i d i t y , t h e i m p o s i t i o n o f m a r k e t s h a r e c o u l d h a v e s u c h a n e f f e c t . l e g i s l a t i o n t h e b a s i s o f m a r k e t t h e d e f e n d a n t ' s a c t i o n s r e g u l a t i o n s Environmenta l Matt,ers and LiEigati on GeneraL to xi c manufacture r e g u l a t i o n s . handlitg, considered l - a w s a n d r e g u l a t i o n s . c e r t a i n c aus e en vir onmenta l- i m p l e m e n t v a r i o u s p o l i c i e s our policy is to main tain regulations at all performance. e n f o r c e m e n t u n d e r U . S . a n d f o r e i g n involves the esta blishment d e v e l o p m e n t s , s u c h e n f o r c e m e n t p o l i c i e s , s t o r a g e , t r a n s p o r t a t i o n , a l l f a c i l i t i e s o u r o f l-a ws. environmental - of our plan ts From t.ime to s t r i c t e r a r e a s - Our operations C e r t a i n o f o u r b u s i n e s s e s use or dispos al are governed by various a r e a n d h a v e b e e n e n g a g e d l-aws and t h e of sub stanc es or com pounds that may be the meani ng of appl ic abl-e environmental- i n or hazard ous wi thin A s w i t h o t h e r c o m p a n i e s e n g a g e d i n s i m i l a r env ironment al- b u s i n e s s e s , o f o u r p a s t a n d c u r r e n t o p e r a t i o n s or other da mage. W e hav e a n d p r o g r a m s compl ianc e w ith a n d p r o d u c t s h a v e t h e p o t e n t i a l and cont inue t h e s e i mplem ented i n a n e f f o r t t o t o t o m i n i m i z e r i s k s . l -aws and i mprove our env ironmental- env ironment al- appl ic able and to st riv e to ti me, w € may be sub jec t s t a t u t e s , t h e of com plj -ance progr ams. to env j-ronment al - regul atory o f w h i c h t 1 p i c a l l y fut ure r e s o l u t i o n It that r e q u i r e m e n t s o f i s poss ibl e e n v i r o n m e n t a l c o u l - d a d v e r s e l y a f f e c t o u r p r o d u c t i o n , h a n d l i r g , s a l - e o r d i s p o s a l o f s u c h s u b s t a n c e s . W e b e l i e v e i n s u b s t a n t i a l c o m p l i a n c e w i t h l - a w s a n d u s e , t h a t a p p l i c a b l e C e r t a i n p r o p e r t i e s including l o c a t i o n s p r o c e e d i n g s l - a w s . c u r r e n t l y divested o f N L , pri mary a r e i n v e s t i g a t i o n s t h e o r A d d i t i o n a l l y , i n i n v o l - v e d a s a d e f e n d a n t , a n d f a c i l i t i e s and sec ondary o f u n d e r s u b j e c t a r i s i n g c o n n e c t i o n w i t h u s e d l ead c i v i l o u r i n sm el-ter s and f o r m e r I i t i g a t i o n , o p e r a t i o n s , form er mi ning a d m i n i s t r a t i v e f e d e r a l a n d s t a t e p a s t d i s p o s a l p r a c t i c e s , p a r t y e n v i r o n m e n t a l - w € a r e ( " P R P " ) o r p o t e n t i a l l y r e s p o n s i b l e - 2 6 to o r pursuant c u r r e n t l y Act, as amen ded by s t a t e both, Liability ( " C E R C L A " ) , a n d s i m i l a r a s s o c i a t e d w i t h w a s t e d i s p o s a l o u r p r e d e c e s s o r s o u r s u b s i d i a r i e s , t h e i r S u p e r f u n d N a t i o n a l - P r i o r i t i e s seek cJ-eanup cosLs, d a m a g e s f o r f o r c l - a i m s l i a b l e f o r m a y a l s o b e j o i n t l y n u m b e r o f p e r s o n a l c l - a i m s r e l a t e d o p e r a t i o n s . i n j u r y s u b s t a n t i a l t h e s e c o s t s , t o n a t u r a l dam ages th e S uperfund A mend.ment s and R eauthori zati on l a w s th e Com prehensi v e E nvi ronmenta l- R esponse, C ompensati on and Act a c t i o n s w e o r o w n e d , o p e r a t e d o r w e r e u s e d b y u s o r o f w h i c h a r e o n t h e E P A , s i n v a r i o u s g o v e r n m e n t a l - a n d p r i v a t e s i t e s , m i n i n g a n d f a c i l i t . i e s p r e d e c e s s o r s , o r p r e v i o u s l y l o c a t i o n s , c e r t a i n L i s t o r s i m i l a r pers onal fo r r e s o u r c e s . i njury C e r t a i n o f s t a t e 1 i s t , s . or proper ty t h e s e p r o c e e d i n g s T h e s e p r o c e e d i n g s damage and /or i n v o l v e and sev erally a m o u n t s . i n m o s t c a s e s w e a r e o n l y o n e o f a n u m b e r o f P R P s w h o t o a A ltho ugh w e may be w e a r e a p a r t y I n a d d i t i o n , j ointl y a n d s e v e r a l l y i n j u r y l i a b l e . f i l e d t o e n v i r o n m e n t a l - c o n d i t i o n s l - a w s u i t s i n v a r i o u s a l l e g e d j u r i s d i c t i o n s t o h a v e r e s u l - t e d a l l e g i n g f r o m o u r E n v i r o n m e n L a l o b l i g a t i o n s a r e d i f f i c u l - t t o a s s e s s a n d e s t i m a t e f o r n u m e r o u s r e a s o n s i n c l u d i n g : i n t e r p r e t a t i o n s of governmental- a b i l i t y o r w i l l i n g n e s s t o fund s uch o f t h e P R P s a n d t h e a l l o c a t i o n o f c o s t s r d i f f e r i n g t h e i r and compl exity r e g u l a t i o n s ; n u m b e r o f P R P s a n d a l - l - o c a t j - o n o f c o s t s , . f i n a n c i a l - among them; s o ] v e n c y o f o t h e r P R P s ; c a p a b i l i t i e s o o m u ] t i p l i c i t y o num ber of a c t i v i t y o f p o s s i b l e s o l - u t i o n s ; a n d years r e q u i r e d . i nvest igator y, of remedi al and moni tori ng of more st ringenE st andards or new developments or changes requi remen ts regarding o f c o s t s a m o n g P R P s , s o l v e n c y o f o t h e r P R P s , In additi on, impo sition th e l-aws or regulations, B e c a u s e w e m a y b e c o s t te sting resul-ts of e s t i m a t e s . r e m e d i a t i o n c l e a n u p c o s t s o r a l l o c a t i o n fu ture under environmental- s i t e the s i t e s o r a d e t e r m i n a t i o n hazardous substances at other site s, c u r r e n t t o t a l - u l t i m a t e l y r e a l l - o c a t i - o n o f c o s t s a m o n g P R P s o r cannot assure upper end of th e c a n n o t a s s u r e y o u presently t h e m a t e r i a l - o p e r a t i o n s a d v e r s e e f f e c t a n d l i q u i d i t y . Further, t o can be mad e. I f w e w e r e f u t u r e . l i a b l e i n c u r you a t t h a t w e a r e p o t e n t i a l l y and anal ys is res pect f o r coul d cau se our exp enditur es undert aken w ith r e s p o n s i b l e s i t e s , f o r m a y e x c e e d o u r a c c r u a l - s d u e t o , a m o n g o t h e r c e r t a i n t h e j o i n t l y a n d s e v e r a l l y a m o u n t to cer tain t h e r e l e a s e o f to exc eed our f o r t h e f o r w h i c h w e a r e t h e t h i n g s , l i a b l e t h e i n s o l v e n c y o f o n e o r m o r e P R P s . W e th at actu aL cos ts w il l- not exc eed acc rued amount s or ran ge site s fo r t h a t c o s t s w i l l for w hic h est imat es n o t b e i n c u r r e d t he hav e been made, and we addi ti onal a n y f u t u r e env ironment al- matt ers may arj -se f o r s i t e s w h e r e n o e s t i m a t e in c o u l - d h a v e a o f t h i s p o s i t . i o n , r e s u l t s l i a b i l i t y , f i n a n c i a l - o n o u r c o n s o l - i d a t e d W e r e c o r d l i a b i l i t i e s r e l - a t e d t o e n v i r o n m e n t a l - r e m e d i a t i o n o b l i g a t i o n s e x p e n d i t u r e s a r e p r o b a b l e a n d r e a s o n a b l y e s t i m a b l e . f u t u r e w h e n e s t i m a t e d a d j u s t o u r e n v i r o n m e n t a l u s o r c i r c u m s t a n c e s expendit ures t h e p a y o u t . W e r e c o g n i z e i f 2 0 0 7 , w € h a d n o r e c e i v a b l - e s th eir d r y , to a s a s s e t s w h e n t h e i r pre sent val -ue due o f r e c o v e r i e s r e c e i p t r e c o v e r i e s . f o r d o n o t d i s c o u n t the unce rtaint y c o s t s i s d e e m e d p r o b a b l e to r e m e d i a t i o n b e c o m e s a v a i l a b l e e s t i m a t e d of the ti min g W e t o f u t u r e of f r o m o t h e r p a r t i e s , A t D e c e m b e r 3 1 , a c c r u a l s a s f u r t h e r i n f o r m a L i o n c h a n g e . W e g e n e r a l l y w i l l p a y m e n t s r e m e d i a t . i o n A t e a c h e n v i r o n m e n t a l - W e d o n o t m a k e p a y m e n t s k n o w a n d c a n n o t e s t i m a t e f o r o u r a c c r u e d t h e e x a c t e n v i r o n m e n t a l - i n c l u d i n g d e p e n d s p r o c e s s ; u p o n a n u m b e r o f t u r n w h i c h f a c t o r s d e p e n d s o n b a l a n c e s h e e t w € e s t i m a t e i n d a t e , f a c t o r s t h e c o s t s w e e x p e c t t o p a y w i t h i n t h e n e x t z t t i m e f r a m e c o s t s . t h e t i m i n g o u t s i d e T h e o f o v e r w h i c h w e t i m i n g o f t h e a c t u a l - o f o u r c o n t r o l - . a c c r u e d a m o u n t o f t w e l - v e m o n t h s , o u r a n d w e c 1 a s s i f y a c c r u e d e n v i r o n m e n t a l - c o s t s a s a n o n c u r r e n t e s t i m a t e a s a c u r r e n t t h i s l i a b i l i t y . l i a b i l i t y . W e c l - a s s i f y t h e r e m a i n i n g NI, - On a quarterly basis, N L eval -uates the poten tial range of I n c . ( " E M S ' ) h a s c o n t r a c t u a l l y environmental- management subsidiary, t o o u r C o n s o l i d a t e d F i n a n c i a l - S t a t e m e n t s . $50 mil li on at sites where NL has been named as a P RP or defendant , which our whoLly-owned M a n a g e m e n t S e r v i c e s , S e e N o t e ! 7 had accrued approximately to NL that we bel-ieve are p o s s i b l e t h e i s p o s s i b l e amount currently v a l - u e . NL Environmental a s s u m e d o u r o b l i g a t i o n s . A t D e c e m b e r 3 1 , 2 0 0 7 , w € rel -a ted thos e env ironment al- matt ers i s not i t W e bel iev e T h e u p p e r e n d o f s i t e s . i t t h e to pres ent t h e r e a s o n a b l y p o s s i b l e t o e s t i m a t e c o s t s accrued. c o s t s i s a p p r o x i m a t e l y f o r c e r t a i n t o u s f o r s i t e s rea so nably r a n g e o f c o s t s We ha ve not di sco unted for est imab le. f o r w h i c h w e b e l i e v e thes e est imat es $ 7 1 m i l l i o n , t o e s t i m a t e r a n g e o f i n c l u d i n g i ncl uding that l iabi li ty si tes f or A t D e c e m b e r 3 1 , 2 0 0 7 , t h e r e a r e a p p r o x i m a t e l y 2 0 s i t e s f o r w h i c h w e a r e a b 1 e t o e s t i m a t e a r a n g e o f c o s t s . F o r t h e e a r l y s t a g e s , a n d w e a r e u n a b l e h a d a n y a s s o c i a t i o n f o r t h e c o n t a m i n a t i o n w i t h a t t h e s e s i t e s , g e n e r a l l y t o d e t e r m i n e t h e s i t e , t h e n a t u r e o f t h e s i t e a n d t h e e x t e n t i s i n i f a . r i l , t h e s i t . e . i n v e s t i g a t i o n n o t c u r r e n t l y t h e w h e t h e r o r n o t w e a c t u a l l y r e s p o n s i b i l i t y , o u r o f c o n t a m i n a t . i o n a t t h e s e s i t e s p a r t y p r e v i o u s l y l i a b i l i t y p a s t a n d c a u s e d b y a s s e r t c o u l - d b e m a t e r i a l - a l l e g i n g i n a c t i v e l i a b i l i t y f r o m t h e E P A a l l e g i n g f u t u r e c o s t s o f f o r m e r o p e r a t i o n s s i t e s , i s d e p e n d e n t o n e v e n t s o u t s i d e T h e t i m i n g a n d a v a i l a b i l i t y o f o u r c o n t r o L , t o u s . A t c e r t a i n p r o v i d e s i n f o r m a t i o n r e c e i v e d w € h a v e g e n e r a l t h a t w € , a l o n g w i t h o t h e r P R P s , a r e c o n t a m i n a t i o n T h e s e n o t i f i c a t i o n s e n v i r o n m e n t a l - t h e s i t e s . a n d s p e c i a l c o n d u c t e d a t r e m e d i a t i n g o f i n f o r m a t i o n o n s u c h a s w h e n t h e t h e s e o f f o r a l 1 e g e d l y o f n o t i c e s l i a b l e m a y t h a t w € , a l o n g w i t h o t h e r P R P s , a r e l i a b l e f o r p a s t c l e a n - u p c o s t s t h a t t o u s i f w e a r e u l t i m a t e l - y f o u n d l i a b I e . In Dece mber 2003, w€ were ser ved w ith a com plai nt o f O k l a h o m a , C a s e N o . 0 3 - C I I - 8 4 5 H ( J ) ) . e t a l - . i n f o r d e c e i t b y f a l s e six r e p r e s e n t a t i o n other mi ning l-oca ted within seeks actu al us and t h e T a r C r e e k m i n i n g d i s t r i c t O k f a h o m a e t a l - . v . A S A R C O I n c o r p o r a t e d N o r t h e r n D i s t r i c t a l l e g e s p u b l i c n u i s a n c e , p r i v a t e n u i s a n c e , l i a b i l i t y , RCRA against o p e r a t i o n s c l - a s s a c t j - o n s t a t u s property complaint d i s m i s s 2 0 0 4 , a s w e l - l - a s o n e o f a f f i r m e d t h e t r i a l - i m m u n i t y t o d e f e n d a n t s ' A p r i l U n i t e d S t a t e s , defendants, g o v e r n i n g c l a s s a l l e g a t i o n s . t o d i s m i s s t h e c o u r t d i s m i s s e d p l a i n t i f f s ' t h e R C R A c l a i m s . r u l i n g t h e T r i b e ' s m e d i c a l m o n i t o r i n g t o a d d a n a d d i t i o n a l - to I n . T u n e 2 0 0 7 , p l a i n t i f f s 2 0 0 7 , p l a i n t i f f s and punitive c o u r t ' s conform c L a i m l a w . t h a t c o u n t e r f o r a m e n d e d t h e c o m p l a i n t com plai nt and th e to A mong other ( U n i t e d S t a t e s D i s t r i c t o w n e r s , a n d p o s s e s s o r s res pect T h e c o m p l a i n t i n The Quapaw Tri be of C o u r t , The com plaint t r e s p a s s , u n j u s t e n r i c h m e n t , s t r i c t a n d a s s e r t s com panies w ith i n O k l a h o m a . c l a i m s u n d e r C E R C L A a n d form er s e e k s r e a 1 o f t he thi ngs, W e hav e mov ed t o f n J u n e f o r u n j u s t e n r i c h m e n t a n d f r a u d t h e c o u r t o f a p p e a l s s o v e r e j - g n I n t h e b a n k r u p t t he t h e t h e d e f e n d a n t s ' m o t i o n c o n t r i b u t i o n t o a d d c e r t a i n t o t h e i r i n d e m n i t y . a m e n d e d t h e c o m p l a i n t i n t o d r o p r e m o v e c e r t a i n c l a i m s a g a i n s t deve lopment s a l - l e g a t i o n s . f s w a i v e d p l a i n t i f rec ent a n d c l a i m s I n F e b r u a r y 2 0 0 5 , f o r m e r a n d c u r r e n t th e Quapaw R eserv ation. damages from defen dants. d e f e n d a n t , to c l - a i m s . t h e c o m p l a i n t a n d h a v e d e n i e d a l l o f p l a i n t i f f s ' I n D e c e m b e r 2 0 0 7 , t h e c o u r t g r a n t e d In Febru ary 2004 , w€ were ser ved t h e a r e a C o u r t , N o r t h e r n D i s t r i c t D i s t r i c t p u r p o r t e d c l - a s s a c t i o n o n b e h a l - f o f o f Q u a p a w , O k l - a h o m a : ( 1 ) a m e d i c a l - m o n i t o r i n g s i n c e i n commercial- and government pro per ty p l a i n t i f f s , S c h o o l - B o a r d n u i s a n c e d a m a g e s ( 2 ) a p r o p e r t y ow ners. t h e P l - a i n t i f p r o g r a m , a n d s e e k a m e d i c a l - m o n i t o r i n g a n d p u n i t i v e o f Q u a p a w , O k l a h o m a . t h e m a y o r o f 1 , 9 9 4 , a n d W e a n s w e r e d d a m a g e s . t o g e t h e r w i t h i n E vans v. A SA RC O (U nite d S tates o f O k l a h o m a , C a s e N o . 0 4 - C V - 9 4 E A ( M ) ) , a t w o c l - a s s e s o f p e r s o n s l i v i n g t o w n c l a s s o f p e r s o n s w h o h a v e f i v e d t h e i n o w n e r c l - a s s o f i n d i v i d u a l - s F o u r a r e r e s i d e n t i a l , t o w n o f Q u a p a w , O k l - a h o m a , a n d a c t i o n f s a I l e g e c a u s e s o f a r e l - o c a t i o n c o m p l a i n E t h e p r o g r a m , a n d d e n i e d p r o p e r t y a l l o f n a m e d a s t h e i n - 2 8 t h i s a l l e g a t i o n s . p l a i n t i f f s ' i n c a s e t h a t h a d b e e n p e n d i n g w e h a v e b e e n d i s m i s s e d w i t h p r e j u d i c e . c a s e p e n d i n g T h e t r i a l i n t h e o u t c o m e o f a c l - a s s c e r t i f i c a t i o n t h e s a m e U . S . D i s t r i c t c o u r t s u b s e q u e n t l y s t a y e d a l 1 p r o c e e d i n g s i n a n o t h e r C o u r t , a c a s e f r o m w h i c h d e c i s i o n C o u r t W a y n e C o u n t y , M i c h i g a n , o w n e r s a n d o t h e r p a s t o r p r e s e n t o f W a y n e C o u n t y , M i c h i g d h , In January 2006, w€ were ser ved a 7 . ( C i r c u i t p r o p e r t y e t P l a i n t i f f s , W o o d s N e i g h b o r h o o d n e g l i g e n c e , n u i s a n c e , E n v i r o n m e n t a l P r o t e c t i o n A c t w i t h o p e r a t e d p e r s o n a l m o n i t o r i n g f e d e r a l r e s p o n d t o s t a t e c o u r t . b y u s a n d a n o t h e r i n j u r y t o d i s c o v e r y d a m a g e s , t r e s p a s s c o u r t . c o s t s . r e q u e s t s . l o s s I n F e b r u a r y 2 0 0 5 , w € o f a n d u n d e r r e s p e c t d e f e n d a n t . o f r e s i d e n t s Indus tri es, a 1 1 e g e c a u s e s o f a c t i o n i n B rown et al . v. N l C a s e N o . In c. 0 5 - 6 0 2 0 9 6 C Z ) . t h e K r a i n z i n t h e M i c h i g a n N a t u r a l R e s o u r c e s a n d t o a l - e a d s m e l t i n g f a c i l i t y s e e k p r o p e r t y f o r m e r l y d a m a g e s , i n c o m e a n d m e d i c a l - e x p e n s e a n d m e d i c a l t o r e m o v e t h e c a s e t o w h o f a i l e d t h e c a s e w a s r e m a n d e d t o f n A u g u s t 2 0 0 7 , a p e t i t i o n P l a i n t i f f s f i l e d I n M a y 2 0 0 7 , w € m o v e d t o d i s m i s s s e v e r a l - p l a i n t i f f s In ,June 2006 , w€ from Order and sev eral - other th e EPA regard ing l o c a t e d t h e i n P a r k H i l - l - s , M i s s o u r i . i t s p r e d e c e s s o r a n d s i t e , 1 9 3 5 . D o e R u n i s a l s o n a m e d i n P RP s rec eiv ed T h e D o e R u n C o m p a n y i s a U nil atera l- a form erl-y -ow ned mi ne and mi ll in g t h e c u r r e n t i n f r o m u s f n A u g u s t 2 0 0 6 , D o e a l l o c a t i o n t h e O r d e r . a n a p p r o p r i a t e p u r c h a s e d s i t e t h e r e m e d i a t i o n . t o n e g o t i a t e w i t h u s r e g a r d i n g t h e p a r t i e s I n 2 0 0 7 , f o r o f c o s t s a l l - o c a t i o n t h e e n g a g e d i n m e d i a t i o n r e m e d i a t i o n r e a c h e d a n a g r e e m e n t o f a d e f i n i t i v e t o p u r s u e D o e R u n i n p r i n c i p l e f f s h a r e o f o n a l - l - o c a t i o n s u c h a n a g r e e m e n t t h e a g r e e m e n t . i t s f o r c o s t s o f c o s t s a n r e g a r d i n g a n d i n J a n u a r y 2 0 0 8 , t h e f o r t h e i s n o t r e a c h e d , a s s o c i a t e d w i t h c a l l i n g A dmi nist rat ive f a c i l i t y o w n e r o f a p p r o x i m a t e l y R u n c e a s e d f o r t h e a p p r o p r i a t e p a r t i e s p r e p a r a t i o n w e i n t e n d c o m p l y i n g w i t h t h e O r d e r . In June 2006, we were served w ith a com plai nt i n D onneTTy and D onneTTy ( S t a t e o f N e w Y o r k S u p r e m e C o u r t . , C o u n t y o f R e n s s e l a e r , I n c . T h e p l a i n t i f f s , i n N e w Y o r k a n d h i s w i f e , d l l e g e t h e c o m p l a i n t ) v . N L I n d u s t r i e s , C a u s e N o . 2 L g L 4 9 ) . o f o u r f o r m e r s i t e s ( w h i c h a r e n o t d e s c r i b e d l - e v e l - s o f d a m a g e s f o r n e g l i g e n c e , t h e w i f e . 2 0 0 6 , w € a n s w e r e d t h e c o m p l a i n t a n d d e n i e d a l l o f D i s c o v e r y l i a b i l i t y r e m o v e d t h i s i n s u b s t a n c e s f n J u l y 2 0 0 5 , w € i s p r o c e e d i n g . d a t e h a s b e e n s e t . N o t r i a l p r o d u c t a m a n w h o c l a i m s a s a t o x i c c a s e a n d d e r i v a t i v e r e s u l - t o f o u r c o n d u c t . t o h a v e w o r k e d n e a r o n e t h a t h e s u f f e r e d a s a r e s u L t o f e x p o s u r e i n j u r i e s t o h a r m f u l P l a i n t i f f s c l - a i m l o s s e s o n t h e p a r t o f I n A u g u s t t o F e d e r a l C o u r t . t , h e p l a i n t i f f s ' a l l e g a t i o n s . In July 2006 , w€ were serv ed w ith a com plai nt i n N orampac Indus tri es, I n c . v . N I I n d u s t r i e s , N e w Y o r k , C a s e N o . 0 5 - C V - 0 4 7 9 ) . m a t t e r a n d f i l e d a s t i p u l a t i o n I n c . ( U n i t e d S t a t e s D i s t r i c t f n F e b r u a r y 2 0 0 8 , w i t h t h e c o u r t d i s m i s s i n g C o u r t , W e s t e r n D i s t r i c t s e t t l e d t h e p a r t i e s t h e c a s e . o f t h e I n O c t o b e r 2 0 0 6 , w € e n t e r e d f o r C o u r t t h e D i s t r i c t D i s t r i c t r e m e d i a l - d e s i g n a n d r e m e d i a l - a c t i o n s C o u n t y S u p e r f u n d S i t e . W e c o n d u c t e d m i l l i n g s i t e w h i c h w e h a v e a g r e e d w i t h o t h e r P R P s a s w e l l - a s t h e E P A f o r p o r t i o n s E P A f o r a p o r t i o n i n w h i c h i t s p a s t a n d f u t u r e t h e s i t e o f r e m e d i a t e . t o o f i n t o a c o n s e n t d e c r e e o f K a n s a s , i n w h i c h w e a g r e e d i n O U - 5 , W a c o S u b s i t e , a c t i v i t i e s i n t h e U n i t e d S t a t e s t o p e r f o r m t h e C h e r o k e e t h e o f o n t h e p o r t i o n o f W e a r e a l - s o s h a r i n g r e s p o n s i b i l i t y r e m e d i a t i n g t h e P R P s o p e r a t e d . a t r i b u t a r y W e w i l l t h a t d r a i n s a l - s o r e i m b u r s e t h e t . h e r e s p o n s e c o s t s r e l a t e d t . o t h e s i t e . See also f tem 1 "ReguJ.a tory and Environmental- MatEers" . T r e m o n t - P r i o r s u b s i d i a r i e s , D e p a r t m e n t T r e m o n t a n d e n t e r e d i n t o o f E n v i r o n m e n t a l - t o 2 0 0 5 , a v o l u n t a r y T r e m o n t , s e t t l - e m e n t a n o t h e r o f a g r e e m e n t w i t h o u r Q u a l i t y a n d c e r t a i n o t h e r P R P s p u r s u a n t w h o I l y - o w n e d t h e A r k a n s a s t o w h i c h i n t e r i m a n d t h e o t h e r P R P s w o u l d u n d e r t a k e c e r t a i n i n v e s t i g a t o r y 2 9 r e m e d i a l a c t i v i t i e s Hot Springs County, Arka nsas. H a l l - i b u r t o n E n e r g y S e r v i c e s , for, with p r o c e d u r e pendi ng i n a r b i t r a t i o n , among other t.he site th ings, th e a a t a f o r m e r m i n i n g s i t e p a r t l y o p e r a t e d b y N L l o c a t e d Tremont had enter ed a n o t h e r P R P f o r sha ring of I n c . , inter im i nto t h i s remed iati on i n an agreem ent wit h s i t e , w h i c h p r o v i d e s cos ts ass oci ate d an agreed -upon f inal al -loc ati on of cos ts thro ugh d s f u r t h e r d i s c u s s e d b e l o w . On December 9, 2005, Hall-iburton s i t e , f i l e d s u i t i n t h e U n i t e d S t a t e s D i s t r i c t o f T e x a s , H o u s t o n D i v i s i o n , and D II Indus tri es, LLC , another P RP of t h e S o u t h e r n C o u r t C a s e N o . H - 0 5 - 4 L 5 0 , a g a i n s t N L , T r e m o n t a n d G e o r g i a - L . L . C . , M i l - w h i t e , I n c . f o r M - I , t h i s D i s t r i c t a n d c e r t a i n P a c i f i c C o r p o r a t i o n o f i t s s u b s i d i a r i e s , s e e k i n g : o o d e c l - a r a t i o n decl-aration to recover a r e m e d i a t i o n a remediati on a decLaration Hall iburton s i t e . response and remed iati on t h e p a r t i e s ' o f cos ts f i a b i l i t y i ncurred at the si te; r e s p o n s e f o r c o s t s i n c u r r e d a t of the costs to be i ncurred t h e s i t e ; ' reg arding and DII for parti es Ii abil i ty the the obl igat ion cos ts and expe nses att ribut abl-e of Tremont fut ure at for the si te; to i n res ponse and i ndemnif y t he to a n d and O n D e c e m b e r 2 7 , 2 0 0 5 , a s u b s i d i a r y o f T r e m o n t t h e W e s t e r n D i s t r i c t a g a i n s t G e o r g i a - P a c i f i c , i n c u r r e d a n d w i l l i n c u r a t t h e H o u s t o n l i t i g a t i o n an amen dment with NL, Tre mont and agreed upon for f o r 0 5 - 5 0 8 9 , i t i n h a s C o u r t C a s e N o . S t a t e s D i s t r i c t D i v i s i o n , r e s p o n s e c o s t s p l a i n t i f f s into agreement pre viously site. stay with c l a i m s a g a i n s t T r e m o n t a n d d i s m i s s a n d t o s t a y The Tremont subsidiary lit.iga tion, the Arkansas the Houston litigati on, a g r e e d t o s t a y i ts res olv ing t h a t aff il iat es the al loc ation the arbi trat ion of cos ts at al so agreed w ith Georg ia P aci fic l i t i g a t i o n to t he t o subs equentl y and subs equentl y that matt er w as con sol idated wher e the cour t has agreed the pl aint iff s b u t d e n i e d T r e m o n t ' s m o t i o n s to st ay t o i t s s u b s i d i a r i e s , t h e c l - a i m s m a d e b y M - I , M i l w h i t e a n d G e o r g i a P a c i f i c . i n s u i t f i l e d t h e U n i t e d o f A r k a n s a s , H o t S p r i n g s r e c o v e r S u b s e q u e n t l y , b y e n t e r i n g t h e s i t e . s e e k i n g t o In June and Sep tember, 200 7 the arbi trati on issues noted abov e retur ned A m o n g o t h e r t h i n g s , i t s i n d e m n i f y T r e m o n t a n d includ ing attorney panel cho sen by fav orabl e dec isi ons t h e p a n e l to N L, Trem ont i s ( i n c l u d i n g N L ) a g a i n s t a l l fees , dss oci ated w ith any env ironmental- to pay Tremont approx imat ely t h a t H a l l i b u r t o n a f f i l i a t e s f o u n d the parti es i n v e s t i g a t i o n to the si te, s p e c i f i e d d a t e s , a n d r e m e d i a t i o n pl us any c o s t s fut ur e t o g e t h e r w i t h and ord er ed H all iburt on r e c o v e r y o f p a s t by Tremont i n c u r r e d a f t e r rel ated a f t e r e x p e n s e s a c c r u i n g th e c ourt S e p t e m b e r 7 , 2 0 0 7 . i n a n d H a l l i b u r t o n I n O c t o b e r 2 0 0 7 the to conf irm t o v a c a t e s u c h hearing w as hel d on N ovember 13, 2007 and w e ar e natur e for any w € have not acc rued a rec eiv abl-e the H ouston f i l e d the unc ertain a m o t i o n l iti gati on D ue to th e court on thi s matt er. pro ceedings, at t o i n c a s h th e site, i n incurred expe nses a n d th e a f f i l i a t e s . to address a n d i t s o b l i g a t e d costs and exp enses, remediation $ 1 0 . 0 m i l - l i o n legal and r e m e d i a t i o n p o s t - j u d g m e n t Tremont . filed a r b i t r a t i o n decisions. awaiting of awards at Dece mber 31, 2007 . p a n e l ' s d e c i s i o n s , i n t e r i m 3 1 , 2 0 0 7 f o r I e g a l i n t e r e s t a motion with p a n e l ' s A confi rmati on the on-going t h i s m a t t e r . the opin ion legal of d e c i s i o n s , c o s t s h a r i n g a L l - o c a t i o n . T r e m o n t . h a s a c c r u e d Pe nding a fi nal - conf irm ation t h i s f o r s i t e b a s e d u p o n t h e a g r e e d - u p o n T r e m o n t h a s $ . 5 m i l - l - i o n a c c r u e d a t D e c e m b e r of the arbi trati on O t h e r - W e h a v e a l s o a c c r u e d a p p r o x i m a t e l y 2007 for other enviro nmental - e n d o f t h e r a n g e o f o u r e s t i m a t e o f r e a s o n a b l y p o s s i b l e clea nup matt ers. $ 4 . 9 m i l - l i o n a t D e c e m b e r 3 a , the upp er i s near f o r s u c h m a t t e r s . Thi s acc rual - c o s t s 3 0 Insurance coverage claims. We are invoLved in variou s l ega1 proc eedings w ith cer tain a n d e x t e n t o f of our former t h e c a r r i e r s ' c a r r i e r s r e g a r d i n g t o u s u n d e r i n s u r a n c e o b l i g a t i o n s p i g m e n t a n d a s b e s t o s 1 a w s u i t s . d e f e n s e c o s t s o r a n d a s b e s t o s a s s u r e c o n s i d e r e d l i t i g a t i o n a n y p o t e n t i a l m a t t e r s l i t i g a t i o n s u c h t h a t y o u i n d e m n i t y o r b o t h w i l l b e f o u n d d e p e n d s u p o n a v a r i e t y i n s u r a n c e c o v e r a g e w i l l i n d e t e r m i n i n g i n s u r a n c e r e c o v e r i e s r e l a t e d a c c r u a L s . f o r t h e i n s u r a n c e T h e n a t u r e p o l i c i e s i s s u e o f w h e t h e r w i t h t o e x i s t r e s p e c t f o r o u r t o i n s u r a n c e l - e a d c e r t a i n f o r c o v e r a g e l e a d p i g m e n t a n d w e c a n n o t W e h a v e n o t l - e a d p i g m e n t o r a s b e s t o s f a c t o r s , b e a v a i l a b l e . o f c e r L a i n We have agreements with rei mburse d e f e n s e r e c o v e r us c o s t s . f r o m i s s u e s r e i m b u r s e m e n t . the carriers l i t i g a t i o n u l t i m a t e l y b e c a u s e o f q u a l i f y S t a t e m e n t s . W h i l e w e c o n t i n u e n o t i f w e w i l l d e f e n s e c o s t s o r i n s u r a n c e l i t i g a t . i o n w h e n t h e r e c e i p t r e c o v e r i e s m a t t e r s . i n d e m n i t y . k n o w f o r tw o form er fo r a porti on i nsuranc e car rier s of our pas t and W e a r e n o t a b l e t o d e t e r m i n e fut ure t h e s e c a r r i e r s t h a t a r i s e f o r p a s t d e f e n s e c o s t s r e g a r d i n g w h i c h p a s t S e e N o t e t o s e e k a d d i t i o n a l - 1 7 t o t h e C o n s o l - i d a t e d i n s u r a n c e purs uant to w hich l -ead pi gmen t h o w m u c h w e w i l l i n c u r r e d b y u s , c o s t s F i n a n c i a l - w e d o d e f e n s e r e c o v e r i e s , f o r e i t h e r p o t e n t i a l b e s u c c e s s f u l - i n o b t a i n i n g r e i m b u r s e m e n t i n d e t e r m i n i n g A n y a d d i t i o n a l - W e h a v e n o t c o n s i d e r e d a n y a d d i t i o n a l - l e a d p i g m e n t o r a s b e s L o s f o r r e c o v e r i e s w o u 1 d b e r e c o g n i z e d a c c r u a l s i n s u r a n c e i s p r o b a b l e a n d t h e a m o u n L i s d e t e r m i n a b l e . c l a i m s w i t h f u r t h e r m a t e r i a l We have settl"ed insura nce cov erage cl -ai ms conc erni ng c e r t a i n o f o u r p r i n c i p a l f o r m e r c a r r i e r s . envi ronment al- W e d o n o t e x p e c t s e t t l - e m e n t s r e l a t i n g t o e n v i r o n m e n t a l r e m e d i a t i o n c o v e r a g e . ITEM 4 . SUBMISSION Ot MATTERS TO A VOTE OF SECURITY HOITDERS N o n e . 3 1 I T E M 5 . II{ARKET FOR REGTSTRJA}flT I S COMMON EQUTTY, REI,ATED STOCKHOIJDER II{ATTERS AlrD rssItER PLRCIIASES OR EQUTTY SECnRTTIES PART II Common Stock and Dividends - Our com mon st ock t h e N e w Y o r k S t o c k E x c h a n g e ( s y m b o l : V H I ) . a p p r o x i m a t e l y 3 , 1 0 0 h o l d e r s t a b l e c o m m o n s t o c k a n d d i v i d e n d s t h e c l o s i n g p r i c e o f o u r c o m m o n s t o c k w a s $ 1 9 . 3 3 . o f t h e h i g h a n d f o r t h s e t s f o r r e c o r d o f o u r c o m m o n s t o c k . l - o w c l o s i n g t h e p e r i o d s T h e p e r s h a r e s a l - e s p r i c e s i n d i c a t e d . f o r o u r O n F e b r u a r y 2 9 , 2 0 0 8 f o l l o w i n g trade d on A s o f F e b r u a r y 2 9 , 2 0 0 8 , w € h a d l is ted and i s Year ended December 37, 2005 F i r s t Q u a r t e r Second Quarter Third Quarter Fourth Quarte r Year ended Dece mber 37, 2007 F i r s t Q u a r t e r Second Quarte r Third Quarte r Fourth Quarte r High IrOW C ash dividends pai d $ 1 8 . e 0 2 5 . 8 L 2 7 . 5 Q 2 7 . 9 2 $ 3 1 . 3 2 1 9 . 5 5 2 5 . 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" o ' - S & P 5 0 0 C o m p o s i t e S t o c k P r i c e I n d e x - { - S & P 5 0 0 I n d u s t r i a l C o n g l o m e r a t e s l n d e x V a l h i c o m m o n s t o c k S & P 5 0 0 C o m p o s i t e S t o c k P r i c e S & P 5 0 0 f n d u s t r i a l - C o n g l o m e r a t e s I n d e x I n d e x 2 0 0 2 2 0 0 3 D e c e m b e r 3 L , 2 0 0 5 2 0 0 4 2 0 0 6 2 0 0 7 $ f O O 1 0 0 1 0 0 $ 1 8 4 1 , 2 9 l - 3 5 $ 2 0 2 1 4 3 t 6 t $ 2 3 7 1 5 0 r - 5 5 $ 3 3 8 7 7 3 1 6 8 $ 4 7 s 1 8 3 1 7 6 The information i n the perf ormance conta ined o r t h e S e c u r i t i e s m a t e r i a l " " s o l i c i t i n g o f S e c t i o n 1 8 o f w e s p e c i f i c a l l y s p e c i f i c a l l y f i l e d u n d e r r e q u e s t i n c o r p o r a t e t h e S e c u r i t i e s " f i l - e d " w i t h t h e S E C , o r s u b j e c t E x c h a n g e A c t , a s a m e n d e d , e x c e p t t h a t t h e m a t e r i a l t h i s p e r f o r m a n c e g r a p h b y r e f e r e n c e E x c h a n g e A c t . t h e S e c u r i t i e s A c t o r t h e e x t e n t b e t r e a t e d a s s o l - i c i t i n g m a t e r i a l - o r i n t o a d o c u m e n t t o graph shal -l - not be deem ed t h e l i a b i l i t i e s t o Treasury St.ock Purchases r e p u r c h a s e o f u p t o 5 . 0 m i l - l - i o n s h a r e s o f o u r c o m m o n s t o c k I n M a r c h 2 0 0 5 , o u r b o a r d o f d i r e c t o r s i n t h e b l o c k 5 . 0 m i l l i o n t r a n s a c t i o n s , t r a n s a c t i o n s , a u t h o r i z e d o p e n m a r k e t i n c l u d i n g n e g o t i a t e d w h i c h m a y i n c l u d e I n N o v e m b e r 2 0 0 6 , o u r b o a r d o f d i r e c t o r s a d d i t i o n a l - m a r k e t s p e c i f i c Depending c o m p l e t i o n . shares will f o r u s e d p u r p o s e s . e m p l o y e e b e n e f i t S e e N o t e s 1 4 a n d 1 6 t o s h a r e s . 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T h e f o l l o w i n g t a b l - e d i s c l o s e s c e r t a i n i n f o r m a t i o n A 1 1 o f t h e s e p u r c h a s e s w e r e m a d e u n d e r r e g a r d i n g t h e s h a r e s (our onl y purc hases during t h e i n N ovember 2007 of our comm on stock we purchased q u a r t e r t h e r e p u r c h a s e p r o g r a m o f 2 0 0 7 ) . i n o p e n m a r k e t f o u r t h t r a n s a c t i o n s . P e r i o d November 1, 2007 t o N o v e m b e r 3 0 , 2 0 0 7 T o t a I nurnber of s h a r e s p u r c h a s e d Average p a i d s h a r e , p r i c e p e r i n c l u d i n g c o n m r i s s i o n s Tot,al s h a r e s number of p u r c h a s e d € l B p a r L o f a p u b l i c l y - a n n o u n c e d p l a n Maxirnurn number of shares b e p u r c h a s e d that may yet u n d e r t h e p u b l i c l y - a n n o u n c e d p l a n e n d o f p e r i o d a t 5 1 , 1 0 0 $ 2 r . 4 8 6 l _ , 1 0 0 4 , 0 0 5 , 6 0 0 - 3 3 ITE}T 5. SEI,ECTED FINAI{CTAI, DATA T h e f o l l o w i n g s e l - e c t e d f i n a n c i a l d a t a h a s b e e n d e r i v e d C o n s o l - i d a t e d s h o u l - d b e r e l - a t e d C o n d i t i o n r e a d N o t e s F i n a n c i a l i n a n d S t a t e m e n t s . T h e f o l l o w i n g c o n j u n c t i o n I t e m 7 - w i t h o u r C o n s o l - i d a t e d r t M a n a g e m e n t r s D i s c u s s i o n a n d R e s u l - t s o f O p e r a t i o n s . t l s e l - e c t e d F i n a n c i a l - a n d A n a l y s i s f r o m o u r a u d i t e d d a t a a n d f i n a n c i a l - S t a t e m e n t s o f F j - n a n c i a l 2 0 0 3 Years ended December 3L, 2 0 0 4 2 0 0 5 2 0 0 5 2 0 0 7 STATEME}iES OF OPERATTONS DATA: N e t s a l e s : C h e m i c a l s Component products W a s t e m a n a s e m e n t T o t a l n e t s a l e s O p e r a t i n g i n c o m e ( l o s s ) C h e m i c a l s Component products Waste management ( I n m i l l i o n s , e x c e p t p e r s h a r e d a t a ) $ 1 , 0 0 8 . 2 $ l - , 1 - 2 8 . 6 ( 1 v L t 1 q ( ' 7 L J v . ' $ L , 2 7 9 . 5 $ 1 , 3 1 _ 0 . 3 L 7 3 . 9 L 8 2 . 6 8 . 9 l _ u b . J 9 . 8 l - 9 0 . 1 1 1 . B L 7 7 . 7 4 . 2 ( 1 1 R 6 ? ( 1 j 2 O . l $r- JJ2-_q iL431J 61,4922 f i r 2 3 . 5 $ L 0 2 . 4 t 6 . 2 ( 1 0 . 2 ) 9 . 1 ( 1 1 - . s ) $ 1 5 s . 5 r _ 9 . 3 ( L 2 . 1 , ) $ r - 3 8 . 1 _ 2 0 . 6 ( e . s ) A ) ^ ^ - u d . o t - 5 . 0 ( 1 4 . 1 ) T o t a l o p e r a t i n g i n c o m e s 1 2 r . 2 s r _ 0 8 . 4 s__Jl2- 3 g___r-422 $_____9!l E q u i t y T I M E T i n e a r n i n g s ( l o s s e s ) o f r n c o m e ( l o s s ) f r o m c o n t i n u i n g o p e r a t i o n s D i s c o n t i n u e d C u m u l a t i v e e f f e c t o p e r a t i o n s o f c h a n g e i n a c c o u n t i n g p r i n c i p l e N e t i n c o m e ( l o s s ) DILUTED EARNINGS PER f r o m f n c o m e ( l o s s ) SI{ARE DATA: c o n t i n u i n g O p e r a t i o n s N e t i n c o m e ( l o s s ) C a s h d i v i d e n d s Weighted average common shares O u t s t a n d i n g STATEMENTS OF CASH FLOW DATA: C a s h p r o v i d e d b y ( u s e d i n ) : O p e r a t i n g a c t i v i t i e s I n v e s t i n g a c t i v i t i e s F i n a n c i n g a c t i v i t i e s BALANCE SHEET DATA (at year end): ( 1 ) T o t a l a s s e t s L o n g - t e r m d e b t s t o c k h o l d e r s ' e q u i t y ( 1 ) ( 2 ) - < A 4 q $ 1 0 1 . 1 A \ Y--------------1= ^ ? / h A Y $ ( 8 4 . 8 ) ( 2 . e ) 2 2 5 . 5 3 . 7 8 2 . L ( . 2 ) $ ] - 4 1 , . 7 $ ( 4 s . 7 ) . 6 $___lrfl) fi___222-2 $_____€u E____L4L_'7 A > I r - t + 5 . / , - \ $ $ ( . 7 1 ) $ 1 . 8 7 ( . 7 3 ) g 1 . e 0 $ $ $ . 2 4 # . 2 4 $ . 5 e . 6 e $ $ 4 n , s Y r . 2 0 $ 1 . 2 0 . 4 0 $ s ( . 4 0 ) ( . 4 0 ) A i l - 1 - 9 . 9 L Z U . + l - r a t . f , l - l - 6 . 5 L L 4 . 7 $ i r - 0 8 . s ( 3 3 . B ) ( 7 L . 2 ) 1 , 4 2 . L ( s B . l - ) 7 8 . 4 $ 1 0 4 . 3 A . . * . a n z v ( 1 1 s . 8 ) $ $ 8 5 . 3 ( B e . s ) ( 8 7 . 5 ) 5 3 . s ( 5 s . 4 ) ( s 5 . r ) # 2 , 3 0 7 . 2 6 3 2 . 5 6 3 1 , . 2 i 2 , 6 9 0 . 5 7 6 9 . 5 8 7 6 . r # 2 , 5 7 8 . 4 7 1 5 . 8 7 9 7 . 3 $ 2 , 8 0 4 . 7 7 8 5 . 3 8 5 5 . 8 $ 2 , 6 0 3 . 0 8 8 9 . 8 5 L 8 . 4 ( 1 ) t h e a s s e t W e a d o p t e d F i n a n c i a l t h e m e a s u r e m e n t S e e N o t e s 1 1 - a n d 1 - 8 t o o u r C o n s o L i d a t e d o f l - 5 8 a s o f D e c e m b e r 3 1 , 2 0 0 6 a n d o f S F A S N o . 1 5 8 a s o f D e c e m b e r 3 1 , 2 0 0 7 . S t a t e m e n t s . d a t e p r o v i s i o n s ( * S F A S " ) N o . o f S t a t e m e n t r e c o g n i t i o n A c c o u n t i n g F i n a n c i a l S t a n d a r d p r o v i s i o n s l i a b i l i t y a n d F A S B W e a d o p t e d S e e N o t e 1 8 t o o u r C o n s o l i d a t e d I n t e r p r e t a t i o n N u m b e r F i n a n c i a l S t a t e m e n t s . ( " F I N " ) 4 8 a s o f J a n u a r y 1 - , 2 0 0 7 - 3 4 ITEI{ 7 MAI\TAGEMEIiflT'S DlseussloN RESUI,TS OF OPERATIONS AIID AI{AI,YSIS oF FINAI{CIAL COIIDITION AI{D RESUI,TS OF OPER.ATTONS Business Overview we are primarily and maj ority-owned w o r l d w i d e , s p e c i a l i s t s s h a r e h o l - d e r o f t h a n a m a j o r i t y C r x ) e a c h f i l e r n c . , L L c a holding subsidiaries, C o m p x r n t e r n a t i o n a l , ( * w c s ' ) . P r i o r company. we operate through our wholly-owned rndus tri Ls i nci uding t n c . l l ll , K ronos , T r e m o n t L L c a n d w a s t e C o n t r o l l a r g e s c a l t h o u g h w e o w n e d . l e s s ( l U V S g : K R O ) , N L ( N Y S E : N L ) a n d C o m p X ( N y S E : t o M a r c h 2 6 , 2 o o 7 w e w e r e ( * T t M f T , ; rnc . , t h e t i t a n i u m M e t a l s C o r p o r a t i o n i n t e r e s t . K r o n o s r e p o r t s w i t h p e r i o d i c t h e S E c . w e h a v e t h r e e c o n s o l i d a t e d o p e r a t i n g s e g m e n E s : our chemical -s segm ent i s chemical-s owne rshi p m a r k e t e r o f v a ] u e - a d d e d u s e d f o r a v a r i e t y p a i n t s , p a p e r a n d o t h e r of Kronos. o f m a n u f a c t u r i n g a p p l i c i t i o t r " , i n d u s t r i a l p r o d . u c t s . K ronos t i t a n i u m a i eading d i o x i d e p i g m e n t s gl oba] ( , . r i o r " ; . i s operat ,ed. thro ugh our maj orit y produc er and T i o 2 i s i n c J - u a i n g p l a s t 1 c s , component Ptoducts through our majo rity m a n u f a c t u r e r e r g o n o m i c t r a n s p o r t a t i o n , C o m p X i s s y s c e m s , g a u g e s a n d i n d u s t r y . c o m p u t e r a l s o t o o l a we operate owners hip of C ompX. C ompX i s a the component prod.ucts in l eading industry gl obal o f s e c u r i t y p r o d u c t s , p r e c i s i o n s u p p o r t s t o r a g e s y s E e m s u s e d i n a n d a v a r i e t y l e a d i n g m a n u f a c t u r e r c o n t r o L s t h r o t t l e o f f o r b a l l b e a r i n g t h e o f f i c e o f o t h e r s t a i n l - e s s s f i a e s a n d f u r n i t u r e , i n d u s t r i e s . s t e e l e x h a u s t t h e p e r f o r m a n c e m a r i n e o Waste Mana gement WC S is our w hol-l y-ow ned subs idi ary t h e p r o c e s s i n g , f a c i l i t y f o r l -ow l -evel - rad.i oact iv e and o p e r a t e s a w e s t T e x a s storage of hazard ous, a s t h e d i s p o s a l o f h a z a r d o u s , w a s t e ' i s a u t h o r i z a t i o n t o e x p a n d i t s w a s t e d i s p o s a l c a p a b i l i t i e s . tox ic w c s i n t h e p r o c e s s t o x i c a n d c e r t a i - n l o w ] e v e l s e e k i n g t o o b t a i n l o w - l - e v e 1 a n d m i x e a l o w - l e v e 1 o f w hic h ow ns and t r e a t m e n t a n d , w aste as w el] r a d i o a c t i v e r e g u l a t o r y r a d l o a c t i v e f o r o u r s h a r e o f T r M E T c o m m o n s t o c k a s a v a i l a b ] e - f o r - s a ] e d i v i d e n d o n M a r c h 2 5 , 2 0 0 7 w e c o m p l e t e d . a s p e c i a l 1 ? o f T r M E T ' s o u t s t a n d i n g s t o c k w e o w n e d t o o u r s t o c k h o l d . e r s . w e a c c o u n t e d . TrMET by Ehe equi ty method Ehrou gh Marc h 31, 2007. a p p r o x i m a t e l y a c c o u n t s e c u r i t i e s s t a t e m e n t s - p r o d u c t s a n d m i l l e d a e r o s p a c e , m i l i t a r y , o n l y t i t a n i u m p r i n c i p a l p r o d u c e r w i t h m a j o r p r o d u c t i o n g l o b a l T i t a n i u m S e e N o t e 3 t o T r M E T i s a p r o d . u c t s . t i t a n i u m m a r k e t s : t h e u . s . a n d E u r o p e . t a c i l i t i e s l e a d i n g c a r r i e d v a l - u e . f a i r a t m e d i c a l a n d o t h e r e m e r g i n g m a r k e t s . c o m m o n s t o c k . p r o d u c e r o f t i t a n i u m i s u s e d . f o r a v a r i e t y o f f o r o u r 3 5 t t h e T I M E T c o m m o n i n t e r e s t i n A s a res ul-t w e now own w e n o w A c c o r d i n g l y m a r k e t a b l e t h e C o n s o l - i d a t e d F i n a n c i a l s p o n g e , m e l t e d . o f c o m m e r c i a l , T I M E T i s a l - s o t h e t h e w o r l d , s i n b o t h o f Income From Continuing Operations Overview Year Ended December 37, 2006 Compared to yea r E nded D ecember 31, 2007 We reported $ . + O p e r d i l u t e d a net ] o s s f r o m c o n t i n u i n g s h a r e in 2007 compared - 3 5 o p e r a t i o n s o f $ q s . l m i l l i o n o r to i ncome from con tinui ng operat ions o f $ L 4 L . 7 m i l l i o n , m i l l i o n , o r $ . 5 9 p e r d i l u t e d s h a r e , i n 2 0 0 5 . o r i I . 2 0 p e r d i l u t e d s h a r e , i n 2 0 0 5 a n d j . n c o m e o f $ 8 2 . 1 O u r d i l u t . e d e a r n i n g s p e r s h a r e d e c r e a s e d f r o m 2 0 0 6 t o 2 0 0 7 d u e p r i m a r i l y t o t . h e n e t e f f e c t s o f : o an income primarily ta x charge as a resul -t of a reduc t j -on i n Germ an tax rec ogniz ed by our C hemic als S egment i n 2Q O7 rates ; . o o o . . o incom e an u n c e r t a i n ta x bene fit t a x p o s i t i o n s to a net, decr ease due i n 2 0 0 7 ; i n our res erve f or effecti ve lower fa vorable resol -ution Segment's operations inco me tax i n i n 2006 rel ated rate 2005 pri mari ly to audi ts t he i n our C hemic als due to i n Ger mafl y, B elgi um and N orway ; ceasing d i s t r i b u t i o n to record o f o u r T I M E T s h a r e s equi ty i n earni ngs i n t h e from TIME T due to q u a r t e r o f 2 0 0 7 ; f i r s t t he th e gain in 2006 from the sal -e of cer tain l -and i n N evada; lowe r operating incom e from eac h of our seg ments i n 2007; o a c h a r g e N o t e s ; i n 2 0 0 6 f r o m t h e r e d e m p t i o n o f o u r 8 . 8 7 5 2 S e n i o r S e c u r e d l-o wer ref inancing of our Se nj-o r S ecured N otes; and res ulti ng expense interest 2007 i n from the A pril 2006 ]o wer divide nd a d d i t i o n a l incom e from A malg amated S ugar C ompany i n 2oo7 as t he d i v i d e n d i t o w e d t o u s w a s c o m p l e t e l y p a i d i n 2 0 0 6 . m i n o r i t y Our incom e i n t e r e s t , o a n e t from contin uing a s a p p l i c a b l e ) : operat ions i n 2006 i ncLudes (net of tax and i n c o m e t a x b e n e f i t o f $ . 2 1 p e r d i l u t e d s h a r e a t o u r C h e m i c a l - s to the net ef f ect of Seg ment rel ated incom e ta x assessments prev ious ly made by B elgi an and N orweg ian authorities, res ol-ut ion rel ated red uction unfavorabl-e to our German operations ; to our Ge rma n and B elgi an operat ions tax i ncome t ax i ssues and the enac tment of a rate s t he in Canad ian reso]ution feder al of cer tain the w it. hdrawal - of i ncome other off set i ssue s by rel ate d i ncome tax of cer tain fa vorab l-e cer tain th e tax o i n c o m e o f $ . 2 0 p e r d i l u t e d Nevada; o a c h a r g e t h e N o t e s o f $ . 0 9 p e r d i l u t e d o a g a i n o f $ . 0 9 p e r d i l u t e d r e l - a t e d t o mino rity l-o cated interest o i n c o m e recoveri es in France; an d . o f $ . 0 3 p e r d i l u t e d recog nized by N L. s h a r e r e l a t e d t o t h e s a l e o f o u r l a n d i n r e d e m p t i o n o f o u r 8 . 8 7 5 t S e n i o r S e c u r e d s h a r e ; s h a r e r e l a t e d in V ALTIM ET, a manufac turi ng t o T I M E T ' s s a l e o f i t s ven tur e j oint s h a r e r e l - a t e d t o c e r t a i n i n s u r a n c e O u r n e t l - o s s i n 2 0 0 7 i n c l - u d e s o a c h a r g e o f $ . 5 2 p e r d i l u t e d ( n e t o f t a x a n d m i n o r i t y i n t e r e s t ) : s h a r e a s a r e s u l t o f t h e e f f e c t o f a red uction of th e Ge rm an i ncome tax rate s i n 2007; o a c h a r g e o f $ . 0 5 p e r d i l u t e d certain Ge rma n ta x att ribut es s h a r e w ithi n r e l - a t e d t o our C hemic al-s S egment; t h e a d j u s t m e n t o f o a n i n c o m e d e c r e a s e t a x b e n e f i t i n o u r r e s e r v e o f $ . 0 3 p e r d i l u t e d f o r u n c e r t a i n t a x p o s i t i o n s ; a n d s h a r e d u e t o a n e t o i n c o m e o f recoveries $ . 0 3 p e r d i l u t e d recog nized by N I-,. s h a r e r e l a t e d t o c e r t a i n i n s u r a n c e We discuss t.h ese amou ntrs more fu ]Iy bel ow. - 3 5 Year Ended December 37, 2005 Com pared to Y ear E nded D ecember 31, 2006 W e r e p o r t e d $ 1 . 2 0 p e r d i l u t e d p e r d i l u t . e d s h a r e , i n c o m e f r o m c o n t i n u i n g o p e r a t i o n s o f i L 4 1 - . 7 m i l l i o n , s h a r e , i n 2 0 0 6 c o m p a r e d t o i n c o m e o f $ 8 2 . 1 m i l l i o n , i n 2 0 0 5 . o r o r $ . 5 9 O u r d i l u t e d e a r n i n g s p e r s h a r e i n c r e a s e d f r o m 2 0 0 5 t o 2 0 0 6 d u e p r i m a r i l y t o t h e n e t e f f e c t s o f : o a l-o wer effecti ve in come tax rate resol-ution f avorabl e Segment' s operations in rel -ated concl-usion fo r Component Products Segment; to earnin gs 2005 a i n 2Q05 rel -ated to audi ts in Germany, Belgium and Norway and a provision i n 2006 pri mari ly t he i n our C hemical- s due to chan ge i n of cer tain the fore ign permanent subs idi ari es rej -nves tment of our . o o highe r equi ty in earnings from TIME T i n 2006. th e gain in 2006 from the saLe of cer tain l -and i n N evada; l-o wer to tal income were more Chemical s Seg ment; operating i ncome i n 2006 as i mprovement s i n operat in g from our Component Products th an offset by a decl i ne and Waste Management Segments i ncome at o ur i n operat ing o a c h a r g e N o t e s ; i n 2 0 0 5 f r o m t h e r e d e m p t i o n o f o u r 8 . 8 7 5 ? S e n i o r S e c u r e d . . o t h e w r i t e - o f f o f a c c r u e d Snake River Sugar Company; i n t e r e s t i n 2 0 0 5 o n o u r p r i o r l - o a n t o s e c u r i t i e s t r a n s a c t i o n g a i n s r e a l i z e d i n 2 0 0 5 , ' a n d interest ]o wer distributions 2 0 0 6 . and div idend i ncome i n 2006 pri mari ly from The Amalgamated Sugar Company LLC due to l ower in received m i n o r i t y Our incom e i n t e r e s t , from contin uing operat ions i n 2005 i ncl -udes (net of tax and a s a p p l i c a b l - e ) : . incom e rel -ated to cer tain o f $ . 1 1 p e r d i l u t e d s h a r e ; i ncome tax benefi ts rec ogniz ed by TIMET o g a i n s f r o m N L ' s s a l - e s o f s h a r e s o f K r o n o s c o m m o n s t o c k o f $ . 0 5 p e r d i l u t e d o a n o n - c a s h s h a r e ; i n c o m e t a x e x p e n s e o f $ . 0 3 p e r d i l u t e d in certain developments Segment and a change earnings of certain Segment; tax audi ts i ncome the permanent sub sid iari es in forei gn . . o of th e sal e from our pass iv e a gain s m e l t i n g o p e r a t i o n o f $ . 0 2 p e r d i l u t e d t o T I M E T ' s s a l - e o f c e r t a i n i n c o m e r e l a t e d i t s N e v a d a o p e r a t i o n s o f $ . 0 2 p e r d i l u t e d $ . 0 1 p e r d i l u t e d i n c o m e o f recogni zed by N L. recoveri es s h a r e s h a r e ; t o at N L and our C hemic al-s s h a r e r e l - a t e d reinvestment for of our C omponent P roducts concl-usion i nteres t i n a N orweg ian r e a l p r o p e r t y a d j a c e n t s h a r e ; a n d t o r e l - a t e d t o c e r t a i n i n s u r a n c e m i n o r i t y Our income i n t e r e s t , o a n e t from contin uing operaLi ons i n 2006 i ncl -udes (net of t.a x and a s a p p l i c a b l - e ) : i n c o m e t a x b e n e f i t o f # . 2 a p e r d i l u t e d s h a r e a t o u r C h e m i c a l s to the net eff ect Seg ment rel -ated incom e ta x assessments prev ious ly made by B elgi an and N orweg ian authorities, rel ated red uction unfavorable to our German operations ; to our Ge rma n and B elgi an operat ions tax i ncome tax i ssues and the enac tment of a the rate s in Canad ian resol -ution feder al- of cer tain f avo rabl-e res ol-ut ion i ncome other off set i ssues the w ithd rawal by rel ated i ncome tax of cer tain cer tain th e tax of of - 3 7 i n c o m e o f $ . 2 0 p e r d i l u t e d Nevada; s h a r e r e l a t e d t o t h e s a l e o f o u r L a n d i n t o r e l - a t e d a c h a r g e t h e N o t e s o f $ . 0 9 p e r d i l u t e d a g a i n o f $ . 0 9 p e r d i l u t e d min ority interest l-o ca ted in Fran ce; and r e d e m p t i o n o f o u r 8 . 8 7 5 ? S e n i o r S e c u r e d s h a r e , ' s h a r e r e l a t e d in V ALTI MET, a manuf acturi ng t o T I M E T ' s s a l e o f i t s ven tur e j oint a i n c o m e o f recoverj-es $ . 0 3 p e r d i l u t e d recogni zed by N L. s h a r e r e l - a t e d t o c e r t a i n i n s u r a n c e W e d i s c u s s th ese amou nts more fu Ily bel -ow. Current Forecast for 2008 We currently expect to rep ort t h e n e t l - o s s i n 2 0 0 7 d u e p r i m a r i l y t o l -ower net a t h e n e t e f f e c t s o f : l -oss for 2008 as com pared t o o lowe r eff ect G e r m a n i n c o m e t a x e s r a t e s w a s r e c o g n i z e d 2 0 0 7 ; the unfav orable ta xe s as incom e of the reduc tion in o no equi ty interest special distribution in earnings in TIM ET by from TIME T as w e ceas ed the equi ty metho d fol low i ng to acc ount for our our Marc h 2007 of TIME T com mon st ock; and o lowe r expected operating conti nued m a t e r i a l l-o wer ave rage c o s t s . i ncome sel l ing CriticaL accou nting policies and est imat ,es from our C hemic als S egment due t o raw i ncreas es pri ces and i n W e h a v e b a s e d t h e a c c o m p a n y i n g " M a n a g e m e n t ' s D i s c u s s i o n a n d A n a l - y s i s o f u p o n o u r C o n s o l i d a t e d F i n a n c i a l - i n a c c o r d a n c e t h e U n i t e d S t a t e s o f A m e r i c a o f a p a r t i c u l a r S t a t e m e n t s t r a n s a c t i o n t h a t o f i n o t h e r c a s e s H o w e v e r , a f f e c t c o n t i n g e n t r e p o r t e d a s s e t s a n d r e p o r t e d a m o u n t s a n d t h e O n a n o n - g o i n g b a s i s , w e t h e i m p a i r m e n t s o f f o r b y i n v e s t m e n t s t h e e q u i t y m e t h o d , g o o d w i l l a n d o t h e r ( i n c l u d i n g i n t r e a t m e n t W e p r e p a r e o u r C o n s o l i d a t . e d F i n a n c i a l r e q u i r e u s t o m a k e e s t i m a t e s a n d j u d g m e n t s . a t a c c e p t e d r e q u i r e d l i a b i l i t i e s f n m a n y c a s e s t o m a k e e s t i m a t e s a n d t h e d a t e o f g e n e r a l l y t h e a c c o u n t i n g t h e r e v e n u e s a n d e x p e n s e s d u r i n g F i n a n c i a l - C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s " S t a t e m e n t s . w i t h a c c o u n t i n g p r i n c i p t e s ( " G A A P " ) . d o e s n o t w e a r e a m o u n t s o f a s s e t s l i a b i l i t i e s o f e v a l - u a t e o u r e s t i m a t e s , i n m a r k e t a b l - e s e c u r i t i e s t h e i n t a n g i b l e t h e u n d e r l y i n g d e f e r r e d r e m e d i a t i o n , h i s t o r i c a l - r e a s o n a b l - e u n d e r m a k i n g a n d e x p e n s e s . e s t i m a t e d a m o u n t s u n d e r d i f f e r e n t a c t u a r i a l - a n d l i t i g a t i o n , e x p e r i e n c e t h e r e s u l t s m i g h t d i f f e r t h e c i r c u m s t a n c e s , r e p o r t e d j u d g m e n t s a b o u t A c t u a 1 a s s u m p t i o n s t a x a n d i n v e s t m e n t s r e c o v e r a b i l i t y l o n g - l i v e d i n c l u d i n g a s s e t s ) , i n c o m e a s s e t s o t h e r a n d j u d g m e n t s a n d d i s c l - o s u r e s t a t e m e n t s , f i n a n c i a l t h e r e p o r t e d p e r i o d . t o a c c o u n t e d r e l - a t e d t h o s e o f o t h e r p e n s i o n a n d o t h e r p o s t r e t i r e m e n t a s s e t s r e l - a t e d t h e r e t o , a n d a c c r u a l s f o r b e n e f i t t h e i n c o m e t a x c o n t i n g e n c i e s . W e b a s e o u r e s t i m a t e s a n d o n v a r i o u s t h e a m o u n t s o f a s s e t s , o t h e r r e s u l - t s o f w h i c h a s s u m p t i o n s w e b e l - i e v e t h e b a s i s f o r m l i a b i l i t i e s , s i g n i f i c a n t l y a s s u m p t i o n s o r c o n d i t i o n s . o b l i g a t i o n s r e a l i z a t i o n a n d o f e n v i r o n m e n t a l - o n a r e f o r r e v e n u e s f r o m p r e v i o u s l y - " O u r c r i t i c a l - a c c o u n t i n g p o l i c i e s " r e l a t e f i n a n c i a l - i m p a c t o n o u r our most sub j ecti ve F i n a n c i a l - S t a t e m e n t s p o l i c i e s . p o s i t i o n or complex f o r a d e t a i l - e d d i s c u s s i o n a n d r e s u l t s j udgment s . o f o p e r a t i o n s , S ee N ote t o a m o u n t s h a v i n g a m a t e r i a l - r e q u i r e l - to our C onsol -idated a c c o u n t i n g o f o u r s i g n i f i c a n t a n d t h a t securities Marketabl e a c c o u n t account t . h e f a i r v a l - u e a t e a c h b a l - a n c e s h e e t . d a t e . W e u s e q u o t e d m a r k e t p r i c e s , that we com panies t h a t w e v a l u e o r i nves tment.s , w € eval -ua te - We ow n i nvest ments s e c u r i t i e s f o r a s m a r k e t a b l e f or under th e equi ty met. hod. For i n cer tain f a i r a t c a r r i e d thes e - 3 8 1 8 L e v e 1 1 i n p u t s o u r m a r k e t a b l - e L e v e l - 3 s e c u r i t i e s , S e e N o t e impairment t h a n m a r k e t a b l e i n v e s t e e s ) . o p e r a t i n g our n o t b e p o s s i b l y inability r e s u l t s to r e f l - e c t e d r e q u i r i n g a s d e f i n e d d e b t t o p r i m a r i l y o u r s e c u r i t i e s d e t e r m i n e i n S F A S N o . 1 , 5 7 , a n d p u b l i c l y v a l - u e f a i r i n A m a l g a m a t e d i n v e s t m e n t t r a d e d f o r o u r t o d e t e r m i n e i n p u t s t o o u r C o n s o l - i d a t e d F i n a n c i a l S t a t e m e n t s . charge when we b el-i eve an i nves tment has exp erienc ed t e m p o r a r y d e c l i n e i n f a i r v a l - u e b e l - o w s e c u r i t i e s ) F u t u r e o r b e l - o w i t s c a r r y i n g a d v e r s e o f u n d e r l y i n g c h a n g e s i n m a r k e t i n v e s t m e n t s c o u 1 d r e s u l t . recover the c a r r y i n g i n a n u s t o r e c o g n i z e a n i m p a i r m e n t c h a r g e th e car ryi ng i n v e s t m e n t ' s val ue of c u r r e n t i t s v a l u e f a i r i n v e s t e e s . o t h e r v a l u e f o r W e u s e m a r k e t a b l - e S u g a r C o m p a n y L L C . an W e rec ord c o s t an oth er ( f o r b a s i s ( f o r e q u i t y m e t h o d p o o r l - o s s e s o r that m ay t h e r e b y c o n d i t i o n s i n i nves tments o r v a 1 u e , t h e i n f u t u r e . a l l o f e a c h o f A t D e c e m b e r 3 I , 2 0 Q 7 , t h e c a r r y i n g o f s u b s t a n t i a l l y t h e c o s t b a s i s Amalgamated Sug ar Comp any LLC a g g r e g a t e c a r r y i n g 3 1 , 2 0 0 7 . b a s i s . of our carrying value of our invest ment v a l u e ( w h i c h e q u a l s o f o u r m a r k e t a b l - e s e c u r i t i e s s u c h i n v e s t m e n t . O u r approx imat ely t h e i r v a l u e ) f a i r e q u a l e d o r e x c e e d e d i n T h e the 782 of a t D e c e m b e r i n v e s t m e n t repre sents v a l u e o f a l l o f o u r m a r k e t a b l - e s e c u r i t i e s T h e $ 2 5 0 m i l - l - i o n c a r r y i n g c o s t A t D e c e m b e r 3 1 , 2 0 0 7 , t h e # 2 5 . 4 5 p e r s h a r e q u o t e d m a r k e t p r i c e shar e n et investm ent in TIM ET w as a]mo st t h e s a m e a s our per v a l - u e ti mes f i ve i t s i s i n TIME T. O u r g o o d w i l l G o o d w i l - l - p r i m a r i l y r e s u l t i n g In accordance with SFAF No . w e d o n o t a m o r t i z e g o o d w i I l . t o t a l - e d $ 4 0 5 . 8 m i l l - i o n f r o m o u r v a r i o u s s t e p a c q u i s i t i o n s ]-42 , Goodw il -7 and Ot her a t D e c e m b e r 3 1 , 2 0 0 7 o f K r o n o s a n d N L . Int angibl e A sse ts , f o r is eval-uated f or i m p a i r m e n t Goodwill a l s o e v a l u a t e d e x c e e d s an operating o f p u b l i c l y impair ment.. o f a d i s c o u n t e d b o o k v a l u e , is u n i t r e p o r t i n g c a n b e a s e g m e n t o r i t s e s t i m a t e d For our C hemic al-s S egment, w € use Lev el- l - i nputs division. t r a d e d m a r k e t p r i c e s t o a s s e s s For our Component P roduct s S egment, w € use Leve l 3 i nputs t h e t h e t h e e s t i m a t e d i mpair ment i f v a l u e . t o c o m p a r e t h e b o o k v a l - u e c a s h f l o w t e c h n i q u e . t h e b o o k v a l - u e o f I f d o w n t o l -east annual 1y. A r e p o r t i n g f a i r v a l u e l - e s s t h a n i s w r i t t e n t h e a s s e t Goodw i l-l i s f a i r v a l - u e . u n i t f a i r i t s at Considerabl e man agement judgment o p e r a t i n g in our c o s t o f o p e r a t i n g p l a n s . eval-uations, a r e impa irment c a p i t a l , c h a n g e s a n d t o e s t i m a t e c o n s i s t e n t i s nece ssary f u t . u r e c a s h to eval -uate f l o w s . the i mpact of A s s u m p E i o n s u s e d grow t.h rates and o ur p r o j e c t i o n s a n d f orec ast ed o u r i n t e r n a l suc h as w i t h W e d i d n o t r e c o g n i z e a n i m p a i r m e n t c h a r g e f o r g o o d w i l l d u r i n g 2 0 0 7 . o u r t he l o n g - l i v e d a s s e t s , i n c l u d i n g in WCS, in accor dance w ith S FAS N o. 1-44 , A cco unt.i ng or Disposal A sset s. W e ass ess f or proper ty , cos ts o f and f o r o u r W e a c c o u n t Long-Li ved permi t capital:-zed a n i n d i c a t e o f c o n t i n u e d o p e r a t i n g L o n g - l " i v e d a s s e t s invesLment Impairment equipment c i r c u m s t a n c e s r e s u l t Waste Man agement Seg ment w ere eva l-uat ed 3 1 , 2 0 0 7 . O u r a n a l y s i s , f l o w s o f W C S ' o p e r a t i o n s , e s t i m a t e management c h a n g e s a n d i m p a i r m e n t e v a l u a t i o n s , a r e c a p i t a l , p 1 a n s . s u c h a s f o r e c a s t e d o u r is necess ary t h e c a r r y i n g t o e s t i m a t e c o n s i s t e n t e x c e e d e d i n d i c a t e d judgment f u t u r e c a s h w i t h n o i n t e r n a l - to eval uate f l o w s . b a s e d o n e s t i m a t e d i m p a i r m e n t m a y e x i s t . l - o s s e s , c e r t a i n for onl y l o n g - l i v e d i mpair ment w hen D u r i n g 2 0 0 7 , d s a a s s e t s o f o u r as of D ecember f u t u r e u n d i s c o u n t . e d c a s h t . h e i mpair ment i m p a i r m e n t w a s p r e s e n t a s for C o n s i d e r a b l e i mpact of operat in g the A s s u m p t i o n s u s e d i n o u r r a t e s a n d o u r c o s t o f a n d o p e r a t i n g p r o j e c t i o n s g r o w t h v a l u e o f W C S ' n e t a s s e t s . - 3 9 e x p e c t e d req uired s u c h d s : d i s c o u n t i n c r e a s e s , c a r e EmpToyee bene fit v a r i o u s d e f i n e d our empl oyees. upon cal-cul ations a s s u m p t i o n s , a s s e t s , c o m p e n s a t i o n a n d h e a l t h a s s u m p t i o n s a n n u a l l y current rates and G A A P , m o d i f i c a t i o n s a m o r t i z e d t h e t i m e s . 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" f u t u r e o f d i f f e r e n t T h e s e a s s u m p t i o n s o v e r r e c o g n i t i o n t h e p e r i o d s . costs plan b e n e f i t We record annual - amount s - W e prov ide a range of benefi ts i ncl udin g rel -ated to f o r b e n e f i t s thes e pl ans based p e n s i o n a n d o t h e r p o s t r e t i r e m e n t by GA AP , w hic h mak e use of var ious e x p e c t e d r a t e s , e m p l o y e e t u r n o v e r W e t r e n d a n d m a k e m o d i f i c a t i o n s r a t e s . t o trends w hen w e bel -iev e appropri ate. a s s u m p t i o n s D i f f e r e n t a r e a s s u m p t i o n s t o act uarial- o n p l a n r a t e s r a t e s o f r e t u r n s r a t e s , m o r t a l i t y r e v i e w a c t u a r i a l g e n e r a l l y o u r t h e a s s u m p t i o n s b a s e d o n by a n d i n o f \ \ - c o u l - d r e s u l t p e r i o d s b e l o w u n d e r A s requi red r e c o r d e d e x p e n s e a m o u n t s o v e r d i f f e r e n t a r e m o r e f u 1 l y d e s c r i b e d p e n s i o n p l a n s a n d p o s t r e t i r e m e n t b e n e f i t t a x e s fu ture s t r a t e g i e s I n c o m e temporary accordance with c ons idered p l a n n i n g i t a m o u n t o f b e r e a l i z e d t h e t h a t a n a d j u s t m e n t m a y b e r e q u i r e d o u r r e p o r t e d n e t i s p o s s i b l e i n W e r e c o g n i z e d e f e r r e d t a x e s differences betwe en SFA S 709 A ccou nting fi nanci al for f o r f u t u r e i ncome o f and in tax Inc ome Taxe s. W hil e w e have t ax and t a x e f f e c t s report ing feas ibl e ta xab le i ncome and ongoi ng prudent i n a s s e s s i n g t h e i n t h a t t h e n e e d f o r u n c e r t a i n t a x p o s i t i o n s , f u t u r e w e m a y c h a n g e o u r e s t i m a t e o f t h e t h e d e f e r r e d i n c o m e t a x a s s e t s t h a t w o u l d m o r e - 1 i k e l y - t h a n - n o t f u t u r e . t o o u r d e f e r r e d t h a t w o u l - d e i t h e r i n c o m e i n I f s u c h c h a n g e s t a k e p l a c e , t h e r e i n c o m e t a x a s s e t v a l u a t i o n i n c r e a s e o r d e c r e a s e , a s a p p l i c a b l - e , t h e p e r i o d s u c h c h a n g e i n e s t i m a t e w a s m a d e . i s a r i s k a l - l - o w a n c e th e concluded u n d i s t r i b u t e d r e i n v e s t e d in r e i n v e s t e d , s u c h a s a c h a n g e i n f o r e i g n t h e u n d i s t r i b u t e d We al-so eval-uate at t h e o f p e r m a n e n t l y have p e r m a n e n t l y f u t u r e , o f o u r a l l - o f If our pri or t a x l i a b i l i t y i n c o m e t a x a n d w i t h h o l d i n g o f e a r n i n g s w e r e d i s t r i b u t e d o u r u n d i s t r i b u t e d s u b s i d i a r i e s , concl-usions s u c h p r e v i o u s l y - c o n s i d e r e d th e end of eac h report ing o u r e a r n i n g s o f ( a s t h a t p ast f a c t s t e r m that a n d c i r c u m s t a n c e s i s d e f i n e d som e undi str ibuted peri od w hether som e or all a r e f o r e i g n s u b s i d i a r i e s i n G A A P ) . W h i l e w e m a y a re t h e n e e d s s o m e o r c h a n g e t h e c a p i t a l earni ngs r e g a r d i n g t h a t c a n i n i n a c o n c l u s i o n t h e e x p e c t a t i o n c o u l - d r e s u l - t e a r n i n g s a r e n o l o n g e r p e r m a n e n t l y chan ge, w € w oul-d rec ogniz e a def erred r e i n v e s t e d . i n a n a m o u n t e q u a l t o l i a b i l i t y t h e e s t i m a t e d i n c r e m e n t a l t h a t w o u l d b e g e n e r a t e d t a x p e r m a n e n t l y r e i n v e s t e d u n d i s t r i b u t e d t o u s . W e d i d n o t c h a n g e o u r c o n c L u s i o n s o n f o r e i g n e a r n i n g s i n 2 0 0 7 . i ncom e U . S . i f a l l i t r e c o r d a r e s e r v e i n 2 0 0 7 , w € w h e r e w e b e l - i e v e n o t p r e v a i l w i t h will B e g i n n i n g accordance with FIN No. 48 , A ccou nting t a x p o s i t i o n w i l l tax autho rities authorities Judgments and estimates made at a poi nt outcome of audits regulations, we are decrease or increa se c h a n g e ) . O u r r e s e r v e See Note t h e a p p l i c a b l e exami ne cer tain tax in ou r f o r u n c e r t a i n for unce rtain report ed ta x th ereby and cha nges to accrue resulting interpret req uired may f o r u n c e r t a i n for U ncertai n i s m o r e - l i k e 1 y - t h a n - n o t t a x a u t h o r i t i e s . of our i ncome di fferent ly t a x p o s i t i o n s Tax P osi tions i n f or o u r p o s i t i o n t i m e , t o Ta x retur ns. than w e do. F r o m t i m e tax furt her or decr ease ti me may cha nge bas ed on t he of the amount a of such i nterpret ations i n (and the peri od i n c h a n g e d d u r i n g 2 0 0 7 . ther efore tax posi ti ons net i ncome t a x p o s i t i o n s regul ati ons i n to or i n an i ncreas e l-8 to our Consol-idat ed Fi nanci al- S tatement .s. Litigation legal and environmenta l the manufacture of Accounting when esti mated fu ture and environmental- Tiabil-ities - We are i n part due to N L's actions l-e ad-based produc ts . f or Contingencies, w e rec ord invol-ved form er in numerous in In acc ordanc e w ith S FAS N o. 5, acc rual -s i nvoLv ement l iabi l-i ti es thes e for expendi tures ass oci ated w ith suc h cont ingenc ie s 4 0 expenditures. circumstances th ereby become probable, future us, or change, required in our rep orted net 2 0 0 7 w e h a v e r e c o r d e d m i l l i o n . to accrue and we can resulting in an i ncreas e or dec rease However, new (suc h as appl ic able est imat e information reas onably the amount s of may become avail-abl-e s uch to m ay regul ati ons) the amount w e ar e i ncrease the peri od of suc h chan ge). A t D ecember 31, o f $ 5 5 . 7 a c c r u e d e n v i r o n m e n t a l - l aws and i n (and ther efore a decr ease or l i a b i l i t i e s income i n t o t a l fo r such matt ers Operati ng income fo r each of our b y c e r t a i n o f t h e s e s i g n i f i c a n t thre e operat ing j u d g m e n t s a n d e s t i m a t e s , segm ents are a s s u m m a r i z e d b e l o w : i mpact ed r e s e r v e s f o r o f e q u i t y m e t h o d C h e m i c a l s i m p a i r m e n t a s s e L s , d e f i n e d b e n e f i t . p e n s i o n a n d O P E B p l a n s a n d l - o s s a c c r u a l - s . Component Products i m p a i r m e n t o f W a s t e M a n a g e m e n t l o n g - l - i v e d a s s e t s a n d l - o s s a c c r u a l s . f or obso l-ete or unmark etabl -e o b s o ] e t e i n v e s t e e s , o r g o o d w i l l i m p a i r m e n t o f u n m a r k e t a b l - e a n d o t h e r l o n g - l i v e d reserv es a s s e t s a n d l - o s s a c c r u a l - s . i n v e n t o r i e s , l o n g - 1 i v e d i nventor ies, I n a d d i t i o n , j u d g m e n t s a n d e s t i m a t e s m e t h o d i n v e s t e e s , a s s e t v a l - u a t i o n a l - l - o w a n c e s a n d l - o s s a c c r u a l s . g e n e r a l c o r p o r a t e a n d o t h e r i m p a i r m e n t f o r d e f i n e d b e n e f i t i t e m s a r e o f m a r k e t a b l e s e c u r i t i e s i m p a c t e d b y t h e s i g n i f i c a n t a n d e q u i t y i n c o m e t a x p e n s i o n a n d O P E B p l a n s , d e f e r r e d Segment, Operating ResuJ,ts 2006 Compared to 2007 and 2005 Compared to 2006 Chemical s W e c o n s i d e r T i O 2 t o b e a " q u a l i t y o f l i f e " p r o d u c t , w i t h d e m a n d a f f e c t e d i f w e a n d o u r c o m p e t i t o r s m a i n t a i n s h a r e s o f ( * G D P " ) i n v a r i o u s T i O 2 w i l l t h e f o r f o r r e g i o n s o f g r o w b y 2 Z g r o w t h l o n g - t e r m c o n s i s t e n t inter im in GD P, i n part due to or annual peri od may not chan ge chan ges rel -ati ve l-e vel -s of our cust omers . W e bel -iev e our cus tomers ' b y t h e i r e x p e c t a t i o n f o r f u t u r e c h a n g e s i n m a r k e t e x p e c t d e m a n d b y g r o s s d o m e s t i c p r o d u c t w € l o n g - t e r m , c o n s i s t e n t w i t h o u r e x p e c t a t i o n s e v e n market, same proportion TiO2 inventory l - e v e l - s a r e p a r t l y T i O 2 s e l l i n g p r i c e s . demand fo r TiO2 in any th e change i n f l u e n c e d as t h e w o r l - d . O v e r t h e y e a r , 3 * p e r t o i n G D P . H o w e v e r , t h e w o r l d w i d e t he t he i n i n i nventory The facto rs having th e mo st i mpact on our report ed operat ing res ul- ts a r e : a o T i O 2 a v e r a g e s e l l i n g p r i c e s ; foreign t h e U . S . d o l - l a r curre ncy exchang e rate s (part ic ularl y the exc hange rate for r e l - a t i v e t o t h e e u r o a n d t h e C a n a d i a n d o l - l - a r ) ; T i O 2 s a l e s a n d p r o d u c t i o n v o l - u m e s ; a n d manu f acturing e x p e n s e s . costs , part .ic ularl y mai ntenance and energy - rel -ated - 4 L T h e k e y p e r f o r m a n c e i n d i c a t o r s f o r a v e r a g e s e l - l i n g p r i c e s , a n d o u r T i O 2 s a l - e s o u r C h e m i c a l - s a n d p r o d u c t i o n S e g m e n t v o l - u m e s . a r e o u r T i O 2 Years ended December 2 0 0 s ( D o l l a r s 2 0 0 6 i n m i l l i o n s ) 3L, 2 0 0 7 t Change 2 0 0 s - 0 5 2 0 0 6 - 0 7 N e t s a l - e s C o s t o f g o o d s s o 1 d $ 1 , 1 9 6 . 7 8 8 4 . 1 $ A , 2 7 9 . 5 9 8 0 . 8 $ 1 , 3 1 0 . 3 L , 0 6 2 . 2 G r o s s m a r g i n 5 z t z . e 5 z g e . t $___2_48.1 7 Z 1 1 I ( 4 ) r Operating income l - 6 5 . 6 1 3 8 . 1 8 8 . 5 ( 1 7 ) ? P e r c e n t o f n e t s a l - e s : s a l e s C o s t o f G r o s s m a r g i n Operating income T i O 2 o p e r a t i n g s t a t i s t i - c s Sal-es vol-umes * Product ion P r o d u c t i o n vol-umes* r a t e a s : p e r c e n t o f c a p a c i t y P e r c e n t c h a n g e i n n e t s a l - e s : T i O 2 p r o d u c t p r i c i n g T i O 2 s a L e s v o l - u m e s T i o 2 p r o d u c t m i x C h a n g e s i n c u r r e n c y T o t a l - e x c h a n g e r a t e s * T h o u s a n d s o f m e t r i c t o n s 7 4 2 2 5 * 1 , 4 2 4 7 8 4 9 2 9 9 * 7 7 2 2 3 2 1 1 ? 5 1 1 - 5 1 5 F u L l - 8 1 % 1 9 t 7 % 5 1 9 5L2 9 8 * 7 z 5 ? - t 7 ? - z - ? 7 ? 2 ? 8 t ( 1 7 ) ? ( 3 5 ) r 1 ? ( 1 ) I ( 4 ) t 1 % - t s 8 2 ? N e t S a l e s O u r C h e m i c a l - s S e g m e n t ' s s a l - e s i n 2 0 0 7 c o m p a r e d t o 2 0 0 5 d u e p r i m a r i l y f o r e i g n c u r r e n c y m i l l i o n i n f l u c t u a t i o n s $ 6 5 m i l l i o n , a p p r o x i m a t e l y s a l e s v o l - u m e s , o f f s e t . b y a 4 * d e c l - i n e c o m p a r e d t o 2 0 0 6 . r e c o r d f o r primarily p a r t i a l l y sal-es volume s b y l - o w e r s a l e s v o l u m e s t o high er o f f s e t i n c r e a s e T h e u s . o r 5 t a n d t o a l - e s s e r e x t e n t a 1 t e x c h a n g e r a t e s , i n c r e a s e d t o a 5 8 w h i c h b y 2 Z o r $ 3 0 . I o f s a l - e s b y i n T i O 2 p r i c e s i n 2 0 0 7 a s i n 2 0 0 7 w e r e a n e w 2 0 0 7 w a s d u e i n E urope and exp ort mark ets, w hic h w ere f a v o r a b l - e e f f e c t i n c r e a s e d v o l - u m e s i n i n c r e a s e i n o u r T i O 2 s a l e s i n a v e r a g e s e l l i n g O u r C h e m i c a l s S e g m e n t ' s s a l - e s v o l u m e s i n N o r t h A m e r i c a . O u r C h e m i c a l s S e g m e n t ' s s a } e s i n c r e a s e d b y 7 Z o r $ 8 2 . 8 m i l - I i o n i n 2 0 0 6 i n T i O 2 s a l - e s v o l - u m e s a n d t o a th e extent r a t e s , w h i c h t o a 7 Z i n c r e a s e e f f ect c o m p a r e d t o 2 0 0 5 d u e p r i m a r i l y f avorab le l-esser e x c h a n g e t h a n 1 ? . O u r C h e m i c a l s S e g m e n t ' s s a l - e s v o l u m e s t i m e . u s a t p r i m a r i l y t o h i g h e r m a r k e t s , w h i c h w e r e p a r t i a l l y vol-umes sales p a p e r p r o d u c t s . cur rency l e s s o r f o r i n o u r T i O 2 s a l - e s v o l - u m e s i n 2 0 0 6 w a s d u e t h e U n i t e d S t a t e s , E u r o p e a n d i n e x p o r t i n C a n a d a . O u r b y in T h e i n c r e a s e s a l e s v o l - u m e s i n o f f s e t impac ted by dec reased demand for Ti O2 used j -ons s a l e s b y a p p r o x i m a t e l y i n 2 0 0 5 w e r e a n e w r e c o r d i n f orei gn # 2 m i l l i o n , l o w e r s a l e s v o l u m e s in Canad a were i n c r e a s e d f l uctuat t h a t of C o s t o f G o o d s S o l - d O u r C h e m i c a l s S e g m e n t ' s c o s t o f s a l e s 2 O O 7 p r i m a r i l y lower production a n d h i g h e r o p e r a t i n g i n 2 O O 7 d u e t o t h e n e t e f f e c t s d u e t o t h e i m p a c t o f h i g h e r s a l e s v o l u m e s , volume s, and th e eff ect of cha nges c o s t s . C o s t o f s a l - e s a s a p e r c e n t a g e o f s a l e s j - n c r e a s e d i n c o s t s , i n cur rency exc hange rat es i n c r e a s e d l o w e r u t i l i t y o f l o w e r a v e r a g e s e l l i n g p r i c e s , l o w e r u t i l i t y - 4 2 h i g h e r o t h e r m a n u f a c t u r i n g c o s t s , l - o w e r p r o d u c t i o n compared Eo th e same period f r o m o p e r a t i o n s c o m p a r i s o n s . b o t h p e r i o d s . v o l - u m e s . c o s t s T i O 2 p r o d u c t i o n in 2006, w hic h unfav orably O u r o p e r a t i n g ( i n c l u d i n g m a i n t e n a n c e ) a n d s l i g h t l y v o l - u m e s d e c r e a s e d 1 8 f o r r a t e s w e r e n e a r f u l l - c a p a c i t y J- mpacted our 2 0 0 7 i nco me i n O u r C h e m i c a l s S e g m e n t ' s c o s t o f s a l - e s i n c r e a s e d i n 2 0 0 6 p r i m a r i l y s a l e s v o l - u m e s a n d h i g h e r o p e r a t i n g i n 2 0 0 5 p r i m a r i l y t h e c o s t s i m p a c t o f h i g h e r ( p r i m a r i l y f l u c t u a t i o n s i n c r e a s e t h e a s a p e r c e n t a g e o f s a l - e s i n c r e a s e d u t i l i t y a n d c u r r e n c y i m p a c t o f S e g m e n t ' s g r o s s m a r g i n a n d o p e r a t i n g r e c o r d T i O 2 p r o d u c t i o n t h a t W e c o n t i n u e d d e b o t t l e n e c k i n g n e a r f u l 1 p r o d u c t i o n year . t o g a i n o p e r a t i o n a l c a p a c i t y v o l u m e s p r o d u c t i o n v o l u m e s i n i n e n e r g y c o s t s ) , ( p r i m a r i l y r a w m a t e r i a l s a 4 Z i n c r e a s e i n E h e C a n a d i a n d o l l a r ) . i n c o m e c o m p a r i s o n s w a s s o m e w h a t o f f s e t i n c r e a s e d 5 t a n d e n e r g y c o s t s o n o u r C h e m i c a l - s b y i n 2 0 0 6 a s c o m p a r e d t o 2 0 0 5 . b y e n h a n c i n g o u r p r o c e s s e s a n d r a t e s w e r e i n 2 0 0 5 , a n d o u r T i O 2 c a p a c i t y f u l l e f f i c i e n c i e s t o m e e t l o n g - t e r m d e m a n d . O u r o p e r a t i n g f o r u s f o r t h e f i f t h c o n s e c u t i v e 2 0 0 5 a n d a t i n 2 0 0 5 w e r e a n e w r e c o r d c o s t s . d u e t o a 1 5 t d u e t o C o s t o f s a l e s i n i n c r e a s e r a w m a t e r i a l - c o s t s T h e n e g a t i v e in Operating decr ease i s d r i v e n In come due to fo reign b y Ou r Chemi cal -s S egment' s operat ing i n th e exc hange currency i n g r o s s m a r g i n , w h i c h d e c r e a s e d t h e d e c l i n e 2007 primarily fl-uctuations i n c o m e 2 0 Q 7 c o m p a r e d t o 2 3 2 i n 2 0 0 5 . W h i l e o u r s a l e s v o 1 u m e s w e r e h i g h e r o u r g r o s s m a r g i n d e c r e a s e d p r i m a r i l y p r i c e s , than of f set h a v e a l - s o n e g a t i v e l y e f f e c t i n i n c o m e b y a p p r o x i m a t e l y v o l u m e s a n d h i g h e r m a n u f a c t u r i n g sal es vol -umes . o u r g r o s s m a r g i n . c u r r e n c y a f f e c t e d f o r e i g n $ + m i l l i o n w h e n c o m p a r i n g 2 0 0 7 t o 2 0 0 5 . gros s margi n rates . C hanges W e e s t i m a t e impa ct of highe r L o w e r p r o d u c t i o n The decl i ne b e c a u s e o f e x c h a n g e c h a n g e s r a t e s t.he and the o f i ncome decl -i ned in of eff ect i n operat ing t o 1 9 ? i n i n 2 0 0 7 , c o s t s , w h i c h m o r e i n cur rency rat es t h e n e g a t i v e d e c r e a s e d o p e r a t i n g l - o w e r a v e r a g e T i O 2 s e l l i n g i ncome dec l-i ned i n 2005 pri mari ly due Our Chemical s Seg ment's operat ing i n g r o s s m a r g i n a n d rat.e s. exchange t h e d e c r e a s e t o currency gross margin decreased as we were not abl -e Lo ach iev e pri ci ng the negative m a t e r i a l - s c o s t s ) . C h a n g e s i n c u r r e n c y margin. We estimate exchange rates decrea sed operating 2 0 0 5 . r a t e s a l - s o n e g a t i v e l y eff ect i ncome by $20 mi ll -io n incre ased operat ing imp act of our t h e e f f e c t negati ve cha nges cos ts Wh ile our sal es voL umes w ere hi gher (pri mari ly th e o f of f l u c t u a t i o n s l -evel -s to off set energy and r aw a f f e c t e d o u r g r o s s cur rency i n 2006 as com pared t o forei gn i n i n f o r e i g n i n 2006, our Our Chemical -s Seg ment's o perati ng adju stments made i n con junc tion i ncome i s net amort izat ion w ith our acq uis iti ons of of of As a res ult, incl-uded within in NL and Kronos. p ur chas e accounting interests expense above th e amou nts Kronos report s is e x p e n s e o f $ 1 5 . 5 m i l l i o n 2 0 0 7 , w h i c h r e d u c e d o u r c o m p a r e d t o a m o u n t s r e p o r t e d b y K r o n o s . o f t h e a m o r t i z a t i o n c o m p a r e d t o 2 0 Q 6 a n d 2 0 0 5 . f u 1 l y o f o u r p u r c h a s e a c c o u n t i n g d i f f e r e n c e s i n 2 0 0 5 , b e c a m e b a s i s cost of goods sol -d. W e rec ogniz ed w € rec ogniz e addi tio nal- sepa rat€f y, subs tanti all y addi tio nal deprec iati on al -l- of w hich deprec iat ion r e p o r t e d C h e m i c a l - s S e g m e n t ' s o p e r a t i n g i n 2 0 0 5 a n d $ 3 . 5 m i l - l - i o n i n i n c o m e a s i I 3 . 2 m i l l i o n I n q u a r t e r t h i r d t h e a m o r t i z e d , a d j u s t m e n t s w a s a n d a s a l - o w e r o f 2 0 0 6 , c e r t a i n r e s u l t i n t h e 2 0 0 7 a s Foreign Currency Exchange Rates Our Chemicals Segment has substantial l-o cated out si de the U nited S tates (pri mari ly i n Germ any, and assets operations Belgium, Norway and Canad a). operations maj or European currenci es g e n e r a t e d C e r t a i n a r e p u r c h a s e d are denominated r a w m a t e r i a l s f r o m o u r f o r e i g n i n U . S . d o l l a r s , in and The maj ori ty fo rei gn of sal es generat ed cur renci es, pri nci pall y the C anadian dol -l- ar. A port ion o p e r a t i o n s u s e d w o r l d w j - d e , p r i m a r i l y a r e d e n o m i n a t e d i n t i t a n i u m - c o n t a i n i n g from our forei gn the euro, oth er sales d o l - I a r . f e e d s t o c k s , of our t h e u . S . w h i l e L a b o r a n d o t h e r p r o d u c t i o n c o s t s a r e 4 3 i n fo reign p u r c h a s e d p r i m a r i l y dol-l-ar val-ue of our exchange earnings resul-ts . f o l l o w i n g e f f e c t s 2 O O 7 a n d 2 0 0 6 a s c o m p a r e d t o rate fl uctuations, and may affect Overal-1, f luctuat l o c a l c u r r e n c i e s . C o n s e q u e n t l y , res ults t h e are sub jec t sa1es and operat ing which may fav orabl y com parabil it y th e j-o ns i n forei gn of cur rency or adve rsel y peri od-to- period exc hange t r a n s l - a t e d U . S . to cur renc y report ed operat ing had i mpact rate s t he i n c o m e i n o n o u r C h e m i c a l s S e g m e n t ' s n e t s a l e s a n d o p e r a t i n g t h e r e s p e c t i v e p r i o r y e a r . I n c r e a s e ( d e c r e a s e ) Y e a r e n d e d D e c e m b e r 3 1 , 2 0 0 5 v s . 2 0 0 6 2 0 0 6 v s . 2 0 0 7 ( I n m i L l i o n s ) i 2 ( 2 0 ) $ 5 s ( 4 ) t h e c h l - o r i d e - p r o c e s s T i O 2 f a c i l i t y I m p a c t o n : N e t s a l - e s Operating income O t h e r - O n S e p t e m b e r 2 2 , u t i l i t i e s , p r e v e n t e d halted pro duction f a c i l - i t i e s o p e r a t e d b y o u r S O ? - o w n e d j o i n t t em por arily c o r e p r o c e s s i n g l - o s s o f m a t e r i a l s , and full operations fi xed unabsorbed achieved were covered by ( subj ect to appl ica ble product ion at LPC . r e c o g n i z e d a g a i n o f $ r . g m i l l i o n quarter the C o n s o l i d a t e d S t a t e m e n t o f O p e r a t i o n s . insura nc e, deductibl-es ) fo r periods late 20 05. fourth costs until- of 2 0 0 5 , v e n t u r e , due to H urric ane R ita. L o u i s i a n a P i g m e n t C o m p a n y ( " L P C " ) , st orm damage t o w a s n o t e x t e n s i v e , l - i m i t e d t h e r e s u m p t i o n o f p a r t i a l a c c e s s a n d a v a i l a b i l i t y A lth ough o f a v a r i e t y f a c t o r s , e m p l o y e e s a n d i n c l u d i n g o f r a w o p e r a t i o n s u n t i l - O c t o b e r 9 , 2 0 0 5 damage and 1ev els w ere not of LP C' s proper ty The maj orit y i n w hic h normal - produc ti on and i nsuranc e cov ered our res ul-t ing f rom our sha re of cl -ai ms w ith our Both we and LP C fi led r e l a t e d t o o u r b u s i n e s s i n t e r r u p t i o n 2006 , w hic h i s i ncLuded i n other l ost the i nsurers . prof its l -oss of We c l - a i m i n i ncome on our e x p e c t o u r C h e m i c a l s S e g m e n t ' s o p e r a t i n g i n c o m e i n 2 0 0 8 c o m p a r e d t o t h a n 2 0 0 7 , d s t h e f a v o r a b l - e e f f e c t s i n sal -es vol -ume, produc ti on a r e e x p e c t e d t o b e m o r e t h a n o f f s e t r a w m a t e r i a L a n d e n e r g y c o s t s O u t l - o o k - W e c u r r e n t l y b e l o w e r c o s t s , mod est improvements p r i c e s p a r t i c u l a r l y i n 2 0 0 8 w i l l of anticipated a v e r a g e T i O 2 s e l l i n g p r o d u c t i o n s h i g h e r the c o n t r o l - , t h e m a r k e t p l - a c e , u n e x p e c t e d o r e a r l i e r t e c h n o l o g i c a l a d v a n c e s . o u r r e s u l - t s o f o p e r a t i o n s f r e i g h t of future c o s t s a n d u n f a v o r a b l - e c u r r e n c y e f f e c t s . th e Tio2 a re base d upon a number of industry O u r e x p e c t a t i o n s fac tors i n c l u d i n g w o r l d w i d e g r o w t h o f g r o s s d o m e s t i c p r o d u c t , t h a n e x p e c t e d c a p a c i t y I f a c t u a l - d e v e l o p m e n t s d i f f e r a f f e c t e d . c o u l d b e u n f a v o r a b l y f r o m o u r e x p e c t a t i o n s , vol ume and b y h i g h e r a s w e l l - a s a s t o bey ond o ur i n a n d c o m p e t i t i o n a d d i t i o n s O u r C h e m i c a l - s S e g m e n t ' s l o n g - t e r m e f f o r t s t o d e m a n d c o n t i n u e d e b o t t l e n e c k t o p r o v e i n c l u d e d , a m o n g o t h e r t h i n g s , t h e G e r m a n c h l o r i d e p r o c e s s in several o u r l ocati ons p r o d u c t i o n to al l-ow c a p a c i t y t h e p a s t t e n y e a r s d u e t o d e b o t t l e n e c k i n g e x p e n d i t u r e s . W e b e l i e v e o u r p r o d u c t i o n f a c i l i t y for a d d i t i o n s u c c e s s f u l . t h e R e c e n t o f a n d e q u i p m e n t reduc ed dow ntim e b y i n c r e a s e d p r o g r a m s , o u r a n n u a l a t t a i n a b l - e h a s c a p a c i t y t o m e e t e f f o r t s i n f a c i l i t i e s d e b o t t l e n e c k i n g f i n i s h i n g upgrades and enhan cem ents f o r m a i n t e n a n c e a p p r o x i m a t e l y w i t h o n l y m o d e r a t e c a p i t a l p r o d u c t i o n s l i g h t a d d i t i o n a l c o n t i n u e d d e b o t t l e n e c k i n g 3 0 * o v e r a c t i v i t i e s . c a p a c i t y c a p a c i t y f o r 2 0 0 8 i s a p p r o x i m a t e l y e x p e c t e d . e f f o r t s 5 3 2 , 0 0 0 m e t r i c t o n s , w i t h s o m e t o b e a v a i l a b l e i n 2 0 0 9 t h r o u g h o u r 4 4 Component Products The o p e r a t i n g performance key i n c o m e m a r g i n . indicator for our Component Products Segment 1 S Years ended December 31 % Change 2 0 0 5 -(Dorrars 2 0 0 5 i n m i l l i o n s ) 2007 2 0 0 5 - 0 6 2 0 0 6 - 0 7 Net sal-es C o s t o f g o o d s s o L d G r o s s m a r g i n Operating income P e r c e n t o f n e t s a l - e s : C o s t o f g o o d s s o l d Gross margi n Operating income $ 1 8 6 . 3 7 4 2 . 6 fi_a3- l $ 1 e . 3 7 7 2 2 3 2 1 _ 0 ? $ r - e 0 . 1 r 4 3 . 6 $ L 7 7 . 7 1 3 2 . 5 $_tsl s 4 s . 2 # 2 0 . 6 $ 1 5 . 0 7 6 * 24* 1 1 ? 7 5 * 25t^ 9 t 2 Z l-* 6 Z 7 Z ( 7 ) % ( 8 ) % ( 3 ) % ( 2 2 ) % NeE SaLes Our Comp onent P roduct S egment' s sal -es dec reased l o w e r s a l - e s o f c e r t a i n p r o d u c t s sel l ing hav e est abli shed pri ces a mi nimal margi n as w ell as t o at a l ower i n 2007 as t h e o f f i c e marke t where Asian competi tors c o m p a r e d t o 2 0 0 6 p r i m a r i l y furniture l-evel- below which we consider woul -d retur n order o f f s e t m i t i g a t e i n p a r t b y t h e e f f e c t t h e e f f e c t o f h i g h e r d u e t o o f s a l e s p r i c e r a w m a t e r i a 1 c o s t s . rates from man y of our cust omers due to unfav orabl -e eco nomic con diti ons, i n c r e a s e s f o r c e r t a i n p r o d u c t s t o Our Comp onent Product Seg ment' s sal -es i ncreas ed to new sal-es vol umes generat ed from o f t w o m a r i n e c o m p o n e n t b u s i n e s s e s , w h i c h sal-es vol-u me i n 2 0 0 5 . O t h e r increas es f a c t o r s c o n t r i b u t i n g i n sec uri ty of demand and com ponent sal-e s , off set, i n part by sal -es vol ume decr eases compo nents pro ducts to com petit ion favorabl-e currency effects l ower from due the rates for cer tain pri ced A sian i n 2005 as com pared t o the A ugust 2005 a nd i n c r e a s e d i n f rom on t h e res ulti ng i n c r e a s e exchange t o produc ts due 2 0 0 6 a c q u i s i t i o n s 2005 primarily A p r i l s a l e s b y $ 1 1 . 3 m i l l i o n include sal-es improved furniture furniture m a n u f a c t u r e r s . Cost of Go ods SoL d increa sed over decreased as a perce ntage gross margin favorabl-e effects efficiency of office manufacturers unfavorabl-e econom ic conditions. cost in indu stry l-ower order furnitu re changes rel-ative th rough and red uctions fo reign due Ou r C omponent P roduct s S egment' s cos t sales of sal- es i n 2007 com pared to 2006, and as a res ult of th e sam e peri od. D uring 2Q07, w € expe rienc ed t he of an improved product mix and improvements parti al ly in our operating the unfav orabl- e eff ect off set exc hange com peti tion by rates , from cur rency to rates from many of our customers due l ower l ower sal -es pri ced to t he A sian to Our Comp onent Products Seg ment' s cos t of saL es dec reased as a perc enta ge i n c r e a s e d o v e r due to an i mprov ed com ponents sal es and an as raw exc hange o f s a l - e s i n 2 0 0 6 c o m p a r e d t o 2 0 0 5 , a n d a s a r e s u l - t g r o s s m a r g i n the same period. product mix, with a decl-i ne i ncrease well- as a conti nued material- and r a t e s . furn itur e and mari ne com ponent produc ts, i n part by hi gher in sal-es of high er margin sec uri ty fo cus on th e unf avorabl -e ef f ect of off set. chan ges The gross margin l-ow er-margi n i s pri mari ly i mprovement re duci ng cur rency cos ts, costs i n in d e c r e a s e d r e l - a t e d n o r t h e r n Operating In come Ou r Co mponent P roduct s S egment' s operat ing i n 2 0 0 7 d u e t o t h e u n f a v o r a b l e e f f e c t s o f t h e # Z . l m i l l - i o n t o t h e I l l - i n o i s c o n s o l i d a t i o n f a c i l i t i e s o f t h r e e o f C o m p o n e n t P r o d u c t s i n t o o n e n e w l y c o m p l e t e d f a c i l i t y , i ncom e i n c o s t s S e g m e n t ' s a # 2 . 4 m i l l - i o n 4 5 unfavorabl-e ( i n c l u d i n g e f f e c t o f effect of t h e $ t . z m i l l i o n l o w e r s a 1 e s . rel ative i n chan ges i n forei gn cur rency f o r e i g n e x c h a n g e L r a n s a c t i o n exc hange ra tes l - o s s e s ) , a n d t h e Our Com ponent. Products S egment.' s gros s margi n i n 2 0 0 6 p r i m a r i l y i n c r e a s e d c h a n g e i n p r o d u c t m i x , a s w e l l - a s d e c r e a s e d o p e r a t i o n a l c o n t i n u o u s f o c u s o n r e d . u c i n g c o s t s a c r o s s a l i p r o d u c t by currency c o s t s . the negative impa ct of exc hange i n c r e a s e rates d u e t h e t o i n s a l - e s a n d and operat ing i ncom e f a v o r a b l - e t h e c o s t s a s a r e s u l - t o f a o f f s e t l - i n e s , p a r t i a l l y an6 hi ghlr raw mate rial substant ial and Tai-wan- denominated c u r r e n c i e s , of our operations t r a n s l a t e d subj ect unfavorably period rates had o p e r a t i n g to Foreign Currency Exchange Rates operations and assets l ocated our Component products outs id. e The majo rity in th e U. S. p r i n c i p a l l y raw material s, dol-1a r, of sal -es generat ed. the operat ions i n t h e C a n a d i a n d o L ] a r a n d t h e N e w T a i w a n d o l l - a r . our C onsequentl y , - r e s u l t s from our res t l-a bor and other l -ocal cur renci es. produc ti on the U nited S tates fore ign denomi nated cos ts w ith for s a l e s a n d o p e r a t i n g are denominated primar il y U . S . d o l - l a r v a l u e s o f o u r rate f l-uctuations rep orted earnings and. may aff ect i n f o r e i g n exchange currency impa ct Segment has i n C anada ar e forei gn M o s t fore ig n t he a r e or which may com parabil it y tavorably of peri od.-t o- resul-ts . overal1, operating the i n c o m e i n 2 O O 7 a n d T O O G a s c o m p a r e d t o f orei gn exc han ge on our C omponent P rod.uc ts S egment, s sal es and t h e r e s p e c t i v J f l -uctuat ions fo llowing cur rency effects p r i o r y e a r s . i n f m p a c t o n : N e t s a l _ e s Operating income f n c r e a s e ( d e c r e a s e ) Y ear ended D ecember 31, 2 0 0 5 v s . 2 0 0 6 2 0 0 5 v s . 2 0 0 7 ( r n m i l l i o n s ) ( 1 1 ( r _ . 1 ) $ . e ( 2 . 4 ) seg ments as cus tome rs sou rced. com petit iv e for us s h a r e i n be mi tig ated and pri ci ng i " A sian c e r t a i n through new market pres sur e -mov ing t o OutLook to the pressures on-going condition pro cesses We bel-ieve react pricing m a n u f a c t u r e r s , markets. our opportunities. has included manufacturing p r o d u c t i o n m a n u f a c t u r i n g l -ower cost compo nents meet competiti ve opportunities Asian-based man ufacturers pursuing developing combinat ion produce better vol-atility through markets we serve . strategy, new products our resul -ts to contin ue incre ases f a c i l i t i e s . pricin g price this of cost Dema nd is slowin g acr oss mos t produc t of th e ove ral-l - eco nomy. A si an are expected. p a r t i c u l a r l y to con tinue t h o s e L o c a t e d th e impa ct of thi s to be a cha l-l enge i n C h i n a , env ironment w il l g a i n initiatives Our strategy in red ucing production to exp and. both res ponding to cos ts new prod. ucts the com petit iv e throu gh produc C reengi nel ring, -ii r prov i ng l - o w e r - c o s t th rough f a c i l i t i e s , f n a d d i t i o n , l ean manufac turi ng i n c l u d i n g w e c o n t i n u e tec hniques o u r o w n t o d e v e l o p fo r certain when prac ti cal. produc t l ines to st rengthen W e al so emphas iz e and and A s i a n - b a s e d . s o u r c e s f o r our abi li ty t o foc us on where we can pro vide val ue-added cus tomer supp ort ser vi ces are ge nerall y unabl e to prov ide. - segm ent sal es A s a i n foreg o we will and new mark et opport uniti es i niti ati ves cer tain control w here w e bel iev e and val ue-added approac h w ill fo r our sha rehol-ders . W e al so exp ect during 200 8, w hic h w e may not be abl e due or surch arges the com petit iv e to raw mate rial ful 1y natur l co sL rec ov er of t he to th at res ul-t . of of t he fav or - 4 5 Waste Management, N e t s a l - e s Cost of goods sol-d Gross margin Operating l-o ss G e n e r a T W e c o n t i n u e Years ended December 31, 2 0 0 5 2 0 0 6 2007 ( I n m i l l i o n s ) $ e . 8 1 5 . 4 $ t _ 1 - . 8 1 5 . 0 $ 4 . 2 L L . 7 $_15_.5) iGJ) $_l_z-5) $ ( 1 2 . 1 ) $ ( e . s ) $ ( 1 4 . 1 ) o n a t o o p e r a t e W C S ' s w a s t e m a n a g e m e n t f a c i l i t y w h i l e t o f o r f o r t h e a n d t h a t f i l e d s t a t e T e x a s l i m i t e d d e c i s j - o n w a s t e s . W e a g e n c i e s , r e g u l a t o r y i n O c t o b e r t h e d i s p o s a l l i c e n s e a p p l i c a t i o n s w e n a v i g a t e t h e d i s p o s a l f o r s u c h d i s p o s a l c a p a b i l i t i e s b a s i s r e c e i v e p e r m i t s W e a r e u n c e r t a i n b y p r o d u c t w a s t e m a t e r i a L l i c e n s i n g o f b y p r o d u c t w a s t e m a t e r i a l w i t h r e c e i v e d t h a E t h e T e x a s C o m m i s s i o n o n E n v i r o n m e n t a l - Q u a l i t y h a s p r e p a r e d a o f b y ; l r o d u c t m a t e r i a l - a t o u r a n d m a d e r e l a t i v e l y r e q u i r e m e n t s a n d f o r a b r o a d r a n g e o f L o w - l e v e l a n d m i x e d l - o w - l - e v e l r a d i o a c t i v e h a v e p r e v i o u s l y t h e a p p l i c a b l e n o t i f i c a t i o n d r a f t 1 i c e n s e t h e p r e l i m i n a r y r e q u i r e m e n t s . d r a f t t h e i r c o m p l e t e c u r r e n t l y b e l i e v e o n o u r a p p l i c a t i o n e x p e c t t o l o w - l - e v e l s u c c e s s f u l - l i c e n s e s t r e a t , to w a s t e s . d e c i s i o n l - a t e 2 0 0 8 , a n d w e d o n o t f o r l - o w - l e v e l - a n d m i x e d b e t h e s e t o r a n g e o f h a z a r d o u s a n d t o x i c w a s t e s , a n d l ow-l -ev el- and mi xed s t o r e a n d d i s p o s e o f a b r o a d ran ge of a n d a c t u p o n o u r o t h e r s t a t e a g e n c y w i l l l - i c e n s e a p p l i c a t i o n s . n o t w a s t e d i s p o s a L u n t i ] l i c e n s e s . l - i c e n s e m e e t s a l l l e n g t h o f u n t i l o n o u r a p p l i c a t i o n 2 0 0 9 . W e d o n o t k n o w i f w e w i l l r e c e i v e a f i n a l r a d i o a c t i v e f o r b y p r o d u c t w a s t e m a t e r i a l t a k e f o r a g e n c i e s i n p r o g r e s s , w e c u r r e n t l y t o b e c o m e f i n a l - a n d i n a r e s t i l l and store a bro ad a s t o l i c e n s e t h e a p p l i c a b l e i s s u e a f i n a l a n d r e g u l a t o r y h a v e p e r m i t s l -ow- lev el- radi oact iv e 2 0 0 7 w e a l l o w u s a p p r o v a l s o b t a i n i n g t h e t o W e s t a t u t o r y d e c i s i o n r e v i e w s i t w i l l f a c i l i t y t h e s e W h i l e treat t i m e t h a t t h i s t h e t h e f o r f o r Net sa-7.es and operating t o d u e during d u e t o i n c r e a s e d , 2007 compared decreased l - o s s p r i m a r i l y t h e c o m p l e t i o n b e e n r e p l a c e d w i t h n e w b u s i n e s s i n c r e a s e d d e c r e a s e d o v e r c u s t o m e r s c o n t i n u e w a s t e s t r e a m s p e r m i t t e d i n c r e a s e d t o s e e k t o t h e s a m e p e r i o d s , l - o w e r u t i l i z a t i o n Our W aste Managem ent S egment' s sal -es - Loss to 2006, and our W aste Management . operat in g o f o u r w a s t e m a n a g e m e n t s e r v i c e s , i n 2 0 0 6 o f a f e w p r o j e c t s t h a t h a v e n o t y e t i n 2 0 0 7 . O u r W a s t e M a n a g e m e n t S e g m e n t ' s s a l e s l - o s s a ' s w e o b t a i n e d n e w c u s t o m e r s a n d e x i s t i n g t h e i r W e i n c r e a s e o u r W a s t e M a n a g e m e n t S e g m e n t ' s s a l - e s v o l - u m e s f r o m o f o u r w a s t e m a n a g e m e n t s e r v i c e s . u t i l i z a t i o n u n d e r o u r c u r r e n t l - i c e n s e s . i n 2 0 0 6 a s c o m p a r e d t o 2 0 0 5 , a n d o u r W a s t e M a n a g e m e n t o p e r a t i n g o p p o r t u n i t i e s a n d s t o r a g e o f c e r t a i n t o o b t a i n c e r t a i n t 1 4 > e s o f t y p e s o f w a s t e ) t h a t , i n c r e a s e o u r W a s t e M a n a g e m e n t S e g m e n t ' s s a l e s , a n d l o s s , i n 2 0 0 8 . O u r a b i l i t y O u t L o o k W e a r e a l s o e x p l o r i n g t o g e t h e r w i t h d i s p o s a l t o ( i n c l u d i n g c o u l d h e l p n e w b u s i n e s s i f o b t a i n e d , d e c r e a s e o u r W a s t e M a n a g e m e n t S e g m e n t ' s o p e r a t i n g t o s t r e a m s , r e d u c t j - o n s i mproving our Waste Mana gement operat ing abl-e to w i l l - S e g m e n t . W h i l e a c h i e v i n g p r o f i t s , Wast.e Managem ent operating d i s c u s s e d a b o v e . d o n o t b e l i e v e w e w i l l prof i t r e p o r t i n c r e a s e d t o g e n e r a l l y w e c u r r e n t l y i n c r e a s e d c o n t i n u e c a p a c i t y incre ase unti l- a n d u t i l i n c r e a s e o u r W a s t e M a n a g e m e n t S e g m e n t ' s s a l - e s v o l u m e s i m p r o v e d o p e r a t i n g t h e s e w a s t e c o s t i n fl -ows . U ntil w e a re our Waste Man agement S egment' s sal -es vol umes , w € expe ct we i n o u r W a s t e M a n a g e m e n t e f f i c i e n c i e s a r e and cas h t h r o u g h i m p o r t a n t i z a t i o n , res ults o p e r a t i n g t h r o u g h l - o s s e s f a c t o r s f u r t h e r s a l e s v o l u m e s c o u l - d r e s u l t r e p o r t a n y s i g n i f i c a n t w e have obtai ned i n o p e r a t . i n g l e v e l s o f l ic enses the 4 7 u n s u c c e s s f u l l-evel- and mixed w i l l m a y i n t h e c o u l - d r e p o r t a l o s s b e s u c c e s s f u l f u t u r e , W e b e l - i e v e W C S c a n b e c o m e a v i a b l e , f o r i n o b t a i n i n g a l - i c e n s e l-o w-l-e vel- rad ioact iv e p r o f i t a b l e t h e d i s p o s a l w astes . i m p r o v i n g W C S ' s c a s h f l o w s . W e h a v e i n i n o p e r a t i o n , o f a b r o a d e v e n i f w e a r e r a n g e o f 1 o w - H owev er, w e do not know i f we t h e p a s t , a n d w e t o W C S . W e r e s p e c t w i t h c o n s i d e r i n a n y s u c h s t r a t e g J - c s t r a t e g i c a l t e r n a t i v e s t r a n s a c t i o n . Equity in earnings of TIMET F i n a n c i a l - S t a t e m e n t s , w e c o m p l e t e d a s p e c i a l s t o c k o n M a r c h 2 6 , 2 0 0 7 . W e n o w o w n a p p r o x i m a t e l y a n d w e a c c o u n t s a l - e m a r k e t , a b l - e s e c u r i t i e s i n t e r e s t a c c o u n t e d c a r r i e d a t i n T I M E T b y t h e e q u i t y m e t h o d . f a i r v a l - u e . P r i o r A s di scu ssed i n v e s t m e n t d i v i d e n d f o r o u r f o r o u r 1 3 o f T f M E T ' s c o m m o n s t o c k , i n T I M E T ' s c o m m o n s t o c k a s a v a i l - a b l - e - f o r - t o M a r c h 3 1 , 2 0 0 7 , w € i n N ote 3 to the C onsol idated o f o u r T I M E T c o m m o n General Minority Corporate Int,erest, Items, Interest Expense, Provision for Income Taxes, Interest and Dividend In co me A si gni fic ant i n 2 0 0 5 , 2 0 0 6 a n d 2 O O 7 r e l a t e s i n c o m e f rom The Amalgamated S ugar C ompany LLC and, i n c o m e o f $ 3 . 9 m i l l - i o n w e e a r n e d o n o u r $ 8 0 m i 1 l - i o n d i v i d e n d r ece ived i n t e r e s t R i v e r S u g a r C o m p a n y t h a t S n a k e R i v e r p r e p a i d d i v i d e n d i n c o m e f r o m t h e L L C o f $ 4 5 . 0 m i l ] i o n a n d $ Z S . q m i l - l i o n i n 2 0 0 7 . porti on t o of our and i nterest w e t h e d i s L r i b u t i o n s t he from 2005, t o S n a k e l o a n i n i n O c t o b e r 2 0 0 5 . W e r e c o g n i z e d i n 2 0 0 5 , $ 3 1 - . 1 m i l l i o n i n 2 o o 5 In October 2005, w€ and Sna ke R iv er amended the C ompany A greement of t he to mak e hi gher u s ) a s c o m p a r e d t o the new agreem ent , of from c e r t a i n LLC s p e c i f i e d the thi ngs, i t s m e m b e r s ( i n c l u d i n g the LLC i s requi red t o under th e prior C ompany A greement. annua lly aggregat e $ 2 5 . 4 m i l l i o n . I n di stri buti ons b e c a u s e U nder th e to which, amon g other recei ve shoul-d required were met during t h e L L C w a s r e q u i r e d t h e 1 5 - m o n t h p e r i o d . LLC pursuant m i n j - m u m l - e v e l s o f d i s t r i b u t i o n s levels we a p p r o x i m a t e l y conditions 2 0 0 5 , d u r i n g m i l l - i o n t h i s m i l l i o n 2 Q 0 7 , n o r T h e r e f o r e , w i l l C o n s o l - i d a t e d F i n a n c i a L d i v i d e n d lower expected bal-ances avai-l abIe d o w e e x p e c t w e e x p e c t o u r a d d i t i o n a l - d u r i n g b e s i m i l - a r d i s t r i b u t i o n i n 2 0 0 8 a m o u n t i n c o m e i n 2 0 0 6 . W e d i d n o t t h e t o t o a d d i t i o n , l -5-month peri od t o d i s t r i b u t e T h i s d i s t r i b u t i o n that com menced on Oc tober 1- , t o s i m i l a r a n y a d d i t i o n a l i n a d d i t i o n E o u s a n a d d i t i o n a l - i s a p p r o x i m a t e l y o f 2 0 0 5 , a n d $ 2 5 m i l l - i o n t h e i 2 5 . 4 $ 2 0 m i l - l - i o n o f r e m a i n i n g $ 5 a m o u n t s d u r i n g 2 0 0 8 . t h e L L C i n 2 0 0 8 i n 2 0 0 7 . S e e N o t e s 4 a n d 1 5 t o o u r a n d t o a m o u n t d u r i n g f r o m c o r p o r a t e l o w e r t h a n 2 0 0 7 d u e a d d i t i o n a l - i n t e r e s t . g e n e r a l i n c o m e t h e n o t . e d a b o v e . W e r e c e i v e d f o u r t h q u a r t e r r e c e i v e r e c e i v e i n t e r e s t t h e a m o u n t w e r e c e i v e d s t a t e m e n t . s . a n d d i v i d e n d i s e x p e c t e d f or O t h e r t o b e s l i g h t l y j -nves tment. rec overi es rel -ate pri mari ly to amount s o f t o t h e f o r m e r i n s u r a n c e r e c e i v e d l - e a d p i g m e n t In suran ce i t s o f p r i o r Insurance Recoveries f r o m c e r t a i n r e c o v e r y by NL. We have agreements w ith t o w h i c h l e a d p i g m e n t N L p r i n c i p a l l y incurred p u r s u a n t t h e c a r r i e r s f u t u r e l i t i g a t i o n 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 i n c l u d e a m o u n t s w e r e c e i v e d n o t a b l e t o d e t e r m i n e h o w m u c h w e w i l l f o r p a s t d e f e n s e c o s t s w h i c h p a s t d e f e n s e c o s t s q u a l i f y 2 0 0 5 a n d 2 0 0 6 a l - s o i n c l u d e indem nity e x p e c t e n v i r o n m e n t a l u l t i m a t e l y i n c u r r e d b e c a u s e o f c e r t a i n f o r a m o u n t s w e r e c e i v e d r e m e d i a t i o n m a t t e r s . coverage r e c e i v e r e i m b u r s e u s of our envi ronment al i n s u r a n c e d e f e n s e c o s t s , a n d t h e f r o m r e i m b u r s e m e n t . fo r a n y m a t e r i a l f u r t h e r certain t o c a r r i e r s , l i t i g a t i o n a n d r e l a t e d e f e n s e c o s t s form er tw o f o r a p o r t i o n i nsuranc e car rier s i n s u r a n c e t h e s e c a r r i e r s . o f o u r p a s t a n d i n r e c o v e r i e s W e a r e i s s u e s r e c o v e r I n s u r a n c e f r o m t h a t a r i s e t h e c a r r i e r s r e g a r d i n g i n r e c o v e r i e s 1 e g a 1 d e f e n s e a n d W e do n oL t o r e l a t i n g exp enditur es. s e t t l - e m e n t s f o r p r i o r p i g m e n t s u c c e s s f u l W h i l e w e c o n t i n u e a n d a s b e s t o s t o l i t i g a t i o n s e e k a d d i t i o n a l - m a t t . e r s , w € i n s u r a n c e d o n o t r e c o v e r i e s k n o w i f w e w i l l f o r l - e a d b e i n o b t a i n i n g r e i m b u r s e m e n t f o r e i t h e r d e f e n s e c o s t s o r i n d e m n i t y . - 4 8 considered We have not d e t e r m i n i n g insurance a m o u n t i s d e t e r m i n a b l - e . recoveries a c c r u a l s any ad diti onal - l e a d p i g m e n t f o r l i t i g a t i o n wou1d be recogni zed w hen the I 7 S e e N o t e and t he t o o u r C o n s o l - i d a t e d F i n a n c i a l S t a t e m e n t s . i s probab le rec eipt m a t t e r s . A n y a d d i t i o n a l potent ial i nsuranc e rec overi es in S e c u r i t r e s T r a n s a c t i o n s N e t t o a $ t + . 1 m i l l i o n s e c u r i t i e s t r a n s a c t i o n s p r e - t a x g a i n r e l a t e d i n m a r k e t s a l - e o f t r a n s a c t i o n s i t s p a s s i v e i n g a i n s 2 0 0 5 t o N L ' s s a l - e s o f a n d a $ 5 . 4 p r e - t a x i n a N o r w e g i a n i n t e r e s t for r e l a t e p r i n c i p a l l y s h a r e s o f K r o n o s c o m m o n s t o c k m i l - l - i o n g a i n t o K r o n o s ' smelting p u r p o s e s . operation, r e l - a t e d which had a nomi nal car ryi ng val ue fi nanci al - report ing S e e N o t e 1 5 t o o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s . Otrher general inc ome j Eems i n 2 0 0 6 r e l - a t e s t h e s a l e o f c e r t a i n corporate t o w i t h a n y o f some subject o u r o p e r a t i o n s . to enviro nmental - f o r a n r o f i t S e e N o t e The gai n on di spos al l - a n d i n N e v a d a r e a l c e r t a i n w hic h mi ght be sol d fi xed t h a t w a s n o t p r o p e r t y , of N L h a s in o u r C o n s o l i d a t e d F i n a n c i a l remedi ati on, t o 1 5 a s s e t s a s s o c i a t e d including t h e f u t u r e S t a t e m e n t s . Corporate Expenses, Net C o r p o r a t e e x p e n s e s w e r e b y c o m p a r e d t o 2 0 0 5 a s h i g h e r o f f s e t C o r p o r a t e e x p e n s e s w e r e $ + . 0 m i l 1 i o n h i g h e r h i g h e r e n v i r o n m e n t a L a n d l i t i g a t i o n b y l o w e r p e n s i o n e x p e n s e s f o r o t h e r s u b s i d i a r i e s . l o w e r e n v i r o n m e n t a l l i t i g a t i o n a n d p e n s i o n e x p e n s e s f o r o t h e r s u b s i d i a r i e s . e x p e n s e s a t N L , w h i c h w e r e o f f s e t i n 2 0 0 7 a s c o m p a r e d t o 2 0 0 5 d u e t o s o m e w h a t a n d e n v i r o n m e n t a l f l a t 2 0 0 5 a s i n e x p e n s e s a t N L w e r e We expect corporate i n 2008 w il l expenses slightl y to due 2007, in part t o a s s e s s a n d e s t i m a t e , r e m e d i a t i o n w i l l to expenses at NL. However, oblig ations d i f f i c u l - t e n v i r o n m e n t a l i n c u r r e d l i a b i l i t y . w o u l d b e h i g h e r F i n a n c i a l - S t a t e m e n t s . t h a n o u r c u r r e n t t h e I f f u t u r e s i t e s f o r i n expe cted l ower for envi ronment al - i s p o s s i b l e a n d i t l egaI be som ewhat l -ower as com par ed and env ironmental- cos ts ar e f o r b e t h e e x p e n s e s remed iati on t h a t a c t u a l - c o s t s c o s t s w i l l e s t i m a t e e x c e e d a c c r u e d a m o u n t s o r t h a t i n w h i c h w e c a n n o t c u r r e n t l y t h e s e e v e n t s w e r e t o o c c u r d u r i n g 2 0 0 8 , o u r c o r p o r a t e e s t i m a t e s . S e e N o t e 1 7 t o o u r C o n s o l i d a t e d t o r e d e e m o u r e u r o 3 7 5 m i l - l i o n a g g r e g a t e p r i n c i p a l In A pril 2006, w € our euro 400 a m o u n t o f 5 . 5 8 S e n i o r S e c u r e d N o t e s d u e 2 0 7 3 , a n d a m o u n t o f t h i s p r e p a y m e n t , w e 2 0 0 6 , i n M a y 2 0 0 5 . A s a r e s u l - t o f j - n t e r e s t p r e - t a x i ssue d e x p e n s e c h a r g e i n t h e c a l - l - p r e m i u m o n t h e o l d N o t e s a n d t h e w r i t e - o f f o f d e f e r r e d Loss on Prepayment. of Deb t a g g r e g a t e p r i n c i p a l m i l I i o n u s e d t h e p r o c e e d s 8 . 8 7 5 ? S e n i o r S e c u r e d N o t e s r e c o g n i z e d r e p r e s e n t i n g f i n a n c i n g N o t e 9 t o o u r C o n s o l - i d a t e d F i n a n c i a l o n 8 . 8 7 5 t N o t e s . c o s t s a n d t h e e x i s t i n g t h e n e w 5 . 5 * N o t e s $ 2 2 . 3 m i l l i o n a u n a m o r t i z e d p r e m i u m o n t h e o l d N o t e s . S t a t e m e n t s . T h e a n n u a l - i n t e r e s t i s a p p r o x i m a t e l y e u r o 6 m i l - l - i o n l e s s t h a n o n S e e e x p e n s e t h e o l d Interest Expen se th e in I n c . euro, ( " K f I " ) . a g g r e g a t e p r i n c i p a l denominat.ed I n t e r n a t i o n a l - , m i l L i o n K I I h a s h a d e u r o 4 0 0 m i l l - i o n a g g r e g a t e p r i n c i p a l N o t e s o u t s t a n d i n g t h e s e f i x e d S e e a l - s o R i s k . " 2 0 0 6 . v a r y w i t h r a t e N o t e s w i l l " Q u a n t i t a t i v e s j - n c e A p r i l I t e m 7 A , f l u c t u a t i o n s a n d Q u a l i t a t i v e T h e We h ave a si gni fic ant amount of p rima ri K rono s our F r o m 2 0 0 5 u n t i l - M a y 2 0 0 6 , K I I h a d e u r o 3 7 5 i ndebtedness sub s i diary t.h rough Iy a m o u n t o f 8 . 8 7 5 ? S e n i o r S e c u r e d N o t e s o u t s t a n d i n g . a m o u n t o f 6 . 5 2 S e n i o r S e c u r e d o n e x p e n s e w e r e c o g n i z e i n t e r e s t i n t h e e u r o e x c h a n g e r a t e . D i s c l - o s u r e s A b o u t . M a r k e t i n 2 0 0 6 . I n t e r e s t e x p e n s e d e c r e a s e d s l i g h t l y m i l l - i o n 8 . 8 7 5 3 S e n i o r S e c u r e d N o t e s w i t h 5 . 5 ? S e n i o r S e c u r e d N o t e s d u r i n g q u a r t e r M a y 2 0 0 6 . t h e e f f e c t s a v i n g s w h i c h w a s p a r t i a l l y o f h a v i n g b o t h n o t e s o u t s t a n d i n g e x p e n s e w a s l - o w e r i n 2 0 0 7 b e c a u s e w e r e p l a c e d o f 2 0 0 6 o f f s e t d u r i n g b y u n f a v o r a b l - e t o $ 6 4 . 4 m i l - l - i o n i n 2 0 0 7 f r o m $ 6 7 . 5 t h e t h e s e c o n d I n t e r e s t i n t e r e s t o f f s e t T h i s b y - 4 9 i n c u r r e n c y c h a n g e s e x p e n s e w e r e c o g n i z e o n o u r S e n i o r S e c u r e d N o t e s w i l l i n p r o m i s s o r y n o t e w h i c h b e a r s $ 5 2 . 5 m i l l i o n 9 t o o u r C o n s o l i d a t e d F i n a n c i a l - S t a t e m e n t s . t h e e u r o e x c h a n g e e x c h a n g e i n t e r e s t q u a r t e r f o u r t h r a t e s r a t e . t h e f n i n 2 O O 7 c o m p a r e d t o 2 0 0 5 . v a r y w i t h i n t e r e s t T h e f l - u c t u a t i o n s o f 2 0 0 7 , C o m p X i s s u e d a l - t . S e e N o t e a t L I B O R p l u s f n t e r e s t e x p e n s e d e c r e a s e d m i l - l - i o n i n 2 0 0 5 t o # 6 7 . 6 m i l l i o n a s t h e d e c r e a s e d 3 0 d a y s o f e x p e n s e Secured Notes were outstanding r a t e s . i n t e r e s t i n t e r e s t s l i g h t l y i n 2 0 0 6 . I n t e r e s t f r o m 2 0 0 5 t o 2 0 0 6 , e x p e n s e w a s l o w e r t h e e f f e c t r a t e o n t h e n e w 5 . 5 t N o t e s o f f s e t i n A p r i l 2 0 0 6 w h e n b o t h i s s u e s o f and the eff ect of chan ges i n cur rency f r o m 5 6 9 . 2 i n 2 0 0 6 t h e o f t h e S e n i o r exc hange Assuming currency exchange rates do not chan ge si gni fic antly from the ir c u r r e n t to to 2007 f o u r t h q u a r t e r o f 2 0 Q 7 . l e v e I s , w e e x p e c t in part due i n t e r e s t e x p e n s e w i l l th e new promi ss ory b e h i g h e r note C ompX i ssue d i n 2 0 0 8 a s c o m p a r e d t he to TIME T i n Provision fo r In come Taxes W e rec ogniz ed i ncome i n 2 0 0 5 , $ 6 3 . 8 m i l l i o n m i l - l i o n L 2 t o o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s our s i g n i f i c a n t to our act ual t h i s expense i m p a c t i n g st.atutory r e c o n c i l - i a t i o n i t e m s ta x i n 2 0 0 6 a n d $ 1 0 3 . 2 m i l - I i o n t a b u l a r f o r a tax tax expe nse of $l -04. 5 i n 2 0 0 7 . S e e N o t e o f the mor e r e c o n c i L i a t i o n S ome of a r e s u m m a r i z e d b e l o w . exp ense. O u r p r o v i s i o n o a c h a r g e o f f o r i n c o m e t a x e s $ 8 7 . 4 m i l - l - i o n ta x asset deferred t h e i r income i n c o m e t a x o a c h a r g e o f $ 8 . 7 m i l l - i o n i n c o m e t a x a t t r i b u t e s ; o a $ 3 . 8 m i l - l - i o n b e n e f i t r a t e s ; a n d r e s u l t i n g i n 2 0 0 7 i n c l - u d e s : r e l - a t e d t h e i n Germ any res ulti ng t o r e d u c t i o n the from o f reduc tion o u r n e t in r e l - a t e d t o t h e a d j u s t m e n t o f c e r t a i n G e r m a n f r o m a n e t r e d u c t i o n i n o u r r e s e r v e f o r u n c e r t a i n t a x p o s i t i o n s . O u r i n c o m e t a x e x p e n s e i n 2 0 0 6 i n c l - u d e s : o a n i n c o m e t a x b e n e f i t o f $ Z t . l m i ] l - i o n . o f t h e r e s o l u t i o n amo unt of our German trad e r e s u l t a n i n c o m e t a x b e n e f i t reduction deve lopments Germany; in our of tax net operat ing r e l - a t e d t o a n i n c r e a s e l oss car ryforw ard, i n t h e ds a o f c e r t a i n i n c o m e t a x a u d i t s o f $ 1 0 . 4 m i ] L i o n p r i m a r i l y incom e tax cont ingenc y income audi t tax i ssue s res erves i n G e r m a n y ; f r o m t h e fav orab l- e i n B e1gium , N orway a nd r e s u l - t i n g to rel -ated o a n i n c o m e r esol -ution and t a x b e n e f i t of certain o f $ f . a inc ome t.a x m i l l i o n a u d i t i s s u e s r e l - a t e d f a v o r a b l - e t h e i n G e r m a n y a n d B e l g i u m ; t o o a $ 1 . 3 m i l - l - i o n b e n e f i t C a n a d i a n i n c o m e t a x r a t e s . r e s u l t i n g f r o m t h e e n a c t m e n t o f a r e d u c t i - o n i n O u r o o o o i n c o m e t a x e x p e n s e i n 2 0 0 5 i n c l - u d e s : a n e f f e c t s a u d i t s i n c o m e t a x b e n e f i t o f d e v e l o p m e n t s o f w i t h o f K r o n o s , p r i n c i p a l l y $ 1 1 . 5 m i l - l - i o n r e l a t e d r e s p e c t t o i n B e l g i u m c e r t a i n a n d C a n a d a ; t o n o n - U . S . t h e f a v o r a b l - e t a x i n c o m e t a x b e n e f i t o f $ 7 . 0 m i l ] i o n r e l - a t e d t o t h e f a v o r a b l - e e f f e c t w i t h r e s p e c t t o c e r t a i n i n c o m e t a x i t e m s o f N L ; i n c o m e a n o f d e v e l o p m e n t s a $ l - 7 . 5 m i l - l - i o n c e r t a i n i n c o m e p r o v i s i o n t a x a t t r i b u t e s f o r a p r o v i s i o n C o m p X ' s p e r m a n e n t n o n - U . S . f o r s u b s i d i a r i e s . i n c o m e t a x e s r e i n v e s t m e n t L a x e s i n c o m e o f K r o n o s o f $ 9 . 0 m i ] l i o n c o n c l u s i o n r e l - a t e d t o t h e l o s s o f i n G e r m a n y ; a n d r e l - a t e d r e g a r d i n g t o a c h a n g e c e r t a i n o f i n i t s - 5 0 financial rep ortin g I n a d d i t i o n , investment from period a s d i s c u s s e d S t a t e m e n t s , w e r e c o g n i z e d e f e r r e d the carrying direct vary e f f e c t i v e i n c l u d e d m i l - l - i o n d e f e r r e d Kronos . in Kronos. to period r a t e . i n c o m e t a x l - i n N o t e i n c o m e t a x e s w i t h the amount ove r t o o u r C o n s o ] i d a t e d r e s p e c t i ncome Th e amount of suc h defer red F i n a n c i a l - t h e e x c e s s o f of our can tax basi s i ncome tax es t o and hav e a si gni fic ant i mpact T h e a g g r e g a t e a m o u n t o f s u c h d e f e r r e d i n o u r p r o v i s i o n i n i n c o m e t a x b e n e f i t o f S l - 3 . 9 m i l l i o n 2 0 0 6 , a n d o u r p r o v i s i o n i n c o m e t a x e s w a s $ l - 0 . 4 m i l - l i o n i n t a x e s a s s o c i a t e d w i t h o u r i n c o m e f o r f o r on our ove ral1 i n c o m e t a x e s i n 2 0 0 5 a n d $ l - 3 . 8 a 2 0 0 7 i n i n c l u d e d i n v e s t m e n t Minority In tere st in Con tinui ng Oper at.i ons ( L o s s e s ) d e c l i n e d in 2007 due e a r n i n g s $3.5 million CompX. approximately fo urth decreased beginning C o n s o l - i d a t e d F i n a n c i a l S t a t e m e n t s . During October th e in f r o m a c o s t o f $ l - 2 . 0 m i l - l i o n to a l -oss es at K ronos and N L and 2007 , o ur ow nershi p i nterest 852; and as a resu 1t our mi nori ty i nteres t quart er of 2007. i nteres t Mi nori ty in i n 2 0 0 6 t o a b e n e f i t o f i ncome at t o i n C ompX' s earni ngs S ee N otes 3 and 13 Lo t he l ower i n C ompX i ncreas ed i n t e r e s t M i n o r i t y i n e a r n i n g s f r o m a c o s t o f $ l - 1 . 6 t o h i g h e r i n 2 0 0 5 t o $ 1 2 . 0 m i l l i o n by an at Comp X and Kronos. in our owne rshi p perce ntage of K ronos and C ompX i n 2006 as com pared t o 2005 and 2006 as com mon st ock i ncreas es w ere mos tly i n 2 0 0 6 . Thes e throu ghout i n c r e a s e d i n c r e a s e through our purchases of i s d u e s l i g h t l y off set T h i s th eir l-o wer j-n co me at NL. In addi ti on, see N ote l -3 to our C onsol idated m i l l i o n earnings increase 2005 well- as by Financial- Statements . Rel-ated Party Tran sactions W e are a party to cer tain tran sact ions wit h r e l a t e d p a r t i e s . S e e N o t e L 6 t o o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s . Assumptions on defined benefit, pension plans and OPEB plans. t h e U . S . , E u r o p e a n d C a n a d a . S e e N o t e 1 1 t o o u r C o n s o l - i d a t e d A t D e c e m b e r 3 1 , 2 0 0 7 , t h e p r o j e c t e d b e n e f i t o b l i g a t i o n s W e mai ntai n var ious defi ned benefit p7ans . pension bene fit i n d e f i n e d b e n e f i t Defined p e n s i o n p l a n s F i n a n c i a l S t a t e m e n t s . f o r a l l a n d $ 4 5 0 . 7 m i l l - i o n p r o j e c t e d m a i n t a i n e d b e n e f i t Kronos , NL, and Medi te Corporation " M e d i t e p 1 a n " ) . r e l - a t e d o b l i g a t i o n s o b l i g a t i o n s b y K r o n o s , a n d a p p r o x i m a t e l y a t t r i b u t a b l - e f o r e i g n a t t r i b u t a b l - e b e n e f i t , a t o p l a n s c o m p r i s e d $ 8 7 . 4 m i l l i o n r e l - a t e d p l a n s . t o S u b s t a n t i a f f o r e i g n p l a n s L 6 Z , 4 8 2 a n d 3 6 t o f l y , r e l - a t e d a l - l - o f t o U . S . p l a n s t h e t o p l a n s t . h e p r o j e c t e d t o U . S . p l a n s r e l a t e d f ormer bus j -ness uni t t o p l a n s m a i n t a i n e d b y (t he of V alhi fo r b e n e f i t Pensions t o u r d e f i n e d p e n s i o n p l a n s u s i n g S F A S N o . 8 7 , W e a c c o u n t f o r EmpToyer's Accounting D e c e m b e r 3 1 , 2 0 0 6 . U n d e r S F A S N o . 8 7 , w e r e c o g n i z e d e f i n e d b e n e f i t p l a n e x p e n s e a n d p r e p a i d a n d a c c r u e d p e n s i o n c o s t s b a s e d o n c e r t a i n a s s u m p t i o n s , p r i n c i p a l l y o f l - e v e l - s . r e c o g n i z e e i t h e r i n o u r C o n s o l i d a t e d B a l a n c e S h e e t . ( f o r o v e r f u n d e d p l a n s ) o r a l i a b i l i t y r a t e i n c o m p e n s a t i o n D e c e m b e r 3 1 , 2 0 0 5 , w € a s ( f o r u n d e r f u n d e d p l a n s ) as amended by S FAS N o. 158 eff ecti ve U p o n a d o p t i o n f u l l t h e o f S F A S N o . 1 - 5 8 e f f e c t i v e t h e a s s u m e d j . n c r e a s e t h e a s s u m e d l o n g - t e r m t h e a s s u m e d d i s c o u n t o f o u r d e f i n e d p e n s i o n p l a n s f u n d e d s t a t u s a n a s s e t o n p l a n a c t u a r i a l b e n e f i t a s s e t s r e t u r n f u t u r e r a t e , a n d p e n s j - o n W e r e c o g n i z e d c o n s o l - i d a t e d d e f i n e d b e n e f i t f u n d i n g r e q u i r e m e n t s m i l - l - i o n i n 2 0 0 5 , $ 1 5 . 0 m i l - l - i o n i n 2 0 0 6 a n d $ l - 5 . 6 m i l l - i o n o f b a s e d u p o n a p p l i c a b l e g e n e r a l l y f i n a n c i a l - b e n e f i t p e n s i o n p l a n s o f $ 1 9 . 2 m i l - l i o n $ 2 8 . 0 m i l l - i o n f r o m p e n s i o n p u r p o s e s . f o r r e g u l a t i o n s t h e s e d e f i n e d b e n e f i t W e m a d e c o n t r i b u t i o n s ( s u c h a s E R f S A d i f f e r r e p o r t i n g r e c o g n i z e d i n 2 0 0 7 . e x p e n s e p e n s i o n p l a n e x p e n s e o f $ 1 - 3 . 1 i n 2 0 0 7 . T h e a m o u n t p e n s i o n p l a n s i n u n d e r S F A S N o . 8 7 i s g e n e r a l l y t h e U . S . ) , a n d w i l l f o r o f o u r d e f i n e d t o a l l i n 2 0 0 5 , $ 2 8 . 1 m i l - l - i o n i n 2 0 0 6 a n d 5 L T h e d i s c o u n t r a t e s w e u t i l - i z e f o r d e t e r m i n i n g r e l - a t e d p e n s i o n o b l i g a t i o n s long-term bonds rec eiv e that agenc ies i n rat.i ng p e n s i o n b e n e f i t s d e f i n e d a r e b a s e d o n c u r r e n t one of the t.h e appl ic able cou ntry tw o hi ghest b e n e f i t I n a d d i t i o n , p e n s i o n i n t e r e s t rati ng s w here t he w e r e c e i v e d i s c o u n t t h e i r d a t e a r e b e i n g p a i d . r a t e s f r o m o u r o w n m a r k e t i n d i c e s . ( D e c e m b e r 3 1 " ' i n t e r e s t t h e n - c u r r e n t t o d e t e r m i n e r a t e s a s o f D e c e m b e r 3 1 " ' o f t h e a c t u a r i a l - t h a t y e a r . t h i r d - p a r t y W e a d j u s t a c t u a r i e s , t h e s e d i s c o u n t i n w h o p l a n s b e g i n n i n g f o r a l l r a t e s o n s u c h l o n g - t e r m b o n d s . W e p r e s e n t v a l - u e o f W e a l s o u s e t h e t h e s e p e n s i o n t h e i n t e r e s t c o m p o n e n t o f d e f i n e d b e n e f i t recognized t h e earned on by e x p e n s e a n d rates given d e f i n e d b e n e f i t a d v i c e a b o u t a p p r o p r i a t e m a y i n s o m e c a s e s u t i l - i z e r a t e s 2 0 0 7 ) u s e t h e s e d i s c o u n t p e n s i o n o b l i g a t i o n s d i s c o u n t e x p e n s e f o r a s o f e a e h v a l u a t i o n t o t o d e t e r m i n e f o l l o w i n g r e f l - e c t r a t e s t h e t h e y e a r . A p p r o x i m a t . e l y 6 2 2 , 1 8 3 , l - 3 t a n d 3 t o f t h e p r o j e c t e d b e n e f i t o b l i g a t i o n s t o p l a n s m a i n t a i n e d a t t r i b u t a b l - e p l a n s a n d N I - , ' s p l a n s a r e a l l a s s u m p t i o n s o b l i g a t i o n s s e v e r a l d i f f e r e n t environment differs i n G e r m a n y , C a n a d a , N o r w a y a n d t h e U . S . , i n d e t e r m i n i n g i n a n d e x p e n s e b e c a u s e w e m a i n t a i n o u r t h e U . S . W e u s e s e v e r a l - d i f f e r e n t d i s c o u n t p e n s i o n p e n s i o n p l a n s i n t e r e s t i n N o r t h A m e r i c a a n d E u r o p e a n d t h e d e f i n e d b e n e f i t c o n s o l - i d a t e d d e f i n e d b e n e f i t r e s p e c t i v e l y . c o u n t r i e s t o T h e M e d i t e p l a n r a t e p l a n i n r a t e b y K r o n o s a t D e c e m b e r 3 1 , 2 0 0 7 r e l a t e d from country to coun try. W e u s e d t h e f o l l o w i n g d i s c o u n t r a t e s f o r o u r d e f i n e d b e n e f i t p e n s i o n p l a n s : D i s c o u n t r a t e s u s e d f o r : O b l i g a t i o n s a t D e c e m b e r 3 1 , 2 0 0 5 Obl iga tions D ecember 31, a t 2 0 0 6 and expense in 20 06 and expense in 2 0 0 7 O b l i g a t i o n s a t D ecember 3L, 2007 a n d e x p e n s e i n 2 0 0 8 K r o n o s a n d N L p l a n s : Germany Canada Norway U . S . M e d i t e p l a n T h e a s s u m e d 4 . 0 2 5 . 0 4 . 5 5 . 5 5 . 5 4 . 5 + 5 . 0 4 . 8 5 . 8 5 . 8 s . 5 * 5 . 3 5 . 5 6 . L 5 . 4 l o n g - t e r m of rate r a t e earnings o f r e t u r n w e exp ect o n p l a n a s s e t s to be earned on r e p r e s e n t s the t h e funds w h i c h ave rage i s r a t e s , o r i n h e r e n t t o b e i n v e s t e d i n estimated i n v e s t e d p a y m e n t s r a t e , i n t e r e s t n e c e s s a r i l y i n a n y g i v e n y e a r . a s s e t s u p o n t h e a s s u m e d l o n g - t e r m a c t u a l - D i f f e r e n c e s t h e a c t u a l u p o n t h e p a r t i c i p a n t s employees) ( f o r p a r t i c i p a n t s a c t i v e e m p l o y e e s ) . ( f o r p l a n s th e v a l - u e o f b e t w e e n p l a n s f a i r or i n t h e p l a n s ' t h e p r o j e c t e d b e n e f i t a s s e t s p r o v i d e d o b l i g a t i o n s . e a c h y e a r b a s e d o n c h a n g e s a d j u s t e d t h e a s s u m e d l o n g - t e r m c h a n g e b a s e d u p o n t h e a c t u a l , D e f i n e d b e n e f i t r a t e o f r a t e o f r e t u r n o n p l a n a s s e t s w i l l p e r f o r m a n c e o f s h o r t - t e r m p e n s i o n e x p e n s e e a c h y e a r t h e p l a n t h e e x p e c t e d r e t u r n o n p l a n a s s e t s a s o f o n p l a n a s s e t s a s s e t s r e t u r n t h e b e g i n n i n g i n f u n d c u r r e n t t o U n l - i k e t h e b e n e f i t t h e d i s c o u n t l o n g - t e r m n o t t h e p l a n i s b a s e d f o r e a c h p l a n a n d t h e y e a r . t h e o f f o r a g i v e n y e a r a n d r e t u r n a r e d e f e r r e d e x p e c t e d a v e r a g e a n d a m o r t i z e d o v e r r e m a i n i n g s e r v i c e f o r w h i c h b e n e f i t s a r e s t i l l average re maini ng f o r w h i c h b e n e f i t s l ife f u t u r e p e r i o d s b a s e d e i t h e r p l a n l i f e b e i n g e a r n e d b y a c t i v e i nacti ve the a c t i v e t h e o f of expe ctancy a r e n o t s t i l l b e i n g e a r n e d b y A t D e c e m b e r 3 1 , 2 0 0 7 , t h e f a i r v a l - u e o f p l a n a s s e t s f o r a l l - d e f i n e d c o m p r i s e d $ 1 3 3 . 1 m i l - l - i o n r e l - a t e d t o U . S . p l a n s a n d $ 3 1 - 2 . 3 f o r e i g n p 1 a n s . A 1 1 o f s u c h p l a n a s s e t s a t t r i b u t a b l e to plan s mai ntai ned by K ronos, and approx imat .ely b e n e f i t m i l " l i o n f oreign 4 4 2 a n d 4 L + o f p l a n s r e l a t e d plans t o rel -ated t o Ls Z , t o p l a n s t h e p l a n a s s e t s a t t . r i b u t . a b l - e t o U . S . p l a n s r e l - a t e d - 5 2 b y K r o n o s , N L a n d m a i n t a i n e d 5 0 t , 2 3 2 , 1 8 8 a n d 6 * o f Kronos at December 31, 2007 rel -ated t h e U . S . , r e s p e c t i v e l y . p l a n a s s e t a s s u m p t i o n s p l a n e x p e n s e b e c a u s e w e m a i n t a i n d i f f e r e n t c o u n t r j - e s a r e r a t e s o f i n d e t e r m i n i n g f o r d i f f e r e n t c o u n t r i e s i n v e s t e d r e t u r n i n a d i f f e r e n t t h e M e d i t e p l a n , t h e p l a n a s s e t s a t t r i b u t a b l e W e u s e s e v e r a l d i f f e r e n t to pl ans r e s p e c t i v e l y . A p p r o x i m a t e l y t o p l a n s m a i n t a i n e d b y i n Ger many, C anada, N orway a nd r a t e s o f r e t u r n o n p e n s i o n s e v e r a l d e f i n e d b e n e f i t i n p e n s i o n p l a n s l o n g - t e r m o u r c o n s o l i d a t e d d e f i n e d b e n e f i t i n N o r t h A m e r i c a a n d E u r o p e , t h e p l a n a s s e t s i n d i f f e r e n t m i x o f i n v e s t m e n t s a n d t h e l o n g - t e r m i n v e s t m e n t s d i f f e r s f r o m c o u n t r y t o c o u n t r y . I n d e t e r m i n i n g f o r c o n s i d e r a s s u m p t i o n s , w € i n c o m e ) o f a p p r o p r i a t e a s s u m e d a s s e t m i x e s a r e s u m m a r i z e d b e ] o w : s u c h a s s e t c o m p o n e n t s . r e t u r n r a t e s o f t h e a s s e t s l o n g - t e r m l o n g - t e r m r e t u r n f o r t h e e x p e c t e d t h e f o r e a c h o f l o n g - t e r m r a t e o f r e t u r n a s s e t m i x ( e . g . i t s p l a n s a n d t h e e x p e c t e d I n a d d i t J - o n , w e r e c e i v e f r o m o u r t h i r d - p a r t y e q u i t y o n p l a n v s . l o n g - t e r m a s s e t f i x e d r a t e s a d v i c e a b o u t S u c h a c t u a r i e s . i n T h e C o m b i n e d M a s t e r R e t i r e m e n t t h e K r o n o s , N L a n d M e d i t e p l a n , d s s e t s T r u s t t o p e r m i t f u n d c e r t a i n i t s t r u s t . s p o n s o r e d b y C o n t r a n t r u s t s w h i c h a n d c e r t a i n o f b y C o n t r a n t h e s o l - e t r u s t e e o f t h e C M R T . T h e t o p r o v i d e a n d f i x e d i n d i c e s ) , a r a t e o f i n c o m e r e t u r n i n d i c e s w h i l e u t i l l - z i n g di rected i nvest ments by the C MRT thro ugh D ecem ber t h e L4+ t h e C M R T ( e x c l u d i n g o f investment managers as w el-l as . i s During a l l o f i n v e s t e d o b j e c t i v e th ird-party i n v e s t m e n t th e 1-9- year hi story i n v e s t m e n t p l a n s H a r o ] d C . S i m m o n s i s t h e a v e r a g e a n n u a l - r a t e o f t h e s & P 5 0 0 a n d c e r t a i n R u s s e l l b y c e r t a i n m a s t e r s p o n s o r e d D u r i n g 2 0 0 7 , s u b s t a n t i a l l y i n t h e U . S . w e r e ( * C M R T " ; , a c o l - l - e c t i v e t h e c o l l e c t i v e e m p l o y e e b e n e f i t s a f f i l - i a t e s C M R T ' s l o n g - t e r m i n v e s t m e n t e x c e e d i n g a c o m p o s i t e o f b r o a d m a r k e t e q u i t y ( i n c l u d i n g both Mr. Sim mons. 3 1 , 2 0 0 7 , CMRT's ( i n c l u d i n g I n G e r m a n y , t h e c o m p o s i t i o n o f o u r p l a n a s s e t s the I n C a n a d a , w € e q u i t y long-term L 2 5 b a s i s p o i n t s a b o v e t h e a p p l i c a b l e In Norway, w€ curre ntly e q u i t y p r i m a r i l y o f r e s p e c t i v e l y . hav e a pl an ass et t o t o c a s h a n d l i q u i d f o r th e Ge r man i nsuranc e h a v e a p l a n a s s e t of c u r r e n t l y a n d 4 0 t return i n v e s t m e n t s i n v e s t m e n t s . requirements f i x e d suc h i nves tments investm ent. s e c u r i t i e s , s e c u r i t i e s rate of t o for r e t u r n r e t u r n s u c h f i x e d 6 4 2 of i s e s t a b l i s h e d t o s a t i s f y com mis sj- oner. t a r g e t i n c o m e s e c u r i t i e s , a l - l - o c a t i o n o f 5 0 t t o w i t h a n e x p e c t e d e q u i t y o r to ave rage approx imat ely f i x e d i n c o m e i n d e x . targ et i n c o m e s e c u r i t i e s of 1-42 t o r e m a i n d e r r a t e i s a p p r o x i m a t e l y 8 . 5 ? , 5 . 0 t a n d 4 . 5 2 , al -loc ati on a n d t h e l o n g - t e r m T h e e x p e c t e d has been approx imat ely a L 7 Z r e t u r n d u r i n g 2 0 0 6 a n d a n l - l - t r e t u r n d u r i n g 2 0 0 7 ) . in TIMET com mon st ock) - 5 3 O u r p e n s i o n p l a n w e r e a s f o l - l o w s : w e i g h t e d a v e r a g e a s s e t a l l o c a t i o n s b y a s s e t c a t e g o r y E q u i t y s e c u r i t i e s a n d l i m i t e d p a r t n e r s h i p s i n c o m e s e c u r i t i e s F i x e d R e a l e s t a t e C a s h , c a s h e q u i v a l e n t s a n d o t h e r CMRT 9 7 2 2 1 December Germany 31 2 0 0 5 Canada Norway 232 4 8 1_4 1 5 6 6 2 3 2 2 r-3 3 6 4 2 3 T o t a l l_Q_Q.t 1 ! 9 3 _1_Q_q? r _ 0 0 t E q u i t y s e c u r i t i e s a n d l i m i t . e d p a r t n e r s h i p s i n c o m e s e c u r i t i e s F i x e d R e a l - e s t a t e C a s h , c a s h e q u i v a l e n t s a n d o t h e r EMRT 9 8 t z D ecember 31 Germany 2 0 0 7 Canada Norway 2 8 * 4 9 T 2 1_1 6 0 t 3 4 o 1 8 ? 5 8 1 4 T o t a l - r _ 0 0 ? lQ_q? 1q_Q 8 1 0 0 t W e r e g u l a r l y p e r i o d i c a l l y t h e r e v l e w o u r a c t u a l - a s s e t a l - ] o c a t i o n r e b a l a n c e i n v e s t m e n t s i n e a c h p l a n t h e f o r e a c h t o m o r e o f o u r p l a n s , a c c u r a t e l y r e f l e c t a n d t a r g e t e d a 1 l o c a t i o n w h e n c o n s i d e r e d a p p r o p r i a t e . T h e a s s u m e d l o n g - t e r m n e t p e r i o d o f d e t e r m i n i n g f o l - l - o w s : r a t e s o f p e n s i o n r e t u r n c o s t . o n p l a n a s s e t s 2 0 0 5 , 2 0 0 6 f o r f o r p u r p o s e s u s e d a n d 2 0 0 7 w e r e a s K r o n o s a n d N L p l a n s : Germany Canada Norway U . S . M e d i t e p l a n 2 0 0 5 s . s t 7 . 0 5 . 5 r - 0 . 0 1 0 . 0 2 0 0 6 5 . 3 ? t . v 6 . 5 1 0 . 0 1 0 . 0 2 0 0 7 5 . 8 8 6 . 8 5 . 5 1 0 . 0 1 0 . 0 W e c u r r e n t l y t o u t i l _ i z e p l a n a s s e t a s s u m p t i o n s i n 2 0 0 8 a s w e o u r 2 0 0 8 d e f i n e d b e n e f i t p e n s i o n p l a n e x p e c t t h e s a m e l o n g - t e r m r a t e s u s e d i n 2 0 0 7 f o r p u r p o s e s e x p e n s e . of retu rn on o f d e t e r m i n i n g T o c a l c u l a t e s c o m p e n s a t i o n w i l l F o r a l l g e n e r a l l y t h e a v e r a g e t h e e x t e n t t h a t a p l a n ' s p a r t i c u l a r t h e p e n s i o n b e n e f i t I e v e l s , t h e p r o j e c t e d i n w h o l e b e n e f i t o r i n p e n s i o n p a r t b e n e f i t b a s e d u p o n f o r m u l a f u t u r e a n d t h e p e n s i - o n e x p e n s e b e b a s e d i n p a r t u p o n e x p e c t e d o f o u r p l a n s f o r w h i c h b a s e t h e a s s u m e d e x p e c t e d i n c r e a s e s t h e b e n e f i t i n c r e a s e o b l i g a t i o n s i n f o r m u ] a f u t u r e i n f u t u r e c o m p e n s a t i o n l e v e l s . s o c a ] c u l a t e d , i s c o m p e n s a t i o n w e l e v e 1 s o n l o n g - t e r m i n f l a t i o n r a t e s f o r t h e a p p l i c a b l - e c o u n t r y . I n a d d i t i o n t o d e f i n e d f o r d e f i n e d b e n e f i t based upon t h e a c t u a r i a l - a s s u m p t i o n s d i s c u s s e d a b o v e , b e c a u s e K r o n o s t h e a m o u n t s w e p e n s i - o n e x p e n s e a n d p r e p a i d a n d a c c r u e d p e n s i o n rel at ive exc han ge p e n s i o n p l a n s o u t s i d e t h e U . S . , cur rency chan ges b e n e f i t fore ign vary i n m a i n t a i n s r e c o g n i z e costs will r a t e s . 5 4 A s d i s c u s s e d a b o v e , d s s u m e d d i s c o u n t r a t e s a n d r a t e s o f r e t u r n A r e d u c t i o n i n t h e a s s u m e d d i s c o u n t l - o s s , d s t h e a c t u a r i a l l y - d e t e r m i n e d b e n e f i t p a y m e n t s w i l l i n c r e a s e . C o n v e r s e l y , a n r a t e g e n e r a l l y r e s u l - t s i n a n a c t u a r i a l - g a i n . r e t u r n o n p l a n a s s e t s f o r a g i v e n y e a r t h a t i s g r e a t e r o n p l a n r a t e p r e s e n t t h e a s s u m e d r e t u r n o n p l a n a s s e t s o n p l a n a s s e t s O t h e r a c t u a l - t h a t f u t u r e r e s u l - t s a n a c t u a l r e - e v a l - u a t e d o f e s t i m a t e d a n n u a l l y . i n a n a c t u a r i a l l - o s s . s u c h a s r e t u r n a c t u a r i a l - t h e a s s u m e d d i s c o u n t a s s e t s a r e g e n e r a l l y v a l u e i n i n c r e a s e I n a d d i t i o n , t h a n a c t u a l a n a s s u m p t i o n s , m o r t a l i t y p r e s e n t v a l - u e o f e s t i m a t e d t a b 1 e g a i n s . amounts are actuarial- a m o r t i z a t i o n a c t u a r i a l - r e d u c e c u m u l a t i v e u n r e c o g n i z e d a c t u a r i a L in generated U p o n a d o p t i o n i n d i v i d u a l - s recog nized f a v o r a b l e i n c l - u d e d e f f e c t gain s t h e l - o s s e s , w h i l e a n y a c t u a r i a l - f u t u r e b e n e f i t t h e m s e l - v e s o r p l a n a m e n d m e n t s , w i l l a m o r t i z a t i o n g a i n s . r e s u l - t s i s L e s s t h a n o u t c o m e s l i v i n g l o n g e r i n a n a c t u a r i a l - g a i n , w h i l e a n i n r e s u l t s t h e a s s u m e d r e t u r n f r o m p r e v i o u s t h a n a s s u m e d i n t h a t o r s h o r t e r d i f f e r p a y m e n t s , c h a n g e s i n s u c h m o r t a l i t y a L s o r e s u l - t i n a c t u a r i a l - o f S F A S N o . 1 - 5 8 e f f e c t i v e D e c e m b e r 3 1 , 2 0 0 6 , I n a d d i t i o n , the com prehensi ve other in f utur e i ncome. w oul-d a n y reduc e c u m u l a t i v e i n e a r n i n g s negati ve u n r e c o g n i z e d l - o s s e s o r t h e s e a n y peri ods o f l - o s s e s g e n e r a t e d i n c l u d e d e f f e c t i n f u t u r e p e r i o d s w o u l - d a n y e a r n i n g s o f i n t a b l e s , w h i c h a r e a l - s o u s e d t o d e t e r m i n e t h e a c t u a r i a l l y - d e L e r m i n e d D u r i n g 2 0 0 7 , o u r d e f i n e d b e n e f i t $ 6 9 . 5 m i l l i o n . o v e r a l l - i n c r e a s e T h i s a c t u a r i a l i n t h e a s s u m e d d i s c o u n t i n p a r t b y a n e x p e c t e d r e t u r n g a i n , p e n s i o n p l a n s g e n e r a t e d a n e t a c t u a r j - a l - r e s u l - t e d p r i m a r i l y t h e f r o m t o 2 0 0 7 , t h e a c t u a l - i n e x c e s s o f o n p l a n a s s e t . s f r o m 2 0 0 6 r a t e s g a i n o f g e n e r a l o f f s e t r e t u r n . B a s e d o n t h e a c t u a r i a l a s s u m p t i o n s fo r what actua l- average forei gn d e s c r i b e d cur rency a b o v e a n d o u r exc hange c u r r e n t expectations d u r i n g 2 0 0 8 , w € c u r r e n t l y w i l l b e r e q u i r e d s u c h p l a n s d u r i n g 2 0 0 8 . a p p r o x i m a t e $ 1 0 m i l - l - i o n t o m a k e a p p r o x i m a t e l y e x p e c t o u r a g g r e g a t e d e f i n e d b e n e f i t i n 2 0 0 8 . I n c o m p a r i s o n , w e c u r r e n t l y o f a g g r e g a t e $ 2 8 m i l l - i o n rates w il l be p e n s i o n e x p e n s e t o t o e x p e c t c o n t r i b u t i o n s A s n o t e d a b o v e , d e f i n e d b e n e f i t p e n s i o n e x p e n s e a n d t h e a m o u n t s t h e i r reasonabl-e and appropriate. If K ronos and N L had f o r a l l o f r a t e s b y 2 5 b a s i s p o i n t s a g g r e g a t e p r o j e c t e d r e c o g n i z e d a s p r e p a i d a n d a c c r u e d p e n s i o n c o s t s a r e b a s e d u p o n t h e a c t u a r i a l a s s u m p t i o n s d i s c u s s e d a b o v e . W e b e l i e v e a l l o f are d i s c o u n t 2 0 0 7 , a p p r o x i m a t e l y pension d u r i n g 2 0 0 7 . o f d e f i n e d b e n e f i t $ 1 m i l - l - i o n d u r i n g 2 0 0 8 . r a t e a n d e x p e c t e d w o u 1 d n o t b e s i g n i f a g g r e g a t e d e f i n e d b e n e f i t #2 mi l-l -ion r a t e s t h e i r i n c r e a s e b y a p p r o x i m a t e l y t h e d i s c o u n t t o t h e M e d i t e p l a n t h e a c t u a r i a l - a s s u m p t i o n s u s e d the ass umed p l a n s a s o f D e c e m b e r 3 1 , i n c r e a s e d b y i f K r o n o s a n d N L 1 o w e r e d t h e a s s u m e d l o n g - t e r m p 1 a n s , r e L u r n o n p l a n a s s e t s b y 2 5 b a s i s p o i n t s t h e i r b e n e f i t . o b l i g a t i o n s p e n s i o n e x p e n s e w o u l - d b e e x p e c t e d t h a t d a t e , a n d to expe nse would be expecte d r e t u r n o n p l a n a s s e t s a s s u m e d c h a n g e s w i t h by approx imat ely r e s p e c t f o r i 2 5 m i l l i o n f o r a l 1 o f w o u l d h a v e l o n g - t e r m S i m i l a r l y , l -ower ed i ncreas e r a t e o f S i m i l a r i c a n t . t h e i r t h e i r a t t o OPEB p7an s. We provi de certai n heal -th car e and l ife i nsuranc e benefi ts a c c r u e d O P E B c o s t s e l i g i b l e S t a t e m e n t s . r e t i r e d K r o n o s p r o v i d e s a n d N L a n d T r e m o n t p r o v i d e s u c h O P E B c o s t s c e r t a i n r e s p e c t i v e l y . o u r o f F i n a n c i a l - f o r C o n s o l i d a t e d 3 4 2 a n d 3 O t o f o u r a g g r e g a t e N L , a n d C a n a d a , U . S . f o r U n d e r S F A S N o . a c t u a r i a l - r a t e o f e f f e c t i v e p l a n s a s a l i a b i l i t y . W e a c c o u n t P o s t r e t i r e m e n t a s s u m p t i o n s , i n i n c r e a s e s B e n e f i t s f u t u r e f o r o t h e r ! 0 5 , O P E B e x p e n s e p r i n c i p a l l y h e a } t h D e c e m b e r 3 1 , 2 0 0 6 , w € l -1 s u c h O P E B b e n e f i t s S ee N ote e m p l o y e e s . A t D e c e m b e r 3 1 , 2 0 0 7 , a p p r o x i m a t e l y our 3 6 2 , a n d t h e U . S . t h e u n d e r S F A S N o . 1 0 6 , E m p T o y e r s A c c o u n t r i n g a s a m e n d e d b y S F A S N o . 1 5 8 . t o s u c h O P E B b e n e f i t s t o T r e m o n t . , K r o n o s r e t i r e e s t o i n r e t i r e e s r e l - a t e t h a n P e n s i o n s , to i n a n d a c c r u e d O P E B c o s t s t h e a s s u m e d d i s c o u n t c a r e a r e b a s e d o n c e r t a i n r a t e U p o n a d o p t i o n u n f u n d e d t h e a s s u m e d l - 5 8 o f o u r O P E B a n d o f S F A S N o . c o s t s . t h e s t a t u s f u l l r e c o g n i z e - 5 5 W e r e c o g n i z e d c o n s o l i d a t e d O P E B e x p e n s e o f $ L . 2 m i l l i o n f u n d i n g w i l l i n 2 0 0 7 . S i m i l a r f r o m d i f f e r p u r p o s e s , a n d c o n t r i b u t i o n s i n 2 0 A 5 , $ 2 . 3 t o d e f i n e d b e n e f i t p e n s i o n f o r t h e e x p e n s e r e c o g n i z e d t o c o v e r b e n e f i t t o E h e p l a n s i n 2 0 0 7 . b e i n g p a i d t h e a m o u n t o f r e p o r t i n g m i l - l - i o n i n 2 0 o G a n d i 2 . 4 m i l - l i o n b e n e f i t s , f i n a n c i a l - p a y m e n t s a g g r e g a t e d m i l l - i o n b e n e f i t s a m o u n t o f O P E B b e n e f i t s t.he amount we recog nize b e e n , a n d i s e x p e c t e d OPEB benefit O P E B c o s t s w e r e c o g n i z e g r a d u a l l y . S u b s t a n t i a l l y t o c u r r e n t $ S . O m i l - l - i o n i n 2 0 0 5 , $ 4 . 4 m i l l - i o n i n 2 0 0 6 a n d a l - 1 o f o u r a c c r u e d O P E B c o s t s r e l - a t e s i 2 . 9 t o r e t i r e e s a n d t h e i r a r e b e i n g e a r n e d b y c u r r e n t fo r OPEB expe nse for t o b e , s i g n i f i c a n t l y fi nanci al - t o c o n t i n u e payments we make eac h year . h a s b e e n , a n d A cco rdingl y, i s e x p e c t e d e m p l o y e e s . report ing d e p e n d e n t s , a n d n o m a t e r i a l A s a r e s u l t , purpos es h as t . h a n t h e a m o u n t o f the amount of acc ru ed d e c l - i n e t o c o n t i n u e l e s s t o , T h e a s s u m e d d i s c o u n t r a t e s w e u t i l i z e f o r d e t e r m i n i n g O P E B e x p e n s e a n d r e l - a t e d a c c r u e d O P E B o b l i g a t i o n s a r e g e n e r a l l y b a s e d o n t h e s a m e d i s c o u n t f o r o u r U . S . a n d C a n a d i a n d e f i n e d b e n e f i t p e n s i o n p 1 a n s . t h e r a t e s w e u t i 1 i z e I n e s t i m a t i n g t h e h e a l t h c a r e c o s t t r e n d the amount of OPEB expense and acc rued OP EB cos ts w e rec ogniz e. t h r e e y e a r s , w € h a v e a s s u m e d t h a t t h e f u t u r e a c t u a r j - e s . a l - l - o r a p o r t i o n f u t u r e a n y h e a l - t h c a r e c o s t e x p e r i e n c e , f r o m t h i r d - p a r t y a d v i c e o n r e t i r e e s t o t h e s e r e t i r e e s , on e a c h o f heal-th care costs will r e f l - e c t i t g , c a r e s y s t e m a n d F o r e x a m p l e , d t D e c e m b e r 3 1 , 2 0 0 7 , h e a l t h c a r e c o s t s r a n g e i s 5 . 8 ? t o 8 . 5 * t o 5 . 5 t i n 2 0 1 0 t o 2 0 1 , 4 a n d t h e r e a f t e r . generally t h i n g s , i n d u s t r y - w i d e a m o n g o t h e r t h e p a s t i n c r e a s e b e n e f i t I n c e r t a i n o f a n y i n c r e a s e s i n h e a l t h i n h e a l - t h c a r e c o s t s w i l l r a t e , w € c o n s i d e r i n d u s t r y s t r u c t u r e s , c a s e s , N L h a s t h e r i g h t c a r e c o s t s ; o u r a c t u a l - t r e n d s a n d t o p a s s f o r h a v e n o e f f e c t D uring i n the next sev eral - year s, t h e h e a l t h i n i n c r e a s e r e l a t i v e tren d dow nward over d s s u m e d i n c r e a s e s c o s t a n d p l a n - d e s i g n i n e f f i c i e n c y c o n t a i n m e n t t h e e x p e c t e d r a t e o f i n 2 0 0 8 , d e c l i n i n g i n i t i a t i v e s . i n f u t u r e i n c r e a s e t o a r a n g e o f 4 . 0 ? Based on th e actu arj-al- assum ptions des cri bed abov e and K ronos' cur rent fo r what actu al- aver age fore ign cur rency exc hange expectation d u r i n g e x p e c t m i l l - i o n f n a p p r o x i m a t e l y $ 3 . 5 m i l l i o n 2 0 0 8 , w € 2 0 0 8 . i n o u r c o n s o l i d a t e d c o m p a r i s o n , o f c o n t r i b u t j - o n s w e e x p e c t O P E B e x p e n s e w i l l t o b e t o s u c h p l a n s d u r i n g 2 0 0 8 . r e q u i r e d rates w il l be a p p r o x i m a t . e # 2 t o m a k e As noted above, OP EB expens e and the amount w e rec ogniz e as acc rued O PEB t h e a c t u a r i a l t h e a c t u a r i a l t h e a s s u m e d d i s c o u n t a s s u m p t i o n s d i s c u s s e d a b o v e . W e b e l i e v e c o s t s a r e b a s e d u p o n a l l o f a s s u m p t i o n s w e u s e a r e r e a s o n a b l - e a n d a p p r o p r i a t e . h a d l o w e r e d r a t e s b y 2 5 b a s i s p o i n t s p l a n s a s o f D e c e m b e r 3 1 , 2 0 0 7 , o u r a g g r e g a t e p r o j e c t e d would have e x p e n s e w o u l - d b e 2 0 0 8 . S i m i l a r l y , t h e h a d b e e n i n c r e a s e d w o u l d h a v e i n c r e a s e d b y a p p r o x i m a t e l y $ 3 . 5 m i l - l - i o n a t D e c e m b e r 3 1 , 2 0 0 7 , a n d O P E B e x p e n s e w o u l - d b e e x p e c t e d I f w e f o r a l l o f o u r O P E B b e n e f i t date, s a m e d u r i n g r a t e o u r a c c u m u l - a t e d O P E B o b l i g a t i o n s i-n creased by approximat ely e x p e c t e d a s s u m e d l - 0 0 b a s i s p o i n t s , a p p r o x i m a t e l y $ 1 mi l-l -i on t o f u t u r e our OPEB o b l i g a t i o n s at t h e i f b y i n 2 0 0 8 . i n c r e a s e b y $ . 3 h e a l t h t r e n d c a r e c o s t that b e t o Foreign operat,ions W e h a v e s u b s t a n t i a l - Chemical -s operatj-ons in Canad a and Taiwan. principally o perat ions i s t h e l i a b i l i t i e s r e l - a t e d c h a n g e s i n c u r r e n c y e x c h a n g e r a t e s . l o c a l - c u r r e n c y . A s a r e s u l - t , f o r e i g n t h e s e t o The func ti onal- t h e o p e r a t i o n s r e p o r t e d o p e r a t i o n s l - o c a t e d o u t s i d e S t a t e s , i n E urope and C anada and C omponent P roducts thes e operat ions t h e U n i t e d cur rency of a m o u n t o f o u r a s s e t s a n d b a s e d u p o n f l u c t u a t e w i l l - 5 5 T,I9UIDITY Al[D CAPITAL RESOITRCES Consolidated Cash Flows Q p e r a t i n g A c t i v i t i e s s i g n i f i c a n t a r e g e n e r a l l y T r e n d s i n c a s h f l o w s a s s e t d i s p o s i t i o n s s i m i 1 a r t o t r e n d s f r o m o p e r a t i n g a c t i v i t i e s ( e x c l u d i n g t h e i m p a c t o f a n d r e l - a t i v e c h a n g e s i n a s s e t s a n d l i a b i l i t i e s ) i n c o m e . i n o u r o p e r a t i n g C a s h f l - o w s p r o v i d e d b y o u r o p e r a t i n g a c t i v i t i e s m i l - l - i o n i n 2 0 0 6 t o $ 5 3 . 5 m i l ] i o n p r o v i d e d w a s d u e p r i m a r i l y t o i n 2 0 0 7 . T h i s $ 2 2 . 8 m i l l i o n f o l l o w i n g o f t h e n e t e f f e c t s t h e i t e m s : d e c r e a s e d f r o m $ 8 5 . 3 d e c r e a s e i n c a s h i n c o m e o p e r a t . i n g i 2 0 . 9 m i l - l i o n c a l l - p r e m i u m w e p a i d ] o w e r c o n s o l i d a t e d 1 o w e r e a r n i n g s a c r o s s a l l o f o u r s e g m e n t s , p a r t i c u l a r l y S e g m e n t ; t h e S e n i o r S e c u r e d N o t e s , w h i c h f r o m o p e r a t i n g a c t i v i t i e s ; l - o w e r n e t c a s h u s e d b y c h a n g e s i n r e c e i v a b l - e s , a c c r u e d c h a n g e s i n K r o n o s ' l - o w e r c a s h p a i d t h e 2 0 0 6 p a y m e n t o f c e r t a i n o f p r i o r i n 2 O O 7 o f $ 1 1 . 5 m i l l i o n , l e v e l s ; i n c o m e t a x a u d i t s ; i n c o m e t a x e s l i a b i l i t i e s i n v e n t o r y r e q u i r e d t o b e y e a r a n d f o r i s i n 2 0 0 7 o f $ s g . z m i l l i o n , t o a t o u r C h e m i c a l - s d u e i n 2 0 0 6 w h e n w e p r e p a i d o u r 8 . 8 5 t i n c l u d e d i n c a s h f 1 o w s i n v e n t o r i e s , d u e p r i m a r i l y p a y a b l e s a n d t o r e l - a t i v e i n 2 0 0 7 o f $ 1 0 . 5 m i l - ] i o n d u e i n p a r t j - n c o m e t a x e s a s s o c i a t e d w i t h t o t h e s e t t l - e m e n t o h i g h e r n e t c a s h c o n t r i b u t e d t o o u r T i 0 2 i n 2 0 0 7 a s c o m p a r e d t o 2 0 0 6 . $ 7 . 2 m i l l - i o n j o i n t v e n t u r e w h i c h i n c r e a s e d C a s h f l - o w s p r o v i d e d b y o u r o p e r a t i n g a c t i v i t . i e s m i l l i o n d u e p r i m a r i l y i n 2 0 0 5 t o $ 8 5 . 3 m i l l i o n t h e n e t e f f e c t s t o i n 2 0 0 6 . T h i s d e c r e a s e o f f o l l o w i n g i t e m s : t h e d e c r e a s e d f r o m $ 1 0 4 . 3 i n c a s h p r o v i d e d w a s o h i g h e r d u e t o a l - o w e r l e v e l - o f d i s t r i b u t i o n s i n v e n t o r i e s , r e c e i v a b l - e s , c h a n g e s i n 2 0 0 6 o f $ 3 9 . 0 m i l l J - o n , d u e p r i m a r i l y i n i n v e n t o r y i n c o m e i n o u r C h e m i c a l s S e g m e n t ; 2 0 0 6 o f $ 2 3 . 6 m i 1 l i o n , d u e o u r t h e i n 2 0 0 6 w h e n w e p r e p a i d i n i n c l - u d e d t o b e a c t i v i t i e s , ' r e c e i v e d i n 2 0 0 5 o f # 7 6 . 2 f r o m r e c e i v e d expe nditures of $ 6.7 i n b y t h e l e v e l - s ; i n t e r e s t p r i m a r i l y o p e r a t i n g c a s h p r o v i d e d a n d d i v i d e n d s f r o m o p e r a t i n g o f c a s h f l o w s l - o w e r e a r n i n g s c a l - l - p r e m i u m w e p a i d t o i 2 o . 9 m i l - ] i o n l i a b i l i t i e s c h a n g e s i n K r o n o s ' n e t p a y a b l e s a n d a c c r u e d t o r e l a t i v e l - o w e r c o n s o ] i d a t e d p r i m a r i l y t h e 8 . 8 7 5 t S e n i o r S e c u r e d N o t e s , w h i c h G A A P r e q u i r e s d e t e r m i n a t i o n l - o w e r g e n e r a l c o r p o r a t e m i l l i o n , The Am algamated Suga r Com pany LLC i n 20Q6; cash paid lower m i l - l - i o n i n 2 0 Q 6 ; l o w e r c a s h p a i d t o year income a p p r o x i m a t e l y s e t t l - e m e n t o f p r i o r l - o w e r c a s h p a i d r e s u l - t o f (which paid 2 0 0 6 s e m i a n n u a l l y l - o w e r d i s t r i b u t i o n s m i l l i o n i n c o m e i n c o m e t a x a u d i t s ; semiannual ly i s s u a n c e o f o u r 5 . 5 ? S e n i o r S e c u r e d N o t e s $ r 9 . 2 m i l - l - i o n y e a r i n A p r i l a n d O c t o b e r s t a r t i n g t h e $ 2 1 . 0 m i l - l i o n f r o m o u r L o u i s i a n a th at w as off set d u e t o r e l - a t i v e i n c o m e t a x e s envi ronmental c h a n g e s i n remedi ati on ta x audi t r e c e i v e d i n part i n t e r e s t interest t a x e s t h e i r f o r f o r fo r o f i n Jun e and D ecember) and ( w h i c h p a y the A pril i n t e r e s t i n O c t o b e r Z 0 0 6 ) ; a n d j o i n t v e n t u r e o f $ 2 . 6 c a s h r e q u i r e m e n t s i n 2 0 0 6 . a s a t h e M a y 2 0 0 6 r e d e m p t i o n o f o u r 8 . 8 7 5 t S e n i o r S e c u r e d N o t e s i n 2 0 0 6 o f $ 7 . 0 m i l l i o n , p r i m a r i l y d u e i n p a r t i n 2 0 0 6 o f $ 1 1 - . 2 m i l l i o n , t a x p a y m e n t w e m a d e i n 2 0 0 5 t o s e t t l e N L ' s p r i o r - by the 2006 paym ent. of t h e a s s o c i a t e d w i t h o o o o o o o o o o o - 5 7 R e l - a t i v e c h a n g e s s i g n i f i c a n t working capital were affected o n c a s h e f f e c t i n w o r k i n g c a p i t a l f l - o w s by acc ounts f r o m o p e r a t i n g rec eiv able a c t i v i t i e s . and i nventory a s s e t s a n d l i a b i l i t i e s l c a n h a v e C h a n g e s a i n chan ges: o K r o n o s ' a v e r a g e d a y s s a l _ e s o u t s t a n d i n g ( " D S O " ) i n c r e a s e d D e c e m b e r 3 I , 2 0 0 6 t o 6 3 d a y s a t D e c e m b e r 3 A , 2 0 0 7 , d u e t o c o l l e c t i o n o f h i g h e r a c c o u n t s CompX's average DSO increa s ed days at December 31, 2Q07 due accounts r e c e i v a b l e s b a l - a n c e s a t from 4I days at D ecember 31, 2006 of ti min g the end of 2007 . receivabl-e bal-ance at col -l -ect ion to t h e f r o m 6 I d a y s a t t i m i n g o f t h e e n d o f 2 0 0 7 . to 44 on the hi gher o f h i g h e r o K r o n o s ' a v e r a g e n u m b e r o f d a y s i n d a y s a t D e c e m b e r 3 1 , 2 0 0 5 t o 5 9 d a y s a t D e c e m b e r 3 1 , 2 0 0 7 d u e t o e f f e c t s average DII December 3L, 2007 due pri mari ly d u r i n g 2 0 Q 7 . o K r o n o s ' a v e r a g e s a 1 e s v o l u m e s a n d l o w e r p r o d u c t i o n from 57 days at D ecember 3L, 2006 f r o m 5 5 d a y s a t D e c e m b e r 3 1 , 2 0 0 5 D S O i n c r e a s e d raw mate rial - d e c r e a s e d com modity to hi gher incre ased i n v e n t o r y v o l u m e s . ( " D I I " ) to 65 days at co st s f r o m 5 8 t h e C o m p X ' s t o 6 L receivabl-e bal-ances at days at December 31, 2006 due accounts i n c r e a s e d December 31, 2006 due to s li ghtl y t h e e n d o f 2 0 0 5 . o K r o n o s ' a v e r a g e D I I i - n c r e a s e d s l i g h t l y t' o the ti mi ng of col l ecti on on hi gher the end of D ecember. C ompX' s aver age DSO f r o m 4 0 d a y s a t D e c e m b e r 3 1 , 2 0 0 5 hi gher acc ounts rec eiv able t o 4 1 , d a y s a t bal -ance at d a y s a t D e c e m b e r 3 L , 2 0 0 6 , d s 2005 excee ded th eir a v e r a g e D f I d e c r e a s e d s l i g h t l y days at December 31, 2006 due pri mari ly raw mater ia ls during 2005 as we utilized i nventor y t h e e n d o f 2 0 0 5 t h a t w a s a c q u i r e d d u r i n g 2 0 0 5 a s p a r t o f o u r e f f o r t s m i t i g a t e f r o m 5 9 d a y s a t D e c e m b e r 3 1 , 2 0 0 5 t o 5 8 i n C ompX's f r o m 5 9 d a y s a t D e c e m b e r 3 1 , 2 0 0 5 t o 5 7 record Ti O2 sal es vol -umes duri ng r e c o r d T i O 2 p r o d u c t i o n i n r a w m a t e r i a l - p r i c e s . than normal bal ance i m p a c t o f v o l a t i l i t y the peri od. the hi gher reduc tions v o l u m e s t h e i r at t o t h e to i n i n W e d o n o t h a v e c o m p l e t e a c c e s s i n s u b s i d i a r i e s p a r t t o t h e c a s h t o l i m i t a t i o n s c o n t a i n e d a n d b e c a u s e w e d o n o t o w n 1 - 0 0 t o f c a s h c o n s o l i d a t e d t h e s e f r o m o p e r a t i n g c e r t a i n f l o w s f l o w s o f o u r m a j o r i t y - o w n e d c r e d i t i n A d e t a i l i s p r e s e n t e d i n o f t h e o u r t a b l - e b e l - o w . s u b s i d i a r i e s , d u e a g r e e m e n t s o f o u r s u b s i d i a r i e s . a c t i v i t i e s e l - i m i n a t e d . I n t e r c o m p a n y d i v i d e n d s h a v e b e e n 2 0 0 5 Years ended December 3L, 2 0 0 6 ( I n m i l l i o n s ) 2007 in) operating by (used Cash provided a c t i v i t , i e s : Kronos NL Parent CompX W a s t e C o n t r o l S p e c i a l i s t s Tremont V a l h i P a r e n t O t h e r E l i m i n a t i o n s { Y $ e 7 . 8 ( 2 0 . 1 ) 2 0 . 0 ( 7 . 7 ) ( s . 0 ) 1 0 1 _ . 4 ( . 7 ) ( 8 1 . 4 ) a ' 4 . v " 1 l a 6 . 9 2 7 . 4 ( 3 . e ) t a . 5 i 9 6 . 5 ( r . r ) ( 1 _ 0 e . e ) F \ $ 8 e . e ( L L . 2 ) 1 1 . 9 ( 1 1 . 2 ) ( 3 . 1 ) s 9 . 9 ( . 7 ) ( 7 2 . 0 1 T o t a l - $ 1 0 4 . 3 $ e o . t $____63-5 5 8 Investring Activi ties We discl ose capita l expendi tures by our busi nes s o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s . seg ments i n N ote 2 t o W e p u r c h a s e d t h e f o l l o w i n g s e c u r i t i e s i n m a r k e t t r a n s a c t i o n s d u r i n g 2 0 Q 7 : o o t h e r m a r k e t a b l e s e c u r i t i e s r C o m p X c o m m o n s t o c k t h r o u g h o f 9 2 3 . 3 m i l l i o n ; s t o c k t h e i r r e p u r c h a s e p r o g r a m m i l l i o n ; T I M E T c o m m o n s t o c k a n d . f o r $ . T m i l l i o n . f o r $ 3 . 3 I n a d d i t i o n , m i l l i - o n . d u r i n g 2 0 0 7 w e s o l d o t h e r m a r k e t a b l - e s e c u r i t i e s f o r $ 2 8 . 5 w e p u r c h a s e d t h e f o l l o w i n g s e c u r i t i e s i n m a r k e t t r a n s a c t i o n s 2 0 0 5 z o o o o o t h e r m a r k e t a b l e s e c u r i t i e s s h a r e s o f K r o n o s c o m m o n s t . o c k f o r $ 2 5 . 4 m i l l i o n ; s h a r e s o f T f M E T c o m m o n s t o c k f o r $ 1 8 . 7 m i l l i o n ; s h a r e s o f C o m p X c o m m o n s t o c k f o r $ 2 . 3 m i l l i o n ; f o r S + S . + m i l l i o n . a n d I n a d d i t i o n , d u r i n g 2 0 0 5 w e : d u r i n g s o l - d o t h e r m a r k e t a b l _ e s e c u r i t i e s s o l - d c e r t a i n l a n d h o l d i n g s f o r $ 4 2 . 9 m i l l i o n ; i n N e v a d a f o r $ 3 ? . 9 m i l l i o n ; a perform ance m arin e a n d com ponents produc ts com pany for $ 9.8 $ 8 . 3 m i l l i o n o f e x p e n d i t u r e s r e l - a t e d t o W c S ' p e r m i t t i n g o o o acquir ed m i l l i o n ; c a p i t a l - i z e d e f f o r t s . o W e p u r c h a s e d t h e f o l l o w i n g s e c u r i t i e s i n m a r k e t t r a n s a c t i o n s d u r i n g 2 0 0 5 : o o o r s h a r e s o f T I M E T c o m m o n s t o c k s h a r e s o f K r o n o s c o m m o n s t o c k s h a r e s o f C o m p X c o m m o n s t o c k o t h e r m a r k e t a b l e s e c u r i t i e s f o r $ i _ 9 . 0 m i l l i o n ; f o r $ 2 . O m i l l i o n ; f o r $ 3 . 6 m i l l i o n ; f o r 9 2 9 . 4 m i l l - i o n . a n d I n a d d i t i o n , d u r i n g 2 0 0 5 w e : f o r i ] - 9 . 2 m i l l i o n ; f o r $ 1 9 . 2 m i l l i o n ; o o o o o o s o l - d s h a r e s o f K r o n o s c o m m o n s t o c k s o l d o t h e r m a r k e t a b l e s e c u r i _ t i e s c o l l - e c t e d $ 8 0 m i l l - i o n o n o u r c o ] ] e c t e d d e s c r i b e d c o l - l e c t e d a n e t $ + . 9 m i ] l i o n r e c e i v e d a n e t $ 1 8 . 1 m i ] l - i o n o p e r a t i o n s r e c e i v e d $ 3 . 5 m i l l i o n $ 1 0 m i l l - i o n i n N o t e 1 t o a p e r f o r m a n c e m a r i n e a n d o o a c q u i r e d o m i l l i o n ; c a p i t a l - i z e d e f f o r t s . l - o a n t o S n a k e R i v e r S u g a r C o m p a n y ; o n o u r t h e C o n s o l - i d a E e d F i n a n c i a l S t a t e m e n t s ; t h e C o n t r a n t o o n e o f ] o a n f a m i l y t r u s t s o n o u r s h o r t - t e r m f r o m t h e s a L e o f o u r E u r o p e a n T h o m a s R e g o u t l - o a n t o C o n t r a n ; ( w h i c h h a d $ + . 0 m i l l - i o n o f c a s h a t t h e d a t e o f d i s p o s a l ) ; f r o m t h e s a l e o f o u r N o r w e g i a n s m e l t i n g o p e r a t i o n ; c o m p o n e n t s p r o d u c t s c o m p a n y f o r $ 2 . : $ 4 . 1 m i l - l i o n o f e x p e n d i t u r e s r e L a t e d t o W C S ' p e r m i t t i n g - 5 9 Financing Activities o f held common stock I n O c t o b e r 2 0 0 7 , C o m p X ' s r e p u r c h a s e d a n e t 2 . 7 m i l - l - i o n s h a r e s o f TIME T. w h i c h i t i n t e r e s t i t s aggrega te f o r m o f a p r o m i s s o r y f o r r e p a y m e n t s o f $ 2 5 0 , 0 0 0 c o m m e n c i n g i n S e p t e m b e r 2 0 0 8 , w i t h in Septem ber 2074. C ompX may mak e prepay ments on The p a i d a t L I B O R p l u s 1 t a n d p r o v i d e s C ompX purc hased t h e any amount , w itho ut i 5 2 . 6 m i l l i o n , n o t e b e a r s Cl-ass A c o n s i d e r a t i o n T h e p r o m i s s o r y n o t e . q u a r t e r l y p r i n c i p a l the balance due at maturity the p r o m i s s o r y a g r e e m e n t . n o t e I n a d d i t i o n , penal ty. b a n k t r a n s a c t i o n s : at any s u b o r d i n a t e d d u r i n g 2 0 0 7 w e h a d t h e t o C o m p X ' s U . S . f o l l o w i n g d e b t promissory note i s r e v o l v i n g c r e d i t ti me, for b y i n i n r e p a i d $ 2 . 6 m i ] ] i o n o o n e t b o r r o w i n g s o f $ 9 m i l l i o n u n d e r K r o n o s ' U . S . u n d e r C o m p X ' s p r o m i s s o r y n o t e p a y a b l e b a n k c r e d i t f a c i l i t y . t o T I M E T ; a n d I n A p r i l 2 0 0 6 , w € a m o u n t o f o u r 5 . 5 ? S e n i o r S e c u r e d N o t e s d u e 2 O ! 3 ( $ 4 9 8 . 5 m i l - l i o n w h e n i s s u e d ) , a n d u s e d t h e p r o c e e d s a m o u n t o f I n 8 . 8 7 5 8 S e n i o r S e c u r e d N o t e s a d d i t i o n , i n M a y 2 0 0 6 ( $ 4 7 0 . 5 m i l - l i o n w h e n r e d e e m e d ) . r e d e e m o u r e u r o 3 7 5 m i l l i o n i s s u e d e u r o 4 0 0 m i l l i o n d u r i n g 2 0 0 5 w e h a d t h e a g g r e g a t e p r i n c i p a l a g g r e g a t e p r i n c i p a l t r a n s a c t i o n s : f o l l o w i n g d e b t t o o b o r r o w e d a n d r e p a i d $ q . + m i l ] i o n u n d e r K r o n o s ' C a n a d i a n r e v o l v i n g c r e d i t f a c i I i t y ; r e p a i d a n e t $ 5 . 1 m i l l i o n r e p a i d $ 1 . 5 m i l - l - i o n o f c e r t a i n o f C o m p X ' s i n d e b t e d n e s s . u n d e r K r o n o s ' U . S . b a n k c r e d i t f a c i l i t y ; a n d D u r i n g 2 0 0 5 , w e : r e p a i d a n a g g r e g a t e e u r o 1 0 m i l l - i o n K r o n o s ' E u r o p e a n r e v o l v i n g b o r r o w e d a n e t $ 1 1 - . 5 m i l ] i o n e n t e r e d e q u i p m e n t f o r b o r r o w e d a n d f a c i l i t y . a d d i t i o n a l c a p i t a l t h e e q u i v a l e n t o f $ + . + m i l l i o n ; r e p a i d $ 5 m i l l - i o n f a c i l i t y ; c r e d i t i n t o u n d e r K r o n o s ' U . S . c r e d i t f a c i l i t y ; l - e a s e a r r a n g e m e n t s f o r c e r t a i n m i n i n g a n d u n d e r V a l h i ' s r e v o l v i n g b a n k c r e d i t ( $ 1 - 2 . 9 m i l - l - i o n w h e n r e p a i d ) u n d e r o o o o W e p a i d a g g r e g a t e c a s h d i v i d e n d s o n o u r c o m m o n s t o c k o f $ 4 8 . 8 m i l l - i o n i n 2 0 0 5 ) , $ 4 8 . 0 m i l - l - i o n i n 2 0 0 6 a n d $ 4 5 . 5 m i l - l - i o n i n 2 0 0 7 ( $ . 1 0 p e r s h a r e p e r q u a r t e r ) i n 2 0 0 5 , 2 0 0 6 a n d 2 O Q 7 a r e t h a n p r i m a r i l y us or NL, NL dividends p a i d t o s h a r e h o l - d e r s o t h e r than us and C ompX di vi dends c o m p r i s e d o f K r o n o s c a s h d i v i d e n d s to shar ehol-der s other t o s h a r e h o l - d e r s o t h e r D i s t r i b u t i o n s t o m i n o r i t y t h a n N L . i n t . e r e s t p a i d paid . W e p u r c h a s e d a p p r o x i m a t e l y 3 . 5 m i I l i o n , 7 . 9 m i l l - i o n i n 2 0 0 5 , 2 Q Q G a n d 2 0 0 7 , r e s p e c t i v e l y , a n d . 6 m i l l i o n i n m a r k e t a n d S e e N o t e s 1 , 4 a n d 1 , 6 t o o u r C o n s o l i d a t e d t h e s e p u r c h a s e s w i t h o u r a v a i l a b l e c a s h o n h a n d . $ 6 2 . L m i l l i o n , $ 4 3 . 8 m i l - l - i o n a n d $ 1 1 . l - m i l l i o n , F i n a n c i a l - S t a t e m e n t s . j - s s u e d b y u s a n d o u r s u b s i d i a r i e s u p o n t h e e x e r c i s e i n 2 0 0 5 , 2 0 0 5 a n d 2 0 0 7 r e l - a t e p r i n c i p a l l y O t h e r c a s h f l - o w s t o s h a r e s o f s t o c k f o r s h a r e s o f o u r c o m m o n s t o c k o t h e r t r a n s a c t i o n s r e s p e c t i v e l y . W e f u n d e d f r o m o f c o m m o n s t o c k o p t i o n s . f i n a n c i n g a c t i v i t i e s Outstanding Debt Ob ligations A t D e c e m b e r 3 1 , 2 0 0 7 , o u r c o n s o l i d a t e d t h i r d - p a r t y i n d e b t e d n e s s w a s c o m p r i s e d o f : o K I I ' s e u r o 4 O O m i l l i o n a g g r e g a t e p r i n c i p a l a m o u n t S e c u r e d N o t e s e f f e c t o f ( $ 5 8 5 . 5 m i l l - i o n t h e u n a m o r t i z e d o r i g i n a l a t D e c e m b e r 3 1 , 2 0 0 7 , i s s u e d i s c o u n t ) d u e i n 2 0 L 3 ; o O u r $ 2 5 0 m i l l - i o n r C o m p X ' s p r o m i s s o r y a t D e c e m b e r 3 1 , 2 O O 7 ) w h i c h b e a r s n o t e p a y a b l e t o T I M E T j - n t e r e s t a t L I B O R p l u s 1 t ( 5 . 0 t l - o a n f r o m S n a k e R i v e r S u g a r C o m p a n y d u e i n 2 0 2 7 ; ( $ 5 0 m i l - l - i o n o u t s t a n d i n g 6 0 6 . 5 t i n c l u d i n g S e n i o r t h e a t D e c e m b e r 3 1 , 2 0 0 7 ) a n d h a s q u a r t e r l y $ 2 5 0 , 0 0 0 c o m m e n c i n g i n S e p t e m b e r 2 0 0 8 d u e i n 2 0 1 - 4 ; K r o n o s ' o u t s t a n d i n g ) $ S . z m i l - l - i o n o f o t h e r d u e i n S e p t e m b e r 2 0 0 8 ; a n d i n d e b t e d n e s s . r e v o l v i n g p r i n c i p a l f a c i l i t y c r e d i t b a n k U . S . r e p a y m e n t s o f ( $ l - 5 . 4 m i l l - i o n W e a r e i n c o m p l i a n c e w i t h a l l S e e N o t e 9 t o o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s . i n d e b t e d n e s s curre nt ly amo unt of our availabl -e o f o u r d e b t c o v e n a n t s a t D e c e m b e r 3 1 , A t D e c e m b e r 3 L , t w e l v e m o n t h s , to use a the duri ng t h e n e x t requi red be i ndebtedness i s d u e w i t h i n expe ct w e w il l 2 0 0 7 . 2 0 0 7 , $ 1 6 . 8 m i l - l i o n o f o u r and we do not significant next twel-ve months. therefor e l iqui dit y repay to C e r t a i n o f o u r c r e d i t c r e d i t t h e a c c e l - e r a t . i o n o f o t h e r t h a n d e f a u l - t s e x a m p l e , c e r t a i n of Lhe indebtedness t h e b o r r o w e r . V a l h i r e q u i r e c o l - l - a t e r a L i n f a l - l - s b e l - o w s p e c i f i e d r e s u l t s a l e o f a s s e t s o u t s i d e T h e i n t o e i t h e r t h e e v e n t i n d e b t e d n e s s f o r f a i l u r e a g r e e m e n t s c o n t a i n p r o v i s i o n s t o p r i o r t o c o m p l y w i t h i t s s t a t e d m a t u r i t y f o r a p p l i c a b l - e c o v e n a n t s . t h a t c o u l d r e s u l - t i n r e a s o n s F o r a g r e e m e n t s a L l o w t h e upon a change of con trol l e n d e r (as defi ned t o a c c e l - e r a t e i n t e r m s o f V a L h i ' s r e v o l v i n g b a n k c r e d i t r e d u c e o u t s t a n d i n g t h e l - e v e l s . v a l - u e o f I n a d d i t i o n , f a i r b o r r o w i n g s t h e e x i s t i n g c e r t a i n t h e m a t u r i t y the agreem ent) of c o u l d f a c i l i t y o r p l e d g e a d d i t i o n a l c o l l - a t e r a l p l e d g e d c r e d i t i n d e b t e d n e s s a g r e e m e n t s c o u l - d a f o l l o w i n g t h e a c c e l - e r a t i o n o f a l l o r a p o r t . i o n o f t h e o r d i n a r y c o u r s e o f b u s i n e s s . t h e Future Cash Requirements Liquidi ty O u r p r i m a r y s o u r c e o f l i q u i d i t y o n a n o n g o i n g b a s i s u n d e r v a r i o u s ( i ) f u n d c a p i t a l i s o u r c a s h l - i n e s o f c r e d i t e x p e n d i t u r e s , f o r w o r k i n g c a p i t a l ( i n c l u d i n g d i v i d e n d s p a i d F r o m t i m e - t o - t i m e f l - o w s a n d ( i i ) p u r p o s e s t o u s i n c u r r e d p r i m a r i l y p r o v i d e e x i s t i n g t r e a s u r y a c t i v i t i e s g e n e r a l l y r e f i n a n c e i n d e b t e d n e s s f o r a n d b o r r o w i n g s u s e t h e s e a m o u n t s t o t h e p a y m e n t o f d i v i d e n d s o r f r o m o p e r a t i n g n o t e s . W e g e n e r a l l y r e p a y s h o r t - t e r m a n d ( i i i ) b y o u r s u b s i d i a r i e s ) i n c u r i n d e b t e d n e s s , ( i i ) o t h e r s u b s i d i a r i e s a c q u i s i t i o n O c c a s i o n a l l y g e n e r a l l y i n d e b t e d n e s s w h i c h m a y h a v e b e e n c o l - l - a t e r a l i z e d i n v e s t m e n t s e x p e n d i t u r e s b u s i n e s s o r a n d a f f i l i a t e s ) o f o t h e r w e s e l - l - a s s e t s o u t s i d e ( i ) i n m a r k e t a b l - e a n d o t h e r o r t h e a c q u i s i t i o n ( i v ) p a y d i v i d e n d s . t h e a c q u i s i t i o n o r ( i v ) o u t s i d e t h e p r o c e e d s i n d e b t e d n e s s , ( i n c l u d i n g s e c u r i t i e s a s s e t s u s e t o t o s t o c k p u r c h a s e s . ( i ) f u n d s h o r t - t e r m w o r k i n g ( i i i ) m a k e i n v e s t m e n t s o f s e c u r i t i e s c a p i t a l w e w i l l n e e d s , i n m a r k e t a b l - e a n d i s s u e d b y o u r t h e o r b u s i n e s s . f u n d m a j o r c a p i t a l e x p e n d i t u r e s o r d i n a r y t h e t h e o r d i n a r y r e p a y e x i s t i n g c o u r s e c o u r s e o f b u s i n e s s , i n d e b t e d n e s s o f s e c u r i t i e s , o f o t h e r a s s e t s o u t s i d e ( i i i ) f u n d m a j o r t h e o r d i n a r y b y t h e a s s e t s s o l d ) , a n d w e ( i n c l u d i n g ( i i ) m a k e c a p i t a l c o u r s e o f W e r o u t i n e l y a g a i n s t c a p i t a l , p r o c e s s , w e h a v e c a p i t a l s u b s i d i a r i e s , t h i s a d d i t i o n a 1 i n d e b t e d n e s s c o n s i d e r u n i t s , m a r k e t a b l - e s e c u r i t i e s a n d o t h e r s t e p s , a c t i v i t i e s . r e l a t e d t h e s a l - e o f o u r S u c h a c t i v i t i e s c o m p a n i e s . t o i n i n c r e a s e c o m p a r e o u r l i q u i d i t y t h e e s t i m a t e d f u t u r e r e q u i r e m e n t s c a s h f } o w s w e e x p e c t a n d a 1 t e r n a t i v e r e c e i v e a n d t h e e s t i m a t e d s a l - e s v a l u e o f a n d m a y r e s t r u c t u r e t h e p a s t o r o t h e r w i s e , t h e m a r k e t r e f i n a n c e o r i n i n t o t h o s e u n i t s . t h e f u t u r e i n d e b t e d n e s s , u s e s o f f r o m o u r A s a r e s u l - t o f r a i s e t o s e e k r e p u r c h a s e p o l i c i e s , i n t e r e s t s i n o u r s u b s i d i a r i e s , m o d i f y o u r d i v i d e n d a f f i l i a t e s , o r o t h e r a s s e t s , o r t a k e a c o m b i n a t i o n o f l i q u i d i t y , h a v e i n r e d u c e i n d e b t e d n e s s a n d f u n d t h e p a s t a n d m a y i n t h e f u t u r e b u s i n e s s t h e s e f u t u r e i n v o l - v e We periodically compani es (in clu ding with b u s i n e s s e s evaluate acqu isi ti ons of i nterest s our aff il iat es) that may or may not be engaged i n or com binati ons in s u c h c o n s i d e r t o W e i n t e n d r e l - a t e d t o o u r c u r r e n t b u s i n e s s e s . - 6 r a c t i v i t i e s a c q u i s i t i o n c o n s i d e r From time among our respective i s s u i n g to i n f u t u r e a n d , e q u i t y ti me, w€ also evaluate a d d i t i o n a l t h e s e c u r i t i e s the and rel ated subsidiaries i n c o n n e c t i o n w i t h a n d res truct uring i n c r e a s i n g of ow nershi p i n d e b t e d n e s s . i nteres ts t h i s a c t i v i t y , m a y com panies . e x p e c t a t i o n s c a s h B a s e d u p o n o u r o f o u r o p e r a t i n g p e r f o r m a n c e , a n d t h e d e m a n d s o n o u r r e s o u r c e s , t o m e e t o u r s h o r t - t e r m o b l i g a t i o n s a n t i c i p a t e d l i q u i d i t y p e r i o d e n d i n g D e c e m b e r 3 1 , 2 0 0 8 ) a n d o u r f i v e - y e a r b u d g e t i r g ) . l i q u i d i t y c o u l d b e a d v e r s e l y a f f e c t e d . e n d i n g D e c e m b e r 3 I , p e r i o d I f d e v e l o p m e n t s a c t u a l d i f f e r w e e x p e c t t o h a v e s u f f i c i e n t . ( d e f i n e d a s l o n g - t e r m o b l i g a E i o n s 2 0 1 , 2 , o u r t i m e p e r i o d o u r f r o m t h e t w e l - v e - m o n t h ( d e f i n e d a s t h e l o n g - t e r m o u r f o r e x p e c t a t i o n s , o f a p p r o x i m a t e l y A t D e c e m b e r 3 1 , 2 0 0 7 , w € h a d c r e d i t $ 3 0 1 - m i l l i o n , w h i c h w a s c o m p r i s e d o f : a v a i l a b l e u n d e r e x i s t i n g f a c i l i t i e s o $ 1 5 2 m i l _ l _ i o n u n d e r K r o n o s ' v a r i o u s U . S . a n d n o n - U . S . c r e d i t f a c i l - i t i e s ; o $ 9 9 m i l l - i o n u n d e r V a l - h i ' s r e v o l v i n g o $ 5 0 m i l - l i o n u n d e r C o m p X ' s r e v o l v i n g b a n k c r e d i t c r e d i t f a c i l i t y . f a c i l i t y ; a n d A t D e c e m b e r 3 1 , 2 0 0 7 , w € h a d a n a g g r e g a t e o f $ 2 2 2 . 7 m i l - l i o n o f r e s t r i c t e d A d e t a i l a n d u n r e s t r i c t e d c a s h , c a s h e q u i v a l e n t s a n d m a r k e t a b l e s e c u r i t i e s . b y e n t i t y i s p r e s e n t e d i n t h e t a b l e b e l - o w . V a l h i P a r e n t Kronos NL Parent CompX Tremont W a s t e C o n t r o l - S p e c i a l - i s t s T o t a l - c a s h , c a s h e q u i v a l e n t s a n d m a r k e t a b l e s e c u r i t i e s Amount ( I n m i l l i o n s ) $ 4 0 . 9 7 7 . 2 7 L . 9 1 8 . 4 1 0 . 5 3 . 7 s 2 2 2 . 7 CapitaT Expenditures We currently a p p r o x i m a t e l y # 2 8 m i l l - i o n c a p i t a l i z e d n e w d i s p o s a l we expect t h a t w e w i l l our 2008 capital o p e r a t i n g capital f a c i l i t i e s . $ 1 0 4 m i l - l i o n expect our aggregat e cap ital ( $ 5 4 m i l l i o n T h e W C S a m o u n t f o r K r o n o s , i n c l u d e s i n f r a s t r u c t u r e c o s t s a n d m a j o r f o r W C S ) . p e r m i t exp enditur es for 2008 w il l f i 1 - 2 m i l l i o n a p p r o x i m a t e l y i m p r o v e m e n t s t h e t e r m s o f i nfrast ructur e be f o r C o m p X a n d i n $ 9 m i l I i o n t o a r e l - a t e d t h e c o n t r a c t , to be rei mbursed c o n t r a c t s i g n e d i n fo r a maj orit y r e c o g n i z e a s r e v e n u e o v e r be c a s h for o r e x i s t i n g are primarily l - a t e 2 0 0 7 . U n d e r of thes e l i f e t h e fi nanced r e s o u r c e s a n d c r e d i t i mprovem ents and upgrades o f L h e c o n t r a c t . expenditures pri mari ly wi ll by cas h a c t i v i t i e s expenditures i mprovem ents W e e x p e c t from O u r fl -ows to exi st in g f a c i l i t i e s . Repurchases of our Common Stock We have in th e past, the i n m a r k e t o r p r i v a t e l y - n e g o t i a t e d and may i n c o m m o n s t o c k 2 0 0 7 w e h a d a p p r o x i m a t e l y c o m m o n s t o c k u n d e r F i n a n c i a l S t a t e m e n t s . t h e a u t h o r i z a t i o n s 4 . 0 m i l l - i o n s h a r e s a v a i l a b l - e fut ure, mak e repurc hases t r a n s a c t i o n s . f o r of our A t D e c e m b e r 3 1 , r e p u r c h a s e o f o u r i n N o t e 1 4 t o o u r C o n s o l i d a t e d d e s c r i b e d - 6 2 Dividends t h e o u r f r o m c u r r e n t o u r i s l o n g - t e r m l a r g e l y a b i l i t y d e p e n d e n t B e c a u s e o u r o p e r a t i o n s 2 9 . 0 m i l l - i o n q u a r t e r l y a r e c o n d u c t e d p r i m a r i l y t o m e e t p a r e n t c o r p o r a t e o t h e r o r r e c e i p t o n s u b s i d i a r i e s t h e s h a r e s o f K r o n o s w e h e l d a t D e c e m b e r 3 1 , 2 0 0 7 a n d d i v i d e n d t h r o u g h s u b s i d i a r i e s c o m p a n y o f a f f i l - i a t e s . a f f i l - i a t e s , o b l i g a t i o n s d i s t r i b u t i o n s a p p r o x i m a t e l y K r o n o s ' a g g r e g a t e q u a r t e r l y dividend d i v i d e n d s a t D e c e m b e r 3 1 , 2 0 0 7 , w € w o u l d r e c e i v e a g g r e g a t e a n n u a l d i v i d e n d s i 2 0 . 2 m i l l i o n . W e d o n o t e x p e c t 2 0 0 8 . i n c a s h , b a s e d o n t h e 4 0 . 4 m i l - l - i o n s h a r e s w e h e l d o f N L c o m m o n s t o c k f r o m N L o f f r o m W C S d u r i n g r a t e o f $ . 2 5 p e r s h a r e , w e w o u l - d r e c e i v e c u r r e n t f r o m K r o n o s o f i s $ . 1 2 5 p e r s h a r e , a l t h o u g h N L ' s t h e p a s t N L h a s p a i d a fo rm of Kronos common st ock . r e c e i v e a n y d i s t r i b u t i o n s a n n u a l - d i v i d e n d s $ 2 9 . 0 m i l l i o n . c a s h d i v i d e n d If N L pay s d i v i d e n d s quarte rly regul ar l - e v e l B a s e d a n d th e a n d i ts t o i n o n in O u r s u b s i d i a r i e s h a v e v a r i o u s c r e d i t a g r e e m e n t s w h i c h c o n t a i n t y p i c a l l y a p e r c e n t a g e o f n e t t h e p a s t h a v e n o t s i g n i f i c a n t l y i n c u s t o m a r y i n c o m e l i m i t a t i o n s o r c a s h i m p a c t e d o n t h e p a y m e n t o f d i v i d e n d s , r e s t r i c t i o n s t h e s e t o p a y d i v i d e n d s . f l - o w ; h o w e v e r , t h e i r a b i l i t y Investment in our Subsidi aries an d A ffi l-i ates and Ot her A cqui si tions W e h a v e i n t h e p a s t , a n d a f f i l i a t e s a n d m a y i n t h e t h i r d f u t u r e , p u r c h a s e t h e s e c u r i t i e s o f p a r t i e s i n m a r k e t o r p r i v a t e l y - o r i n c l u d i n g t r a n s a c t i o n s . o u r s u b s i d i a r i e s n e g o t i a t e d f a c t o r s , account r e t u r n s m a y i n d e b t e d n e s s . o f o u r b u s i n e s s e s a m o n g o u r s u b s i d i a r i e s the market value of o n a l - t e r n a t i v e i s s u i n g W e m a y a 1 s o e v a l u a t e i n v e s t m e n t s . a d d i t i o n a L a n a n a l y s i s c o n s i d e r o f th e sec uri ties W e b a s e o u r p u r c h a s e d e c i s i o n s t h e o p t i m a l u s e o f o u r c a p i t a l , o n a v a r i e t y o f i n t . o val -ue of exp ect ed t a k i n g rel -ati ve and the I n c o n n e c t i o n w i t h e q u i t y t h e s e c u r i t i e s r e s t r u c t u r i n g a n d r e l a t e d c o m p a n i e s . t h e s e a c t i v i t i e s , i n c r e a s i n g o r w e o u r o f o w n e r s h i p i n t e r e s t s We generally do not guarantee any i ndebtedness o r a f f i l - i a t e s . O u r s u b s i d i a r i e s I f o n e o r m o r e o f o u r s u b s i d i a r i e s l - e v e l - o f d i v i d e n d s , t o s a t i s f y o r i t s t o p a y d i v i d e n d s e i t h e r l i a b i l i t i e s d u e t o i t s i n a c r e d i t t o s e r v i c e o n o u r c o m m o n s t o c k m i g h t b e a d v e r s e l y w e r e u n a b l - e t o m a i n t a i n c o n t a i n e d o u r a b i l i t y r e s t r i c t i o n s o r o t h e r w i s e , or other obl igat ions r e q u i r e d of t o p a y u s a r e n o t t h i s w e r e o r s e l l i n g t o o c c u r , w e m i g h t . c o n s i d e r r e d u c i n g o r e l i m i n a t i n g j - n t e r e s t s i n s u b s i d i a r i e s o r o t h e r a s s e t s . t o l i q u i d a t e a s s e t s E o g e n e r a t e f u n d s t o s a t i s f y w € m i g h t b e r e q u i r e d t o s e I I a t w h a t w e b e l - i e v e w o u l d b e I f w e o u r l - e s s o u r s u b s i d i a r i e s d i v i d e n d s . c u r r e n t a g r e e m e n t o r l i a b i l i t i e s o u r i m p a c t e d . I f o u r d i v i d e n d s w e r e r e q u i r e d l i a b i l i t i e s , t h a n t h e a c t u a l v a l u e o f s u c h a s s e t s . f a c i l i t y W C S i s r e q u i r e d p r o v i d e r e s p e c t t o by vario us mean s, t o g o v e r n m e n t a l - a g e n c i e s w i t h i t s r e l - a t e d provided p a r e n t m e e t s s p e c i f i e d o f W C S ' s p e c i f i e d c e r t a i n e s t i m a t e s t h e s e o b l i g a t i o n s w o u l d a r i s e o n l y u p o n a c l - o s u r e o f s u c h a c t i v i t i e s . t h i s g u a r a n t e e W e d o n o t c u r r e n t l y t h e f i n a n c i a l includi ng f o r t e s t s . f o r e s e e a b l - e f u t u r e . i n W e s t T e x a s . a parent f i n a n c i a l - a s s u r a n c e s m a y b e t he f n M a r c h 2 0 0 5 , w € a g r e e d t o g u a r a n t e e l-y com pany guarant ee ass umi ng d e c o m m i s s i o n i n g a t a p p r o x i m a t e l y o b l i g a t i o n s . $ 4 . 4 m i l l i o n . WCS current S u c h o b l i g a t i o n s t h e f a c i l i t y e x p e c t w e w i l l a n d W C S ' f a i l u r e h a v e t o p e r f o r m t o p e r f o r m u n d e r f i n a n c i a l a s s u r a n c e s t o T e x a s d e c o m m i s s i o n i n g o b l i g a t i o n s c e r t a i n t o c e r t a i n T h e borrowings r e v o l v i n g C o n s o l - i d a t e d m i l l - i o n i t s o p e r a t i n g W C S ' p r i m a r y s o u r c e o f l i q u i d i t y from one of our who l-l y-ow ned c r e d i t f a c i l i t y . W e e l i m i n a t e F i n a n c i a l f r o m o u r s u b s i d i a r y . S t a t e m e n t s . t h e s e c o n s i s t s c u r r e n t l y subs idi ari es under i n t e r c o m p a n y b o r r o w i n g s i n t e r c o m p a n y term s of a i n o u r D u r i n g 2 0 0 7 , W C S b o r r o w e d a n e t $ 2 0 . 1 f u n d # L 9 . 7 m i l l - i o n o f W e c o n t r i b u t e d o f the t o W C S u s e d t h e s e n e t b o r r o w i n g s p r i m a r i l y l - o s s a n d c a p i t a l e x p e n d i t u r e s . - 5 3 t h e s e n e t b o r r o w i n g s Iikely r e v o l v i - n g c r e d i t W C S ' c a p i t a l - . m i l - l - i o n u n d e r t h i s borrow addi tional amou nts t o W C S ' e q u i t y i n N o v e m b e r 2 0 0 7 . W e e x p e c t the 2008 under from us duri ng f a c i l i t y , A t D e c e m b e r 3 1 , 2 0 0 7 , W C S c a n b o r r o w a n a d d i t i o n a l a n d w e m a y s i m i l a r l y c o n t r i b u t e f a c i l i t y , w h i c h m a t u r e s i n M a r c h 2 0 0 9 . t h a t W C S w i l l term s of s u c h b o r r o w i n g s t he t o $ 3 0 . 2 Investment in The Amalgamated Sugar Company LLC t o c a s h ) b y t h e o p e r a t i o n s s h a r e . D i s t r i b u t i o n s t h e L L C o f $ 2 6 . 7 m i l l i o n , l e v e l - " o f c a s h d i v i d e n d d i s t r i b u t i o n s a 9 5 ? p r e f e r e n t i a l u p o n th e LLC as inc ome w hen they are decl ared by The terms of The Amalgamated Sugar Company LLC Company Agreement provide ( s o m e t i m e s r e f e r r e d f r o m w h i c h w e a r e L L C a r e f r o m d i v i d e n d the LLC , w hich a l t h o u g h t h e i s b e l - o w t h i s i n p a r t , from t h e s a m e m o n t h m a y i n c e r t a i n f o r a n a n n u a l - " b a s e t o a s d i s t r i b u t a b l e e n t i t l e d d e p e n d e n t , distribut ions i s g e n e r a l l y d i s t r i b u t i o n s f o l l o w i n g m o n t h . b a s e l - e v e l - p r e f e r e n t i a l - t h e b a s e l - e v e l - u n t i l - s u c h s h o r t f a l l p r o j e c t . i o n s w i l l r e q u i r e m e n t s S n a k e R i v e r S u g a r C o m p a n y b y a p p r o x i m a t e l y f r o m t h e u n d e r o u r $ 2 5 0 m i l l i o n $ 1 . 8 m i l - I i o n . t o a n n u a l L L C d i s t r i b u t a b l e f i r s t t h e L L C t s d i s t r i b u t a b l - e i n w h i c h w e r e c e i v e c a s e s b e p a i d o n t h e t h e t h e L L C . W e r e c o r d 9 5 8 i n e x c e s s o f I - , L C ' s c u r r e n t f o r 2 0 0 8 , w € e x p e c t d i s t r i b u t i o n s a n y g i v e n i n s h a r e o f a n y c a s h a n a d d i t i o n a l - c a s h B a s e d o n t h e I - . , L C i n 2 0 0 8 l - o a n s f r o m e x c e e d o u r d e b t s e r v i c e b u s i n e s s d a y o f t h e d i s t r i b u t i o n s , t h e e x t e n t r e c o v e r e d . r e c e i v e d e n t i t l - e d f u t u r e y e a r , a r e T o o f w € i s We rrd1r, at our option, req uir e the LLC to i n 2 Q 1 2 , a n d t h e L L C h a s t h e r i g h t i n 2 0 2 7 . T h e r e d e m p t i o n p r i c e i s g e n e r a l l y redeem our t o r e d e e m o u r i nteres t i n t e r e s t red eem our th e maturity th e LLC to undi stribut.ed to accel-erate R e d e m p t i o n o f o u r b e g i n n i n g b e g i n n i n g amount of certain we require right R i v e r . i n c o m e r e L a t e d t o although we wou1d not be expected r e p o r t i n g o f S n a k e R i v e r ' s r e d e m p t i o n o f o u r of less d i s p o s i t i o n . i n t e r e s t the debt) generated by incom e ta xes t h e d i s p o s i t i o n p u r p o s e s a t a b i l i t y than t h e the i n t e r e s t i ncome al -l-o cabl- e to us, i nt.eres t i n the LLC , S nake R iv er has of and cal -l - our $250 mi l-l -i on r e s u l - t t h e L L C w o u l d i n $ 2 5 0 m i 1 l i o n p l u s i f any. i n i n the LLC t h e L L C t h e the event the l -oans from S nake i n u s In r e p o r t i n g i n c o m e t a x p u r p o s e s , fi nanci a l- for f o r i n earni ngs o f o u r L L C i n t e r e s t a gai n i s to t i m e o u r L L C i n t e r e s t t o c a l - I o u r $ 2 5 0 m i l l i o n report t h e L L C , t h e n e t c a s h p r o c e e d s i n i n redempt ion of our th e th at w e w ould be requi red i nteres t r e d e e m e d . H o w e v e r , b e c a u s e l - o a n s f r o m S n a k e R i v e r u p o n ( a f t e r r e p a y m e n t the LLC cou l-d be t he to pay as a res ult of O f f - b a l a n c e S h e e t F i n a n c i n g We do not have any off-b alance l - e a s e s d i s c u s s e d i n N o t e shee t fi nanci ng t o 1 7 agreem ents other o u r C o n s o l i d a t e d o p e r a t i n g S t a t e m e n t s . than the F i n a n c i a l - Conunitments and Contingencies W e a r e s u b j e c t t o c e r t a i n c o m m i t m e n t s a n d c o n t i n g e n c i e s , t o o u r C o n s o l i d a t e d F i n a n c i a l - S t a t e m e n t s a n d a n d A n a l - y s i s o f F i n a n c i a l - C o n d i t i o n a s m o r e f u l l y t h i s a n d R e s u l - t . s o f i n d e s c r i b e d t h e N o t e s i n M a n a g e m e n t ' s D i s c u s s i o n O p e r a t i o n s , i n c l u d i n g : o o o o certain U . S . a n d n o n - U . S . j u r i s d i c t i o n s ; incom e ta x exa mi-nat ions w hic h are underw ay i n var iou s certain and Val-hi ; enviro nmental - remedi ati on matt ers i nvol vi ng N L, Tremont c e r t a i n m a n u f a c t u r e l i t i g a t i o n o f r e l a t e d l - e a d p i g m e n t t o N L ' s f o r m e r i n v o l - v e m e n t i n t he a n d l - e a d - b a s e d p a i n t ; a n d c e r t a i n o t h e r l i t i g a t i o n t o w h i c h w e a r e a p a r t y . 6 4 I n a d d i t i o n t o F i n a n c i a l f r o m p a i n t h a v e , obligations C o n s o l i d a t e d r e g u l a t i o n s various l e a d - b a s e d a s s o c i a t e d w i t h d e c i s i o n s E x a m p l e s o f s u c h p r o p o s e d l i a b i l i t y d a m a g e s o n p l a i n t i f f s a n d b i l l s W h i l e e x p e c t e d p o s i t i o n , c o u ] d h a v e s u c h a n e f f e c t . f o r t o p r o v e w h i c h w o u l d l e g i s l - a t i o n t h a t n o t h o s e l e g a 1 p r o c e e d i n g s d e s c r i b e d S t a t e m e n t s , t i m e t o on prese nt ( i n c l u d i n g v a r i o u s l e g i s l a t i o n t i m e , b e e n p r o p o s e d and N L ) w i t h form er manufac turers r e s p e c t t h a t of t o a s s e r t e d e f f e c t i v e l y t h e u s e o f s u c h p r o d u c t s a n d ( i i ) i n w h i c h w e a n d o t h e r p i g m e n t m a n u f a c t u r e r s i n N o t e 1 - 7 t o o u r a n d a d m i n i s t r a t i v e s e e k ( i ) i m p o s e l -ead pi gment and c o n c e r n s c o u r t o v e r t u r n h e a ] t h t o i n c l - u d e b i l l s l e g i s l a t i o n t h e b a s i s o f m a r k e t s h a r e , t h e d e f e n d a n t ' s a c t i o n s r e g u l a t i o n s p r o d u c t b a r r e d . b y h a v e b e e n e n a c t e d c a u s e d t h e s t a t u t e r e v i v e o r w h i c h w o u l - d p e r m i t h a v e b e e n s u c c e s s f u l . c i v i l - r e q u i r i n g r a t h e r t h a n t h e a l t e g e d o f L o d a t e c o n s o l - i d a t e d d a m a g e , l i m i t a t i o n s . t h a t f i n a n c i a l l e g i s l a t i o n a r e t o h a v e a m a t e r i a L r e s u l t s o f o p e r a t i o n s a d v e r s e e f f e c t l i q u i d i t y , o r o n o u r e n a c t m e n t o f s u c h A s m o r e f u 1 l y d e s c r i b e d i n t h e N o t e s a n d u n c o n d i t i o n a l l y c o m m i t u s S e e N o t e s 9 a n d 1 7 t o o u r C o n s o l i d a t e d t o v a r i - o u s d e b t . , t o o u r C o n s o l - i d a t e d F i n a n c i a l - l e a s e a n d o t h e r a g r e e m e n t s w h i c h t h e O u r t h e p u r c h a s e o f T i o 2 F i n a n c i a l - S t a t e m e n t s . t o p a y c e r t a i n a m o u n t s f o r i n l o n g - t e r m s u p p l y c o n t r a c t d e s c r i b e d i n N o t e 1 7 t o o u r C o n s o l - i d a t e d F i n a n c i a l " B u s i n e s s p r o p e r t i e s C h e m i c a l s a n d r a w m a t e r i a l - s . " K r o n o s W o r l - d w i d e , f o l l o w i n g T h e I n c . t a b l e c o m m i t m e n t s a s o f D e c e m b e r 3 1 , 2 O Q 7 b y t h e t y p e a n d S t a t e m e n t s , w e a r e a p a r t y c o n t r a c t u a l l y f u t u r e . o b l i g a t i o n s f e e d s t o c k S t a t e m e n t s m a n u f a c t u r i n g s u m m a r i z e s o u r c o n t r a c t u a l d a t e o f p a y m e n t . a n d a b o v e p r o c e s s , r e l a t e d i s m o r e t o f u l 1 y i n t h e Contraetual conuni tment 2 0 0 8 Payment due date 2 0 0 9 / 2 0 L 0 2 0 L L / 2 0 L 2 ( r n m i l l i o n s ) 20L3 and a f t e r T o t a I I n d e b t e d n e s s : P r i n c i p a l I n t e r e s t $ 1 6 . 8 5 s . 9 $ 4 . 3 L 2 9 . 7 $ 4 . 3 ] - 2 9 . 3 Operating l-ease s 9 . 9 1 , 2 . 5 6 . 2 8 8 1 . 2 3 4 6 . 5 2 t . 6 Kronos' long-term c o n t r a c t s f o r purchase of TiO2 fe edstock supply t h e 2 0 8 . 0 4 0 4 . 0 1 0 0 . 0 CompX raw material- and ot h er pu rc hase commi tments F i x e d a s s e t a c q u i s i t i o n s fncome taxes L 5 . 2 3 s . 5 9 . 8 9 0 5 . 5 5 7 L . 4 s o . 2 7 L 2 . 0 ] - 5 . 2 3 s . 6 9 . 8 To tal The timing i3S2-2 s s s 0 . s $23 9- 3 s7.212-3 L2_,19t- 3 and amou nt shown for our com mit ments rel ated to i ndebtedness l - e a s e s a n d f i x e d a s s e t a c q u i s i t i o n s o p e r a t i n g payment amount and the cont ractual i n d e b t e d n e s s i n v o l v i n g r e s p e c t t h e a m o u n t s h o w n f o r a t D e c e m b e r 3 L , 2 0 0 7 , a n d t h e a m o u n t s h o w n f o r v a r i a b l e - r a t e t o i n d e b t e d . n e s s i n d e b t e d n e s s i s b a s e d u p o n v a r i a b l e - r a t e s u c h a n d a s s u m e s a n d i n t e r e s t ) , ( p r i n c i p a l based upon th e contractual- s u c h c o m m i t m e n t s . W i t h f a c i l i t i e s , o u t s t a n d i n g o u t s t a n d i n g i n t e r e s t o u t s t a n d i n g taxes D e c e m b e r 3 1 , 2 0 0 7 , w h i c h u n t i l r a t e the is t h e m a t u r i t y amo unt of our t h e cons oli dated f a c i l i t y . i s b a s e d u p o n t h e a c t u a l - a m o u n t f o r a n y i n t . e r e s t t h e D e c e m b e r 3 ! , 2 O O 7 cur rent i ncome tax es i n d e b t e d n e s s T h e a m o u n t s h o w n f o r r e m a i n s i n c o m e at pay able A s i g n i f i c a n t paym ent date r e v o l v i n g a r e f or c r e d i t t h a t o f i s a s s u m e d t o b e p a i d d u r i n g 2 0 0 8 . - 6 5 o f p o r t i o n S e c u r e d N o t e s t h e e u r o . M a r k e t R i s k ' a n d N o t e 9 t o o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s . t h e a m o u n t s h o w n f o r ( $ 5 8 5 . 5 m i l l i o n I t e m 7 A a t D e c e m b e r 3 L , 2 0 0 7 ) , w h i c h a n d Q u a l - i t a t i v e i n d e b t e d n e s s " Q u a n t i t a t i v e r e l - a t e s t o K I I ' s S e e 5 . 5 t S e n i o r i n i s d e n o m i n a t e d D i s c l - o s u r e s A b o u t n o m o r e t h a n 1 0 t , b a s e d o n o u r t h e p u r c h a s e o f T i O 2 f e e d s t o c k c o n t a i n t o p u r c h a s e , a l t h o u g h dow nward adj ust ment O u r f o r c o n t r a c t s E h a t w e a r e or f or t h e s e a g r e e m e n t s r e q u i r e d an upward al-low g e n e r a l l y u n d e r q u a n t i t i e s contracts p u r c h a s e d , T h e p r i c i n g p r i c e e s c a l a t . i o n c l a u s e s p r i m a r i l y in the r e l a t e d t o o u r c u r r e n t each e s t i m a t e d e s c a l a t i o n amount that would be payable by us, hdy var y l o n g - t e r m o f shown, and q u a n t i t y T h e a c t u a l p u r c h a s e d c l a u s e . s u p p l y c o n t r a c t s t h e q u a n t i t y th e paym ent time period respective contracts. e s t i m a t e t h e i s g e n e r a l l y b a s e d o n a b a s e d o n c o n s u m e r p r i c e f i x e d p r i c e w i t h d s d e f i n e d Th e ti min g and amount sho wn for our com mitm ents a r e b a s e d u p o n i n that w ould be due base d upon such t h e p r i c e a n d t h e a c t u a l o f a m o u n t o f m a t e r i a l t h a t w i l l - b e p u r c h a s e d t h e e f f e c t p u r c h a s e d , f o r T i O 2 f e e d s t o c k a n d a n e s t i m a t e o f m a t e r i a l - i n d i c e s , o f from suc h est imat ed amount s. f i x e d t h e s e o f c e r t a i n i n f e e d s t o c k quanti t y the r e q u i r e m e n t s . The above ta ble of contractual - com mit ments does not i ncl -ude any amou nts t h e u n d e r u n d e r o u r o b l i g a t i o n as the timing o t h e r t h i n g s , a n d tabl-e of contractual v e n t u r e ' s t h e S e e N o t e s 7 a n d 1 7 E o o u r C o n s o l i d a t e d Kronos Worldwide, Chemical-s commi t.ments does r e q u i r e m e n t s v e n t u r e ' s f u t u r e j o i n t j o i n t o r e In c . " t h e L o u i s i a n a P i g m e n t C o m p a n y , L . P . j o i n t v e n t u r e , and amo unt of such purc hases are unkn own and dependent oD , am ong t h e a m o u n t o f T i O 2 p r o d u c e d b y t h e f u t u r e , j o i n t t h e i n v e n t u r e s u c h T i O 2 . c o s t o f p r o d u c i n g i ncl ude n e c e s s a r y f o r i t t h e H o w e v e r , to our sha re of t o p r o d u c e T i O , f o r u s . amount s rel ated F i n a n c i a l - S t a t e m e n t s a n d " B u s i n e s s In addi tion, a m o u n t s we are party t h i r d t o a p a r t y Waste Mana gement revenues . to an agreem ent that cou Ld requi re us b a s e d u p o n s p e c i f i e d W e have not p e r c e n t a g e s i ncl -uded any amount s bel iev e to pay any amount s purs uant the abov e tabl e beca use w e cur rentl y be requi red to p ay o f o u r f or it t o comm itment th at th e we will in c e r t a i n qualifying this conditional- i s not probable t h i s a g r e e m e n t . The above ta ble does not refl ect any amount s that w e mi ght pay p e n s i o n p l a n s a n d O P E B p I a n s , d s t h e o u r d e f i n e d b e n e f i t any such fut ure f u t u r e a s s u m p t i o n s a n d a c t u a l - p e n s i o n p l a n s a n d O P E B p l a n s a r e d i s c u s s e d a b o v e i n g r e a t e r t o o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s . p e r f o r m a n c e o f d e f i n e d r e t i r e e m e d i c a l - c o s t s . fu ndings are unknow n and dependent or, among other p e n s i o n p l a n a s s e t s , b e n e f i t f u t u r e S u c h d e f i n e d d e t a i l - to fund t i m i n g a n d a m o u n t o f the r a t e b e n e f i t i n t e r e s t thi ngs, i n N o t e l - 1 The above ta bl-e does not refl -ec t t a x p o s i t i o n s , are unknown and any amount s that w e mi ght pay to set tle as and amount of any su ch the among other thi ngs, ti mi ng or, the S e e N o t e s L 2 t o o u r C o n s o l i d a t e d F i n a n c i a l dependent a n d 1 8 a n y o f o u r u n c e r t a i n f uture settl-ements o f t i m i n g S t a t e m e n t s . t a x a u d i t s . Recent Accounting Pronouncements S e e N o t e 1 8 t o t h e C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s I T E M 7 A . QUAI(ITTTATTVE Ar.TD QUAT,ITATTVE DTSCLOSITRES ABOIE MARKET RrSK GeneraL. We are exposed to mark et ri sk from chan ges i n fore ign i n t e r e s t r a t e s a n d e q u i t y s e c u r i t y forwa rd contracts or W e h a v e n o t inter est e n t e r e d rate sw aps to manage a port ion i n t o p r i c e s . W e p e r i o d i c a l l y of t r a d i n g c o n t r a c t s t h e s e f o r t h e p a s t , n o r d o w e c u r r e n t l y a n t i c i p a t e e n t e r i n g e x c h a n g e r a t e s , currency m a r k e t s p e c u l a t i v e s u c h c o n t r a c t s we generally r i s k s . p u r p o s e s f o r i n t r a d i n g do not ent.er cur rency u s e these o r i n t o O t h e r w i s e , i n t h e cont racts f u t u r e . to manage such o r s p e c u l a t i v e forw ard into p u r p o s e s or opti on - 5 6 r i s k s . O t h e r forward i n t e r e s t m a r k e t to any r a t e s , See Notes the assumpt ions we used to estimat e val -ue of t o w h i c h w e a r e a p a r t y a t D e c e m b e r 3 1 , 2 0 0 6 a n d 2 0 0 7 . d i s c u s s e d b e l o w , w € w e r e n o t a p a r t y t h a n or deriva tive to exc hange r a t e s o r e q u i t y s e c u r i t y p r i c e s a t D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 7 . of l- and L9 to our Consolid ated Fi nanci al- S tatement s the fi nanci al i nstrum ent s for a di scus si on t h e c o n t r a c t s cont ract rel -ated forei gn opti on fai r the rates, Interest primarily rates. We are ex pose d to mark et. ri sk from cha nges i n i nterest rel -ated to our in debtedness . A t D e c e m b e r 3 1 , 2 0 0 7 , o u r a g g r e g a t e and 7Z of fi xed -r ate 99* of large instruments were: The fixed-rate percent ages borrowings). earnings following for our aggregate outstanding shown below i t s U . S . d o l l a r 1 , . 4 7 t 6 U . S . d o l - l a r s p e r e u r o . e q u i v a l e n t fo r such vol-atility tabl-e pre sents pri nci pal fo reign perce ntage of th at woul-d res ul-t i n d e b t e d n e s s w a s s p l i t b e t w e e n 9 3 t o f (i n t he 2006 rat e var iabl e i nstrum ents mi nimi zes i nteres t amount s and w eight ed aver age var iabl -e-rate i nstrum ents fi xed-r ate from cha nges borrow i ngs and 13 of debt i n rate s. i nteres t The rates Inf ormati on ind ebtedness at D ecember 3A , 2007. curr ency denomi nated a t D e c e m b e r 3 1 , 2 O O 7 u s i n g a n e x c h a n g e i s pres ented r a t e i ndebtedness in o f q u a r t e r o f 2 0 0 8 , w € w i l l b e r e q u i r e d B e g i n n i n g t h e v a l - u e m e a s u r e m e n t s i n t o f i r s t i n t o s e g r e g a t e t y p e o f i n p u t s u s e d i s def i ned by SFAS f a i r f air t h a t val-u e. L e v e 1 1 a s s e t s o r i n p u t s l i a b i l i t i e s . The l -evel - of obs ervabl -e a r e q u o t e d m a r k e t p r i c e s t h r e e 1 e v e 1 s b a s e d o n t h e i nput o u r in determining N o . 1 5 7 , F a i r V a l - u e M e a s u r e m e n t . s , s e e N o t e 1 8 t o o u r C o n s o l - i d a t e d F i n a n c i a l S t a t e m e n t s . f o r t h a n q u o t e d i d e n t i c a l - p r i c e s o r d i r e c t l y i n d i r e c t f y , L e v e l i n p u t s 3 t h e r e a r e n o W e u s e o u r j u d g m e n t t e c h n i q u e s i n c l u d i n g q u o t e d p r i c e s , t h e i n p u t s q u o t e d p r i c e s v a l u e w h i c h c o u l - d i n c l u d e v a l u a t i o n f l o w s i n t e r n a l l y i n p u t s . a r e u n o b s e r v a b l - e a v a i l - a b l e f a i r c a s h L e v e l - 2 i n p u t s a r e t h e a s s e t o r f o r s i m i l a r m o d e l - s w h i c h m a y u s e T h e t a b l e b e l - o w s h o w s t h e a s s e t o r f o r t o d e t e r m i n e d i s c o u n t e d l i a b i l i t y a s s e t s o r e i t h e r l i a b i l i t i e s . a s s e t s . a v a r i e t y i n a c t , i v e m a r k e t s a t D e c e m b e r 3 1 , 2 0 0 7 . a r e o b s e r v a b l - e q u o t e d p r i c e s v a l - u e o f o u r i n p u t s o t h e r f o r w h i c h d e v e l o p e d f i n a n c i a l - l i a b i l i t i e s i n c l u d i n g o r o t h e r a n a l y s i s , s i m i l - a r l i a b i l i t y r e a d i l y f a i r f o r f o r o f Indebtedness* Amount Carrying value F a i r value ( I n m i I I l n s ) - Int erest rate Maturi D ate ty F i x e d - r a t e E u r o - d e n o m i n a t e d i n d e b t e d n e s s K I f : 5 . 5 8 S e n i o r S e c u r e d N o t e s Valhi O t h e r l-oans from Snake River f i x e d - r a t e V a r i a b l - e - r a t e i n d e b t e d n e s s CompX promlssory K r o n o s U . S . r e v o l v e r note to TIMET v a r i a b l - e - r a t e Total- $ s 8 s . s 2 5 0 . 0 . 4 B s 3 s J s 0 . 0 1 5 . 4 $ s 0 7 . 7 2 5 0 . 0 . 4 $ ? s 8 J 5 0 . 0 1 5 . 4 $ 6 s . 4 $ 5 s . 4 $9_A1_,_3 s 8 2 3 . s 5 . s % 9 . 4 e 6 Various 7 . 4 % 5 . 0 % 7 . 5 t 6 . 4 % 7 . 3 t 20L3 2027 Various 20L4 2 0 0 8 * D e n o m i n a t e d i n U . S . d o l 1 a r s , except a s o t h e r w i s e i ndic ated. E xcl -u des c a p i t a l l e a s e o b l i g a t i o n s . A t D e c e m b e r 3 a , 2 0 0 6 , o u r v a l - u e w a s f l e g . ( t h e f a i r m i l l i o n r a t e o f 7 . 4 + ; o u r v a r i a b l e approximated f air val-ue , with r a t e a f i x e d r a t e i n d e b t e d n e s s a g g r e g a t e d $ 7 8 1 . 8 3 m i l l i o n ) i n d e b t e d n e s s w e i g h t e d w i t h a w e i g h t e d - a v e r a g e i n t e r e s t a g g r e g a t e d $ 5 . 5 m i l l i o n , a v e r a g e i n t e r e s t r a t e o f w h i c h 8 . 3 t . - 6 7 Approximat ely w i t h v a r i a b l e t h e 58* of such fi xe d i ndebtedness w as denomi nated r e m a i n d e r d e n o m i n a t e d t h e U . S . d o l l - a r . A 1 1 o f r a t e b o r r o w i n g s w e r e d e n o m i n a t e d i n t h e u . s . d o l ] a r . r ate i n i n the eu ro, t h e o u t s t a n d i n g Foreign from changes and selling f l u c t u a t i o n s dol-l-ar, currency in fo reign exchange rates. We are exposed to market curre ncy exc hange rates as a res ult risk arising of manufac turi ng our products worldwide. i n t h e v a l - u e o f t h e U . S . d o l l a r the Norwegian kroner and the B rit ish Our earni ngs are pri mari ly r e l - a t i v e pound st erli ng. t o t h e e u r o , aff ected by t h e C a n a d i a n A s d e s c r i b e d a b o v e , d t D e c e m b e r 3 1 , 2 0 0 7 , w € h a d t h e e q u i v a l e n t o f $ 5 8 5 . 5 e u r o - d e n o m i n a t e d the U. S. dol-l-ar equi val ent m i l - l - i o n o f o u t s t a n d i n g o f $ 5 2 5 . 0 m i l - l i o n in from a hypothetical 10t adverse cha nge i n exc hange rates at suc h date w ould be a p p r o x i m a t e l y $ 5 8 . 9 m i l - I i o n a t D e c e m b e r 3 1 , 2 0 0 7 ( i n 2 0 0 6 t h e a m o u n t w a s $ 5 2 . 8 m i l l i o n ) ( i n 2 0 0 6 t h e e q u i v a l e n t o f e u r o - d e n o m i n a t e d amount outs tanding T h e p o t e n t . i a l the pri nci pal i n d e b t e d n e s s ) i n d e b t e d n e s s j - n c r e a s e res ulti ng o f . . W e p e r i o d i c a l l y u s e c u r r e n c y f o r w a r d c o n t r a c t s r i s k a s s o c i a t e d w i t h t o m a n a g e a p o r t i o n o f r e c e i v a b l - e s , t r a d e f u t u r e s a 1 e s , d e n o m i n a t e d i n a t h e h o l d e r ' s t h a n f u n c t i o n a l - t o o u r C h e m i c a l - s a n d C o m p o n e n t P r o d u c t s o p e r a t i o n s . t h e s e c o n t r a c t s t r a d i n g e n t e r i n g o r s p e c u l a t i v e i n t o s u c h c o n L r a c t s c u r r e n c y . f o r p u r p o s e s T h e s e c o n t r a c t s W e h a v e t h e i n r i s k i n t o p u r p o s e s into mee t. th e a s s o c i a t e d w i t h c u r r e n c y e x c h a n g e r a t e m a r k e t f o r e i g n o r s i m i l - a r e x c h a n g e r a t e c u r r e n c y o t h e r g e n e r a l l y r e l a t e n o t e n t e r e d p a s t , n o r d o w e c u r r e n t l y o r s p e c u l a t i v e we ent.er d e s i g n a t e d a n d 1 o s s e s r e p r e s e n t i n g component of r e c o g n i z e d c u r r e n c y f o r w a r d h e d g e a c c o u n t i t g , a t e a c h b a l a n c e i n c o m e c u r r e n t l y c o n t r a c t s o u t s t a n d i n g a t D e c e m b e r 3 1 , 2 0 0 5 o r 2 0 0 7 . c o n t r a c t s w e e n t e r w e m a r k - t o - m a r k e t s h e e t d a t e , w i t h a n y a s p a r t a n t i c i p a t . e t h e criteria f l - o w h e d g e s . accumul-ated other o f n e t c u r r e n c y f u t . u r e . for i n e a r n i n g s a t t h e e s t i m a t e d com prehensi ve t h e e f f e c t i v e r e s u l t i n g a s c a s h t i m e F o r t h e i n S o m e o f hedge acc ounti ng t h e c u r r e n c y t h e s e c u r r e n c y p o r t i o n f o r w a r d c o n t r a c t s , under GA AP and ar e g a i n s a s a o f o u r h e d g e s a r e d e f e r r e d t r a d i n g f o r f o r w a r d c o n t r a c t s i ncome, and are sub sequent ly t h e h e d g e d i t e m a f f e c t s i n t o w h i c h d o n o t m e e t e a r n i n g s . t . h e f o r v a l u e o f s u c h c o n t r a c t s t h e c r i t e r i a F o r f a i r g a i n o r t r a n s a c t i o n s . l o s s W e h a d n o r e c o g n i z e d i n f o r w a r d equity Marketabfe in price s to changes and debt sec uri ty due value of such debt and equi ty to market The l - a nd i n p u t s ) a t D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 7 w a s # 2 7 I . 6 m i l l - i o n a n d # 3 2 7 . 0 respectively. val ue of chan ge a t risk fair L e v e l - 3 mil-lion, t h e s e D e c e m b e r 3 1 , 2 0 0 5 a n d $ 3 2 . 7 m i l - l " i o n a t D e c e m b e r 3 1 , 2 O O 7 . i n v e s t m e n t s , B s s u m i n g a 1 0 ? c h a n g e i n p r i c e s , w o u l d b e 5 2 7 . 2 m i l l i o n the mark etabl e sec uri ties (dete rmined usi ng Lev el- W e are expo sed the aggregat e that w e ow n. The potenti al sec uri ties pri ces . f ai r of i n Qther. We beli eve th ere ma y be a cer tain amount of i ncompl eteness rates discussed abov e i gnores the potent ial eff ect For exa mple, the hypo theti cal- resul -ts of operat ions s a 1 e s v o l u m e s a n d s e l l i n g in interest that af f ect our anal yses prese nted ab ove. sensitivity changes variabl-es o u r p r o d u c t s , f o r Contrary th e above assumptions, to simultaneous comparable shifts The Amalgamated Sug ar Com pany LLC repre sents portfolio our that related the n e c e s s a r i l y assuming indeb tedness. a n a c c u r a t e the hypoth etical- investment woul d be mi ti gated Accordi ngly , securities. chan ges l-oans alo ng likeIy That o f i n the yi el d of marke table from Snake River Sugar Company, and a decrease by a dec rease j -nves tment ser ves as col -l -ateral - in i n the the the amount s w e pres ent t h e p o t e n t i a l r e f l e c t i o n changes i n mark et pri ces w ere act uall y l - o s s e s w e w o u l d to occ ur. p r i c e s i nteres t cur ve. a si gni fic ant a n d o p e r a t i n g rarel y rate s A ls o, our porti on i n eff ect t he of on other e x p e n s e s . in res ult i nves tment in of our tot al f or val-ue of fair val ue of fai r abov e are not i n c u r and cas h f l -ows , suc h as dem and The above discussion and e sti mated sens it iv ity anal ysi s amount s forward-looking m a r k e t p r i c e s . statements of mar ket A c t u a l f u t u r e m a r k e t c o n d i t i o n s w i l l l i k e 1 y d i f f e r m a t e r i a l l y ri sk w hic h ass ume hypo theti cal i ncl -ude in chan ges - 6 8 from such assumptions. b e c o n s i d e r e d t o b e p r o j e c t i o n s Accordingl y, b y u s s u c h o f f o r w a r d - l o o k i n g e v e n t s , f u t u r e s t a t e m e n t s s h o u l d n o t g a i n s o r l o s s e s . I T E A T 8 . FINAI{CIAI, STATEIIEIilTS AI{D SUPPIJEMENTARY DATA The inf ormation cal-l-ed f or by thi s l tem i s section of S c h e d u L e s " ( p a g e F - 1 ) . th is Annu al- Report. S ee " fndex of con tained Fi nanci al i n a sep arat e and S tatement s rrEM e' N o n e . ffi;li*r"-rX"Hr""3rsAGREEI'l{ENrs wrrH ACEOITI{TANTS ON ACCOI'NTING ITE}I 9A. COIITROLS AIID PROCEDI'RES Eval-uat ion of DiscTosure Control,s and P rocedures W e m a i n t a i n a s y s t e m o f d i s c l - o s u r e c o n t r o l - s a n d p r o c e d u r e s , T h e t e r m t r a s d e f i n e d b y E x c h a n g e A c t R u l - e 1 - 3 a - a n d p r o c e d u r e s . c o n t r o l s t h e S e c u r i t i e s p r o c e s s e d , i n w e a r e r e q u i r e d " d i s c l o s u r e 1 5 ( e ) , m e a n s c o n t r o l s i n f o r m a t i o n S E C u n d e r r e c o r d e d , s p e c i f i e d i n c l u d e , w i t h o u t i n f o r m a t i o n the SEC under i n c l u d i n g o r p e r s o n s d e c i s i o n s o u r P r e s i d e n t P r e s i d e n t e f f e c t i v e n e s s B a s e d u p o n 2 0 0 7 . t h a t o u r d i s c l - o s u r e 2 0 0 7 . a n d C h i e f o u r p r i n c i p a l p e r f o r m i n g a n d o t h e r p r o c e d u r e s t o b e d i s c L o s e d i n t h e t h a t a r e d e s i g n e d r e p o r t s w e f i l e E x c h a n g e A c t o f L 9 3 4 , 4 s a m e n d e d ( t h e s u m m a r i z e d a n d r e p o r t e d , w i t h i n t h e S E C ' s r u l - e s a n d f o r m s . l i m i t a t i o n , r e q u i r e d is th e Act c o n t r o l s t o d i s c l o s e accumul ated e x e c u t i v e o f f i c e r s i m i l a r f u n c t i o n s , D i s c l - o s u r e c o n t r o l s a n d p r o c e d u r e s d e s i g n e d r e p o r t s w e f i l e t h e i n and com munic ated a n d o u r p r i n c i p a l a s a p p r o p r i a t e t o b e m a d e r e g a r d i n g r e q u i r e d d i s c l - o s u r e . a n d C h i e f E x e c u t i v e O f f i c e r , a n d B o b b y D . O ' B r i e n , F i n a n c i a l - O f f i c e r , h a v e e v a l - u a t e d o f o u r d i s c l o s u r e t h e i r e v a l - u a t i o n , c o n t r o l - s a n d p r o c e d u r e s t h e s e e x e c u t i v e c o n t r o l s a n d p r o c e d u r e s w e r e e f f e c t i v e t o a l I o w t i m e l y E a c h o f S t e v e n L . W a t s o n , o u r V i c e a n d a s o f D e c e m b e r 3 1 , h a v e c o n c l - u d e d a s o f D e c e m b e r 3 1 , o f f i c e r s d e s i g n t h e t h e o r s u b m i t t o e n s u r e t o " A c t " ) , t h a t t h e i s p e r i o d s a n d p r o c e d u r e s t h a t t o e n s u r e t o to our managem ent, o r s u b m i t t i m e f i n a n c i a l - o f f i c e r , Internal Controf Over FinanciaL Report inq We al-so main tain o v e r c o n t r o l internal f i n a n c i a l con trol- o.r" r r e p o r t i r g , " e x e c u t i v e " i n t e r n a l - l - 3 a - 1 5 ( f ) , m e a n s a p r o c e s s d e s i g n e d b y , o r u n d e r p r i n c i p a l a n d p r i n c i p a l s i m i l - a r a n d e f f e c t e d o t h e r p e r s o n n e l , f i n a n c i a l p u r p o s e s t h a t : i n a c c o r d a n c e w i t h G A A P , a n d i n c l - u d e s r e a s o n a b l - e a s s u r a n c e a n d t h e p r e p a r a t i o n t o p r o v i d e f u n c t i o n s , f i n a n c i a l - r e p o r t i n g f i n a n c i a l o f o f f i c e r s , f i nanci al- report ing. The te rm a s d e f i n e d b y E x c h a n g e A c t R u l - e o u r t h e s u p e r v i s i o n o f , o r p e r s o n s p e r f o r m i n g r e g a r d i n g t h e s t a t e m e n t s t h o s e p o l i c i e s m a n a g e m e n t a n d o f r e l i a b i l i t y f o r e x t e r n a l a n d p r o c e d u r e s b y o u r b o a r d o f d i r e c t o r s , t o a n d f a i r l y r e f l - e c t t h e m a i n t e n a n c e r e a s o n a b l - e a s s u r a n c e t o p e r m i t p r e p a r a t i o n p e r t a i n a c c u r a t e l y o u r a s s e t s , p r o v i d e n e c e s s a r y with GAAP, and a c c o r d a n c e w i t h a u t h o r i z a t i o n s p r o v i d e r e a s o n a b l - e a s s u r a n c e o f u n a u t h o r i z e d coul-d have a materia l S t a t e m e n t s . a c q u i s i t i o n , e ffec t th at our o f r e c o r d s t h a t o u r t r a n s a c t i o n s i n r e a s o n a b l e a n d d i s p o s i t i o n s d e t a i l - o f t h a t o f t r a n s a c t i o n s f i n a n c i a l - and exp enditur es a r e s t a t e m e n t s r e c o r d e d a s i n a c c o r d a n c e in are made onl y rec eipt s o f o u r m a n a g e m e n t a n d d i r e c t o r s , a n d r e g a r d i n g p r e v e n t i o n t i m e l y d e t e c t i o n t h a t u s e o r d i s p o s i t i o n on our C ondensed C onsol -idated Fi nanci al- o r o f o u r a s s e t s - 5 9 Section 404 of management report on Report on Fo rm 10-K registered c o n t r o l o v e r publ ic f i n a n c i a l - th e Sarbane s-Ox ley A ct of 2002 requi res internal- fo r in th e year ended D ecember 3A , 2007. Our control- over reporting financial us to i ncl ude a this Annual- i ndependent accounti ng fi rm i s al so requi red to audi t our i nternal r e p o r t i n g a s o f D e c e m b e r 3 1 , 2 0 0 7 . A s p e r m i t t e d r e p o r t i n g b y e x c l u d e s t h e S E C , o u r ( i ) i n t e r n a l a s s e s s m e n t o f c o n t r o L o v e r f i n a n c i a l - s t a t e m e n t our assessm ent of f i n a n c i a l - o u r e q u i t y m e t h o d i n v e s t e e s o u r However, r e s p e c t recording C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s , accounting methods earnings i-nvestment accou nt bal-ances . t . o o u r e q u i t y m e t h o d l-o sses and amo unts rel -ated and our fo r of a n d ( i i ) i n t e r n a l - s c h e d u l - e s r e q u i r e d c o n t r o l b y A r t i c l e inter nal- cont .rol - ove r fi nanci al- i n v e s t e e s to our d i d i nves tment i n c l u d e i n c l u d i n g inves tments , the are that c o n t r o l - s o v e r rec ogniti on th e deter minati on, val uati on o v e r i n t e r n a l f i n a n c i a l - o v e r c o n t r o l o f r e p o r t i n g t h e p r e p a r a t i o n o f L 2 o f R e g u l a t i o n S - X . w ith report ing t h e rec orded i n o ur t h e s e l - e c t i o n o f equi ty meth od of of o ur rec ording o u r c o n t r o l s o v e r and Changes in InternaT Control- Over Financial Reporting T h e r e h a s d u r i n g i s o r b e e n t h e q u a r t e r n o c h a n g e t o r e a s o n a b l y l i k e l y e n d e d t o our i nternal - D e c e m b e r 3 1 , 2 0 0 7 m a t e r i a l l y cont rol- t h a t o u r a f f e c t , f i nanci al over h a s m a t e r i a l l y c o n t r o l i n t e r n a l r e p o r t i n g a f f e c t e d , o v e r f i n a n c i a l - r e p o r t i n g . Management' s Report on Int.ernal Control- Over Financial- Reporting O u r m a n a g e m e n t i s r e s p o n s i b l e f o r e s t a b l i s h i n g o v e r c o n t r o l r e p o r t i n g , i n t e r n a l f i n a n c i a l - A c t R u l - e 1 3 a - 1 5 ( f ) a n d 1 5 d - 1 5 ( f ) . O u r e v a l - u a t i o n o f i n t e r n a l c o n t r o l established in of Sponsoring Organizations * C O S O " f r a m e w o r k ) . a s have our e f f e c t i v e In ternaL Control of the Treadw ay C ommis si on B a s e d o n o u r e v a l - u a t i o n u n d e r internal - a s o f D e c e m b e r 3 1 , 2 0 0 7 . a s s u c h t e r m concl-uded Int egrated f i n a n c i a l - r e p o r t i n g u p o n Framew ork i ssued by the C ommit tee t o f r a m e w o r k , w e was (c ommonly refer red report ing f i nanci a] t h e e f f e c t i v e n e s s con trol c r i t e r i a b a s e d o v e r ove r t h a t th at t h e t h e i s a n d m a i n t a i n i n g i s d e f i n e d a d e q u a t e i n E x c h a n g e o f o u r P r i c e w a t e r h o u s e C o o p e r s L L P , t h e t h a t h a s a u d i t e d o u r C o n s o ] i d a t e d F i n a n c i a l - S t a t e m e n t s i n d e p e n d e n t r e g i s t e r e d has audi ted th e ef f ect iv eness of our r e p o r t i n g a s o f D e c e m b e r 3 1 , 2 0 0 7 , d s s t a t e d t h i s A n n u a l R e p o r t o n F o r m l - O - K . p u b l i c a c c o u n t i n g t h i s i n c l u d e d cont rol- over r e p o r L w h i c h i n i nternal - i n t h e i r f i r m Annual Report f i n a n c i a l i s i n c l u d e d i n C e r t i f i c a t i o n s O u r c h i e f e x e c u t i v e o f f i c e r t h e N e w Y o r k S t o c k E x c h a n g e ( " N Y S E ' ) , c e r t i f y i n g r e q u i r e d i s t o a n n u a l l y f i l e a c e r t i f i c a t i o n t h e t h e N Y S E . D u r i n g 2 0 0 7 , o u r c h i e f o u r c o m p l i a n c e w i t h f i l e d l i s t i n g g o v e r n a n c e i n c o m p l i a n c e w i t h o f f i c e r w i t h c o r p o r a t e e x e c u t i v e o f f i c e r w e r e c h i e f a m o n g o t h e r q u a l i t y O x l e y A c t o f 2 0 0 2 . W e h a v e D e c e m b e r 3 1 , 2 0 0 7 a s e x h i b i t s K . e x e c u t i v e q u a r t e r l y t h i n g s , s t a n d a r d s o f s u c h a n n u a l c e r t i f i c a t i o n l i s t i n g s u c h a n d c h i e f f i l e f i n a n c i a l - c e r t i f i c a t i o n s s t a n d a r d s w i t h o u t o f f i c e r w i t h t h e N Y S E , i n d i c a t i n g q u a l i f i c a t i o n . a r e a l - s o r e q u i r e d t h e S E C r e g a r d i n g w e o u r t o , t h e t h e S a r b a n e s - e n d e d t h i s A n n u a l R e p o r t o n F o r m 1 - 0 - t h e q u a r t e r w i t h f o r f i l e d 3 1 . 1 a n d 3 L . 2 t o t h e c e r t i f i c a t i o n s o f o u r p u b l i c d i s c l o s u r e s , d s r e q u i r e d b y S e c t i o n 3 0 2 o f I T E 1 T 9 8 . OTHER INFORMATION N o t a p p l i c a b l e . - 7 0 ITEII{ 10 . DIRECTORS, EXECIITIVE OFFICERS AI{D CORPOR.ATE GOVERNAI{CE PART III The information req uired by thi s definitive within "Valhi Proxy Statement") 1'20 days after Proxy Statement we will th e end of fte m fi le w ith fi sc al the i s i ncorpor at.ed by refer ence the S EC purs uant year cov ered. by to R egulat ion thi s report to our 14A (t he ITETII 11. EXECI]ITIVE COIIPENSATION The information req uired by thi s Ite m i s i ncorporat ed by refer ence to t he Valhi Proxy Statem ent. ITEM L2. SECI'RITY O$INERSHIP OF CERTAIN BEI{EFICIAI, O$INERS AI{D MA}IAGEMENT AIID REI,.ATED STOEKHOI.,DER MATTERS The informa tion req uired by E his Ite m i s i ncorporat ed Valhi Proxy Statem ent. by refer ence to t he ITE'If 13. CERTAIN REIJATIONSHIPS A]ID REIJATED TRAI{SACTIONS AI{D DIRECTOR IIIDEPEIIDENCE The informati on Proxy Statement. req uired by thi s Ite m i ncorpor ated by refer ence See al so N ote the C onsol -idated i s 1,7 to t he to Fi nanci al- Valhi S t a t e m e n t s . ITEIT{ 14. PRINCIPAIJ ACCOI'tf,fING FEES AIID SERVICES The information Valhi Proxy Statement. req uired by thi s Ite m i s J- ncorporat ed by refe rence to the PART IV ITEM 15 . EXIIIBITS A}ID FINAI{CIAL STATEMENT SCHEDULES (a) and (c) f inan cia l- Statements and S chedul es The Regi strant o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t . s a n d s c h e d u l e s a c c o m p a n y i n g p a g e F - 1 ) a r e t h i s A n n u a l - R e p o r t . I n d e x f i l e d a s p a r t o f S t a t e m e n t s F i n a n c i a l - o f l i s t e d o n a n d S c h e d u l e s t h e ( s e e 5 0 8 - o r - l e s s o w n e d p e r s o n s 9 9 . 1 T I M E T ' s c o n d e n s e d c o n s o l - i d a t e d E x h i b i t o f R e g u l a t i o n O v e r F i n a n c i a l - R e p o r t i n g W e a r e n o t s t a t e m e n t s p u r s u a n t i s n o t t o p r o v i d e r e q u i r e d S - X . f i n a n c i a l s t a t e m e n t s t h i s T I M E T ' s M a n a g e m e n t ' s R e p o r t o n A n n u a l R e p o r t p u r s u a n t t o R u l e 3 - 0 9 o f R e g u l a t i o n S - X . i n c l - u d e d a s p a r t o f E x h i b i t a n y o t h e r c o n s o l i d a t e d f i n a n c i a l a r e f i l e d a s t o R u l - e 3 - 0 9 o f C o n t r o l 9 9 . I . I n t e r n a l ( b ) E x h i b i t s are the a signed ori gin al i tems l is ted of any of Incl-uded as exhibits have retained signatures, staff listed our directed o f f i c e s costs to prov i-de suc h exh ibi t and we will upon req uest. We w il l furni sh bel-ow upon req uest and pay ment of $+ .00 per exhi bi t to a copy of any of the C ommis si on or fu rnishing of th e attention the S uch of our C orporate S ecret ary at our cor porat e exhi bi ts. reques ts 1 o c a t e d a t 5 4 3 0 L B J F r e e w a y , S u i t e 1 7 0 0 , D a l l a s , T e x a s 7 5 2 4 0 . that cont ain its the exhi bi ts to cover sho ul-d be i n the E xhi bit rndex . We thes e exhi bi Ls - 7 L I t e m 6 0 1 ( b ) ( 4 ) ( i i i ) P u r s u a n t t o the Commission upon holders long -term of inde btedness which do n ot exc eed 10t of our cons ol- idated a s o f D e c e m b e r 3 1 , 2 0 0 7 . o f R e g u l a t i o n S - K , w e w i l l re quest d ebt any i ssue s agreem ents and other i nstrum ent defi ni ng the f u r n i s h ri ghts rel ated t o of t o ass et s tot a] I t e m N o . E xhi bit Ite m 3 . 1 3 . 2 4 . 1 1 0 . 1 t o . 2 1 0 . 3 1 0 . 4 l _ 0 . s 1 _ 0 . 6 t _ 0 . 7 1 0 . 8 Resta ted Articles by referen ce N o . I - 5 4 5 7 ) d a t e d M a r c h 2 6 , 2 0 0 7 a n d f i l e d b y u s o n M a r c h 2 9 , 2 0 0 7 . the R egis trant to our C urrent R eport on Form 9-K /A i ncorporat ed (rit e In corpor ation to Exhib it 3.1 of of - By-L aws of E x h i b i t November 5, 2007 . th e Registrant as amended - 3 . 1 o f o u r C u r r e n t R e p o r t o n F o r m 8 - K i ncorporat ed t o ( f i t e N o . L - 5 4 6 7 ) d a t e d refe rence by dated April Inden ture The Bank of New York, ds Trus tee, 6. 5? Sen ior Secured Notes due 201,3 - E x h i b i t t o K r o n o s I n t e r n a t i o n a l , K ( F i l e N o . 3 3 3 - 1 0 0 0 4 7 ) f i l e d w i t h 4 . L gov erning K ronos i ncorpor ated t o I n c . ' s C u r r e n t R e p o r t o n F o r m 8 - by fnt ernati onal-' s refer ence t h e S E C o n A p r i l 1 1 , 2 0 0 6 . 11, 2006 betw een K ronos Int ernati onal, Inc . and fntercorporate Corporation reference t h e q u a r t e r e n d e d M a r c h 3 1 , 2 0 0 4 . to Exhib it ef f ective as of Service s A greement betw een the R egis trant ..Tan uary L, 2OO 4 i ncorpor ated 10.1- to our Quar terly R eport on Form 10-Q and C ontran by f or Intercorporate effective E x h i b i t f or Intercorporate CompX effecti ve E x h i b i t f o r Service s A greement betw een C ontran C orporati on and NL t o l - 0 . 1 t o N L r s Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q ( f i t e N o . L - 6 4 0 ) i ncorporat ed refer ence Januar y as of 2004 by I, - th e quart.er ended Marc h 31, 2004 . Service s and t o L 0 . 2 t o C o m p X ' s A n n u a l R e p o r t o n F o r m 1 0 - K ( F i l e N o . 1 - 1 3 9 0 5 ) A greement betw een C ontran C orporati on i ncorpor ated refer ence January 2004 by I, t h e y e a r e n d e d D e c e m b e r 3 1 , 2 0 0 3 . Service s Intercorporate K r o n o s W o r l d w i d e , r e f e r e n c e 1 0 - Q ( F i l e N o . 1 - 3 1 7 6 3 ) f o r I n c . e f f e c t i v e t o E x h i b i t N o . 1 0 . 1 A greement betw een C ontran C orporati on . f a n u a r y L , 2 0 0 4 - a nd i n c o r p o r a t e d b y R e p o r t o n F o r m t o K r o n o s ' Q u a r t e r l y t h e q u a r t e r e n d e d M a r c h 3 1 , 2 0 0 4 . Inc . a nd S tock Purchase Agreement dated A pril Contran Corporation t o o u r C u r r e n t R e p o r t o n F o r m 8 - K ( F . i t e N o . l - 5 4 6 7 ) d a t e d A p r i l L , 2 0 0 5 . t, 2005 betw een V alhi , to E xhi bit i ncorporat ed refer ence 99.L by S t o c k P u r c h a s e A g r e e m e n t d a t e d N o v e m b e r t , 2 0 0 6 b e t w e e n V a l h i , and Val hi Holdi ng Com pany 1 0 . 1 Nove mber 7-, 2006 . t o o u r C u r r e n t R e p o r t o n F o r m 8 - K i ncorpor ated ( f i l - e N o . refe rence by I n c . to E xhi bit I - 5 4 6 7 ) d a t e d S t o c k P u r c h a s e A g r e e m e n t d a t e d a s o f M a r c h 2 6 , 2 0 0 7 and Contran Corpor ation i ncorpor ated Inc. 1 0 . 1 t o o u r C u r r e n t R e p o r t o n F o r m 8 - K M a r c h 2 5 , 2 0 0 7 a n d f i l e d b y u s o n M a r c h 2 7 , 2 0 0 7 . - b e t w e e n V a l - h i , refer ence by ( F i l e N o . L - 5 4 6 7 ) d a t e d to E xhi bit C o n s e n t A g r e e m e n t d a t e d a s o f M a r c h 2 9 , 2 0 0 7 inc orporated Contran Corporation o u r c u r r e n t R e p o r t o n F o r m g - K / A 2 0 0 7 a n d f i l e d b y u s o n M a r c h 2 9 , 2 0 0 7 . ( F i l e N o . by refe rence b e t w e e n V a l h i , to E xhi bit I n c . a n d t o 10.2 d a t e d M a r c h 2 6 , l - 5 4 6 7 ) - 7 2 I t e m N o . r - 0 . 9 r . 0 . 1 0 1 0 . 1 1 L 0 . t 2 1 0 . 1 - 3 * 1 0 . 1 4 * 1 0 . 1 5 * 1 0 . 1 5 * l _ 0 . 1 7 1 0 . 1 8 E xhi bit Ite m Stock Purch ase Agreement dated as of Oc tober 16, 2OO 7 betw een TIM ET Finance and incorporated to E xhi bit o n F o r m 8 - K Management by ( F i l e N o . 1 - 1 3 9 0 5 ) d a t e d o c t o b e r 2 2 , 2 0 0 7 . CompX 10. l - of C ompX' s C urrent R epor t International- referenc e Company Inc. Agreement and Pl-an of Merger dated as of Oc tober 16, 2OO 7 among C ompX International incorporated o n F o r m 8 - K ( f i I e N o . 1 - 1 3 9 0 5 ) d a t e d O c t o b e r 2 2 , Z O O T . Inc . l -O.2 of C ompX' s C urrent R eport . CompX Group , to E xhi bit and C ompX K DL LLC referen ce In c. , by Term Loan P romi ssory by CompX International- Subordi nated executed TIMET Finance Management Company E x h i b i t 1 3 9 0 5 ) f o r Inc. 1 0 . 4 o f C o m p X ' s Q u a r t e r l y R e p o r t o n F o r m 1 O - e t h e q u a r t e r e n d e d S e p t e m b e r 3 0 , Z O O 7 . N ote dated Oc tober and payable incorporated to by 26, 2O O7 the order of reference to ( F i l e N o . 1 - Agreement Subordination Form of Comp any, Comp X In ternati onal- C o m p X P r e c i s i o n S l i d e s L i v o r s i I n c . , adm inistrative i tsel f, incorporated to E xhi bit o n F o r m 8 - K d a t e d O c t o b e r 2 2 , 2 0 0 7 . fo r referenc e Inc ., f n c . , C o m p X M a r i n e W a c h o v i a B a n k , M a r i n e agen t by among TIMET Finance Management C ompX S ecuri ty P roduct s, f n c . , C u s t o m M a r i n e N a t i o n a l A s s o c i a t i o n Inc ., f n c . , a s C ompass B ank and C omeri ca B ank 1-0. 4 of C ompX' s C urrent R eport - P lan by refe rence A n n u a l R e p o r t o n F o r m 1 O - K ( r ' i t e i ncorporat ed fn c. 1,997 Long-Term Val hi, t o E x h i b i t N o . 1 , - 5 4 6 7 ) f o r 1 - O . l 2 t o fnc enti ve t h e R e g i s t r a n t r s t h e y e a r e n d e d D e c e m b e r 3 1 , L 9 9 6 . CompX In tern ational- b y L 0 . 2 F o r m S - 1 ( f i t e N o . 3 3 3 - 4 2 6 4 3 ) . t o E x h i b i t r e f e r e n c e In c. 1997 Long-Term Inc enti ve P l-an - t o C o m p X ' s R e g i s t r a t i o n i ncorporat ed S t a t e m e n t o n N L I n d u s t r i e s , r e f e r e n c e ( F i l e N o . 1 - 6 4 0 ) 9 , 1 9 9 8 . t o A p p e n d i x A I n c . 1 9 9 8 L o n g - T e r m b y i n c o r p o r a t e d t o N L ' s P r o x y S t a t e m e n t o n S c h e d u l e l - 4 A t h e a n n u a l m e e t i n g o f s h a r e h o l - d e r s h e l d o n M a y I n c e n t i v e P l - a n f o r K r o n o s W o r l d w i d e , I n c . 2 0 0 3 L o n g - T e r m b y 1 0 . 4 F o r m 1 , 0 ( F i l e N o . 0 0 1 - 3 1 - 7 5 3 ) . t o E x h i b i t r e f e r e n c e P l a n t o K r o n o s ' R e g i s t r a t i o n f n c e n t i v e i n c o r p o r a t e d S t a t e m e n t o n S h a r e d A g r e e m e n t R e g a r d i n g a n d b e t w e e n C o m p X I n t e r n a t i o n a l C o n s o l - i d a t e d I n d u s t r i e s , i n c o r p o r a t . e d o n F o r m 1 0 - K 2 0 0 3 . r e f e r e n c e N o . I n c . , b y I n d u s t r i e s , T i t a n i u m ( F i l e I n s u r a n c e I n c . a s o f O c t o b e r d a t e d , C o n t r a n C o r p o r a t i o n , K r o n o s W o r l d w i d e , I n c . M e t a l - s C o r p o r a t i o n , a n d V a l h i , 3 0 , 2 0 0 3 b y K e y s t o n e I n c . N L , I n c t o E x h i b i t 1 - 3 1 - 7 6 3 ) f o r 1 " 0 . 3 2 t h e t o K r o n o s ' y e a r A n n u a l - R e p o r t e n d e d D e c e m b e r 3 1 , Format.ion J a n u a r y River b y F o r m Agreement of The Amalgamated 3 , 1 9 9 7 ( t o b e e f f e c t i v e D e c e m b e r Sugar 3 1 , Company LLC dated ] - 9 9 6 ) b e t w e e n S n a k e Sugar Company and The Amalgamated r e f e r e n c e t o E x h i b i t 1 0 . 1 9 l - O - K ( f i t e N o . Sugar Company incorporated A n n u a l - R e p o r t t o t h e y e a r e n d e d D e c e m b e r 3 1 , 1 , 9 9 6 . t h e R e g i s t r a n t ' s - o n I - 5 4 6 7 ) f o r - 7 3 f t e m N o . 1 0 . 1 9 1 0 . 2 0 t 0 . 2 L l Q . 2 2 r 0 . 2 3 ] - 0 . 2 4 1 0 . 2 5 1 0 . 2 6 1 0 . 2 7 1 0 . 2 8 E x h i b i t I t e m Master Agreement Rega rding C o m p a n y D o c u m e n t s d a t e d o c t o b e r t o E x h i b i t ( r ' i t e N o . L - 5 4 5 7 ) f o r l - 0 . 1 t o t h e R e g i s t r a n t , s A mendments ! 9 , 2 O o o to The A malgam ated S ugar i n c o r p o r a t e d b y r e f e r e n c e Q u a r t e r l y R e p o r t o n F o r m 1 O - e t h e q u a r t e r e n d e d . s e p t e m b e r 3 0 , 2 o o o . rnc . , Prepa yment and Term inat ion valhi, N o r t h w e s t , N . A . t h e R e g i s t r a n t ' s ( r i l e N o . l - 5 4 6 7 ) d a t e d O c t o b e r 1 8 , 2 0 0 5 . A m e n d m e n t N o . 1 t o snake Ri ver i n c o r p o r a t e d suga r b y r e f e r e n c e com pany and. w ell _s Fargo 14, 2OO 5 am ong eank t o i t s C u r r e n t R e p o r t o n F o r m g - K t o E x h i b i t N o . 1 0 . 1 A greement dated Oc tober Company Agreement of The Amalgamated. Sugar Company LLC dated January 3 , 1 ' 9 9 7 i n c o r p o r a t e d b t r e f e r e n c e A n n u a l R e p o r t o n F o r m 1 0 - K ( F i l e N o . L - 5 4 6 7 ) f o r ( t o b e e f f e c t i v e t o E x h i b i t t h e y e a r e n d e d D e c e m b e r 3 1 , L 9 g G . t h e R e g i s t r a n t ' s D e c e m b e r 3 7 , 1 0 . 2 0 t o I g g S ) - Amendment First Comp any LLC dated Ma y E x h i b i t l - 0 . 1 - t o N o . I - 5 4 6 7 ) f o r to the Company Agreement of The Amalgamated Sugar i ncorporat ed t o ( p i t e e u a r t e r l y R e p o r t o n F o r m 1 o - e refer ence L997 !4, by - t h e R e g i s t r a n t , s t h e q u a r t . e r e n d e d J u n e 3 0 , I g g T . Second Amendment to Com pany LLc dated November 30, 1998 - Exhib it N o . l - 5 4 6 7 ) the Company Agreement of The Amalgamated Sugar t o (r'ile t s A nnual R eport on Form 1o -K t h e y e a r e n d e d D e c e m b e r 3 1 , 1 9 9 9 . th e Regi strant i ncorporat ed. refe rence 1'o .2 4 f o r by to Third Amendment C o m p a n y L L C d a t e d O c t o b e r E x h i b i t t o N o . L - 5 4 5 7 ) f o r the Company Agreement of The Amalgamated Sugar i n c o r p o r a t e d t o ( F i l e e u a r t e r l y R e p o r t o n F o r m 1 0 - e t h e R e g i s t r a n t ' s t h e q u a r t e r e n d e d s e p t e m b e r 3 0 , 2 o o o . ! 9 , 2 O O O r e f e r e n c e r 0 . 2 b y to Amended and Restated C ompany A greement of The A malg amated S ugar Comp any LLC dated October 2OO 5 among The A malg amated. S ugar Company LLC, Snake River The Amalgamated C o l l a t e r a l t o E x h i b i t N o . : - O . 7 t o t h e R e g i s t r a n t ' s i t s C u r r e n t R e p o r t o n F o r m g - K ( f i t e N o . I - 5 4 6 7 ) d a t e d O c t o b e r 1 8 , 2 0 0 5 . A m e n d m e n t N o . 1 t o Company and b y r e f e r e n c e i n c o r p o r a t e d Sugar T r u s t !4, b e t w e e n V a l h i , P r o m i s s o r y N o t e S u b o r d i n a t e d m i l l i o n r e l a t e d P l e d g e A g r e e m e n t , b o t h d a t e d J a n u a r y 3 , L 9 g 7 b y r e f e r e n c e F o r m 1 0 - K ( F i l e N o . 1 ' - 5 4 6 7 ) f o r g 3 7 . 5 I n c . a n d S n a k e R i v e r S u g a r C o m p a n y , a n d t h e t h e y e a r e n d e d D e c e m b e r 3 ! , A n n u a l - R e p o r t o n t h e R e g i s t r a n t r s i n c o r p o r a t e d a m o u n t o f t o E x h i b i t 1 0 . 2 1 " t o p r i n c i p a l t h e t g g 6 . i n - b e t w e e n V a l h i , L i m i t e d R e c o u r s e P r o m i s s o r y N o t . e i n m i l l - i o n rel-at.ed Limi ted L 9 9 7 R e g i s t r a n t ' s y e a r e n d e d D e c e m b e r 3 1 , 1 9 9 6 . a m o u n t o f # 2 ] , 2 . s I n c . a n d S n a k e R i v e r S u g a r C o m p a n y , a n d t h e 3 , t h e t h e both E x h i b i t ( p i t e N o . b y A n n u a l R e p o r E o n F o r m 1 o - K Recours e P ledge A greement, : - 0 . 2 2 r - s 4 6 7 ) t h e p r i n c i p a l i n c o r p o r a t e d r e f e r e n c e Janu ary t o f o r dated t o - Sub ordinated Loan Agreement betw een S nake R iv er S ugar C ompany and v a l h i , r n c . , a s a m e n d e d a n d i n c o r p o r a t e d b y r e f e r e n c e Q u a r t e r l y R e p o r t o n F o r m 1 0 - e e n d e d J u n e 3 0 , 1 9 9 7 . M a y L 4 , t h e R e g i s t r a n t ' s t h e s u a r t e r 1 0 . 9 ( F i I e N o . 1 " - 5 4 6 7 ) f o r r e s t a t e d . e f f e c t i v e t o E x h i b i t r g g T t o 7 4 I t e m N o . 1 - 0 . 2 9 1 0 . 3 0 r _ 0 . 3 1 7 0 . 3 2 r _ 0 . 3 3 1 0 . 3 4 1 0 . 3 5 1 0 . 3 5 L Q . 3 7 E xhi bit Ite m th e S ubordinat ed Loan A greement betw een S nak e S u g a r C o m p a n y a n d V a l h i , r e f e r e n c e on Form 10 -K I n c . t o E x h i b i t d a t e d N o v e m b e r 3 0 , L 0 . 2 8 t o t h e R e g i s t r a n t ' s 1 9 9 8 (Fi le N o . 1" -5467 ) f or the year ended Second Amendment to R i v e r i n c o r p o r a t e d Annu a1 Repo rt D e c e m b e r 3 1 , l - 9 9 8 . b y to Amendment S u g a r C o m p a n y a n d V a l h i , Third R i v e r i n c o r p o r a t e d Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q e n d e d S e p t e m b e r 3 0 , 2 0 0 0 . r e f e r e n c e b y the Subordinat.ed Loan Agreement between Snake I n c . t o E x h i b i t , d a t e d O c t o b e r 1 0 . 3 t o ( f i t e N o . L - 5 4 6 7 ) ! 9 , 2 0 0 0 t h e R e g i s t r a n t . ' s t h e q u a r t e r f o r Fourth Am endment to R i v e r S u g a r C o m p a n y a n d V a l h i , i n c o r p o r a t e d Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q e n d e d M a r c h 3 1 , 2 0 0 3 . r e f e r e n c e b y I n c . t o E x h i b i t N o . 1 0 . 1 - t o N o . L - 5 4 6 7 ) ( f i l e d a t e d M a r c h 3 1 , 2 0 0 3 t h e R e g i s t r a n t ' s f o r t h e q u a r t e r the S ubordinat ed Loan A greement betw een S nake Sub ordinate Contin gent C o m p a n y a n d V a l h i , N a t i o n a l - A s s o c i a t i o n i n c o r p o r a t e d b y Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q e n d e d S e p t e m b e r 3 0 , 2 0 0 0 . r e f e r e n c e P ledge A greement betw een S nake R iv er S ugar B a n k I n c . , a s C o l l - a t e r a l A g e n t , d a t e d O c t o b e r 1 9 , 2 0 0 0 t h e R e g i s t r a n t ' s 1 0 . 4 a s a c k n o w l e d g e d b y F i r s t t o E x h i b i t S e c u r i t y t o ( f i t e N o . l - 5 4 5 7 ) f o r t h e q u a r t e r Subo rdinate Contingent C o m p a n y a n d V a l h i , N a t i o n a l - A s s o c i a t i o n i n c o r p o r a t . e d b y Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q e n d e d S e p t e m b e r 3 0 , 2 0 0 0 . r e f e r e n c e S ecuri ty A greement betw een S nake R iv er S ugar B a n k a s a c k n o w l e d g e d b y F i r s t I n c . , a s C o l l a t e r a l - A g e n t , d a t e d O c t o b e r 1 9 , 2 0 0 0 t h e R e g i s t r a n t ' s 1 0 . 5 t o E x h i b i t S e c u r i t y t o ( F i l e N o . I - 5 4 6 7 ) f o r t h e q u a r t e r Contingent Subo rdinate C o1later al- A gency and P ayi ng A gency A greement a m o n g V a l h i , f n c . , S n a k e R i v e r S u g a r C o m p a n y a n d F i r s t S e c u r i t y B a n k N a t i o n a l i n c o r p o r a t e d b y ! 9 , r e f e r e n c e Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q e n d e d S e p t e m b e r 3 0 , 2 0 0 0 . d a t e d O c t o b e r t o l - 0 . 6 I - 5 4 6 7 ) A s s o c i a t i o n t o E x h i b i t ( f i t e N o . t h e R e g i s t r a n t ' s t h e q u a r t e r f o r 2 0 0 0 Depo sit Trust Agreement among AS C Holdi ngs, - L 0 . 2 ]-997 R e g i s t r a n t ' s Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q ( f i t e N o . I - 5 4 6 7 ) q u a r t e r e n d e d J u n e 3 0 , 1 9 9 7 . the A malgam ated C ol-l ateral - Trust In c . and W il mi ngton Trus t C ompany dated May L 4 , t h e t h e i n c o r p o r a t e d r e f e r e n c e t o f o r E x h i b i t rel ated b y t o to A m e n d m e n t t o D e p o s i t T r u s t A g r e e m e n t d a t e d O c t o b e r 1 4 , 2 0 0 5 fn c. and W il mi ngton Trus t C ompany t o i t s C u r r e n t R e p o r t o n F o r m 8 - K t o E x h i b i t N o . 7 0 . 2 t h e R e g i s t r a n t ' s ( F i l e N o . i ncorpor ated A m e n d m e n t N o . 1 I - 5 4 5 7 ) d a t e d O c t o b e r F i r s t amon g ASC Hold ings, b y r e f e r e n c e t o 1 8 , 2 0 0 5 . Ple dge Agreement between The A malgam ated C ol1ater al River Suga r Com pany dated May 14, L997 t o E x h i b i t ( f i t e N o . L - 5 4 5 7 ) t h e q u a r t e r e n d e d . - f u n e 3 0 , 1 9 9 7 . t h e R e g i s t r a n t ' s j -ncorpor ated 1 0 . 3 f o r t o - Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q Trus t and S nake by refe renc e 7 5 I t e m N o . 1 0 . 3 8 1 _ 0 . 3 9 1 0 . 4 0 1 0 . 4 1 _ L 0 . 4 2 l _ 0 . 4 3 r 0 . 4 4 1 0 . 4 5 1 0 . 4 5 r 0 . 4 7 E xhi bit Ite m ( S P T ) d a t e d O c t o b e r S e c o n d P l e d g e A m e n d m e n t Amalgamated Colla teral i n c o r p o r a t e d A m e n d m e n t N o . d a t e d O c t o b e r 1 8 , 2 0 0 5 . r e f e r e n c e l - t o b y Trus t and S nake R iv er t o i t s C u r r e n t R e p o r t o n F o r m 8 - K t o E x h i b i t N o . 1 0 . 4 1 4 , 2 0 0 5 a m o n g T h e S ugar C ompany t h e R e g i s t r a n t ' s ( f i t e N o . L - 5 4 6 7 ) by The Am alg amated C ol-Lat eral Guarantee River Suga r Com pany dat ed May 14, L997 t o E x h i b i t ( F i l e N o . I - 5 4 6 7 ) t h e R e g i s t r a n t ' s 1 0 . 4 f o r t o Trus t i ncorpor ated i n - fav or of S nak e by refer ence Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q t h e q u a r t e r e n d e d J u n e 3 0 , 1 - 9 9 7 . Second SPT Guaranty A mendment dated Oc tober Amalg amated Col-l-ateral i n c o r p o r a t e d A m e n d m e n t N o . 1 t o d a t e d O c t o b e r 1 8 , 2 0 0 5 . t o E x h i b i t N o . i t s C u r r e n t R e p o r t o n F o r m 8 - K and S nake R iv er b y r e f e r e n c e Trus t !4, 2005 among Th e S ugar C ompany l - 0 . 5 E o t h e R e g i s t r a n t ' s ( F i t e N o . 1 - - 5 4 6 7 ) R i g h t s C o m p a n y , V o t i n g S u g a r A s s o c i a t i o n E x h i b i t N o . 1 - 5 4 6 7 ) 1 0 . 8 a n d C o l - l - a t e r a l - I n c . , V a 1 h i , d a t e d M a y 1 4 , t o f o r t h e R e g i s t r a n t ' s t h e q u a r t e r D e p o s i t a n d F i r s t - A g r e e m e n t S e c u r i t y i n c o r p o r a t e d a m o n g S n a k e R i v e r N a t i o n a l - t o ( F i l e r e f e r e n c e b y R e p o r t o n F o r m 1 0 - Q B a n k , Q u a r t e r l y 1 9 9 7 e n d e d . J u n e 3 0 , L 9 9 7 . A g r e e m e n t S u b o r d i n a t i o n C o m p a n y d a t e d M a y 1 4 , 1 0 . 1 0 t o f o r 5 4 6 7 ) b e t w e e n V a l h i , I n c . a n d S n a k e R i v e r \ 9 9 7 - i n c o r p o r a t e d b y r e f e r e n c e S u g a r t o E x h i b i t t h e R e g i s t r a n t ' s Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q ( F i l e N o . 1 - t h e q u a r t e r e n d e d , . f u n e 3 0 , 1 9 9 7 . Amendment to th e S ubordi nation First a n d S n a k e R i v e r S u g a r C o m p a n y d a t e d O c t o b e r 1 9 , 2 0 0 0 b y r e f e r e n c e F o r m 1 0 - Q 2 0 0 0 . ( F i l e N o . L - 5 4 5 7 ) t o E x h i b i t l - 0 . 7 t o f o r t h e R e g i s t r a n t r s Q u a r t e r l y R e p o r t o n e n d e d S e p t e m b e r 3 0 , t h e q u a r t e r Inc. i n c o r p o r a t e d A greement betw een V alhi , a n d Form of Op tion Agreeme nt among S nake R iv er S ugar C ompany, V alhi, I n c . t h e h o l - d e r s o f S n a k e R i v e r S u g a r C o m p a n y ' s 1 0 . 9 ? S e n i o r - N o t e s D u e 2 0 0 9 d a t e d M a y L 4 , 1 9 9 7 t o E x h i b i t t h e R e g i s t r a n t ' s 1 0 . 1 1 Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q ( F i l e N o . 1 , - 5 4 5 7 ) f o r t h e q u a r t e r e n d e d J u n e 3 0 , 1 9 9 7 . i ncorporat ed refer ence by t o O p t i o n A g r e e m e n t d a t e d O c t o b e r 1 4 , 2 0 0 5 a m o n g V a l h i , R i v e r S u g a r C o m p a n y , N o r t h w e s t F a r m C r e d i t S e r v i c e s , B a n k N a t i o n a l A s s o c i a t i o n b y r e f e r e n c e 1 0 . 6 t h e R e g i s t r a n t ' s l - t o F o r m 8 - K ( F i l e N o . I - 5 4 5 7 ) d a t e d O c t o b e r 1 8 , 2 0 0 5 . i n c o r p o r a t e d A m e n d m e n t N o . t o F L C A a n d U . S . t o E x h i b i t N o . i t s C u r r e n t R e p o r t o n I n c . , S n a k e Am endment t.o O pt.i on A greements First C o m p a n y , V a L h i N o t e s D u e 2 0 0 9 d a t e d O c t o b e r 7 9 , 2 0 0 0 E x h i b i t 1 0 . 8 t o N o . L - 5 4 5 7 ) f o r S ugar 1 0 . 9 8 S e n i o r t o t h e R e g i s t r a n t ' s Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q ( F i l e t h e q u a r t e r e n d e d S e p t e m b e r 3 0 , 2 0 0 0 . a n d t h e h o l d e r s o f S n a k e R i v e r ' s i n c o r p o r a t e d b y r e f e r e n c e among S nake R iv er I n c . , In c., Kronos L ouis iana, F ormation Agreement dated Americas L . P . R e p o r t o n F o r m 1 0 - Q ( F i l e N o . 1 - 5 4 0 ) 3 0 , 1 9 9 3 . i n c o r p o r a t e d r e f e r e n c e b y - as of Oc tober 18, 1-993 among Ti oxi de Inc . and Loui si ana P igment C ompany , t o E x h i b i t f o r 7 O . 2 o f N L r s Q u a r t e r l y t h e q u a r t e r e n d e d S e p t e m b e r - 7 6 I t e m N o . 1 0 . 4 8 l _ 0 . 4 9 l _ 0 . 5 0 1 0 . 5 1 L 0 . s 2 1 0 . s 3 E xhi bit Ite m ,Joint Ven ture Agreement dated as of Oc tober 18, 1993 bet. ween Ti oxi de by refer ence Americas 1 0 . 3 o f N L ' s Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q ( F i l e N o . 1 - t o E x h i b i t 5 4 0 ) f o r t h e q u a r t e r e n d e d S e p t e m b e r 3 0 , 1 9 9 3 . In c. and Kronos Loui si ana, i ncorporat ed Inc . - Kronos Offtake Agreemen t dated as of Oc tober 18, 1993 by and betw een Kronos i n c o r p o r a t e d F o r m 1 0 - Q ( f i t e N o . 1 - 6 4 0 ) f o r t h e q u a r E e r e n d e d S e p t e m b e r 3 0 , ! 9 9 3 . 1 0 . 4 o f N L r s Q u a r t e r l y R e p o r t o n In c. b y r e f e r e n c e P igment C ompany, L.P . and t o E x h i b i t Loui sia na, Loui si ana Amendment No. 1 to Kronos Offtake Agreement dated as of December 20 , P igmen t C ompany , 1995 between Kronos Loui si ana, Inc . L 0 . 2 2 o f N L ' s A n n u a l - L . P . R e p o r t o n F o r m l - O - K ( F i l e N o . 1 - 6 4 0 ) t h e y e a r e n d e d D e c e m b e r 3 1 1 9 9 5 . t o E x h i b i t f o r and Loui si ana i n c o r p o r a t e d r e f e r e n c e b y - A ll -ocation I C I A m e r i c a n H o l d i n g s , A m e r i c a s ( f / k / a I n c . ) r e f e r e n c e t o E x h i b i t ( p i t e N o . 1 - 5 4 0 ) f o r Agreement dated as of Oc tober 18, L993 betw een Ti oxi de I n c . b y t o N L ' s Q u a r t e r l y R e p o r t o n F o r m 1 0 - Q a n d K r o n o s L o u i s i a n a , l - 0 . 1 0 K r o n o s W o r l - d w i d e , i n c o r p o r a t e d I n c . t h e q u a r t e r e n d e d S e p t e m b e r 3 0 , l - 9 9 3 . I n c . , K r o n o s , I n c . , - dated I-.,ease Contract Aktiengesel-l-s ch a f t (German lang uage incorp orated F o r m 1 0 - K ( f i l e N o . 1 - 5 4 0 ) f o r by ref ere nce and Ti tangesel -l- sch af t mi t vers i on J une 21, L952, betw een Farbenf abri eken B ayer H af tu ng - l -0 . 14 of N L's A nnual- R eport on and E ngli sh besc hrankt er trans lat ion to E xhi bit ther eof) t h e y e a r e n d e d D e c e m b e r 3 1 , 1 9 8 5 . Settle ment a n d F e a s i b i l i t y Admini strative I n v e s t i g a t i o n Arkansas Departm ent Inc . , M I, LLC and TRE Management Company - Services, r e f e r e n c e t o E x h i b i t o n F o r m 1 0 - Q ( f i l - e N o . 1 - 1 0 L 2 5 ) of E nvi ronmental - Qual i ty, 1 0 . 1 - t o T r e m o n t C o r p o r a t i o n ' s Int erim f o r for H all ibur ton S ite t h e E nergy by Q u a r t e r l y R e p o r t incorporated S t u d y d a t e d J u l y 7 , 2 0 0 0 b e t w e e n t h e q u a r t e r e n d e d J u n e 3 0 , 2 0 0 2 . R emedial - Meas ures, 2 1 . 1 * : k * S u b s i d i a r i e s o f t h e R e g i s t r a n t . 2 3 . 1 * * * 2 3 . 2 * * * Consent of Consol-idated Financial Price waterhous eC oo pers S tatement s Consent Consol-idated Financial- S tatement s Price waterhous eC oo pers of L L P w i t h r e s n e c t t o V a l - h i ' s L L P w i t h r e s p e c t t o T I M E T ' s 3 1 . 1 * * * C e r t i f i c a t i o n 3 1 . 2 * * * C e r t i f i c a t i o n 3 2 . 1 * * * C e r t i f i c a t i o n 9 9 . L ConsoLidated incorporated N o . 0 - 2 8 5 3 8 ) f o r fi nancial- by referen ce st atements of to TIME T's A nnua1 R eport on Form 10-K Ti tani um Meta ls C orporati on (File t h e y e a r e n d e d D e c e m b e r 3 1 , 2 0 0 7 . * Management contract, compensatory pl an or agreem ent. * * P o r t i o n s o f c o n f i d e n t i a l t h e e x h i b i t t r e a t m e n t . ' k * * F i l e d h e r e w i t h . h a v e b e e n o m i t t e d p u r s u a n t t o a r e q u e s t f o r - 7 7 SIGNATI'RES Pursuant to the requirements Act of 1934, Ehe Registrant by the undersigned, thereunto has duly caused duly authorized. of Section 13 or 15 (d) of this report the Securities to be signed on Exchange behalf its V ALH I, IN C. ( R e g i s t r a n t ) B y : / s / S t e v e n L . W a t s o n S t e v e n I J . W a t 6 o n , M a r c h 1 3 , 2 0 0 8 (President and chief Executive officer) Pursuant to the requirements of the Securities Exchange Act of 1934, report has been signed below by the and in the capacities and on the dates indicated: following persons on behalf of this the Registrant / s / H a r o l d c . S i m m o n s H a r o l d C . S i m m o n s , M a r c h 1 3 , 2 0 0 8 ( C h a i r m a n o f t h e B o a r d ) / s / T h o m a s E . B a r r y T h o m a s E . B a r r y , M a r c h 1 3 , 2 0 0 8 ( o i r e c t o r ) /s/ Norman S. Edel cup N o r m a n S . E d e l c u p , M a r c h 1 3 , 2 0 0 8 ( D i r e c t o r ) / s / S t e v e n L . W a t s o n S t e v e n L . W a t s o n , M a r c h 1 3 , 2 0 0 8 ( P r e s i d e n t , C h i e f E x e c u t i v e o f f i c e r a n d D i r e c t o r ) / s / G l e n n R . S i m m o n s G l e n n R . S i m m o n s , M a r c h 1 3 , 2 0 0 8 (V ic e C hairman of the B oard) / s / B o b b y D . o ' B r i e n B o b b y D . O ' B r i e n , M a r c h L 3 , 2 0 0 8 ( V i c e P r e s i d e n t O f f i c e r , O f f i c e r ) a n d C h i e f F i n a n c i a l - P r i n c i p a l F i n a n c i a l / s / W . H a y d e n M c I l - r o y W . H a y d e n M c l l r o y , M a r c h 1 3 , 2 0 0 8 (Director) / s / G r e g o r y M . S w a l w e l l - c r e g o r y M . S w a l w e l l , M a r c h 1 3 , 2 0 0 8 (Vice President Principal and Controller, Accounting Of f icer) 'J. walter Tucker, /sil J . W a l t e r T u c k e r , J r . M a r c h 1 3 , 2 0 0 8 ( D i r e c L o r ) \Tr- - 7 8 S U B S I D I A R I E S O F THE REGISTRANT E X H I B I T 2 1 . . 1 . Name of Corporation Amcorp, Inc . A S C H o l d i n g s , A m a l g a m a t e d R e s e a r c h , I n c . I n c . Andrews County Hold ings, fn c . W a s t e C o n t r o l S p e c i a l i s t s L L C K r o n o s W o r l d w i d e , I n c . ( 2 ) N L I n d u s t r i e s , I n c . ( 2 ) , ( 3 ) , ( 4 ) C o m p X T n t e r n a t i o n a l I n c . ( 4 ) Tremont LLC T R E C O L . L . C . B a s i c M a n a g e m e n t , I n c . Basic Wa ter Comp any Basic Environmental - Contr ol- LLC Basic Pow er Comp any Basic Reme diation Comp any LLC Basic Land Comp any The Landwel-l- Company LP The Landwel-l- Company LP TRE Holding Corporation TRE Management Company Tall Pin es In su rance Comp any M e d i t e C o r p o r a t i o n I m p e x R e a l t y H o l d i n g , I n c . J u r i s d i c t i o n o f S e c u r i t i e s H e l - d a t I n c o r p o r a t i o n o r o r g a n i z a t i o n D e c e m b e r 3 1 , 2 0 0 7 ( 1 ) I of V oting D e l - a w a r e U t a h Idaho D e l - a w a r e D e l - a w a r e D e l a w a r e N e w J e r s e y D e l - a w a r e D e l - a w a r e Nevada Nevada Nevada Nevada Nevada Nevada Nevada Del-aware De l- aware D e l a w a r e D e l a w a r e Vermont D e l - a w a r e D e l - a w a r e 1 0 0 8 1 0 0 ? 1 0 0 8 1 0 0 8 1 0 0 8 s 9 8 8 5 ? 8 6 ? r _ 0 0 & r _ 0 0 ? 322 1 0 0 ? 1 0 0 ? 1 0 0 E 1 0 0 t r _ 0 0 3 5 0 ? 1 , 2 2 r _ 0 0 3 1 0 0 ? 1 0 0 * 1 0 0 ? 1 0 0 ? ( 1 ) ( 2 ) ( 3 ) ( 4 ) H e l d b y t h e R e g i s t r a n t o r t h e i n d i c a t e d s u b s i d i a r y o f t h e R e g i s t r a n t . S u b s i d i a r i e s i n c o r p o r a t e d o f K r o n o s a r e K r o n o s ' A n n u a l R e p o r t o n F o r m 1 - 0 - K f o r ( f i t e N o . 3 3 3 - 1 0 0 0 4 7 ) . N L o w n s a n a d d i t i o n a l b y r e f e r e n c e t o E x h i b i t 2 1 - . 1 , o f t h e y e a r e n d e d D e c e m b e r 3 1 , 2 Q 0 7 3 5 t o f K r o n o s d i r e c t l y . S u b s i d i a r i e s A n n u a l - R e p o r t o n F o r m 1 0 - K N o . 1 - - 5 4 0 ) . o f N I - , a r e i n c o r p o r a t e d b y r e f e r e n c e t o E x h i b i t f o r t h e y e a r e n d e d D e c e m b e r 3 1 , 2 0 0 7 2 L . 7 o f N L ' s ( F i l e S u b s i d i a r i e s i n c o r p o r a t e d o f C o m p X a r e C o m p X ' s A n n u a l - R e p o r t o n F o r m 1 0 - K f o r ( F i l e N o . l - - 1 3 9 0 s ) . 2 I . L o f b y r e f e r e n c e t h e y e a r e n d e d D e c e m b e r 3 1 , 2 0 0 5 t o E x h i b i t Annual Report on Form 10 -K I t e m s 8 , 1 5 ( a ) a n d f 5 ( c ) Index of Financial St,atements and Schedules Financial Statements R e p o r t o f I n d e p e n d e n t R e g i s t e r e d P u b l - i c A c c o u n t i n g F i r m C o n s o l i d a t e d B a l a n c e S h e e t s - D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 7 Consolidated Statem ents of Op era t,ions Y e a r s e n d e d D e c e m b e r 3 1 , 2 0 0 5 , 2 0 0 6 a n d 2 Q Q 7 Consolidated Statem ents of Comprehens iv e Inc ome (Los s) - Y e a r s e n d e d D e c e m b e r 3 1 , 2 0 0 5 , 2 0 0 6 a n d 2 0 0 - r Consol-idated Statem ents of Stockhol ders' E quit y Y e a r s e n d e d D e c e m b e r 3 1 , 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 Consol-idated Statem ents of Cash Fl -ows Y e a r s e n d e d D e c e m b e r 3 1 , 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 Notes t.o Consol-idated Finan cial- S tatement s Financial Statement Schedule Schedule I Conde nsed Finan cia l Inf ormati on of R egis trant Page F - 2 F - 4 F - 5 F - 7 F - 9 F - 1 0 F-13 S -l- We omitted applicable presented Sched ul-es f I, or th e in th e Notes req uired to III and amo unts are ei ther IV bec ause E hey are not not mate rial - or are th e C onsol idated Fi nanci al- S tatement s. F - 1 fttcWnrwou5{mrcns @ REPORT OF IIIDEPEIIDEIIT REGISTERED PI'BLIC ACCOI'MTING FIRM T o t h e S t o c k h o L d e r s a n d B o a r d o f D i r e c t o r s o f V a l h i , f n c . : PricewaterhouseCoopers LLP 2 0 0 . 1 R o s s A v e n u e , S u i t e 1 8 0 0 Dallas TX75201-2997 T e l e p h o n e ( 2 1 4 ) 9 9 9 1 4 0 0 Facsimile (214) 754 7991 th e accompany ing con soLi dated baLanc e shee ts and t he i n c o m e , o f i n a l l s u b s i d i a r i e s a n d t h e i r o f o p e r a t i o n s , c a s h o f V a 1 h i , o f f l o w s c o m p r e h e n s i v e p r e s e n t f a i r l y , I n c . a n d i t s o f t h e i r o p e r a t i o n s r e s u l t s i n t h e p e r i o d e n d e d D e c e m b e r 3 1 , 2 0 0 7 g e n e r a l l y i n o u r o p i n i o n , i n d e x p r e s e n t s t h e r e i n w h e n r e a d t h e u n i t e d s t a t e m e n t i n a l l m a t e r i a l - t h e a c c e p t e d t h e f a i r l y , i n c o n j u n c t i o n w i t h i n f i n a n c i a l A l s o i n o u r o p i n i o n , t h e C o m p a n y i n t e r n a l a s o f D e c e m b e r 3 1 , 2 0 0 7 , b a s e d o n c r i t e r i a e f f e c t i v e s t a t . e m e n t s a n d f i n a n c i a l c o n t r o L o v e r i ssued by c o n t r o l e s t a b l i s h e d o v e r i n the C ommit tee of S ponsori ng ( C O S O ) . T h e C o m p a n y ' s m a n a g e m e n t i s s t a t e m e n t s c h e d u l e , a n d f o r f i n a n c i a l - I n t e r n a l - i s t o s t a t e m e n t based t h e o n r e s p o n s i b i l i t y f i n a n c i a l i n a c c o r d a n c e w i t h I t e m 9 A . O u r report .ing f i n a n c i a L r e p o r t i n g f i nanci al o v e r over t h e o n s t a t e m e n t s , con trol i n t e r n a l a c c o m p a n y i n g M a n a g e m e n t ' s R e p o r t c o n t r o l o f W e c o n d u c t e d o u r a u d i t , s s t a t e m e n t s . r e s p e c t s , o f f o r t h e f o r t h i n t . e r n a l f i n a n c i a l f i n a n c i a l p r i n c i p l e s In tegrated Fra mewor k i n f o r m a t i o n l i s t e d t h e s t o c k h o l d e r s ' f n a d d i t i o n , a n d o f p o s i t i o n In our opini on, c o n s o l i d a t e d i n r e s p e c t s , f l o w s c o n f o r m i t y t h e a c c o u n t i n g s t a t e m e n t s e q u i t y f i n a n c i a l - a l - 1 m a t e r i a l - a s s e s s m e n t o f i n c l u d e d t h e a c c o m p a n y i n g s e t f o r e a c h o f w i t h o f A m e r i c a . i n i n r e p o r t i n g - t h e T r e a d w a y C o m m i s s i o n t h e s e e f f e c t i v e t h e i n r e l - a t e d c h a n g e s m a t e r i a l a t D e c e m b e r 3 1 , 2 0 0 6 a n d 2 0 0 7 a n d t h e c a s h t h r e e y e a r s i n S t a t e s s c h e d u l e r e s p e c t s , r e l - a t e d c o n s o l i d a t e d m a i n t a i n e d , f i n a n c i a l - Int.ernal Control O r g a n i z a t i o n s r e s p o n s i b l e f o r m a i n t a i n i n g i t s r e p o r t i . g , C o n t r o l O v e r F i n a n c i a l e x p r e s s o p i n i o n s o n schedul-e and on th e Comp any' s inter nal o n o u r s t a n d a r d s o f Those standards r e a s o n a b l - e a s s u r a n c e m a t e r i a l m i s s t a t e m e n t r e p o r t i n g f i n a n c i a l t h e a c c o u n t . i n g p r i n c i p l e s e v a l u a t i n g i n t e r n a l o f m a t e r i a l - w e a k n e s s e x i s t s , e f f e c t i v e n e s s i n c l u d e d c i - r c u m s t a n c e s . W e b e l i e v e o p i n i o n s . w a s m a i n t a i n e d s t a t e m e n t s e f f e c t i v e n e s s t h e a m o u n t s a n d d i s c l o s u r e s f i n a n c i a l a n d t e s t i n g f i n a n c i a l o v e r o v e r a l - 1 o v e r u s e d a n d s i g n i f i c a n t t h e c o n t r o l p e r f o r m i n g i n t e g r a t e d R e p o r t i n g f i n a n c i a l - f i n a n c i a l r e p o r t i n g i n t e r n a l c o n t r o l req uire a u d i t s . u n d e r t h e s e t h e o f i n i n t h e P u b l i c C o m p a n y A c c o u n t i n g O v e r s i g h t B o a r d w e pl an and perfo rm th at the ( U n i t e d S t a t e s ) . audi ts to a b o u t w h e t h e r a n d w h e t h e r e f f e c t i v e a l l m a t e r i a l t h e f i n a n c i a l i n t e r n a l r e s p e c t s . s t a t e m e n t s c o n t r o l a r e o v e r i n c l u d e d e x a m i n i n g , o n a t e s t b a s i s , obtain o f f r e e f i n a n c i a l o f O u r a u d i t s e v i d e n c e s u p p o r t i n g a s s e s s i n g t h e f i n a n c i a l - s t a t e m e n t s , t h e e s t i m a t e s m a d e b y m a n a g e m e n t , a n d o f s t a t e m e n t p r e s e n t , a t i o n . i n c l - u d e d o b t a i n i n g O u r a u d i t a n u n d e r s t a n d i n g a s s e s s i n g t h e r i s k t h a t a r e p o r t i r g , a n d e v a l u a t i n g i n t e r n a l - c o n E r o l b a s e d o n t h e a s s e s s e d r i s k . s u c h o t h e r p r o c e d u r e s a s w e c o n s i d e r e d n e c e s s a r y t h a t o u r a u d i t s p r o v i d e a r e a s o n a b l - e b a s i s t h e d e s i g n a n d o p e r a t i n g O u r a u d i t s a l s o t h e f o r o u r i n A s d i s c u s s e d i n N o t e 1 8 t o Company chan ged p o s t r e t j - r e m e n t f o r u n c e r t a i n th e man ner in w hic h b e n e f i t o b l i g a t i o n s t a x p o s i t i o n s i n 2 0 0 7 . t h e C o n s o l i d a t e d F i n a n c i a l - S t a t , e m e n t s , pens ion i n 2 0 Q 5 a n d t h e m a n n e r i n w h i c h t h e and oth er i t a c c o u n t s acc ounts for i t i n t e r n a l d e s i g n e d f i n a n c i a l p u r p o s e s c o m p a n y ' s A c o m p a n y ' s t o r e p o r t i n g j - n a c c o r d a n c e w i t h i n t e r n a l p r o v i d e c o n t r o l o v e r r e a s o n a b l e c o n t r o l o v e r a s s u r a n c e f i n a n c i a L r e p o r t i n g r e g a r d i n g t h e s t a t e m e n t s a n d t h e p r e p a r a t i o n g e n e r a l l y f i n a n c i a l o f a c c e p t e d a c c o u n t i n g r e l i a b i l i t y i s a p r o c e s s o f f o r e x t e r n a L p r i n c i p l e s . t h o s e p o l i c i e s A f i n a n c i a l r e p o r t i n g i n c l u d e s F - 2 ftrcWnrwou5{crlrcRs @ t o t h e m a i n t e n a n c e a n d f a i r l y r e f l e c t t h e c o m p a n y ; ( i i ) p r o v i d e a r e r e c o r d e d a s n e c e s s a r y t o p e r m i L p r e p a r a t i o n i n a c c o r d a n c e w i t h g e n e r a l l y a c c e p t e d a c c o u n t i n g ( i ) t h a t d e t a i l , p e r t a i n a c c u r a t e l y t h e a s s e t s o f o f t r a n s a c t i o n s a n d p r o c e d u r e s r e a s o n a b l e d i s p o s i t i o n s t h a t s t a t e m e n t s that a c c o r d a n c e w i t h a u t h o r i z a t i o n s ( i i i ) u n a u t h o r i z e d c o u l d h a v e a m a t e r i a l e f f e c t o n t h e r e a s o n a b l e a s s u r a n c e a c q u i s i t i o n , and expenditures receipt s p r o v i d e of the com pany are o f m a n a g e m e n t a n d d i r e c t o r s r e g a r d i n g p r e v e n t i o n o r u s e , o r d i s p o s i t i o n o f t h e c o m p a n y ' s a s s e t s f i n a n c i a l s t a t e m e n t s . o f t h e t h a t , r e c o r d s t r a n s a c t i o n s i n a n d r e a s o n a b l e a s s u r a n c e o f p r i n c i p l e s , a n d in t h e c o m p a n y ; a n d o f t h a t o f t i m e l y d e t e c t i o n bei ng made onl y f i n a n c i a l - B e c a u s e o f i t s i n h e r e n t l i m i L a t i o n s , i n t e r n a L c o n t r o l o v e r f i n a n c i a l r e p o r t i n g m a y n o t p r e v e n t o r d e t e c t m i s s t a t e m e n t s . e v a l - u a t i o n c o n t r o l s m a y b e c o m e i n a d e q u a t e b e c a u s e o f c h a n g e s d e g r e e o f c o m p l i a n c e w i t h o f e f f e c t i v e n e s s t h e p o l i c i e s p e r i o d s f u t u r e t o A l s o , p r o j e c t i o n s t o t h e a r e s u b j e c t r i s k i n c o n d i t i o n s , o t t h a t o f a n y t h a t t h e o r p r o c e d u r e s m a y d e t e r i o r a t e . 1/'p M a r c h 1 3 , 2 0 0 8 F - 3 VAIJHI, INC. AIID SUBSIDTARIES CONSOIJIDATED BAI.,AIICE SHEETS ( f n m i l l i o n s ) A S S E T S C u r r e n t a s s e t s : c a s h e q u i v a l e n t s Cash and cash equivalents R e s t r i c t e d M a r k e t a b l e s e c u r i t , i e s Accounts and other Refundabl-e income R e c e i v a b l - e f r o m a f f i l - i a t e s I n v e n t o r i e s , Prepaid expenses and other Deferred income ta xes taxes n e t recei vabl-es, net D e c e m b e r 3 1 , 2 0 0 5 2 0 0 7 $ L 9 e . 2 9 . L 7 2 . 6 2 2 8 . 3 1 , . g . 8 3 0 9 . 0 I 7 . 9 1 0 . 5 $ 1 3 8 . 3 7 . 2 7 . 2 2 4 L . 4 7 . 7 4 . 6 3 3 7 . 9 L 6 . 2 1 0 . 4 Total- current assets 7 7 9 . 4 7 7 0 . 9 O t h e r a s s e t s : i n a f f i l - i a t e s Marketabl-e securities I n v e s t m e n t P e n s i o n a s s e t Goodwi l- l- O t h e r Deferred O t h e r a s s e t s i n t a n g i b l e income Laxes a s s e t s 2 5 9 . 0 3 9 6 . 7 4 0 . 1 3 8 5 . 2 3 . 9 2 6 4 . 4 6 4 . 7 3 1 9 . 8 L 3 7 . 9 4 7 . 6 4 0 5 . 8 2 . 7 L 6 8 . 7 6 7 . 3 T o t a l - o t h e r a s s e t s r , 4 L 4 . 0 1 , 1 5 0 . 8 and equipment : Property Land Buildings Equipment Mining properti es Construction in progress Less accumulated depreciation 4 2 . L 2 4 2 . 2 9 2 8 . 4 3 0 . 7 2 0 . 6 1 - , 2 6 4 . 0 6 5 2 . 7 4 8 . 2 2 7 7 . L 1 , 0 5 1 . 9 3 9 . 8 4 8 . 9 L , 4 5 5 . 9 7 8 4 . 6 Net property and equipment 5 1 1 . 3 5 8 1 . 3 T o t a l - a s s e t s fi2_-BpL-l s 2 , 5 0 3 . 0 F - 4 VAI,HI, INC. AI{D SUBSIDIARIES CONSOLIDATED BALAI\TCE SHEETS (CONIINUED) ( I n m i L l i o n s , e x c e p t s h a r e d a t a ) LIABII,ITIES A}ID SToCKHoLDERS I EQUTTY C u r r e n t l i a b i l i t i e s : of long-term debt, $ Current. maturities Account s payable A c c r u e d l i a b i l i t i e s P a y a b l e t o a f f i l - i a t e s Income taxes Deferred incom e ta xes T o t a ] c u r r e n t l i a b i l i t i e s N o n c u r r e n t l i a b i l i t i e s : Long-term debt Deferred incom e ta xes Accrued pensj-on costs A c c r u e d p o s t r e t i r e m e n t Accrued environmental- Other b e n e f i t s c o s t costs D ecember 31, 2 0 0 6 2 0 0 7 1 . 2 1 0 1 . 8 L 7 9 . 7 1 7 . 2 1 t _ . 1 - 2 . 2 2 5 3 . 2 7 8 5 . 3 4 7 9 . 2 r - 8 8 . 7 3 3 . 5 4 6 . L 2 8 . r $ 1 5 . 8 1 1 5 . 5 L 3 3 . 2 1 9 . 0 9 . 8 3 . 3 2 9 7 . 7 8 8 9 . 8 4 0 2 . 8 L 4 0 . 0 3 3 . 5 4 0 . 3 8 9 . 9 Total- noncurrent liab ilit.ies 1 , 5 5 1 . 0 L , 5 9 6 . 4 M i n o r i t y i n t e r e s t i n n e t a s s e t s o f s u b s i d i a r i e s L 2 3 . 7 9 0 . 5 S t o c k h o l - d e r s ' e q u i t y : P r e f e r r e d s t o c k , $ . 0 1 p a r v a l u e ; 5 , 0 0 0 0 a n d 5 , 0 0 0 s h a r e s s h a r e s a u t h o r i z e d ; i s s u e d C o m m o n s t o c k , $ . O t p a r v a l u e ; l - 5 0 . 0 m i l l i o n s h a r e s a u t h o r i z e d ; m i l - l - i o n s h a r e s i s s u e d l - 1 8 . 9 m i l l - i o n a n d 1 1 8 . 4 p a i d - i n A d d i t i o n a l Retained earnings Accumulated other comprehensiv e T r e a s u r y s t o c k , d t c o s t c a p i t a l i ncome (l oss ) 4 . 0 m i l l i o n a n d 4 . 0 m i l - l i o n s h a r e s Total stockhol-ders' egui ty 6 6 7 . 3 L . 2 1 0 . 4 ( 7 4 . L ) s 1 . 5 ( 3 7 . e ) 5 1 8 . 4 r . 2 1 - 0 7 . 4 8 3 9 . 2 ( 4 3 . 1 ) ( 3 7 . e ) 8 5 5 . 8 T o t a l l i a b i l i t i e s , s t o c k h o l - d e r s ' e q u i t y m i n o r i t y i n t e r e s t a n d 92- 394- 1 $2._6_A3._q C o m m i t m e n t s a n d c o n t i n g e n c i e s ( N o t e s 4 , 9 , a 2 , 1 6 a n d L 7 ) S e e a c c o m p a n y i n g N o t e s t o C o n s o l i d a t , e d F - 5 F i n a n c i a f S t a t e m e n t s VAI,HI, INC. AI\TD SUBSIDIARIES CONSOI,IDATED STATEMEIflTS OF OPERATIONS ( r n m i l l i o n s , e x c e p t p e r s h a r e d a t a ) Years 2 0 0 s ended December 2 0 0 6 3L, 2007 Revenues and other incom e: Net sal-es Other Equit,y income, net in earnings of : $ 1 , 3 9 2 . 8 6 8 . 0 $ a , 4 8 1 . 4 8 9 . 9 $ 1 , 4 9 2 . 2 4 2 . 3 T i t a n i u m M e t a l - s C o r p o r a t i o n Other ( " T I M E T " ) 5 4 . 9 3 . 5 1 0 1 . 1 3 . 8 2 6 . 9 L . 7 Total- revenue and other income 1 , 5 2 9 . 3 L , 6 7 6 . 2 1 , 5 5 3 . 1 C o s t a n d e x p e n s e s : Cost of goods sol-d Sellirg, Loss on prepayment of debt I n t e r e s t gene ral and admi nistrative L , Q 4 2 . 7 2 r 9 . 7 6 9 . 2 L , L 3 g . 4 2 2 9 . 4 2 2 . 3 6 7 . 6 L , 2 0 6 . 3 2 3 8 . 4 5 4 . 4 Total costs and expenses 1 , 3 3 1 . 0 1 _ , 4 5 8 . 7 1 , 5 0 9 . 1 Income before ta xes Provision for incom e ta xe s M i n o r i t y i n t e r e s t i n a f t e r - t a x e a r n i n g s ( l o s s e s ) 1 9 8 . 3 r 0 4 . 6 2 L 7 . 5 5 4 . 0 5 3 . 8 1 0 3 . 2 1 l _ . 5 L 2 . 0 ( 3 . s ) rncome (lo ss) from contin uing operations Discontinued operations, net of tax 8 2 . r ( . 2 ) I 4 T . 7 ( 4 s . 7 ) N e t i n c o m e ( l o s s ) $_____!rJ i___]4U $___l_15J) N e t i n c o m e ( f o s s ) p e r s h a r e : B a s i c D i l u t e d Cash dividends Der share Weighted average shares outstanding: B a s i c Dil -uted s___-.€9 $____.59 $___Jq s 1 . 2 2 $ 1 . 2 0 s . 4 0 s ( . 4 0 ) $__L_1s) s . 4 0 L ] - 8 . 2 l - t _ 8 . 5 l _ 1 5 . 1 l - 1 6 . 5 L L 4 . 7 . 7 L L See accompanying Notes to C onsol -idated Fj -nanci al- S tatement s. F - 5 VALHI, INC. AIID SI'BSIDIARTES CONSOI,IDATED STATE}fENTS oF CoMPREHENSTVE TNCOME (I.,OSS) ( I n m i l l i o n s ) Years ended December 31 2 0 0 5 2 0 0 6 2 0 0 7 N e t i n c o m e ( l o s s ) $ 8 1 . e . 7 # 1 , 4 1 , $ ( 4 s . 7 ) Ot ,her comprehensiv e incom e (l-oss), net of M a r k e t a b l e s e c u r i t i e s Currency translation D e f i n e d b e n e f i t p e n s i o n p l a n s O t h e r p o s t r e t i r e m e n t b e n e f i t p l a n s ( 1 . 3 ) ( 2 s . 3 ) ( 2 4 . 2 ) 2 . 0 2 7 . 5 5 . 6 Total- other comprehensiv e inco me (l -oss ) , net ( s 0 . 8 ) 3 5 . 1 2 3 . 3 2 9 . 4 3 2 . L . 6 8 5 . 4 Comprehens ive j-ncome $ 3 l - . 1 $us_.'-g s 3 9 . 7 F - 7 VAI,HI, INC. AI{D SITBSIDIARIES CONSOI,IDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (COr.rrrNUED) ( I n m i l l i o n s ) Years ended December 3L, 2 0 0 6 2 0 0 s 2 0 0 7 Accumul-ated other comprehensive income ( n e t o f t a x ) : Marketabl-e securities : Bal-ance at begi nning of year Other comprehensi ve T I M E T d i s t r i b u t i o n Balance at end of year income (los s) C u r r e n c y t r a n s l a t i o n : Balance at begi nning of year Other comprehensi ve T I M E T d i s t r i b u t i o n Balance at end of year income (los s) M i n i m u m p e n s i o n l i a b i l - i t i e s : Bal-ance at begi nning of year Other com prehensive Adoption of SFA S No. income l-5 8 (los s) $ 5 . 2 2 3 . 3 ( 2 . 4 ) # 2 7 . L $ 3 e . 1 2 9 . 4 ( 4 . 0 ) s 5 4 . s $ s . s ( 1 . 3 ) 4 . 2 2 . 0 6_j-2 6___5-2 $ 3 5 . 9 ( 2 s . 3 ) $ 1 1 _ . 5 2 7 . 5 $__1f,5 $19_J $ ( s : . g ) ( 2 4 . 2 ) $ ( 7 8 . 1 ) 5 . 5 7 2 . 5 BaLance at end of year $ircJ) $_ $------:- D e f i n e d b e n e f i t p e n s i o n p l a n s : Balance at begi nning of year Other com prehensive income (los s) : Amortization of prior service in net periodic cos t and net pens ion l-osses incl-u ded c o s t Net actuari al gain arisin g d uring year Adoption of SFA S No. 158 T I M E T d i s t r i b u t i o n Ba]ance at end of year ( 8 s . 0 ) D - O P E B p l a n s : Bal-ance at beginning Other com prehensive of year incom e (l-os s) : Amortization of prior service in net periodi c cos t and net pens ion l-osses incl-u ded c o s t Net actua rial- gain arisin g d uring year Adoption of SFAS No. 158 T I M E T d i s t r i b u t i o n Ba]ance at end of vear Tot al accumulated other comprehens iv e i n c o m e ( l o s s ) : Bal-ance at begi nning of year ot.her comprehensiv e Adoption of SFAS No. 158 T I M E T d i s t r i b u t i o n Balance at end of year incom e (los s) ( 3 . 4 ) $_ $__(f=-4) $ ( 1 1 . s ) ( s 0 . 8 ) $ ( 6 2 . 3 ) 3 5 . l - ( r - s . e ) $1-62r) $l_13J) S e e a c c o m p a n y i n g N o t e s t o C o n s o l i d a t e d F - 8 F i n a n c i a l - S t a t e m e n t s . $ ( 8 s . 0 ) 4 . L 2 8 . 0 L . 2 L 2 . 9 s-t3.9--gl $ ( 3 . + ) . 5 1 . 5 E-tul $ ( 4 3 . 1 ) 8 5 . 4 L . 2 8 . 0 $-11-5 2 . 6 7 8 $ ) e . 7 3 ( $ ) 5 . 1 1 ( $ 4 . 3 1 8 $ o . L _ 1 1 $ 2 . 1 $ I I a , t o T y t i u q e s r e d l o h k c o t s r e h t o d e t a l u m u c c A k c o t s y r u s a e r T ) s s o l ( e m o c n i e v i s n e h e r p m o c d e n i a t e R s g n i n r a e n i - d i a p l a n o i t i d d A n o n m r o C d e r r e f e r P l a t i p a c k c o t s k c o t s Y T I U Q E I S R E D , I O H K C O T S F O S T , f I E M E T A T S D E T A D I . I O S N O C 7 0 0 2 d n a 6 0 0 2 , 5 0 0 2 , L 3 r e b m e c e D d e d n e s r a e Y S E I R A I D I S B U S D I I A . C N I ' f H L A V ) s n o i l l i m n I ( 9 . _ 1 8 ) 8 . 8 4 ( ) 8 . 0 s ( ) r . 2 6 ( 0 . 1 4 . 7 9 7 ) 0 . 8 4 ( 7 . - 1 4 1 - 1 . 5 3 ) e . s 1 ( ) 8 . 3 4 ( 3 . 8 . 6 5 8 ) 7 . ) 5 . ) 4 . s 4 ( s 4 ( 7 e 8 ( ) 5 . 1 ( ) 0 . 1 ( 4 . 5 8 3 . 7 5 6 ) - 1 . 1 1 ( 3 . 1 ) r . 2 6 ( r . 2 5 ) e . 7 3 ( ) 3 . 2 6 ( ) 8 . 0 s ( ) 8 . 3 4 ( 8 . 3 4 ) e . 7 3 ( ) 1 . 1 1 ( 1 . _ r 1 1 . 5 3 ) e . s 1 ( ) 1 . 3 4 ( o . t 2 . L 4 . 5 8 9 . 1 8 ) 8 . 8 4 ( ) e . 8 s ( 6 - 7 8 7 ) 0 . 8 4 ( 7 - . 1 4 - 1 ) - 1 . 2 4 ( 2 . 9 3 8 ) 7 . s 4 ( ) 4 . - r 1 ( ) 4 . 0 s 8 ( ) 6 . 1 ( ) 2 . 2 ( ) 2 . 3 ( 0 . 1 ) 2 . 4 G ) 0 . 5 s ( ) e . _ r ( ) 1 . ( ) 2 . e ( 4 . L 8 . 8 0 1 2 - - 1 5 0 0 2 , L 3 r e b m e c e D t a e c n a - l a B 3 . l z . r t 8 5 1 . o N S A F S g n i t n u o c c a n i e g n a h C n o i t i n g o c e r y t i l i b a i l d n a t e s s a 8 5 1 . o N S A F S f o s n o i s i v o r p t e n , e m o c n i e v i s n e h e r p m o c s d n e d i v i d h s a C r e h t O e m o c n i t e N : k c o t s y r u s a e r T d e r i u q c A d e r i t e R t e n , r e h t O 4 . 7 0 r 2 . - 1 6 0 0 2 , 1 3 r e b m e c e D t a e c n a - l a B 3 . 7 6 6 t e n , e m o c n i e v i s n e h e r p m o c r e h t O k c o t s d e r r e f e r p f o e c n a u s s I e t a d t n e m e r u s a e m - 8 5 1 . o N S A F S 8 4 . o N N I F s n o i s i v o r p k c o t s n o m m o c T E M I T f o d n e d i v i D : g n i t n u o c c a n i e g n a h C s d n e d i v i d h s a C s s o l t e N : k c o t s y r u s a e r T d e r i u q c A d e r i t e R t e n , r e h t O 4 O O 2 , a 3 r e b m e c e D t a e c n a l a B t e n , s s o l e v i s n e h e r p m o c s d n e d i v i d h s a C r e h t O e m o c n i t e N : k c o t s y r u s a e r T d e r i u q c A d e r i t e R t e n , r e h t O J ! f 6 _ _ $ ) J f 3 $ l 5 . - J 5 AD ) r . + z ( $ a . o r S 2 - r $ 3 . _ l s s i 7 o o 2 , 1 3 r e b m e c e D t a e c n a l a B 9 - F . s t n e m e t a t S l a i c n a n i F d e t a d i - l o s n o C o . t s e t o N g n i y n a p m o c c a e e S VALHI, INC. AIID SIIBSIDIARIES CONSOI,IDATED STATEMEMTS OF CASH FI,OWS ( I n m i l l i o n s ) Years ended December 3L, 2 0 0 6 2 0 0 5 2007 C a s h f l o w s f r o m o p e r a t i n g a c t i v i t i e s : N e t i n c o m e ( l o s s ) D e p r e c i a t i o n S e c u r i t i e s W r i t e - o f f Loss on prepayment of debt Call premium paid on red empti on of a n d a m o r t i z a t i o n n e t i n t e r e s t t r a n s a c t i o n s , o f a c c r u e d r e c e i v a b l , e S enio r S ecured Notes Loss (gain) on disposal of property and equipment Noncash interest B e n e f i t p l a n e x p e n s e g r e a t e r : cash fundin g req uirements expense ( l e s s ) t h a n D e f i n e d b e n e f i t p e n s i o n e x p e n s e Other postretiremenE i n c o m e t a x e s : operations benefit D e f e r r e d Continuing D i s c o n t i n u e d o p e r a t i o n s i n t e r e s t : M i n o r i t y e xpens e Continuing Discontinued i n : E q u i t y operations operations TIMET Other N e t d i s t r i b u t i o n s f r o m TiO2 manufacturing Other O t h e r , n e t C h a n g e i n a s s e t s a n d l i a b i l i t i e s : joint Account s and other n e t f n v e n t o r i e s , A c c o u n t s p a y a b l e a n d a c c r u e d Income taxes A c c o u n t s w i t h a f f i l i a t e s Other noncurrent O t h e r n o n c u r r e n t O t h e r , n e t assets l i a b i l i t i e s ( c o n t r i b u t i o n s ventu re t o ) : receivabl-es, net l i a b i l i t i e s $ 8 1 . e 7 4 . 5 ( 2 0 . 3 ) , : . , L . 6 3 . 0 ( 6 . 4 ) ( 3 . 0 ) 4 2 . 7 ( . 7 ) 1 1 . 5 ( . 2 ) ( 6 4 . e ) ( 3 . 5 ) 4 . 9 l - . 0 - . J ( 4 . r ) ( 4 8 . e ) . 7 L 6 . L 3 . 8 ( 4 . 6 ) ( 2 . 3 ) ( . 4 ) $ t 4 L . 7 7 2 . 5 t ) \ . E \ / 2 2 . 3 ( 2 0 . e ) ( 3 s . 3 ) 2 . 0 l F ( 5 . 5 / ^ \ l n t t h l \ + . J ' - \ 3 7 . 3 1 2 . 0 $ ( 4 s . 7 ) 5 5 . 3 : ' ' 1 - . 3 L . 5 ( 4 . 6 ) . 9 ' : . n ( 3 . s ) ( 1 _ 0 1 . 2 ) ( 3 . 8 ) ( 2 6 . e ) ( 1 . 7 ) 2 . 3 2 . 3 1 . 0 8 . 2 ( 3 . 8 ) ( 5 . 8 ) ( 2 r . 1 ) L . 4 5 . 0 ( 1 3 . 8 ) ( 8 . s ) ( 4 . e ) 1 . 0 1 . 9 9 . 1 3 . 9 ( 4 . 8 ) ( e . 5 ) ( 2 . 0 ) ( 2 . 7 ) ( 4 . 3 ) L . 7 Net cash pro vided by operatin g act iv iti es $ 1 0 4 . 3 $ e a . s $ 5 3 . s F - 1 0 VAI,HI, INC. A}ID SIIBSTDIARIES CONSOIIIDATED STATEIIENTS OF CASH FI.'OWS (COI.ITINUED) ( I n m i l l i o n s ) C a s h f l o w s Capital P u r c h a s e s o f : f r o m i n v e s t i n g exp enditures Years ended December 3L, 2 0 0 5 2 0 0 6 2 0 0 7 a c t i v i t i e s : $ ( o z . a ) $ ( 5 3 . 8 ) $ ( 6 3 . 8 ) Kronos common stock TIMET common stock CompX common stock NL common stock B u s i n e s s u n i t s Marketabl-e securities C a p i t a l i z e d P r o c e e d s f r o m d i s p o s a l o f : p e r m i t c o s t s and equipment Marketabl -e securities Property Business unit, Kronos common stock Interest j-n Norwegian smelting operat ion net cash equi val ents, l-o an to Snake River S uqar Change in restricted Collection Company of C a s h o f d i s p o s e d b u s i n e s s u n i t L o a n s t o a f f i l - i a t e s : Loans C o l l - e c t i o n s O t h e r , n e L ( 7 . 0 ) ( 1 8 . 0 ) ( 3 . 5 ) ( 7 . 3 ) ( 2 e . 4 ) ( 4 . 1 ) l . 9 . 7 . 6 1 8 . 1 ] - 9 . 2 3 . 5 ( 1 . 8 ) 8 0 . 0 ( 4 . 0 ) ( 1 1 . 0 ) 2 5 . 9 2 . 4 ( 2 s . 4 ) ( t _ 8 . 7 ) ( 2 . 3 ) ( . 4 ) ( e . 8 ) ( 4 3 . 4 ) ( 8 . 3 ) 4 2 . 9 3 9 . 4 - ( 2 . e ) ( . 7 \ { 3 . 3 ) ( 2 3 . 3 ) ( 7 . 1 ) 2 8 . 5 ' ' : 2 . 4 3 . 2 1 . 3 Net cash provi ded by (used in) i nves ting a c t i v i t i e s 2 0 . 4 ( 8 e . s ) ( 5 s . 4 ) C a s h f l - o w s f r o m f i n a n c i n g a c t i v i t i e s : I n d e b t e d n e s s : Borrowings Principal D e f e r r e d payments f i n a n c i n g c o s t s p a i d Valhi cash divide nds paid D i s t r i b u t i o n s t o m i n o r i t y Treasury stock acquired NL common stock issued Issuance of Val hi common stock a nd other , net i n t e r e s t 5 7 . 0 ( s + . 2 ) ( . 1 ) ( 4 8 . 8 ) ( 1 2 . 0 ) ( 6 2 . 7 ) 2 . 5 L . 9 7 7 2 . 7 ( 7 s 1 . 6 ) ( e . 0 ) ( 4 8 . 0 ) ( 8 . e ) ( 4 3 . 8 ) . t _ . 9 N e t c a s h u s e d i n f i n a n c i n g a c t i v i t i e s ( t _ t _ s . 8 ) ( 8 7 . 6 ) N e t i n c r e a s e ( d e c r e a s e ) $ e . g $ ( e 0 . 8 ) 3 3 1 . 1 ( 3 2 4 . 4 ) ( 4 s . 5 ) ( 8 . s ) ( 1 1 . 1 ) 2 . 4 * - , s ( s 8 . 0 ) F - 1 1 vAr.Hr, rNc. Al{D SI'BSTDTARIES CoNSoIJIDATED STATEMEIflIS OF CASH FLOWS (COT.ITTNUED) ( I n m i l l i o n s ) Years ended December 31, 2 0 0 5 2 0 0 6 2 0 0 7 Cash and cash equi val ents - net change from : Operatirg, investing and fi nancing a c t i v i t i e s C u r r e n c y t r a n s l - a t i o n N e t c h a n g e f o r t h e y e a r $ 8 . 9 ( 1 . 7 ) 7 . 2 $ ( 9 0 . 8 ) 5 . 0 ( A S . e ) $ ( 5 8 . O ) 7 . L ( 5 0 . 9 ) Balance at begin ning of year 2 6 7 . 8 2 7 5 . 0 L 8 9 . 2 Bal-ance at end of year $ 2 r 5 - ! $ I € e J 5 1 3 8 . 3 Supplement al- discl-osures : C a s h p a i d f o r : I n t e r e s t , n e t o f a m o u n t s c a p i t a l i z e d I n c o m e t a x e s , n e t $ 5 5 . 0 5 4 . I $ 5 7 . 9 4 2 . 9 $ 6 2 . s 3 2 . 3 N o n c a s h i n v e s t i n g Note receivabl-e a c t i v i t i e s received upon : d i s p o s a l o f b u s i n e s s u n i t Inventories c o n s i d e r a t i o n interest o p e r a t i o n recei ved as partial f o r d i s p o s a l o f in Norwegian smeltin g A c c r u a 1 s f o r c a p i t a l e x p e n d i t u r e s N o n c a s h f i n a n c i n g a c t i v i t i e s : Dividend of TfMET comm on stoc k I s s u a n c e o f p r e f e r r e d i n s e t t l - e m e n t o f I ss uan ce of note payable s t o c k t a x o b l i g a t i o n to TIME T f o r a c q u i s i t i o n o f m i n o r i t y i n t e r e s t 4 . 2 1 . 9 9 . 7 897.4 6 6 7 . 3 5 2 . 6 S e e a c c o m p a n y i n g N o t e s t o C o n s o l - i d a t e d F - 7 2 F i n a n c i a l S t a t e m e n t s . VAIJHI, INC. AIID SI'BSIDIARIES NOTES TO CONSOI,IDATED FINA}TCIAIJ STATE!{ENTS D e c e m b e r 3 L , 2 0 0 7 Note 1 - Sununary of signif icant account,ing policies: IVature of our business. V alhi , Inc . (my sp: V HI) i s pri mari ly a hol di ng r n d u s t r i e s , N L company. We operate i n c l u d i n g I n c . , 2 6 , ( " t t l t n t " ) Kronos r e p o r t s w i t h 2 0 0 7 w e w e r e (NYS E: KRo) , NL T r e m o n t L L C a n d W a s t e C o n t r o l - S p e c i a l i s t s I n c . , th rough our w hol-l y-ow ned and maj orit y-ow ned K r o n o s W o r l d w i d e , subs idi ari es, C o m p X f n t e r n a t i o n a l I n c . , L L C ( " W C S " ) s h a r e h o l - d e r o f T i t a n i u m M e t a l - s C o r p o r a t i o n l a r g e s t P r i o r t o M a r c h t h e a l t h o u g h w e o w n e d l e s s t h a n a m a j o r i t y (NY SE: NL) , and C ompX (N YS E : C IX) each i n t e r e s t . S e e N o t e 3 . f i le peri od ic t h e S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n ( * S E C " ) . Organization. We are maj ori ty ow ned by a sub sid iary which owns approximat ely Corporation, D e c e m b e r 3 1 , 2 0 0 7 . h e l d grandchil-dren o r Simmons. Consequently, Mr. Sim mons may be deemed to con trol- C ontran and us. of Harold C. Simmo ns (for w hic h Mr. S immo ns i s b y M r . S i m m o n s o r o t h e r p e r s o n s o r r e l a t e d a l l o f C o n t r a n ' s o u t s t a n d i n g c e r t a i n 93t of our outs tanding i s h e l d d i r e c t l y S u b s t a n t i a l l y e s t a b l i s h e d c h i l - d r e n the sol -e trus tee) c o m p a n i e s t o M r . b e n e f i t t r u s t s s t o c k t h e f o r b y o f of C ontr an com mon st ock at i s v o t i n g a n d Unl-ess otherwise " o 1 l r " r e f e r t o V a l h i , indicated, ref erenc es I n c a n d i t s s u b s i d i a r i e s , i n t.h is to t a k e n a s a w h o l - e . report " we, " \\l f s " or Management' s esti mates. Th e prepar ation in confo rmity with account ing pri nci ples o f A m e r i c a ( " G A A P " ) , r e q u i r e s t.he rep orted amount s of our ass ets and l iabi li ti es a s s e t s a n d l i a b i l i t i e s general ly of our C onsol -idat ed Fi nanci al- t he a n d a nd a t e a c h b a l - a n c e s h e e t d a t e a n d t o m a k e e s t i m a t e s acc epted u s i n reported amou nts of our revenues and exp enses duri ng each report ing peri od . significantl y from prev ious ly -esti m ated amount s und er S t a t e s Statements U n i t e d assumptions d i s c l o s u r e s the Act.ual- resul-ts may differ d i f f e r e n t th at affect o f c o n t i n g e n t a s s u m p t i o n s o r c o n d i t i o n s . PrincipTes of fi nancial- consolidation. positi on, the incl-ude and our maj ori ty-owned material interco mpany accounts and bal -ances . r esul ts of operat ions and cas h and wh ol-1y -owne d subs idi ari es . Our con sol -idated f i nanci al- st atemen ts fl ows of V alhi a ll W e el -im inate We accou nt fo r incre ases in our ow nershi p i nteres t shares of subsidiaries additional- s h a r e s o f c o m m o n s t o c k , otherwise noted, the carrying for decreases equity method (eith er parties net carrying ownership e x e r c i s e s , val-ue of interest, i s g e n e r a l l y income equal to and equity method th eir i nvest ees, comm on st ock or ei ther thro ugh t h e p u r c h a s e m e t h o d such purchase accou nting general ly b y amou nt of good wi ll in our owne rshi p investees f or our con sol idated i nteres t th rough by us or by our subs idi ary ) betw een cas h sal e th e difference shares th e sol d. which is usual ly n o t m a t e r i a l - . The eff ect the res ul-t S e e N o t e l - 8 . the proc eeds throu gh of our con sol idated our purc hase thei r ( s t e p a c q u i s i t i o n ) purc hase of res ul-t s i n an adj ustment sub sid iari es. thei r . of o wn U n ] e s s t o W e acc ount and thi rd a gai n or in from suc h sal e and t he i n our opti ons of other decr eases of empl oyee st ock l oss of our cons ol- idated of thei r by rec ogniz ing com mon st ock subs idi ari es to Foreign currency t,ranslat,ion. The f inancial- statements a r e o f s u b s i d i a r i e s o f S t a t e m e n t Currency Tran sl-ation." generally a s s e t s a n d l i a b i l - i t i e s the t r a n s l - a t e d t o U . S . d o l l - a r s i n a c c o r d a n c e w i t h F i n a n c i a l - A c c o u n t i n g S t a n d a r d s ( " S F A S " ) N o . 5 2 l-o cal currency The fu nctio nal- of the cou ntry. cur rency of our sub sid iari es A ccor dingl y, tran sla te r a t e s o f e x c h a n g e , w h i l - e w e t r a n s l - a t e fore ign w € a t y e a r - e n d f oreign of our t h e p r o v i s i o n s " F o r e i g n is t he t h e i r F - l - 3 revenues and expenses at average exchange rates prevailing accumul-at e th e part of accum ul-ated other income taxes and mino rity a n d l o s s e s translati on comprehens iv e adj ustment s i ncome W e rec ogniz e resulting interes t. i n c o m e . i n i n during st ock hol-ders ' the year. We as equi ty (l oss ) , net of cur rency rel ated tran sact ion defer red gains Derivatives and hedgi ng aet, iv iti es. W e rec ogniz e deri vat ives as ei ther a n a s s e t o r Accounting i n t e r p r e t e d . derivatives t h e l i a b i l i t y f or Deriva tive m e a s u r e d a t f a i r In st.ruments w e either r e c o g n i z e in net t h e d e r i v a t i v e . t h e e f f e c t income or other i n t e n d e d u s e o f v a 1 u e i n a c c o r d a n c e w i t h S F A S N o . 1 3 3 , as amended a nd and H edging A cti vi ties , o f f a i r c h a n g e s i ncome, dependi ng on com prehensi ve v a l u e t h e o f i n Cash and cash equivalents. We cl-assify bank with ori ginal matur iti es time deposits of thre e months or and government l -ess and commercial notes and bill s a s c a s h e q u i v a l e n t s . l i m i t e d t o a r e c o g n i z e d Restricted c a s h e q u i v a l e n t s a r e o t h e r w i s e a m o u n t r e l - a t e s c u r r e n t o r n o n c u r r e n t a c c o r d i n g t h e a m o u n t d o e s n o t r e s t r i c t e d c a s h a s a c u r r e n t s e c u r i t y d a t e o f a s e i t h e r t h e s e c u r i t y . r e s t r i c t e d a c u r r e n t and marketable cash equivalents a n d m a r k e t a b l e d e b t s e c u r i t i e s debt securit,ies. t h a t . h a v e b e e n s e g r e g a t . e d o r We classify i n u s e a s r e s t r i c t e d . T o l i a b i l i t y , w € c l - a s s i f y t h e e x t e n t t h e t h e r e s t r i c t e d r e s t r i c t e d a m o u n t a s t h e c o r r e s p o n d i n g t o r e l a t e a s s e t a n d w e c l - a s s i f y t o a r e c o g n i z e d l i a b i l i t y . l i a b i l i t y , t h e T o t h e e x t e n t w € c l a s s i f y r e s t r i c t e d d e b t o r n o n c u r r e n t a s s e t d e p e n d i n g u p o n t h e m a t u r i t y S e e N o t e s 4 a n d 7 . Marketable as otherwise securities inputs and equity inputs as defined 3 r e a l - i z e d g a i n s a n d g a i n s u n r e a l i z e d accumul-ated other a n d m i n o r i t y i d e n t i f i c a t i o n i n t e r e s t . o f securities; at fa ir securities transactions. val -ue bas ed upon quoted mark et pri ces , We carry marketabl-e debt Leve 1 1 in SFA S No. 1-57, Fai r V aLue Meas urements , ot Lev el 2 or Lev el a nd unreal i zed W e a c c u m u l a t e o f taxes l - o s s e s a r e b a s e d o n s p e c i f i c l -9 . W e rec ogniz e i n c o m e . s e c u r i t i e s defer red i ncome, net of a n d a n d comprehensiv e l - o s s e s o n a v a i l a b l e - f o r - s a l e a s p a r t i ncome l o s s e s o n discl-o sed. s e c u r i t i e s S ee N ote R e a l i z e d t r a d i n g rel ated g a i n s i n t h e s e c u r i t i e s s o l d . Accounts receivable . We provide k n o w n a n d e s t i m a t e d p o t e n t i a l - o n a p e r i o d i c r e v i e w o f t h e s e a c c o u n t s . l o s s e s a r i s i n g an al- l-owance f or doubt f ul- account s f or f r o m o u r s a l - e s t o c u s t o m e r s b a s e d or market, g e n e r a l l y m e t h o d . f i n i s h i n g , Inventories and cost of sale s. W e st ate at obso l-ete and sl -ow -movi ng i nventor ies the i nventori es l ower of cost . We net of al-l-owance fo r b a s e O u r c o s t u t i l i t i e s , c o s t s o n a v e r a g e c o s t o r i n v e n t o r y o f s a l a r y a n d b e n e f i t s , m a i n t e n a n c e a n d d e p r e c i a t i o n . t h e f o r m a t e r i a l s , i n c l - u d e s s a l - e s f i r s t - i n , c o s t s p a c k i n g f i r s t - o u t a n d Investment in affiTiates than 2Ot-ow ned but in more method. investment a s s e t s a m o n g t h e a s s e t s a n d rel-ative fair a t D e c e m b e r 3 1 , 2 0 0 7 , o f t o t h e r e l - a t e d n e t a s s e t s . and joint ventures. We account for less than maj ori ty-ow ned com panies by investments the equit y See Note 7 . We al-l-oca te any di f f erenc es betw een share of l i a b i l i t i e s and our pro -rata the enti ty' s t h e e n t i t y o f thes e di fferenc es, sepa rately -rep orted the cos t of each n et b a s e d u p o n e s t i m a t e d w hic h w ere not mate rial val-u es. We amortize i n c o m e a s t h e e n t i t i e s d e p r e c i a t e , a m o r t i z e o r d i s p o s e g o o d w i l l f o r G o o d w i T T a n d O t h e r o v e r f a i r a c c o u n t e d a m o r t : - z a t i o n . v a l - u e o f f o r b y GoodwiTT and other a n d o t h e r intangible i n t a n g i b l e ass ets ; amort iz at,i on a s s e t s i n a c c o r d a n c e w i t h S F A S N o . 1 - 4 2 , exp ense. W e acc ount I n t a n g i b T e A s s e t s . G o o d w i l l r e p r e s e n t s i n d i v i d u a l - n e t a s s e t s a c q u i r e d t h e p u r c h a s e m e t h o d . G o o d w i l l i n b u s i n e s s i s n o t . s u b j e c t t h e e x c e s s o f c o s t c o m b i n a t i o n s t . o p e r i o d i c W e a m o r t i z e o t h e r i n t a n g i b l e a s s e t s b y t h e s t r a i g h t - l i n e m e t h o d F - t - 4 t h e i r o v e r e v a l u a t e g o o d w i l l c a r r y i n g e s t i m a t e d l - i v e s a n d s t a t e f o r i m p a i r m e n t , t h e m n e t o f a c c u m u f a t e d a m o r t i z a t i o n . o r w h e n c i r c u m s t a n c e s i n d i c a t e a n n u a I l y , W e t h e v a l u e m a y n o t b e r e c o v e r a b l e . S e e N o t e B . W e a m o r t i z e i d e n t i f i a b l e o v e r t h e i r e s t i m a t e d u s e f u l A s s e t P a t e n t s C u s t o m e r l i s t s i n t a n g i b l e l i v e s a s f o l - ] o w s : a s s e t s b y t h e s t r a i g h t - I i n e m e t h o d U seful l iv es l - 5 y e a r s 7 t o 8 y e a r s our W aste Management S egment cap ital iz es the t h e c o s t s permits . i n c l - u d e operating c o s t s c o s t s ( i ) $ . 2 m i l l - i o n CapiEalized f o r t h e a c q u i s i t i o n b y t h e A m o r t i z a t i o n s t r a i g h t - l i n e o f c a p i t a l i z e d renewal- appli cation $ z e . q m i l l - i o n o r r e n e w a l o f o p e r a t i n g p e r m i t s a n d a m o r t i z e s t h e a p p l i c a b l e m e t h o d o v e r t e r m o f o p e r a t i n g p e r m i t c o s t s w a s $ . f - m i l - 1 i o n i n o p e r a t i n g f o r agency n e w p e r m i t s w h i c h h a v e d i r e c t t h e s e p e r m i t . e a c h o f 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 . A t D e c e m b e r 3 1 , 2 Q Q 7 , n e t c a p i t a l i z e d p e r m i t which ( i i ) a n d n o t y e t b e e n e x p e c L r e n e w a l o f o c c u r r e l - a t e d r e l a t e d a m o r t i z e c o s t s a u t h o r i t y o f renewal- at t o t o n e w p e r m i t s s u c h c o s t s t o e x p e n s e a t r e j e c t s t h e p r i o r h a v e n o t y e t b e e n t h e p e r m i t ( a ) o f W e c u r r e n t l y p e n d i n g w i l l c o s t s F o r c o s t s ( i ) ( i i ) w r i t e o f f s u c h t h e a p p l i c a b l e t h e d a t e w e d e t e r m i n e A 1 1 o p e r a t i n g p e r m i t s a r e g e n e r a l l y p e r m i t e x p i r e d . i s s u e d , w € w i l l is pendi ng w ith t o a p p l y t . h e a p p l i c a b L e f o r w h i c h r e g u l a t o r y t h e a p p l i c a t i o n a n d w e h a v e b e e n a m o r t i z i n g t h e p e r m i t a p p l i c a t i o n c o u r s e o f b u s i n e s s , t h a t t h e d a t e i s t h e d a t e i s s u a n c e t o i s n o t p r o b a b l e . r e n e w a L s f r o m the appl ic abl-e r e n e w c e r t a i n t h e o r d i n a r y t h e p e r m i t s f o r c e r t a i n t h e e a r l i e r i s s u e d b y t h e p e r m i t gove rnmental t.h e option of i s s u e d o r regul atory a u t h o r i t y . t h e d a t e i n c o s t s r e g u l a t o r y i n c o s t s i s s t i I l p e r m i t s s u b j e c t issuin g e i t h e r t h e s e f r o m agenc y. th e ( b ) o r t o i n Property and equipment; c o s t , t h e a c t u a l - c o n s t r u c t i o n a n y m a t e r i a l - e q u i p m e n t a t a c q u i s i t i o n d u r i n g c a p i t a l i z e d e p r e c i a t i o n o f ( i n c l u d i n g m i n i n g p r o p e r t i e s ) e s t i m a t e d u s e f u l - l - i v e s o f p r o p e r t y i n t . e r e s t depreciation i n c l u d i n g expense. c a p i t a l i z e d We state i n t e r e s t property and o n b o r r o w i n g s W e d i d n o t p e r i o d o f m a j o r c a p i t a l p r o j e c t s . i n 2 0 0 5 , 2 0 0 6 o r 2 0 0 7 . W e c o m p u t . e c o s t s a n d e q u i p m e n t p r i n c i p a l l y f o r f i n a n c i a L r e p o r t i n g b y t h e s t r a i g h t - l - i n e m e t h o d . o v e r p u r p o s e s t h e t h e a s s e t s a s f o ] l - o w s : A s s e t Buildings Machinery and equip ment and imp rovements We expense expenditures incurred planned major mai ntenance. do not that improve U s e f u l l i v e s 1-0 to 3 t o 4 0 y e a r s 2 0 y e a r s for or mai ntenanc e, ext end the repai rs of l ife and mi nor t h e a s s e t s , renew a]s as i n c l u d i n g We have a govern mental - concess ion w ith an unl -im ited i l - m e n i t e m i n e i n N o r w a y . M i n i n g p r o p e r t i e s used i l - m e n i t e acquired l a n d a n d r e s e r v e s in our Norwegian r e s e r v e s for nom inal- value and we hav e no mate rial t o s u c h m i n i n g o p e r a t i o n s . il-menite mi ning operat ions . t h e m i n e , a s s o c i a t e d r e l a t e d w i t h s u c h term c o n s i s t o f b u i l d i n g s W hil e w e ow n the l a n d a n d ass et rec ogniz ed to operat e an a n d e q u i p m e n t l and and r e s e r v e s w e r e t he for W e perform imp airment te sts w hen even ts or value may not be rec overabl -e. W e perfo rm t h e e s t i m a t e d f u t u r e u n d i s c o u n t e d n e t c a r r y i n g v a l - u e t o d e t e r m i n e i m p a i r m e n t o f p r o p e r t y a n d e q u i p m e n t i n chan ges ci rcu mstanc es i mpairm ent c a s h f l o w s a s s o c i a t e d w i t h i m p a i r m e n t i n a c c o r d a n c e w i t h the a n i f the carryin g i ndicate t e s t b y c o m p a r i n g t h e a s s e t e x i s t s . SFAS No. 1'44 , Accounting W e a s s e s s t o t h e a s s e t ' s f or th e Impa irment or D is posaT of Long-Li ved A sse Ls. F - 1 5 L'ong-term debt. We state l ong-term W e c l a s s i f y i s s u e p r e m i u m o r d i s c o u n t . c o s t s a n d a n y p r e m i u m o r d i s c o u n t a s s o c i a t e d w i t h a s i n t e r e s t t e r m o f e x p e n s e , a n d c o m p u t e a m o r t i z a t i o n t h e a p p l i c a b l - e i s s u e . debt net of any unamort iz ed ori ginal f i n a n c i n g a m o r t i z a t i o n i n d e b t e d n e s s t h e t h e b y t h e i s s u a n c e o f i n t e r e s t m e t h o d o v e r o f d e f e r r e d EmpToyee benefit p7ans. r e t i r e m e n t p l a n s a r e d e s c r i b e d i n N o t e s Accounting and l - l - a n d 1 8 . f u n d i n g p o l i c i e s f o r o u r Income taxes. We and our qual ify ing fi le al so j o i n t l y liability for all j u r i s d i c t i o n s . a n d s e v e r a l l y i ncome tax group subs idi ari es i n v a r i o u s U . S . s t a t e consol-idated U.S fe deral- of our quali fying of Contran and th e other periods in which w e are Contran's We and certain r e t u r n s w i t h C o n t r a n C o n t r a n T a x G r o u p , w € a r e tax Group Note 17 . Contran's poli cy fo r that inc1ud ed in i nc ome on a separate payments paid tax authority company provisions C o n t r a n . W e m a d e n e t c a s h p a y m e n t s t o C o n t r a n o f $ . 5 m i l L i o n m i ] l i o n th e had they not been members of and payments are computed using the Contran Tax Group. the th e C ontran Tax Group com pute thei r In te rnal- R evenue S ervi ce or subsidiaries t ax e s inter company al l-oc ati on i n 2 0 0 6 a n d S S . e m i l l - i o n f o r i ncl -uded company basi s. from Contran the amounts com panies Gener all y, payments i ncl -uded i n 2 0 0 7 . t h e i n received receive to or to or l i a b l e from of i n in subs idi ari es (the con so1i dated are member s of " Contran Tax Group ") . i ncome tax t h e i n c o m e the C ontran Ta x the C ontran Tax Group . See A s a m e m b e r o f f e d e r a l - prov is ion subs idi ari es i ncome tax es prov ide s for m ake they woul-d have st ate The separate the appl ic abl-e tax electj-ons made by i n 2 0 0 5 , # 1 . 2 i n c o m e t a x a s s e t s a n d l i a b i l i L i e s t e m p o r a r y d i f f e r e n c e s t h e s t a t e m e n t s a n d i n o u r s u b s i d i a r i e s th e Contran Tax Group and undi stri buted r e i n v e s t e d . t h e e x c e s s o f th e th e exemption under GA AP to avoi d tax bas is of our di rect i s n o t a v a i l - a b l e t o u s . T h e e a r n i n g s r e i n v e s t m e n t t h e a m o u n t w a s # 7 4 5 m i l l i o n ) . th e amount of the unrec ogniz ed of f o r I n a d d i t i o n , b e t w e e n a m o u n t s r e c o r d e d a n d a f f i l i a t e s earni ngs t h e e x p e c t e d i n t a x b a s i s o f o u r a s s e t s a n d w h o a r e fore ig n w e r e c o g n i z e r e p o r t i n g i n K ronos of such f o r e i g n p l a n s a g g r e g a t e d $ 7 2 0 m i l - l i o n i s n o t i nco me f i n a n c i a l - i nves tment rec ogniti on f t defer red o f o u r t h e r e s p e c t i n c l u d i n g t a x e s w i t h w h i c h a r e n o t p e r m a n e n t l y t o i n v e s t m e n t s W e r e c o g n i z e d e f e r r e d f u t u r e t a x c o n s e q u e n c e s o f t h e C o n s o l - i d a t e d F i n a n c i a L l i a b i l i t i e s , not members of s u b s i d i a r i e s d e f e r r e d i n c o m e amount over carrying common stock because d e f e r r e d s u b s i d i a r i e s a t D e c e m b e r 3 I , practical- for us t a x l i a b i l i t y w i t h t h e U . S . U . S . W e p e r i o d i c a l l y j u r i s d i c t i o n s b a s e d o n d o e s n o t m e e t t h e m o r e - I i k e 1 y - t h a n - n o t t o p e r m a n e n t ( i n 2 0 0 6 2 0 0 7 to determine r e l a t e d t a x a t i o n t h e e s t i m a t e s u b j e c t i n c o m e income t a x e s o f t h e s e e a r n i n g s t o o n e a r n i n g s o f e v a l u a t e o u r d e f e r r e d f o r e i g n d u e t a x a s s e t s t h e c o m p l e x i t i e s t o s u b s i d i a r i e s r e p a t r i a t e d t h e v a r i o u s a s s o c i a t e d t h e t o t a x i n g v a l - u a t i o n a l - l o w a n c e t a x a s s e t s w e b e l - i e v e i n i n w h i c h w e o p e r a t e a n d a d j u s t a n y r e l a t e d t h e a m o u n t o f s u c h d e f e r r e d r e c o g n i t i o n c r i t e r i a . t o 2 0 0 7 , w € p r o v i d e d a r e s e r v e i n c o m e t a x p o s i t i o n s t h e b e n e f i t , a s s o c i a t e d w i t h a t a x p o s i t i o n w a s n o t p r o b a b l e l -os t f o r S tandar ds r e c o r d a r e s e r v e A ccou nting i n 2 0 0 7 , w € Fi nanci al- the amount of f o r u n c e r t a i n and the P r i o r w h e n w e b e l - i e v e d of prevailing with th e appl ica ble b e n e f i t w a s r e a s o n a b l y e s t i m a b l - e . tax positions uncertain Board f o r n o t p r e v a i l w i t h t a x p o s i t i o n w h e r e w e b e l - i e v e in No. 48 t h e a p p l i c a b l - e Int.erpretation tax autho rity B e g i n n i n g accor dance w ith (*FI N' ), i t A cco tJnti ng i s m o r e - I i k e l y - t h a n - n o t for U ncertai n Tax P osi tio ns o u r p o s i t i o n w i l l t a x a u t h o r i t i e s . S e e N o t e 1 8 . NL, Kronos, CompX, Tremont and WCS are members of tax sharing thei r NL, Kronos and CompX are each a party Contran pursuant taxes on a separa te-com pan y from us in amou nts th at Revenue Service fnternal been a member of th ey wo uld have pai d th e appl ic able or the Contran Tax Group. and mak e paym ents to or th ey general ly to which com pute basis, to a st ate the Contran Tax Group. agreement with us and prov is ion i nco me paym ent s the U .S. had E hey n ot rec eiv e from to or rec eiv ed tax author ity for F - 1 5 Environmental remediation costs. a n d remediati on r e a s o n a b l y environmental p r o b a b l e i n f o r m a t i o n b e c o m e s a v a i 1 a b l - e d o n o t d i s c o u n t t h e u n c e r t a i n t y r e c o v e r i e s t o b e p r o b a b l e . W e h a d n o s u c h r e c e i v a b l e s t h e r e m e d i a t i o n oblig ations e s t i m a b l - e . e s t i m a t e d o f t i m i n g c o s t s f u t u r e o f o u r t o u s o r a s c i r c u m s t a n c e s t h e i r p a y o u t . e x p e n d i t u r e s t o W e r e c o r d w hen est imat ed W e a d j u s t l i a b i l i t i e s fut ure r e l - a t e d exp enditur es t o ar e a c c r u a l - s f u r t h e r c h a n g e . W e g e n e r a l l y p r e s e n t v a l - u e d u e a s t o a n y t h e u l t i m a t e o f f r o m o t h e r p a r t i e s w h e n w e d e e m t h e i r W e r e c o g n i z e r e c e i p t a t D e c e m b e r 3 1 , 2 0 0 6 a n d 2 0 0 7 . Net sal .es. We record sal-es w hen produc ts are shi pped and ti tl e and rewards of owne rshi p have pass ed We incl-u de amou nts char ged n e t to cus tomers for p r i c e , s a l - e s n e t W e s t a t e to and ot.her the cus tomer, or w hen w e perf orm and handl ing p a y m e n t a n d t . a x e s a s s e s s e d b y a tax es on a shi ppi ng e a r l y W e r e p o r t o f a n d v o L u m e r e b a t e s . such as s al -es, use , val ue added and exc is e s a l - e s . d i s c o u n t s authority risks services. i n c o s t s d i s t r i b u t o r government al n e t b a s i s . a d v e r t i s i n g c o s t s ; a n d a d m i n i s t r a t i v e d i s t r i b u t i o n , e n v i r o n m e n t a l - t r e a s u r y e n t e r t a i n m e n t . , h a n d l i n g 2 0 0 5 , $ 8 1 m i l - l i o n costs m a t e r i a l . t e c h n i c a l m i l - l i o n s a l - e s m i l l i o n t e c h n i c a l of Sel-l,ing, gene ral and adni nis trrati ve expe nses; shi ppi ng c o s t s ; r e s e a r c h a n d d e v e T o p m e n t c o s t s . c o s t s r e l - a t e d e x p e n s e s a n d i n c l u d e h a n d l i r g , r e s e a r c h a n d f u n c t i o n s a n d a d m i n i s t r a t i v e s h i p p i n g r e m e d i a t i o n and handJ ing g e n e r a l s a 1 e s , 1 e g a I , S e l l i n g , t o m a r k e t i n g , d e v e l o p m e n t , s u c h a s a c c o u n t i r g , a n d f i n a n c e , a n d i n c l u d e s c o s t s p r o m o t i o n a L m a t e r i a l - s f o r s a l a r i e s a n d p r o f e s s i o n a l c o s t s o f o u r C h e m i c a l s S e g m e n t , w e r e a p p r o x i m a t e l y i n 2 0 0 6 a n d $ 8 2 m i l l i o n our Com ponent Product s and W aste Management S egments are i n 2 0 0 7 . a n d b e n e f i t s , f e e s . S h i p p i n g # 7 6 m i l - l i o n t r a v e l - a n d a n d i n S h i p p i n g a n d h a n d l i n g n ot sal -es $ 2 R e s e a r c h , d e v e l o p m e n t a n d c e r t a j - n i n 2 0 0 5 , $ 1 1 c o s t s w e r e a p p r o x i m a t e l y dev elopment $ 9 m i l l i o n res earch, and We expense advertisi ng s u p p o r t c o s t s a s i n c u r r e d . and A d v e r t i s i n g i n e a c h o f 2 0 0 5 , 2 0 0 5 a n d 2 0 0 7 . s u p p o r t c o s t s w e r e a p p r o x i m a t e l y i n 2 0 0 6 a n d $ 1 2 m i l l i o n i n 2 Q 0 7 . Note 2 - Business and geographic segments: Business segment Enti ty Chemical-s Component products Waste management Kronos CompX WCS % owned at D e c e m b e r 3 L , 2 0 0 7 9 5 ? 8 5 t 1 0 0 8 Our ownership of Kronos b y N L . W e o w n 8 3 ? o f d i r e c t l y N o t e 3 . i n c l u d e s 5 9 * w e h o l d d i r e c t l y NL . Our ow nershi p of C ompX i s a n d 3 5 8 h e l d throu gh N L. See P r i o r t o M a r c h 2 6 , 2 0 0 7 , w € o w n e d 3 5 8 o f T I M E T d i r e c t l y a n d t h r o u g h a O n M a r c h 2 6 , 2 0 0 7 , w € c o m p l e t e d a s p e c i a l the TIMET stock we owned . As a res ult, We a ccount ed w h o l - I y - o w n e d s u b s i d i a r y . of TfMET shares outstanding. e q u i t y m e t h o d D e c e m b e r 3 1 , 2 Q 0 7 , T I M E T o w n e d a n a d d i t i o n a l - K r o n o s , s e e N o t e L 2 . and Kronos held by TIM ET are not r e p o r t i n g d i v i d e n d t he t he A t . 1 ? o f B e c a u s e w e d o n o t c o n s o l - i d a t e T I M E T , t h e s h a r e s o f N L l -? of of TIME T by S e e N o t e 3 . as ow ned by us for fi nanci al- our ow nershi p d i v i d e n d . . 5 t o f N L a n d l - e s s t h a n w € now ow n approx imat ely t h e d a t e o f t h e s p e c i a l con sid ered p u r p o s e s . t h r o u g h for W e a r e o r g a n i z e d b a s e d u p o n o u r o p e r a t i n g s e g m e n t s a r e d e f i n e d a s c o m p o n e n t s o f o u r c o n s o l i d a t e d separate c h i e f o p e r a t i n g a s s e s s i n g p e r f o r m a n c e . d e c i s i o n m a k e r i n d e t e r m i n i n g E a c h o p e r a t i n g a b o u t w h i c h eval -uated by o ur r e s o u r c e s a n d i n s e g m e n t i s s e p a r a t e l y m a n a g e d , a n d e a c h h o w t o a I l - o c a t e O u r o p e r a t i n g is avai l -able s u b s i d i a r i e s . information o p e r a t i o n s financial- regul arl y that i s F _ L 7 o p e r a t i n g p r o d u c t s . s e g m e n t r e p r e s e n t s a s t r a t e g i c b u s i n e s s u n i t o f f e r i n g d i f f e r e n t W e h a v e t h r e e c o n s o l - i d a t e d r e p o r t a b l e o p e r a t i n g s e g m e n t s : o f K r o n o s . Chem icals o w n e r s h i p m a r k e t e r o f v a l - u e - a d d e d u s e d f o r a v a r i e t y p a i n t s , f a c i l i t i e s o w n s a o n e - h a l f L o u i s i a n a . p a p e r a n d o t h e r S e e N o t e 7 . l - o c a t e d i n t e r e s t Our Chem icals S egment i s a d i o x i d e K r o n o s t i t a n i u m i s operat ed l e a d i n g thro ugh g l o b a l our maj orit y p r o d u c e r a n d T i O 2 i s p i g m e n t s ( " T i O r " ) o f m a n u f a c t u r i n g a p p l i c a t i o n s , i n d u s t r i a l - p r o d u c t s . i n c l u d i n g p l a s t i c s , K r o n o s h a s p r o d u c t i o n t h r o u g h o u t N o r t h A m e r i c a a n d E u r o p e . i n a T i O 2 p r o d u c t i o n f a c i l i t y K r o n o s a l - s o i n l - o c a t e d i n the com ponent produc ts our majo rity Com ponent Products through m a n u f a c t u r e r e r g o n o m i c t r a n s p o r t a t i o n , C o m p X i s systems, i n d u s t r y . c o m p u t e r t o o L a We operat e ow nershi p o f s e c u r i t y p r o d u c t s , of C ompX. p r e c i s i o n s u p p o r t s t o r a g e s y s t e m s u s e d i n a n d a v a r i e t y a l s o gauge s and l e a d i n g m a n u f a c t u r e r cont rol- s throt tle o f for i ndustry l eadi ng C ompX i s b a l l b e a r i n g t h e o f f i c e o t h e r o f s t a i n l - e s s a s l i d e s f u r n i t u r e , i n d u s t r i e s . s t e e l - e x h a u s t the perfo rmance marine a n d Waste Mana gement WCS i s our w hol-l y-ow ned sub sid iary o p e r a t e s a W e s t T e x a s f a c i l i t y o f h a z a r d o u s , a n d d i s p o s a l r a d i o a c t i v e W C S i s a u t h o r i z a t i o n w a s t e h a n d l i n g c a p a b i l i t i e s . that ow ns a nd s t o r a g e l - o w l e v e l r e g u l a t o r y l o w - L e v e l - a n d m i x e d l - o w - L e v e l r a d i o a c t i v e t h e p r o c e s s i n g , a n d c e r t a i n t h e p r o c e s s o f o b t a i n i n g f o r t o x i c i n t o e x p a n d i t s t r e a t m e n t , t 1 4 > e s o f w a s t e . We eval-uate segmen t performanc e bas ed on seg ment operat ing a s i t e m s n o n - r e c u r r i n g u n i t s w e d e f i n e c e r t a i n b u s i n e s s b u s i n e s s a n d c e r t a i n a n d e x p e n s e i n t e r e s t t h e o p e r a t i n g we s u b s i d i a r i e s a m o r t i z a t i o n s a ] e s a r e n o t m a t e r i a l s e g m e n t s a r e may differ a n d d i v i d e n d r e p o r t a b l e report . a n d a f f i l - i a t e s o r d i f f e r e n c e s i n c o m e b e f o r e i t e m s i n c o m e t a x e s a n d ( s u c h a s g a i n s i n t e r e s t e x p e n s e , e x c l u s i v e o r l o s s e s o n d i s p o s i t i o n a n d o t h e r l o n g - l i v e d a s s e t s o u t s i d e t h e o r d i n a r y o p e r a t i n g s e g m e n t s . l e g a l ( i n c l u d i n g s e t t l - e m e n t s ) s e c u r i t i e s t r a n s a c t i o n s a n d c e r t a i n g e n e r a l c o r p o r a t e i n c o m e ) , w h i c h a r e n o t a t t r i b u t a b l - e g a i n s t o a n d t h e o p e r a t i o n s o f o u r r e p o r t a b l e T h e a c c o u n t i n g p o l i c i e s i n N o t e from t h e s a m e a s t h o s e d e s c r i b e d sepa rately l - . S e g m e n t r e s u l - t s var iou s our d u e t o p u r c h a s e a c c o u n t i n g a d j u s t m e n t s a n d r e l a t e d T n t e r s e g m e n t i n h o w w e d e f i n e o p e r a t i n g am ounts report ed i n c o m e . by i ncome, w hich o f o f c o u r s e o f i n c o m e l - o s s e s a n d o f Interest income incl-u ded in the cal cul -ati on of seg ment operat ing i ncom e i s n o t m a t e r i a l to property a c q u i r e d related i n t a n g i b l e f i n a n c i n g i n d e b t e d n e s s i n 2 0 0 5 , 2 0 0 6 o r 2 0 0 7 . C a p i t a l e x p e n d i t u r e s and equi pment but exc lu de amount s w e pai d for i n c l u d e a d d i t i o n s unit s a n d a m o r t i z a t i o n busi nes s i n b u s i n e s s c o m b i n a t i o n s . to each rep ortable oper ati ng S e e N o t e 3 . D e p r e c i a t i o n a s s e t s a t t r i b u t a b l - e t o t h e s e g m e n t . A m o r t i z a t i o n seg ment i ncl -udes amort izat ion of any a s s o c i a t e d w i t h t h e o f d e f e r r e d j - s s u a n c e o f c o s t s a n d a n y p r e m i u m o r d i s c o u n t e x p e n s e . i n c l u d e d i n t e r e s t i n i s S e g m e n t a s s e t s a r e c o m p r i s e d a s s e t s a t t r i b u t a b l - e t o e a c h i n i n i n c l u d i n g s e g m e n t , o p e r a t i n g i n v e s t m e n t t h e T i O 2 m a n u f a c t u r i n g r e p o r t a b l e O u r i n c l u d e d a t t r i b u t a b l - e m a r k e t a b l e e q u i v a l e n t s , A t D e c e m b e r 3 1 , 2 0 0 7 , a p p r o x i m a t e l y t h i r d w e r e h e l d b y N L ( i n 2 0 0 6 t h e p e r c e n t a g e w a s 1 8 t ) , w i t h s u b s t a n t i a l l y t h e r e m a i n d e r h e l d d i r e c t L y a n d o t h e r v e n t u r e C o r p o r a t e S e g m e n t s e g m e n t a n d c o n s i s t p r i n c i p a l l y a s s e t s . ( s e e N o t e 7 ) i s n o t a s s e t s o f c a s h a n d c a s h t o a n d l o a n s s e c u r i t i e s 2 4 2 o f c o r p o r a t . e a s s e t . s a I l o f C h e m i c a l s t o a n y o p e r a t i n g r e s t r i c t e d . c a s h e q u i v a l e n t s , i n t a n g i b l e b y V a l h i . p a r t i e s a s s e t s . j o i n t a r e t h e o f a l l g o o d w i l l F - l _ 8 N e t s a l - e s : Chemical-s Component products Waste management Total- net sal-es C o s t o f g o o d s s o l - d : Chemical-s Component products Waste management Years ended December 31 2 0 0 5 2 0 0 6 2 0 0 7 ( I n m i l l i o n s ) $ 1 , 1 9 6 . 7 1 8 5 . 3 9 . 8 $ L , 2 7 9 . 5 t _ 9 0 . t _ 1 1 - . 8 $ 1 , 3 1 0 . 3 L 7 7 . 7 4 . 2 $ 1 - , J 9 2 , 3 $ f _ , 4 8 : 1 , 4 81,192-_2 $ 8 8 4 . 1 l . 4 2 . 6 L 5 . 4 $ e 8 0 . 8 l . 4 3 . 6 1 5 . 0 $ 1 , o 6 2 . 2 L 3 2 . 4 L L . 7 T o t a 1 c o s t o f g o o d s s o l d if., v2-1 $ 1 , 1 3 9 . 4 s 1 , 2 0 5 . 3 G r o s s m a r g i n : C h e m i c a l s Component products Waste management Total- gross margin O p e r a t i n g i n c o m e ( l - o s s ) : C h e m i c a l s Component products Waste management $ 3 L 2 . 6 4 3 . 7 ( s . 6 ) $ 2 e 8 . 7 4 6 . s ( t . z ) $ 2 4 8 . L 4 5 . 3 ( 7 . s ) $ 3 s 0 . 7 S z q z . o $___2_g5J $ 1 _ 5 5 . 5 r - 9 . 3 ( ! 2 . r ) $ 1 3 8 . 1 _ $ 2 0 . 6 ( e . s ) Total operating income 1 7 2 . 8 r 4 9 . 2 E q u i t y i n : TIMET Other G e n e r a l c o r p o r a t e i t e m s : and divide nd t r a n s a c t i o n Interest S e c u r i t i e s W r i t e - o f f G a i n o n d i s p o s a l o f Insurance recoveries General expenses, net Loss on prepayment of debt o f a c c r u e d incom e g a i n s , n e t i n t e r e s t f i x e d a s s e t s Interest expense 6 4 . 9 3 . 5 5 7 . 8 2 0 . 2 ( 2 L . 6 ) 3 . 0 ( 3 3 . 2 ) ( 6 e . 2 ) 101- . 1- 3 . 8 4 r . 6 . 7 3 5 . 4 7 . 6 ( 3 3 . 0 ) ( 2 2 . 3 ) ( 6 7 . 6 ) 8 8 . 5 1 5 . 0 ( 1 4 . 1 ) 9 0 . 5 2 6 . 9 L . 7 3 0 . 9 - ( . 1 ) 5 . 1 ( 3 7 . 5 ) ( 6 4 . 4 ) fncome before income taxes $ 1 9 8 . 3 S 2 r 7 . 5 $_____5_1-_q F - l _ 9 a n d a m o r t i z a t i o n : D e p r e c i a t i o n C h e m i c a l s Component products Waste management Corporate Total- C a p i t a l e x p e n d i t u r e s : Chemicals Component products Waste management Corporate Total T o t a 1 a s s e t s : O p e r a t i n g s e g m e n t s : Chemical-s Component products Waste management Investment s accounted equity method: TIMET common stock j o i n t O t h e r v e n t u r e s fo r by th e Corporate and el-iminations Years ended December 31, 2 0 0 5 2 0 0 6 ( I n m i l l i o n s ) 2007 $ 5 0 . 1 1 0 . 9 2 . 8 . 7 $ s 7 . 4 1 1 . 8 2 . 7 . 6 $ s z . s L 1 . 0 2 . 3 . 5 $____z4r fi_____t2a $_____6_6r $ 4 3 . 4 r _ 0 . 5 7 . 0 1 . 9 $ s 0 . e 1 2 . L . 5 $ 4 7 . 4 1 3 . 8 2 . 4 . 2 g_____52- 3 $_____51_,€ s 5 3 . 8 2 0 0 5 December 3L, 2 0 0 5 ( I n m i l l i o n s ) 2007 $ 1 , 5 9 4 . r L 5 5 . 2 4 9 . 5 $ 1 _ , 8 2 5 . 8 a - ^ r o > . 2 5 3 . 4 # L , 8 6 2 . 6 1 8 5 . 4 5 9 . 7 1 3 8 . 7 1 5 . 5 5 2 4 . 3 2 6 4 . r 1 8 . 8 4 7 2 . 4 1 9 . 4 4 7 5 . 9 Total- $ 2 , 5 7 8 . 4 $ z , a o q . t $-2,-6-43--q G e o g r a p h i c i n f o r m a t i o n . W e a t t r i b u t e n e t s a l e s t o ( p o i n t - o f - o r i g i n ) w e a t t r i b u t e m a n u f a c t u r e d e s t i n a t i o n ) ; A t D e c e m b e r 3 ] - , 2 0 0 7 c o n s o l - i d a t e d n e t a s s e t s a p p r o x i m a t e d $ 5 2 4 m i l - l - i o n m i l l i o n ) . t h e a n d e q u i p m e n t t h e n e t a s s e t s o f o u r n o n - U . S . s u b s i d i a r i e s o f E h e c u s t o m e r t o a n d p r o p e r t y ( i n 2 0 0 6 t h e l - o c a t i o n t h e i r p h y s i c a L o f t h e p l a c e ( p o i n t - o f - l - o c a t i o n . i n i n c l u d e d t o t a l - w a s $ 6 4 2 F - 2 0 N e t s a l e s - p o i n t o f o r i g i n : U n i t e d S t a t e s Germany Canada Belgium Norway Taiwan El-iminat ions Total- N e t s a l e s - p o i n t o f d e s t i n a t i o n : North America Europe Asia and other T o t a l Net property and equip ment: U n i t e d S t a t e s Germany Canada Norway B e l g i u m Taiwan Total- Years ended December 31 2 0 0 5 2 0 0 6 (rn nrT]lione) 2007 $ 5 1 8 . 8 5 t _ 3 . 1 2 6 6 . 0 1 8 5 . 9 1 5 0 . s L 4 . 2 ( 4 6 5 . 7 ) $ 6 6 7 . 7 5 7 2 . 0 2 5 5 . 2 L 9 2 . 9 1 7 3 . s 1 5 . 9 ( s o s . 2 ) $ 5 3 8 . 4 7 0 0 . 5 2 6 0 . 7 2 0 9 . 8 1 8 4 . 3 L L . 1 ( s 1 3 . 3 ) $f.392_,3 $ 1.4€l_,_4 9f,_192-2 $ 5 8 e . 2 6 9 3 . 6 1 _ l - 0 . 0 $ 5 o e . e 7 3 2 . 9 1 3 8 . 5 $ s 4 s . 8 8 1 1 . 8 1 3 4 . 6 $ 1 , 3 9 2 . 8 $ 1 - 1 8 : L . 4 5 L , 1 9 2 . ? 2 0 0 5 December 31 2 0 0 5 ( I n m i l l i o n s ) $ 7 s . 2 2 7 8 . 9 8 7 . 9 6 4 . 4 6 L . 7 8 . 3 $ 7 8 . 2 3 0 1 - . 4 8 0 . 5 7 5 . 2 6 7 . 2 '7 '7 2007 $ 8 2 . 3 3 3 2 . L 8 9 . 5 9 5 . 8 7 4 . L 7 . 4 fi__5ls-a $___€_1-1-]. s 5 8 1 . 3 Note 3 - Business eomb inations and rel ated trans act ions: NL Industries, t h e b e g i n n i n g In c. Ou r own ershi p of N L has remai ned at approx imat ely o f 2 0 0 5 a s s t o c k o p t i o n 833 b y N L e m p l o y e e s w e r e e x e r c i s e s i n p a r t b y o u r p u r c h a s e o f 3 5 , 5 0 0 s h a r e s o f N L i n m a r k e t t r a n s a c t i o n s s i n c e o f f s e t d u r i n g 2 0 0 5 f o r a n a g g r e g a t e o f $ . 4 m i l l i o n . Kronos WorTdwide, In c. At th e begi nning a quarterly 9 4 2 o f K r o n o s ' o u t s t a n d i n g paid aggregate of approximately d i s t r i b u t e d d i v i d e n d s . divide nds W e r e c e i v e d 8 3 ? o f t o N L s h a r e h o l d e r s c o m m o n s t o c k . sha res of K ronos com mon st ock, .3 mil -l- ion sha res of K ronos com mon st ock o f u s ) of 2005, w € hel d an aggregat e of q u a r t e r o f 2 0 0 5 , N L i n w hic h an then wer e p r o - r a t a ( i n c l u d i n g D u r i n g f i r s t t h e i n in t h e t h e K r o n o s s h a r e s d i s t r i b u t e d f o r m b y N L . N L m a d e c e r t a i n o t h e r p r o - r a t a d i s t r i b u t i o n s t o i t s s t o c k h o l - d e r s i n t h e t o t h e d i f f e r e n c e f o r m o f s h a r e s o f K r o n o s c o m m o n s t o c k p r i o r of Kronos common stock were e q u a l d i s t r i b u t e d i n r e l a t e d w a s a p p r o x i m a t e l y o n t h e v a r i o u s d a t e s o f d i s t r i b u t , i o n t h e d a t e s o f d i s t r i b u t i o n . t h e s h a r e s a t t o t h e K r o n o s s h a r e s d i s t r i b u t e d to N L and b e t w e e n ta xa ble $ . 2 m i l l i o n t h e f a i r m a r k e t . v a L u e o f N L rec ogniz ed a n d N L t s a d j u s t e d t a x t o N L s h a r e h o l - d e r s , o t h e r T h e a m o u n t o f a E axabLe gain t h e K r o n o s s h a r e s t a x b a s i s t i a b i J - i t y t h a n u s , a m o u n t a s a t h i s t h e t o 2 0 0 5 . A l l - o f N L ' s d i s t r i b u t i o n s i n 2 0 0 5 , a n d w e r e c o g n i z e d F - 2 L r e c o g n i t i o n c o m p o n e n t o f o u r c o n s o l i d a t e d o u r quarterly c o n s o 1 i d a t e d o f distrib ution f i n a n c i a l - p o s i t i o n , t h e s e N L p r o v i s i o n t a x t h e c o m p l e t i o n of Kronos com mon st ock by N L had no other r e s u l - t s o f o p e r a t i o n s l i a b i l i E i e s , o r c a s h f l - o w s . i n 2 0 0 5 . O t h e r o f i mpact on our t h a n 2 O O 5 t h i s f o r i n c o m e t a x e s t h e s h a r e s o f K r o n o s N L d i s t r i b u t e d . w € a n d N L p r e v i o u s l y g e n e r a t e d s h a r e s a n d t h e f r o m t h e d i s t r i b u t i o n a g r e e d . t h a t s u b s t a n t i a l l y o f t o u s i n a l l o f N L , s a l l o f t h e s e s h a r e s c o u l d . fo rm of sha res of K ronos com mon st ock hel d by NL. i n f r o m t h e u s e T h e a g g r e g a t e a m o u n t o f s u c h t h e u s e o f K r o n o s S u c h a g g r e g a t e t a x b y N L i n t o u s t o C o n t r a n t h e K r o n o s s h a r e s d i s t r i b u t e d t a x w a s $ 2 3 0 m i l l i o n . t o c o m m o n s t o c k g e n e r a t e d o f K r o n o s l i a b i l i t y t a x t h e $ Z g O m i l - l i o n r e s u l t i n g l i a b i l i t y . l i a b i l i t . y l i a b i l i t y l i a b i l i t y l i a b i l i t y f r o m t h i s t a x t a x u s t o l i a b i l i t y t h e b e c o m e p a y a b l e t o t o C o n t r a n , a n d b y C o n t r a n t a x a u t . h o r i t y . t o t h e t a x t h e a p p l i c a b l - e r e l a t e d q u a r t e r o f 2 0 0 5 , a n d N L p a i d w h e n t h e s h a r e s o f K r o n o s t r a n s f e r r e d o r d i s t r i b u t e d W i t h r e s p e c t t o d i s t r i b u t i o n s , t o o f th e t h e l i a b i l i t y i n c l u d i n g i n c o m e t a x t a x t o s e t t l e t h e t o s e t , t l - e s u c h i n c l u d e s $ l . g m i l l i o n t h e in t r a n s f e r r e d l i a b i l i t y t h e p r o - r a t a t h e be paid by NL to us P r i o r 2 0 0 5 , N L s a t i s f a c t i o n o f K r o n o s s h a r e s t a x l i a b i l i t y , c o m m o n s t o c k l i a b i l i t y t o u s c a s h . b e c a u s e C o n t r a n h a s n o t p a i d T h e i n c o m e t a x w i l l a p p l i c a b l e by NL to us are sol-d or otherwise i n recognized and, r e c o g n i z e d t a x t h e e v e n t o f c e r t a i n ( $ 2 0 5 m i l l i o n t a x a u t h o r i t y , deferre d l i a b i l i t y . l i a b i l i t y f i r s t i n T o d a t e , w € h a v e n o t p a i d incom e in accordance with GA AP, th e amount of for our ta xes a t D e c e m b e r 3 1 , 2 0 0 7 ) i s tran sferred r e s t r u c t u r i n g outs ide t r a n s a c t i o n s i nves tment the C ontran Tax Group or u s . W e h a v e i n v o l v i n g i n K ronos com mon st ock, the defer red l i m i t e d i ncome t o tax es w e h ave t h i s 9 2 3 0 m i l - l i o n D u r i n g 2 0 0 5 a n d 2 0 0 6 , w € p u r c h a s e d a n a g g r e g a t e o f L . 2 m i l l i o n K r o n o s c o m m o n s t o c k s o l - d a n a g g r e g a t e t r a n s a c t i o n s r e l a t e d s a l - e s o f # t + . l m i l - I i o n t h e f o r t o r e d u c t i o n i n m a r k e t . t r a n s a c t i o n s o f f o r # l Z . q m i l l j - o n . s h a r e s o f K r o n o s c o m m o n s t o c k . 5 m i l l i o n p r o c e e d s o f $ 7 9 . 2 m i l l i o n . o f o u r o w n e r s h i p i n 2 0 0 5 . S e e N o t e 1 5 . i n t e r e s t W e r e c o g n i z e d p r e - t a x i n K r o n o s r e l - a t e d s h a r e s o f D u r i n g 2 0 0 5 , w € i n m a r k e t g a i n s t h e s e t o At of 2005, w € th e begi nning c o m m o n s t o c k e i t h e r d i r e c t l y O u r o w n e r s h i p o f T I M E T w a s r e d u c e d TIMET. T f M E T ' s o u t s t a n d i n g s u b s i d i a r y . t o 3 5 t b y D e c e m b e r 3 1 , 2 0 0 6 d u e t . o s t o c k o p t i o n e x e r c i s e s b y T I M E T e m p l o y e e s a n d t h e c o n v e r s i o n o f s h a r e s i n p a r t o f T I M E T ' s c o n v e r t i b l e b y o u r p u r c h a s e o f a n a g g r e g a t e o f 4 . 7 m i l l i o n s h a r e s o f T I M E T c o m m o n s t o c k ( a s a d j u s t e d d u r i n g 2 0 0 5 a n d 2 0 0 6 f o r a n a g g r e g a t e o f $ 3 5 . 7 m i l l i o n . 4LZ of t h r o u g h a w h o l l y - o w n e d i n t o T I M E T c o m m o n s t o c k , o f f s e t T I M E T s t o c k s p l i t s ) ow ned an aggregat e t r a n s a c t i o n s i n m a r k e t p r e f e r r e d c e r t a i n s t o c k a n d f o r of O n M a r c h 2 6 , 2 0 0 7 , w € c o m p l e t e d a s p e c i a l d i v i d e n d o f t h e T I M E T c o m m o n E a c h o f o u r s t o c k h o l - d e r s r e c e i v e d for each shar e of our com mon st ock hel d. to appl y the equi ty metho d . 4 7 7 6 For to our i n T I M E T t h r o u g h M a r c h 3 1 , 2 0 0 7 . A s a r e s u l t 1t of reporting purposes, we cont inued of TIMET comm on st ock e q u i t y s t o c k w e o w n e d t o o u r s t o c k h o l - d e r s . of a share of TIM ET common stock financial- i n v e s t m e n t we now own approximately our dividend s L o c k h o l - d e r s ' n e t o f a p p l i c a b l - e purposes, d i f f e r e n c e t h e a g g r e g a t e ( $ 3 6 . 9 0 p e r s h a r e , o r a n a g g r e g a t e o f $ 2 . 1 b i l l i o n ) s h a r e s d i s t r i b u t e d . a f t e r w e u t i l i z e d mill-ion m i l l i o n . t a x o b l i g a t i o n a v a i l a b l - e n e t o p e r a t i n g min imum and al-ternative the divide nd v a l - u e o f b y t a x , b e t w e e n cr edit T h i s f a i r tax t h e a g g r e g a t e b o o k v a l u e o f o r a p p r o x i m a t e l y i 8 9 7 . 4 m i l l i o n . of TIMET com mon st ock w as tax abl-e t.he TIME T shar es outs tanding. as a spi n-of f o f t h e d i s t r i b u t i o n , W e acc ounted f or i n w hic h w e reduc ed our t h e s h a r e s d i s t r i b u t e d , F o r i n c o m e to us base d on t a x the t h e T f M E T s h a r e s d i s t r i b u t e d a n d o u r w a s a p p r o x i m a t e l y t a x b a s i s o f t h e $ 6 6 7 . 7 m i l l i o n , l - o s s ( " N O L ' ) c a r r y f o r w a r d s (" AM T" ) car ryf orw ards o f $ 5 7 . 8 $1 . 1 of W e a n d o u r q u a l - i f y i n g f e d e r a l i n c o m e t a x g r o u p s u b s i d i a r i e s ( t h e fo r income ta xe s a r e m e m b e r s o f C o n t r a n ' s c o n s o l i d a t e d " C o n t r a n T a x G r o u p " ) , a n d w e m a k e p a y m e n t s the U .S. that w e w oul-d have pai d to U . S . to Contran in amount s F - 2 2 or the indirectly i s p a y a b l e t a x o b l i g a t i o n d i v i d e n d t h i s t o C o n t r a n . w e o w e d t o C o n t r a n , Internal- Revenue Service had we not been a member of a member of th e Contran Tax Group, s p e c i a l a l - l - o f C o n t r a n s h a r e s o f a n e w i s s u e o f o u r p r e f e r r e d Contran directly M a r c h 2 6 , 2 0 0 7 , w € d i s t r i b u t e d other members of r e q u i - r e d a p p l i c a b l - e m e m b e r s o f C o n t r a n ' s This income tax authority members of Contran i nvolving th e Contran Tax Grou p. the Contran Tax Group are sol d or other wi se t o p a y a p p r o x i m a t e l y ow ned approx imat ely Tax Group or Contran and us. 5 6 2 0 m i l l i o n a s u b s t a n t i a l i s c u r r e n t l y T a x G r o u p t h e g a i n a u t h o r i t y , b e c a u s e liabi lity cer tain p o r t i o n even t t a x th e ta x of in tax obl igat ion I n o r d e r the C ontran Tax Group . As the generat ed from t o d i s c h a r g e s u b s t a n t i a l l y s t o c k . i n M a r c h 2 Q 0 7 w e i s s u e d S e e N o t e L 4 . t o B e c a u s e 922 of our com mon st ock at t . o t h e T I M E T s h a r e s o f o f A s a res ul-t , C ontran t h i s o n t h e d e f e r r e d t a x o b l i g a t i o n s h a r e s d i s t r i b u t e d a t t h e C o n t r a n i s not cur rentl y when th e shares of TIME T com mon st ock w e di stri buted woul -d bec ome pay able by C ontran to t o t h e t o l e v e l - . the appl ic abl- e to oth er t he outs ide trans ferred res truct uring tran sact ions a i n A s i t s r e s u l t , t h e s e r e c o r d s h a r e s . d i v i d e n d . in market t h e s p e c i a l 2 . 2 m i l l - i o n S e e N o t e L 4 . s h a r e s b e t w e e n f o r o u r p r o p o r t i o n a l the TIM ET and Val hi V a l h i s h a r e s o f comm on st ock acq uired N L o w n s a p p r o x i m a t e l y B e c a u s e w e p u r c h a s e d I n a d d i t i o n , transactions r e p o r t i n g t r e a s u r y d i v i d e n d s t h e T f M E T s h a r e s w e a c q u i r e d . repurc hase progr am des cri bed a n d f o r i n s u c h L a w , N L r e c e i v e d 4 . 7 m i l l i o n p u r p o s e s w e a c c o u n t s t o c k . o n s h a r e s o f o u r c o m m o n s t o c k , i n t e r e s t U n d e r D e l a w a r e C o r p o r a t i o n N L t h e s p e c i a l d i v i d e n d , w e b e c a m e e n t i t l e d t h e t o r e c e i v e d i v i d e n d w i t h i n t h e T I M E T c o m m o n s t o c k w e d i s t r i b u t e d i n M a r c h 2 0 0 7 w e p u r c h a s e d s h a r e s o f o u r in under our d a t e a n d t h e s h a r e s t . o r e s p e c t 1 9 , 0 0 0 s h a r e s t h e c o s t o f o u r s h a r e s w e r e p u r c h a s e d market a n a g g r e g a t e o f $ . 7 m i 1 l - i o n t h e 1t of M a r c h 3 1 , 2 0 0 7 w e f i r s t numb er of TIMET shares w e ow ned repre sented f i n a n c i a l - s h a r e s a s r e c e i v e s a p p r o x i m a t e l y t h e s p e c i a l common stock N o t e 1 4 . p a y m e n t d a t e o f o f T I M E T c o m m o n s t o c k w e d i s t r i b u t , e d t h e s h a r e s o f o u r c o m m o n s t o c k w e r e p u r c h a s e d , e y a p p r o x i m a t e l y o f T I M E T c o m m o n s t o c k . W e a l - l - o c a t e d between v a l - u e s o n t h e d a t e o f p u r c h a s e , a n d w e a l l o c a t e d t o aggregate T I M E T ' s o u t s t a n d i n g b e g a n a c c o u n t i n g m a r k e t a b l - e s e c u r i t i e s a g g r e g a t e component of accumulated other t . a x a n d m i n o r i t y $ 1 1 . 4 m i l l i o n , e q u i t y m e t , h o d i m m e d i a t e l y q u a r t e r o f 2 0 0 7 , N L s o l - d . 8 m i l l i o n o f r e p o r t i n g m i l l - i o n s h a r e s t h e q u o t e d m a r k e t p r i c e a g g r e g a t e m a r k e t v a l u e o f o u r T I M E T s h a r e s o f $ 6 0 . 2 m i l l i o n . p o r t i o n a c o m p r e h e n s i v e t h e u n r e a l i z e d r e l - a t e d v a l - u e a n d t h e c o s t b a s i s o f o u r T I M E T s h a r e s f o u r t h i t s T I M E T s h a r e s t o u s f o r a c a s h p r i c e f i n a n c i a L . 8 t h e s e A t D e c e m b e r 3 1 , 2 0 0 7 , f o r a n S e e N o t e 4 . A s i n o u r a c c u m u l - a t e d o t h e r t o d u r i n g 2 0 0 7 r e l a t e s t h e b e t w e e n r e c o g n i z e d a s a j -ncom e i ncome, net of appl ic abl-e t h e T I M E T s h a r e s N L r e c e i v e d w a s t . h e s u c h T f M E T s h a r e s u n d e r i n t h e s e s h a r e s . f o r T I M E T ' s c o m m o n s t o c k w a s # 2 5 . 4 5 p e r s h a r e , f o r o u r s h a r e s o f T I M E T c o m m o n s t o c k a s a v a i l a b L e - f o r - s a l - e $ + m i l - l - i o n a g g r e g a t e c o s t b a s i s o f q u a r t e r o f 2 0 0 7 , approx imat ely s h a r e , o y a n a g g r e g a t e o f t h e s e s h a r e s o f T I M E T c o m m o n s t o c k . o f t o m a r k e t a b l e p u r p o s e s , N L ' s p r e v i o u s i s a l s o o u r c o s t b a s i s base d upon rel ati ve n e t o f a p p l i c a b l e T h e c o s t b a s i s o f t a x a n d m i n o r i t y , a s u b s t a n t i a l $ 2 5 . 8 m i l l i o n . i n c o m e r e l a t e d t h e d i f f e r e n c e c o m m o n s t o c k . $ 3 3 . 5 0 p e r com prehensi ve A c c o r d i n g l y , v a l - u e , a n d t h e s p e c i a l t h e e n d o f r e p r e s e n t s o u r b a s i s s e c u r i t i e s d i v i d e n d . i n c r e a s e i n t e r e s t . € f f e c t i v e i n t e r e s t , i n c o m e c a r r i e d D u r i n g b e f o r e w h i c h r e s u l t g a i n , L h e F o r f a i r f a i r t h e t h e A t o f t o a t i n i s i s e q u a l i n f a i r t a x b a s i s t o H o w e v e r , b e c a u s e exc eeded our t h e F o r i n c o m e t a x p u r p o s e s , t h e a s o f t h e s p e c i a l t h e s p e c i a l d i v i d e n d d i v i d e n d . t he TI MET shares we distribut ed b y N L i n o n t h e d a t e o f of p r o f i t s s h a r e s o f V a l h i b a s i s t h e a g g r e g a t e e a r n i n g s a n d p r o f i t s . a m o u n t b y w h i c h e x c e e d s o u r e a r n i n g s a n d p r o f i t s i n s u c h V a l h i f a i r s h a r e s a n d ( i i ) v a l - u e o f t h e a g g r e g a t e A d d i t i o n a l l y , f a i r t h e e n d o f 2 0 0 7 , N L w a s r e q u i r e d c o m m o n s t o c k b y a n a m o u n t e q u a l i t s p r o - r a t a f a i r t h e cum ul-at ive t h e s h a r e s o f T I M E T r e c e i v e d v a l - u e o f s u c h T I M E T s h a r e s v a l - u e o f a 1 l - a nd earni ngs i t s t a x b a s i s o f ( i ) t a x i t s t h e a m o u n t b y w h i c h e x c e e d e d o u r t h e s h a r e o f t o r e d u c e t h e t h e t o s h a r e o f l e s s e r o f t h e T I M E T s h a r e s w e d i s t r i b u t e d t a x b a s i s o f t h a n i t s V a l h i t h e t h e T I M E T s h a r e s w e d i s t r i b u t e d a n d s i n c e N L ' s p r o - r a t a v a l u e o f i s g r e a t e r F - 2 3 t o f r o m t o N L a s s o c i a t e d w i t h financial- t a x g e n e r a t e d rep ortin g t h e c a r r y i n g s h a r e s , N L w a s r e q u i r e d b e n e f i t , s h a r e s w a s c o m p l e t e l y o f f s e t s h a r e s a n d t h e c a p i t a l i n c o m e For e x c e s s o f a n d T I M E T c o m m o n s t o c k , generat ed by NL was offset o n i t s p r o p o r t i o n a l a l - s o e L i m i n a t e r e c o g n i z e s a t resul-t , for p r o p o r t i o n a l - t h a t N L h a d p r e v i o u s l y d i v i d e n d w e w e r e r e q u i r e d i n c o m e t a x e f f e c t t h e i t s f inan cia l i n t e r e s t s h a r e s o f V a l h i i n t e r e s t i n o u r p r o p o r t i o n a l l e v e l - w i t h rep ortin g i n t o N L o f r e c o g n i z e a c a p i t a l r e c e i v i n g a g a i n f a i r - v a l - u e b y t h e e l - i m i n a t i o n r e q u i r e d t o g a i n N L i s t h i s c a p i t a l purposes, N L prov ides g a i n o f t h e r e c o g n i z e i s a p p r o x i m a t e l y f o r v a l - u e o v e r t h e t a x b a s i s o f defer red i t s f o r t h e d i f f e r e n c e . t a x b a s i s t a x b a s i s i n i n t h e e x c e s s . T h e i t s T r M E T i t s V a l h i N L ' s a n d a s a r e s u l - t by defer red c o m m o n s t o c k . t h e $ 1 1 - . 2 m i l l - i o n i ncome tax es N L had prev ious ly H o w e v e r , b e c a u s e w e a c c o u n t t h e V a l h i s h a r e s h e l d b y N L a s i n t e r e s t t o r e s p e c t t h e V a l h i purpos es w e had not prev ious ly i n t h e d e f e r r e d s h a r e s t h e $ l - L . 2 m i l - l i o n o f r e c o g n i z e d . t o r e c o g n i z e $ 9 . 3 m i l l - i o n o f t h e s p e c i a l d i v i d e n d . A c c o r d i n g l y , i n c o m e t a x e s o s p a r t i n c o m e t a x e s for c u r r e n t $ 1 1 . 2 m i l l i o n . i ncome the tax es s h a r e s o f b o t h V a l h i i n c o m e t a x prov ide d f o r o u r s t o c k , w € t a x e s N L A s a o ur i n c o m e i t t r e a s u r y h o l d s . rec ogniz ed ( o r $ 9 . 3 m i l l i o n ) t h e s p e c i a l t o r e l - a t e d o f NL is al-so a member of th e C ontran Tax Group , and N L mak es paym ents i n a m o u n t s i t w o u l d h a v e p a i d t o t h e U . S . the C ontran Tax Grou p. A pproxi matel y $ . 4 m i l ] i o n t h e C o n t r a n T a x G r o u p ) . W e a r e n o t c u r r e n t l y r e l - a t e s t a x g e n e r a t e d b y N L t o o n e o f N L ' s s u b s i d i a r i e s i s p a y a b l e t o C o n t r a n , n o r t h e a p p l i c a b l e at our r e q u i r e d i s C o n t r a n c u r r e n t l y t a x a u t h o r i t y , l -eve1 and the C ontran i n c o m e t a x e s t a x l i a b i l i t y t h e $ 1 1 . 2 m i l l i o n u s f o r Service had NI-., not been a mem ber of m i l - l - i o n o f r e m a i n i n g m e m b e r o f $ 1 0 . 8 m i l - l i o n p a y t h i s t a x taxable gain and NL are members of t h e C o n t r a n T a x G r o u p o n would become payable by us authority, when o t h e r w i s e r e s t r u c t u r i n g $ 1 0 . 8 m i l l - i o n t r a n s a c t i o n s i s th e t r a n s f e r r e d l i a b i l i t y t o is currently th e Val hi deferred shares of V alhi o u t s i d e tax group on a sepa rate T h i s d a t e . t h e d i s t r i b u t i o n to Contr an, and by C ontran to com mon st ock hel d by N L are t h e C o n t r a n T a x G r o u p o r i n v o l - v i n g N L a n d V a l h i . r e c o g n i z e d a s a c o m p o n e n t o f o u r d e f e r r e d i n A t D e c e m b e r 3 1 - , 2 0 0 7 , t h e e v e n t o f c e r t a i n t h i s i n c o m e t a x e s . t o I n t e r n a l - R e v e n u e $10. 8 ( t h e t o u s t . h a t w a s n o t a t o p a y r e q u i r e d t h e t h i s t o r e l - a t e d l evel - si nce we com pany basi s and of i n c o m e b e c a u s e l i a b i l i t y t a x the appl ic able tax sol d or A s u m m a r y o f t h e $ 8 9 7 . 4 m i l - l - i o n n e t r e d u c t i o n i n o u r s t o c k h o l - d e r s ' e q u i t y a s a r e s u l t o f t h e s p e c i a l d i v i d e n d i s s u m m a r i z e d a s f o l l o w s : Investment De f err ed in TIM ET income ta xes previ ousl y rec ogniz ed: fnvestment NOL and AMT carryforwards in TfMET Income taxes gene rated from th e spe cia l di vi dend: Valhi l-evel -, net of amou nt included i n other comprehensive income NL leve] Total- Amount ( I n m i l l i o n s ) s 2 7 6 . 7 ( s 5 . e ) 2 L . 4 6 4 6 . 9 9 . 3 s 8 9 7 . 4 In t.ernationaL lnc. 58? of Comp X stock CompX approximately h e l d a p p r o x i m a t e l y p u r c h a s e d a n a g g r e g a t e t r a n s a c t i o n s f o r a p p r o x i m a t e l y $ S . g m i l l i o n . 1 5 t o f C o m p X s t o c k . thro ugh N L's i nves tment i n C ompX and TfM ET S e e N o t e 2 . D u r i n g 2 0 0 5 a n d 2 0 0 6 , N L i n m a r k e t o f 3 8 1 - , 0 0 0 s h a r e s o f C o m p X c o m m o n s t o c k A t the begi nning of 2005, w € he ld f n A u g u s t 2 0 0 7 , C o m p X ' s b o a r d o f d i r e c t o r s u p t o 5 0 0 , 0 0 0 s h a r e s o f i n c l u d i n g b l - o c k p u r c h a s e s , i t s C l a s s A c o m m o n s t o c k i n o r p r i v a t e l y - n e g o t i a t e d a u t h o r i - z e d t h e i n o p e n m a r k e t r e p u r c h a s e o f t r a n s a c t i o n s , t r a n s a c t i o n s a t F - 2 4 t o f o r t i m e . r e p u r c h a s e p e r i o d o f u n d e r p r i o r p r i c e s a n d o v e r a n u n s p e c i f i e d Com pX may rep urchase p e r m i t . . T h e s t o c k t h e 4 6 7 , 0 0 0 s h a r e s o f C l a s s A c o m m o n s t o c k u n s p e c i f i e d w a s i n a d d i t i o n a v a i l - a b l - e directors. c o n d i t i o n s price or m a r k e t c o n d i t i o n s , C o m p X w i l l b e a d d e d t o C o m p X ' s t r e a s u r y a n d c a n c e l l e d . D u r i n g 2 0 0 7 , C o m p X p u r c h a s e d 1 7 9 , 1 0 0 s h a r e s o f f o r a n a g g r e g a t e o f S g . g m i l l i o n . s h a r e s w e r e a v a i l - a b l e i t s C l - a s s A c o m m o n s t o c k A t D e c e m b e r 3 1 , t h e s e r e m a i n e d t h a t o f C o m p X ' s b o a r d o f ti me as mark et and may be sus pended at any t h e p r o g r a m p r i o r ti me p r o g r a m d o e s n o t to i n c l - u d e s p e c i f i c u s e c a s h o n h a n d t o a c q u i r e D epending on c o m p l e t i o n . R e p u r c h a s e d s h a r e s w i l l r e p u r c h a s e a u t h o r i z a t i o n s . C o m p X m a y t e r m i n a t e f o r p u r c h a s e u n d e r 2 0 0 7 a p p r o x i m a t e l y T h i s a u t h o r i z a t i o n a u t h o r i z a t i o n s com mon st ock t h e s h a r e s . t r a n s a c t i o n s r e p u r c h a s e ti me. t o ti meta bl-es i n m a r k e t 8 0 4 , 4 0 0 targets from i t s i ts I n O c t o b e r 2 0 Q 7 , t h e i n d e p e n d e n t m e m b e r s o f C o m p X ' s b o a r d o f d i r e c t o r s t h e r e p u r c h a s e a n d c a n c e l l - a t i o n o f a n e t 2 . 7 m i l - l i o n s h a r e s o f h e l d th rough C o m p X p u r c h a s e d t h e s e o f $ 5 2 . 6 m i l l i o n , a u t h o r i z e d C L a s s A c o m m o n s t o c k indirectly by TIMET r e p u r c h a s e s w e r e m a d e o u t s i d e a b o v e . c o n s i d e r a t i o n n o t e . repurchases a p p r o v e d . f o r q u a r t e r l y with prepayment s p e n a l t y . c r e d i t a g r e e m e n t . S e e N o t e s 9 a n d 1 6 . T h e p r o m i s s o r y p r i n c i p a l bala nce on T h e p r o m i s s o r y T h e p r i c e pro missory n o t e note due p e r th e the of b y T I M E T , its ow nershi p i n c l u d i n g o f C o m p X ' s s t o c k s h a r e s w h i c h f o r i t p a i d i nteres t i n C ompX Grou p. i t s t h e C l - a s s A s h a r e s h e l d These d i s c u s s e d s h a r e , o r a g g r e g a t e f o r m o f a p r o m i s s o r y b a s e d o n C o m p X ' s o p e n m a r k e t repurc hase was $ 1 9 . 5 0 p e r i n t h e r e p u r c h a s e p l a n ti me the the l - t a n d p r o v i d e s r e p a y m e n t s o f $ 2 5 0 , 0 0 0 c o m m e n c i n g i n S e p t e m b e r 2 0 0 8 , C ompX may m ake at matur ity a t L I B O R p l u s i n t e r e s t 201,4. S eptember i n ti me, any i s s u b o r d i n a t e d t o C o m p X ' s U . S . i n at any amount , w itho ut r e v o l v i n g b a n k s h a r e w a s d e t e r m i n e d it.s Cl-ass A comm on st ock around n o t e b e a r s A s a r e s u l - t o f C o m p X ' s r e p u r c h a s e o r in Com pX or C ompX Grou p, C ompX' s outs tanding i n t e r e s t s h a r e s o w n e d d i r e c t l y or owne rshi p s h a r e s w e r e r e d u c e d b y 2 . 7 m i l l - i o n i n c r e a s e d s h a r e s a n d o u r o w n e r s h i p a n d / o r c a n c e l - l - a t i o n o f i n d i r e c t l y indirect t o 8 6 t . b y T f M E T , T f M E T n o l o n g e r h a s a n y d i r e c t C l-as s A i n C o m p X i t s C l - a s s A in April We completed b u s i n e s s and In Augu st 2005, Comp X compl eted f o r c a s h c o n s i d e r a t i o n 2006 Com pX com pleted p r o d u c t s acquired, c o m p o n e n t p r o d u c t s b u s i n e s s acquired. products and cash t h e C o n s o l i d a t . e d F i n a n c i a l S t a t e m e n t s The pu rc has e price s a s s e t s a c q u i r e d b a s e d u p o n a n e s t i m a t e o f The pro o f J a n u a r y L , 2 0 0 5 , i s n o t m a t e r i a l . th ese acqu isi ti ons of Comp X. W e have busi ness unit flows of th e acquired bu si ness es have been all ocated to us, assumi ng forma effect the acq uis iti on $ z . g m i l l i o n , o f the acqu isi ti on of a mari ne com ponent s c a s h n e t of another marine n e t o f c a s h com ponent o f E o expa nd the the mari ne res ults i n our C omponent P roduct s S egment of of operat ion s i ncl uded f r o m t h e r e s p e c t i v e among the t h e f a i r tangi bl e d a t e s o f a c q u i s i t i o n . and i ntangi ble net v a l - u e o f s u c h n e t a s s e t s . thes e acqu isi ti ons had been com plet. ed as f o r c a s h c o n s i d e r a t i o n o f $ 9 . 8 m i l - l i o n , F - 2 5 Note 4 - Marketabl e securities: C u r r e n t a s s e t s R e s t r i c t e d O t h e r d e b t s e c u r i t i e s d e b t s e c u r i t i e s ( a v a i l - a b l - e - f o r - s a l - e ) Total N o n c u r r e n t a s s e t s ( a v a i l a b l e - f o r - s a l e ) The Amalgamated Sugar Company LI-,C TIMET R e s t r i c t e d Other debt securities d e b t s e c u r i t i e s and common st ocks : Total- D e c e m b e r 3 1 , 2 0 0 5 2 0 0 7 (r" mi ll ioi i l $ 1 0 . 0 2 . 6 $ s . e 1 . 3 i_ t2.l. s 7 . 2 $ 2 s 0 . 0 2 . 8 6 . 2 $ 2 s 0 . 0 6 0 . 2 3 . 2 5 . 4 s 2 s 9 . 0 s 3 1 9 . 8 t o 2 0 0 5 , w € t r a n s f e r r e d c o n t r o l - o f t h e r e f i n e d by our w holl y-ow ned S ugar C ompany, s u g a r b e e t g r o w e r s sub sid iary, The 4r Oregon i n A m a l g a m a t e d ' s w € c o n t r i b u t e d t h e o f o u r l iabi li ty i n e x c h a n g e f o r a n o n - v o t i n g t r a n s a c t i o n , r e f i n e d s u g a r o p e r a t i o n s com pany cont roll ed t o by S nake i n t e r e s t t h e n e t a s s e t s w e t r a n s f e r r e d c o n t r o l t h e L L C , w e r e c o g n i z e d b e t w e e n $ 2 5 0 m i l ] i o n ( t h e $ 2 5 0 m i l l i o n b a s i s o f t h e L L C i s $ 2 5 0 m i l l i o n . i n c o m e t a x e s . o w n e r s h i p t o f a i r t h e L L C w a s o f o u r o p e r a t i o n s t o a g a i n i n v a l u e o f o u r d s a s s e t s w e T h e r e f o r e , t h i s r e d e m p t i o n p r i c e , A s p a r t o f t h e n e t A m a l - g a m a t e d S u g a r . P r i o r operations to t o b a s i s f o r o u r P u r s u a n t t h e n e t previ ousl y con ducted S nake R iv er r e t u r n t o f o r m e d b y c e r t a i n W h e n w e t r a n s f e r r e d o p e r a t i o n s . a l l o f Sug ar Com pany, c o o p e r a t i v e T h e c o s t b a s i s o f $ 3 4 m i l l i o n . sugar Amalgamated a g r i c u l t u r a l a r e a s o f s u b s t . a n t i a l l y a s s e t s Amalgamat ed Suga r Comp any I-.,LC, a l imi ted R i v e r , o D a t a x - d e f e r r e d i n t h e L L C . a p p r o x i m a t e l y S n a k e R i v e r i n e a r n i n g s e q u a l i n v e s t m e n t d i s c u s s e d c o n t r i b u t e d t h e c o s t b a s i s o f o u r t r a n s a c t i o n , T h e s e s o u r c e s o f t o contributions f i n a n c i n g w e p r o v i d e d . 2 0 0 5 w h e n S n a k e R i v e r o b t a i n e d a n e q u a l a m o u n t o f c o l - l - e c t e d t h e t h i r d - p a r t y t h e L L C a s e v i d e n c e d b y $ : + m i l l i o n t h e L L C , n e t o f a p p l i c a b l - e d e f e r r e d l - o a n s a r e c o l l a t e r a l i z e d i t s f o r i n e x c h a n g e i n b e l - o w ) a n d S n a k e R i v e r m a d e c e r t a i n S e e N o t e s 9 a n d 1 5 . t h e d i f f e r e n c e i n v e s t m e n t f i n a n c i n g . t h e L L C i n t e r e s t b y o u r f u n d s l o a n s c o s t t h e i t s t o i n i n i n t e r e s t l o a n s f o r t o u s a g g r e g a t i n g t h e L L C . $ 2 5 0 m i l l i o n . S n a k e R i v e r ' s c o n t r i b u t i o n i n c l - u d e d c a s h i n de bt t o a n d r e m a i n i n g $ 8 0 m i l - l - i o n d u r i n g 2 0 0 5 w h e n S n a k e R i v e r o b t a i n e d n e w th e gro wer membe rs of S nake R iv er and $180 mi l-l i on t h e $ 1 - 8 0 m i l l i o n t o u s , a s w e l - l - a s i t s $ 1 4 m i l l - i o n w e c o l l - e c t e d $ l - o o m i l - l i o n o f t h i r d - p a r t y t h e L L C , f i n a n c i r g , i n t e r e s t v o t i n g p r i o r i t s by i n i n share i n p e r y e a r di stri buti ons ( t h e " b a s e " T o t h e e x t e n t y e a r , w € f u t u r e i s We and Sna ke River a g g r e g a t e o f i 2 5 . 7 m i l l i o n 9 5 t s h a r e g o i n g t o u s . a n y g i v e n i n b a s e l e v e l p r e f e r e n t i a l s h a r e o f a n y b a s e l e v e l u n t i l e n t i t l e d t o option, w€ may req uire 2 0 1 2 , a n d t h e L L C h a s t h e L L C b e g i n n i n g p l u s o u r o f a n d c a l - l - o u r $ 2 5 0 m i ] l - i o n L o a n s f r o m S n a k e R i v e r . r e c o v e r e d . c a s h d i s t r i b u t i o n s t h e L L C , S n a k e R i v e r h a s t h e th e LLC to t h e T h e r e d e m p t i o n p r i c e t h e a m o u n t o f c e r t a i n t h e s h o r t f a l - l u n d i s t r i b u t e d r e d e e m , d t redeem our a d d i t i o n a l i n 2 0 2 7 . i n t e r e s t r e c e i v e r i g h t r i g h t t o i n from the LLC up to an l e v e l - ) , w i t h a p r e f e r e n t i a l - t h i s a r e b e l o w U n d e r c e r t a i n f r o m i n o p t i o n , i s g e n e r a l l y t o u s . i nteres t t h e i r a n a d d i t i o n a l i n e x c e s s o f c o n d i t i o n s , t h e L L C . 9 5 3 t h e w e a r e A t o u r in i n $ 2 5 0 m i l l - i o n I f w e r e d e e m t h e m a t u r i t y the LLC begi nning i n t e r e s t o u r t o a c c e l - e r a t e S e e N o t e 9 . t h e L L C t s d i s t r i b u t i o n s a r e t o a n n u a l L L C d i s t r i b u t i o n s e n t i t l e d i n c o m e a l l - o c a b I e The LLC Comp any Agreement t o p r o t e c t o u r i n t e r e s t i n i n t e n d e d e x p e n d i t u r e s cont ains t h e L L C , cer tain i n c l u d i n g cov enant s res tric ti ve o n c a p i t a l l i m i t a t i o n s t h e L L C . W e a l - s o h a v e t h e a b i l i t y a n d a d d i t i o n a l - i n d e b t e d n e s s o f F - 2 5 temporarily f a l l to t h e L L C c o n d i t i o n s ta ke control- of b e l o w s p e c i f i e d i m p o s e d b y S n a k e R i v e r ' s the LLC i f L e v e l s , our cum ul-at iv e di stri buti ons o f t o s u b j e c t fr om c e r t a i n s a t i s f a c t i o n s e n i o r l - e n d e r s . c u r r e n t t h i r d - p a r t y ( i ) we l o a n l o a n . i nteres t p a i d b y t o u s o n o u r p r i o r th e annua l- amou nt of I n 2 0 0 5 , a n d f o l l o w i n g t h a t ( i i ) $ 8 0 m i l l i o n l-o an to Snake River, S nake R iv er agreed t o 2 0 0 5 , S n a k e R i v e r a g r e e d t h e L L C t o u s p l u s P r i o r d i s t r i b u t i o n s b y S n a k e R i v e r l-east equal o u r $ 2 5 0 m i l - l i o n $80 mill-ion distribut ions interest S n a k e R i v e r b y a t mj-nimum amou nt, certain LLC, must t e m p o r a r i l y and we would be able T h r o u g h D e c e m b e r 3 L , 2 0 0 7 , S n a k e R i v e r a n d t h e L L C m a i n t a j - n e d m i n i m u m r e q u i r e d t h e a n n u a l a m o u n t o f t h e t h e d e b t s e r v i c e p a y m e n t s p a i d t o S n a k e R i v e r w o u l - d a t pay ment.s w e ow e to S nake R iv er on r e p a y m e n t o f o u r the annual - amount of the annual - amount of from t . h e r e q u i r e d agreements w e prev ious ly made w ith S nake R iv er and t he that we t o b e c o m e n u I l a n d v o i d in order t h e L L C , w o u l d r e t , r o a c t i v e l y the LLC i f w e so desi red . t h e a p p l i c a b l - e t.h e amount of cum ul-at iv e di stri buti ons payments we owe to Sna ke R iv er t h e c o m p l e t e that l e v e l - s o f c a s h f l o w s t o u s . t a k e c o n t r o l to the LLC w ould exc eed on our $250 mi ll ion from bec oming abl e including receive tak e cont rol- of $ 1 . 8 m i l l i o n . I f w e r e c e i v e to prev ent a red uction te mporarily th e LLC recei ve l -oans l e a s t t h a n from from l e s s us o f i n in w h e n t h e y a r e d e c 1 a r e d b y i n t h e m , a l t h o u g h b u s i n e s s d a y o f f r o m t h e L L C a s d i v i d e n d t h e L L C , w h i c h c a s e s c e r t a i n f o l l o w i n g m o n t h . t h e f r o m t h e w e w i l l r e c e i v e f u t u r e p e r f o r m a n c e o f t h e L L C ' s I - , L C a n d w e and f or c a r r i e d f r o m t h e for m a r k e t a b l - e s e c u r i t y i nterest a d i s t r i b u t i o n s fi xed at a fi xed and deter minabl -e date, w € acc ount redeem our W e r e p o r t t h e c a s h d i s t r i b u t i o n s r e c e i v e d the f i r s t right t h i n g s , r e c e i v e g e n e r a l l y s a m e m o n t h w e B e c a u s e w e r e c e i v e p r e f e r e n t i a l - i n c o m e . W e r e c o g n i z e d i s t r i b u t i o n s i s t h e m a y b e p a i d o n t h e d i s t r i b u t i o n s S e e N o t e 1 5 . T h e a m o u n t o f s u c h f u t u r e d i s t r i b u t i o n s L L C i s d e p e n d e n t u p o n , a m o n g o t h e r o p e r a t i o n s . have determinable o u r a t e s t i m a t e d d e f i n e d i n 15. We do not expect i n t e r e s t equal the redempt ion. i s S F A S N o . L 5 7 a s t h e $ 2 5 0 m i l l i o n t h e L L C . W e a l - s o p r o v i d e c e r t a i n t h e L L C a s a n a v a i l a b l e - f o r - s a l e to r e d e e m e d , a s amou nt begi nning a gai n on the rep ort t h e f a i r v a l - u e . th e LLC to i n v e s t m e n t val-ue of investment s e r v i c e s carrying req uire t h e our t o to i n i s in r e d e m p t i o n p r i c e o f o u r t h e L L C , a s d i s c u s s e d redempt ion at the i n v e s t m e n t i n N o t e ti me our L LC t o of time the i s e x p e c t e d r e d e m p t i o n p r i c e o f $ 2 5 0 m i l - l - i o n LLC at the T h e f a i r v a l - u e i s d e t e r m i n e d u s i n g L e v e l - 3 i n p u t s a s TIMET. See Note 3 fo r inform ation on our i nves tment i n TIME T. Other. The aggregate of a n d o t . h e r a v a i l a b l e - f o r - s a l e m a r k e t a b l - e s e c u r i t i e s debt a p p r o x i m a t e s v a l u e a t D e c e m b e r 3 1 , 2 0 0 6 a n d 2 0 0 7 . D u r i n g 2 0 0 6 a n d 2 0 0 7 , m a r k e t a b l - e s e c u r i t i e s and unres tri cted ( p r i m a r i l y res tric ted cost the c o m m o n n e t c a r r y i n g s e c u r i t i e s t h e i r w e p u r c h a s e d o t h e r a v a i l - a b l - e - f o r - s a l e s t o c k s m i 1 l i o n , r e s p e c t i v e l y , a n a g g r e g a t e o f $ 4 2 . 9 m i l l i o n a n e t s e c u r i t i e s l - o s s o f $ . 1 m i l l - i o n s e c u r i t i e s ) a n d d e b t f o r a n d s u b s e q u e n t l y s o l - d a p o r t i o n o f s u c h s e c u r i t i e s a n a g g r e g a t e o f $ 4 3 . 4 m i l - l i o n t r a n s a c t . i o n g a i n o f a p p r o x i m a t e l y $ . 7 m i l - l i o n a n d $ 2 8 . 5 m i l l i o n , r e s p e c t i v e l y , i n 2 0 0 7 . S e e N o t e 1 5 . a n d $ 2 3 . 3 f o r w h i c h g e n e r a t e d i n 2 0 0 6 a n d a Note 5 - Accounts and other recei vabl es, net: receivable Account s Notes receivable Accrued interest and divide nds Al-l-owance for doubtful- accounts recei vabl -e Total- F - 2 7 December 3L, 2 0 0 6 -(rn 2 0 0 7 mi ll ionF F 2 2 8 . 0 3 . 2 I ( 3 . 0 ) fi223- 3 $ 2 3 9 . 2 4 . 5 . 1 ( 2 . 4 \ s 2 4 L . 4 N o t e 5 - I n v e n t o r i e s , n e t : R a w m a t e r i a l - s : Chemicals Component products T o t a l r a w m a t e r i a l s W o r k i n p r o c e s s : C h e m i c a l s Component products T o t a l i n - p r o c e s s p r o d u c t s F i n i s h e d p r o d u c t s : Chemical-s Component products Total- finished products S u p p l i e s ( p r i m a r i l y c h e m i c a l - s ) Total- N o t e 7 - O t h e r a s s e t s : I n v e s t m e n t T I M E T : i n a f f i l - i a t e s : Common stock P r e f e r r e d s t o c k Total- investment in TfMET Ti02 manufacturing Basic Management and LandweLl- vent.ure joint Total O t h e r a s s e t s : December 31 2 0 0 6 -(In rnillioiil 2 0 0 7 $ 4 5 . 1 5 . 8 $ 5 6 . 2 6 . 3 s 1 . 9 7 2 . 5 2 5 . 7 8 . 7 3 4 . 4 1 6 8 . 4 7 . r 1 7 5 . 5 1 9 . 9 9 . 8 2 9 . 7 L 7 L . 6 8 . 2 L 7 9 . 8 4 7 . 2 5 5 . 9 $ 3 0 9 . 0 s33f- 9 D e c e m b e r 3 1 , 2 0 0 6 2007 ( I n m i l l i o n s ) $ 2 6 4 . L a. z 2 6 4 . 3 1 1 3 . 5 1 8 . 8 1 1 8 . 5 L 9 . 4 $3 esJ s 1 3 7 . 9 s i t e o p e r a t i n g p e r m i t s , n e t f i n a n c i n g c o s t s W a s t e d i s p o s a l D e f e r r e d IBNR receivabl-es Loans and other R e s t r i c t e d O ther receivabl-es c a s h e q u i v a l e n t s Total- I n v e s t m e n t i n T I M E T . O n M a r c h 2 6 , 2 0 0 7 , w € o f t h e T I M E T c o m m o n s t o c k w e o w n e d t o o u r s t o c k h o l d e r s . F - 2 8 $ 2 2 . 8 9 . 2 5 . 6 3 . 2 . 4 2 2 . 5 i_s4-1 $ 2 g . g 8 . 2 7 . 8 1 . 8 . 1 1 9 . 5 s 5 7 . 3 d i v i d e n d c o m p l e t e d a s p e c i a l S e e N o t e 3 . C e r t a i n s e l e c t e d f i n a n c i a l i n f o r m a t i o n o f T I M E T i s s u m m a r i z e d b e l o w : C u r r e n t a s s e t s Property M a r k e t a b l - e s e c u r i t i e s Other noncurrent and equipment assets T o t a l - a s s e t s l i a b i l i t i e s C u r r e n t Accrued pension and postretirement O t h e r n o n c u r r e n t M i n o r i t y i n t e r e s t Stockhol-ders, equity l i a b i l i t i e s benefi ts T o t a l _ l i a b i l i t i e s , s t o c k h o l d e r s , m i n o r i t y i n t e r e s t a n d e q u i t y Decernlcer 3L, 2 0 0 6 @ 7 5 7 . 6 3 2 9 . 8 s 5 . 8 7 2 . 7 fiJ.-2l.q- I $ 2 L L . 1 8 0 . 2 2 5 . 4 2 1 . 3 8 7 8 . 9 $1'2]5-2 N e t s a l - e s C o s t o f s a l - e s Operating Net income income attributabre to common stockhol-ders Years ended Decenlcer 3L, 2 0 0 5 2 0 0 6 ( I n m i l l i o n s ) $ 7 4 e . 8 5 5 0 . 4 I 7 L . T I 4 3 . 7 $ 1 , 1 8 3 . 2 7 4 7 . 7 3 8 2 . 8 2 7 4 . 5 w e a l s o p r e v i o u s l y o w n e d I 4 , 7 o o p r e f e r r e d i m m e d i a t e l y p r i o r s t o c k , w h i c h w e c o n v e r t . e d i n t o t h e M a r c h 2 o o 7 s p e c i a l d i s t r i b u t i o n . t o s h a r e s o f T I M E T S e r i e s A c o n v e r t i b l e l - 9 5 , O O O s h a r e s o f T I M E T c o m m o n s t o c k Investment jn TiO2 manufacturing joint a n d a n o t h e r T i 0 2 p r o d u c e r , T i o x i d e A m e r i c a , j o i n t o f a m a n u f a c t u r i n g t h a t o w n s a n d o p e r a t e s a T i O 2 p l a n t s u b s i d i a r y o f H u n t s m a n H o l d i n g s L L C . v e n t u r e venture. r n c . ( " t i o x i d e , , ) , ( L o u i s i a n a P i g m e n t , C o m p a n y , L . p . , i n L o u i s i a n a . t i o x i d e Our Chemical-s Segment a r e e q u a l o w n e r s o r " L p C , ) i s a w h o l l - y - o w n e d a r e b o t h L P C o p e r a t e s r e q u i r e d o n a b r e a k - e v e n b a s i s a n d , a c c o r d i n g i y , t o p u r c h a s e o n e - h a l - f o f i n e a r n i n g s o f L P C . E a c h o w n e r ' s a c q u i s i t i o n i s equal e x p e n s e , to i ts sha re of i f a n y . t h e r e l - a t e d T i 0 2 a c g u i r e d f r o m L P C , w h i c h g e n e r a l l y t h e T i o 2 w € p r i c e t r a n s f e r j oi nt the O u r s h a r e o f n e t f r o m L p C i s t o e x c e s s r e l - a t e t o L p C , w h i c h g e n e r a l l y c o s t s , a n d c o n t r i b u t i o n s b y L P C w h e n i t b u i l d s w o r k i n g c a p i t a l , f l - o w s i n o u r C o n s o ] i d a t e d S t a t e m e n t s o f C a s h F l o w s . W e i n c a s h w e a n d T i o x i d e i s of its share p r o d u c t i o n c o s t s a n d th e TiO2 prod.uced i n t e r e s t a s c o s t o f s a l - e s a s t h e d i s t r i b u t i o n s p r o d u c e d b y L P C . r e p o r t n o e q u i t y f or v e n t u r e r s c o s t r e p o r t e d s o l - d . W e i n c l u d e c a s h f r o m n o n - c a s h p r o d u c t i o n r e l a t e f r o m o p e r a t i n g r e p o r t d i s t r i b u t i o n s m i l - l i o n $ 1 0 . 1 m i l l i o n i n 2 O O 5 a n d $ 1 1 . 9 m i l l i o n i n 2 0 0 7 a r e s t a t e d n e t o f d i s t r i b u t i o n s t o c a s h r e q u i r e d w e m a d e d u r i n g d i s t r i b u t i o n s a c t i v i t i e s o r c o n t r i b u t i o n s n e t o f c o n t r i b u t i o n s a n y O u r n e t d i s t r i b u t i o n s o r o f $ 4 . 9 o f i n 2 0 0 6 . C o n t r i b u t i o n s o f $ + . g m i l l i o n o f $ e . O m i l l i o n . i n 2 0 0 5 a n d $ 2 . 3 m i l - l - i o n i n 2 0 0 6 a r e s t a t e d . n e t o f c o n t r i b u t i o n s t h e p e r i o d . s . F - 2 9 C e r t a i n s e L e c t e d f i n a n c i a l - i n f o r m a t i o n o f L P C i s sum mariz ed bel -ow : C u r r e n t a s s e t s Property and equipment Tot.al- assets L i a b i l i t i e s , P a r t n e r s ' p r i m a r i l y c u r r e n t e q u i t y T o t a l l i a b i l i t i e s a n d p a r t n e r s ' e q u i t y N e t s a l - e s : Kronos T i o x i d e C o s t o f s a l - e s income Net December 3L, 2 0 0 6 2 0 0 7 ( I n m i l l i o n s ) $ 5 5 . 2 r 9 2 . 5 $213- 3 $ r - 8 . 8 2 3 0 . 0 $ 2 4 8 . 8 $ 6 8 . 3 L 9 5 . 2 $2_63-5 $ 2 3 . 8 2 3 9 . 7 s 2 5 3 . s Years ended December 31, 2007 2 0 0 6 2 0 0 5 ( I n m i l l i o n s ) $ 1 0 e . 4 t - 1 - 0 . 4 $ r 2 4 . L r 2 5 . 2 $ L 2 4 . 6 L 2 s . 0 2 L 9 . 6 2 4 9 . 3 249_.6 O n S e p t e m b e r 2 2 , 2 0 0 5 , L P C ' s o f a v a r i e t y o p e r a t i o n s to Hurricane Rit.a. e x t e n s i v e , and avail-ability p a r t i a l The majority in which normal- production a n d resulting c l - a i m s w i t h o u r business other interrupti on c o v e r e d o u r from our share of i n s u r a n c e i n s u r e r s . claim of LPC' s property f a c t o r s , i n c l u d i n g t e m p o r a r i l y of empl oyees and raw mater ial s, u n t i l - O c t o b e r 9 , 2 0 0 5 a n d f u l l f a c i l i t y Although storm damage to cor e proc ess ing h a l t e d p r o d u c t i o n l o s s o f u t i l i t i e s , d u e w as not a c c e s s of 1 a t e 2 0 0 5 . for peri ods levels w ere not ach iev ed, w ere cov ered by i nsuranc e, d e d u c t i b l e s ) at LP C. B oth w e and LP C fi le d l - o s t p r o f i t s th e 1 ost produc ti on prev ented o p e r a t i o n s fi xed d amage and unabs orbed u n t i l cos ts , t o a p p l i c a b l e res umpti on fac il it ies ( s u b j e c t l i m i t e d the W e r e c o g n i z e d in th e j - n c o m e o f $ 1 . 8 m i l - l - i o n r e l a t e d four th quart er of 2006, w hic h i s i ncl uded t o o u r in income on our Consol-idated S tatement of Oper ations . Investment in Basic Management and Landwe7l, We also own a 322 interest i n d u s t r i a l - W e a l - s o h a v e t o i n t h i n g s . engaged i n eff orts a m o n g o t h e r i s act iv ely s e r v i c e s t h e i s Landwel-I. r e a l e s t a t e . f ederal- For and accordingly l o c a t e d , in The Landw ell Company , w hic h i n B a s i c M a n a g e m e n t , f n c . , w h i c h , p r o v i d e s u t i l i t y p a r k w h e r e o n e o f T I M E T ' s p l a n t s L2Z interest d e v e l o p c e r t a i n in partnership, Management and Land wel -1 includ e earnings only th at to record our equity lag because th eir t i m e l y Management and Landwe l- I i s summari zed be l-ow . state ments are general ly c o m b i n e d com bined a prov is ion suc h earni ngs acc rue th e exten t s e l e c t e d C e r t a i n b a s i s . for B a s i c M a n a g e m e n t o w n s a n a d d i t i o n a l income the Landw el-L of purpos es res ul-t s tax 5 0 ? i n t e r e s t treat ed as a i s of B as ic operat ions tax es on Landw ell-'s i ncome to B asi c Management . We in earnings of B asi c Managem ent and Landw ell - on a one-guar ter fi nancial- f i n a n c i a l - not ava il -abl-e i n f o r m a t i o n to us on a o f B a s i c F - 3 0 C u r r e n t a s s e t s Property and equipment Prepaid costs and other Land and development costs Notes and other receivabl-es fnvestment in undeveloped. T o t a l a s s e t s land and wat.er ri ghts l i a b i l i t i e s C u r r e n t Long-term debt Deferred O t h e r n o n c u r r e n t Equity incom e ta xe s l i a b i l i t i e s S eptember 30, 2 0 0 5 2 0 0 7 ( f n m i l l i o n s ) $ 4 s . 7 l L . 7 5 . 0 t _ 5 . 5 2 . 8 4 I . 4 s122-2 $ 7 7 . 6 2 0 . 3 5 . t _ 1 . 3 7 6 . 9 $ 3 e . 5 1 1 . 1 4 . 7 L 5 . 4 1 . 5 4 5 . 7 $11€=1 $ L s . 2 L 8 . 2 5 . 5 1 . 3 7 6 . 9 T o t a l l i a b i l i t i e s a n d e q u i t y fiJ22-2 $11! .1 Total- revenues fncome before Net income income ta xes 2 0 0 s - 2 0 0 6 (rn ffirions) $ 3 0 . 4 L 4 . 9 1 " 2 . 8 $ 3 1 . 4 7 6 . 5 1 3 . 5 2 o n - $ 2 3 . s L 0 . 2 9 . 0 other' a f f i l i a t e s , we have certain rel -ated. part y a s m o r e f u l r y d . e s c r i b e d i n l u t t e i s . trans act ions w ith som e o f t h e s e t h e r e 1 a t e T h e I B N R r e c e i v a b l - e s o f w h i c h w e h a v e r e i n s u r e d w i t h r e p o r t i n s u r a n c e b e e n r e i n s u r e d C e r t a i n o f o u r t h e r e l - a t e d c u r r e n L a s s e t s . l i a b i l i t i e s a s p a r t o f n o n c u r r e n t i n s u r a n c e r B N R r e c e i v a b l e S e e N o t e s 1 0 a n d L 6 . l i a b i l i t i e s i s t o c e r t a j - n c e r t a i n r e l a t e d . t h i r d t o i n s u r a n c e p a r t y t h i s r i u n a c c r u e d i n s u r a n c e a r e c l - a s s i f i e d a s a c u r r e n t c l - a s s i f i e d w i t h p r e p a i d i n s u r a n c e l i a b i l i t i e s , t h e r i s k c a r r i e r s . w e r e c e i v a b L e w h i c h h a v e c l a i m s a n d e x p e n s e s . l i a b i r i t y a n d e x p e n s e s a n d . o t h e r F - 3 1 N o t e I G o o d w i l l a n d o t h e r i n t a n g i b J . e a s e e t s : t h r e e b y o p e r a t i n g G o o d w i l - L . y e a r s C h a n g e s i n t h e s e g m e n t c a r r y i n g i s p r e s e n t e d a m o u n t i n o f g o o d w i l l t a b l e t h e b e l o w . d u r i n g t h e p a s t B a l a n c e a t D e c e m b e r 3 1 , 2 0 0 4 Goodwil-l- acquired A s s e t s s o l d Changes in exchange fo reign r a t e s B a l a n c e a t D e c e m b e r 3 1 , 2 0 0 5 Goodwill th e Changes in acquired during exchange fo reign year r a t e s B a l - a n c e a t D e c e m b e r 3 1 , 2 0 0 5 G o o d w i l l - a c q u i r e d d u r i n g t h e y e a r B a l - a n c e a t D e c e m b e r 3 1 , 2 0 0 7 $ 3 3 e . 7 1 . 3 3 4 1 - . 0 I 7 . 6 3 5 8 . 6 ( . 1 ) $:5_gt OBerating C hemic als segment Component P roduct e ( rttni-rrions ) TotaI $ 3 s 4 . 1 9 . 3 ( 1 , . 4 ) ( . 2 ) 3 6 1 . 8 2 3 . 2 . 2 3 8 5 . 2 2 ] - . 5 $ 1 _ 4 . 4 8 . 0 ( r . + ) ( . 2 ) 2 0 . 8 5 . 5 a. z 2 5 . 6 2 1 - . 7 $ + e . s $ + o o . a of our goodwill v a r i o u s rel-ated to a c q u i s i t i o n s d i s c u s s e d t , h e t h r e e f u r n i t u r e , g o o d w i l l to estimate d e t e r m i n i n g q u o t e d m a r k e t p r i c e s G o o d w i l l i s a s s i g n e d rel ated s t e p a c q u i s i t i o n s f o u r o f o u r r e p o r t i n g t o to our C hemic al-s S egment w as generat ed o f N L a n d K r o n o s . a l l o f u n i t s . S u b s t a n t i a l l y S egment w as generat ed a l l from o ur t h e g o o d w i l l from C ompX's S u b s t a n t i a l l y th e Comp onent Product s o f b u s i n e s s c e r t a i n u n i t s T h e C o m p o n e n t P r o d u c t s S e g m e n t g o o d w i l l i s a s s i g n e d t o a n d t h e s t e p a c q u i s i t i o n o f C o m p X i n N o t e 3 . r e p o r t i n g u n i t s w i t h i n a n d m a r i n e c o m p o n e n t s . t h a t o p e r a t i n g I n a c c o r d a n c e w i t h S F A S N o . 1 , 4 2 w e t e s t s e g m e n E : s e c u r i t y i m p a i r m e n t a t t h e r e p o r t i n g u n i t l e v e l . W e u s e d i s c o u n t e d f air th e t h e e s t i m a t e d val-u e of f a i r t.h ree C omponent P roduct S egment uni ts. the v a l - u e o f o u r C h e m i c a l - s S e g m e n t , w € c o n s i d e r f o r K r o n o s ' c o m m o n s t o c k . p r o d u c t s , f o r c a s h f l o w s I n t h e In accordance with th e f o u r f o r e a c h o f o u r o f e a c h y e a r o r w h e n c i r c u m s t a n c e s p r e s e n t . t h e a s s e t impairment f a i r i s w r i t t e n reviews of goodw il l r e p o r t i n g d o w n t o t h e I f req ui rements f o r u n i t s a r i s e v a 1 u e o f a n e v a l - u a t e d a s s e t f a i r indi cated v a l - u e . no i mpairm ent.s. of S FAS N o. 1-42, w e rev iew goodw ilJ- q u a r t e r i m p a i r m e n t d u r i n g i n d i c a t e i s t h i r d a n i m p a i r m e n t m i g h t b e i t s b o o k v a l u e , l - e s s t h a n t h e t h a t O u r 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 a n n u a l - O t h e r i n t a n g i b T e a s s e L s . D e f i n i t e - l i v e d Patents and other c u s t o m e r l i s t intangible T o t a l i n t a n g i b l e asset s a s s e t December 3L, 2 0 0 5 2007 ( I n m i l l i o n s ) $ 1 . 3 2 . 6 $ 3 . e $ . 6 2 . Lw F - 3 2 D e c e m b e r 3 1 , i n t a n g i b l e A m o r t i z a t i o n e x p e n s e w a s $ 3 . 5 m i l l i o n , 2 0 O 6 a n d 2 0 0 7 , 2 0 0 5 , $ 4 . 2 m i L l - i o n a n d $ 1 . 2 m i l - l - j - o n 1 n a g g r e g a t e E s t i m a t e d a s s e t a m o r t i z a t i o n e x p e n s e f o r f i v e y e a r s i s a s f o l - l - o w s : r e s p e c t i v e l y . t h e n e x t 2 0 0 8 2 0 0 9 2 0 1 0 201,L 20]-2 $ . 7 m i l l - i o n . 6 m i l l i o n . 6 m i l l i o n . 6 m i l l i o n . 3 m i l - l i o n N o t e 9 - L o n g - t e r m d e b t : Valhi Snake River Sugar Company $ 2 s 0 . 0 $ 2 s 0 . 0 S u b s i d i a r y d e b t : December 3L, 2 0 0 6 2 0 0 7 tr" mi ll ioni l K r o n o s I n t e r n a t i o n a l - CompX promissory K r o n o s U . S . b a n k c r e d i t Other f a c i l i t y 5 . 5 t S e n i o r S e c u r e d N o t e s to TIMET note payable Total- sub sid iary debt Total- debt L e s s c u r r e n t m a t u r i t i e s Total long-term debt 5 2 5 . 0 6 . 4 5 . 1 5 3 5 . 5 7 8 6 . 5 n ^ L . Z 5 8 5 . 5 5 0 . 0 1 5 . 4 5 . 7 6 s 5 . 5 9 0 5 . 5 L 5 . 8 $f!5, 3 s 8 8 9 . 8 V a L h i . O u r $ 2 5 0 m i l l i o n interest by our i n t e r e s t col-Lateral-ized l - o a n s b e a r d u e i n J a n u a r y 2 0 2 7 . r e c o u r s e c e r t a i n t h e s e c o n d i t i o n s , t o u s a n d t h e l - o a n s . S e e N o t e 4 . a t a w e i g h t e d a v e r a g e A t D e c e m b e r 3 1 , 2 0 0 7 , $ 3 7 . 5 m i l - l i o n o f l o a n s i n i n The A malgam ated S ugar C ompany LLC . i n t e r e s t f r o m S n a k e R i v e r S u g a r C o m p a n y a r e Th e r a t e o f 9 . 4 * a n d a r e l - o a n s a r e t o u s . U n d e r o f i s n o n r e c o u r s e t o a c c e l e r a t e t h e m a t u r i t y f i x e d t h e r e m a i n i n g $ 2 1 2 . 5 m i l l - i o n S n a k e R i v e r h a s t h e a b i l i t y b e a r s f a c i l i t y l e n d i n g o r p r i m e of Kronos b a n k c r e d i t a t L I B O R p l u s 1 . 5 t common st ock w e ow n. W e h a v e a $ 1 0 0 m i l l - i o n r e v o l v i n g i n t e r e s t ( f o r p r i m e - b a s e d b o r r o w i n g s ) a n d i n c u r a d d i t i o n a l shares t o p a y d i v i d e n d s i n c u s t o m a r y O c t o b e r 2 0 0 8 , g e n e r a l l y b o r r o w i n g s ) million a b i l i t y p r o v i s i o n s change of control-, accel-erat e u n d e r t h e common stock we have pled ged as col -l -ateral - . 2 O Q 7 c l - o s i n g m a r k e t p r i c e o f $ I 7 . 4 5 p e r s h a r e , p r o v i d e s u n d e r A t D e c e m b e r 3 1 , 2 0 0 7 , f a c i l i t y . o f t h e f a c i l i t y . b o r r o w i n g s u n d e r the agreem ent, fac il it y. t o o n e - t h i r d a n d $ 1 . 4 m i l l i o n , a n d i s c o l l - a t e r a l i z e d The agreem ent i n w h i c h m a t u r e s ( f o r L I B O R - b a s e d b y 2 0 our i n d e b t e d n e s s a n d c o n t a i n s o t h e r t h e e v e n t o f a I n t o The max imum amount w e may borro w t h e m a r k e t v a l - u e o f t h e K r o n o s o f B ased on K ronos' D ecember 3 1, t h e K r o n o s c o m m o n s t o c k p l e d g e d t h e u n d e r t h e f u t u r e t h e r e w e r e n o b o r r o w i n g s o u t s t a n d i n g l - e t t e r s A t D e c e m b e r 3 1 , 2 0 0 7 $ 9 8 . 6 m i l - l i o n w a s a v a i l - a b l e of l i m i t e d l enders hav e th e maturity t r a n s a c t i o n s o u t s t a n d i n g c o l - l - a t e r a l - ds defined a m o u n t o f o f c r e d i t s u f f i c i e n t o f E h i s f a c i l i t y f a c i l i t y f a c i l i t y . f a c i l i t y u n d e r l imi ts t y p e . ri ght f o r f u l l t h e t h e t h e th e the the f o r in i s K r o n o s a n d i t s I n A p r i l p r i n c i p a l a m o u n t o f 5 . 5 t S e n i o r S e c u r e d N o t e s d u e 2 O L 3 a t . 9 9 . 3 0 5 t p r i n c i p a l a m o u n t N o t e s w i t h a p l e d g e o f 5 5 t o f c e r t a i n ( $ 4 9 8 . 5 m i l - l - i o n w h e n i s s u e d ) . W e c o l - l - a t e r a l i z e d i s s u e d e u r o 4 0 0 m i l l - i o n t h e t h e 5 . 5 t o f t h e c o m m o n s t . o c k o r o t h e r o w n e r s h i p E u r o p e a n o p e r a t i n g K r o n o s T i t a n G m b H , s u b s i d i a r i e s : s u b s i d i a r i e s . 2 0 0 5 , w € i n t e r e s t s f i r s t - t i e r o f o u r o f F - 3 3 1 5 , 2 0 0 9 , w € m a y r e d e e m u p p u b l i c e q u i t y t h e e v e n t o f a c h a n g e o f a n d S o c i e t e I n d u s t r i e 1 l - e D u T i t a n e , t o a n i n d e n t u r e w h i c h c o n t a i n s S . A . a n u m b e r o f t o w h i c h , a m o n g o t h e r l h i n g s , p a y d i v i d e n d s r e s t r i c t s o r m e r g e o r c o n s o l i d a t e o u r a b i l i t y 1 i e n s , a l l o r s u b s t a n t i a l l y a l l o f K r o n o s ' E u r o p e a n a s s e t s A t o u r o p t i o n , w € m a y r e d e e m t h e 6 . 5 ? N o t e s o n o r a f t e r t h e p r i n c i p a l r e d e m p t i o n p r i c e s l - 0 0 ? o n o r a f t e r O c t o b e r 1 5 , 2 0 ] - 2 . f r o m 1 0 3 . 2 5 t o f I n a d d i t i o n , r a n g i n g t o 3 5 ? o f t h e N o t e s w i t h o n o r t h e n e t t h e p r i n c i p a l o f f e r i n g c o n t r o l a t 1 0 5 . 5 t o f o f K I I , a s d e f i n e d t o m a k e a n o f f e r a m o u n t . w e w o u 1 d a l s o b e r e q u i r e d o f o u r 5 . 5 ? N o t e s a t p a r v a l - u e i n t h e t o p u r c h a s e o u r 5 . 5 ? N o t e s a t t . o t h e e v e n t K f I t h e a n d s u c h n e t p r o c e e d s a r e n o t o t h e r w i s e u s e d f o r A t D e c e m b e r 3 1 , 2 0 0 6 a n d t h e 5 . 5 ? N o t e s w a s a p p r o x i m a t e l y e u r o 9 7 0 f o r m t h e s a l - e o f a s s e t s o u t s i d e t o m a k e a n o f f e r t i m e p e r i o d . a s p e c i f i e d i n a m o u n t o f n e t p r o c e e d s i n c u r a d d i t i o n a l d e b t , t r a n s f e r t h e 5 . 5 ? N o t e s p u r s u a n t K r o n o s D e n m a r k A p S , K r o n o s L i m i t e d W e i s s u e d c o v e n a n t s a n d r e s t r i c t i o n s i n c u r w i t h , o t s e l l - o r t o , a n o t h e r e n t i t y . O c t o b e r 1 5 , 2 0 0 9 a t a m o u n t , d e c l i n i n g t o b e f o r e A p r i l p r o c e e d s o f a q u a l i f i e d I n a m o u n t . a g r e e m e n t , w e w o u l d b e r e q u i r e d t h e p r i n c i p a l 1 0 1 t o f p u r c h a s e a s p e c i f i e d p o r t i o n g e n e r a t e s a c e r t a i n o r d i n a r y s p e c i f i e d 2 0 0 7 , a n d e u r o 8 5 0 , r e s p e c t i v e l y , a m o u n t o f m i l l i o n 2 0 0 6 a n d 2 0 0 7 , r e s p e c t i v e l y . c o u r s e o f b u s i n e s s , p u r p o s e s w i t h i n ( $ 3 . 1 m i l l i o n ) t h e e s t i m a t e d m a r k e t p r i c e o f p € r t h e 5 . 5 ? N o t e s i n c l u d e s e u r o 2 . 5 m i l l i o n e u r o 1 , 0 0 0 p r i n c i p a l o f u n a m o r t i z e d o r i g i n a l a m o u n t , a n d t h e c a r r y i n g ( $ 3 . 3 m i l l i o n ) a n d e u r o 2 . 1 , i s s u e d i s c o u n t a t D e c e m b e r 3 1 , I n M a y 2 0 0 6 , w € u s e d t h e n e t p r o c e e d s 8 . 8 7 5 8 S e n i o r S e c u r e d N o t e s a t f r o m l - 0 4 . 4 3 7 * * o f e x i s t i n g a m o u n t o f e u r o 3 7 5 m i l - l - i o n $ 2 0 . 9 m i l - 1 i o n c a l l p r e m i u m . w e r e c o g n i z e d a $ 2 2 . 3 m i l - l - i o n p r e - t a x c h a r g e t h e c a f l - p r e m i u m o n t h e 8 . 8 7 5 ? N o t e s a n d t h e w r i t e - o f f c o s t s a n d u n a m o r t i - z e d p r e m i u m r e l a t e d f o r a n a g g r e g a t e o f # 4 9 1 - . 4 m i l l i o n , t h e p r e p a y m e n t o f i n 2 0 0 6 r e l - a t e d o f d e f e r r e d t h e n o t e s . t h e 5 . 5 t N o t e s t o t o t o t h e a g g r e g a t e p r i n c i p a l r e d e e m o u r i n c l u d i n g t h e t h e 8 . 8 7 5 t N o t e s , c o n s i s t i n g i n t e r e s t o f f i n a n c i n g i n l e t t e r s t h a t m a t u r e s i n t e r b a n k m a r k e t Norway and Denm ark have a euro f a c i l i t y Norwegian krone rs t h e a p p l i c a b l e e u r o 5 m i l l - i o n o f a c c o u n t s r e c e i v a b l e a l l o f c e r t a i n t o w i t h , o t b o r r o w e r s b o r r o w i n g s u n d e r t h e r e v o l v i n g i n c u r a d d i t . i o n a l - d e b t , s e l l - o r t o , a n o t h e r e n t i t y . t h e o t h e r a s s e t s o f r e s t r i c t i v e c o v e n a n t s W e e x p e c t p r i o r a n d t h e e q u i v a l e n t f a c i l i t y . c r e d i t i n c u r a l l t r a n s f e r a n d i n v e n t o r i e s f a c i l i t y O u r C h e m i c a l s S e g m e n t ' s o p e r a t i n g 80 mi l-l i on s u b s i d i a r i e s sec ured , J u n e 2 0 0 8 . W e m a y d e n o m i n a L e b o r r o w i n g s or U. S . dol-l-ars . Out standi ng r a t e p l u s bear borrow i ngs t . 1 - 2 5 2 . W e m a y a l s o o f c r e d i t . 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S . r e v o l v i n g i s c o l l - a t e r a l i z e d f i x e d a s s e t s . W e a r e c r e d i t b y o u r U . S . t o amount bas ed up on l i m i t e d f a c i l i t y or a form ul-a- determ in ed that have been pl edged. i n S e p t e m b e r 2 0 0 8 . i n v e n t o r i e s T h i s a n d c e r t a i n f a c i l i t y l-e sser of $45 mil l-ion recei vabl-e a t e i t h e r t h e p r i m e and inventor ies the r e c e i v a b l - e , t h a t m a t u r e s a c c o u n t s borrowing the accounts i n t e r e s t b e a r ( l . S Z c o v e n a n t s w h i c h , a m o n g o t h e r p a y d i v i d e n d s l i e n s , m e r g e r s . m i l l i o n a n e x t e n s i o n S e p t e m b e r 2 0 0 8 m a t u r i t y . w a s a v a i L a b l e o f o u r U . S . i n a t D e c e m b e r 3 1 , 2 0 0 7 ) . r a t e o r r a t e s b a s e d u p o n t h e e u r o d o l l a r c o n t a i n s T h e o u r a b i t i t y c e r t a i n t o r e s t r i c t f a c i l i t y i n c u r d e b t , s e l 1 a s s e t s o r e n t e r c i r c u m s t a n c e s , t h i n g s , c e r t a i n A t D e c e m b e r 3 1 , 2 0 0 7 , $ 1 5 . 4 m i l l - i o n w a s o u t s t a n d i n g f o r b o r r o w i n g s u n d e r r e v o l v i n g c r e d i t t h e f a c i l i t y . f a c i l i t y W e e x p e c t t o t h e p r i o r B orrow ing s r a t e r e s t r i c t i v e i n c u r i n t o a n d $ 2 3 . 0 t o o b t a i n c u r r e n t O u r C h e m i c a l s S e g m e n t a l s o c r e d i t f a c i l i t y t h a t m a t u r e s i n J a n u a r y h a s a C d n . 2 0 0 9 . $ 3 o m i l - l i o n T h i s f a c i l i t r z C a n a d i a n r e v o l v i n g i s c o l l - a t e r a l - i z e d F - 3 4 l e s s e r o f C d n . t h e accounts by our Canadian accounts b o r r o w i n g upon the B o r r o w i n g s b e a r t h e U . 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W e are i 2 6 m i l l - i o n o r a f o r m u l a - d e t e r m i n e d l imi ted t o a m o u n t b a s e d receivable and i nventori es that have been r a t e s b a s e d u p o n e i t h e r t h e C a n a d i a n p r i m e pl edged. r a t e , T h e f a c i l i t y r e s t r i c t i n c e r t a i n c o n t a i n s o u r a b i l i t y c e r t a i n t o c i r c u m s t a n c e s , r e s t r i c t i v e i n c u r a d d i t i o n a l p a y d i v i d e n d s A t D e c e m b e r 3 1 , 2 0 0 7 , n o a m o u n t s w e r e o u t s t a n d i n g s e l - 1 a s s e t s o r a n d t h e t h i n g s , o f $ 1 1 . 4 m i l - l i o n w a s a v a i l - a b l - e f o r b o r r o w i n g s u n d e r t h e f a c i l i t y . t o f a c i l i t y , t h a t a r i s e s p r i o r b e a c c e l - e r a t e d p r i o r t o d e f a u l - t u n d e r a n y o t h e r to pay the other a r i s e s p r i o r i n d e b t e d n e s s ) . c r e d i t a c c e l - e r a t e d p r i o r company defau1t L o a f a i l u r e d a t e t h e o t h e r r e v o l v i n g a c c e l - e r a t e d p r i o r K r o n o s . p r o v i s i o n s . c o n t a i n a p p l i c a b l - e r e s p e c t i v e c r o s s - d e f a u l t i n d e b t e d n e s s p r i o r p r o v i s j - o n s f a c i l i t y a g r e e m e n t , o f T h e C a n a d i a n i n d e b t e d n e s s ) . t h a t i n f a c i l i t y , c r e d i t t h e i r o r t o t o U n d e r t h e c r o s s - d e f a u l t t h e i r i n d e b t e d n e s s p r o v i s i o n s s t a t e d m a t u r i t y o f i n e x c e s s o f $ 2 0 m i l l i o n t h e 5 . 5 t N o t e s , t h e 5 . 5 3 N o t e s m a y indeb tedness a t t h e s t a t e d m a t u r i t y U n d e r t h e c r o s s - d e f a u l t i ts due date a s a r e s u l t p r o v i s i o n s d t r y o u t s t a n d i n g t o t h e i r under any other s t a t e d m a t u r i t y b o r r o w i n g s i f i ndebtedness i n d e b t , e d n e s s a t t h e s t a t e d m a t u r i t y t o t o p a y t h e o t h e r U n d e r t h e c r o s s - d e f a u l t t h e i r d t r y o u t s t a n d i n g s t a t e d m a t u r i t y r e v o l v i n g c r e d i t i n f a c i l i t y b o r r o w i n g u n d e r i f K r o n o s ' E u r o p e a n s u b s i d i a r i e s f a c i l i t y (i ncl uding o f a d e f a u L t u n d e r any due date d u e t o a f a i l - u r e that t h e o t h e r t h e E u r o p e a n r e v o l v i n g t h e o f u n d e r t h e b o r r o w e r s o r m a y b e p a r e n t i n exc ess of euro 5 mi l-l -i on due i t s d u e d a t e a n y d u e a s a r e s u l - t o f a d e f a u l - t u n d e r t h e U . S . m a y b e t h e b a n k r u p t c y o f n o c r o s s - d e f a u l - t t h e e v e n t o f c o n t a i n s p r o v i s i o n s ( i n c l u d i n g f a c i l i t y t h e i r t h e o f T h e E u r o p e a n , U . S . a n d C a n a d i a n r e v o l v i n g t h e t o a c c e l e r a t e l e n d e r a l - I o w c r e d i t f a c i l - i t i e s t h e m a t u r i t y t h e e v e n t o f a c h a n g e o f c o n t r o l - , E r s d e f i n e d t h e a p p l i c a b l - e b o r r o w e r . I n t h e e v e n t a n y o f c h a n g e - o f - c o n t r o l p r o v i s i o n s i s a c c e l e r a t e d , w € w o u l d b e r e q u i r e d b e c o m e a p p l i c a b l - e , r e p a y t h e t o o f i n e a c h t h e t h e t h e s e t h e a n d i n d e b t e d n e s s s t a t e d m a t u r i t y . C o m p X . A t D e c e m b e r 3 7 , 2 0 0 7 , o u r C o m p o n e n ! P r o d u c t s S e g m e n t h a d a $ 5 0 . 0 f a c i l i t y t h a t m a t u r e s , J a n u a r y 2 O O 9 s e c u r e d r e v o l v i n g r e s t r i c t i o n s t h i n g s , l - i e n s , p a y d i v i d e n d s a l I i n t e r e s t , T h e f a c i l i t y f i r s t - t i e r a n d a m o n g o t h e r m i l l i o n a n d b e a r s L I B O R . C o m p X ' s c o v e n a n t s w h i c h , i n c u r s u b s t a n t i a l l y r e q u i r e s m a i n t e n a n c e o f a g r e e m e n t ) . T h e f a c i l i t y of net worth as defined of CompX, ds defined a c c e l e r a t e outstanding u n d e r t h e t h e m a t u r i t y borrowings f a c i l i t y . in in o f a t o u r o p t i o n , b a n k c r e d i t d t i s c o l l - a t e r a l - i z e d f o r e i g n i n o n t h e p r i m e s u b s i d i a r i e s . T h e c u s t o m a r y l e n d i n g i n r e s t r i c t s o u r a b i l i t . y o r m e r g e o r c o n s o l i d a t e w i t . h , o t i n c u r r a t e s b a s e d e i t h e r b y 6 5 2 o f c o n t a i n s i n t e r e s t s t h e o w n e r s h i p f a c i l i t y t r a n s a c t i o n s t o r a t . e o r i n c e r t a i n t y p e d e b t , o r a l s o t h e i n l e v e l s the even t of a cha nge of cont rol- the t o A t D e c e m b e r 3 1 , 2 0 0 7 , w € h a d n o o f a d d i t i o n a l t r a n s f e r ( a s d e f i n e d t h a t C o m p X m a i n t a j - n s p e c i f i e d l -enders hav e f a c i l i t y ri ght T h e t h i s the a l l In t o a n o t h e r e n t i t y . l e v e l - s o f n e t . w o r t h th e t h e agreem ent, f a c i l i t y . r e q u i r e s a l s o th e agreem ent. s p e c i f i e d o f C o m p X ' s a s s e t s , and th e full $sO mi l-l -i on w as ava il able for borrow i ngs I n O c t o b e r 2 0 0 7 , C o m p X i s s u e d a $ 5 2 . 5 m i l l i o n a p r o m i s s o r y n o t e t o T I M E T in exchange fo r T h e p r o m i s s o r y n o t e b e a r s 2 0 0 7 ) a n d p r o v i d e s i n S e p t e m b e r 2 0 0 8 , w i t h m ay m ake prepaym ents w i t h o u t p e n a l t y , T h e p r o m i s s o r y a g r e e m e n t . on i n c l u d i n g n o t e i s th e shares of CompX prev ious ly i n t e r e s t f o r q u a r t e r l y p r i n c i p a l t . h e b a l a n c e d u e a t . m a t u r i t y a t L I B O R p l u s 1 - * ( 5 . 0 t a t D e c e m b e r 3 1 , r e p a y m e n t s o f $ 2 5 0 , 0 0 0 c o m m e n c i n g i n S e p t . e m b e r 2 0 7 4 . C o m p X ow ned by TfME T. S ee N ote 3 . th e promi ss ory note i 2 . 6 m i l - l i o n p a i d i n t o C o m p X ' s U . S . at any t h e ti me, i n any amou nt, f o u r t h q u a r t e r o f 2 0 0 7 . b a n k c r e d i t r e v o l v i n g s u b o r d i n a t e d F - 3 5 Aggregate maturit:es o f T o n g - t e r m d e b t a t D e c e m b e r 3 7 , 2 0 0 7 Y e a r s e n d i n g D e c e m b e r 3 1 , Amount ( I n r n i t l i o n s ) $ 1 5 . 9 2 . L 2 . 2 2 . L 2 . 2 8 8 1 . 2 s 9 0 5 . 5 2 0 0 8 2 0 0 9 2 0 1 0 201-r 20L2 2 0 : - . 3 a n d t h e r e a f t . e r Total- R e s t r i c t i o n s . C e r t a i n o f t h e c r e d i t f a c i l i t i e s to main tain min imum l -evel -s of equi ty, f i n a n c i a l - ot her the borrower c e r t a i n contain transactions type. a p p l i c a b l - e d e b t c o v e n a n t s . V a L h i ' s c o n s o l - i d a t e d s u b s i d i a r i e s w e r e r e s t r i c t e d . r a t i o s , pro visions l i m i t and d i v i d e n d s th is of requi re a n d a d d i t i o n a l cov enants res tri cti ve We are cur rentl y A t D e c e m b e r 3 1 , 2 0 0 7 , n o n e o f cus tomary i n com pli ance w ith l endi ng i n al l of our t h e n e t a s s e t s o f d e s c r i b e d a b o v e r e q u i r e the mai ntenance of a n d i n d e b t e d n e s s At December 31, pursuant to dividends a g g r e g a t e d $ . 1 0 p e r V a l h i $ 1 7 3 . 0 m i l l i o n . reduce this amou nt. th e A n y p u r c h a s e s o f 2007, am ounts avai l abLe for the paym ent of V alhi te rms of V aLhi' s s h a r e o u t s t a n d i n g rev olv ing bank cr edit fac il it y p e r q u a r t e r , p l u s a n a d d i t i o n a l t r e a s u r y s t o c k a f t e r D e c e m b e r 3 1 , 2 0 0 7 w o u l d December 31 2 0 0 6 2007 ( r n m i l l i o n s ) N o t e 1 0 - A c c r u e d l i a b i l i t i e s : C u r r e n t : costs Employee benefits Environmenta l Accrued sal-e s discounts Reserve Deferred I n t e r e s t O t her for uncertain income and reb at es ta x positions Total- Noncurrent : Reserve for uncertain Insurance claims and expenses Employee benefits Deferred income O t h e r ta x positions $ 3 7 . 4 l i - L J . b 8 . 5 4 . 9 7 . 6 4 7 . 7 $ l l e J $ 1 3 . 9 7 . 2 . 5 5 . 5 $ 3 7 . 6 1 5 . 4 1 5 . 3 . 3 4 . 0 8 . 3 5 2 . 3 s 1 3 3 . 2 $ 5 e . 4 L 5 . 2 8 . 4 1 . 1 5 . 8 Total- $ 2 8 . l - $_s_9.J T h e r i s k s a s s o c i a t e d w i t h c e r t . a i n o f o u r a c c r u e d h a v e b e e n n o n c u r r e n t n o n c u r r e n t d i s c u s s e d a n d t h e e x t e n t S e e N o t e 7 . O u r r e s e r v e r e i n s u r e d , a s s e t s t i a b i l i t y . i n N o t e l - 8 . r e l - a t e d t h e r e l a t e d t h e t o I B N R r e c e i v a b l e s i n s u r a n c e c l a i m s a n d e x p e n s e s a s a s a i s c l - a s s i f i e d t a x p o s i t i o n s i s l i a b i l i t y f o r u n c e r t a i n r e c o g n i z e d a r e F - 3 5 Note Ll - Erployee bene fit plan s: Defined pension plans a p p r o x i m a t e d $ 3 m i l - l - i o n i n e a c h o f 2 0 0 5 , 2 O e 6 a n d 2 0 0 7 . contribution fo r our emp loyees w orl- dwi de. W e mai ntai n D efin ed plans . var ious defi ned con tribut ion con tribut ion pl an exp ense Defined bene fit plan s. Kronos , N L and one of our pens ion pl ans w orl-d wi de. p I a n s , p e n s i o n sponsor vario us defined bene fit 2007 Kronos and NL used a Septem ber 3otn meas urement date b e n e f i t m e a s u r e m e n t d a t e . p e n s i o n p l a n s n o w u s e a D e c e m b e r 3 1 " t m e a s u r e m e n t d a t e . b e n e f i t s e m p l o y e e c o m p e n s a t i o n . minimum amou nt req uired additional- unde r ER fS A (or equi val ent u n d e r o u r d e f i n e d b e n e f i t amou nts as we deem appropr iate. a n d E f f e c t i v e f o r m e r b u s i n e s s f u n d i n g O u r t h e T h e p l a n s a r e b a s e d u p o n y e a r s o f s e r v i c e a n d t h e plus S e e N o t e 1 8 . - c o n t r i b u t e regul ati ons a n n u a l l y fore ign) p o l i c y t o i s u n i t D e c e m b e r 3 1 , 2 Q 0 7 , a l l - o f o u r d e f i n e d b e n e f i t u s e d a D e c e m b e r 3 1 = t form er busi nes s units P rior to D ecember 3I , defi ned thei r for d e f i n e d p a r t i c i p a n t s W e e x p e c t b e n e f i t t o c o n t r i b u t e t h e e q u i v a l e n t p e n s i o n p l a n s d u r i n g 2 0 0 8 . o f $ 2 2 . 7 m i l l - i o n B e n e f i t p a y m e n t . s t o a l l o f o u r p l a n t o o u t o f p l a n a s s e t s a r e e x p e c t e d E o b e t h e e q u i v a l e n t o f : 2 0 0 8 2 0 0 9 2 0 L 0 2 0 L L 20]-2 Next 5 years $ 2 8 . 0 m i l l i o n 2 6 . 9 m i l l i o n 2 5 . 5 m i l - l - i o n 2 6 . 5 m i l - 1 i o n 2 9 . 1 m i l - l - i o n ] - 4 8 . 5 m i l l - i o n F - 3 7 The funded status the tabl-e bel-ow . of our defi ned benefi t p e n s i o n p l a n s i s p r e s e n t e d i n Years ended Decemlcer 31, 2 0 0 6 2 0 0 7 (In rni ll ions ) $ 5 2 Q . 5 7 . 8 2 3 . 8 1 . 5 ( 1 e . 8 ) 4 0 . 3 ( 2 6 . 2 ) $ s 4 7 . 9 7 . 9 2 6 . 8 2 . L ( 7 s . 1 ) 7 . 9 4 . 4 5 3 . 0 ( 3 6 . 8 ) E_ VJ- 9 s s 3 8 . 1 A ^ ^ ^ + 5 5 6 . I a 3 5 . 7 2 8 . 1 , 1 t r L . J 2 0 . 8 ( 2 6 . 2 ) $ 3 e e . o 1 8 . 3 2 8 . 0 2 . L ( . 5 ) 3 5 . 4 ( 3 5 . 8 ) $__3 eg_, ! $_4_4sJ $_ir4 g_, J) $_122_J) $ 4 0 . 1 $ 4 7 . 6 ( . 3 ) ( 1 8 8 . 7 1 ( , 3 ) ( 1 4 0 . 0 ) ( 1 4 8 . e ) ( e 2 . 7 ) 1 , 5 9 . 5 7 . 4 4 . 3 1 8 1 . 3 9 4 . 9 6 . 6 3 . 7 1 0 5 . 2 fi___32-A $__!2J $_ 3-q!- ! 5 4 6 6 . 9 o b l i g a t i o n s ( r r p g g r r ) th e year c o s t C h a n g e i n p r o j e c t e d b e n e f i t Balance at begin ning of S e r v i c e c o s t I n t e r e s t P a r t i c i p a n t s , A c t u a r i a l g a i n s Change in measurement. date Plan amendments Change in B e n e f i t s p a i d c o n t r i b u t i o n s foreign currency exchange rates Bal-ance at end of th e year C h a n g e i n p l a n a s s e t s : Fair val-ue at begi nning of Actual- retu rn on plan assets Employer contributions P a r t i c i p a n t s ' c o n t r i b u t i o n s Change in measurement date Change in foreign B e n e f i t s p a i d th e yea r currency exchange rates Fair value at end of year Funded status Amounts recog nized P e n s i o n a s s e t A c c r u e d p e n s i o n c o s t s : in th e consol_idat ed B al-an ce shee ts: Current Noncurrent Total- Accumulated other comprehensiv e l o s s e s l oss: A c t u a r i a l P r i o r s e r v i c e c o s t N e t t r a n s i t i o n o b l i g a t i o n s Total Total- A c c u m u l a t e d b e n e f i t o b l i g a t i o n s ( " A B O , ) F - 3 8 c o s t The amou nts shown in s e r v i c e c o s t a n d n e t a s o f o u r t h o s e p e r i o d i c p r i o r 2 0 0 7 h a v e n o t b e e n r e c o g n i z e d p e n s i o n c o m p o n e n t s o f a c c o r d a n c e w i t h S F A S N o . 1 5 8 , m i n o r i t y i n c o m e m i l l i o n , p r i o r r e c o g n i z e d 2 0 0 8 . c o m p r e h e n s i v e $ . g m i L l i o n c o s t S e e N o t e a n d n e t i n t e r e s t , s e r v i c e ( l o s s ) l - 8 . a r e th e tabl- e abov e for unrec ogniz ed t r a n s i t i o n o b l i g a t i o n s act uari al- a t D e c e m b e r 3 1 , 2 O O G a n d l osses, a s c o m p o n e n t s o f o u r p e r i o d i c d a t e s . T h e s e a m o u n t s w i l l i n d e f i n e d t h e s e a m o u n t s , n e t o f d e f e r r e d b e n e f i t c o s t b e f u t u r e r e c o g n i z e d i n o u r a c c u m u L a t e d o t h e r d e f i n e d b e n e f i t r e c o g n i z e d a s y e a r s . I n i n c o m e t a x e s a n d c o m p r e h e n s i v e $ 4 . 1 a t D e c e m b e r 3 1 , 2 0 0 6 a n d 2 0 0 7 . W e e x p e c t a p p r o x i m a t e l y a n d $ . s m i l - l - i o n o f t h e u n r e c o g n i z e d a c t u a r i a l - l o s s e s , t r a n s i t i o n o b l i g a t i o n s , r e s p e c t i v e l y , d e f i n e d d e t a i L s b e n e f i t t h e p e n s i o n c h a n g e s i n w i l l c o s t b e i n o t h e r a s c o m p o n e n t s o f o u r p e r i o d i c T h e i n c o m e ( l o s s ) d u r i n g 2 0 0 7 . t a b l e b e l o w Changes in plan assets and benefit in other comprehensi ve gain ari si ng during recognized Net actuariaL Pl-an amendment obl igat ions i ncome: the year Change in mea surement date: serwice cost. Prior T r a n s a c t i o n o b l i g a t i o n A c t u a r i a l A m o r t i z a t i o n l - o s s e s o f u n r e c o g n i z e d : P r i o r s e r v i c e c o s t N e t t . r a n s i t i o n Net actuarial- l-o sses o b l i g a t i o n s Total- The com ponents of our net peri odi c Year ended D e c e m b e r 3 1 , 2 0 0 7 ( I n m i l l i o n s ) $ 5 e . 5 ( 4 . 4 ) . 2 . 1 2 . 5 . 7 . 5 8 . 2 s 7 7 . 4 in th e o f u n r e c o g n i z e d presented a m o r t i z a t i o n t r a n s i t i o n were ( l o s s ) a t . D e c e m b e r 3 1 , 2 0 0 6 . o b l i g a t i o n s , recognized ta bl-es bel-ow. D uring 2007, a c t u a r i a l n e t o f d e f e r r e d l - o s s e s , p r i o r i n c o m e defi ned benefi t cos t the amount s sho wn be1ow for s e r v i c e ar e t he c o s t a n d n e t pens ion t a x e s a n d m i n o r i t y i n t e r e s t , as components o f our acc umul ated oE her com prehensi ve i ncom e N e t p e r i o d i c p e n s i o n c o s t : S e r v i c e c o s t I n t e r e s t Expected Amortizat .ion c o s t return on plan assets : of unrecognized P r i o r s e r v i c e c o s t N e t t . r a n s i t i o n N e t a c t u a r i a l - I o s s e s o b l i g a t i o n s Years ended December 31 2 0 0 5 2 0 0 6 ( r n m i l l i o n s ) 2007 $ 7 . 4 2 2 . 6 ( 2 2 . 2 ) $ 7 . 8 2 3 . 8 ( 2 s . 7 ) . 5 . 3 4 . 4 . 6 . 4 9 . 1 $ 7 . e 2 6 . 8 ( 2 8 . s ) . 7 . 5 8 . 2 T o t a l $__13;L $__15- ! $_ l5-5 F - 3 9 p resent. ed C e r t a i n in information concern ing t h e t a b l e b e l - o w . o u r d e f i n e d b e n e f i t p e n s i o n p l a n s r s e r o j e c t e d b e n e f i t o b l i g a t i o n s : U . S . P 1 a n s F o r e i g n P l a n s T o t a l F a i r v a l u e o f P l a n a s s e t s : U . S . p l a n s Foreign plans T o t a l Pl-ans for which th e accumul,ated be nefi t obl igat ion e x c e e d s p l a n a s s e t s : P r o j e c E e d . b e n e f i t Accumulat ed benef it obli gations F a i r v a l - u e o f P l a n a s s e t s o b l i g a t i o n s A summary of our key actuari al used a s s e t a s o f D e c e m b e r 3 1 , 2 O O 5 a n d 2 0 0 7 w a s : ass umpti ons o b l i g a t i o n s R a t e Discount Increase rate in fu ture compe nsation le vel s December 3L, 2 0 0 6 Ttr 2 0 0 7 rnirriotG)- $ e 2 . 4 4 5 5 . 5 g51J_,2 $ 1 3 0 . 3 2 6 8 . 7 $399_, ! $ 4 2 8 . 0 3 7 2 . 7 2 3 6 . 4 $ 8 7 . 4 4 5 0 . 7 $53_9J $ 1 3 3 . 1 3 L 2 . 3 9448-A s 2 8 7 . 4 2 4 0 . 6 L 6 4 . 4 t o d e t e r m i n e b e n e f i t December 3L, 2 0 0 6 4 . 8 t 2 . s z 2007 5 . 5 % 2 . 5 % A summary of our key actuarial b e n e f i t c o s t f o r 2 o o 5 , 2 0 0 6 a n d 2 O O 7 a r e a s f o l - l o w s : assumptions used to d.et ermine net P eriodic RaLe D i s c o u n t In cr eas e l,ong-term r a t e in fu ture compensation return on Pla n assets Years ended December 2 0 0 5 5 . 3 8 2 . 3 * 7 . 2 t 2 0 0 5 4 . 5 2 2 . 3 2 7 . 3 2 3 1 , 2007 4 . 9 t 2 . s 4 7 . 3 % le vel -s v a r i a n c e s f r o m a c t u a r i a l l y d . e c r e a s e s r e q u i r e m e n t s i n f u t u r e P e r i o d s ' i n a c c u m u l a t e d p e n s i o n o b J - i g a t i o n s , a s s u m e d r a t e s w i l l r e s u l t i n e x p e n s e a n d i n c r e a s e s o r f u n d i n g p e n s i o n A t D e c e m b e r 3 1 , 2 0 0 6 a n d 2 0 0 7 , s u b s t a n t i a l l y a l l o b l i g a t i o n s b e n e f i t t o p l a n s m a i n t a i n e d b y & t C h e m i c a l s S e g m e n t , a n d a l - l o f r e L a t e t h e A B O e x c e e d s S e g m e n t ' s f o r e i g n P l a n s . o f p l a t t a s s e t s a n d p l a n a s s e t s a t t r i b u t a b l e v a ] u e f a i r t h e t o o u r n o n - u . s . p l a n s o f t h e p r o j e c t e d r e l a t e f o r w h i c h L o o u r C h e m i c a l s t h e p l a n s A t D e c e m b e r 3 1 , 2 0 o 6 a n d 2 0 0 7 , s u b s t a n t i a l l y t o o u r u . s . p l a n s w e r e i n v e s t e d . i n a t t r i b u t a b l e T r u s t the col_lect ive b e n e f i t s ( * C M R T , ) , a c o l - l e c i i v e i n v e s L m e n t t r u s t investm "rru uy certai n mas ter p l a n s s p o n s o r e d b y C o n t r a n a n d c e r t a i n t h e c o m b i n e d M a s t ' e r R e t i r e m e n t s p o n s o r e d b y C o n t r a n E o p e r m i t empl oyee fund cer tain truJ ts o f that i t s a f f i l i a t e s ' a l l o f t h e a S S e t s F - 4 0 T h e C M R T ' s l o n g - t e r m i n v e s t m e n t o b j e c t i v e c o m p o s i t e a t h e S & P 5 0 0 a n d c e r t a i n o f b r o a d m a r k e ! R u s s e l l - i n v e s t m e n t m a n a g e r s a s w e l l a s th e sol -e trus t.ee of t h e C M R T T s i n v e s t m e n t m a n a g e t h e c o m m i t t e e p e r i o d i c a l l y i n v e s t m e n t s C M R T . o f c h a n g e t h e a s s e t m i x o f r e c e i v e t h i r d - p a r t y t h e t h e y t o w h a t a s s e t m i x w i l l t h e y e a r s e n d e d D e c e m b e r 3 1 , 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 , i s e q u i t y trus tee i n c o m e d i r e c t e d i n v e s t m e n t s r e t u r n i n d i c e s the C MRT. The t o p r o v i d e a r a t e o f a n d i n d i c i e s ) f i x e d w h i l - e u t i l L z r r . , g b o L h b y M r . t he of c o m m i t t e e , o f w h i c h M r . S i m m o n s i s a and t h e C M R T b a s e d u p o n , a n d t h e i r o v e r a l - l - r e t u r n . t h e a s s u m e d l o n g - t e r m I n d e t e r m i n i n g a s s u m p t i o n , w e c o n s i d e r e d , t h e C M R T , t h e c u r r e n t t h e f o r i n v e s t m e n t t h e C M R T w a s 1 0 & . t h e g r e a t e s t f r o m g e n e r a t e a d v i s o r s trus tee r e t u r n r e t u r n The t h e i n o f a c t i v e l y e x c e e d i n g ( i n c l u d i n g t h i r d - p a r t y Simmons . Mr. Sim mons is C M R T , a l o n g w i t h m e m b e r , i n v e s t m e n t a m o n g o t h e r e x p e c t a t i o n s F o r r a t e o f t h e a p p r o p r i a t e n e s s a m o n g o t h e r t h i n g s , a n d p r o j e c t e d C M R T ' s m a n a g e r s . through December 31, 2007, ( e x c l u d i n g ( i n c l u d i n g a s s e t m i x o f D u r i n g t h i n g s , a s t h e C M R T ' s a l 7 Z r e t u r n a d v i c e r e t u r n t h e h i s t o r y o f th e aver age annua1 i n i n v e s t m e n t rate T I M E T c o m m o n s t o c k ) of retur n t h e C M R T f r o m i t s f o r 2 0 0 6 a n d a 1 1 ? r e t u r n i n 2 0 0 7 ) . o b j e c L i v e s i n c e p t i o n of o f i n 1 , 9 8 7 the CM RT h a s b e e n ! 4 2 f o r p l a n a s s e t s i n v e s t e d t h e o f t h e h i s t o r i c a l - l o n g - r a t e r a t e s o f t h e C M R T a n d A t D e c e m b e r 3 1 , outstanding s h a r e s a r e n o t d o n o t c o n s o L i d a t e comm on stock r e f l - e c t e d t h e C M R T . 2 0 0 7 , and s u b t r u s t s .1 ? of our outs tandi ng o f t h e C M R T h e l d o f T I M E T ' s These com mon st ock. F i n a n c i a l - S t a t e m e n t s b e c a u s e w e 8 t i n o u r C o n s o l i d a t e d A t D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 7 , p l a n a s s e t s a t t r i b u t a b l e r e l - a t e d p r i m a r i l y f o r e i g n p l a n s t o G e r m a n y , C a n a d a a n d N o r w a y . t h e e x p e c t e d l o n g - t e r m f o r e i g n p l a n s , w € c o n s i d e r S e g m e n t ' s d e t e r m i n i n g f o r o u r f i x e d i n c o m e ) r a t e s o f c o m p o n e n t s . a b o u t a p p r o p r i a t e l o n g - t e r m r e t u r n T h e a s s u m e d a s s e t m i x e s a r e s u m m a r i z e d b e l - o w : r a t e o f t h e t h e a s s e t s t h e a s s e t r a t e s o f r e t u r n f o r f o r f o r e a c h o f o u r p l a n s a n d t h e e x p e c t e d r e t u r n l o n g - t e r m a s s e t m i x t o o u r C h e m i c a l s f n o n p l a n a s s e t a s s u m p t i o n s ( e . g . e q u i t y v s . l o n g - t e r m a d v i c e r e c e i v e w € I n a d d i t i o n , f r o m o u r t h i r d - p a r t y o G e r m a n y - t h e c o m p o s i t i o n t h e r e q u i r e m e n t s o f o C a n a d a - w e c u r r e n t l y o f o u r p l a n a s s e t s t h e G e r m a n i n s u r a n c e c o m m i s s i o n e r . i s e s t a b l - i s h e d s e c u r i t i e s e q u i t y long I 2 5 b a s i s p o i n t s a b o v e t h e a p p l i c a b l e a n d 4 0 2 t o return rate of te rm h a v e a p l a n a s s e t f i x e d suc h f or i nves tments t a r g e t i n c o m e s e c u r i t i e s . a l - l - o c a t i o n o f 5 0 ? W e e x p e c t t o t h e e q u i t y o r to ave rage approx imat ely f i x e d i n c o m e i n d e x . o N o r w a y - w e c u r r e n t l y s e c u r i t i e s h a v e a p l a n a s s e t f i x e d a n d 6 4 2 t o i n c o m e s e c u r i t i e s t a r g e t a ] l - o c a t i o n i n v e s t m e n t s s u c h a s m o n e y m a r k e t s . a n d t h e T h e e x p e c t e d o f ] - 4 Z t o r e m a i n d e r l o n g - t e r m a c t u a r i e s . t o s a t i s f y e q u i t y t o r a t e 4 . 5 2 , l i q u i d r e t u r n o f r e s p e c t i v e l y . f o r s u c h i n v e s t m e n t s i s a p p r o x i m a t . e l y 8 . 5 ? , 5 . 0 t a n d F - 4 l _ O u r p e n s i o n p l a n w e i g h t e d a v e r a g e a s s e t a l - l - o c a t i o n b y a s s e t c a t e g o r y w e r e a s f o l l o w s : CMRT D e c e m b e r 3 L , 2 0 0 6 Ge*,"ry Canada Norway E q u i t y s e c u r i t i e s a n d l i m i t e d p a r t n e r s h i p s i n c o m e s e c u r i t i e s F i x e d R e a l - e s t a t e C a s h , c a s h e q u i v a l e n t s a n d o t h e r 9 7 2 2 4 8 1 ] - 4 - 23* l - 5 6 6 2 3 2 z 1 3 ? 6 4 2 3 T o t a I _l_Q_Q.t _lqq? 1 0 0 ? 1 0 0 t CIfRT D ecember 3L, 2007 Germany Canada Norway E q u i t y s e c u r i t i e s a n d l i m i t e d p a r t n e r s h i p s i n c o m e s e c u r i t i e s F i x e d R e a l - e s t a t e C a s h , c a s h e q u i v a l e n t s a n d o t h e r 9 8 t _ 4 9 2 1 2 - 2 8 2 l - 1 5 0 8 3 4 6 1 8 * 5 8 L 4 rotal 1!! I 19_q_& 1-l] !_& 1ru ? W e r e g u J - a r l y r e v i e w o u r a c t u a l a s s e t a l - l - o c a t i o n f o r e a c h o f o u r p 1 a n s , a n d p e r i o d i c a l l y r e f l e c t t h e t a r g e t e d a l - 1 o c a t i o n w h e n w e c o n s i d e r i n v e s t m e n t s r e b a l a n c e t h e i t a p p r o p r i a t e . i n e a c h p l a n t o m o r e a c c u r a t e l y Post,retirement, benef it,s other than pensions ("OPEB" 1 . heal-th certain e m p l o y e e s . f o r Tremont provi de e l i g i b l e r e t i r e d m e a s u r e m e n t d a t e w e f u n d b e n e f i t c o n t r i b u t e p l a n s d u r i n g 2 0 0 8 . B e n e f i t p a y m e n t s t o O P E B p l a n p a r t i c i p a n t s b e t h e e q u i v a l e n t p a y m e n t s a s t h e y a r e p a i d . t h e i r O P E B p l a n s . o f a p p r o x i m a t e l y t h e e q u i v a l e n t $ 3 . 5 m i l l i o n car e and i nsuranc e l ife o f : K r o n o s , N L a n d T r e m o n t e a c h u s e a D e c e m b e r 3 1 t t W e h a v e n o O P E B p l a n a s s e t s , r a t h e r , A t D e c e m b e r 3 1 , 2 0 0 7 , w € e x p e c t t o NL, Kronos and for their benefi ts t o a l l - o f o u r O P E B a r e e x p e c t e d t o 2 0 0 8 2 0 0 9 2 0 1 0 2 j t L 2 Q T 2 Next 5 years $ 3 . 5 m i l l i o n 3 . 4 m i l l i o n 3 . 3 m i l l i o n 3 . 3 m i l - l i o n 3 . 1 m i l l i o n 1 3 . 3 m i l - L i o n F - 4 2 The funded status of our OPE B pl ans i s pres ented i n the tabl e b e l o w . Actuarial- prese nt val-ue of accumu lated OP EB o b l i g a t i o n s : th e year c o s t Bal-ance at begin ning of S e r v i c e c o s t I n t e r e s t A c t u a r i a l - Pl-an amendments Change in Benefits foreign l o s s e s ( g a i n s ) paid currency exchange rates from emp loyer cont ribut ions BaLance at end of th e year F a i r v a l - u e o f p l a n a s s e t s F und ed s t at us Accrued OPEB costs B a ] a n c e S h e e t s : Current Noncurrent Total- recogni zed in the C onsol idated Accumul-ated other comprehensi ve i ncome (l -oss ) : N e t a c t u a r i a l - P r i o r s e r v i c e c r e d i t l - o s s e s 'r'otra1 Total- Years ended 2 0 0 6 -lTn December 31 2007 m i l l i o n s ) $ 3 5 . 0 . 3 2 . 1 3 . 4 ri . a,l $_ r7J $__ $ 3 7 . 4 . 3 2 . 2 ( . 7 ) ( . s ) 1 . 3 ( 2 . e ) s 3 7 . 1 s - $ ( 3 7 . 4 ) s ( 3 7 . 1 ) $ ( 3 . 8 ) ( 3 3 . 5 ) $ ( 3 . s ) ( 3 3 . 5 ) ( 3 7 . 4 ) ( 3 7 . 1 ) 4 . 7 ( 1 . 6 ) 3 . 1 3 . 4 ( 1 . 8 ) 1 . 5 s ( 3 4 . 3 ) s ( 3 s . 5 ) th e tabLe abov e l -os ses a t D e c e m b e r 3 ! , 2 0 0 6 a n d 2 O O 7 h a v e n o t b e e n r e c o g n i z e d These amount s w ill fut ure thos e dates . OP EB cos t for unrec ogniz ed act uarial yea rs. i n The amounts shown in s e r v i c e c r e d i t recognized as compo nents of our peri odic a n d p r i o r as components of our periodic OP EB cos t as of be accordance with SFA S No. 158, minority i n c o m e a p p r o x i m a t e l y o f p r i o r Note 18. The d u r i n g 2 0 0 7 . ta bl-e bel-ow detail-s are now recog niz ed a t D e c e m b e r 3 1 , $ . l - m i l l - i o n o f s e r v j - c e c r e d i t interest, ( l o s s ) th es e amount s, net of defer red i n our acc umul ated other W e e x p e c t 2 0 0 6 a n d 2 0 0 7 . t h e u n r e c o g n i z e d a c t u a r i a l - a s c o m p o n e n t s o f o u r p e r i o d i c O P E B c o s t the chan ges i n other i ncome I n tax es and com prehensive r e c o g n i z e t o ] o s s e s a n d $ . g m i l l - i o n S e e i -ncom e com prehensi ve i n 2 0 0 8 . Changes in bene fit other comprehensive oblig ations income (l-oss) : rec ogniz ed i n Year ended D e c e m b e r 3 1 , 2 0 0 7 ( I n m i l l i o n s ) Net actuarial Plan amendments A m o r t i z a t i o n o f u n r e c o g n i z e d : l-o ss (ga in) arisin g P r i o r s e r v i c e c o s t Net actuarial- l-o sses Total- duri ng the year F - 4 3 $ . 8 . 5 ( . 3 ) . 2 $_1-2 The components of our th e amou nts 2007, During a c t u a r i a l a n d m i n o r i t y other comprehensi ve g a i n s / l o s s e s i n t e r e s t , incom e a n d l p e r i o d i c O P E B c o s t shown bel -ow p r i o r s e r v i c e were rec ogniz ed ( l o s s ) a t D e c e m b e r 3 1 , 2 0 0 6 . i s p r e s e n t e d the amort iz ation t h e of unrec ogniz ed i n c o m e t a x e s as com ponents of our acc umul ated n e t o f d e f e r r e d t a b L e b e l - o w . c r e d i t , f or i n N e t p e r i o d i c O P E B c o s t ( c r e d i t ) : S e r v i c e c o s t I n t e r e s t A m o r t i z a t i o n c o s t o f u n r e c o g n i z e d : P r i o r s e r v i c e c r e d i t A c t u a r i a l - l o s s e s ( g a i n s ) Total- Years ended December 3L, 2 0 0 6 2 0 0 5 (rn frffiions) 2 0 0 7 $ . 2 2 . 0 ( . e ) ( . 1 ) $ . 3 2 . 1 ( . 2 ) . t _ $ . 3 2 . 2 ( . 3 ) . 2 $f_,2 $ 2 . 3 5 2 . 4 A summary of our key actuarial assumptions used to determine the net b e n e f i t o b l i g a t i o n a s o f D e c e m b e r 3 1 , 2 0 0 6 a n d 2 0 0 7 f o l l - o w s : December 3L, 2 0 0 6 2 0 0 7 7 Z - 7 . 5 2 4 Z s . s t 2 0 0 9 - 2 0 1 _ 0 s . 8 t 5 . 8 ? - 8 . 5 8 - 5 . 5 ? 4 . 0 t 2 0 1 0 - 2 0 1 - 4 6 . r + infl-ation Heal-thcare I n i t . i a l Ul-timate Year of ultim ate r a t e rate : rate achievemen t Discount rate Assumed health amounts we rep ort h e a l t h c a r e t r e n d care cost heal th trend rates care p1ans . fo r r a t e s w o u 1 d h a v e t h e f o l l o w i n g hav e a si gni fic ant A one perc ent e f f e c t s : eff ect t he on i n ass um ed chan ge Effect E f f e c t a t D e c e m b e r 3 1 , 2 0 0 7 o n on net OPEB cost during 20 07 p o s t r e t i r e m e n t o b l i g a t i o n lt Increase 1 % D e c r e a s e ( I n m i l l i o n s ) . 3 3 . 5 $ ( . 3 ) Q . 4 ) T h e w e i g h t e d a v e r a g e d i s c o u n t r a t e u s e d i n d e t e r m i n i n g t h e n e t p e r i o d i c O P E B c o s t w e i g h t e d a v e r a g e a s o f t h e b e g i n n i n g o f e a c h y e a r . f o r 2 0 0 7 w a s 5 . 8 * ( t f r e r a t e w a s 5 . 5 8 i n 2 0 0 6 a n d 5 . 7 * r a t e w a s d e t e r m i n e d u s i n g t h e p r o j e c t e d b e n e f i t i n 2 0 0 5 ) . T h e o b l i g a t i o n s Variances f rom actu arially-ass ume d w il l i n a c c u m u l - a t e d O P E B o b l i g a t i o n s , rate s addi tio nal- res ul-t n e t p e r i o d i c O P E B c o s t i n i n c r e a s e s o r d e c r e a s e s and funding req uirements in fu ture peri ods. a f e d e r a l t h a t p r o v i d e The Medicare Prescri ption s u b s i d y a p r e s c r i p t i o n D rug, t o s p o n s o r s o f d r u g b e n e f i t t o M e d i c a r e P a r t D . W e a r e e l i g i b l e 2 0 0 3 p r o v i d e s p l a n s e q u i v a l e n t a c c o u n t determined o n t h e a p p l i c a b l - e a c c u m u l - a t e d p o s t r e t i r e m e n t have a material- o f equivalence. t h e actu arial- e f f e c t t h i s f o r Impr ovement and Modern izat ion A ct of r e t i r e e h e a l t h i s a t l e a s t c a r e b e n e f i t a c t u a r i a l l y f e d e r a l - s u b s i d y . t h a t t h e f o r p r o s p e c t i v e l y s u b s i d y The sub sid y di d not hav e a mater ial - f r o m t h e imp act on th e net peri odi c OP E B cos t goi ng forw ard. b e n e f i t o b l i g a t i o n , a n d w i l l W e d a t e w e i mpac t n o t F - 4 4 Note L2 - Income taxes: P r e - t a x i n c o m e : U n i t e d S t a t e s N o n - U . S . s u b s i d i a r i e s Total- Y e a r s 2 0 0 5 e n d e d D e c e m b e r 2 0 0 6 3 L , 2 0 0 7 ( I n m i L l i o n s ) $ 8 0 . 1 - $ 1 s 1 . 4 6 6 . L 1 , r 8 . 2 $ 3 . 0 5 1 . 0 $__L9_qr $ 2 1 - 7 . 5 $__5L_A r a t e o f 3 5 ? $ 5 e . 4 ( . 1 ) $ 7 6 . r ( 2 . L ) $ 1 8 . e . 1 E x p e c t e d t a x e x p e n s e , d t U . S . i n c o m e t a x f e d e r a l s t a t u t o r y N o n - U . S . t a x r a t e s I n c r e m e n t a l - U . S . t a x a n d r a t e d i f f e r e n c e s o n e q u i t y i n e a r n i n g s E x c e s s o f b o o k b a s i s o v e r t a x b a s i s o f 2 3 . 6 1 8 . 4 ( 1 4 . 1 ) s h a r e s o f K r o n o s c o m m o n s t o c k s o l d C h a n g e i n G e r m a n i n c o m e t a x a t t r i b u t e s I n c o m e t a x t o d i s t r i b u t i o n r e l - a t e d o f s h a r e s o f K r o n o s ( r e f u n d ) o f p r i o r y e a r i n c o m e i n c o m e t a x e s , n e t A s s e s s m e n t L a x e s , n e t U . S . s t a t e T a x c o n t i n g e n c y N o n d e d u c t i b l - e e x p e n s e s German tax rate change C a n a d i a n A f h o r t a x n o l - ^ r v e , r a t e c h a n g e P r o v i s i o n f o r i n c o m e t a x e s r e s e r v e a d j u s t m e n t , n e t C o m p o n e n t s o f C u r r e n t l y U . S . N o n - U . S . i n c o m e t a x e x p e n s e ( b e n e f i t ) p a y a b l e ( r e f u n d a b l e ) : f e d e r a l - a n d s t a t e T o t a l D e f e r r e d U . S . N o n - U . S . Total- i n c o m e t a x e s f e d e r a l a n d s t a t e ( b e n e f i t ) : l - . 9 1 7 . 5 .| . t 2 . 3 4 . 3 ( 1 e . 1 ) 5 . 2 ri. rl $__1A_L5 ( z t . t ) 8 . 7 ( 1 . 4 ) 2 . 9 ( 1 0 . 4 ) 4 . 9 ( 1 . 3 ) ( 1 . 5 ) ( . 8 ) L . 5 ( 3 . 8 ) 3 . 5 8 7 . 4 . 4 L . 3 $___ 53-' 3 $ 1 0 3 . 2 $ 2 5 . e 3 5 . 9 $ 5 1 . 8 2 0 . 8 2 2 . 0 4 2 . 8 2 . L 2 4 . 4 2 6 . 5 7 L . 3 ( 3 4 . 0 ) 3 7 . 3 $ ( 1 . 9 ) L 4 . 4 L 2 . 5 ( 1 1 . 3 ) 1 0 2 . 0 9 0 . 7 P r o v i s i o n f o r i n c o m e t a x e s $__1!4-'_6 $___63- 3 s 1 0 3 . 2 C o m p r e h e n s i v e p r o v i s i o n i n c o m e t . a x e s ( b e n e f i t ) I n c o m e f r o m c o n t i n u i n g D i s c o n t i n u e d D i v i d e n d o f T I M E T c o m m o n s t o c k O t h e r c o m p r e h e n s i v e o p e r a t i o n s i n c o m e : f o r a l - l - o c a b l - e t o : o p e r a t i o n s t r a n s l - a t i o n M a r k e t a b l - e s e c u r i t i e s C u r r e n c y P e n s i o n p l a n s O P E B p l a n s O t h e r A d o p t i o n o f S F A S N o . l - 5 8 : P e n s i o n p l a n s O P E B p l a n s Tot a l- Represents a s s o c i a t e d u t i l i z a t i o n T I M E T s p e c i a l d i v i d e n d . th e current L 0 4 . 6 ( . 4 ) . 2 - ( e . 0 ) ( 3 8 . 7 ) $ 6 3 . 8 $ 1 0 3 . 2 5 5 9 . 3 ( 1 ) 1 1 . 3 8 . 7 3 8 . s . 5 ( . 5 ) ( 1 . 4 ) 3 . 3 e . 6 e . 2 ( 1 e . 5 ) ( L . 7 ) $---5:J fi---SL s $-928-5 income of NOL and AMT carryforwards generated Laxes at t.he Valhi resulting l-evel- and from the the S e e N o t e 3 . F - 4 5 The components 2 O O 7 a r e s u m m a r i z e d b e ] o w . of the n e t d e f e r r e d t a x l i a b i l i t y a t D e c e m b e r 3 1 , 2 0 0 6 a n d D e c e m b e r 3 1 , 2 0 0 5 2 0 0 7 A s s e t s L i a b i L i t i e s A s s e t s L i a b i l i t i e s ( I n n i l l i o n s ) o f t e m p o r a r y d i f f e r e n c e s T a x e f f e c t r e l a t e d t o : f n v e n t o r i e s M a r k e t a b l e s e c u r i t i e s Property A c c r u e d O P E B c o s t s P e n s i o n a s s e t A c c r u e d p e n s i o n c o s t A c c r u e d e n v i r o n m e n t a l and equipment l i a b i l i t i e s a n d o t h e r d e d u c t i b l e d i f f e r e n c e s t a x a b l - e d i - f f e r e n c e s i n s u b s i d i a r i e s a n d O t h e r I n v e s t m e n t s a f f i 1 i a t e s A - P J . J Z U . L L Z . J 5 9 . 5 5 1 . 0 T a x l o s s a n d t a x c r e d i t V a l u a t i o n a l l o w a n c e c a r r v f o r w a r d s 2 4 5 . 7 A d j u s t e d g r o s s d e f e r r e d ( I i a b i l i t i e s ) t a x a s s e t s N e t t i n g o f i t e m s b y t a x j u r i s d i c t i o n L e s s n e t c u r r e n t d e f e r r e d ( l i a b i l i t y ) t a x a s s e t 4 0 1 _ . 9 ( L 2 5 . e ) 2 7 5 . 0 1 0 . 6 # ( 2 . 6 ) ( 1 - 2 9 . 0 ) ( 8 r . 3 ) ( 4 e . 7 ) $ 1 . 6 4 . 4 . 5 L 2 . 3 t t t . e l ( 2 6 8 . r - ) 3 8 . 4 n? .u t 6 4 . 2 ( 2 . e ) $ ( 3 . 2 ) ( 1 1 6 . 5 ) ( 8 1 . e ) ( 4 5 . 9 ) rit . st ( 2 1 8 . 8 ) ( 6 0 8 . 3 ) L Z O . > t + a : - . 4 1 2 6 8 . t ( 8 e . 0 ) \ 7 9 . L ( 4 e s . 0 ) 8 8 . 9 ( 4 0 5 . 1 ) ^ \ l ^ \ z - z ) 1 0 . 4 ( 3 . 3 ) N e t n o n c u r r e n t d e f e r r e d t a x a s s e t ( l i a b i l i t y ) s 2 6 4 . 4 5 G 7 e . 2 ) s 1 6 8 . 7 s ( 4 0 2 . 8 ) W e a d o p t e d P o s i t i o n s , i n t h e t h e f i r s t p r o v i s i o n s q u a r t e r o f F I N N o . 4 8 , A c c o u n t i n g f o r t l n c e r t a i n T a x o f 2 0 0 7 . S e e N o t e l - B . a n d s u b s e q u e n t i m p a c t u s , F o l l o w i n g a E u r o p e a n U n i o n C o u r t o f J u s t i c e d e c i s i o n i n 2 0 0 7 t h a t w e b e l i e v e m a y f a v o r a b l y p a i d earnin gs when recei ved. future i n i t i a t e d i m p l e m e n t a t i o n p r o c e e d i n g s w h i c h c o n c l u d e d w e a n e w g e n e r a t e a s u b s t a n t i a l w e h a v e p r e v i o u s l y our i f o u r accordingly w e m i g h t u l t i m a t e l y i n i t i a t i o n t h i s income Lax returns our German corpo rate and r e d u c e d b y a n a g g r e g a t e r e s p e c t i v e l y , deferred a t t r i b u t e s . income ta xes o f o f t a x p l a n n i n g s t r a t e g y . I f w e a r e s u c c e s s f u l , w € w o u l - d c a s h t a x b e n e f i t i n t h e f o r m o f i n E u r o p e w h i c h w e c u r r e n t l y r e f u n d s o f d o n o t e x p e c t i n c o m e t a x e s t o a f f e c t t h i s It may be a number of year s befor e w e kn ow a n d s t r a t e g y w i l l any refun dable b e s u c c e s s f u l , tax es i ncome t a x p l a n n i n g rec ogniz ed P a r t i a l l y that a s a r e s u l - t o f a n d c o n s i s t e n t w i t h o u r r e c e i v e . n e w t a x p l a n n i n g s t r a t e g y , in Germany. As a cons equence of amendi ng our tax net operat ing i n 2 O O 7 w e a m e n d e d p r i o r - y e a r retu rns , car ryforw ards l oss wer e tax in 2007 r el-a ted to the adj ustment 1 3 . 4 m i l l i o n a n d e u r o 2 2 . 5 m i l l i o n , r e c o g n i z e d a n $ 8 . 7 m i l l - i o n p r o v i s i o n f o r of our Ger man t ax trade o f a n d , a c c o r d i n g l y , e u r o w € we have not currently In Aug ust 2007 , Ge rma ny e nacted cer tain chang e i s the reduc tion i n c o m e t a x l -a ws. The most significant t r a d e Germany, primarily trade using applicable Accordingly, tax net operating the appl ica ble enacte d are w€ r a t e s . W e h a v e a s i g n i f i c a n t rel -ated to the benefi t loss carry forwar ds. enacte d rate ta x rep orting rate s, and rec ogniz ed ta x is a dec rease chan ges of n e t d e f e r r e d i n i ncome thei r the Germ an cor porate i n c o m e t a x a s s e t our cor porate ass oci ated w ith W e meas ure our net defer red of any chan ge the eff ect of peri od the i n i n enac tment. tax and i n and taxes t he i n our net defer red tax ass et in F - 4 6 G e r m a n y o f $ 8 7 . 4 m i l l i o n provision for incom e ta xe s. i n 2 0 0 7 , w h i c h i s r e c o g n i z e d a s a c o m p o n e n t o f o u r I n J u n e 2 0 0 6 , C a n a d a e n a c t e d a 2 Z r e d u c t i o n i n rate and Ehe el-imination of the b e p h a s e d i n f r o m 2 0 0 8 t o 2 0 1 Q , a n d t h e feder al- sur tax. f e d e r a ] s u r t a x w i l l t h e C a n a d i a n f e d e r a l The 2Z reduc tio n A s a r e s u l t , t o t a x r e l - a t e d i n c o m e t h e e f f e c t l i a b i l i t y d u r i n g 2 0 0 6 w e r e c o g n i z e d a $ 1 . 3 m i l - l i o n o f s u c h r e d u c t i o n w i t h r e s p e c t o n o u r p r e v i o u s l y - r e c o r d e d . t o K r o n o s ' a n d C o m p X ' s o p e r a t i o n s b e e l - i m i n a t e d i n c o m e t a x n e t tax income w i l l i n 2 0 0 8 . b e n e f i t d e f e r r e d i n C a n a d a . D u e t o t h e r e s o l u t i o n o f c e r t a i n i n c o m e t a x a u d i t s th e r e c o g n i z e d a $ 2 1 , . 7 m i l l i o n increase in amo unt c a r r y f o r w a r d . o u r G e r m a n u n i t s c o n s o l i d a t e d amount of our German a u t h o r i t i e s T h e i n c r e a s e r e l a t e d h a s i n c r e a s e d . b a s i s trade i n c o m e t a x b e n e f i t of our Ger man i n 2 O Q 6 p r i m a r i l y tax f r o m a r e a l l o c a t i o n i n w h i c h s u c h u n i t s trad e net r e s u l - t e d t o p e r i o d s f o r G e r m a n t r a d e t a x p u r p o s e s , w i t h tax carryforward recognized i n G e r m a n y , w € a l s o t o a n r e l a t e d l -oss operat ing o f e x p e n s e s b e t w e e n o n a t h e tax r e s u l t t h a t the German d i d n o t f i l e t h e n e t by P r i n c i p a l l y made by Bel gian ongoing b e n e f i t r e s e r v e . a s a r e s u l - t o f and Norwegian t h e tax income ta x audi ts i n 2 0 0 5 r e l - a t e d in Ge rm any, t o t h e t o t a ] o f w i t h d r a w a l a u t h o r i t i e s o f o u r w e r e c o g n i z e d a $ 1 0 . 4 m l l - L i o n i n c o m e t a x reduc tion t a x a s s e s s m e n t s p r e v i o u s l y r e s o l u t i o n tax cont ingency i ncome i n our a n d t h e D u e t o t h e f a v o r a b L e r e s o l - u t i o n o f c e r t a i n i n c o m e E a x a u d i t s o u r G e r m a n a n d B e l g i a n m i l l - i o n i n c o m e t a x b e n e f i t o p e r a t i o n s r e l a t e d d u r i n g 2 0 0 6 , w € r e c o g n i z e d t o a d j u s t m e n t s o f p r i o r y e a r i n c o m e L a x e s . r e l a t e d t o a n e t . $ 1 . 4 D u r i n g 2 0 0 5 , w € r e g a r d i n g r e a c h e d a n a g r e e m e n t E o i n p r i n c i p l e v a l u e t h e h e l d b y K r o n o s ' o p e r a t i n g o b j e c t i o n the amount of Kronos' net operat ing t h e i r r i g h t s t h e v a l u e a s s i g n e d a u t h o r i t i e s i n t e l - l - e c t u a l - p r o p e r t y U n d e r t h e a g r e e m e n t , s u c h G e r m a n i n c o m e t a x p u r p o s e s w a s r e d u c e d r e t r o a c t i v e l y , in a s a s u c h c a s h d e f e r r e d m i L l i o n n o n - c a s h p r i m a r i l y Belgian r e s p e c t t a x c o n t i n g e n c y a d j u s t m e n t . o f and Cana dian t o c e r t a i n U . S . i n c o m e t a x i n c o m e t a x e x p e n s e i n 2 0 0 5 r e l - a t e d t o f u t u r e i n t e l l e c t u a l t h e a m o u n t o f a m o r t i z a t i o n ta x authorities, t h e w i t h d r a w a l A s a r e s u l t , o r r e d u c l i o n ds w el-l - as p r o p e r t y . r e d u c t i o n i t e m s . t o t o i n w € l oss car ryforw ards e x p e n s e a t t r i b u t a b l e i n Germ any as wel- l t o n o n - T h e $ l - 9 . 1 r e c o g n i z e d a $ 1 7 . 5 m i l l i o n t h i s a g r e e m e n t . i n c o m e t a x b e n e f i t t a x a s s e s s m e n t s p r e v i o u s l y m a d e b y f avo rabl-e deve lopment s with i n 2 O O 5 r e l a t e s w i t h t h e G e r m a n t a x a s s i g n e d s u b s i d i a r y i n t e l - l e c t u a l r e s u l t i n g c e r t a i n t o i n G e r m a n y . f o r i n a r e d u c t i o n p r o p e r t y r e t u r n s i n t e r e s t . f a v o r d u e t o c o u r t a d d i t i o n a l f r o m t a x examinat ions f i n a n c i a l a n d W e a r e t o r e s p e c t withholding f o r e i g n that f o r e s e e a b l e r e i n v e s t m e n t h a v e c h a n g e d . d e f e r r e d t a x those T a x a u t h o r i t i e s a r e c o n t i n u i n g t o e x a m i n e c e r t a i n o f o u r a n d h a v e o r m a y p r o p o s e W e c a n n o t g u a r a n t e e t h a t t a x d e f i c i e n c i e s , i n c l u d i n g t h e s e t a x m a t t e r s w i l l t h e i n h e r e n t u n c e r t a i n t i e s p r o c e e d i n g s . W e b e l i e v e i n v o l - v e d w e i n s e t t l - e m e n t a d e q u a t e h a v e b e r e s o l - v e d i n i t i a t i v e s a c c r u a l s f o r e i g n p e n a l t . i e s t a x t a x e s a n d r e l - a t e d e x a m i n a t i o n s . i n t e r e s t W e b e l i e v e should not have a mater ial - e x p e n s e w h i c h c o u l - d u l t i m a t e l y u l - t i m a t e t a x t h e adv erse ef f ect on our cons ol- idated d i s p o s i t i o n o f t a x a n d i n o u r a n d f o r r e s u l t p o s i t i o n , r e s u l t s o f o p e r a t i o n s o r l i q u i d i t y . r e q u i r e d t o r e c o g n i z e a d e f e r r e d i n c o m e t h e ta xe s i n c r e m e n t a l - U . S . t a x e s th at we woul-d i ncur w hen the undi stri buted ( f e d e r a l s u b s i d i a r i e s a r e s u b s e q u e n t l y r e p a t r i a t e d , are r e q u i r e d permanent ly t o t a x a n d s t a t e ) l i a b i l i t y a n d earni ngs w i t h f o r e i g n of o ur u n l e s s w e h a v e d e t e r m i n e d t he p e r m a n e n t rei nves ted t h e o u r r e a s s e s s i f for t o d e t e r m i n e o f 2 0 0 5 , w € h a d n o t i n c r e m e n t a l i n c o m e i n t e n t i o n s r e c o g n i z e d a t h e o n t a x e s undi stributed f u t u r e . c o n c l - u s i o n o n a n o n g o i n g b a s i s W e a r e earnings a l - s o P r i o r l i a b i l i t v t o t h i r d t h e r e L a t e d q u a r t e r s u c h t o F - 4 7 u n d i s t r i b u t e d s u b j e c t t o s p e c i f i c a n d b a s e d p r i m a r i l y c e r t a i n o f e a r n i n g s o f r e i n v e s t e d , A c c o r d i n g l y , i n c o m e s u b s i d i a r i e s t a x e s o n e a r n i n g s o f C o m p X ' s f o r e i g n o p e r a t i o n s , p e r m a n e n t r e i n v e s t m e n t p l a n s . u p o n c h a n g e s i n C o m p X m a n a g e m e n t ' s s t r a t e g i c a s t h o s e e a r n i n g s w e r e A s o f S e p t e m b e r 3 0 , 2 0 0 5 , f o r p l a n s f o r e i g n t h e i r t h e s e s u b s i d i a r i e s e x c e p t w € f o r r e c o g n i z e d o p e r a t i o n s , w e d e t e r m i n e d t h a t c o u l d n o l o n g e r b e c o n s i d e r e d t h e u n d i s t r i b u t e d t o b e p e r m a n e n t l y t h e p r e - 2 0 0 5 e a r n i n g s o f o u r T a i w a n e s e s u b s i d i a r y . a n a g g r e g a t e $ 9 . 0 m i l - l i o n u n d i s t r i b u t e d a g g r e g a t e e a r n i n g s p r o v i s i o n o f f o r d e f e r r e d f o r e i g n t h e s e t h e i n 2 0 0 5 w h e n o u r r e i n v e s t m e n t p l a n s c h a n g e d . A t D e c e m b e r 3 1 , 2 0 0 7 , K r o n o s h a d t h e e q u i v a l e n t o f $ 7 8 0 m i l - l i o n a n d $ 2 1 5 of th e net operating respe ctivel y, mill-ion tax purposes, $ . 8 m i l l - i o n o f U . s . n e t o p e r a t i n g 2 0 1 7 . A t D e c e m b e r 3 1 , 2 0 0 7 , a r e i n u t i l i z a t i o n l i m i t e d all l-o ss car ryfor wards for Ger man cor porate o f w hic h have no expi rati on l o s s c a r r y f o r w a r d s e x p i r i n g and tra de date and C ompX had i n 2 0 0 8 t h r o u g h t h e U . S . n e t o p e r a t i n g L o s s c a r r y f o r w a r d s $ . + m i l l i o n t . o a p p r o x i m a t e l y p e r y e a r . o f C o m p X N o t e 1 3 - M i n o r i t y i n t e r e s t : M i n o r i t y i n t e r e s t i n n e t a s s e t s : N L I n d u s t r i e s Kronos Worl-dwide CompX International- Total- M i n o r i t y i n t e r e s t i n a f t e r - t a x e a r n i n g s o p e r a t i o n s : ( l o s s e s ) - c o n t i n u i n g N L f n d u s t r i e s Kronos Worl-dwide CompX fnternat.ional- Total- S u b s j d i a r y December 31 2 0 0 6 2007 ( I n m i l l i o n s ) $ 5 6 . 0 2 2 . 3 4 5 . 4 sf23-1 $ s s . 5 2 0 . 5 L 4 . 4 s 9 0 . s Years 2 0 0 s ended December 31, 2007 2 0 0 6 ( I n m i l l i o n s ) $ 5 . 4 4 . 9 . 3 $ 1 1 . 6 $ 4 . 4 4 . 1 , 3 . 5 $ r z . o $ ( 2 . 8 ) ( 3 . 3 ) 2 . 6 s ( 3 . s ) o f N I . M i n o r i t y i n t e r e s t en vi ronmental - I n c . E M S ' e a r n i n g s w e r e b a s e d , l i a b i l i t i e s a c c r u a l - s o n a n a g g r e g a t e b a s i s . t h e l i a b i l i t i e s , the thei r r e q u i r e E M S t o p u r c h a s e f rom t h e i r ri ght, r e a s o n a b l y t h e s e maj ori ty-owned rece j-ved notices th ey were each exercisi ng f o r o f E M S t e n v i r o n m e n t a l previously E n v i r o n m e n t a l M a n a g e m e n t S e r v i c e s , t i m e E M S c o n t r a c t u a l l y a t w h i c h l i a b i l i t i e s . r e s o l - v e E M S a n d p r o v i d e s s e t t l e m e n t June 2005, w€ indicating J u n e L , 2 0 0 5 , 2O 05 for a incorporation. determination sharehol-ders t o r e v i e w b y a t h i r d p a r t y . paymenL for shareholders these have not former min ority th eir sharehol ders In accordance with fo rmula-determi ne d in good fa ith to purch ase te ndered th eir t o of amount as prov ided the cer tif ic ate the amount paya ble shares of E MS st ock, to i n N L ' s s u b s i d i a r y management ( " E M S " ) a s s u m e d c e r t a i n E M S w a s e s t a b l i s h e d o f N L t s i n p a r t , u p o n i t s a b i l i t y r e l - a t e d sub sid iary, t o N L ' s NL i n L 9 9 8 , e n v i r o n m e n t a l - f a v o r a b l y t o c o n s o l - i d a t e t h e I n f o r t o c o s t s N L c o n t i n u e s e s t i m a b l e d s d i s c u s s e d thre e mi norit y s h a r e s i n N o t e 1 - 7 . shar ehol-der s of EMS w hic h beca me exer ci sabl-e on , J u n e 3 0 , of w € mad e a i n E M S a s o f i n E MS' cer tif icat e i ncorporat ion, thre e form er mi nori ty thi s amount may be sub je ct the of S e e N o t e 1 - 7 . th e shares of EMS, but as of D ecember 31, 2007, I n J u n e 2 0 0 5 , E M S s e t a s i d e the form er mi norit y f u n d s a s shar es. has not been ext ingui shed Therefor e, the l iabi li ty for ow ed t o fi nanci a l- F - 4 I reporting l i a b i l i t y cLassified e q u i v a l e n t s . purposes as of December 31, 2007 and remai ns i n th e o u r C o n s o l - i d a t e d F i n a n c i a l fu nds which have been set S t a t e m e n t s . asi de i n rec ogniz ed as a cur rent s i m i l a r l y W e h a v e cur rent cas h and cash , s u b s r d i a r y o f K r o n o s . M i n o r i t y i n t e r e s t i n K r o n o s ' s u b s i d i a r y r e l a t e s t.o and K r o n o s ' m a j o r i t y - o w n e d m a r k e t i n g a c t i v i t i e s s u b s i d i a r y i n F r a n c e , w h i c h c o n d u c t s K r o n o s ' s a l - e s i n t h a t c o u n t r y . Note L4 - Stockholders' equity: B a l - a n c e a t D e c e m b e r 3 1 , 2 0 0 4 r 2 4 . 2 ( 4 . 0 ) L 2 0 . 2 Shares of common stock I s s u e d Treasur')r ( I n m i l l i o n s ) Outstanding I s s u e d Acquired R e t i r e d B a 1 a n c e a t D e c e m b e r 3 1 , 2 0 0 5 Acquired R e t i r e d B a l - a n c e a t D e c e m b e r 3 1 , 2 0 0 5 f s s u e d A c q u i r e d R e t i r e d . 1 ( 3 . s ) t - 2 0 . 8 ( 1 . e ) 1 1 8 . 9 1 t . e I ( 3 . s ) 3 . 5 ( 4 . 0 ) ( 1 . e ) 1 . 9 ( 4 . 0 ) ( . 6 ) . 6 . 1 ( 3 . s ) 1 1 5 . 8 ( 1 . e ) a I 4 . 9 . 1 " ( . 5 ) B a l a n c e a t D e c e m b e r 3 1 , 2 0 0 7 l f t l 14- !) I L 4 . 4 The shares of Val hi common st ock c o n s i s t t o m e m b e r s o f o u r b o a r d o f d i r e c t o r s . o f e m p l o y e e s t o c k o p t i o n s e x e r c i s e s i ssue d duri ng a n d s t o c k t h e p a s t t h r e e y e a r s i ssued annually aw ards V a l , h i s h a r e r e p u r c h a s e s a n d c a n c e l T a t i o n s . I n 2 0 0 5 , o u r b o a r d o f permit. a u t h o r i z e d t r a n s a c t i o n s , i n o p e n m a r k e t conditions p r i c e b l o c k p u r c h a s e s , o r t h e t r a n s a c t i o n s , I n 2 0 0 6 , o u r b o a r d o f d i r e c t o r s 5 . 0 m i l l - i o n s h a r e s . W e m a y p u r c h a s e r e p u r c h a s e o f u p t o 5 . 0 m i l - l - i o n s h a r e s o f o u r c o m m o n i n c l u d i n g w h i c h m a y i n c l - u d e t r a n s a c t i o n s d i r e c t o r s s t o c k n e g o t i a t e d s u b s i d i a r i e s . a d d i t i o n a ] market s p e c i f i c Depending Eo c o m p l e t i o n . R e p u r c h a s e d shares coul-d be retired st ock a n d u s e d c o r p o r a t e p u r p o s e s . D u r i n g 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 , w € p u r c h a s e d a p p r o x i m a t e l y 3 . 5 m i l l i o n , 1 . 9 m i l - I i o n a n d . 5 m i l - l - i o n s h a r e s , r e p u r c h a s e p r o g r a m t o $ 6 2 . 1 m i l l i o n , o r t h e r e p u r c h a s e o f a n t i m e a s f r o m t i m e i ncl -ude t i m e . repurc hase a n d m a y b e s u s p e n d e d a t progr am o f o u r c o m m o n s t o c k p u r s u a n t f o r a n a g g r e g a t e o f t o progr am does not conditions, u s e c a s h o n h a n d $ 4 3 . 8 m i l - I i o n a n d $ l - 1 . t - m i l l i o n , and cance1l -ed or may be added The st ock t i m e t a b l - e s on marke t W e w i l l a u t h o r i z e d t h e s t o c k f o r e m p l o y e e b e n e f i t w i t h o u r a f f i l - i a t e s i n m a r k e t o r o t h e r S e e N o t e 1 - 6 . r e s p e c t i v e l y . r e s p e c t i v e l y , t h e s h a r e s . t r a n s a c t i o n s a c q u i s i t i o n s i n p r i v a t e l y a n y pri or t o a c q u i r e o r o t h e r term inate w € may trea sury t a r g e t s to our p 1 a n s , f u t u r e t h i s the o r D u r i n g 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 , w € c a n c e l - l - e d 3 . 5 m i l l i o n , o f o u r t r e a s u r y m i l l - i o n c o m m o n s t o c k a t p a r v a l u e , These cancell-ations had no r e p o r t i n g f i n a n c i a l - proportional- Corporation interest Law, s h a r e s , r e s p e c t i v e l y , p a i d - i n a d d i t i o n a l impa ct on our net shar es outs tandi ng c a p i t a l a n d a l - l - o c a t e d 1 . 9 m i l - l - i o n a n d . 6 t o t h e i r a n d r e t a i n e d for s t o c k w e r e p o r t c o s t e a r n i n g s . fi nanci a l T h e 4 . 0 m i l l - i o n p u r p o s e s . f o r s h a r e s o f r e p o r t . i n g p u r p o s e s a t D e c e m b e r 3 1 , 2 0 0 5 , 2 0 0 5 a n d 2 0 0 7 r e p r e s e n t s o u r shar es hel d by N L. U nder D elaw ar e a parent in 4.7 miLl -io n V alhi propor tionate (an d not t r e a s u r y i nterest ) 100? the of F - 4 9 companyt s considered for p u r p o s e s . shares to be held treasury financial rep orting by a m ajori ty -owne d subs idi ary of the parent is stock. purposes A s a res ul-t , di ffer from our com mon sha res outs tandi ng thos e outs tanding for l ega1 a tax obl igat ion t o Preferred stock. As discussed i n N ote 3, w e i ncurred i n t a x o b l i g a t i o n , i s s u e . r e p r e s e n t s l i q u i d a t i o n p r e f e r e n c e cas h di vi dend T h e p r e f e r r e d t o C o n t r a n t o t h e a m o u n t o f $ 6 6 7 . 7 m i l l i o n . t o d i s c h a r g e # 5 6 7 . 3 m i l - l i o n o f o f $ 6 5 7 . 3 m i l l i o n . a l l o f t h e s p e c i a l d i v i d e n d t h i s i n M a r c h z o o T w e t . o C o n t r a n 5 , 0 0 0 s h a r e s o f a n e w i s s u e o f o u r S e r i e s A P r e f e r r e d S t o c k p r e f e r e n c e o f $ 1 - 3 3 , 4 5 6 . 7 5 p e r s h a r e , o y a n a g g r e g a t e T h e 5 , 0 0 0 p r e f e r r e d . s h a r e s w e t h e s h a r e s o f S e r i e s A P r e f e r r e d . S t o c k w e s t o c k h a s a p a r v a l u e o f $ . 0 1 p e r at an annual - rate of 5t of t he b y o u r n o n - C o n t r a n u p o n p a y m e n t o f I n o r d e r i s s u e d h a v i n g a l i q u i d a t i o n i s s u e d a r e a u t h o r i z e d share and pays a non-cu mul-ative a g g r e g a t e l i q u i d a t i o n b o a r d o f d i r e c t o r s . c o n v e r t i b l e , a n d ( e i t h e r a t o u r o p t i o n o r s h a r e s d o e s n o t h a v e a n y v o t i n g i s n o t e n t i t l e d t o a p r e f e r e n t i a l o f a f f a i r s , p r e f e r e n c e o f $ 1 3 3 , 4 6 6 . ' 7 5 p e r s h a r e , p l u s a n a m o u n t d e c l a r e d b u t u n p a i d d i v i d e n d s , h o l - d e r s o f o u r c o m m o n s t o c k . S t o c k d i s c h a r g e d P r e f e r r e d S t o c k t h r o u g h D e c e m b e r 3 1 , 2 0 0 7 . t o a n y i s m a d e t o t h e s h a r e s o f S e r i e s A P r e f e r r e d t h e o n t h e S e r i e s A t h e h o l d e r ) i n e x c e p t r i g h t t h a t d i s s o l u t i o n t h e S e r i e s A a n d t o o u r s h a r e s u p o f o u r t o b e p a i d a l i q u i d a t i o n a n y ) e q u a l p r e f e r e n c e T h e s h a r e s d o n o t b e f o r e a n y d i s t r i b u t i o n W e r e c o r d e d W e d i d n o t d e c l a r e a n y d i v i d e n d s t o C o n t r a n a t $ 6 5 ? . 3 m i l 1 i o n , t h e o p t i o n o f r i g h t s , A P r e f e r r e d r e d e m p t i o n o f S e r i e s c a r r y o n l y w h e n a u t h o r i z e d t h e S e r i e s A s h a r e s S t o c k o r c a l l . A h o l - d e r o f t h e a m o u n t o f t a x o b l i g a t i o n . c o m m o n s t o c k . c i r c u m s t a n c e s , a n d d e c l a r e d a h o l d e r o f r e p r e s e n t i n g o r w i n d i n g i s e n t i t l e d l i q u i d a t i o n , o f a s s e t s i s s e n i o r d i v i d e n d f e a t u r e s i s s u e d l i m i t e d s h a r e s U p o n a n y a r e t h e t h e ( i f i s g e n e r a l l y periods of empl oyment are com pleted. our outs tandi ng s t o c k , i t strock. We have an incent.ive s t o c k of, among other o p t i o n s , W e may j -ssu e up to 5 thi s p1an. W e grant opti ons at ri ghts. stock thi ngs , r e s t r i c t e d to The opti ons general ly ves t ratably the date of grant and exp ire l-0 Val-hi stock options th at provi des and restricted fo r plan from f r o m grant s t o c k o p t i o n s , i n c e n t i v e r e s t r i c t e d at variou s n o n q u a l i f i e d I f w e g r a n t th e di scr etionar y at December 31, 2007 repre sent stock awards and sto ck apprec iati on t h e d a t e o f g r a n t . un1ess certain shares of our common stoc k purs uant fair market value on th e date of grant . period begin ning one year option q u a l i f i e d common stock, mi1lion the over a five-year y e a r s forfeitable options and expire t e r m o f remained outstanding c o m m o n s t o c k a t D e c e m b e r 3 1 , 2 0 0 7 ( $ l - 5 . 9 4 p e r s h a r e ) . t he se op t ions and an aggregate o u r c o m m o n s t o c k o v e r 2 0 0 7 , d t a d d i t i o n a l T h e i n t r i n s i c e x e r c i s e a g g r e g a t e d a p p r o x i m a t e l y $ . 5 m i l ] i o n $ f . 0 m i l l - i o n i n 2 0 0 7 , a n d t h e w a s a p p r o x i m a t e l y $ . 2 m i l l - i o n 2 0 0 7 . 4 . 0 m i l l - i o n s h a r e s w e r e a v a i l a b l e o p t i o n s than 201,3, w ith t h e e x e r c i s e p r i c e ) 1 . 1 y e a r s . l -ower than exercisable at pri ces o f V a l h i e x e r c i s e d intrinsic th ro ugh v a l u e value l ess a t have an aggregate amount paya ble upon exer ci se (def ined as the exc ess of o f $ 2 . 9 m i l - l - i o n . dates A t D e c e m b e r 3 1 , 2 0 0 7 , a p p r o x i m a t e l y l -t of our outs tanding a w eight ed-averag e sha res remai ning 5 5 0 , 0 0 0 o p t i o n s of our A t D e c e m b e r 3 1 , 2 0 0 7 , the mark et pri ce of $s. g mi ll -ion the mark et pri ce of A t D e c e m b e r 3 1 , t h e p l a n . d . a t e s o f i n 2 O O G a n d v a r i o u s f o r g r a n t u n d e r t h e i n 2 0 0 5 , $ . 4 m i ] L i o n r e l - a t e d i n 2 0 0 5 , $ . 1 m i l - l - i o n i n 2 O Q 5 a n d $ . 5 m i l - l i o n f r o m s u c h e x e r c i s e s i n i n c o m e t a x b e n e f i t Stock option pTans of subsidi aries p l a n s w h i c h p r o v i d e Provisions common stock of NL and Comp X at D ecember 3I, 2007 are sum mariz ed be1ow . are no outsta nding 2 0 0 7 . N L and C ompX mai nta in c o m m o n s t o c k s . to purc hase Ther e to purc hase K ronos com mon st ock at D ecember 3 1, t o p u r c h a s e vary b y com pany. Out standi ng t h e g r a n t o f o p t i o n s t h e i r opti ons and aff il ,ia te. th ese plans options f o r of F - 5 0 NI-., Industries CompX Shares E xerc is e pri ce per share (fn Lhous ands, exc ept per share amounts) Amount payable upon exe rci se 9 7 3 4 9 $ 2 . 6 5 - $ 1 1 . 4 e $ 1 2 . r - s - # 2 o . o o $ e 6 o # 5 , 6 4 3 O t h e r . P r i o r t o a n d w i t h i n s i x m o n t h s o f C o n t r a n ' s s h a r e s o f o u r c o m m o n s t o c k d e s c r i b e d t h e 2 . 0 m i l l - i o n p u r c h a s e d s h a r e s o f o u r c o m m o n s t o c k s h o r t - s w i n g a n y a l l e g e d p u r s u a n t C o n t r a n a m o u n t , n e t o f $ 2 2 5 , 0 0 0 o f i n c r e a s i n g o u r a d d i t i o n a l - p a i d - i n t o S e c t i o n 1 5 ( b ) o f r e m i t t e d a p p r o x i m a t e l y r e l a t e d p r o f i t $ 5 4 5 , 0 0 0 c a p i t a l . i n m a r k e t f r o m d e r i v e d t h e S e c u r i t i e s t r a n s a c t i o n s . t h e s e t r a n s a c t i o n s 2 O O 5 s a l - e t . o u s o f i n N o t e 1 6 , C o n t r a n I n s e t t l - e m e n t o f a s c a l c u l - a t e d E x c h a n g e A c t o f 1 9 3 4 , d s a m e n d e d , i n 2 0 0 5 . W e r e c o r d e d t h i s t o u s i n c o m e t a x e s , d s a c a p i t a l c o n t r i b u t i o n , Note 15 - Other income, net: S e c u r i t i e s e a r n i n g s : Dividends and interest S e c u r i t i e s W r i t e - o f f o f a c c r u e d t r a n s a c t i o n s , n e t i n t e r e s t Total recoveries tran sactions, Insurance Currency Disposal of pro perty O t h e r , n e t T o t a l net and equip ment , net Years 2 0 0 5 ended December 3L, 2 0 0 6 2 0 0 7 ( I n m i l l i o n s ) $ s 7 . 8 2 0 . 3 ( 2 1 . 6 ) $ 4 1 . 6 . 7 $ 3 0 . e ( . 1 ) 5 5 . s 4 2 . 3 3 0 . 8 3 . 0 5 . 2 ( 1 . 5 ) 4 . 9 7 . 7 ( 3 . s ) 3 5 . 3 8 . 1 6 . 1 ( . 8 ) ( 1 . 3 ) 7 . 5 s 5 8 . 0 $ e g . g g!2-_3_ p i v i d e n d s a n d i n t e r e s t A m a l g a m a t e d S u g a r C o m p a n y L L C o f $ 4 5 . 0 m i l l i o n a n d i 2 5 . 4 m i l - l i o n t o o u r T h e $ Z t . A m i l - l - i o n w r i t e - o f f interest accrued R i v e r a g r e e d t o p r e p a y l - o a n t o S n a k e R i v e r S u g a r C o m p a n y t h a t w a s p r e p a i d o f a c c r u e d 1oan i n O c t o b e r 2 0 0 5 . d i s t r i b u t i o n s i n 2 0 0 5 , $ 3 1 - . 1 - m i l l - i o n i n c o m e o f $ 3 . 9 m i l - l - i o n i n 2 0 0 5 r e l a t e d i n O c t o b e r 2 0 0 5 . t o and cancel-l-ed when Snake i n 2 0 0 7 , a n d i n t e r e s t the prior t h e i n 2 0 0 5 r e l a t e s T h e i n 2 0 0 5 r e c e i v a b l - e i n c l - u d e s that we i n t e r e s t i n c o m e forgave f r o m l o a n on N e t s e c u r i t i e s i n m a r k e t a $ 5 . 4 m i l l i o n m i l l - i o n p r e - t a x g a i n c o m m o n s t o c k a n d ( i i ) in a Norwegi an f i n a n c i a l $ 5 . 4 m i l - l i o n c o n s i s t i n g o f S r . g m i l l i o n . r e p o r t i n g smelting ( i ) a # 1 - 4 . 7 t r a n s a c t i o n f r o m N L ' s s a l e o f a p p r o x i m a t e l y 4 7 0 , 0 0 0 s h a r e s o f K r o n o s i n 2 0 0 5 r e l - a t e p r i m a r i l y g a i n s t o t r a n s a c t i o n s p r e - t a x g a i n operation, f o r f o r a g g r e g a t e p r o c e e d s o f f r o m K r o n o s ' s a l - e o f o u r p a s s i v e w hic h had a nomi nal car ryi ng ; 1 , 9 . 2 m i l l i o n i n t e r e s t f or o f a p p r o x i m a t e l y val -ue a g g r e g a t e c o n s i d e r a t i o n p u r p o s e s , o f c a s h o f $ 3 . 5 m i l l i o n a n d i n v e n t o r i e s w i t h a v a l - u e I n s u r a n c e r e c o v e r i e s i n 2 0 0 5 , 2 0 0 6 a n d 2 O O 7 r e l - a t e t o a m o u n t s N L h a s f r o m c e r t a i n r e c e i v e d r e c o v e r y o f p r i o r t o have agreements with w i l l c a r r i e r s tw o r e i m b u r s e u s o f f o r m e r i t s l - e a d p i g m e n t fo rmer f o r a p o r t i o n l i t i g a t i o n i nsuranc e i n s u r a n c e c a r r i e r s , a n d r e l - a t e p r i n c i p a l l y d e f e n s e c o s t s car rier s purs uant i n c u r r e d b y N L . W e to w hic h t he l - e a d p i g m e n t o f o u r p a s t a n d f u t u r e F - 5 r _ f r o m t h e s e c a r r i e r s . W e a r e n o t a b l e i n s u r a n c e i n c u r r e d d e f e n s e c o s t s , a n d t h e l i t i g a L i o n i n c l - u d e a m o u n t s w e r e c e i v e d h o w m u c h w e w i l l u l t i m a t e l y b e c a u s e o f c o s t s d e f e n s e f o r i n c l - u d e a m o u n t s w e r e c e i v e d 2 0 0 5 a l s o for coverage receive any r e m e d i a t i o n m a t t e r s . fu rth er materia l c o s t s q u a l i f y r e c o v e r certain insuranc e c e r t a i n r e i m b u r s e m e n t . of our env ironment al- f r o m i s s u e s r e c o v e r i e s i n 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 t h e c a r r i e r s a r i s e t h a t I n s u r a n c e t o d e t e r m i n e t h e p a s t d e f e n s e f o r r e g a r d i n g w h i c h p a s t i n 2 0 0 5 a n d f o r p r i o r r e c o v e r i e s I e g a 1 d e f e n s e a n d expe nditures . W e do not exp ect i n d e m n i t y t o to env ironmental- set tle ments rel ati ng W h i l e w e c o n t i n u e a n d a s b e s t o s t o l i t i g a t i o n s e e k a d d i t i o n a l - m a t t e r s , w € i n s u r a n c e d o n o t r e c o v e r i e s k n o w i n o b t a i n i n g W e r e c o g n i z e is pro bable a d d i t i o n a 1 i n s u r a n c e and we are abl e r e i m b u r s e m e n t i n r e c o v e r i e s to reas onably est imat e f o r e i t h e r i n c o m e o n l y w h e n r e c e i p t f o r i f w e w i l l l - e a d b e d e f e n s e c o s t s o r o f the amount of p i g m e n t s u c c e s s f u l - i n d e m n i t y . recovery the t h e r e c o v e r y . In 2006 we sold certain p r o c e e d s o f $ 3 7 . 9 m i l l i o n . The l-and was not used in any of our operat ions . l -and w e ow n f or net W e r e c o g n i z e d a # 3 6 . 4 m i l - l - i o n g a i n o n t h e s a l - e . i n H enderson, N evada Note 15 - Related party transaction s: We may be deemed to be cont roll -ed v e n t u r e s , a n d b y b o t h W e a n d o t h e r e n t i t i e s Mr. Simmons sometimes engag e guarantees, mana gement j o i n t a r r a n g e m e n t s , o n o p e n a c c o u n t , i s s u e d s e c u r i t i e s i n v e s t m e n t a n d a c q u i s i t i o n r e c a p i t a l - i z a t i o n s , a c q u i s i t i o n s units. have party of a publi cl y-heId periodically consider, related u p o n t h e b u s i n e s s , might be a party These transactions transactions a n d d i s p o s i t i o n s ) s e c u r i t i e s consider, incl-uded entitie s revie w t h a t m a y b e d e e m e d t o b e c o n t r o l l e d (a) i n exp ense p a r t n e r s h i p s , l e a s e s i nterco rporate sha ring l o a n s , o p t i o n s , a n d e x c h a n g e s o f by Mr. H arold C . S imm ons. S ee N ote 1. w i t h suc h as f ee f u n d s b y o r a f f i l i a t e d trans act ions arran gements, i n c l u d i n g s a l - e s , and shar ed a d v a n c e s o f a s s e t s , ( b ) a n d r e o r g a n i z a t i o n s , c o m m o n r e l a t e d s t r a t e g i e s , a n d u n r e l a t e d p a r t . i e s , b u s i n e s s c o m b i n a t i o n s , r e p u r c h a s e s , o f s u b s i d i a r i e s , a n d p u r c h a s e s a n d s a l e s ( a n d o t h e r o r o t h e r b u s i n e s s rel -ated and unrel -ated part. ies and rel -at ed d i v i s i o n s have i nvol ved both which min ority res ul-t ed equi ty i n i nterest an d eva luate, the acq uis iti on i n another and unders tand by one rel -ated part y. We that C ontran and D epending i s p o s s i b l e w e i t review and eva l-uat e suc h tran sact ions . t a x a n d o t h e r o b j e c t i v e s to one or more such trans act ions t h e n r e l e v a n t , i n the fut ure. We gene rally rate of i n s t r u m e n t s . us and various notes. p u r p o s e s . W h e n w e l o a n a higher i n o t h e r quality we have eval -uated risks credit parties, related would pay if we borrowed th e in than cash equi val ent From ti me to ti me, w€ will have l oans and adva nces outs tandi ng rel -ate d parties, enter into inc ludi ng C ontran, purs uant l -oans and adv ances thes e to for f u n d s t o r e l a t e d p a r t i e s , w € a r e g e n e r a l l y betw een term and demand cas h managem ent t o e a r n fun ds a b l e the return on th e lo an W h i l e c e r t a i n o f instrum ents t h e s e other wi se than w e w ould earn i f w e i nves ted th e credit risks i nvol -ved and appropr iatel y l o a n s m a y b e o f a l e s s e r c r e d i t ava j-l -abl- e to us, w e bel -ie ve those from than we W hen w e borro w i nterest rate of refl -ec t l oans. te rms of the appl ic abl-e we are generally abl e to pay a l ower f rom unrel -ated parti es. P r i o r t r u s t s f a m i l y t o 2 0 0 5 , E M S e n t e r e d t h e completel y w i t h o n e o f trust facility r a t e o f p r i m e i n c l u d i n g E M S ' l - o a n t o o n e o f T h e r e w a s n o s u c h i n t e r e s t u n s e c u r e d . was te rminated. rep aid l - e s s . 5 ? . i n t o a $ 2 5 m i l l - i o n r e v o l v i n g c r e d i t f a c i l i t y d i s c u s s e d t .he t.he ou tstandi ng During 2005 w e l -oaned var yi ng amount s to C ontran at a t h e l -oan, and l - . D u r i n g 2 0 0 5 , bal -ance under i n N o t e f a m i l y thi s I n t e r e s t i n c o m e o n a l l t h e C o n t r a n f a m i l y t o l o a n s p a r t . i e s , t r u s t s , w a s $ 5 1 2 , 0 0 0 i n 2 0 0 5 . t o C o n t r a n w e r e r e l a t e d i n c o m e i n 2 0 0 6 o r 2 0 0 7 . O u r ] o a n s F - 5 2 f o r $ 1 9 . 5 0 p e r s h a r e , o t a g g r e g a t e c o n s i d e r a E i o n f o r m o f a p r o m i s s o r y n o t e . I n O c t o b e r 2 Q 0 7 , t h e r e p u r c h a s e a n d c a n c e l - l - a t i o n o f a n e t 2 . 7 m i l l i o n i n d e p e n d e n t m e m b e r s o f C o m p X ' s b o a r d o f d i r e c t o r s i t s t h e C l - a s s A s h a r e s h e l d s h a r e s o f t h e w h i c h i nteres t i n c l u d i n g h e l d th rough by TIMET t h e s e s h a r e s b y T I M E T , iLs ow nershi p a u t h o r i z e d C l a s s A c o m m o n s t o c k indirect ly p u r c h a s e d i t p a i d $ 5 2 . 6 m i l l i o n , s h a r e w a s d e t e r m i n e d b a s e d o n C o m p X ' s o p e n m a r k e t common stock aro und b e a r s a t r e p a y m e n t s o f $ 2 5 0 , 0 0 0 c o m m e n c i n g i n S e p t e m b e r 2 0 0 8 , w i t h maturity a t a n y s u b o r d i n a t e d e x p e n s e r e l - a t e d t o C o m p X ' s n o t e p a y a b l e N o t e s 3 a n d 9 . repurc hase w as approv ed. a n d p r o v i d e s f o r a n y a m o u n t , w i t h o u t r e v o l v i n g th e ti me L I B O R p l u s t o C o m p X ' s U . S . p e n a l t y . b a n k i n t e r e s t t h e th e 1 t i n i n i n C ompX Group . C ompX r e p u r c h a s e s o f o f T h e p r i c e p e r i t s C l a s s A n ote The promi ss ory q u a r t e r l y p r i n c i p a l t h e b a l - a n c e d u e a t n ote i s T h e p r o m i s s o r y a g r e e m e n t . n o t e I n t e r e s t i n 2 0 Q 7 . S e e in Sep tember 2014 . Com pX may mak e prepay ments on the promi ss ory t i m e , c r e d i t t o T I M E T w a s $ . 6 m i l l i o n and th e compe nsati on and other expe nses ass oci ated w ith l a r g e n u m b e r o f c o m p a n i e s a f f i l i a t e d Under th e into with Contran, te rms of variou s t h e f i n a n c i a l - from cost B e c a u s e o f certain mana gement, enter t a x p l a n n i n g , c har ge s ar e based upon est.imates of to our affairs, p e r s o n s . bel-ieve we benefit having all services ISA t h e a p p l i c a b l - e b o a r d o f d i r e c t o r s m i l - L i o n f u l l a a l l o f o u r T I M E T s h a r e s a t i n c l u d e d o n l y i n 2 0 0 6 a n d 5 Z Z . + m i ] l i o n y e a r o f of our subsidiaries, to mul tiple t h r e e m o n t h s o f fees charged fi nanci al savi ngs i ntercor porate ser vi ces emp loyees of C ontran prov ide a n d a d m i n i s t r a t i v e the o n a f e e b a s i s . s e r v i c e s ti me dev oted by (r' IS As rr) we agreem ents us cer tain managem ent, S u c h the C ontran empl oyees t.hose w i t h C o n t r a n , w € gai ned by not at dupl ic ated to prov ide The net i ndependenE membe rs of i n 2 0 0 5 , # 2 3 . 7 i n 2 0 0 7 . T h e 2 0 0 5 a n d 2 0 0 6 a m o u n t s i n c l - u d e a g g r e g a t e d $ 2 0 . 0 m i l l i o n and eco nomies of and admi nis trat ive sc ale st affs the th us a ll owi ng C ontran empl oyees cer tain compani es but onl y be com pensated by C ontran. to us by Contra n and approv ed by I S A f e e s p a i d b y T I M E T , b e c a u s e w e d i s p o s e d o f s u b s t a n t i a l l y t h e e n d o f t , h e f i r s t q u a r t e r o f 2 0 0 7 ( s e e N o t e 3 ) , I S A f e e s p a i d b y T I M E T . c e r t a i n s u b s i d i a r i e s s u b s i d i a r i e s . receive a s s e s s p u r c h a s e s e x p e c t f e e s Tall Pin es In su rance Com pany and E WI R E, Inc . i n s u r a n c e o r a n d a f f i l - i a t e s , r e i n s u r a n c e comm issions f o r C o n s i s t e n t . w i t h th e from t h e p o l i c i e s i n c l u d i n g i n s u r a n c e ins urance t h a t u s . T a l l i n d u s t r y p r a c t i c e s , and rei nsuranc e r e i n s u r a n c e t h e s e r e l a t i o n s h i p s f o r s u b s t a n t i a l l y t h e y p r o v i d e o f a l l o r b r o k e r r i s k s t h e w i t h T a l l P i n e s a n d E W I w i l l c o n t i n u e i n 2 0 0 8 . for prov ide or broker i t s o f P i n e s a n d E W f a r e o u r T a I l P i n e s a n d E W I underw ri ters and /or t o u s . T a l - l - P i n e s i t u n d e r w r i t e s . W e p o l i c i e s f o r C o n t r a n a n d c e r t a i n r e s p e c t incurred p u r c h a s e c e r t a i n j oint l y- owned W i t h losses leave policy entered by bel- j-eve a s s o c i a t e d a s s o c i a t e d w i t h those entities C o n t r a n a n d c e r t a i n t h e i r o f policies o f i t s s u b s i d i a r i e s a n d a f f i l - i a t e s , i n s u r a n c e p o l i c i e s bein g apport ioned a s a g r o u p , w i t h among the part ici pati ng t o s o m e o f t h e s e p o l i c i e s , i s p o s s i b l e by one or more the other participati ng for th e bal-ance of i t duri ng compani es w ithou t i nsureds i n c l u d i n g t h e c o s t s o f t h a t u n u s u a l l y peri od u s , t h e com panies. l a r g e cou ld th at w € and C ontran h ave l -oss i s shar ed a gi ven pol ic y adequat e cov erage under into a l-o ss sharin g agreem ent under w hic h any uni nsured th e poli cy peri od. A s a res ult, who have subm itt ed f orm of the cl -ai ms under the reduced premiums and broader rel -evant pol ic y. We the benef its t h e w i t h in g r o u p t h e p o t e n t i a l c o v e r a g e o f a n y u n i n s u r e d f o r l - o s s . s u c h p o l i c i e s j u s t i f i e s B a s i c M a n a g e m e n t , I n c . , c o m p l e x ( p r i m a r i l y w a t e r d i s t r i b u t i o n , s e w a g e d i s p o s a l m o n i t o r i n g ) i n d u s t r i a l the t r a n s m i s s i o n c o o p e r a t i v e , are charged by BM I to an unrel-ated f o r a n d s e w e r s e r v i c e s w h j - l e w a t e r d e l i v e r y other manu facturers t . h e s e u t i l i t y l - o c a t e d located a m o n g o t h e r t h i n g s , m a i n L e n a n c e o f a c o m m o n e l - e c t r i c a l - t o T I M E T a n d o t h e r m a n u f a c t u r e r s p r o v i d e s u t i l i t y f a c i l i t y w i t h i n a n d a n i n N e v a d a . T h e o t h e r o w n e r s o f B M I a r e g e n e r a l l y w ithi n o n a c o s t the i s c u r r e n t l y thi rd party . com plex . r e i m b u r s e m e n t b a s i s , p r o v i d e d a t power B MI prov i-d es t o a s i m i l a r t h e s a m e r a t e s a s A mounts pai d by TIME T to BMI i n 2 0 0 6 a n d i n 2 0 0 5 , # 2 . 3 m i l l - i o n s e r v i c e s w e r e $ 1 . 4 m i l l i o n coverage r i s k t h e s e r v i c e s F - 5 3 # 2 . 2 m i l - l i o n f e e o f $ . 8 m i l l i o n s c h e d u l - e d t o i n 2 Q 0 7 . T f M E T a l - s o p a i d B M I a n e l e c t r i c a l - f a c i l i t i e s i n 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 . T h i s $ . 8 m i l - l - i o n a n n u a l - f e e u p g r a d e i s t e r m i n a t e a f t e r , J a n u a r y 2 0 1 - 0 . f n 2 0 0 5 , w € p u r c h a s e d 2 . 0 m i l l i o n s h a r e s o f o u r c o m m o n s t o c k , t o t h e f r o m a s u b s i d i a r y t h e n - c u r r e n t m a r k e t p r i c e , s h a r e s o f o u r c o m m o n s t o c k , d i s c o u n t o r a n a g g r e g a t e p u r c h a s e p r i c e o f $ 3 5 . 0 m i l l i o n , m i l l - i o n m a r k e t p r i c e , a g g r e g a t e p u r c h a s e p r i c e b o a r d o f d i r e c t o r s p u r c h a s e d from The Simmo ns Fami ly Found ati on, Sj-mmons is a trustee, d a E e o f p u r c h a s e . r e p u r c h a s e p r o g r a m d e s c r i b e d based on t he mark et pri ce A 1 1 o f l - 7 5 , 0 0 0 s h a r e s o f o u r c o m m o n s t o c k o f $ 2 3 . 5 m i l l i o n . a p p r o v e d b o t h o f o f C o n t r a n i n N o t e L 4 . t h e s e a char itabl e f r o m C o n t r a n f o r d t a f o r $ 1 7 . 5 0 p e r s h a r e a n d i n 2 0 0 6 w e p u r c h a s e d 1 , . 0 t o t h e $ 2 3 . 5 0 p e r t h e n - c u r r e n t s h a r e o r a n i n d e p e n d e n t m e m b e r s o f o u r D u r i n g 2 0 0 5 , w € a l - s o f o r a n a g g r e g a t e o f $ 3 . 1 m i l - l i o n of w hic h M r. com mon st ock on t he s t o c k organr zati on u n d e r o u r of V alhi T h e s h a r e s w e r e p u r c h a s e d a l s o a t a d i s c o u n t t h e s e p u r c h a s e s . COAM Company is a partnership which has a sponsored research the University I ' C a n c e r R e s e a r c h A g r e e m e n t " ) . of Texas Southw est ern Medi cal C enter at D all as res ulti ng ( t n e A t D e c e m b e r 3 1 , 2 0 0 7 , w € a r e a of COAM along with Contra n and anothe r C ontran subs idi ary . Mr. H arold th e mana ger of COAM. The C ancer R esearc h A greement, as amend ed, fu nds of up throu gh th e Cancer Research A greement with an d c omm er ci all y market patents a nd tec hnology p r o g r a m partner C. Simmons is provides pursuant partners required paid. We have not mad e contributions we do not expect we will make any cap ital for to and to make capital be are exp ensed as thre e year s, and C apita l to C OAM duri ng cont ribut ions requi rement s to i s w itho ut that rec ourse no part ner a greement prov ides to $39 mi l-I ion to C OAM i n 2008. th e partnership from a canc er contributi ons. cont ribut ions the pas t Fundi ng the COAM sha l1 201,5. agreement to develop res earc h W e p r o v i d e c e r t a i n r e s e a r c h , l a b o r a t o r y a n d q u a l i L y c o n t r o l s e r v i c e s We have also grant ed p e r p e t u a l t e c h n o l o g y w h i c h th e sweetener d e v e l o p e d r o y a l t y - f r e e and outside for payment of certain within LLC and others. n o n - e x c l - u s i v e , h e r e a f t e r provides f r o m f u t u r e s a 1 e s o r L i c e n s e s o f Research and develop ment L L C , i n c l u d e d each of 2005 and 2007. a d m i n i s t r a t i v e s e r v i c e s estimates th e of c o m p e n s a t i o n o f s u c h p e r s o n s ) d e v e l o p m e n t q u a n t i f i e d . f e e p a i d i n o t h e r s e r v i c e s services i ndustr y l - i c e n s e for The A malg amated S ugar C ompany to The A malg amated S ugar C ompany LLC a o r a n d to The A malgam ated S ugar C ompany LLC t o s u g a r o p e r a t i o n s i s a p p l i c a b l e t o u s e a l l c u r r e n t l y e x i s t i n g roy alti es t h e s u b s i d i a r y ' s t e c h n o l o g y t o t h i r d p a r t i e s . cha rged to The A malg amat.ed S ugar C ompany i n c o m e , w e r e $ 1 . 0 m i l ] i o n i n 2 0 0 5 a n d $ 1 . 1 m i l l - i o n i n The Am alg amated S ugar C ompany LLC prov ides cer tain t o u s , a n d ti me devoted by empl oyees of t h e c o s t o f i s c o n s i d e r e d s u c h s e r v i c e s the LLC to our aff airs , t h e a g r e e d - u p o n i n ( b a s e d u p o n and t he r e s e a r c h a n d s e p a r a t e l y n o t b y t h e L L C t o u s a n d i s F - 5 4 Receivabl es from and payables E o a f f i L i a t e s a r e sum mariz ed i n the table b e l - o w . C u r r e n t Contran Other Total- r e c e i v a b l - e s f r o m a f f i l i a t e s : - incom e ta xes, net C u r r e n t p a y a b l e s t o a f f i l - i a t e s : Louisiana Pigment Company Contran trade TIMET items ' 1 ' O t a r CompX promissory note payable to TIME T(1) ( 1 ) I n c l - u d . e d i n l o n g - t e r m d e b t . December 31 2 0 0 5 2 0 0 7 (Ir mi ll ionF $ . 6 . 2 $___- 3 $ 1 1 . 7 5 . 5 stl_2 $ - $ 4 . 4 . 2 $_l-_5. $ 1 1 . 4 7 . L . 5 $ r e . 0 . $s0-_q Payables T i O 2 . O u r p u r c h a s e s in Note 7. T o T I M E T . to Louisiana Pig men t C ompany are pri mari ly i n t h e o r d i n a r y c o u r s e o f b u s i n e s s See Notes 3 and 9 f or more i nformati on for the purc hase of f r o m L P C a r e d i s c l o s e d on the C ompX note pay able Note L7 - Cormnitments and contingencies: I'ead pigment Titigation - NI' N L ' s f o r m e r o p e r a t i o n s a n d l - e a d - b a s e d p a i n t . N L , o t h e r f o r u s e i n p a i n t a n d l - e a d - b a s e d p a i n t I n d u s t r i e s L e a d a n d t h e i n c l - u d e d t h e m a n u f a c t u r e o f f o r m e r m a n u f a c t u r e r s ( t o g e t h e r , A s s o c i a t i o n i n 2 0 Q 2 , h a v e b e e n n a m e d a s d e f e n d a n t s f o r u s e l e a d " f o r m e r p i g m e n t ( " L I A " ) , w h i c h i n l e a d p i g m e n t s t h e o f o p e r a t i o n s expenditures s e e k i n g d a m a g e s f o r p e r s o n a l caus ed by a11egedI y i n j u r y , the t h e s e a c t i o n s h a v e b e e n f i l e d t h e i r p u b l i c h o u s i n g a u t h o r i t i e s h a v e b e e n a s s e r t e d a s c l - a s s a c t i o n s . p r o p e r t y d a m a g e use of l -ead-based b y o r o n b e h a l f o f s E a t e s , a n d s e e k a n d s c h o o l - d i s t r i c t s , l - a w s u i t s T h e s e p r o d u c t d e s i g n , n e g l i g e n t c o n s p i r a c y / c o n c e r t f a i l u r e o f a c t i o n , a i d i n g a n d a b e t t i t g , o f t h e o r i e s , i n c l u d i n g p u b l i c t o w a r n , s t r i c t a n d p r i v a t e l i a b i l i t y , n u i s a n c e , b r e a c h s h a r e o r c o n t r i b u t i o n t i a b i l i t y , i n t e n t i o n a l - r i s k v i o l a t i o n s o f s t a t e c o n s u m e r p r o t e c t i o n e n t e r p r i s e t o r t , s t a t u t e s , b u s i n e s s l e g a I p r o c e e d i n g s i n p a i n t p i g m e n t s m a n u f a c t u r e r s " ) , d i s c o n t i n u e d v a r i o u s and governmental p a i n t s . c o u n t i e s , o t h e r s c e r t a i n r e c o v e r y u n d e r a v a r i e t y n e g l i g e n t o f w a r r a n t y , l i a b i l i t y , f r a u d a n d m i s r e p r e s e n t a t i o n , s u p p l i e r C e r t a i n o f o r c i t i e s m a r k e t n e g l i g e n c e a n d s i m i l a r c l - a i m s . d e f e n d a n t s a s s o c i a t e d w i t h inj ury, monito ring i n a c t i v e i n s u m m a r y j u d g m e n t I n a d d i t i o n , s e e k i n g p a i n t . r e c o v e r y v a r i o u s T h e p l a i n t i f f s i n r e s p o n s i b i t i t y t h e u s e o f contribution andf or expe nses and costs s e e k g e n e r a l l y a c t i o n s l - e a d p a i n t t h e s e f o r l - e a d - b a s e d p a i n t s , ind emnif i cati on fo r educ ational - progra ms. M o s t o f t h e c o n c e r n s a n d h e a l t h a b a t e m e n t d a m a g e s f o r p e r s o n a l i n c l u d i n g f or medi cal - expe nses , medi cal- A number of cas es a re t h e r e m a i n i n g c a s e s a r e o r f o l l o w i n g S o m e a r e o n a p p e a l i m p o s e o n t o t h e d e f e n d a n t s o r ( i n w h i c h w e a r e n o t a d e f e n d a n t ) d i s m i s s a l - t h e p l a i n t i f f s . o r h a v e b e e n d i s m i s s e d o r w i t h d r a w n . s t a g e s . i n f a v o r o f e i t h e r p r e - t r i a I r u l i n g s v a r i o u s o t h e r c a s e s a r e p e n d i n g f o r i n j u r y a l l e g e d I y c a u s e d b y l e a d p i g m e n t a n d A l t h o u g h w e a r e n o t a d e f e n d a n t i n t h e s e c a s e s , t h e o u t c o m e o f l - e a d - b a s e d t h e s e F - 5 5 c a s e s m a y h a v e a n f u t u r e . i m p a c t o n c a s e s t h a t m i g h t b e f i l e d a g a i n s t u s i n t h e W e b e l - i e v e a l l e g a t i o n s d e n y a l l a c t i o n s f i n a l b e l - o w i n T h e S t a t e o f R h o d e I s l a n d c a s e . v i g o r o u s l y . a d v e r s e t h e s e a c t i o n s a r e w i t h o u t m e r i t , l i a b i l i t y o f w r o n g d o i n g a n d W e h a v e n e v e r s e t t l - e d a n y o f j u d g m e n t s b e e n e n t e r e d a g a i n s t u s . a n d w e i n t e n d t o c o n t i n u e t o d e f e n d a g a i n s t a n d t h e s e c a s e s , n o r h a v e a n y H o w e v e r , s e e t h e d i s c u s s i o n t o a l l I n O c t o b e r 1 9 9 9 , w € w e r e s e r v e d w i t h e t a l - . a c o m p l a i n t ( S u p e r i o r C o u r t o f R h o d e I s l a n d , i n S t a t e o f R h o d e o n t h e t h e 4 - 2 t h e j u r y t r i a l fundin g A 2 0 0 2 t r i a l d a m a g e s , d s w e l - l a s abatem ent expe nses and on R hode fs l-and bui ldi ngs w h e n t h e d e a d l o c k e d t h e c o n s p i r a c y j u r y w a s u n a b l e E o r e a c h i n r e p o r t e d l y c l - a i m c o u r t d i s m i s s e d i t s U n f a i r T r a d e P r a c t i c e s A c t c l a i m o t h e r o f p u b l i c p r e s e n t a t . i o n i n d e m n i t y a n d r e m a i n i n g u s a n d c l a i m s bui ldi ng i n pai nt p r e j u d i c e . 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W h i l e the is p r o c e s s . d e f e n d a n t s ' n a m e d t w o s p e c i a l m a s t e r s remedy. abatement I n F e b r u a r y 2 0 0 6 , t o c o n t r i b u t e d p r e s e n c e o f j ury The t o a b a t e to mov e t h e S t a t e s u b m i t t e d i n D e c e m b e r 2 0 0 7 . court trial I n S e p t e m b e r 2 0 0 7 , a r e s p o n s e s h o u l - d b e o r d e r e d t r i a l - t h e j u r y t h e t h e c r e a t i o n l - e a d p i g m e n t s d a m a g e s , d s w e l - l - a s t h e d i s m i s s a l - o f o n e o f j u d g m e n t a n d o r d e r w a s e n t e r e d , t h e c o l l e c t i v e in Rhod e F o l l o w i n g t h e S t a t e ' s t h e S t a t e ' s c l - a i m s o f f ound t h e p u b l i c c l - a i m f o r p u n i t i v e c r o s s - a p p e a l e d c o u r t d i s m i s s e d c o u r t d i s m i s s e d I n A p r i J - 2 0 0 7 , forw ard i t s i n d e t e r m i n i n g t h e S t a t e ' s t h e S t a t e ' s t h e S t a t e t o a s s i s t conti nues I n D e c e m b e r 2 0 0 7 , pending, Islan d. f o u n d t . h a t w e a n d t w o o t h e r o f a p u b l i c n u i s a n c e a s a i n p a i n t s a n d c o a t i n g s o n tw o ot.her that w e and t h e n u i s a n c e . I n a n i s s u e o f e x c l - u s i o n o f the F o l l o w i n g d a m a g e s . f i l e d a n d d e f e n d a n t s t h e a p p e a l abatement p l a n o f a b a t e m e n t a n d t h e J u d g e t h e s c o p e o f a n y t h e d e f e n d a n t s . j u d g e t h r e e f i n a L f i l e d t r i a l al so t h e t h e t h e th e on i n t h a t T h e R h o d e I s l a n d t h e i s u n i q u e c a s e l - e a d p i g m e n t i n b e c a s e ; w e c u r r e n t l y t h i s u l t i m a t e l y l i t i g a t i o n t h e r e a r e a n u m b e r o f m e r i t o r i o u s i n a d v e r s e v e r d i c t W e b e l i e v e t h e a p p e a l t h e r e f o r e t . h a t w e w i l l f o u n d c a n n o t . r e a s o n a b l y e s t . i m a t e p o t e n t i a l l i t i g a t i o n . a n d t h e o t h e r and we can not ass ure you to inherent i s s u c c e s s f u l - . is probable w e have concl-ude that I s l a n d m a t t e r T h e p o t e n t i a l t h e i n t e r i m m a t e r i a l - a d v e r s e it t h a t w o u l - d r e s u l t l i a b i l i t y i n c o u l - d h a v e a m a t e r i a l i m p a c t o n o u r c o n s o l - i d a t e d uncertainties, T h e r e f o r e i ncurred r e c o g n i z r n g o r a n n u a l - p e r i o d d u r i n g w h i c h s u c h l i a b i l i t y l e a d p i g m e n t f i n a n c i a l - l i a b i l i t y l i a b l e i t r e a s o n a b l y p o s s i b l e w e c o u l d t h i s i s f i r s t h a s b e e n e n t e r e d a g a i n s t u s . t i m e t h a t a n t h e i s s u e s w h i c h w e h a v e r a i s e d i n i s n o t p r o b a b l e w € I n a d d i t i o n , t h i s t o r e s p e c t H o w e v e r , 1 e g a l p r o c e e d i n g s a r e s u b j e c t t h i s m a t t e r . , l f d . r r l , w i t h b e l i e v e i n i t i n that any appeal w oul-d be t e r m the R hode a c c r u a l - . i n c o m e f o r a n d a i n l - o s s c o n t i n g e n c y i m p a c t o n n e t som e l iabi li ty a a d v e r s e r e c o g n i z e d , t h e n e a r i s c o n d i t i o n a n d l i q u i d i t y . i f d r r l r c a n n o t b e r e a s o n a b l y We have not accrued any am ounts l i t i g a t i o n c a s e s , for any of the pendi ng l ead pi gment and i n c l u d i n g t h e R h o d e I s l a n d c a s e . L i a b i l i t y i n c u r l e a d - b a s e d p a i n t t h a t m a y r e s u l - t , c a s e s m a y c o n t i n u e n o t l i t i g a t i o n r u l i n g s . a n e t l-oss contin gency l i a b i l i t y i n c o m e f o r t o b e f i l e d t h e t h e i n i n v i e w o f T h e r e s o l - u t i o n accrual i n t e r i m t h e i n e s t i m a t e d . a g a i n s t u s . W e c a n n o t a s s u r e y o u t h a t w e w i l l t h e p e n d i n g o r p o s s i b l e i n c o u r t a n d j u r y o f r e c o g n i t i o n i n i mpact on our adve rse i s f u t u r e i n h e r e n t o f a n y o f th at o r a n n u a l - p e r i o d i n v o l v e d t h e s e c a s e s c o u l - d r e s u l t r e s p e c t o f a n y o f u n c e r t a i n t i e s coul -d hav e a mate rial - d u r i n g w h i c h s u c h I n a d d i t i o n , l i a b i l i t y n e w F - 5 6 r e c o g n i z e d , c o n d i t i o n a n d l i q u i d i t y . a n d a m a t e r i a l a d v e r s e i m p a c t o n o u r c o n s o l - i d a t e d f i n a n c i a l Environmental matters and Titigation i n GeneraL operatj-ons environmental envi ronment al - A s w i t h o t h e r - our operations C e r t a i n are governed by various o f o u r b u s i n e s s e s or hazard ous within th e m eaning of appl ic able or other dama ge. W e hav e a r e a n d h a v e b e e n e n g a g e d c o m p a n i e s e n g a g e d i n s i m i L a r b u s i n e s s e s , l-aws and r e g u l a t i o n s . t h e handl-itg, manufacture or use of subst ances or com pounds that may be con sid ered toxic r e g u l a t i o n s . of our past and curre nt environmenta l p o l i c i e s v a r i o u s policy is regulations performance. e n f o r c e m e n t u n d e r U . S . a n d f o r e i g n involves development s, such e n f o r c e m e n t p o l i c i e s , s t o r a g e , a l l o f e n v i r o n m e n t a l - L a w s . l aws and c e r t a i n to cause i mplement O u r and i mprove our env ironmental- the esta bl-ishmen t of com pli ance progr ams. stricter hav e i mplem ented and con tinue t o m i n i m i z e t h e s e s a l - e o r d i s p o s a l o f s u c h s u b s t a n c e s . W e b e l - i e v e ti me, w € may be sub jec t s t a t u t e s , l -aws and u s e , t h a t a p p l i c a b l - e to envi ronment al r e s o l - u t i o n o f w h i c h i s poss ibl e envi ronment al - t r a n s p o r t a t i o n , o u r to mai ntain at all appl ic able to regul atory t l p i c a l l y compl ianc e w ith o u r p r o d u c t i o n , c o u l - d a d v e r s e l y a n d p r o g r a m s of our plants env ironment al- the poten tial and produc ts i n a n e f f o r t to r i s k s . requi rements c o m p l i a n c e s u b s t a n t i a l From ti me to st riv e f a c i l - i t i e s h a n d l i r g , a f f e c t fut ure l aws w i t h that and a r e t h e as to of i n rt a n d f o r m e r and C e r t a i n p r o p e r t i e s i n o u r sm elter s o p e r a t i o n s , form er mi ning a d m i n i s t r a t i v e e n v i r o n m e n t a l f a c i l i t i e s and sec ondary o f u n d e r u s e d l ead c i v i l to i n t h e pursuanL p o t e n t i a l l y r e s p o n s i b l e p a s t d i s p o s a l divested o f N L , p r a c t i c e s , p a r t y o r A d d i t i o n a l l y , i n v o l - v e d a s a d e f e n d a n t , th e Com prehensi ve E nvi ronmenta l l i t i g a t i o n , f e d e r a l - a n d s t a t e pri mary a r e i n v e s t i g a t i o n s Act, as amen ded by s t a t e s u b j e c t a r i s i n g c o n n e c t i o n w i t h including l o c a t i o n s p r o c e e d i n g s l - a w s . c u r r e n t l y both, Liability ( " C E R C L A " ) , a n d s i m i l a r a s s o c i a t e d w i t h w a s t e d i s p o s a l o u r p r e d e c e s s o r s o u r s u b s i d i a r i e s , o r S t a t e s E n v i r o n m e n t a l P r o t e c t i o n A g e n c y ' s L i s t s t a t e for personal r e s o u r c e s . a m o u n t s . most cases we are only one of a number of P RP s w ho may al so be s e v e r a l l y l - a w s u i t s e n v i r o n m e n t a l - c o n d i t i o n s w € a r e ( * P R P " ) o r R espons e, C ompensati on and Act a c t i o n s w e o r o w n e d , o p e r a t e d o r w e r e u s e d b y u s o r o f w h i c h a r e o n t h e U n i t e d th e S uperfund A mendments and R eauthori zati on l - a w s i n v a r i o u s g o v e r n m e n t a l - a n d p r i v a t e a n d f a c i l i t i e s o f A l t h o u g h w e m a y b e j o i n t l y t o a n u m b e r o f p e r s o n a l a l l e g i n g i njury f o r t h e s e c o s t s , ( " E P A " ) S u p e r f u n d N a t i o n a l - P r i o r i t i e s T h e s e p r o c e e d i n g s s e e k c l e a n u p c o s t s , d a m a g e s l i s t s . or property t h e s e w e a r e a p a r t y j u r i s d i c t i o n s damage and/or p r o c e e d i n g s to natural- s u b s t a n t i a l f r o m o u r o p e r a t i o n s . t o h a v e r e s u l - t e d c l - a i m s f o r injury C e r t a i n s i t e s , m i n i n g o r p r e v i o u s l y p r e d e c e s s o r s , a n d s e v e r a l l y l i a b l e . f i l e d damages for I n a d d i t i o n , o r s i m i l a r l o c a t i o n s , c u r r e n t l y v a r i o u s a l l e g e d r e l a t e d c e r t a i n i n v o l v e i n and c l a i m s j ointl y l i a b l e i n j u r y t h e i r i n t o E n v i r o n m e n t a l o b l i g a t i o n s a r e d i f f i c u l t t o a s s e s s a n d e s t i m a t e f o r n u m e r o u s r e a s o n s i n c l u d i n q : c o m p l e x i t y r e g u l a t i o n s ; a n d d i f f e r i n g i n t e r p r e t a t i o n s of governmental- n u m b e r a l - l - o c a t i o n o f c o s t s ; o f P R P s a n d t h e i r a b i l i t y o r w i l l i n g n e s s t o f u n d s u c h f i n a n c i a l a m o n g t h e m ; c a p a b i l i t i e s o f t h e P R P s a n d t h e a l - l - o c a t i o n o f c o s t s a o a s o l v e n c y m u l - t i p l i c i t y o f o t h e r P R P s ; o f p o s s i b l e s o l u t i o n s ; a n d n u m b e r a c t i v i t y o f y e a r s r e q u i r e d . o f i n v e s t i g a t o r y , r e m e d i a l a n d m o n i t o r i n g fn addi tion, imp osi tion of more st ringent st andards or regulations, new developments or changes th e laws or requj -rement .s regarding cleanup costs or al-l-ocati on of cos ts among P RP s, sol venc y of other P RPs , under environmental site F - 5 7 a t l i a b l e fu ture te sting resuLts of and anal ys is th at we are poten tial ly e s t i m a t e s . r e m e d i a t i o n undert aken w ith res ponsi ble B e c a u s e w e m a y b e c o s t s i t e s , f o r m a y e x c e e d o u r a c c r u a l - s d u e t o , a m o n g o t h e r the res pect sites or a determination for hazardous substances at other sj-t es, coul d cau se our exp enditur es c u r r e n t t o t a l u l t i m a t e l y reall-ocation cannot assure upper end of th e cannot assure you presently t h e m a t e r i a l - o p e r a t i o n s site s costs will Further, t o a d v e r s e e f f e c t o n o u r c o n s o l i d a t e d for w hic h est imat es not be i ncurred a n d s e v e r a l l y a m o u n t of costs amo ng PRP s or addi tio nal- a n y th at ran ge th at t h i s p o s i t i o n , can be mad e. actu al fo r I f w e w e r e cost s w il l i nsol venc y a n d l i q u i d i t y . f i n a n c i a l l i a b i l i t y , c e r t a i n f u t u r e . j o i n t l y f u t u r e i n c u r you t h e the noL exc eed acc rued amount s or t he hav e been made, and we env ironment al mat. ters may ari se for si tes w here no est imat es in c o u l - d h a v e a r e s u l - t s o f the to cer tain rel -ease of to exc eed our f o r t h e f o r w h i c h w e a r e t h e t h i n g s , l i a b l e of one or more P RP s. We W e r e c o r d l i a b i l i t i e s r e l - a t e d t o e n v i r o n m e n t a l - r e m e d i a t i o n o b l i g a t i o n s f u t u r e e x p e n d i t u r e s w h e n e s t . i m a t e d a d j u s t o u r e n v i r o n m e n t a L a c c r u a l - s a s f u r t h e r u s o r c i r c u m s t a n c e s e x p e n d i t u r e s t h e p a y o u t . W e r e c o g n i z e i f 2 0 0 7 , w € h a d n o r e c e i v a b l e s c h a n g e . W e g e n e r a l l y v a l - u e d u e o f a s a s s e t s w h e n t h e i r r e c e i p t r e c o v e r i e s . r e c o v e r i e s p r e s e n t t h e i r d r y , f o r t o a r e p r o b a b l e a n d r e a s o n a b l y e s t i m a b l e . i n f o r m a t i o n d o n o t d i s c o u n t t h e u n c e r t a i n t y t o r e m e d i a t i o n b e c o m e s a v a i l - a b l e e s t i m a t e d t h e o f t i m i n g W e t o f u t u r e o f i s d e e m e d p r o b a b l e . A t D e c e m b e r 3 1 , c o s t s f r o m o t h e r p a r t i e s , o u r a c c r u e d We do not know and cannot est imat e m a k e p a y m e n t s f o r w i l l payment s depends upon a numb er o f r e m e d i a t i o n A t e a c h environmental c l - a s s i f y a c c r u e d e n v i r o n m e n t a l - c o s t s a s a n o n c u r r e n t s h e e t costs we expect e s t i m a t e a s a c u r r e n t p r o c e s s ; w h i c h b a l - a n c e to pay w ithi n l i a b i l i t y . fac tors t h i s i n L u r n d e p e n d s o n f a c t o r s w e e s t i m a t e d a t e , the exa ct e n v i r o n m e n t a l - i ncJ- uding l i a b i l i t y . t h e the next ti me c o s t s . the ti min g fram e over w hic h we t i m i n g T h e o f the act ual- of o u t s i d e o f o u r c o n t r o 1 . a c c r u e d o u r tw elv e month s, and we a m o u n t o f W e c l a s s i f y t h e r e m a i n i n g Changes a r e p r e s e n t e d 1 n 1 n our accrued env ironment al- t h e E a b 1 e b e l - o w . cos ts duri ng the past three yea rs Bal-ance at Additions Payment s, net th e begin ning of th e yea r charge d to expense, net B a l a n c e a t t h e e n d o f t h e y e a r Amounts recog nized Bal-ance Sheet at l i a b i l i t i e s C u r r e n t N o n c u r r e n t l i a b i l i t i e s in our Consolid ated th e year: th e end of Total- 2 0 0 5 Years ended December 31, 2 0 0 5 ( I n m i l l i o n s ) 2007 $ 7 6 . 7 5 . 7 ( r c . t ) $ 6 5 . 7 4 . 0 ( 1 0 . ! ) s__65J $_l9J $ 1 _ 5 . 5 4 9 . r $ 1 3 . 5 4 5 . I S 5 s . 7 s s 9 . 7 $ s e . 7 4 . 4 ( 8 . + ) s s s . 7 $ l s . 4 4 0 . 3 s s s . 7 bas is, w € eval -uate NI, - On a quarterl y at site s where NL, f or its pres ent or liability a s a P R P o r d e f e n d a n t . mil-lion r e a s o n a b l y e s t i m a b l - e . W e b e l i e v e o f c o s t s c o s t s E o u s f o r s i t e s costs is approxi mately h a v e n o t d i s c o u n t e d $71 mil -l-io n, t h e s e e s t i m a t e s f o r c e r t a i n th ose enviro nmental - matt ers i t s i t e s . f o r w h i c h w e b e l - i e v e T h e u p p e r e n d o f t h a t i t i ncl -uding t o p r e s e n t v a l u e . rel ated i s n o E p o s s i b l e form er sub sid iari es t.h e poten tial range of our have been named $ 5 0 to N L w hic h w e bel -ie ve ar e t h e r a n g e t o e s t i m a t e t h e r a n g e o f i s c u r r e n t l y the amount cur rentl y r e a s o n a b l y p o s s i b l e t o e s t i m a t e acc rued. We p o s s i b l - e A t D e c e m b e r 3 1 , 2 0 0 7 , w € a c c r u e d a p p r o x i m a t e l y F - 5 8 i f d n y , t h e s i t e . A t D e c e m b e r 3 I , 2 0 0 7 , a b l e i n v e s t i g a t i o n r e s p o n s i b i l i t y , n o t c u r r e n t l y t h e w h e t h e r o r n o t N L a c t u a l l y o u r o f c o n t a m i n a t i o n t h e s e s i t e s p a r t y p r e v i o u s l y l i a b i l i t y past and c a u s e d b y a s s e r t c o u l - d b e m a t e r i a l - f r o m future f o r m e r o p e r a t i o n s a l l e g i n g i n a c t i v e l i a b i l i t y s i t e s , costs a t of t h e E P A a l l e g i n g t o e s t i m a t e a r a n g e o f c o s t s . i s t h e e a r l y s t a g e s , i n t h e r e w e r e a p p r o x i m a t e l - y 2 0 s i t e s f o r w h i c h w e a r e F o r t h e s e s i t e s , g € r r € r a I l y h a d a n y a s s o c i a t i o n f o r t h e c o n t a m i n a t i o n w i t h a t a n d w e a r e u n a b l - e t o d e t e r m i n e t h e s i t e , t h e n a t u r e o f t h e s i t e a n d t h e e x t e n t T h e t i m i n g a n d a v a i l a b i l i t y p r o v i d e s i n f o r m a t i o n r e c e i v e d w € h a v e g e n e r a l t h a ! w € , a l o n g w i t h o t h e r P R P s , a r e a n d s p e c i a l o f o u r c o n t r o L , t o u s . A t c e r t a i n i n f o r m a t i o n o f o n s u c h a s w h e n t h e t h e s e o f f o r al 1egedly o f n o t i c e s l i a b l e rem edi ating c o n d u c t e d a t env ironment al- t h e s i t e s . cont aminat ion T h e s e n o t i f i c a t i o n s m a y t h a t N L , a l o n g w i t h o t h e r P R P s , a r e t o u s i f w e a r e u l t i m a t e l y l i a b l e f o r p a s t c l e a n - u p c o s t s t h a t f o u n d l i a b l e . i s d e p e n d e n t o n e v e n t s o u t s i d e T r e m o n t - P r i o r t o 2 0 0 5 , T r e m o n t , i n t o a v o l u n t a r y s e t t l e m e n t and cer tain th e other PRPs woul-d undert ake cer tain a t a f o r m e r m i n i n g s i t e p a r t l y s u b s i d i a r i e s , e n t e r e d Depart ment of Environmental - Quali ty Tremont an d r e m e d i a 1 a c t i v i t i e s Hot. Springs County, Arkan sas. H a l l i b u r t o n f o r , a m o n g o t h e r with the p r o c e d u r e pend ing site i n a r b i t r a t i o n , E n e r g y S e r v i c e s , d s f u r t h e r t h i n g s , f inal t h e a d i s c u s s e d b e I o w . Tremont had enter ed a n o t h e r P R P f o r s h a r i n g o f f n c . , i n t e r i m i nto t h i s r e m e d i a t i o n al -l-o cati on of cos ts thro ugh i n an agreem ent wit h s i t e , w h i c h p r o v i d e s c o s t s a s s o c i a t e d an agreed- upon a n o t h e r o f a g r e e m e n t w i t h o u r w h o I I y - o w n e d t h e A r k a n s a s to w hich i nterim other P RP s purs uant i nvest igator y o p e r a t e d b y N I - , l - o c a t e d and On December 9, 2005 , Hal-Iiburt on s i t e , s u i t i n t h e u n i t e d S t a t e s D i s t r i c t o f T e x a s , H o u s t o n D i v i s i o n , and D II Indus tri es, I-. ,LC , anot. her P RP of t h e S o u t h e r n C o u r t C a s e N o . H - 0 5 - 4 1 - 6 0 , a g a i n s t N L , T r e m o n t f n c . a n d G e o r g i a - f o r i t s s u b s i d i a r i e s , M - f , L . L . C . , M i l w h i t e , f i l - e d t h i s D i s t r i c t a n d c e r t a i n P a c i f i c C o r p o r a t i o n o f s e e k i n g : O o d e c l - a r a t i o n to recover a r e m e d i a t i o n a rem ediation a declaration Halli burton s i t e . respo nse and remed iati on t h e p a r t i e s ' o f cos ts l - i a b i l i t y i ncurred at the si te; r e s p o n s e f o r c o s t s i n c u r r e d a t t h e s i t e ; d e c l - a r a t i o n o f t h e costs to be i ncurred reg ardi ng and DII for p a r t i e s ' I i a b i l i t y the si te; the the obl igat ion to cos ts and exp enses att ribut able of Tremont fut ure at f o r i n and i ndemnif y t he to r e s p o n s e a n d a n d i t S t a t e s D i s t r i c t D i v i s i o n , r e s p o n s e c o s t s p l a i n t i f f s into agreement pre viously site. stay with cl-aims against d i s m i s s a n d t o s t a y the Arkansas the Houston O n D e c e m b e r 2 7 , 2 0 0 5 , a s u b s i d i a r y o f T r e m o n t C a s e N o . C o u r t f o r 0 5 - 5 0 8 9 , t h e W e s t e r n D i s t r i c t a g a i n s t G e o r g i a - P a c i f i c , h a s i n c u r r e d a n d w i l l i n c u r a t i n s u i t f i l e d t h e U n i t e d o f A r k a n s a s , H o t S p r i n g s r e c o v e r S u b s e q u e n t l y , b y e n t e r i n g t h e s i t e . s e e k i n g t o i n t h e H o u s t o n l i t i g a t i o n an amen dment with NL, Tre mont and agreed upon for a g r e e d t o s t a y i ts res olv ing l i t i g a t i o n t h a t aff il iat es to the al -loc ati on the arbi trat ion of cos ts at a1s o agreed w ith Georg ia P aci fic the t o that matt er w as cons ol- idated subs equentl y and subs equentl y The Tremont subsidiary litigati on, litigati on, Tremont and wher e the cour t has agreed the pl aint iff s but deni ed Tremont 's moti ons to st ay t o its subs idi ari es, t h e c l a i m s m a d e b y M - I , M i l w h i t e a n d G e o r g i a P a c i f i c . In June and Sep tember, 2007 the arbi trat ion th e affilia tes. to address and its obligated costs and exp enses, remediation $ 1 0 . 0 m i l l i o n at to issues noted above retu rned Am ong other thi ngs, i ts inde mnify Trem ont a nd includ ing att.or ney th e site, i n c a s h i n and ord ere d H all ibur ton r e c o v e r y o f p a s t the parti es panel cho sen by fav orable deci si ons the panel to N L, Trem ont is a l- I f ees , ass oci ated w ith any envi ronment al- to pay Tremont approx imat ely that H all iburt on N L) agai nst (i ncl uding aff il iat es found i n v e s t i g a t i o n a n d r e m e d i a t i o n c o s t s F - 5 9 to the si te, rel -ated aft er incurred lega1 expenses by Tremont inc urred a f t e r i n t e r e s t a motion with and 1ega l expenses a c c r u i n g and remediation p o s t - j u d g m e n t Tremont filed a r b i t r a t . i o n decisions. awaiting of amounts awarded at December 31, 2007. a r b i t r a t i o n a g r e e d - u p o n a t D e c e m b e r 3 1 , 2 0 0 7 f o r p a n e l ' s d e c i s i o n s , i n t e r i m p a n e l ' s A confi rmati on the on-goi ng the opin ion t h i s m a t t e r . d e c i s i o n s , spe cif ied I , the H ouston f i l e d th e court S e p t e m b e r 2 0 0 7 . l iti gati on i n a n d H a l l i b u r t o n I n O c t o b e r 2 0 0 7 t he to con firm t o v a c a t e s u c h hearing w as hel d on N ovember 13, 2Q07 and w e ar e natu re t he t he s i t e b a s e d u p o n t h e T r e m o n t h a s $ . S m i l - ] i o n a c c r u e d the unc ertain rec eiv abl-e conf irm ation T r e m o n t h a s a c c r u e d P ending a a m o t i o n 1ega l proce edings w e have not acc rued a fut ur e toget her with th e court on thi s matt er. c o s t s h a r i n g a l - l - o c a t i o n . pl us any for of D ue to dates , fi nal t h i s f o r of Otrher - We have also accru ed approx imat ely 2007 for other enviro nmental e n d o f t h e r a n g e o f o u r e s t i m a t e o f r e a s o n a b l y p o s s i b l e clea nup matt ers. $+ .9 mi l-l -i on at D ecember 31, the up per i s near f o r s u c h m a t t e r s . Thi s acc rua1 c o s t s Insurance coverage claims We are invol-ved in variou s c a r r i e r s r e g a r d i n g t o u s u n d e r j - n s u r a n c e t h e o b l i g a t i o n s i n s u r a n c e p i g m e n t a n d a s b e s t o s L a w s u i t . s . T h e d e f e n s e c o s t s o r a n d a s b e s t o s assure c o n s i d e r e d l i t i g a t i o n a n y p o t e n t i a l m a t t e r s l i t i g a t i o n such i n d e t e r m i n i n g i n s u r a n c e insurance th at you i n d e m n i t y o r b o t h w i l l l egaI proc eedings w ith cer tain a n d e x t e n t o f of our former t h e c a r r i e r s ' n a t u r e p o l i c i e s i s s u e o f w h e t h e r w i t h r e s p e c t c e r t a i n c o v e r a g e t o i n s u r a n c e l - e a d f o r f o r o u r L e a d p i g m e n t a n d w e c a n n o t W e hav e not l - e a d p i g m e n t o r a s b e s t o s f a c t o r s , b e f o u n d d e p e n d s u p o n a v a r i e t y t o e x i s t o f cov erage w il l be avai l -ab1e. r e c o v e r i e s r e l a t e d a c c r u a l s . f o r us c o s t s . f r o m We have agreements with rei mburse tw o form er fo r a port ion W e a r e n o t a b l e i s s u e s c e r t a i n r e i m b u r s e m e n t . t h e s e c a r r i e r s t h a t W h i l e w e c o n t i n u e a r i s e w e d o n o t k n o w i f w e w i l l d e f e n s e c o s t s o r i n s u r a n c e i n d e m n i t y . r e c o v e r i e s m a t t e r s . i n d e t e r m i n i n g A n y a d d i t i o n a l - fut ure purs uant r e g a r d i n g f o r p a s t d e f e n s e c o s t s t o d e t e r m i n e i nsuranc e car rier s of our pas t and to w hich l -ead pi gment h o w m u c h w e w i l l i n c u r r e d b y u s , c o s t s i n s u r a n c e r e i m b u r s e m e n t W e h a v e n o t . c o n s i d e r e d a n y a d d i t i o n a l - l - e a d p i g m e n t o r f o r w o u l - d b e r e c o v e r i e s w h i c h p a s t t o s e e k a d d i t i o n a l i n o b t a i n i n g a c c r u a l s i n s u r a n c e d e f e n s e b e s u c c e s s f u l - d e f e n s e r e c o v e r the carriers l i t i g a t i o n u l t i m a t e l y b e c a u s e o f q u a l i f y f o r r e c o v e r i e s , f o r e i t h e r p o t e n t i a l a s b e s t o s recognized when th e l i t i g a t i o n recei pt is probab le and the amount i s deter minabl -e. We have settl-ed insura nce cov erage cl -ai ms con cerni ng envi ronment al c l a i m s w i t h further material- c e r t a i n o f o u r p r i n c i p a l f o r m e r c a r r i e r s . W e d o n o t e x p e c t settl-ements rel at ing to envi ronment al - remed iati on cov erage. N e w Y o r k c a s e s - I n O c t o b e r 2 0 0 5 w e w e r e s e r v e d w i t h a c o m p l a i n t In surance Com pany v, N L Indus tri es, t h e S E a t e o f N e w Y o r k , C o u n t y o f N e w Y o r k , a OneBeacon Ameri can C o u r t o f p l a i n t i f f , o b l i g a t i o n s p r e d e c e s s o r w i t h I n M a r c h 2 0 0 6 , w e 2 0 0 7 , o r d e r e d n o t d i s m i s s a n o t i c e f i l e d t h a t f o r m e r i n s u r a n c e t o u s u n d e r r e s p e c t t r i a l o f a p p e a l o f t h e c a r r i e r , i n s u r a n c e p o l i c i e s l - e a d p i g m e n t t o c e r t a i n c o u r t d e n i e d o u r m o t i o n t h e A p p e l l - a t e D i v i s i o n t r i a l - i s s u e d t o u s b y l a w s u i t s t o d i s m i s s . a n d r u l i n g , ( F i r s t D e p a r t m e n t ) c o u r t ' s s e e k s a d e c l - a r a t o r y i t s j u d g m e n t o f t h e p l a i n t i f f ' s f i l e d a g a i n s t u s . I n A p r i l t h e O n e B e a c o n c o m p l a i n t b e d i s m i s s e d . T h e A p p e l l a t e D i v i s i o n 2 0 0 6 , i n S e p t e m b e r r e v e r s e d a n d d i d t h e S u p r e m e C o u r t t h e c o u n t e r c l - a i - m s a n d c r o s s c l - a i m s . i n (S uprem e et af. I n d e x N o . 6 0 3 4 2 9 - 0 5 ) . T h e Inc ., tlnderwriters C o u r t o f p l a i n t i f f , i t s o b l i g a t i o n s In Febru ary atr LToyds, 2006, w€ ser ved London v. Mil-l-ennium HoJdings w ere w ith a t h e S t a t e o f N e w Y o r k , C o u n t y o f N e w Y o r k , com plai nt i n LLC et al . I n d e x N o . 0 6 / 6 0 0 2 5 ) . C ertain (Supreme T h e j u d g m e n t o f w i t h o f o u r s , s e e k s a d e c l a r a t o r y i s s u e d t o u s b y p l a i n t i f f t o u s u n d e r i n s u r a n c e p o l i c i e s a f o r m e r i n s u r a n c e c a r r i e r F - 5 0 t o c e r t a i n t r i a l - r e s p e c t d e n i e d o u r m o t i o n t h e c o u r t ' s D i v i s i o n a m o t i o n i n c L a i m s L l o y d s a p p e a l e d w a s g r a n t e d , b y a f u l l p a n e l . l e a d p i g m e n t l a w s u i t s . I n A p r i l t o d i s m i s s . r u l i n g , I n O c t o b e r 2 0 0 5 , w € f i l e d a n d i n O c t o b e r 2 0 0 7 , ( F i r s t D e p a r t m e n E ) d e n i e d o u r a p p e a l . f o r a p r e l i m i n a r y s e e k i n g i n j u n c t i o n , t h e T e x a s c a s e d e s c r i b e d b e l o w , w h i c h w a s d e n i e d . t h a t d e c i s i o n n o t o n t h e m e r i t s , a n d o b t a i n e d a t e m p o r a r y r e s t r a i n i n g b u t i n o r d e r t o o b t a i n a r e v i e w o f 2 0 0 6 , c o u r t t h e E r i a l a n o t i c e o f a p p e a l o f t h e S u p r e m e C o u r t I n J a n u a r y 2 0 0 8 , L l o y d s l i t i g a t i n g t o b l o c k u s f r o m A p p e l l a t e f i l e d o u r I n J a n u a r y 2 Q Q 8 , o r d e r w h i c h t h e a p p e a l T e x a s c a a e - I n N o v e m b e r o f 2 0 0 5 , w € f i l e d a n a c t i o n a g a i n s t O n e B e a c o n i n s u r a n c e p o l i c i e s t o Ins urance v. OneB eac on A meri ca f o r D a I l a s C o u n t y , T e x a s , C a s e N o . 0 5 - t h e c o u l - d p r o v i d e a g a i n s t €t a n d / o r a s b e s t o s a c t i o n s Insurance t o u s t h a t p o t e n t i a l l y a g a i n s t a l l o f al- . . Inc . f i l e d o t h e r C o u r t i s s u e d p o l i c i e s ( D i s t r i c t 2 0 0 6 , w € f o r captioned a c o m p r e h e n s i v e a c t i o n captio ned NI, In dust ries, i n s u r a n c e c o m p a n i e s , w h i c h a l - s o i s s u e d l e a d p i g m e n t a c t i o n s NI., Industnes a n d c e r t a i n the past, in us a 7 . C o m p a n y , € t . I I 3 4 7 ) I n A p r i l i n s u r a n c e c o m p a n i e s w h i c h i n s u r a n c e us, ( D a l l - a s C o u n t y C o u r t a t L a w , T e x a s , C a s e N o . C C - 0 6 - 0 4 5 2 3 - E ) . w e a s s e r t i n s u r a n c e u n d e r c l - a i m s , a n d w e s e e k a d e c l - a r a t i o n i n s u r a n c e c o m p a n y w i t h i n w h i c h w e s e e k c a s e p l a c e b e t w e e n u s a n d c e r t a i n NL Industries, 2 0 0 7 , w € o b l i g a t i o n above) . In c . v. American Re Ins urance C ompany, €t t h e r e s p e c t t h e t o t o s u c h c l a i m s . r e s p e c t i n t e r p r e t a t i o n o f o u r t h a t d e f e n d a n t s h a v e b r e a c h e d a m o t i o n t o d e f e n d u s s u m m a r y j u d g m e n t o n Inc . v. American Re t h e R h o d e I s l a n d o f a S t a n d - S t i l l t o r i g h t s c o n t r a c t u a l i n s u r e r s , p o l i c i e s s u c h t h e i r f i l e d w i t h f o r a s i n , A g r e e m e n t h a v e b e e n c o n s o l - i d a t e d B o t h c a s e s , d s w e l - 1 a s a t h i r d t h a t w a s i n i n t o t h e al . cas e . In Oc tob er i s s u e o f O n e B e a c o n ' s ( d e s c r i b e d l - e a d p i g m e n t a c t i o n t h i s a c t i o n , t o u s a n d a s b e s t o s o f e a c h a s s e r t e d Company, I n o b l i g a t i o n s l e a d p i g m e n t a n d o b l i g a t i o n s Other Titigation In April 2006 , w€ were ser ved w ith a com plai nt I n c . , e t a 7 . f ormer mino rity ( U n i t e d S t a t e s D i s t r i c t I n d u s t r i e s , t T e r s e y , C a s e N o . 2 : 0 5 - c v - 0 7 5 3 5 - W H W - S D W ) . T h e p l a i n t i f the ( * E M S " ) m o t i o n f n F e b r u a r y 2 0 0 8 , p r e j u d i c e p l e a p l a i n t i f f s ' t h e p l a i n t i f f s I n J u l y 2 0 0 6 , d e f e n d a n t s a n d s i m u l t a n e o u s l y a c o u n t e r c l - a i m , S e e N o t e 1 3 . t o d i s q u a l i f y i n t e r v e n t i o n f i l e d i n i n f i l e d , c o u n s e l , w h i c h w a s g r a n t e d v o l - u n t a r i l y d i s m i s s e d t h e T e r r y S . C a s e y c a s e d i s c u s s e d b e l - o w . i n Murphy , et al -. v. NI, o f N e w C o u r t , D i s t r i c t t h i s a c t i o n w e r e f s , Inc . a i n J a n u a r y 2 0 0 8 . a m o n g o t h e r t h i n g s , i n t h e c o m p l a i n t w i t h o u t shareh ol-ders of N L E nvi ronmenta l- Management S ervi ces , t h i r d p a r t y p e t i t i o n a n d a I n M a y 2 0 0 7 , w € f i l e d a c o m p l a i n t e E a l . v . T e r r y S . C a s e y , e t d I . , i n T e x a s s t a t e c o u r t C a s e N o . 0 7 - 0 4 8 5 5 , 7 9 2 " d ( C o n t r a n C o u r t , D a L L a s C o u n t y , T e x a s ) i n w h i c h w e a l l e g e d n e g l i g e n c e , a n d b r e a c h o f c o n t r a c t f o r m e r m i n o r i t y s h a r e h o l - d e r o f E M S . s h a r e h o l d e r s o f E M S f i l e d s e e k i n g in EM S. The counte r-de fendan ts i n t e r v e n t i o n , i n th e th ird-p arty defen dants a g a i n s t a f o r m e r s e r v i c e p r o v i d e r I n F e b r u a r y 2 0 0 8 , t h i r d - p a r t y t o r e l - a t e d c o u n t e r c l - a i m s , d a m a g e s named i n t h e i r the cou ntercl aims and cer tain are V alhi t o u s w h o t w o o t h e r p e t i t i o n f o r m e r are us of our f o r m e r o f f i c e r s o r d i r e c t o r s a n d c e r t a i n c u r r e n t o r f o r m e r o f f i c e r s o f E M S . S e e N o t e 1 - 3 . T h e i n p r e p a r i n g t h e v a l u a t i o n o f i n t e r v e n o r s t h e m i n o r i t y a n d c o u n t e r - p l a i n t i f f s s h a r e h o l d e r s ' p r e f e r r e d f o r p u r c h a s e b y E M S , c o u n t e r - d e f e n d a n t s a n d t h i r d - p a r t y s h a r e h o l - d e r o p p r e s s i o n , b r e a c h o f c o n t r a c t f r a u d , a n d t o r t u o u s b r e a c h o f i n t e r f e r e n c e d e f e n d a n t s h a v e f i d u c i a r y d u t y , w i t h e c o n o m i c u n d e r N e w J e r s e y 1 a w . W e b e l - i e v e to deny all of w rongdoing and defend agai nst t h e s e c l - a i m s a r e w i t h o u t t he t h a t C o r p o r a t i o n , , J u d i c i a l D i s t r i c t c o n v e r s i o n , w a s a l s o a f o r m e r m i n o r i t y a n d p e t i t i o n ownership and Contran, c u r r e n t o r o r d i r e c t o r s c l a i m s h a r e s c o m m i t t e d m i n o r i t y c i v i l r e l - a t i o n s and intend merit c l a i m s v i g o r o u s l y . c o n s p i r a c y , t h a t , and alle gati ons F - 6 1 We have been named as a def endant in vari-ous Lawsuits in several a s a r e s u l t o f o c c u p a t i o n a l - e x p o s u r e i n j u r i e s a l l e g i n g p e r s o n a l j u r i s d i c t i o n s , primarily to products man ufactured by som e of our a s b e s t o s , a n d / o r m i x e d d u s t . . A p p r o x i m a t e l y s i l i c a r e m a i n p e n d i n g , i n v o l v i n g a t o t a L o f a p p r o x i m a t e l y s p o u s e s . been administrativel y c l - a i m s w i l l criteria l i t i g a t i o n e s t i m a t e i n a n y o f b e c a u s e o f l i a b i l i t y , t h e t h e s e m a t t e r s . r e - o p e n e d for asbestos-rela ted t h e c l a i m s o f a p p r o x i m a t e l y B a s e d o n i n f o r m a t i o n t h e u n c e r t a i n t y I n a d d i t i o n , dismissed i f a n y . l i a b i l i t y u n l e s s b e o f from Ohi o S tate C ourts. W e do not expe ct f s m e e t t h e p l a i n t i f c o u r t s ' t h e cl-ai ms. W e have not acc rued any amount s for T o d a t e , w e h a v e n o t b e e n a d j u d i c a t e d a v a i l a b l - e t o u s , i n c l u d i n g : a n d i n a b i l i t y t o form er operat ions cont aini ng 4 7 0 o f ? , 0 0 0 p l a i n t i f f s t h e s e t y p e s o f c a s e s 3 , 3 0 0 f o r m e r p l a i n t i f f s a n d t h e i r h a v e the se m e d i c a l this r e a s o n a b l y l i a b l e o o r . f a c t s c o n c e r n i n g o u r h i s t o r i c a l t h e r a t e o f n e w c l a i m s ; the numb er of claims o u r p r i o r e x p e r i e n c e o p e r a t i o n s ; from w hic h w e have been di smi ssed; i n t h e d e f e n s e o f t h e s e m a t t e r s , and t h a t w e b e l i e v e b e c o n s i s t e n t w i t h o u r h i s t o r i c a l we do not expect any reasonably t o o u r c o n s o l i d a t e d have and will liability notices former subsid iaries, e n t e r e d insurers may seek inde mnificatio n contin ue from each cl-ai m. s e t t 1 e m e n t s regardi ng f i n a n c i a L includ ing i n t o t h e r a n g e o f r e a s o n a b l y p o s s i b l e o u t c o m e s o f t h e s e m a t t e r s w i l l F u r t h e r m o r e , possibl-e outcome woul-d invol-ve amounts material- ( w h i c h a r e n o t m a t e r i a l - ) . c o s t s p o s i t i o n , to vigorous ly r e s u l - t s o f o p e r a t i o n s o r a seek di smi ssal - and/or l i q u i d i t y . fi ndi ng W e of no In a ddit. ion, asbestos or sil -ic a no tic es ti me from to cl ai ms purpor ting prov ided to ti me, w € hav e rec eived agai nst to be brough t i nsurer s w ith w hic h w e h ave p o l i c i e s . T h e s e i n s u r a n c e e x t i n g u i s h i n g c e r t a i n from us. f n a d d i t i o n in vario us involved (or intell-ectual- t o o u r p r e s e n t coverage insurance th ese for coverage d e s c r i b e d a b o v e , w e a n d o u r a f f i l i a t e s t h e t o other enviro nmental , l i t i g a t i o n property) a n d cont ractual , , empl oyment and other cl ai ms and di sputes f n c e r t a i n produc t. f o r m e r b u s i n e s s e s . items, i n s u r a n c e although w e do not exp ect any addi ti onal- mate rial c a s e s , w € h a v e l iabi J-i ty , i nci dental a r e pate nt fo r our environment al- cl -ai ms. W e c u r r e n t l y in t h a t b e l - i e v e th e aggregate, individually or our consolidated the accruals already pro vided. fi nancial- position, t h e d i s p o s i t i o n o f a l l sho ul-d not have a mater ial res ul-t s of operat ions c l - a i m s a n d d i s p u t e s , adv erse eff ect and l iqui dit y on beyond Other matters Concentrations of credi t risk. S ales of Ti O2 acc ounted t h r e e y e a r s . T i O 2 i s g e n e r a l l y for approx imat ely p l a s t i c s t h e p a s t a n d p a p e r m a r k e t s w h o s e d e m a n d f o r T i O 2 i s 9 0 ? o f o u r C h e m i c a l - s s a l - e s d u r i n g t h e p a i n t , t o " q u a l i t y - o f - l i f e " economic wel-l--being of 4,000 custom ers and th e o f c h e m i c a l s s a l - e s . N o s i n g l e c u s t o m e r a c c o u n t e d t h e p a s t 2 0 0 7 . I n e a c h o f a p p r o x i m a t e l y sales vol-umes were to Europe with about 34* att ribut able 2 0 0 7 . cus tomers acc ounted t h r e e y e a r s , th e various geographi c i n d u s t r i e s , regi ons. largest te n w h i c h a r e g e n e r a l l y i n f l - u e n c e d b y t h e Ti O2 i s sol d for approx imat ely f o r m o r e t h e n 1 0 8 o f s a l e s s o L d c o n s i d e r e d r e l a t i v e to o ver 27+ i n o f o u r T i O 2 manufact urers for a c c o u n t e d approximately We sel-l- our in North America. Component Products primarily In 2007, ten the comp onent produc ts 31t of sal -es . to l argest f o r m o r e t h a n 1 0 t o f s a l - e s i n 2 0 Q 7 . o n e - h a l f to N orth A meri ca in original equipment cus tomers acc ount ed cus tomer N o si ngl e A t D e c e m b e r 3 1 , 2 0 0 7 , c o n s o l i d a t e d c a s h , c a s h e q u i v a l e n t s # 2 6 . 4 m i l - l - i o n o n d e p o s i t a t a s i n g l e U . s . b a n k a n d r e s t r i c t e d ( i n c a s h i n c l - u d e s a p p r o x i m a t e l y 2 0 0 6 t h e a m o u n t w a s i 7 9 m i l l i o n ) . F - 6 2 -7.eases. Our pri nci pal C hemic al-s S egment operat ing subs idi ar y GmbH, l-eases the l-and under its itse l-f , w hic h repre sents f a c i l i t y c a p a c i t y . to a Leas e w ith B ayer A G that exp ires approx imat ely i s est abl- ish fac il it y T h i s compl ex. W e peri odic all y The inde x or other mec hanis m to deter mine tw o year s at a ti me. any chan ge i n the rent lease associated w ith our Lev erkus en for the fa cil ity periods titan pursuant fa cil ity Operati ng in Germany, Kronos product ion own the Leve rkusen o u r c u r r e n t T i O 2 p r o d u c t i o n extensive manufacturing for land Bayer provides rent for periodic b a s e d o n n e g o t i a t i o n s change "contingent agreement c h l o r i n e , f o r u s t o o p e r a t e o u r L e v e r k u s e n for no the nego tiation expirin g a u x i l i a r y l-e ase ,' rather, fo rmul-a, a s p a r t ren tals" of at 20IL, least land Leverkusen TiO2 i n 2050. We one-t hird of l o c a t e d w i t h i n B a y e r ' s re nt the amount of by agreem ent wit h l -ease agreem ent t he t o the rent t i m e s u c h i s deem ed i s subj ect t h e rent chan ges sol e1y i n i n f r o m the supp li es raw mater ial s, a n d s e r v i c e s and ser vi ces i ncl udin g n e c e s s a r y between Baye r and us. W e rec ogniz e any chan ge i n l e a s e e x p e n s e s t a r t i n g is agreed upon by both of us, as any suc h chan ge o f under GAAP . U nder a sep arate in a n d o p e r a t i n g m a t e r i a l s , Ba yer prov ides som e u t i l i t i e s f a c i l i t y . We al-so lease variou s other manufac Luri ng and/or var ious the purch ase val-u es, l-eases conta in ren tal of market and fa ir res pect. iv ely. the normaL course of business, such l eases w il l l - e a s e s . R e n t e x p e n s e a p p r o x i m a t e d $ 1 2 m i l l i o n At December 31, operating a s f o l l o w s : 2007 , Leases having an initial or remai ni ng fut ure our and equi pment. In mos t cas es w e expe ct fac il it ies term renew al- opt. ions at Some fair in be renew ed or repl aced by other i n e a c h o f 2 0 0 5 , 2 0 0 6 a n d 2 0 Q 7 . nonc ancel- lab 1e term of more than one yea r were under that , mi nimum pay ments Y e a r s e n d i n g D e c e m b e r 3 1 , 2 0 0 8 2 0 0 9 2 0 1 0 2 O I T 20L2 2073 and thereafter T o t a l - ( 1 ) ( l ) _ ' ' ' A p p r o x i m a t e l y The minimum comm itment amo unts e a c h y e a r a n n u a l t h r o u g h r e n t a l - t h e 2 0 5 0 e x p i r a t i o n r a t e a s o f D e c e m b e r 3 1 , 2 0 0 7 . o f t h e # 2 4 m i l " l - i o n for r e l a t e s the t o l -ease i ncl uded t h e L e v e r k u s e n the l - e a s e a r e b a s e d i n Amount ( I n m i l l i o n s ) $ e . e 7 . 2 s . 3 3 . 3 2 . 9 2 L . 6 s s 0 . 2 f a c i l i t y t a b l - e l - e a s e . f o r a b o v e u p o n t h e c u r r e n t Long-tezm contracts. our TiO2 requirements purchase min imum quan ti ties c o m m i t m e n t s a g g r e g a t i n g a p p r o x i m a t e l y feedstock certain We ha ve l ong-term through sup ply cont racts 201,1-. The agreements f or to w ith mi nimu m purc hase that prov ide require us of feeds tock $ 7 1 2 m i l - l - i o n a t D e c e m b e r 3 1 , 2 0 0 7 . Contran and us have agreed to a pol ic y a n d t a x p a y m e n t s a s d e s c r i b e d l i a b i l i t i e s as wel-l- as ever y other membe r of Income ta xes. o f t a x law, w€, a l - l o c a t i o n applicabl-e a r e e a c h liability for all- pe riods a g r e e d , h o w e v e r , Contran Tax Group b y u s i n a c c o r d a n c e w i t h j o i n t l y of Contran and th e other com panies a n d s e v e r a l l y l i a b l e f o r in which we are i n d e m n i f y t o in excess of o ur t h e inc luded u s i n f o r a n y tax l iabi li ty t a x a l - l - o c a t i o n p o l i c y . for prov idi ng t he i n N o t e 1 . U n d e r the C ontran Tax Group, t a x the C ontran Tax Gro up the C ontran Tax Group . C ontran has t a x e s o f t h e i n c o m e l i a b i l i t y com puted and pa id t h e a g g r e g a t e i ncl uded prev ious ly f e d e r a l - i n c o m e f o r i n F - 5 3 Note 18 Recent accounting pronouncementg: Pension and Other Postreti rement P lans - Pl-ans. SFA S N o. 158 requi res funde d st atus of each of our In S eptember 2006, for Defined Benefit to us the FASB Pension and rec ogniz e an ass et or defi n ed i ndiv idual pension and postretirement This stan dard does not chan ge the exi st ing pl ans on our C onsol -idated B al-ance and meas urem ent th e a mount of peri odi c in and di scl -os ur e l iabi li ty D ecember 31, 2006 on a pros pecti ve cos t w e rec ogniz e rec ognit ion rec ogniti on benefi t in of of for th e benefi t i n c o m e , th e ass et and tax and mino rity th e over or under th at determine We adopted l-58 , EmpToyers' Accounting i n t e r e s t , fu nded status interest. th is stand ard in which we recogni zed e ffect iv e throu gh other u n r e c o g n i z e d g a i n s a n d l - o s s e s a n d p r i o r issued SFAS No. Otrher Postretiremen t liability benefit Sheets. requirements net income. requirements basis, p r i o r t a x a n d m i n o r i t y changes of n e t Ehrough other we used September 30 as a mea surem ent date p o s t r e t i r e m e n t December 31, 2007 we transitioned September 30 mea surement date m o n t h n e t p e r i o d i c b e n e f i t n e t o f a d j u s t . m e n t c o s t w a s a l - l o c a t e d c o s t c o s t a n d n e t component of accumul-ated other e f f e c t . o n r e t a i n e d o f f s e t t h e e x t e n t comprehensi ve comprehens iv e i n c o m e b e n e f i t t h e p e r i o d i n c l - u d e d a m o r t i z a t i o n t h e y a r e income. t a x e s a n d m i n o r i t y i n t e r e s t , r e f l - e c t c o s t i n c o m e thes e pl ans o b l i g a t i o n s , A ny fut ure t r a n s i t i o n e a r n i n g s , e a r n i n g s r e t a i n e d n e t o f b e n e f i t p 1 a n s . c o s t . f o r t o t o t o a s o f D e c e m b e r 3 1 , 2 0 0 6 . W e n o w r e c o g n i z e throu gh com prehensi ve chan ges w il l i ncome aIl com prehensi ve s e r v i c e c o s t s o r c r e d i t s , of our n e t o f a l l i ncome, net in o y t o D e c e m b e r 3 1 , 2 0 0 7 of our pens j-on and s t a n d a r d , be rec ogniz ed ei ther c o s t , b e n e f i t e f f e c t i v e r e f l e c t e d T n a d d i t i o n , i n p e r i o d i c p r i o r cer tain t h i s for I n a c c o r d a n c e w i t h al -l- of our pl ans w hic h had prev ious ly used a to a D ecember 31 meas urement date usi ng a L5 A c c o r d i n g l y o n e - f i f t h o f t h e n e t p e r i o d i c f r o m O c t o b e r L , 2 0 0 6 t h r o u g h D e c e m b e r 3 1 , 2 0 0 7 , h a s b e e n a l - l - o c a t e d a s a d i r e c t t h i s c h a n g e a n d f o u r - f i f t h s t h e n e t p e r i o d i c l - o s s e s , p r i o r o f t h e b e n e f i t . s e r v i c e a c t u a r i a l - w h i c h w e r e p r e v i o u s l y r e c o g n i z e d i ncome at D ecember 31, 2006, t a x e s a n d m i n o r i t y i n t e r e s t , S e e N o t e 1 1 . a s a t he w a s t o e x p e n s e i n 2 0 0 7 . T o t h e e x t e n t o f u n r e c o g n i z e d b y a c h a n g e i n a c c u m u l a t e d o t h e r c o m p r e h e n s i v e i n c o m e . F a i r V a f u e M e a s u r e m e n t , s I n S e p t e m b e r 2 0 0 6 , t h e F A S B i s s u e d F S P N o . F A S 7 , 5 7 - 2 , E f f e c t i v e D a t e o f F A S B b e c o m e e f f e c t i v e a c o n s i s t e n t , f o r G A A P p r o n o u n c e m e n t s . t h e F A S B i s s u e d S F A S N o . f o r u s o n J a n u a r y 1 - , v a l - u e S F A S N o . 1 " 5 7 s i n g l e f a i r f o r d i f f e r e n t i n p u t s i n v a r i o u s m e a s u r e m e n t t e c h n i q u e s I n v a l - u a t i o n m e t h o d s . p r o v i d e s a t h e f a i r d e l a y 2 0 0 8 , n a t u r e o f r e c o g n i z e d v a 1 u e h i e r a r c h y a n d m e a s u r e m e n t t e c h n i q u e s I 5 7 , F a i r V a T u e M e a s u r e m e n E s , w h i c h w i l l S F A S N o . 1 , 5 7 g e n e r a l l y 2 0 0 8 . d e f i n i t i o n a l s o e s t a b l i s h e s b a s e d o n t h e o b j e c t i v e F e b r u a r y S t a t e m e n t N o . 7 5 7 w h i c h w i l l f o r a l l n o n f i n a n c i a l a r e r e c u r r i n g f a i r v a l - u e m e a s u r e m e n t s a r e b a s i s b e g i n n i n g f i r s t a n d l i a b i l - i t i e s , I 5 7 p r o s p e c t i v e l y will be required l e v e l - n o n - f i n a n c i a l - a s s e t s a n d f i r s t e f f e c t q u a r t e r o f 2 0 0 9 . T h e a d o p t i o n o f w h i c h w e w i l l b e g i n n i n g o r d i s c l o s e d ( a t f i r s t to expand our dis cl -osures w e u t i l - i z e l i a b i l i t i e s , i n p u t s b a s i s f a i r t h e t h e o f i n i n i n b e r e q u i r e d t h e v a l - u e l - e a s t a n n u a l - l y ) . W e w i l l a t a s s e t s a n d n o n f i n a n c i a l - f i r s t o n o u r C o n s o l - i d a t e d F i n a n c i a l S t a t e m e n t s . i n t h e p r o v i s i o n s l i a b i l i t i e s , t h e o f S F A S N o . L 5 7 f o r o n e y e a r t h a t e x c e p t t h o s e s t a t e m e n t s o n a t o e n s u r e a l - l o f o u r f i n a n c i a l - b e r e q u i r e d i n c o m p l i a n c e w i t h S F A S N o . L 5 7 o n a p r o s p e c t i v e q u a r t e r o f 2 0 0 8 , e x c e p t f o r n o n f i n a n c i a l t o b e q u a r t e r regardi ng o f 2 0 0 9 . a s s e t s i n c o m p l i a n c e w i t h S F A S N o . w e the val -uati on metho ds and f o r t h e n o t h a v e a m a t e r i a l - 2 0 0 8 , d i s c l - o s u r e o f r e q u i r e e x c e p t i n I n a d d i t i o n , q u a r t . e r w h i c h w i l l t h i s s t a n d a r d w i l l - I n t h e f i r s t q u a r t e r o f 2 O O 7 t h e F A S B i s s u e d S F A S F a i r V a l - u e O p t i o n l-5 9 , The Fair VaL ue Opt ion S F A S 1 5 9 p e r m i t s t o m e a s u r e e l i g i b l e i n i t e m s a t t h e d e t e r m i n a t i o n i s g e n e r a l l y a p p l i e d No . L i a b i - 7 . : t : e s . d a t e s , l - o s s e s i n c ] u d e d f a i r i s i n s t r u m e n t v a l - u e o p t i o n i r r e v o c a b l - e u n l e s s a n e w e l e c t i o n t o o n l y s p e c i f i e d a n d n o t f or c o m p a n i e s f a i r o f n e t and c h o s e , Fi nanci al A sse ts d t Fi nanci aL s p e c i f i e d e l - e c t i o n t o v a l - u e , w i t h u n r e a l - i z e d g a i n s a n d t h e i n c o m e . b a s i s , t h e e n t i r e o f f l o w s o r a p o r t i o n T h e d e c i s i o n t o e l e c t o r c a s h t h e t o o n a n i n s t r u m e n t - b y - i n s t r u m e n t d a t e o c c u r s , a n d i s a p p l i e d r i s k s F - 6 4 d e f i n e d c l - a s s i f i e d i n s t r u m e n t . f i n a n c i a l - s u b s i d i a r y , i n s t r u m e n t s m e t h o d i s a n e l i g i b l e c o m p a n y f i r s t a n e l i g i b l e a c c o u n t e d e f f e c t i v e value under d i s c l o s u r e s J a n u a r y L , 2 0 0 8 . l i a b i l i t i e s o r e x i s t i n g m a t e r i a l f o r b y f o r a t I t e m s e l i g i b l e a s s e t s a n d l i a b i l i t i e s , f o r t h e o t h e r f a i r v a l - u e o p t i o n t h a n a n i n v e s t m e n t i n c l u d e r e c o g n i z e d i n a c o n s o l - i d a t e d b e n e f i t p e n s i o n p l a n s , O P E B p 1 a n s , l e a s e s a n d i n e q u i t y . A n i n v e s t m e n t a c c o u n t e d f o r b y i t e m . T h e s p e c i f i e d e l - e c t . i o n d a t e s i n c l u d e t h e d a t e r e c o g n i z e s c o m m i t m e n t , t h e e l i g i b l e t h e d a t e a n i n v e s t m e n t t h e e q u i t y m e t h o d a n d t h e d a t e S F A S N o . 1 - 5 9 f i r s t i t e m , t h e d a t e f i r s t t h e c o m p a n y e n t e r s b e c o m e s e l i g i b l e t h e c o m p a n y . I f w e e l e c t t o m e a s u r e e l i g i b l e i t e m s a t f a i r th e stand ard, we woul -d be requi red cer tain f o r e a c h i t e m w e e ] e c t . S F A S N o . 1 - 5 9 b e c o m e s e f f e c t i v e t o e l e c t to pres ent t h a t a r e n o t a l r e a d y m e a s u r e d a t f o r u s o n t o m e a s u r e a n y a d d i t i o n a l - a s s e t s v a l - u e u n d e r n o t h a v e a f a i r s t a n d a r d w i l l t h i s W e d o n o t e x p e c t f a i r v a l u e t h e r e f o r e s t a n d a r d s , e f f e c t o n o u r C o n s o l - i d a t e d F i n a n c i a l - S t a t e m e n t s . t h e a d o p t i o n o f f i n a n c i a l t h e e q u i t y t h e i n t o t o b e b e c o m e s addi tio nal N o n c o n t . r o l - 7 i n g I n t e r e s t th ere o f n e t i n c r e a s e i n t e r e s t s f i n a n c i a l - ( f o r a n t h e b a l a n c e T h i s f o r a s e q u i t y unl-ess i n c o m e t h e p r e s e n t a t i o n NoncontroJling A R B N o . 5 7 . c h a n g e s i n a p a r e n t ' s d e c o n s o l i d a t i o n . a c c o u n t e d transact ions c h a n g e s i n o w n e r s h i p g e n e r a l l y g o o d w i l l d e t e r m i n a t i o n s t a n d a r d i z e s e q u i t y o n o p e r a t i o n s . c o n s o l i d a t e d b e t w e e n t h e o w n e r s o f a s u b s i d i a r y . the beginning t h e n o n c o n t r o l l i n g p a r e n t ' s p a r e n t . f i r s t a n d s t a t e m e n t o f o p e r a t i o n s a n d t o o f a c c o u n t i n g u n a b 1 e S t a t e m e n t s . H o w e v e r , owned at s u b s i d i a r i e s v a l - u e o f result s h a r e h o l - d e r s , t h e n o n c o n t r o l l i n g t o p r e d i c t . red uction i n c l u d e t h e f o r o f t o in in a In terests S F A S N o . 1 5 0 e s t a b l - i s h e s in Consol idated o w n e r s h i p O n a p r o s p e c t i v e Fi nanci al I n D e c e m b e r 2 0 0 7 t h e F A S B i s s u e d S F A S N o . 1 5 0 , S t.aE ements , an A mendment of f o r i n b e l - o s s r e c o g n i z e d o n t h e GA A P such r e s u l t t h a t d o n o t i n o w n e r s h i p w i l l i n a s u b s i d i a r y a n y c h a n g e s a s i n g l e m e t h o d o f a c c o u n t i n g i n con trol-, ' under exi st ing w i t h n o g a i n o r i n t e r e s t b a s i s t r a n s a c t i o n s is a chan ge r e s u l t i n o w n e r s h i p ) e i t h e r ( f o r a d e c r e a s e o f n o n c o n t r o l l i n g i n t h e r e c o g n i t i o n o r a g a i n o r l - o s s i n o w n e r s h i p ) . i n t e r e s t i n c o m e b a s i s s h e e t a n d o n a n e t S t a t e m e n t a l - s o r e q u i r e s i n e x p a n d e d d i s c l - o s u r e s s t a t e m e n t s t h a t c l e a r l y t h e p a r e n t a n d t h e i n t e r e s t s i d e n t i f y o f T h o s e e x p a n d e d d i s c 1 o s u r e s and endi ng bal-ances of the equi ty o w n e r s a n d a s c h e d u l e s h o w i n g i n t e r e s t i n a s u b s i d i a r y o w n e r s h i p T h i s s t a t e m e n t w i l l b e e f f e c t i v e o n t h e e q u i t y a t t r i b u t a b l - e f o r u s o n a p r o s p e c t i v e b a s i s t h e e f f e c t s i n c 1 u d e a r e c o n c i l - i a t i o n to att ribut abl-e q u a r t e r o f 2 0 0 9 . W e w i l l b e r e q u i r e d t o t h e e x p a n d e d d i s c l - o s u r e s a t t o c o n f o r m f o r c h a n g e s i n o w n e r s h i p a p p l i e s o n a p r o s p e c t i v e i m p a c t o f B e c a u s e t h e n e w m e t h o d b a s i s , w e a r e t . h e s t a t e m e n t o n o u r C o n s o l - i d a t e d F i n a n c i a L t h a t a r e n o t w h o l l y i n ow nershi p of su ch t h e e x t e n t w e h a v e s u b s i d i a r i e s i ncreas e any subs equent the date of adoption, t o r e c l - a s s i f y t h e n e w p r e s e n t a t i o n t h i s t i m e . a n a m o u n t o f c o n s i d e r a t i o n r e l - a t e d i n t e r e s t th e amount of t o t h a t t h e e x c e e d s i n c r e a s e d o w n e r s h i p w o u 1 d o ur t h e n - c a r r y i n g att ribut abl-e to t h e equi ty i n i n c l - u d e d o f a d d i t i o n a l - t h e T h e s t a t e m e n t a s a c o m p o n e n t o f t h e s t a t e m e n t o f t h e i n a n d d i s t i n g u i s h t h e n o n c o n t r o J - l i n g o f the parent and o f c h a n g e s i n a t h e t h e o u r b a L a n c e s h e e t t o i n r e q u i r e m e n t s Business Comb inations Al- so i n D ecember 2007 the FA SB i ssue d S FAS No. 2 0 0 7 ) , B u s r n e s s C o m b i n a t i o n s , w h i c h a p p l i e s c o m b i n a t i o n s 2 0 0 9 a n d b e y o n d . t o u s p r o s p e c E i v e l y T h e s t a t e m e n t i n t h a t ( r e v i s e d b u s i n e s s t h e a c q u i s i t i o n c l - o s e o f a b u s i n e s s c o m b i n a t i o n s o m e a s s e t p u r c h a s e s a n d r e q u i r e s l i a b i l i t i e s l 4 l f o r e x p a n d s t h e d e f i n i t i o n i n c l u d i n g a c q u i r e d , a t d a t e a t T h e s t a t e m e n t a l - s o r e q u i r e s r e s t r u c t u r i n g t h e a c q u i s i t i o n C o s t s A s s o c i a t e d w i t h E x i t o r D i s p o s a l A c t i v i t i e s . n a t u r e statement C o n s o ] i d a t e d F i n a n c i a l - S t a t e m e n t s . f a i r v a l - u e a s o f t h a t a c q u i s i t i o n l i a b i l i t y t h a t a r e n o t a b e r e c o g n i z e d c o m b i n a t i o n s b u s i n e s s we are unab l-e predic t c o s t s a n d o f o f to a s s u m e d a n d a n y n o n c o n t r o l l i n g t o a n a c q u i r e r i n c l - u d e m o r e t r a n s a c t i o n s t o i n t e r e s t r e c o g n i z e a s s e t s t h e a c q u i r e e l - i m i t e d e x c e p t i o n s . i n t h a t d a t e w i t h i n a c c o r d a n c e w i t h S F A S N o . 1 4 6 , A c c o u n t i n g t h e a c q u i r e e a t c o s t s b e e x p e n s e d a s i n c u r r e d a n d t h e d a t e o f f o r t h e u n p r e d i c t a b l - e t h i s on our a p p l i c a t i o n st atement D u e t o the o f t h e p r o s p e c t i v e of i mpact the F - 5 5 returns fo r Uncertain FTN No . 48, Accounting L , 2 0 0 7 . i n o u r c o n s o l - i d a t e d income tax Accounting i n c o m e t a x p o l i c i e s f r o m r e c o g n i z r n g 1 i k e 1 y - t h a n - n o t and limits b e l - i e v e r e g u i r e s t a x p o s i t i o n s for financial- c l - a s s i f y a n y f u t u r e o r n o n c u r r e n t l i a b i l i t y , t h e - In Tax Positions the sec ond quarte r fo r Uncertai n Tax P osi tions , of 2006 the FA SB i ssu ed w hic h w e adopte d on Januar y F T N N o . 4 8 c l - a r i f i e s w h e n a n d h o w m u c h o f a b e n e f i t w e c a n r e c o g n i z e i n o u r f o r l -09, for our u s i s m o r e - unde r Statem ent of Fi nanci al- A ccou nting S tandards N o. In come Taxes, and enhanc es A m o n g o t h e r o f a t a x p o s i t i o n o u r p o s i t i o n w i l l - p r e v a i l w i t h t h e a p p l i c a b l e t a x a u t h o r i t i e s F I N N o . 4 8 p r o h i b i t s u n l e s s w e b e l i e v e the di scl -os ure a n d r e s e r v e s . t , h e b e n e f i t s requi rements s t a t e m e n t s p o s i t i o n s f i n a n c i a l c e r t a i n t h i n g s , t a k e n i t th e amou nt of l i k e l i h o o d o f th e benefi t r e a l i z a t i o n c o m p a n i e s t o a c c r u e p e n a l t i e s to the l argest i s g r e a t e r a n d i n t e r e s t t h a n 5 0 ? . o n t h e d i f f e r e n c e t a k e n o n t h e i r rep orting t a x purposes under r e t u r n s a n d t h e a m o u n t o f b e n e f i t W e are the new st andard. r e s e r v e s f o r u n c e r t a i n d e p e n d i n g o n t h e n a t u r e o f t a x p o s i t i o n . t a x p o s i t i o n s t h e amount for w hic h we F I N N o . 4 8 a l - s o b e t w e e n r e c o g n i z e d t o i n a s e p a r a t e c u r r e n t regui red U p o n a d o p t i o n r e s e r v e e x i s t i n g a s p a r t o f o u r d e f e r r e d a c c o u n t e d a c c o r d a n c e w i t . h t h e f o r s u c h $ f . A m i l l - i o n t r a n s i t i o n o f F I N N o . 4 8 o n J a n u a r y I , 2 0 0 7 , w € i n c r e a s e d o u r f o r u n c e r t a i n t a x p o s i t i o n s , i n c o m e t a x e s , w h i c h w e p r e v i o u s l y f r o m $ 5 5 . 3 m i l - L i o n t o $ 5 5 . 9 m i l l i o n c l - a s s i f i e d i n c r e a s e a s a d e c r e a s e o f p r o v i s i o n s t h e s t a n d a r d . t o r e t a i n e d e a r n i n s s a n d i n W e a c c r u e i n t e r e s t a n d p e n a l t i e s component of our provi si on p e n a l t i e s w e a c c r u e d d u r i n g 2 0 0 7 w a s n o t m a t e r i a l , h a d $ S . f m i l l i o n p e n a l t i e s i n t e r e s t t a x p o s i t i o n s . f o r o u r u n c e r t a i n a c c r u e d a n d a n i ncome f o r fo r o n o u r u n c e r t a i n tax es. The amount of t a x p o s i t i o n s a s a and a n d a t D e c e m b e r 3 1 , 2 O O 7 w e i nteres t i m m a t e r i a l - a m o u n t a c c r u e d f o r The follow j-ng ta ble shows the cha nges i n p o s i t i o n s ( e x c l u s i v e o f t h e e f f e c t o f i n t e r e s t the amount of our unc ertain a n d p e n a L t i e s ) d u r i n g 2 0 0 7 : t ax U n r e c o g n i z e d t a x b e n e f i t s Amount at adopt.ion of FIN No . 4 8 T a x p o s i t i o n s t a k e i n p r i o r p e r i o d s : : G r o s s i n c r e a s e s G r o s s d e c r e a s e s T a x p o s i t i o n s t a k e n i n c u r r e n t p e r i o d : G r o s s i n c r e a s e s G r o s s d e c r e a s e s S e t . t l - e m e n t s w i t h c a s h p a i d t a x i n g a u t h o r i t i e s L a p s e o f a p p l i c a b L e s t a t u t e o f F o r e i g n c u r r e n c y t r a n s l a t i o n l i m i t a t i o n s A m o u n t a t D e c e m b e r 3 1 , 2 0 0 7 I f o u r u n c e r t a i n t a x p o s i t i o n s w e r e Amount ( I n n i l l i o n s ) $ s 1 . 7 . 1 ( 1 . e ) 1 1 . 3 ( . s ) ( . 5 ) ( 5 . s ) 1 . 0 $5-4-_6 m i l l - i o n w o u l - d a f f e c t o u r e f f e c t i v e t h a t o u r u n r e c o g n i z e d during the d i f f e r e n c e s r e l - a t e d tw el-ve months r e s o l u t i o n next a n d t h e t o o n e o r m o r e o f o u r s u b s i d i a r i e s . t a x b e n e f i t s w i l l d e c r e a s e b y a p p r o x i m a t e l y due rev ersal to o f c e r t a i n the e x a m i n a t i o n a n d of f i l i n g i n c o m e r e c o g n i z e d , r a t e . a b e n e f i t W e c u r r e n t l y t a x o f $ 4 9 . 0 e s t i m a t e $ 2 . 9 m i l l i o n ti mi ng p r o c e d u r e s cer tain F - 5 5 i n c o m e W e f i l e t a x W e a l s o j u r i s d i c t i o n s . j u r i s d i c t i o n s , O u r d o m e s t i c t o e x a m i n a t i o n b y a p p f i c a b l - e a r e g e n e r a l l y y e a r s p r i o r C a n a d a , B e l g i u m a n d T a i w a n ; 2 O O 3 f o r G e r m a n y a n d l - 9 9 8 f o r N o r w a y r e t u r n s s t a t . e a n d L o c a l f i l e v a r i o u s f o r e i g n i n G e r m a n y , C a n a d a , T a i w a n , B e l g i u m a n d N o r w a y . c l o s e d r e t u r n s t o 2 0 Q 2 f o r c o n s i d e r e d i n c o m e t a x t o 2 O Q 4 a r e g e n e r a l l y f e d e r a L , 1 n i n v a r i o u s U . S . t a x a u t h o r i t i e s . t o e x a m i n a t i o n r e t u r n s p r i o r O u r f o r e i g n i n c o m e t a x c o n s i d e r e d p r i n c i p a l l y r e t u r n s i n c o m e c l o s e d t a x f o r Note 19 - Finan ciaL instrunents: C a s h , c a s h e q u i v a l e n t s a n d r e s t r i c t e d c a s h e q u i v a l e n t s M a r k e t a b l e s e c u r i t i e s : D ecember 3 1, 2 0 0 5 2 0 0 7 Carrying amount Fair value Carrying amount F a i r value ( I n m i l l i o n s ) $ 1 e 8 . 7 $ 1 9 8 . 7 s 1 4 s . 5 $ 1 4 s . 6 Current Noncurrent, L o n g - t e r m d e b t P u b I i c l y - t r a d e d ( e x c l u d i n g f i x e d r a t e d e b t c a p i t a l i z e d l e a s e s ) : K I I S e n i o r S e c u r e d N o t e s r a t e p r o m i s s o r y C o m p X v a r i a b 1 e Snake River Sugar Company fixed O t h e r V a r i a b l e f i x e d - r a t e r a t e d e b t d e b t n o t e rate loans M i n o r i t y i n : i n t e r e s t NL common stock Kronos common stock CompX common stock A a ^ P r z . o 2 5 9 . 0 $ s 2 s . o 2 5 0 . 0 . 3 5 . 5 < q 6 n J v . v Y 2 2 . 3 4 5 . 4 A p L ) $ a i ^ r z . o 2 s 9 . 0 ^ P a 5 L 2 . 5 : _ ^z ) v . v 5 . 5 8 4 . 8 7 9 . s 9 1 . 0 $ 7 . 2 3 1 9 . 8 $ t . z 3 1 9 . 8 $ s 8 s . s 5 0 . 0 2 5 0 . 0 . 4 1 5 . 4 $ s 0 7 . 7 s 0 . 0 2 5 0 . 0 . 4 1 5 . 4 $ s s . 7 2 0 . 4 L 4 . 4 $ 9 3 . 1 4 2 . 7 2 5 . 2 V a l h i c o m m o n s t o c k h o l d e r s ' e q u i t y $ 8 6 6 . 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D ue to f o r w a r d c o n t r a c t s r i s k a s s o c i a t e d w i t h t o m a n a g e a p o r t i o n o f t r a d e r e c e i v a b l e s , W e p e r i o d i c a l l y u s e c u r r e n c y c u r r e n c y e x c h a n g e r a t e m a r k e t t h e f o r e i g n o r s i m i l - a r e x c h a n g e r a t e o t h e r c u r r e n c y generally relate n o t e n t e r e d p a s t , n o r d o w e c u r r e n t l - y a n t i c i p a t e o r s p e c u l a t i v e we enter d e s i g n a t e d a n d l - o s s e s r e p r e s e n t i n g component of t h e criteria f l o w h e d g e s . into mee t a s c a s h accumul-ated other p u r p o s e s i n t o th e i n t h e e f f e c t i v e f u t u r e . F o r for r i s k a s s o c i a t e d w i t h f u t u r e s a l - e s , d e n o m i n a t e d h o l d e r ' s f u n c t j - o n a l t h a n to our Chemical -s and C omponent P roduct s operat ions. t r a d i n g t h e s e c o n t r a c t s e n E e r i n g o r s p e c u l a t i v e i n E o s u c h c o n t r a c t s c u r r e n c y . f o r i n a T h e s e c o n t . r a c t s W e have t h e p u r p o s e s i n t r a d i n g f o r f o r w a r d c o n t r a c t s S o m e o f hedge acc ounti ng t h e c u r r e n c y t h e s e c u r r e n c y p o r t i o n f o r w a r d c o n t r a c t s , under GA A P and ar e g a i n s a s a o f o u r h e d g e s a r e d e f e r r e d com prehensi ve i ncome, and are subs equently F - 6 7 i n e a r n i n g s a t r e c o g n i z e d f o r w a r d c u r r e n c y h e d g e a c c o u n t i t g , a t e a c h b a l - a n c e s h e e t d a t e , w i t h a n y income currently c o n t r a c t s o u t s t a n d i n g a t D e c e m b e r 3 1 , 2 0 0 5 o r D e c e m b e r 3 1 , 2 0 0 7 . c o n t r a c t s w e e n t e r w e m a r k - t o - m a r k e t i n t o w h i c h d o n o t m e e t t h e h e d g e d i t e m a f f e c t s f a i r g a i n o r t h e e s t i m a t e d trans act ions. r e s u l t i n g cur rency as part of net t i m e t h e e a r n i n g s . t h e f o r v a l - u e o f s u c h c o n t r a c t s t h e c r i t e r i a F o r l - o s s r e c o g n i z e d W e had no i n forw ar d N o t e 2 0 - E a r n i n g s p e r s h a r e : Basic earnings per share of com mon st ock average numb er of our common shares act uall y Diluted o u t s t a n d i n g d i l u t e d e f f e c t , e a r n i n g s p e r s h a r e r e p o r t e d b y K r o n o s , N L , C o m p X o r T I M E T . s t o c k o p t i o n s a s w e l - l - a s t h e d i l - u t i v e outs tanding i ncLudes com mon st ock earnings d i l - u t i v e share per of i s base d upon duri ng the the w eight ed eac h peri od. i mpact of our i f a r r l , o f Y ears ended D ecember 31, 2 0 0 6 2 0 0 s 2 0 0 7 B a s i c E P S c o m p u t a t i o n : Numerator I n c o m e ( l o s s ) f r o m c o n t i n u i n g o p e r a t i o n s Denominator ( I n m i l l i o n s , e x c e p t , p e r s h a r e d a t a ) g_!2, I $ 1 4 U s ( 4 s . 7 ) Weighted averag e comm on shares B a s i c E P S f r o m c o n t i n u i n g o p e r a t i o n s _]13-2 $-____.59 _ l l t - l fi_ t_,22 --LLI-J- g _ l _ 4 e ) D i l - u t e d E P S c o m p u t a t i o n : Numerator : I n c o m e ( l o s s ) f r o m c o n t i n u i n g o p e r a t i o n s N e t e f f e c t o f d i l u t e d s h a r e o f T I M E T ( 1 ) e a r n i n g s p e r $ 8 2 . 1 $ 1 4 1 . 7 $ ( + s . z ) ( 2 . 3 ) I n c o m e ( l o s s ) o p e r a t i o n s share f r o m c o n t i n u i n g f o r d i l u t e d e a r n i n g s p e r $__szJ $13 9_,_4 $l_15J) Denominat or : Weighted averag e comm on share s B a s i c S t o c k o p t i o n c o n v e r s i o n ( 2 ) Weighted averag e comm on shares D i l - u t e d L L 8 . 2 . 3 r _ r _ 6 . 1 . 4 L L 4 . 7 _ l1€l 1 r _ 6 . 5 L L . 7 D i l - u t e d E P S f r o m c o n t i n u i n g o p e r a t i o n s $ . o g $_!.2 ! $__l-_1s ) ef f ect of dil-utiv e The dil-utive C o m p X i n 2 0 0 5 , 2 0 0 6 a n d 2 0 0 7 a n d f o r T I M E T i n 2 0 0 5 a n d 2 0 0 7 w a s n o t s i g n i f i c a n t . S t o c k o p t i o n c o n v e r s i o n e x c l - u d e s a n t i - d i l - u t i v e 2 0 0 7 . earni ngs per sha re f or K ronos, N L and s h a r e s o f 2 6 7 , 0 0 0 d u r i n g F - 5 8 N o t e 2 L - Q u a r t e r l y r e s u L t s of operat ions (unaudi ted) : Marc h 31 Quarter 3 0 ilune ended S e p t . 3 0 D e c . 3 1 ( I n m i l l i o n s , exc ept per shar e data) Year ended December 37, 2005 N e t s a l - e s G r o s s m a r g i n Operating incom e Income from conti nuing D i s c o n t i n u e d o p e r a t i o n s operations $ 3 s 4 . 3 8 2 . 7 3 5 . 7 $ ' : ' n $ 3 e e . 6 9 0 . 0 3 7 . 8 $ 1 7 . 8 ( . 1 ) $ 3 8 3 . 1 8 4 . 7 3 5 . 8 s 2 0 . 1 $ 3 4 4 . 4 8 4 . 6 3 8 . 9 $ 8 0 . 4 'l N e t i n c o m e ( 1 ) S z t . q S t t . t $ 2 0 . 1 s 8 0 . s P e r b a s i c s h a r e : C o n t i n u i n g o p e r a t i o n s D i s c o n t i n u e d o p e r a t i o n s . 2 0 . 1 5 . 1 7 -1 A Net incom e $____.2 ! $____.15 v . L t $___- J ! Year ended December 37, 2007 N e t s a l e s Gross margin Operating income $ 3 s e . o 8 0 . 1 3 2 . 9 $ 3 8 e . 0 7 2 . 9 2 6 . 2 $ 3 e 0 . 5 7 6 . 3 2 4 . 2 $ 3 s 3 . 5 s 6 . 6 t . z N e t i n c o m e ( l o s s ) $ 2 6 . r $ ( q . g ) $ ( s 2 . 7 ) $ ( 1 4 . 2 ) P e r b a s i c s h a r e : N e t i n c o m e ( l o s s ) (1) We recog nized o a n a f t e r - t a x th e $ . 2 3 $ ( . o + ) $ ( . + a ) $ ( . r 2 ) fo llowin g g a i n o f $ 2 3 . 6 m i l l i o n , amount s duri ng the o t $ . 2 0 p e r d i l u t e d four th quart er of 2005: s h a r e , reL ated to th e sal-e of cer tain ]and i n N evada; o a n i n c o m e t a x b e n e f i t o f $ 1 7 . 8 m i l l i o n , the incom e ta x audi ts of K ronos; and reLat ed intere st to net of min ority certain a f t e r - t a x r e l a t e d s a l - e o f a b u s i n e s s i n c o m e o f t o o u r p r o - r a t a o r $ . 1 5 p e r d i l u t e d s h a r e , fav orabl- e dev elopment wit h $ l - 0 . 2 m i l l i o n , s h a r e o f a g a i n o r $ . 0 9 p e r d i l u t e d s h a r e , r e c o g n i z e d b y T I M E T o n i t s i n v e s t m e n t . per share i n chan ges the annual- per amounts may not equal the weighted average number of shares S e e N o t e s 1 , 2 a n d 1 5 . The sum of the quarterly share amounts due to used in the per share compu tati ons. rel ative F - 5 9 VAI,HI, INC. AIiID SI'BSIDIARIES SCHEDULE f - COIIDENSED FINAIICIAL INFORIT{ATION OF REGISTR.Aff,f Condensed Balance Sheets ( f n m i l l i o n s ) C u r r e n t a s s e t s : Cash and cash equivalents R e s t r i c t e d Accounts and notes R e c e i v a b l e s recei vabl-e f r o m s u b s i d i a r i e s c a s h e q u i v a l e n t s a n d a f f i l i a t e s : f n c o m e t a x e s , n e t Other De fe rr ed Other income ta xes T o t a l c u r r e n t a s s e t s O t h e r a s s e t s : M a r k e t a b l e s e c u r i t i e s R e s t r i c t e d Investment a f f i l - i a t e c a s h e q u i v a l e n t s in and advances to subsi di aries and O t h e r a s s e t s Property and equipment, net T o t a l - o t h e r a s s e t s T o t a l - a s s e t s C u r r e n t l i a b i l - i t i e s : P a y a b l e s t o s u b s i d i a r i e s a n d a f f i l i a t e s : Income taxes, net Other Account s paya ble and accrued lia bil it ies T o t a l - c u r r e n t l i a b i l i t i e s N o n c u r r e n t l i a b i l i t i e s : Long-term debt Deferred Other income ta xe s Snake River Sugar Company Tot.al- noncurrent liabi liti es S t o c k h o l - d e r s ' e q u i t y December 3L, 2 0 0 6 2007 A ) - a o / . 5 $ . 5 . 8 1 . 8 3 . 0 r . 7 . 2 7 5 . r 2 5 0 . 0 . 4 L , L 0 2 . 7 . 2 9 1 8 . 4 . 4 . 5 1 . 5 . 3 2 L . 2 2 7 L . 9 9 L 8 . 0 . 3 . 9 L , 3 5 4 . 2 1 , 1 9 1 . 1 El_, 322- 3 fi1,.2L2-_! $ - $ 3 . 1 3 . 1 2 5 0 . 0 3 0 8 . 7 . 7 5 5 9 . 4 8 6 6 . 8 1 . 5 . 7 3 . 1 5 . 3 2 s 0 . 0 3 2 L . 4 L t . 2 5 8 8 . 5 6 1 8 . 4 T o t a l - l i a b i l i t i e s a n d s t o c k h o l d e r s ' e q u i t y s 1 , , 4 2 9 . 3 s L , 2 L 2 . 3 T h e a c c o m p a n y i n g N o t e s a r e a n i n t e g r a l p a r t o f t h e f i n a n c i a l s t a t e m e n t s . s - 1 VAIJHI, TNC. AI{D SI'BSIDIARIES SCHEDULE I - COIIDENSED FINAI{CIAIJ INFORIT{ATION OF REGfSTR.Alitlt (CONIINUED) Condensed Statements of Operations ( I n m i l l i o n s ) Revenues and other income: Interest W r i t e - o f f and divide nd o f a c c r u e d incom e i n t e r e s t Snake River Sugar Company o n ] o a n t o Equity in earnings of subsidiaries a n d a f f i l i a t e s O t he r in com e, net Years ended December 31 2 0 0 5 2 0 0 6 2007 $ 5 2 . 4 $ 3 5 . 0 $ 2 e . 2 ( 2 1 . 6 ) 8 8 . 8 2 . 2 l _ 5 1 . 5 3 . 9 Total- revenues and other income r 2 t . 8 r _ 9 1 . 5 C o s t s a n d e x p e n s e s : General- and admi nistrative I n t e r e s t Total costs and expenses Income (loss) before incom e ta xes Provisj-on for income ta xes (be nefi t) fncome from contin uing operations Discont inued operations N e t i n c o m e ( l o s s ) ( 5 3 . 0 ) 3 . 8 ( 3 0 . 0 ) 7 . 5 2 4 . L 3 L . 7 ( 6 L . 7 ) ( 1 5 . 0 ) ( 4 s . 7 ) 7 . 9 2 4 . L 3 2 . 0 1 5 9 . 5 1 7 . 8 I 4 I . 7 8 . 5 2 4 . r 3 2 . 5 8 9 . 2 7 . L 8 2 . L ( . 2 ) $ 8 1 . e s 1 - 4 L . 7 $l4s r.) T h e a c c o m p a n y i n g N o t e s a r e a n i n t e g r a l p a r t o f t h e f i n a n c i a l s t a t e m e n t s . s - 2 VAI,HI, INC. AI{D SI'BSIDIARIES SCHEDUI,E I . COIIDENSED FINA}ICIAIJ INFORMATION OF REGISTRNIT (CONTINUED) Condensed Statements of Cash Flows ( f n m i l l i o n s ) Years ended December 31, 2 0 0 5 2 0 0 6 2 0 0 7 C a s h f l - o w s f r o m o p e r a t i n g a c t i v i t i e s : N e t i n c o m e ( l o s s ) W r i t e - o f f Deferred E q u i t y o f a c c r u e d income ta xes i n e a r n i n g s o f s u b s i d i a r i e s i n t e r e s t r e c e i v a b l - e $ 8 t _ . e 2 I . 6 r - 0 . 9 $ 1 _ 4 1 _ . 7 $ ( 4 s . 7 ) 2 0 . 7 ( 1 9 . s ) a n d a f f i l - i a t e : Continuing Dis c ont inued operations operations Dividends from subsidiaries and a f f i l - i a t e s O t h e r , n e t N e t c h a n g e i n a s s e t s a n d l i a b i l i t i e s NeL cash pro vided by operatin g a c t i v i t i e s C a s h f l o w s f r o m i n v e s t . i n g a c t i v i t i e s : P u r c h a s e s o f : Kronos common stock TIMET common stock NL common stock L o a n s t o s u b s i d i a r i e s a n d a f f i l - i a t e s : Loans C o l - l - e c t i o n s Investment Col-l-ection of in other subsidiary l-o an to Sna ke Rive r Sugar Company C h a n g e i n r e s t r i c t e d O t h e r , n e t c a s h e q u i v a l e n t s , n e t ( 8 8 . 8 ) . 2 5 8 . 6 ( . 3 ) 7 7 . 3 ( r _ s 1 . 5 ) 5 3 . 0 8 7 . 0 ( . 7 ) ( . 5 ) 4 9 . 2 . 1 L 2 . 8 1 0 1 . 4 9 6 . s 5 9 . 9 ( 7 . 0 ) ( 1 8 . 0 ) ( g s . + ) t _ 8 . t _ ( 2 . e ) 8 0 . 0 ( 2 s . 4 ) ( L 8 . 7 ) ( . 4 ) - ( 2 7 . s ) ( \ 2 . e ) ( 2 0 . L ) 1 t r L . J . L Net cash pro vided by (used i n) i n v e s t i n g a c t i v i t i e s 3 4 . 8 ( s 7 . s ) ( s 2 . 8 ) s - 3 VALHI' INC. AND SI'BSIDIARIES SCHEDI'TJE I' COIVDENSED FINA}TCIAIJ INFORMATION OF REGISTRANT (COIITINUED) Condensed Statements of Cash Flows (Continued) ( r n m i l l i o n s ) Years ended December 31 2 0 0 5 2 0 0 5 2 0 0 7 C a s h f l - o w s f r o m f i n a n c i n g a c t i v i t i e s : I n d e b t e d n e s s : Borrowings Principal Cash dividends Treasury stock acquired O t h e r , n e t payments $ s . 0 ( s . 0 ) ( 4 8 . 8 ) ( 6 2 . r ) 1 N e t c a s h u s e d b y f i n a n c i n g a c t i v i t i e s ( 1 1 _ 0 . I ) C a s h a n d c a s h e q u i v a l e n t s : ( d e c r e a s e ) N e t i n c r e a s e Balance at begin ning of year 2 5 . 4 9 4 . 4 $ $ - ( 4 8 . 0 ) ( 4 3 . 8 ) . 3 ( e 1 . s ) ( s 2 . s ) t _ t _ 9 . 8 ( 4 s . 5 ) ( 1 1 . 1 ) . 7 ( s 6 . 0 ) ( 4 8 . e ) 6 7 . 3 Bal-ance at end of year $_JLg,€ $__5f,3 s 1 8 . 4 Supplemental - di scl-osures ( r e c e i v e d ) C a s h p a i d f n t e r e s t I n c o m e t a x e s , n e t f o r : $ 2 3 . 3 ( 8 . 0 ) $ 2 4 . 7 1 . 3 $ 2 4 . 0 ( 1 0 . e ) N o n c a s h f i n a n c i n g Dividend I s s u a n c e o f p r e f e r r e d a c t i v i t y : of TIMET common stock i n s t o c k ta x obli gation settl-ement of 8 9 7 . 4 6 5 7 . 3 T h e a c c o m p a n y i n g N o t e s a r e a n i n t e g r a l s - 4 p a r t o f t h e f i n a n c i a l - s t a t e m e n t s . VAI,HI, INC. AIiID SI'BSIDIARIES SCHEDUL,E I - COIIDENSED FINN{CIAL INFORMATION OF REGISTRATqT (CONTINUED) NOTES TO COIIDENSED FINAI{CIAIJ INFORMATION D e c e m b e r 3 1 , 2 0 0 7 N o t e 1 - B a s i s o f p r e s e n t a t i o n : We have prepared the accompanying th at interest This mean s of our maj orit y Company" basis. membership I n d u s t r i e s , Control Specialists Consol-idated Finan cial- Statem ents f i n a n c i a l - p o s i t i o n , incorporated are I n c . , K r o n o s W o r l d w i d e , by referen ce into Financial- i nvest ments and w holl y-ow ned our Statements i n the subs idi ari es, I n c . , T r e m o n t . L L C , V a l c o r , on a com mon st ock "Parent or i ncl uding NL I n c . a n d W a s t e O ur t .he i ncl ude LLC, are pre sented on the equi ty meth od of acc ounti ng. the N otes Lheret o, r e s u l - t s o f o p e r a t i o n s a n d c a s h f l o w s o f and w hic h t h e s e s u b s i d i a r i e s , thes e P arent C ompany Fi nanci al S Eat ements. Note 2 - Investment in and advan ces to sub sid iari eE and aff il iate: D ecember 3L, 2 0 0 6 Jin mill-ion"l- 2 0 0 7 Investment in: ( N Y S E : N L ) In c. N L I n d u s t r i e s Kronos Worldwide, Tremont LLC Val-cor and subsidiary W a s t . e C o n t r o l - S p e c i a l i s t s L L C TIMET (NYS E: TIE ) comm on stock T I M E T p r e f e r r e d s t o c k (NYSE: K RO) Total- $ 3 0 0 . 0 5 2 8 . 4 1 7 9 . 6 2 . 2 3 5 . 3 5 I . 4 . 2 1 , 0 9 8 . 1 Noncurrent loans to Wa ste Control- S peci ali sts LLC 4 . 5 $ 3 3 4 . 7 5 0 9 . 2 L 3 . 4 L 3 . 7 - : ' 9 1 1 . I 6 . 2 Total S L , 7 o 2 . 7 s 9 1 8 . 0 s - 5 Equitry in earnings of subsidiaries and affiTiate from contin uing operati ons N L I n d u s t r i e s Kronos Worl-dwide Tremont LLC Val-cor W a s t e C o n t r o l S p e c i a l i s t s TIMET L L C Years 2 0 0 5 ended December 3L, 2 0 0 6 2007 (rn mlFfons) $ 2 3 . 2 3 4 . 3 4 0 . 6 ( 1 3 . 4 ) 4 . 1 - $ 2 2 . 7 4 3 . 4 8 5 . 4 t . 4 ( 1 0 . 3 ) 8 . 0 $ ( 2 e . e ) ( 3 e . 0 ) 1 5 . 5 2 . 6 ( l s . 2 ) 1 . 9 Total- $__9!_,_q $ 15 1-_'5 $l_63-_9.) Cash dividends from subsidiaries N L I n d u s t r i e s Kronos Worl-dwide Tremont LLC Total- o p e r a t i o n s Equity of 1n earnj-ngs i n T h e N e t h e r l - a n d s . $ 3 0 . 3 2 7 . 9 $_l€,€ $ 2 0 . 1 2 9 . 0 3 7 . 9 $__gf_, ! $ 2 0 . 2 2 9 . 0 g_12-_Z d i s c o n t i n u e d o p e r a t i o n s r e l - a t e s t o C ompX' s N o t e 5 - L o n g - t e r m d e b t : O u r $ 2 5 0 m i 1 l i o n a t a w e i g h t e d a v e r a g e interest D e c e m b e r 3 I , 2 0 0 7 , $ 3 7 . 5 m i l - l i o n o f s u c h r e m a i n i n g $ 2 L 2 . 5 m i l l i o n R i v e r h a s t h e a b i l i t y b y o u r in The Amalgamated Sug ar C ompany LLC and are due i n Janu ary 2027. At t o u s a n d t h e S n a k e f r o m S n a k e R i v e r S u g a r C o m p a n y b e a r r a t e o f 9 . 4 2 , a r e c o 1 l a t e r a l i z e d t o u s . U n d e r c e r t a i n o f i s n o n r e c o u r s e t o a c c e l e r a t e t h e m a t u r i t y i n f i x e d c o n d i t i o n s , l - o a n s a r e r e c o u r s e i n t e r e s t t h e s e l o a n s . l o a n s i n t e r e s t right b e a r s f a c i l i t y l e n d i n g o r p r i m e of Kronos b a n k c r e d i t w h i c h m a t u r e s The agreem ent. a n d i n c u r a d d i t i o n a l common st ock w e ow n. W e h a v e a $ 1 0 0 m i l l - i o n shares t o p a y d i v i d e n d s i n c u s t o m a r y r e v o l v i n g i n t e r e s t ( f o r p r i m e - b a s e d b o r r o w i n g s ) i n a t L I B O R p l u s 1 " . 5 ? ( f o r L I B O R - b a s e d O c t o b e r 2 0 0 8 , g e n e r a l l y , a n d i s c o l - l - a t e r a l - i z e d b y 2 Q b o r r o w i n g s ) our million i n d e b t e d n e s s a n d c o n t a i n s o t h e r a b i l i t y t h e e v e n t o f a I n p r o v i s i o n s the 1enders w oul-d have cha nge of control- of us, as def i ned The max imum amount we th e matur ity the t h e a g g r e g a t e m a r k e t m a y b o r r o w u n d e r shares of Kronos com mon st ock w e have pl edged as col -l -atera l- . val-ue of B a s e d o n K r o n o s ' D e c e m b e r 3 1 , 2 0 0 7 q u o t e d m a r k e t p r i c e o f # t 7 . 4 5 p e r s h a r e , th an under the Kronos a m o u n t s u f f i c i e n t o f t h e u n d e r t h e f a c i l i t y . b o r r o w i n g s u n d e r fac il it y f o r b o r r o w i n g s u p t o t h e r e w e r e n o b o r r o w i n g s o u t s t a n d i n g o f c r e d i t o u t s t a n d i n g u n d e r t h e f u t u r e A t D e c e m b e r 3 1 , 2 0 0 7 $ 9 8 . 5 m i l - l - i o n w a s a v a i l a b l e A t D e c e m b e r 3 1 , 2 0 0 7 , a n d $ 1 . 4 m i l l i o n o f the agreem ent, the t o o n e - t h i r d t r a n s a c t i o n s i n prov ides t h e of l i m i t e d to accel-erate common stock c o l l - a t e r a L t o a l l o w c o v e r a g e pled ged f a c i l i t y . fac il it y. f a c i l i t y f a c i l i t y f a c i l i t y . l e t t e r s l imi ts t y p e . more t h i s f u l l t h e t h e the the f o r o f o f i s s - 5 Note 6 - Income taxes: The Amalgamated Sugar Company LLC is treated as a partnership income ( b e n e f i t ) e a r n i n g s tax tax purposes. Val hi Paren t C ompany' s prov is ion i n c l - u d e s a t a x p r o v i s i o n ( l o s s e s ) o f W a s t e C o n t r o l - S p e c i a l i s t s , ( b e n e f i t ) a t t r i b u t a b l - e for t o V a l h i ' s d s r e c o g n i t i o n the W aste C ontrol S peci ali st (benefit ) is not appropriate at for i ncome federal- taxes i n o f s u c h i n c o m e l -evel -. e q u i t y Components of provision : ( b e n e f i t ) Currently D e f e r r e d payable (refun dable) i n c o m e t a x e s ( b e n e f i t ) for income taxes Total- C a s h p a i d ( r e c e i v e d ) f o r i n c o m e t a x e s , f r o m s u b s i d i a r i e s R e c e i - v e d P a i d P a i d t o C o n t r a n t o t a x a u t h o r i t i e s Total- C o m p o n e n t s o f t h e n e t d e f e r r e d t a x a s s e t ( l i a b i l i t y ) t a x e f f e c t o f Investment t e m p o r a r y d i f f e r e n c e s in: r e l - a t e d t o : The Amalgamated Sugar Company LLC Kronos Worldwide Federal- and state loss carryforw ards income ta x attri butes and other A c c r u e d l i a b i l i t i e s Other taxa bl-e differences a n d o t h e r d e d u c t i b l - e d i f f e r e n c e s 'l'oc.al- Years 2 0 0 5 ended December 31, 2 0 0 6 2007 ( I n m i l l i o n s ) $ ( 3 . 8 ) 1 , 0 . 9 $ z . r $ ( 2 . e ) 2 0 . 7 $ . 2 ( L 6 . 2 ) _$_u-_g s ( 1 5 . 0 ) $ ( e . 0 ) $ - . 5 . 5 7 . 2 . 1 $ ( 8 . 0 ) s 1 . 3 $ ( 1 5 . 8 ) 5 . 8 . 1 s ( 1 0 . e ) December 3L, 2 0 0 6 2 0 0 7 ( I " m i l l i o n " ) $ ( r z 3 . 2 ) ( 2 0 0 . 2 ) $ ( 1 1 4 . 5 ) ( 2 0 4 . 7 ) 2 6 . 0 3 . 2 ( 1 2 . 8 ) 5 . 2 6 . 2 ( 1 1 . e ) $ 3 0 7 . 0 s ( 3 l e . 8 ) Current deferred Noncurrent deferred ta x asset ta x liabi lity $ r . 7 ( 3 0 8 . 7 ) $ 1 . 5 ( 3 2 L . 4 ) Total $ ( s o z . o t s ( 3 1 e . 8 ) s - 7 Valhi, Inc. Three Lincoln Centre 5430 LBJ Freeway, Suite 1700 Dallas, TX 75240-2697 (972) 233-1700 (972) 448-1445 (Fax) VALHI 2007 ANNUAL REPORT
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