Document 3e94nE7qq6Eyjp3q5RpnqXrND

0000-NLI-000018943 - Industries, Inc. Annual Report 1972 t N L Industries, Inc. Ten year highlights in thousands of dollars, except per share amounts Net sales Income before taxes and extraordinary items Income before extraordinary items Net income Per common share Income before extraordinary items Net income Dividends paid on common shares Per common share Current assets Current liabilities Working capital Property, plant and equipment, net Property expenditures Depreciation Total assets Shareholders' equity All per share amounts reflect the 2 for 1 stock split which took place in 1969. 1972 $1,013,698 62,134 36,814 36,814 1.53 1.53 24,003 1.00 367,371 127,609 239,762 363,776 59,771 23,743 868,991 420,897 1971 $925,008 39,047 22,757 3,257 .95 .14 23,948 1.00 359,836 109,557 250,279 326,025 83,990 26,344 782,420 409,034 1970 $915,877 62,605 35,618 35,618 1.50 1.50 36,261 1.525 368,253 126,514 241,739 303,801 58,462 25,319 769,808 426,074 1969 $929,785 95,435 50,842 50,842 2.13 2.13 40,272 1.70 348,333 161,457 186,876 273,169 37,161 22,651 714,872 423,587 I I \ \ ` )6j IS ; $8:3,If ' $818 15,4 ' 95 9,i ; .52 9,1V 55 i- 2. -9,0: i 3? 1.61 2'2,1 i :s,c! 2:4,r I 2:2,1. i 32C 101 218 226 9'? 1 '3 I e-2. ! -24 1 30 20 597 419 0000-NLI-000018944 INDUSTRIES t N L Industries, Inc. Annual Report 1972 w is: 1966 1965 1964 1963 f $818,905 1 95.122 .52.842 /' 55.891 $865,687 115,686 63,941 63,941 $837,215 114,986 61,601 61,601 $735,189 110,014 58,691 58,691 $664,606 98,205 51,433 51,433 2.21 2.34 - 38.786 1.625 320,171 101.855 218.3*5 226.060 30.867 20.266 597.044 419.893 2.66 2.66 38,295 1.625 310,311 97,721 212,590 214,725 32,440 18,302 589,425 407,257 2.55 2.55 38,378 1.625 296,548 97,599 198,949 196,134 41,096 17,249 537,225 373,320 2.51 2.51 38,036 1.625 300,974 99,600 201,374 174,961 20,447 16,286 513,311 355,759 2.19 2.19 38,049 1.625 276,069 91,461 184,608 170,263 14,558 15,523 481,351 334,960 Contents Letter to Shareholders / 2 Operations Report / 4 Metals Group / 4 Pigments Group / 6 Fabricated Products Group / 9 Chemicals Group / 10 Industrial Specialties Group / 12 Other Activities / 14 Financial Report / 16 Financial Statements / 20 Auditors' Report / 24 Shareholders are cordially invited to attend the eighty-first annual meeting of N L Industries, Inc., Tuesday, April 24, 1973, at the Gateway Downtowner Motor Inn in Newark, New Jersey at 2:00 p.m. 0000-NL1-000018945 To our shareholders Net earnings of N L Industries, Inc. for the year 1972 were $36,814,000, equivalent to $1.53 per common share. In 1971, earnings had been $22,757,000, or 95 cents per share, before an extraordinary charge of $19,500,000 due to the abandonment of unprofitable facilities. Net 1971 earnings after the extraordinary charge were $3,257,000, equivalentto 14 cents per share. Thus, 1972 earnings represent an increase of 62% over 1971 profits before the extraordinary charge. This improvement was contributed to by all major operations of the company, domestic and international. Several of the conditions that had depressed results in 1971--notably industry-wide price weakness in tita nium dioxide and several key metals--were largely corrected in 1972. as the sustained improvement in the general economy brought about increased demand for all products. Sales of N L Industries for 1972 were $1,013,698,000, compared with $925,008,000 in the preceding year, an increase of 9.6%. A billion dollars in annual sales is a major benchmark for any American company--and as such, it offers an ideal point from which to review where this company has been and where it may be going. N L Industries is now 81 years old. It has been predom inantly a supplier of metals and chemicals to other industries. For most of its history, growth has been steady and consistent. In the last decade alone, annual sales volume has risen by 65%. Growth will continue. The company produces a widely diversified range of essential products whose future use is expected to more than match the anticipated development of the national economy. In addition, we have been branching out into new areas-- the basic production of magnesium, for one-with the potential for much greater than average growth. In recent years, however, our earnings have not kept pace. Between 1967 and 1971, profits declined, due largely to a general economic slump that hit particularly hard at basic producers such as N L. That factor has tended to obscure a fundamental man agement improvement emerging within the company. As late as 1968, most of N L's divisional and subsidiary units still operated on a highly decentralized semiautonomous basis as they had historically. Many of the practices and procedures that had developed over a half-century failed to provide the flexibility needed in these days of constant--and very rapid--business, social and technological change. Much of the effort of the current management has been gene devoted to modernizing those traditional methoas. vice: Over the past four years, our accounting, purchasing, Edga production and distribution systems have been ex V John tensively reorganized. Policy making and staff services j McL; have been centralized, and efficiency has been ' Mr. K improved at operating units. Our latest move, in 1972, * of thf concentrates most of our widely diversified operations within five major groups--Chemicals, Metals, Pigments, Fabricated Products and Industrial Specialties-to provide greater marketing thrust and consolidation of parallel functions. in Ja gene . 1969 same vice- Since 1969, we have invested some $76 million in T In M. research to improve existing products and develop new as gr ones, and in sales technical support. Expenditures for these areas in 1972 were $20 million, and w II be about the same in 1973. In the same four year period, we have invested aooroximately $307million for acquisitions, expansions, In Fe exec and I exec of N improved facilities, environmental controls and for such The new endeavors as our magnesium operation, which went N L : into limited production in December of 1972. (Details on , regr the status of the magnesium operation will be found in the operations section.) Capital expenditures in ' 972 amounted to $60 million and are anticipated to ce at that approximate level again in 1973. These efforts are now beginning to show results. During 1972, all major divisions and subsidiaries of Fcrs Idire' ' Reis I gen. Lou r w(heerr N L Industries were profitable, including the 50% owned !. emp Titanium Metals Corporation of America (TMCA). ' 1% N L Industries' part of TMCA earnings amounted to Acc three cents per N L share. In 1971, this jointly owned 1 in r subsidiary had operated at a loss, and N L's portion of that loss had amounted to 21 cents per N L share TMCA earnings for 1972 included the results of Standard Steel Division since it was acquired in July, 1972. | Em. I imc adc pro Dividends totaling $1 per common share were paid to shareholders in 1972. N L Industries has paid casn dividends for 66 consecutive years. At year end. ve had 59,598 shareholders, an increase of almost 4% over the year before. Our manpower planning program is showing progress in the training and upgrading of existing employees and in the recruitment of the best available personnel directly from colleges. S25 Th< | tea ^yea we ba= Va v ha; fur A number of executive promotions were made during the thr year. As part of the latest reorganization, the following ' We persons, who have been corporate vice presidents and ar 2 0000-NLI-000018946 general managers of major divisions, were named group ' ce presidents: John A. Mardick, Metals Group; Edgar J. Hagstette, Jr., Chemicals Group; and J. Murray , ,,ohnstor Industrial Specialties Group. Vincent R. | McLean v. as appointed vice president, Finance. I Mr. McLean, who joined N L in 1969, has been treasurer ' of the company since 1970. n January, 1973, Richard K. Martin, who has been general manager of the Southern Screw Division since 1969, was named a corporate vice president. In the same month, Rudolph E. Carlson, Jr., was appointed ^ice-president for Corporate Planning and Development. f in Marcn. 1973, Glenn A. Wilson joined N L Industries 1 as group vice president, Pigments. in February, 1973, John 0. Logan, president and chief executive officer of Universal Oil Products Company, i and Augustine R. Marusi, president, chairman and chief ! executive officer of Borden, Inc., were elected directors of N L Industries, Inc. i : The management and Board of Directors of it NL Industries would like to express their sincere I regret for the untimely death in July, 1972 of J. Frank Forster, who had very ably served this company as a 1 director since April, 1971. Relations with our 27,750 employees have been generally good, although a 17-week strike at our St. Louis titanium pigment plant hampered production i there. A total of 34 collective bargaining agreements were successfully negotiated in 1972, covering 3,500 J employees. Manhours lost to strikes represented 'i 1% of total manhours worked. The company's Total J Accident Control Program continued to reflect its value v in reducing accident frequency and severity. *, Environmental protection continues to be of major importance to N L Industries. During 1972, the company .J* added approximately $5 million in new environmental protection facilities, and has committed an additional $25 million for further environmental facilities to be r completed by the end of 1974. *j The national economy is strong, and all indicators point I to another rise in production and consumption next year. Demand for our particular products is good, and we are intensifying marketing efforts. We have a sound base in our financial structure. Our employees have a vast reserve of experience, and the management team has enlarged its capability. We see strong potential for ** further growth both in existing product lines and through carefully selected new areas. We know the coming year will bring us new challenges and new opportunities; we face them with confidence. *< i Operations Metal Division, New York, N Y. Antimony, cadmium, lead and zinc metals; fabricated lead products and lead oxides. Magnesium Division, Salt Lake City, Utah Magnesium metal; chlorine. Goldsmith Division, Chicago, III. Precious metals and metal oxides. Morris P. Kirk & Son, Inc., Los Angeles, Calif. Aluminum, lead and zinc alloys, fabricated lead products and lead oxides. Pioneer Metals, Inc., Los Angeles, Calif. Aluminum and sheet aircraft extrusions and cast aluminum tooling plate. American Bearing Division, Indianapolis. Ind. Precision sleeve bearings, bearing seals, bushings and machine parts. Magnus Roller Bearing Division, Cincinnati, Ohio Precision tapered roller bearings. Magnus Metal Division, Chicago. III. Brass and bronze journal bearings and castings. Jonathan Manufacturing Company, Fullerton, Calif. Precision steel slides. Jonathan Systems Division, Arlington, Texas Automated transfer systems. The Bunting Brass and Bronze Company, Toledo, Ohio Brass, bronze, iron and aluminum parts. Anaheim Citrus Products Company, Anaheim, Calif. Dry citrus peel products. 75% 75% 100% Lee Metal Products Company, Philipsburg, Penna. Corrosion resistant processing equipment. Regal Molds, Inc., Toledo, Ohio Metal dies for plastics and forgings. Screw Machine Division, Chicago. HI. Hydraulic brake cylinders and pistons. Steel Package Division, St. Louis, Mo. Small steel shipping containers. Texas Mining & Smelting Division, Laredo. Texas Antimony metal and oxide. 'The Canada Metal Company, Limited (50%). Toronto. Canada Lead oxides, lead and zinc alloys, brass and bronze products, fabricated lead products. 'Cia Minera y Retinadora, S.A. (49%), Mexico City, Mexico Antimony mining. 'R-N Corporation (50%), New York, N.Y. Process for the direct reduction and beneficiation of iron ores. 'Titanium Metals Corporation of America (50%), Timet Division, West Caldwell, N.J. Titanium metal sponge, ingot and mill products. Standard Steel Division, Burnham, Penna. Specialty steels, wheels and axles. `Affiliates included in consolidation on an equity basis only, therefore not incfuded in consolidated saies or operating profits percentages. Figures in parentheses represent percentage of voting securities owned. N L Industries' new magnesium plant at Rowley, Utah, began limited production in December, 1972. Initial production has been relatively small, and will be increased in increments during 1973 until the plant reaches its capacity rate of 45,000 tons of magnesium metal and 80,000 tons of chlorine annually. When in full operation, it will increase the United States supply of the metal by about one-third. Although the new plant is expected to reach a break even point with an optimum production rate in 1973, it is not practical at this point to predict a precise date. The operation will not be a contributor to the corporation's earnings for the 1973 year. This project was initially undertaken on the premise that magnesium, the lightest of common structural metals, has been underutilized because of limited avail ability. Until now, there has been only one major pro ducer in this country. Potential users, who had been hesitant to commit to a material with a single source of supply, indicated that they will accelerate magnesium consumption when a new source is available. New that the new plant is completed, customer interest in the metal, and in N L Industries as a supplier, is keen. Al though we have been making magnesium metal at the plant for a very short time, we expect to experience a receptive market environment. Sales of other base metals in 1972 were well above 1971 levels. Results in the prior year had been depressed by sharp drops in the market price of several key metals, particularly lead and antimony. With demand up in 1972, prices have firmed, but still remain well below 1970 levels. However, with a continuing program to improve efficiency and reduce operating costs, all products in the base metals group, including grid metai, lead shot and solder, registered significant gains in earnings. A new secondary lead smelting plant at Pedricktown, New Jersey, incorporating the most modern technology in materials handling, smelting and environmental 4 Molten metal is poured into ingots at a secondary smelter. OOOO-N L I-0 0 0 0 18948 0000-NLI-000018949 control, was completed in January, 1973. A substantial part of our antimonial lead and lead oxides is sold to battery producers for the automotive after-market. The high production rate of new automo biles is continuing, and sales of replacement batteries are expected to increase in the future. N L Industries, through its Magnus Bearings opera tion, has long been the leading producer of solid journal bearings for the railroad industry. This has become largely a stable replacement business for repairs to rail cars with similar equipment. Under recent regulations, all new freight cars, as well as cars undergoing major overhaul, must be equipped with roller bearings. We have been producing roller bearings on a limited basis for several years for the qualification tests of the Asso ciation of American Railroads, and production is being expanded. With the electronics industry almost totally converted to solid state circuitry, demand for flux systems and solders designed specifically for solid state printed cir cuits has been growing, and our line of Hy -Pu r e solders has been outpacing the industry generally. Precision automated material handling systems for delicate operations, made by our Jonathan Systems op eration, were until recently custom-designed exclusively for the military. They are now being offered to commer cial producers and are receiving considerable interest. Titanium Metals Corporation of America (TMCA), a subsidiary jointly owned by the company and Allegheny Ludlum Industries, Inc., reported a profit of $1,3 98,000 on sales of $65,262,000 for 1972. In the previous year TMCA had reported a loss of $9,853,000 on sales of $37,277,000. In July, 1972, TMCA acquired the Standard Steel Division of B-L-H, Inc.; results for the year include the sales and earnings of Standard Steel since that date. TMCA's Timet Division produces titanium sponge, ingot and mill products. Losses from titanium metal op erations were substantially reduced from levels of the two previous years. Shipments of titanium mill products rose approximately 13%. Procurement or ordering of aircraft, which represents the major market for titanium metal, began to rise in 1972 after a lull of several years, with some indications for stepped up ordering in the near future. Industrial uses of titanium, the smaller part of the market, are continuing to grow at a rapid rate. Standard Steel Division produces machined steel rolled wheels and axles for rail cars, seamless rings and a variety of types of forgings for industry, and makes its own specialty high-strength steels. Standard Steel Divi sion's sales were held to 1971 levels primarily because hurricane-induced floods halted production for several weeks. New orders during the year and year-end back log, however, represented records, and a further in crease in shipments and new orders is expected for 1973. Products which have been showing strength in clude specialized forgings for nuclear power-generating installations, and low-noise mounted wheels designed specifically for urban mass transit systems. Operating Profits Pigments Group Titanium Pigment Division, Sayreville, N.J. Titanium pigments and chemicals. Kronos Titan--GmbH, Leverkusen, West Germany Titanium pigments; gellants; lead pigments. Canadian Titanium Pigments, Limited, Montreal, Canada Titanium pigments; gellants; lead pigments; stabilizers; zirconium and titanium compounds. Kronos Titanium Pigments, Limited, London, England Titanium pigments. Kronos SA/NV, Brussels, Belgium Titanium pigments; gellants; lead pigments. 75% 100% 25% 50% 75% Kronos Titan A/S, Fredrikstad, Norway Titanium pigments; gellants; lead pigments; stabilizers. Titania A/S, Hauge i Dalane, Norway llmenite ore mining. `Societe Industrielle du Titane S.A. (93%), Paris, France Titanium and lead pigments. 'Affiliates included in consolidation on an equity basis only, therefore not included in consolidated sales or operating profits percentages. Figures in parentheses represent percentage of voting securities owned. 100 Earnings of the Pigments Group were substantially improved during 1972, as consumer demand for the products of our major pigment-using customers--manu facturers of paint, paper, plastics, rubber and ceramicspicked up. The industry-wide overcapacity that had plagued the titanium dioxide industry for several years disappeared in the latest year. Current supply and demand are in relatively close balance. In late 1971, we ended our unprofitable calciumextended pigment and chloride process operations, which together had represented some 9% of our men theoretical North American capacity. A 17-week strike during 1972 at our St. Louis pigment plant impaired pro- 0000-NLI-000018950 ' t , ** *.(. *| ,, *'r ^ i - . duction there. Nevertheless, titanium dioxide sales for 1972 exceeded those of the previous years. During the long strike, commitments to customers were met. Although a strike is seldom desirable, the settlement at St. Louis brought positive benefits to both sides and has helped to bring about operational efficiencies that are providing more productive operations. Titanium pigments have a firm place in the production of consumer goods as a brightening and opacifying pig ment. Worldwide consumption since 1960 has doubled; continued growth in overall volume is projected at an approximate 4% annual rate for the next decade. The plastics industry is using proportionately larger amounts. Titanium dioxide makes plastics more colorful and prevents ultraviolet degradation, allowing a much wider range of outdoor applications. International consumption has been growing more rapidly than in the United States. In 1972, international operations accounted for approximately half of the Pigments Group's net sales, compared with a third a decade ago. Capacity of our plant at Langerbrugge, Belgium, will be increased from 17,500 tons to 40,000 tons of titanium dioxide annually when it becomes fully operational in early 1973. Mining operations in Norway have been expanded, and processing facilities in our New York State mines upgraded, to help supply the growing worldwide need for titanium pigment feed materials. Construction will begin this year at our large titanium pigment plant in Sayreville, New Jersey on two new high efficiency units to make sulfuric acid, essential to the production of titanium dioxide. These will replace five existing older units at the plant. The new facilities repre sent a major step in the implementation of our total en vironmental control program. They will reduce sulfur dioxide emissions to a level within any foreseeable requirements under federal and state regulations. Con struction cost will be approximately $11 million, with completion scheduled for the end of 1974. With demand continuing strong and increased oper ating efficiency in our pigments plants, sales and earn ings for the pigments group are expected to improve again in 1973. 0000-NLI-000018951 7 Consolidated Sales Operating Profits Fabricated Products 1972 Group s&r.' U% 25% 50% 75% 100% 25% 50% 75% Doehler-Jarvis Division, Toledo, Ohio Die castings of aluminum, zinc, brass and magnesium; finishing and assembly services. Southern Screw Division, Statesville, N.C. Complete line of screws and metal fasteners. AmosTftompson Corporation, Edinburg, Indiana Moidec plastics; wood veneer and lumber. Cochrane Foundry, Inc., York, Penna. Sand castings. Floating Floors, Inc., Toledo, Ohio Elevated flooring and site environmental systems for computer rooms. Tool & Engineering Division, Chicago, III Dies tooling; prototype assembly and engineering services. Kirks -e castings. Doehler Canada Limited. Hamilton, Canada Aluminum, brass, magnesium, zinc die castings. Industrias Doehler do Brasil, S.A., Sao Paulo. Brazil Die castings. Metal Castings Doehler, Ltd., Worcester. England Die castings. `Doehler-Australia Pty. Ltd. (70%). Auburn, Australia Die castings. 'Schraubenfabrik Neustadt Goetz & Cie GmbH (99%), Neustadt/Schwarzwald. West Germany Screws and metal fasteners. Affiliates included in consolidation on an equity basis only, therefore not included ^ consolidated sales or operat:ng profits percentages Figures in parentheses represent percentage of voting securities owned. 100% Competition among independent die casters increased sharply in the past year, as major automotive and other customers tended to increase the use of their own cap tive facilities rather than buy from outside producers. Nevertheless, sales volume for our Doehler-Jarvis Divi sion. which has always been the leader in this metal working technique, continued to rise. The relative proportions of materials being used at any given time vary as requirements change. Zinc castings have been showing a downward trend due to the search for lighter materials and simpler decorative trim. Alumi num die castings, however, continued to show steady growth, both in total volume and in new applications. Aluminum castings are becoming the prime alternative for many structural parts where the combination of strength, light weight, cost and volume is important. Although magnesium still represents a relatively small base, magnesium die castings are showing the most rapid proportionate growth of all. Volume in 1972 approx imately doubled that of the previous year. In part, this has been because of our particular expertise in working with magnesium, but we are also helping manufacturers and designers to find new applications for this metal now that larger supplies are becoming available. International die casting operations also showed gains during 1972. Our Canadian die casting units, Barber Die Casting Co. and Lakeshore Die Casting, marked up rec ord sales and earnings. On Dec. 31, 1972, Barber and Lakeshore were amalgamated as Doehler Canada Lim ited. In the United Kingdom, a nationwide coal strike in early 1972--and the attendant reduction in automotive demand there--was compensated by a sharp recovery in the second half. In Brazil, the infusion of major new automotive business, as well as government-approved price increases in the second half of the year, brought Complex automotive tranamltalona typify die catting atandardt. satisfactory results for the year. During 1972, Doehler-Jarvis received an initial con tract for U.S. Postal Service lock boxes, with projected 1973 deliveries of $2.5 million. Shipments of magnesium die cast baseball bats began toward the end of the year. These bats, which are being marketed by a leading pro ducer of wood bats, offer many qualities of traditional wood bats and are more damage resistant. Fastener business of our Southern Screw Division showed an improvement in both sales and earnings. Demand from the jobber, appliance, furniture and auto motive markets has been strong, especially in sheet meta! and wood screws, and is expected to continue so through 1973. A reduction in imports--particularly from Japan after currency revaluation--eased markets where simple price competition for standard sizes and config urations had been a major consideration. Design engineers have been placing greater emphasis on well-engineered high-performance fasteners. Our new Rolok and Plasti-Lok fasteners, which simplify installa tion and resist vibration under rigorous conditions, are finding wide use in both metals and plastics applications where technical requirements are above average. Genuine wood veneers have come under steady pres sure in recent years from photographic finishes and synthetic materials, but an apparent upgrading in con sumer tastes has resulted in a sharp improvement in 1972 in demand for the hardwood lumbers and veneers supplied by our Amos-Thompson unit. Amos-Thompson's plastics operation also has a good technical position in the rotational molding process, which is expanding particularly in the area of tanks for agricul tural and recreational vehicle use. A proprietary line of injection molded drawers for furniture is showing excel lent market potential. 0000-NLI-000018953 WUmmmak __________________________ Consolidated Sales Chemicals Group 1972 Operating Profits FI 1 25% 50% 75% 100% 25% 50% 75% 10C! Baroid Division, Houston. Texas Oil well drilling materials and services. Chemicals for petroleum industry, gellants for grease; water treating chemicals. Well perforation and comoletion. nuclear well logging. Pigments & Chemicals Division, Hightstown, N.J. Antimony and lead oxides; chemicals; anti-corrosive pigments; gellants and stabilizers. The Baker Castor Oil Company, Bayonne, N.J. Castor oils and chemical derivatives, polyurethane products. DeLore Products, St. Louis, Mo. Barium and calcium pigments. Baroid do Brasil, Ltda., Salvador, Brazil Oil well drilling materials. Baroid of Canada, Ltd., Calgary, Canada Oil weil drilling materials, services. Baroid International, S.p.A., Rome, Italy Oil well drilling materials. Baroid of Nigeria, Limited, Lagos. Nigeria Oil well drilling materials, Baroid (U.K.) Limited, London, England Oil well drilling materials. Oncor SA/NV, Langerbrugge, Belgium Anti-corrosive pigments. Perubar, S.A., Lima, Peru Barite mining. Pigmentos Minerals Industrial e Commercial Plgmina, S.A., Salvador. Brazil Barite mining. 'Abbey Chemicals Limited (70%), London, England Gellants and stabilizers. 'Baroid Australia Ply., Limited (99%), Sydney, Australia Oil well drilling materials. 'Baroid ol Libya, Ltd. (49%), Benghazi, Libya Oil well drilling materials. 'Baroid de Venezuela, S.A. (92%), Maracaibo, Venezuela Oil well drilling materials. 'Bentone-Chemie GmbH (70%), Nordenham, West Germany Gellants. 'The Carter White Lead Company of Canada, Limited (50%). Montreal, Canada Lead pigments; oxides; stabilizers. 'Baroid Trinidad Services, Ltd. (50%), Trinidad, West Indies Oil well drilling services. `Affiliates included in consolidation on an equity basis only, therefore not included in consolidated sales or operating profits percentages. Figures in parentheses represent percentage of voting securities owned. The steadily expanding demand for energy, along with an already pinching shortage of oil and gas, has spurred an increase in exploratory and drilling activity through out the world, particularly in Canada, the North Sea, Nigeria, Southeast Asia and the Middle East. The upsurge in this activity, accentuated by our own growing penetration of this market, provided an increase in both sales and earnings for our Baroid operations in 1972. This trend is expected to continue. The shortage of energy reserves will require increased exploration and improved technology in stimulating deeper drilling. Both aspects call for greater use of essential drilling fluids and for our specialty engineering services. The largest part of our Baroid Division's supplies and services to the oil industry is oriented to drilling new wells, but there has been growing acceptance for our ancillary chemicals for the treatment of crude oil on the surface, and for our specialty engineering services, which use sophisticated electronic and physical tech niques to make drilling operations more efficient and economical. One new system allows certain types of drilling opera tions to be carried out in offshore areas without danger of polluting the surrounding waters. It has already been used successfully in the North Sea, the most active area of new offshore drilling activity today. Treating chemicals originally developed for oil field use have been amplified into a range of chemicals for use by other industries. Bar o c h em and Su r f l o Brand products for industrial water treatment are expected to have a good growth rate because of tighter environ mental controls and greater penetration of this market. In 1972, the sales volume of our Pigments & Cherr.cals Division increased in pigments, gellants, plastic addi tives and flame retardants. Although these chemical compounds go into a wide range of end uses, many of those, in turn, are used ultimately within the broad con texts of the automotive and construction industries. In both those industries, current demand is high ard is expected to remain so for the future. The use of flame retardants is growing rapidly as the result of government regulations and consumer concern over safety in inherently flammable materials. N L Indus tries' antimony-based retardants are highly effective in retarding combustion in flammable plastic materials. Two new and more sophisticated types of antimonybased flame retardants were introduced this year with considerable success. More stringent heat resistant requirements for wiring used in domestic and industrial construction, as well as in electronic, automotive and other equipment, are prompting demand for such new plastic additives as 10 0000-NLI-000018954 Chemicals tor drilling fluids are vital to develop new energy sources. Lec t r o *125 for high-temperature wire insulation. Other additives for rigid plastic products are being introduced. Productive capacity for Ben t o n e gel I ants--used widely for flow control and as suspending agents in paints and coatings, adhesives, inks, cosmetics and spe cial purpose lubricants--is being expanded with a new facility in Charleston, West Virginia. For the past several years, lead-based pigments have been used in exterior latex primer paint coatings for common residential wood sidings such as cedars and redwoods, to prevent the natural wood tannins from staining through paint. Late in the year, we introduced a new non-lead stain control agent for use in latex ex terior house paints, Nal zin SC-1, which inhibits these staining agents, and which will make it easier for latex paint producers to meet Federal"no-lead"requirements. Sales of our Baker Castor Oil operation were up in 1972. Poor growing conditions in Brazil cut sharply into the castor bean crop, causing higher prices on imported castor oil. Federal price controls made it difficult to com pletely recover these costs in our own final products, but earnings were still somewhat ahead of the previous year. Crop conditions for 1973 seem better at this time, although the probable cost of the imported raw material is still uncertain. Thixotropes and urethanes derived from castor oil are showing steady gains. Urethanes, which have doubled in volume over the past three years, are extremely useful for outdoor adhesive applications because they can tolerate wide variations in temperature and climatic con ditions. When used in electrical insulation, particularly for communication equipment, urethanes offer an un usual combination of moisture repellency, electrical resistance, shock absorption and economy. Consolidated Sales Operating Profits Industrial Specialties ig72 Group 3% 3% 25% 50% 75% 100% 25% 50% 75% 100% TAM Division, Niagara Falls, N.Y. Zirconium oxide, silicates and chemicals, zirconates, stannates and opacifiers. Chas. Taylor Sons Company, Cincinnati, Ohio Specialized high temperature refractories. Beil Clay Company, Gleason, Tenn. Ball clays, brick clays and lignite. Cambridge Nuclear Radiopharmaceutical Corp., Billerica, Mass. Radiological products for nuclear medicine. Industrial Reactor Laboratories, Inc., Plainsboro, N.J. Radiological products, for nuclear medicine. Edgar Plastic Kaolin Co., Edgar, Fla. Kaolin clay and glass sand. Electronics Department. Muskegon, Mich. Specialty ceramic resistors. National Lead Company of Ohio, Fernald, Ohio Contract operator for U.S. Atomic Energy Commission's uranium ore concentration plant. Nuclear Division, New York, N.Y. Depleted uranium; nuclear services. Chas. Taylor Sons, S.A., Brussels, Belgium High temperature refractories. The Titanium Alloy Manufacturing Co. Ply., Limited, Southport, Queensland, Australia 'Mineral Deposits, Limited (85%), Southport. Queensland, Australia Mining of rutile, zircon ores. 'Queensland Titanium Mines Pty., Ltd. (75%), Southport, Queensland. Australia Mining of rutile, zircon ores. 'Wilson-Snead Mining Company, Inc. (50%), Eufaula, Ala. Bauxite mining. Affiliates included In consolidation on an equity basis only, therefore not included m consolidated sales or operating profits percentages. Figures in parentheses represent percentage of voting securities owned. The growing use of capacitors--devices to store electric ity for rapid discharge--in a wide range of products from automobiles to cameras stimulated demand in 1972 for our line of electronic dielectric raw materials. These compounds represented a large part of the sales in crease of our TAM Division this year. Polishing com pounds for optical and ophthalmic use and bubbled zirconium oxide, a high purity, economical zirconium source for the production of zirconium metal, abrasives and refractories, are also showing gains. Sales of Chas. Taylor Sons' refractory materials, used in glass, metallurgical, chemical and ceramic process ing, were slightly higher than in the preceding year. Acceptance is increasing for several of our unique refractory products, particularly the Zir mu l line for the glass industry and Tig er synthetic mullite brick for steel mills. Emphasis is being given to refractory materials in cement moldable and castable forms for applications using monolithic construction rather than high-laborintensive brick and shape techniques. This market is 12 0000-NLI-000018956 1 growing at a faster rate than the balance of the refrac tories industry. ,, Chas. Taylor Sons, which sells its super-refractories 1 in 42 other countries as well as the United States, was awarded the President's "E" Award for excellence in ^ exporting during 1972. i The Electronics Department, which makes specialized * components for other manufacturers of electronic equip ment, doubled its sales of varistors and temperature coefficient thermistors in 1972. The wider application of ` electronic equipment in automobiles, especially ,, j. because of new emission control requirements, is exI pected to stimulate use of these devices. Positive tem perature coefficient thermistors, which can be effectively used as solid-state switching devices in many kinds of solid-state electronic equipment, seem to have considerable potential. In October, N L Industries acquired Cambridge Nuclear Radiopharmaceutical Corp. and Industrial Reac tor Laboratories, Inc. The two operations produce a variety of radiological materials used for diagnostic nuclear medicine. Facilities include a five megawatt pool-type nuclear reactor as well as extensive labora tory facilities in two locations. The new acquisitions complement other activities of our Nuclear Division, which include the transport of nuclear fuels, fabrication of spent uranium and processing of feed material as a contract operator for the Atomic Energy Commission. ' 0000-NLI-000018957 13 Consolidated Sales Operating Profits Other Activities 1972 6%j 3* 25% 50% 75% 100% 25% 50% 75% 100*. Paint Division, West Caldwell. N.J. Dutch Boy paints. National Lead Company, S.A., Buenos Aires, Argentina Lead products. Industrias Deriplom, S.A., Buenos Aires, Argentina Lead oxides. 'Lake View Trust and Savings Bank (99%), Chicago, III. Commercial bank. 'National Lead Company (Philippines), Inc. (51 %), Manila, Philippines Paints and related products. Affiliates included in consolidation on an equity basis only, therefore not iTuded ;n consolidated sa;es or operating profits percentages. F'gures m parentheses represent percentage of voting securities owned. Du t c h Bo y paint--our major direct consumer productaccounts for slightly less than 5% of N L Industries' total sales. Although paint sales, made predominantly through independent dealers to the general public, held up well relative to earlier years, the level of earnings declined. Stringent new regulations by federal and state author ities on paint formulations led to discontinuance of some product lines and rapid reformulation of others. These costs, and other rising expenses in distribution and sales efforts, were not fully recoverable. Reformulation efforts are now complete, and all Du t c h Bo y paints being delivered meet all federal and state regulations. Promotional activities, through broadcast and print advertising and cooperative dealer and point of purchase promotion, are being stepped up. The Du t c h Bo y label has a solid market position on both Coasts and in the Midwest. Intensive marketing efforts are now being devoted toward greater penetration of southern and southwestern states. Investigations into new kinds of coatings are also being expanded. During the year, the Paint Division opened a new general office and research center in West Caldwell, N.J. to facilitate overall research and development activities. With new construction and home renovation continu ing strong, prospects for 1973 are for increases n both sales and earnings. Net earnings of Lake View Trust and Savings Bank in 1972 were $2,997,000, compared to $4,137,000 in 1971. The decline was due mainly to a decrease in gains from the sale of securities. Although the spread between cost of funds and lending rates was reduced in 1971. the bank's operating income was maintained at a leve; close to that of the previous year. Deposit growth continued through 1972, with daily averages amounting to $313 million as compared with $293 million in 1971. Total deposits at year end were $324 million, which retains the bank's position among the ten largest in the State of Illinois. Efforts are con tinuing to encourage deposit growth, account retention and customer services. The Bank Holding Company Act Amendments of 1970 provide that a bank holding company such as N L Indus tries, Inc. shall not after December 31, 1980 encage in any activities other than banking or activities closely related to banking, subject to conditions that the Federal Reserve Board may impose, The company must divest itself of control of the Bank by December 31, 1980. 0000-NLI-000018958 Dutch Boy continues to be the standard of excellence in paints. Financial Report N L Industries, Inc. SUMMARY OF ACCOUNTING POLICIES: b a s is o f c o n s o l id a t io n . The consolidated financial statements include the accounts of the Company and all wholly-owned domestic and foreign subsidiaries. The Company's investments in unconsolidated partiallyowned domestic and foreign companies and Lake View Trust and Savings Bank are stated at cost, adjusted for subsequent changes in equity. The Company includes in income its equity in the net income of such companies. TRANSLATION OF FOREIGN CURRENCIES. Assets and liabilities (except net property, plant and equipment) are stated at rates of exchange prevailing at the end of the period. Net property, plant and equipment is trans lated at the rates in effect on the dates of acquisition of the related assets. Revenues, costs and expenses are translated at the aver age exchange rates for the year, except that depreciation is translated at the exchange rates prevailing at the time the related assets were acquired. in v e n t o r y v a l u a t io n . Inventories are valued at the lower of cost (principally average cost) or market. Cer tain metal inventories are valued using the last-in, firstout method, which results in such inventories being stated at less than current replacement cost. The valua tion of a portion of these same inventories is further reduced by the use of the base stock method. t ax es o n in c o me. Income taxes are provided in the year transactions enter into the determination of net income regardless of when such transactions are recog nized for tax purposes. The resulting deferred income taxes are due principally to accelerated depreciation utilized for tax purposes, the capitalization of interest expense on funds borrowed to construct the magnesium plant, deferred start-up costs relating to the magnesium plant and investment tax credits which are being amor tized to income over the useful lives of the applicable fixed assets. The Company's policy with respect to dividend distribu tions by subsidiaries and controlled partially-owned companies has been, and is, to require such companies to remit to the Company the maximum amount of allow able dividends, after taking into consideration operating requirements and applicable tax laws. The current finan cial status of these companies indicates that substan tially all undistributed earnings have been reinvested. Accordingly, the Company believes that its reserves for income taxes have adequately provided for any future years' taxes to be paid in connection with dividends of undistributed earnings of subsidiaries and controlled partially-owned companies. s t ar t -u p c o s t s . The Company has deferred start-up costs relating to the construction of the magnesium plant in Rowley, Utah. Production, and amortization of start-up costs, commenced in December 1972. Amortization will be completed over a period of five years. PROPERTY, PLANT a n d e q u ip me n t . Interest expense on funds borrowed to finance the construction of the magnesium plant has been capitalized and is included in property, plant and equipment. The amounts capital ized are being amortized over the lives of the applicable fixed assets. Manufacturing properties are depreciated principally on the straight-line method; mining properties are depleted on either the unit of production or the straight-line method. pen s io n s . The Company and its subsidiaries have various pension plans covering the majority of their employees. Current service costs are being funded. The major portion of the prior service costs is being charged to income and funded over a period of thirty years. RESERVE FOR FOREIGN OPERATIONS. The Company maintains this reserve to absorb losses and to be cred ited with gains resulting from major foreign exchange adjustments and other major unpredictable occurrences involving foreign operations. SALES: Sales in 1972 reached an all time high of $1,013,698,000, representing a 9.6% increase over 1971, with sales increases being recorded in all major categories, both United States and foreign. United States............... Foreign ....................... 1972 $ 839,240,000 174,458,000 $1,013,698,000 1971 $762,001,000 163,007,000 $925,008.000 EARNINGS: Net income for 1972 totaled $36,814,000 or $1.53 per share. Comparative net income of United States and foreign 0000-NLI-000018960 ) operations, before extraordinary charges for 1971, was j as follows: 1972 1971 Un'ted States ..................... $22,407,000 $12,788,000 Foreign .............................. 14,407,000 9,969,000 $--3-6--,-8-1-4--,-0-0-0- $--2-2--,7--5-7--,0--0-0- Per share of common stock (based on the average num ber of shares outstanding): Income before extraordinary charges ... Extraordinary charges, net of tax........... Net ncome............................................ 1972 $1.53 -- $1.53 1971 $.95 (.81) $.14 DIVIDENDS: Dividend payments per share totaled $1.00 for 1972 and 1971. A dividend of $.25 per share was paid in each of the four quarters of both years. LINES OF BUSINESS: During 1972, organizational changes were made that will group most operating units into closely related product or activity categories. Ac cordingly, the Company's primary lines of business, based on the revised groupings, accounted for approxi mately the percentages of consolidated net sales and of income before extraordinary charges and income taxes (before allocation of net executive office expense, parent company interest expense and the net contribution of the Lake View Trust and Savings Bank and other companies carried on an equity basis) as indicated on the following chart. Operating Profits Metals Group Pigments Group Fabricated Products Group Chemicals Group Industrial Specialties Group Other Activities 100% 0000-NLI-000018961 17 START-UP COSTS: Total deferred start-up costs, relating to the construction of the magnesium plant, amounted to $7,488,000. Of this amount $6,678,000 of start-up costs were incurred in 1972. Commencing in December 1972, $125,000 of these costs have been amortized and the remaining $7,363,000 of deferred costs are included in other assets at December 31, 1972. TAXES ON INCOME: The provision for United States and foreign taxes on income amounted to $25,320,000 in 1972, compared to $16,290,000 in 1971 (exclusive of the income taxes related to the 1971 extraordinary charges). The provision for deferred income taxes amounted to $16,048,000 and $5,191,000 for 1972 and 1971, respec tively. The amount of unamortized investment tax credit, which is being amortized to income over the useful lives of the related assets, aggregated $3,034,000 at Decem ber 31,1972. The Company's United States income tax returns have been examined and settled through 1969. The liability for taxes on income covers consolidated United States and foreign subsidiaries and the Company believes that ade quate provision has been made for all years not yet examined. FINANCIAL POSITION: Total assets increased to $868,991,000 and shareholders' equity, exclusive of treasury stock, increased to $425,793,000. The following chart illustrates the changes in total assets and shareholders' equity, exclusive of treasury stock, over the past five years: Total Assets and Shareholders' Equity in millions of dollars 1972 1971 1970 1969 1968 0 100 200 300 400 500 600 700 800 900 1,000 At December 31, 1972, net assets and retained earnings of consolidated foreign subsidiaries aggregated $1 16,528,000 and $58,528,000, respectively. Book value per share amounted to $17.53 at the end of 1972, compared with $17.05 at the beginning of the year. Working capital at year end amounted to $239,762,000 as compared with $250,279,000 at December 31, ig?' Working capital at year end 1972 and 1971 follows: 1972 United States ................. $186,963,000 Foreign ........................... 52,799.000 239,762,000 1971 S204.259.OCO 46.020.00C $250,279'q q c The source and utilization of working capital is shown m the Consolidated Statement of Changes in Financial Po sition on page 22. Inventories at the end of 1972 amounted to $175,697,000 as compared to $184,236,000 at the end of 1971. The valuation of a portion of inventories is reduced by the use of the base stock method. Pursuant to such method, an inventory reserve (amounting to $10,371,000 in 1972 and $10,356,000 in 1971) is maintained. A comparative summary of inventories follows: 1972 Raw materials................. $ 45,833,000 Finished and in process .. 108,481,000 Supplies........................... 21,383,000 $175,697,000 1971 $ 42,795,000 120,668,000 20,773,000 $184,236,000 PROPERTY, PLANT AND EQUIPMENT: During the year the Company invested $59,771,000 in property, plant and equipment. Major expenditures were made for the Magnesium Divi sion's plant in Utah; the construction of a metal process ing plant in Pedricktown, New Jersey; expansion of the titanium pigment plant in Belgium and the Norwegian mining facility; transportation and well logging equip ment for the Baroid Division; and expenditures in con nection with the Company's environmental control program. Interest expense on funds borrowed to finance the con struction of the magnesium plant has been capitalized and is included in property, plant and equipment. The amounts capitalized aggregated $8,956,000 at Decem ber 31, 1972, of which $5,342,000 was capitalized in 1972. A summary of property accounts follows: Manufacturing properties 1972 Land................................ . $ 17,515,000 Buildings ......................... . 158,462,000 Machinery and equipment . . 473,344,000 Mining properties............... 49,505,000 Intangibles not being amortized......................... 22,492,000 721,318,000 Less reserves..................... . 357,542,000 $363,776,000 1971 $ 14,451.000 145,393,000 429,600,000 48,131,000 22,492.000 660,067,000 334,042,000 $326,025 000 0000-NLI-000018962 8 71 Capital Expenditures and Depreciation tm XX) ' X)0 XX) rt =! in in millions of dollars o- DO 0 10 20 30 40 50 60 70 80 90 100 :h HJ 1 LONG-TERM DEBT: At December 31, 1972 long-term debt amounted to $274,800,000, compared with $234,050,000 at the end of 1971. The composition of long-term debt at December 31 follows: 7V2% debentures--due in annual sinking fund install ments of $5,000,000 com mencing in 1976 through December 1995 ................. 1972 $100,000,000 1971 $100,000,000 43/s% subordinated deben tures--due in annual installments of $850,000 through 1973 and minimum installments of $1,297,000 i thereafter to April 1988 .... 6'/2 % deutsche mark bearer bonds--due 1973 through 1979 ..................... Loans from banks under the terms of a $135,000,000 credit agreement, at prime rates--due in equal semi annual installments from 1974 through 1978 ............ 23,110,000 13,950,000 94,000,000 24,676,000 15,750,000 72,500,000 63A% loans from insurance companies--due in equal annual installments of $800,000 through 1988 ! and balance in 1989 .......... Bank loans--4Vi % to 9% ... 13,400,000 15,299,000 11,735,000 - Other .................................. 15,041,000 9,389,000 f $274,800,000 $234,050,000 i The 4%% subordinated debentures outstanding at December 31, 1972 and 1971 are after deducting i 't $1,653,000 and $937,000 respectively, representing the principal amount of debentures held by the Company. Under the terms of the Company's June 1,1971 revolving credit agreement with fourteen banks, which provides for the borrowing of up to a maximum of $135,000,000, the Company may, on or before June 1, 1974, convert such borrowings as it may have made to a long-term loan repayable over a 4-year period in eight equal semi annual installments. The agreement provides that the Company must maintain consolidated working capital of at least $150,000,000 and contains certain restrictions on additional borrowings. These restrictions at Decem ber 31, 1972 would limit increases in long-term debt to approximately $62,000,000. Also, the working capital restriction would limit the amount of retained earnings available for cash dividend declarations to approximately $90,000,000. In accordance with the terms of an agreement dated May 26, 1972, $30,000,000 of Titanium Metals Corpora tion of America's debt to two insurance companies has been assumed by N L Industries, Inc. and Allegheny Ludlum Industries, Inc. (each owns 50% of Titanium Metals). Each of the 50% stockholders has assumed $15,000,000 of debt in exchange for 150,000 shares of Titanium Metals preferred stock, par value $100 per share. Under the terms of the agreement, principal pay ments of $800,000 per annum are payable by the Com pany commencing July 1, 1972 through July 1, 1988 with the balance due and payable July 1, 1989. The Company has a further option to make prepayments, which will be subject to a prepayment charge. The construction of a plant in West Virginia, which will manufacture Bentone gellants, is being financed by $3,700,000 of Industrial Development Revenue Bonds, issued by Kanawha County, West Virginia. $2,000,000 of principal is due in annual installments of $200,000 com mencing October 1, 1973 through October 1, 1982 at interest rates ranging from 3Vz % to 5% per annum. The remaining $1,700,000 of principal is due in annual install ments of $115,000 commencing October 1,1983 through October 1, 1996 with the final installment of $90,000 due October 1, 1997, all of which bear interest at 5Ve% per annum. Under the terms of the lease agreement with Kanawha County, West Virginia, the Company is obligated to make semi-annual payments in amounts sufficient to pay the principal and interest coming due on the Bonds and has the option to purchase the plant at a nominal price on the October 1,~1997 lease expiration date. The Company has therefore recorded capitalized lease obligations of $3,700,000, which amount is included in other long term debt. 0000-NLI-000018963 ? 19 Consolidated statement of income and retained earnings N L Industries, Inc. Revenues: Net sales Equity in partially-owned companies Equity in Lake View Trust and Savings Bank Other income Costs and expenses: Costs of goods sold Selling, general and administrative Interest Income before United States and foreign income taxes Provision for United States and foreign income taxes (Page 18) Income before extraordinary charges Extraordinary charges, net of applicable income taxes of $19,489,000 (Note 5) Net income Income per share of common stock (based on average shares outstanding): Income before extraordinary charges Extraordinary charges, net of tax Net income Retained earnings at beginning of year Less: Dividends paid--$1.00 per share Adjustments relating to acquisitions (Note 2) Retained earnings at end of year Years ended December 31 1972 1971 $1,013,698,000 4,603,000 1,862,000 3,835,000 1,023,998,000 $925,008,000 (1,179,000) 2,898,000 3,831,000 930,558,000 793,117,000 158,175,000 10,572,000 961,864,000 62,134,000 25,320,000 36,814,000 -- 36,814,000 $1.53 -- $1.53 729,866,000 150,140,000 11,505,000 891,511,000 39,047.000 16,290,000 22,757,000 19,500,000 3,257,000 $.95 (.81) $.14 322,507,000 359,321,000 24,003,000 1,937,000 $ 333,381,000 345,295,000 348,552,000 23,948,000 2,097.000 $322,507,000 REFERENCE IS WADE TO ACCOMPANYING NOTES AND FINANCIAL REPORT SUMMARY OF ACCOUNTING POLICIES APPEARS ON PAGE 16 0000-NLI-000018964 Consolidated balance sheet N L Industries, Inc. Assets Current assets: Cash, including time deposits Accounts and notes receivable, less allowances of $2,397,000 in 1972 and $2,704,000 in 1971 Inventories (Page 18) Prepaid expenses Total current assets Investments: (Note 1) Lake View Trust and Savings Bank Partially-owned companies, at equity, and other investments, at cost Property, plant and equipment, at cost, less accumulated depreciation and depletion of $357,542,000 in 1972 and $334,042,000 in 1971 (Page 18) Other assets (Page 18) Liabilities Current liabilities: Loans payable Accounts payable and accrued liabilities Taxes on income Total current liabilities Long-term debt (Page 19) Deferred taxes on income (Page 18) Other liabilities and reserves Shareholders' Equity (Notes 2, 3 and Page 19) Common stock, par value $2.50; shares authorized 60,000,000; shares issued 24,177,168 Capital surplus Retained earnings Less treasury stock at cost: 1972,171,125 shares; 1971, 185,258 shares December 31 1972 1971 $ 27,964,000 158,197,000 175,697,000 5,513,000 367,371,000 43,292,000 75,411,000 363,776,000 19,141,000 $868,991,000 $ 25,653,000 146,075,000 184,236,000 3,872,000 359,836,000 43,894,000 42,215,000 326,025,000 10,450,000 $782,420,000 $ 24,323,000 90,259,000 13,027,000 127,609,000 274,800,000 35,547,000 10,138,000 $ 22,988,000 77,355,000 9,214,000 109,557,000 234,050,000 19,499,000 10,280,000 60,443,000 31,969,000 333,381,000 425,793,000 4,896,000 420,897,000 $866,991,000 60,443,000 32,141,000 322,507,000 415,091,000 6,057,000 409,034,000 $782,420,000 REFERENCE IS MADE TO ACCOMPANYING NOTES AND FINANCIAL REPORT SUMMARY OF ACCOUNTING POLICIES APPEARS ON PAGE 16 0000-NLI-000018965 21 Consolidated statement of changes in financial position N L Industries, Inc. Sources of funds: Income before extraordinary charges Items not requiring the use of funds: Depreciation Deferred income taxes Equity in income of partially-owned companies, net of dividends received Extraordinary charges: Loss, net of applicable income taxes Net property, plant and equipment abandoned Reduction in deferred taxes Funds provided from operations Treasury stock issued for companies acquired Long-term borrowings, net Disposal of fixed assets Increase (decrease) in other liabilities and reserves Other Application of funds: Dividends Capital expenditures Acquisition of minority interest Cost of treasury stock issued in excess of its par value or fair value of companies acquired Investments Fixed assets and other non-current assets of acquired companies Purchase of treasury stock Other Increase (decrease) in working capital Details of the above increases (decreases) are as follows: Cash, including time deposits Accounts and notes receivable Inventories Prepaid expenses Loans payable Accounts payable and accrued liabilities Taxes on income Years ended December 31 1972 1971 $ 36,814,000 $ 22,757,000 1.P4 3 arc mer as L 23,743,000 16,048,000 (1,011,000) 75,594,000 -- -- -- 75,594,000 1,902,000 40,750,000 2,726,000 (142,000) 231,000 121,061,000 24,003,000 59,771,000 -- 1,980,000 31,962,000 4,573,000 741,000 8,548,000 131,578,000 $(10,517,000) $ 2,311,000 12,122,000 (8,539,000) 1,641,000 7,535,000 (1,335,000) (12,904,000) (3,813,000) (18,052,000) $(10,517,000) 26,344,000 5,191,000 5,257,000 59,549,000 (19,500,000) 31,178,000 (9,569,000) 61,658,000 5,729,000 53,148,000 5,166,000 1,548,000 142,000 127,391,000 23,948,000 83,990,000 3,709,000 2,097,000 503,000 834,000 - 3,770,000 118,851,000 $ 8,540,000 $ (253,000) 4,060,000 (12,169,000) (55,000) (8,417,000) 16,214,000 2,029,000 (1,286,000) 16,957,000 $ 8,540,000 %o Ass; 1'i Lia: i 2 * 1 in ire pa -* re* 1 mf IS 4 Sir 1 t. Or thi I si }G iV |1 : *s t*- 1 o a ! .1 c. :r r -- c REFERENCE IS MADE TO ACCOMPANYING NOTES AND FINANCIAL REPORT SUMMARY OF ACCOUNTING POLICIES APPEARS ON PAGE 16 22 0000-NLI-000018966 m Notes to financial statements N L Industries, Inc. 1. PARTIALLY-OWNED COMPANIES. Financial data re< garcmg certain partially-owned companies, the invest ments in which are accounted for on an equity basis, is as follows: Titanium Metals Corp. of America Mineral Deposits, Limited Canada Metal Co., Ltd. % owned by NL .... 50% 85% 50% Assets 1972 ..................... 1971..................... (IN THOUSANDS) $98,746 $13,422 $13,888 65,343 11,767 12,448 Liabilities 1972 ..................... 1971..................... Net income (loss) as reported 1972 ..................... 1971..................... '< 53,326 51,321 6,830 5,765 3,088 1,955 1,398 (9,853) 1,267 1,678 1,101 930 In 1972, Titanium Metals changed its method of account ing for investments in unconsolidated affiliated com panies from the cost to the equity method and has given retroactive effect to this change in its financial state- j ments. No adjustment has been made to the Company's j 1971 financial statements as a result of this change y since the effect would not be material. A On July 17, 1972, Titanium Metals purchased for cash the Standard Steel Division of B-L-H, Inc., wholly-owned subsidiary of Armour and Company (a subsidiary of Greyhound Corporation). In connection therewith, the two 50% stockholders (N L Industries, Inc. and Alle gheny Ludlum Industries, Inc.) advanced a total of $27,000,000 evidenced by notes. Of this total, the Com1 pany advanced Titanium Metals $12,500,000 evidenced J by a note for the same amount. The operations of Stand- j ' ard Steel Division, included from date of purchase in the 1 results of operations for Titanium Metals for the year 1972, are not material in relation to the Company's . financial statements. In addition, the Company's equity in the earnings of the other companies included in the income statement cap*$ tion "Equity in partially-owned companies" aggregated $2,276,000. ` | * Summarized financial information relating to the Lake ] View Trust and Savings Bank follows: (IN THOUSANDS) 1972 1971 Assets ............................................. $358,704 345,462 Deposits and other liabilities $334,889 . $320,972 N L's equity in Bank's net income ... $ 2,994 $ 4,133 Less: Interest cost to N L, after applicable tax benefit of $1,044,000 in 1972 and $1,141,000 in 1971, on funds borrowed to purchase bank . Net income attributable to Bank....... $ 1,132 1,862 1,235 $ 2,898 For comments relating to the Bank Holding Company Act of 1970, see page 14. 2. ACQUISITIONS. During 1972, the Company ex changed 64,646 shares of its treasury stock for the outstanding stock of the Beil Clay Company. This acqui sition has been accounted for as a pooling of interests and, accordingly, the results of operations for 1972 include the net income of Bell Clay Company for the entire year. No adjustment has been made for prior years since the effect would not be material. As a result of this transaction, capital surplus and retained earnings were charged $172,000 and $1,937,000, respectively, repre senting principally the excess of the cost of treasury shares issued over the carrying value of the net assets acquired. Also during 1972, the Company acquired, for cash, certain of the assets of Cambridge Nuclear Corpo ration and the outstanding stock of Cambridge Nuclear Radiopharmaceutical Corporation and Industrial Reactor Laboratories, Inc., subsidiaries of Cambridge Nuclear Corporation. This acquisition has been accounted for as a purchase and, accordingly, the amount of the pur chase price in excess of the carrying value of the net assets acquired has been assigned principally to the value of property, plant and equipment and will be amortized over the life of the related assets. The results of operations since date of purchase are included for 1972 and are not material in relation to the Company's financial statements. 3. CAPITAL STOCK AND STOCK OPTIONS. Under pro visions of the 1968 Stock Option Incentive Plan, 700,000 shares of the Company's common stock have been reserved for issuance to officers and to other key em ployees. Under the plan, options may be granted to purchase common stock at 100% of the market price at the date of grant and are exercisable over a period of 0000-NLI-000018967 five years from date of grant. Details of shares under option at December 31, 1972 and transactions during theyearfollow: Balance at January 1, 1972 ................................ Granted............................................................... Less: Exercised ................................................. Expired ..................................................... Balance at December 31, 1972 ........................... 368,600 131,900 -- 19,500 481,000 Price per share of shares granted and outstanding at December 31, 1972 ................. $15 to $36 Shares exercisable.............................................. 481,000 Available for future options at December 31, 1972 ........................................ 217,300 The Company purchased 50,513 of its own shares during 1972. The Company is authorized to issue 5,000,000 shares of preferred stock without par value. The rights of the pre ferred stock as to dividends, redemption, liquidation and conversion will be determined upon issuance. 4. PENSIONS. Total pension costs approximated $11,700,000 in 1972 and $10,900,000 in 1971. With re spect to one of the major plans, amendments of certain benefits during the year resulted in an increase of un funded vested benefits approximating $9,200,000. The effect of these amendments on pension cost and net income was not material. Unfunded vested benefits at December 31, 1972 amounted to approximately $23,539,000. 5. EXTRAORDINARY CHARGES. The 1971 extraordinary charges resulted from the abandonment of facilities that manufactured certain types of titanium pigments in the United States and Canada. These facilities had become unprofitable because of high operating costs for the pigment grades manufactured. Closing these facilities did not have a significant effect on sales and did not significantly diminish the Company's output of titanium pigments. Auditors' report Lybrand, Ross Bros. & Montgomery Certified Public Accountants 1251 Avenue of the Americas, New York, N.Y. To the Shareholders of N L Industries, Inc. New York, N.Y. We have examined the consolidated balance sheet of N L Industries, Inc. and its Consolidated Subsidiaries as of December 31, 1972 ana the related consolidated statements of income and retained earnings and of changes in financial position for the year then ended Our examination was made in accordance with generally accepted audit ing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered nec essary in the circumstances. We did not examine the financial state ments of certain consolidated subsidiaries in 1972 and 1971 whose total assets and total sales were not material in relation to the corre sponding consolidated totals. In addition, we did not examine the financial statements of certain partially-owned companies, for which the Company's equity in the earnings is included in the income statement caption "Equity in partially-owned companies," which statements reflect net income (loss) of $1,487,000 and ($4,307 000) for 1972 and 1971, respectively, applicable to the Company. Ail of these statements were examined by other certified public account ants whose reports thereon were furnished to us. Our opinion ex pressed herein, insofar as it relates to the amounts included for such subsidiaries and partially-owned companies, is based solely ,,pon such reports. We made a similar examination of the financial state ments of the Company and its Consolidated Subsidiaries for the year 1971. In our opinion, based upon our examination and the reports of ether certified public accountants, the aforementioned financial statements present fairly the consolidated financial position of N L Indust' es, Inc. and its Consolidated Subsidiaries at December 31, 1972 and 1971, and the consolidated results of their operations and of charges in financial position for the years then ended, in conformity with gen erally accepted accounting principles applied on a consistent basis. Lybrand, Ross Bros. & Montgomery New York, February 20,1973 24 0000-NLI-000018968 Board of Directors RAY C. ADAM Executive Vice President ALFRED F. BAUER Vice President EDGAR J. HAGSTETTE, JR. Group Vice President EDWARD J. HANLEY Director, Chairman of Finance Committee Allegheny Ludlum Industries, Inc. JOHN B. HENRICH President J. MURRAY JOHNSTON Group Vice President JOHN O. LOGAN President, Chief Executive Officer, Director Universal Oil Products Company AUGUSTINE R. MARUSI Chairman, President, Chief Executive Officer Borden, Inc. ERIC G. ORLING Former Vice President RICHARD M. PAGET President, Director, Cresap, McCormick and Paget, Inc. E. R. ROWLEY Chairman MORRIS H. WRIGHT Genera1 Partner, Kuhn, Loeb & Co. Executive Committee E. R. ROWLEY Chairman RAY C. ADAM JOHN B. HENRICH J. MURRAY JOHNSTON ERIC G. ORLING Corporate Officers E. R ROWLEY Chairman ol the Board, Chief Executive Officer JOHN B. HENRICH President RAY C. ADAM Executive Vice President, Chief Operating Officer EDGAR J, HAGSTETTE, JR. Group Vice President, Chemicals J. MURRAY JOHNSTON Group Vice President, Industrial Specialties JOHN A. MARDICK Group Vice President, Metals GLENN A. WILSON Group Vice President, Pigments ALFRED F. BAUER Vice President; General Manager, Doehter-Jarvis Division RUDOLPH E. CARLSON, JR. Vice President, Corporate Planning and Development RICHARD A. DONOVAN Vice President, Employee Relations VINCENT R. McLEAN Vice President, Finance, and Treasurer RICHARD K. MARTIN Vice President; General Manager, Southern Screw Division CLAUDE M. MERRELL Vice President, International Operations KENNETH C. SPECHT Vice President; General Manager, Paint Division HENRY J. WHITSON Vice President; General Manager, Pigments and Chemicals Division THOMAS P. MESICK Secretary EDWARD J. GALVIN Controller JOHN T. RAFFERTY Assistant Secretary A. A. GARRABRANT Assistant Treasurer JOHN H. WATT Assistant Treasurer MALTE ERICSON Assistant Controller G. WARREN WAITE Assistant Controller Common Stock Stock symbol: NL--Listed on the New York and Pacific Coast Stock Exchanges TRANSFER AGENTS: The Chase Manhattan Bank, N.A. One New York Plaza New York, N.Y. 10015 The First National Bank of Boston 100 Federal Street Boston, Massachusetts 02110 National Trust Company, Limited 21 King Street East Toronto 1, Canada Crocker National Bank One Montgomery Street San Francisco, California 94138 REGISTRARS: Bankers Trust Company One Battery Park Plaza New York, N.Y. 10004 The National Shawmut Bank of Boston 40 Water Street Boston, Massachusetts 02109 The Royal Trust Company The Royal Trust Tower Toronto Dominion Center Toronto 116, Canada United California Bank 95 Hawthorne Street San Francisco, California 94105 N Lindustries, Inc. / Executive Offices / 111 Broadway, New York, N.Y. 10006 4% % Subordinated Debentures TRUSTEE AND INTEREST PAYING AGENT: Irving Trust Company One Wall Street New York, N Y. 10006 7Vi% Debentures TRUSTEE AND INTEREST PAYING AGENT: The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza New York, N.Y. 10015 Counsel ALEXANDER & GREEN 120 Broadway, New York, N.Y. 10005 0000-NLI-000018969 Printed In U.S.A.