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 . L 5
2 6 . 6 9
$ r z . o o
1 8 . 1 4
2 2 . 7 5
2 2 . 9 2
$ 1 3 . 2 0
7 4 . 9 0
1 5 . 4 4
1 5 . 9 4
$ . 1 0
. 1 0
. 1 0
. 1 0
. 1 0
. 1 0
. 1 0
. 1 0
First Quarter 2008 through February 29
i 2 o . 6 2
$ t q . t q
W e p a i d
r e g u l a r
q u a r t e r l y
c a s h d i v i d e n d s
o f $ . 1 0 p e r s h a r e d u r i n g 2 0 0 6
i n
I n
d e c l - a r e d a f i r s t
I n a d d i t i o n
t o o u r s h a r e h o l - d e r s
I n F e b r u a r y 2 0 0 8 , o u r b o a r d o f d i r e c t o r s
shares of TIM ET common st ock, w hic h amount
a n d 2 0 0 7 .
2 0 0 8 d i v i d e n d o f $ . 1 0 p e r s h a r e ,
r e c o r d a s o f M a r c h 1 A , 2 0 0 8 .
o f
2 0 0 7 w e p a i d a s p e c i a l
d i v i d e n d
T I M E T c o m m o n s t o c k .
t h e s p e c i a l d i v i d e n d w e d i s t r i b u t e d
mil-l-ion
TfMET common stock we owned at
o u t s t a n d i n g
Statements.
amount
f i n a n c i a l
o p e r a t i o n s ,
contractual
req uirements
o u r B o a r d o f D i r e c t o r s .
n e c e s s a r i l y
w e m i g h t p a y .
l - i m i t s
a d d i t i o n a l
q u a r t e r
t o b e p a i d o n M a r c h 3 1 , 2 0 0 8 t o s h a r e h o l - d e r s
i n M a r c h
t o o u r r e g u l a r d i v i d e n d ,
f o r m o f s h a r e s o f
a p p r o x i m a t e l y
5 5 . 8
t he
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 -
the
and
res ult, s
of
b u s i n e s s e s ,
that
S e e N o t e 3
and pay ment of
and
i s
c a s h
deemed rel -evant by
i s n o t
d i v i d e n d s w h i c h
t h i s
t h e a m o u n t o f o u r g u a r t e r l y
discretionary
c o n d i t i o n ,
and restri cti ons
t o $ . 1 0 p e r s h a r e , p l u s a n
dependent
r e q u i r e m e n t s
a g g r e g a t e a m o u n t o f $ f z : . 0 m i l l i o n
date and approx imat ely
a t D e c e m b e r 3 1 , 2 0 0 7 .
However, declaraLj-on
T I M E T c o m m o n s t o c k .
upon our
f o r
o u r
of
35. l -8 of
and other
t i m i n g
i n d i c a t i v e
I n
f a c i l i t y
c u r r e n t l y
fac tors
o f p a s t
T h e a m o u n t a n d
t i m i n g o f a n y
c a s h d i v i d e n d s
t h e a m o u n t o r
b a n k c r e d i t
repre sented
di vi dends,
d i v i d e n d s
r e v o l v i n g
thereof,
r e g a r d ,
f u t u r e
fut ure
o u r
t h e
al l
o f
is
fo rt h
t o t a l -
in our cumulative
Performance Graph - Set
to tal
r e t u r n o f
change
t h e c u m u l - a t i v e
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
t h r o u g h D e c e m b e r 3 1 , 2 0 0 7 .
y e a r a s s u m i n g a n o r i g i n a l
the
of our
s t o c k a n d
w i t h
t h e s a l - e o f
t h e p r o c e e d s a ] s o
reinvestment
bel ow
retu rn
i s a l ine graph com paring
st ock hol-der
t h e S & P 5 0 0 C o m p o s i t e S t o c k P r i c e
the yea rly
on our com mon st ock agai nst
I n d e x a n d t h e
f r o m D e c e m b e r 3 I , 2 0 0 2
T h e g r a p h s h o w s t h e v a l u e a t D e c e m b e r 3 l - o f e a c h
i n v e s t m e n t o f $ 1 0 0 a t D e c e m b e r 3 1 , 2 0 0 2 , a n d a s s u m e s
sha res of o ur
reg ular
cas h di vi dends
d i v i d e n d
i n
i n o u r s p e c i a l
t h e p e r i o d
I n d e x
quart erly
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
r e i n v e s t e d
i n o u r s t o c k .
f o r
- 3 2
a
t
J
Jo
o
s00
4s0
400
3s0
300
2s0
n0
150
r00
_D
-A
---
1
r
r--
f
:-:
'J'
-!
-'i{
i-n+--=
t2Ruu2
L2t3U03
t2RllM
t2l3u05
L2RUM
r2l3u07
# V a l h i , I n c .
" 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 . W e m a y p u r c h a s e
T h e s t o c k
t i m e t a b l e s
o r
conditions,
W e w i l l
be retired
c o n d i t i o n s
p r i c e
on market
t a r g e t s
p e r m i t .
p l a n s ,
f u t u r e
couL d
w €
p u r c h a s e s ,
o r
i n
p r i v a t e l y
t r a n s a c t i o n s w i t h o u r a f f i l i a t e s .
a u t h o r i z e d
t h e s t o c k
t h e
r e p u r c h a s e
t o
p r o g r a m d o e s n o t
f r o m
t i m e
r e p u r c h a s e
a n d m a y b e s u s p e n d e d a t
term inate
the progr am pri or
a n y
o f a n
t i m e a s
i n c 1 u d e
t i m e .
t o
R e p u r c h a s e d
st ock and
c o r p o r a t e
u s e o u r c a s h o n h a n d t o a c q u i r e
t h e s h a r e s .
and cancel-l -ed or may be added to our
a c q u i s i t i o n s
treas ury
o t h e r
o r
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 .
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 .
A s s u m p t i o n s o n d e f i n e d b e n e f i t
p l a n s . "
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 .
T h e f a c i l i t y
rev olv ing
i n G e r m a n y , B e l g i u m ,
bank cr edit
i n e u r o s ,
at
t o
t h e
p l e d g e o f
c o n t a i n s
i nterest
i s s u e u p
i s c o l - l a t e r a l - i z e d b y
o f
t h e b o r r o w e r s , p l u s a l i m i t e d
f a c i l i L y
T h i s
t h e B e l g i a n b o r r o w e r .
t h a t ,
a m o n g o t h e r
t h i n g s ,
r e s t r i c t s
o u r a b i l i t y
p a y d i v i d e n d s
l i e n s ,
o r s u b s t a n t i a l l y
t h e r e w e r e n o 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 7 ,
f o r b o r r o w i n g s
o f $ L I 7 . 7 m i l l - i o n w a s a v a i l - a b l e
t o o b t a i n a n e x t e n s i o n o f o u r E u r o p e a n s e c u r e d
t o
o r m e r g e o r c o n s o L i d a t e
t h e
J u n e 2 0 0 8 m a t u r i t y .
t h e a s s e t s o f
t h e c u r r e n t
a l l
o f
o u r C h e m i c a l - s S e g m e n t h a s a $ 5 0 m i l l i o n U . 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 . S . p r i m e
c o v e n a n t s
d e b t ,
e n t e r
e q u i v a l e n t
i n c u r
L i e n s ,
i n t o m e r g e r s .
i n t e r e s t
r a t e
a m o n g o t h e r
t h a t ,
a t
o r L f B O R .
recei vabl -e
and
i nventorj -es .
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 .
A s e c o n d
fo r publi c
A s s o c i a t i o n ,
and priv ate
o n
f a v o r .
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 ,
c a s e ,
t h e
e n r i c h m e n t .
of whether
r e s u l t e d
a n d t h e S t a t e d i s m i s s e d
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
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 .
lea d pi gment
i n a m i s t r i a l
w i t h
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 ) .
reimburseme^rt
o f a p u b l i c
the sol-e questi on
i s a p u b l i c n u i s a n c e ,
a v e r d i c t
d e f e n d a n t s t
w i t h p r e j u d i c e ,
w i t h o u t
t r i a l
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 o n
n u i s a n c e ,
o f
i t s
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
O r a l a r g u m e n t o n t h e a p p e a l h a s b e e n s c h e d u l - e d f o r M a y 2 0 0 8 . 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 . B
$ 2 , 9 8 5 . 0
$ 6 1 8 . 4
s 1 , 8 2 3 . 6
The
fair
interest
in
i n S F A S N o .
investment
minority
stockholders'
d e f i n e d
of our
redemption price
r at e no nrec ourse
price
million
LLC, which col-la teral-i zes
def ined
in SFA S No. 1,57 .
fixed-rate
m a t u r i t i e s ,
t h e c a r r y i n g
a r e c o n s i d e r e d e q u i v a l e n t
of our
loans
redemption
val-ue of our publ ic ly -traded
NL
Industries,
Kronos
equity are all based upon quoted mark et pri ces ,
I 5 7 , a t e a c h b a l - a n c e s h e e t d a t e . T h e e s t i m a t e d
in The Am algam ated S ugar C ompany LLC i s $250 mi ll ion
va1u e of our
the LLC ) .
investment
i n
from Sna ke R iv er S ugar C ompany i s bas ed upon
in
of our
th e no nrecours e
1oans ,
Fair val ues of var iabl -e
investment
mark etabLe
sec uri ties
and CompX and
and debt ,
our
The fai r
common
Lev el 1 i nputs as
f a i r v a l u e
(the
f i xed-
the $ 250
the Amalgamated Sugar Company
as
rate debt and other
near-t erm
a n d a c c o u n t s p a y a b l e
thes e are Leve l 3
i nterest
i nputs
thei r
a m o u n t s o f a c c o u n t s
t o
f a i r v a l - u e . S e e N o t e s 4 a n d 9 .
r e c e i v a b l e
debt are deemed to ap proxi mate book val -ue. 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