Document peQ3vx4GD48MKvjVnkLLBe98B

L Industries, Inc INDUSTRIES Financial highlights For the year Sales Income before extraordinary charges Net income Per share Income before extraordinary charges Net income Cash dividends paid Per share Property expenditures At year end Working capital Long term debt Shareholders' equity 1971 $925,008,000 22,757,000 3,257,000 1970 (Restated) $915,877,000 35,618,000 35,618,000 .95 .14 23,948,000 1.00 83,990,000 250,279,000 234,050,000 409,034,000 1.50 1.50 36,261,000 1.525 58,462,000 241,739,000 180,902,000 426,074,000 Contents Letter to shareholders / 2 Corporate developments / 4 Divisions, subsidiaries & affiliates / 6 Operations report / 8-16 Metals & bearings / 8 Titanium pigments / 10 Die castings / 11 Chemicals & plastics / 12 Oil well materials & services / 13 Other products / 14 Affiliates / 15 Financial report / 17-19 Financial statements / 20-24 Auditors' report / 24 Ten year review of operations / inside back cover INDUSTRIES Eightieth Annual Report 1871 Shareholders are cordially invited to attend the eightieth annual meeting of NL Industries, Inc., Tuesday, April 25, 1972, at the Gateway Downtowner Motor Inn in Newark, New Jersey at 2:00 p.m. 0000-NLI-000018917 To our shareholders ,i 1 5* 4 4 INDUSTRIES . i This is our first report to shareholders under our new name, N L Industries, Inc. Much of our totai communication effort for the year was tailored to developing an awareness of that change throughout the business and financial community. During 1971, earnings were lower than 1970 both before and after an extraordinary charge while sales increased slightly for the year. Sales by N L Industries for the year 1971 were S925.008.000, compared to 1970 sales of $915,877,000. Income in 1971 before an extraordinary charge was $22,757,000, or 95 cents per share, compared to $35,618,000, or $1.50 per share in 1970. Net income after the extraordinary charge of $19,500,000, equal to 81 cents per share, was $3,257,000, or 14 cents per share for 1971. The extraordinary charge of $19,500,000 against 1971 income, after applicable income tax benefits, 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. The decrease in earnings before the extraordinary charge was caused in large part by declining margins in titanium pigment operations. This industry suffered from overcapacity and low market prices throughout the year 1971. The company's metal and oxide operations were affected by lower prices of base metals during the year. Earnings for the year were also depressed by the increased losses of Titanium Metals Corporation of America, a 50% owned company, as a result of reductions and stretch out of military and commercial aircraft procurement and a three month strike. Effective in 1971, the company includes in its consolidation, on an equity basis, all significant partially owned companies, in accordance with current trends in accounting practice. For the year 1971 this had the effect of reducing per share income by 20 cents. The operating losses of Titanium Metals Corporation of America included therein amounted to 21 cents per share. Earnings for 1970 have been restated and resulted in a reduction of per share earnings of 10 cents. This includes the Titanium Metals Corporation of America loss which amounted to 12 cents per share. The abandonment of the titanium pigment facilities reinforced our efforts to minimize costs. This action wilt not have a significant effect on sales and the company will continue to be the world's leading manufacturer of titanium pigments through the use of its remaining facilities. Also, in the past 18 montl we have closed down seven other unprofitable plants and have sold three marginal operations. As a result of the tightening of operations and in anticipation of improved results in 1972, the Board of Directors decided to maintain dividend payments ] at the same level established in late 1970. During 1971, dividend payments amounted to $1.00 per share, compared to $1.52Viz per share paid in 1970 The company has paid dividends to shareholders for 65 consecutive years. The Administration's economic stabilization prcgrarr as a whole, had no significant bearing on the results for 1971. The wage/price freeze, however, did have a pronounced effect on operating results of the Doehler-Jarvis Division, as it came at a time wnen the division was negotiating new prices based on wage contract increases incurred earlier m the year Capital expenditures amounted to $59,000,000 in 1970 and $84,000,000 in 1971. It is anticipated that capital expenditures for 1972 will be approximately $70,000,000. In January of 1971 the company raised Si 00.000,000| through the sale of 7Vi % debentures due in 1995. As of December 31,1971, the company had unused domestic bank term credit commitments of $62,500,000, some portion of which will be utilized during 1972 in connection with completion of the magnesium plant. However, it is not anticipated tnat the entire amount will be utilized. While 1971 was not a successful year in terms of overall earnings, N L Industries maintains its position as a leading manufacturer of metal and chemical products. The reshaping of the company that began in the late 1960s continued during 1971, especially in the case of new market penetrations. The market for magnesium appears poised for increased growth, in anticipation of new applications for the metal. The growth of the magnesium metal market has been limited due to price and availability | since there has been but one major source of supply 1 in the United States. Our Great Salt Lake plant wiilgoj 0000-NLI-000018918 2 : production during the first half of 1972 using a :ower cost process for extracting magnesium cetai from the lake's brine water. This plant, when in Mi production, will expand U.S. output by one-third. * Construction of a new plant for anti-corrosive Dements at Langerbrugge, Belgium, is now complete ific a plant built in West Germany to manufacture eliants went into operation in the fall. Ground was ironen in October for a new plant at Langerbrugge 3 manufacture specialty refractory products. All of riese plants increase the availability and delivery of products to our expanding European markets. n its search for new sources of raw materials, ; L Industries continues to emphasize its mining and adoration activities, now based in new facilities at jolden, Colorado. lesearch and development activities mount in portance to the company. The Electronics 'epartment, organized under the New Ventures roup of R & D, expanded its product line through acquisition of General Electric Company's ipecialty resistor business during the year. of the Baroid Division. Two directors previously elected to fill vacancies on the Board, Richard M. Paget, President of Cresap, McCormick and Paget, Inc., and Harry W. Siefert, Vice President of Finance, were also elected by the shareholders. On February 29, 1972, Ray C. Adam was elected Executive Vice President and Chief Operating Officer. He was also elected a director of the com pany and a member of the Executive Committee. The office of Chief Operating Officer is a newly cre ated post in N L Industries designed to strengthen the executive organization-of the company. Mr. Adam was formerly a Vice President of Mobil Oil Corpo ration and President of Mobil Chemical Company. During the past two years, as the pressures imposed by the sluggish national economy took theirtoll on earnings, there was a considerable effort by our employees to answer the problems created by these pressures. We thank them for their loyalty and dedication. N L Industries is a stronger company today because of the measures taken to cut costs, restructure management and open up new markets. Those internal factors, together with improving economic conditions that began to develop toward the end of 1971, lead us to expect more favorable results in 1972. Corporate developments RESEARCH & DEVELOPMENT: Research and development operating expenditures amounted to approximately $19 million in 1971. Increased efforts were made in the development of new products in support of the company's divisions and subsidiaries. Several new products were developed and introduced to the market as additives for plas tics. Some of these materials are novel and highly efficient flame retardant chemicals. Metallurgical research resulted in the devel opment of additional alloys of magnesium to broaden and increase the present applications of this lightweight metal. Also in the area of metallurgy, a line of electronic solder special ties was developed. The Electronics Department organized in early 197T by the New Ventures Group of the Corporate Research and Development Depart ment, began manufacturing thermistors and varistors at a new plant in Muskegon, Michigan. The acquisition of General Electric Company's specialty resistor business during the year ex panded the department's product line. The objective of the New Ventures Group is to start new business based on advanced tech nology. EMPLOYEE RELATIONS: Overall employment in N L Industries domestic and foreign opera tions declined to 27,500 as a result of lower business levels and improved efficiency. Significant progress was made in the further development of our management resources. In-depth analyses of management talent in our divisions and staff departments and the strengthening of individually tailored develop ment programs are improving the company's executive utilization. A total of 41 collective bargaining agree ments were successfully negotiated in 1971 covering 7,800 employees. Manhours lost due to strikes were less than 1 percent of total manhours worked. Improvement in industrial safety was noted as a result of our Total Accident Control Pro gram. During 1971, frequency and severity of accidents were reduced by approximately 20 percent. This program was restructured to in corporate requirements of the Federal Occu pational Safety and Health Act of 1970. The company continued to implement its equal employment and affirmative action pro gram with the result of increased employment for female and minority employees. All new Federal requirements were adopted as an in tegral part of the overall program. N L Indus tries continued its positive commitments to regulatory agencies and the National Alliance of Businessmen in promoting fair and equitable employment practices. LITIGATION: With regard to the action insti tuted against the company in 1970 in the Cir cuit Court of the City of St. Louis, Missouri, by 350 plaintiffs claiming compensatory and puni tive damages from alleged pollution of the atmosphere by the company's St. Louis titani um pigment plant, the complaints of 243 plain tiffs have been dismissed without prejudice for their failure to submit answers to interroga tories. This has had the effect of reducing the damages claimed by $6,075,000, or about three fourths of the total demand. Motions of similar import have been made on different grounds with respect to a substan tial number of the balance of the claimants. These motions await determination by the Court. The insurance carrier has taken the position that any award of punitive damages would be outside the coverage of the policies and it has reserved its right to disclaim liability for compensatory damages. The carrier has under taken defense of the action with a full reserva tion of its rights. In the opinion of local counsel for the com pany, disposition of the above-mentioned action will not have a substantial effect upon the earnings or the financial condition of the company. MINING EXPLORATION: Mining and Explora tion Department offices were relocated from New York City to Golden, Colorado, to put the department closer to the area in which many of its activities are conducted. In 1971, mineral concentrating machinery manufactured by Mineral Deposits, Limited, an affiliate in Australia, was introduced in North America through the Mining and Exploration Department. The machinery scavenges ore from very low grade ore values in plant tailings as well as its primary function of beneficiating run-of-mine ores. Testing facilities necessary to support technical sales were established in Golden, Colorado. This is N L Industries first venture in the mining equipment business. At the MacIntyre Development mine in New York State, the $4.5 million magnetite regrind circuit was completed to produce higher quality * i INDUSTR! 0000-NLI-000018920 4 magnetite. Magnetite is used by the heavy media and steel industries. The ilmenite pro duction at this mine will be reduced in 1972 due to the substitution of slag as a feed material in our St. Louis titanium pigment plant. During the year, a drilling program was con tinued at our fluorspar property in Central Idaho. Sufficient reserves have been devel oped to undertake a feasibility study on the economics of the property. In Brazil, a concentrating plant is being built by an affiliate for the production of cassiterite, a tin ore. It will come on stream in 1972 and will have an initial capacity of 1,000 tons per year. Exploration activities were conducted in Mexico for silver, gold, zinc-lead and copper; in Brazil for tin; in Australia for barite and bentonite and in the United States for zinc. Several possibilities exist for further develop ment of ores located on company leases. ENVIRONMENTAL CONTROL: During 1971, your company noted many accomplishments in the area of environmental control. The new $4 million double absorption acid manufacturing unit was completed at our tita nium pigment plant in St. Louis. This unit con trols sulfur oxide emissions with better than 99.5 percent conversion efficiency. It replaces three older less efficient units, and is the most efficient unit of its kind to be built in the United States. Completion of this project coupled with the installation of a venturi scrubber bring this plant in compliance with the St. Louis County atmospheric emissions control regulations adopted in 1968. Also in St. Louis, as well as in Cincinnati, particulate emissions are being effectively con trolled from red brass melting operations at our Magnus Metal Division plants with the installa tion of improved melting furnaces. The Pigments & Chemicals Division has in stalled a new scrubbing device at its St. Louis plant that will substantially reduce emissions which are visible only in cold weather. New dry dust collection equipment was brought on stream at the company's TAM Division Niagara Falls, New York, plant to effectively control furnace room emissions of particulate matter into the atmosphere. The Sayreville, New Jersey, titanium pigment plant continued its program to reduce air emis sions. One venturi scrubber was brought on line with a second scrubber of this type to be in operation by the summer of 1972. At our new magnesium production plant in Utah, we are collecting base-line data to be sure the plant operation will not affect the local ecology. This new plant has incorporated the best available environmental control technol ogy and equipment for a facility of this type. As a responsible corporate citizen, your company will continue to improve its control of all emissions in and around its plants to help maintain a healthy environment for its em ployees and neighbors. Environmental controls have become a sig nificant cost factor and are requiring ever greater technological advances to achieve rela tively minor improvements. In 1971, the company spent approximately $12 million on its total environmental protection program. This experimental safety vehicle and others developed by the automobile Industry utilize the expertise ol our Tool t Engineering Division in tooling mid making prototype parts. 32% $296 million ^ 23% $213 million Metals & bearings METAL DIVISION: Antimony, cadmium, lead and zinc metals; fabricated lead products. New York, N.Y. AMERICAN BEARING DIVISION: Precision sleeve bearings, bearing seals, bushings and machine parts. Indianapolis, Ind. GOLDSMITH DIVISION: Precious metals and metal oxides. Chicago, IH. JONATHAN MANUFACTURING COMPANY: Precision parts and services. Fullerton, California MAGNUS METAL OIVISION: Brass and bronze lournal bearings and castings. Chicago, III. MAGNUS ROLLER BEARING DIVISION: Precision tapered roller bearings. Cincinnati, Ohio MORRIS P. KIRK A SON, INC.: Aluminum, lead and zinc alloys, fabricated lead products and lead oxides. Los Angeles. California NATIONAL LEAD COMPANY, SJL: Lead products Buenos Aires, Argentina PIONEER ALUMINUM, INC.: Aluminum and sheet aircraft extrusions and cast aluminum tooling plate. Los Angeles, California REGAL MOLDS, INC.: Metal dies for plastics and forgings. Toledo, Ohio SCREW MACHINE DIVISION: Hydraulic brake cylinders and pistons. Chicago, III. SOUTHERN SCREW DIVISION: Complete line of screws and metal fasteners. Statesville, N.C. STEEL PACKAGE OIVISION: Small steel shipping containers. St. Louis, Mo. TEXAS MINING A SMELTING DIVISION: Antimony metal and oxide. Laredo, Texas THE BUNTING BRASS AND BRONZE COMPANY: Brass, bronze, iron and aluminum parts. Toledo. Ohio THE CANADA METAL COMPANY, LIMITED (50%): Lead oxides, lead and zinc alloys, brass and bronze products, fabricated lead products. Toronto, Canada `CIA MINERA y REFINADORA, SJL (49%): Antimony mining. Mexico City, Mexico R-N CORPORATION (50%): Process for the direct reduction and beneficiation of iron ores. New York. N.Y. SCHRAUBENFABRIK NEUSTADT GOETZ A CIEGMBH (99%): Screws and metal fasteners Neustadt/Schwarzwald, West Germany TITANIUM METALS CORPORATION OF AMERICA (50%): Titanium metal sponge, ingot and mill products. West Caldwell, N.J. Itanium pigments TITANIUM PIGMENT DIVISION: Titanium pigments and chemicals for the paint, paper, plastics and rubber industries. Sayreville, N.J. CANADIAN TITANIUM PIGMENTS, LIMITED: Titanium pigments; gellants; lead pigments; stabilizers; zirconium and titanium compounds. Montreal, Canada KRONOS TITANIUM PIGMENTS, LIMITED: Titanium pigments. London, England KRONOS SJL/N.V.: Titanium pigments; gellants: lead pigments. Brussels, Belgium KRONOS TITAN A/S: Titanium pigments; gellants; lead pigments; stabilizers. Fredrikstad, Norway KRONOS TITAN--G.m.b.H.: Titanium pigments; gellants; lead pigments. Leverkusen, West Germany TITANIA A/S: II memte ore mining. Hauge i Dalane, Norway `KRONOS TITANPIGMENT A.B. (78%): Titanium pigments; gellants; lead pigments. Stockholm, Sweden SOCIETE INDUSTRIELLE du TITANE (93%): Titanium and lead pigments. Paris, France Die castings DOEHLER-JARVIS DIVISION: Die c of aluminum, zinc, brass and magnesium; finishing and assembly services. Tc.eco. ON COCHRANE FOUNDRY, INC.: Sane cast.n York, Pennsylvania FLOATING FLOORS, INC.: Elevatec 'Ico and site environmental systems lor ccmpu* rooms. Toledo, Ohio TOOL A ENGINEERING DIVISION: 2 e? tooling; prototype assembly and e"g nee' ^ i services. Kirksite castmgs. Chicago. -cs BARBER DIE CASTING CO., LIMITED: Aluminum, brass, magnesium, zinc die castings. Hamilton, Canada INDUSTRIAS DOEHLER do BRASIL, SJL: 1 castings. Sao Paulo, Brazil LAKESHORE DIE CASTING, LIMITED: Aluminum, zinc die casi ngs. C^e'cT Cara0 METAL CASTINGS DOEHLER, LTD.: castings. Worcester, England DOEHLER-AUSTRAUA PTY. LTD. (70S): castings. Auburn, Australia Affiliates included m conso1 cat on on abasis only, therefore sales not rc.-cea consolidated sales figure Figures in parentheses represent ce'cer,av* voting securities owned 0000-NLI-000018922 i *4- SEECHWOOO | V 11 0 $102 million lemicals & plastics SMENTS & CHEMICALS DIVISION: ony cx'de lead pigments and chemicals: ad cx.des for pattenes; gellants and >-3. H ghtstown, N.J. OS-THOMPSON CORPORATION: bided piast'Cs; wood veneer and lumber, g, Indiana HE BAKER CASTOR OIL COMPANY: isicro Is and chemical derivatives, polyeinane products. Bayonne, N.J. TONE CHEMIE G.mJj.H.: Gellants. trdenham, West Germany LORE DIVISION: Barium and calcium <pen;s St Louis, Mo. [OUSTRIAS DERIPLOM, SJL: Lead oxides ;nos Aires. Argentina tJCOR S A /N V: Anti-corrosive pigments, ngerprugge, Belgium. BEY CHEMICALS LIMITED (52%): Hants and stabilizers. London, England ME CARTER WHITE LEAD COMPANY OF NADA, LIMITED (50%): Lead pigments; odes: stabilizers. Montreal, Canada 10%0 $92 million 8/cO $74 million Oil well materials & services Other products BAROID DIVISION: Oil well drilling materials and services Chemicals tor petroleum industry, gellants tor grease; water treating chemicals. Well perforation and completion, nuclear well logging. Houston, Texas BAROID do BRASIL, Ltda.: Oil well drilling materials. Salvador, Brazil BAROID OF CANADA, LTD.: Oil well drilling materials, services. Calgary, Canada BAROID INTERNATIONAL, S.pJL: Oil well drilling materials. Rome, Italy BAROID OF NIGERIA, LIMITED: Oil well drilling materials. Lagos, Nigeria BAROID (U.K.) LIMITED: Oil well drilling materials. London, England PERUBAR, SJL: Barite mining. Lima, Peru PIGMENTOS MINERAIS INDUSTRIAL a COMMERCIAL PIGMINA, 8JL: Barite mining. Salvador, Brazil `BAROID AUSTRALIA PTY., LIMITED (99%): Oil well drilling materials. Sydney, Australia `BAROID d* VENEZUELA, SJL (92%): Oil well drilling materials. Maracaibo, Venezuela `BAROID OF LIBYA, LTD. (49%): Oil well drilling materials. Benghazi, Libya `BAROID TRINIDAD SERVICES, LTD. (50%): Oil well drilling services. Trinidad, West Indies PAINT DIVISION: Dutch Boy paints. New York, New York THE CHAS. TAYLOR'S SONS COMPANY: Specialized high temperature refractories. Cincinnati, Ohio CHAS. TAYLOR SONS, SJL: High temperature refractories. Brussels, Belgium EDGAR PLASTIC KAOLIN COl : Kaolin clay and glass sand. Edgar, Florida ELECTRONICS DEPARTMENT: Specialty ceramic resistors. Hightstown, N.J. MAGNESIUM DIVISION: Magnesium metal and chlorine. Salt Lake City, Utah NATIONAL LEAD OVERSEAS CAPITAL CORP.: European subsidiary financing. New York, N.Y. NATIONAL LEAD COMPANY OF OHIO: Contract operator for US. Atomic Energy Commission's uranium ore concentration plant. Femald, Ohio NUCLEAR DIVISION: Depleted uranium; nuclear services. Albany, N.Y. TAM DIVISION: Zirconium oxide, silicates and chemicals, zirconates, stannates and opacifiers. New York, N.Y. THE TITANIUM ALLOY MANUFACTURING CO. PTY., LIMITED: Southport, Queensland, Australia `LAKE VIEW TRUST AND SAVINGS BANK (9S%): Commercial bank. Chicago, Illinois `MINERAL DEPOSITS, LIMITED (8S%): Mining of rutile, zircon ores. Southport, Queensland, Australia `NATIONAL LEAD COMPANY (PHILIPPINES), INC. (51%): Paints and related products. Manila, Philippines `QUEENSLAND TITANIUM MINES PTY. LTD. (7S%): Mining of rutile, zircon ores. Southport, Queensland, Australia `WILSON-SNEAD MINING COMPANY, INC. <S0%): Bauxite mining. Eufaula, Ala. 0000-NLI-0000V8923 7 Metals & bearings Sales and earnings of the divisions and sub sidiaries comprising the Metals, Bearings and Jonathan Group were generally lower than 1970 levels. The lower prices of base and precious metals, especially antimony and silver, had a significant effect on earnings. The price of antimony, a major base metal product of the company, declined approximately 40 percent during the year. Sales of precision bearings, journal and roller bearings and other bearings products produced by Magnus Metal Division, American Bearing Division and The Bunting Brass and Bronze Company were slightly lower than in 1970. The minority interest in Morris P. Kirk & Son, Inc. and its subsidiary, Pioneer Aluminum, Inc., was purchased by the company. It previously owned 76 percent of the outstanding stock of these companies. Pioneer Aluminum, under new management, embarked upon a major effort to expand into commercial industrial markets. Plans for the Metal Division in 1972 include completion of a new secondary smelter engi neered with the most modern production equip ment and emission control devices. A new electrolytic process for refining silver scrap will be on stream in early 1972 at the Goldsmith Division. Jonathan Manufacturing Company expanded its line of precision steel slides to include com mercial slides for use in such products as filing drawers. The Metals, Bearings and Jonathan Group is consolidating its base metals manufacturing operations, where possible, to maximize its profits and efficiency. Some operations that have become unprofitable or incompatible with existing product lines were either sold or shut down. Blatchford Base and. Aluminum Match Plate Corporation were sold during the year. The Southern Screw Division operated at about the same level as in 1970. The fastener industry continued to meet strong competition from imports, especially in standard sizes and configurations. For 1972, the division is intro ducing a new thread rolling screw under the r o l o k trade name for use in metals, die cast ings and ductile plastics. This new fastener eliminates tapping and resists vibration. National Lead Company, S.A. in Buenos Aires, Argentina, became a wholly owned sub sidiary of N L Industries in January, 1971. National Lead Company, S.A. primarily pro duces fabricated lead products. The latest twist in fasteners trom the Southern Screw Division. This new line of ROLOK screws roll-forms its own thread tor a perfect tit that won't shake loose and otters customer cost savings by eliminating tapping needs. Recycling contributes to a better environment and is a good business. At plants across the country, our hletll Division salvages thousands used automobile batteries (foreground). The reclaimed alloys are used again by battery manufacturers to new batteries (insert). 0000-NLI-000018924 Titanium pigments The company's Titanium Pigment Operations completed a difficult year that was plagued with worldwide industry overcapacity and increased costs. Despite these adverse conditions our worldwide share of the market showed a slight increase and our U.S. share remained the same. However, because of the competitive situation in the Canadian market, the increased cost of doing business in Europe and the depressed prices that prevailed in the United States throughout the entire year, earnings declined. Some of our titanium pigment plants oper ated on a curtailed basis during part of the year to reduce inventories. In December 1971, it was announced that the company's chloride proc ess facilities at Sayreville, New Jersey, and Varennes, Quebec, Canada, would be aban doned. The calcium extended pigment facilities at St. Louis, Missouri, were also abandoned. Abandonment of these facilities will not have a significant effect on our sales and we will con tinue to be the world's leading manufacturer of titanium pigments through the use of our remaining facilities. We will continue to operate the chloride process facility in West Germany. The calcium extended pigments will be replaced by other grades presently manufactured by the com pany. Further progress was made during 1971 in supplying titanium pigments in bulk thereby offering an economic advantage to our cus tomers. This trend is expected to grow further during 1972. Our Titanium Pigment Operations will con tinue to maintain a satisfactory position in pro ducing its own raw materials. Expansion of the Tellnes, Norway, mine to one million tons ca pacity is proceeding on schedule, and addi tional tonnage will be available for use in company plants and for sale to other pigment manufacturers. Operating profits are expected to improve in 1972 as a result of elimination of unprofitable business, better operating efficiency and the effects of a price increase both in the United States and Europe. Sales of strontium titanate boules, another area of our Titanium Pigment Operations, in creased again in 1971 with generally satisfac tory earnings. For the first time we offered finished gem stones to the jewelry trade, as well as boules that require further fabrication, to reinforce our market position. imparl whiteness, brightness and opacity. These pigments are also essential to paint, paper and other industries. 10 0000-N LI-000018926 Die castings Sales were higher and earnings slightly lower for the Doehler-Jarvis Division in 1971. The increase in smaller cars which require fewer and smaller die castings, the general ex cess capacity in captive die casting operations of major customers and the continued decline m the use of zinc die castings for decorative hardware were some of the factors that affected earnings performance. While the die casting industry as a whole sustained sizable losses, the Doehler-Jarvis Division did well by comparison with the indus try. Sales gains over 1970 were recorded in both aluminum and magnesium die castings. Our position in zinc die castings was main tained and there was only a slight reduction in saies of brass die castings. Doehler's better-than-average industry per formance was largely the result of success in finding new markets for die castings to replace the shrinking zinc market. Its recent entry into injection molded plastics should help offset the declining zinc business as more zinc die cast parts are replaced by plastics. Basic research in new die casting applica tions was conducted to apply our patented transplant coat process to the production of the Wankel engine. Other projects include the design of a die cast aluminum engine block for a major automobile producer and the develop ment of a die cast magnesium baseball bat as a proprietary product. With N L Industries entry into primary mag nesium production, Doehler's magnesium die casting technological development program resulted in increased magnesium die casting usage. In early 1971, an agreement with AC Spark Plug Company was made to produce magnesium fuel pump units. The Batavia, New York, plant was expanded to accommodate this increased business and to provide additional capacity for further expansion. Our foreign die casting subsidiaries had a good year. Doehler-Australia, Pty. Ltd., formed in early 1971, showed good growth and is fast becoming a major custom die castings supplier to Australia's expanding industry. Barber Die Casting Co., Limited and Lakeshore Die Cast ing, Limited, in Canada, showed marked improvement in manufacturing performance, especially at Barber, where its three-speed transmission program for General Motors was highly successful. Metal Castings Doehler, lltd., in Great Britain also recorded a gain in both sales and earnings. From slide projector component parts (left) to automobile parts like the tail light assembly (below), the Doehler-Jarvis Division is a specialist in the manufacture of both small and large, and simple and complex die castings for many products, fts plants m the United States and overseas have complete die casting facilities for design, assembly, finishing and production. Chemicals & plastics The Pigments & Chemicals Division developed more efficient lead oxidee for use in the storage battery industry. This was in response to the rapid growth of lead-acid storage batteries in the areas of portable power tools and electric vehicles which require more sophisticated raw materials. New markets for some of its line of 8ENTONEgellants were developed in cosmetics and pharmaceuticals. Another potential market for these products is agricultural insecticides and liquid fertilizers. Sales continued at a good level in the established gellant markets of paints, plastics, inks and adhesives. Gellants are used as suspension and flow control agents. Several new chemical additives for rigid PVC plastics to improve heat, light, impact and resistance to fire were developed. These com pounds have application in plastic pipe, resi dential siding, drains, gutters and other similar molded plastics products. The division has developed new antimony compounds for use in plastics, textiles and paints to improve flame retardancy. The de mand for flame resistant materials is growing fast due to public and governmental pressures. For economy and improved work efficiency the division relocated its executive, marketing and research groups into one building at Hightstown, New Jersey. New plants were completed in West Germany and Belgium for the production and marketing of ben t o n e* gel lants and o n c o f w anti-corrosive pigments in Europe. Earnings by our Amos-Thompson Corpora tion subsidiary declined in 1971. Tight pricing in the plastics markets brought about low mar gins, especially in the automotive industry. The continued growth of synthetic materials and photographic finishes which compete with Amos-Thompson's wood veneer products also affected earnings and sales. Sales and earnings by The Baker Castor Oil Company, a subsidiary, were comparable to the previous year. Sales of the company's chemical specialty lines and castor-urethane adhesives increased appreciably. The number of applications of the newlydeveloped line of castor-urethane adhesives was expanded. This product is used for install ing artificial plastic turf in indoor and outdoor sporting arenas as well as for installing other artificial surfaces. Several new thixotropes for the protective coatings industry were also de veloped and introduced to the rfiarket. 12 Our subsidiary the AmosThompson Corporation makes many custom injection-molded plastic parts such as television cabinets and adding machine housings (top). New York City's VerrazanoNarrows Bridge (below) and other similar structures are protected from exposure, by paints formulated with o n c o r * anti-corrosive pigments, developed and produced by the Pigments 4 Chemicals Division. 0000-NLI-000018928 Baroid Division has developed a unique, on-site computerized drilling control unit which utilizes a computer (above) in a mobile unit to guide well drilling for minimum cost operation Baroid's well known lines of specialized mud products are used at drilling Oil well materials & services The Baroid Division moderately increased its overall sales and profits in 1971 above the previous year's level despite a reduction in U.S. and Canadian drilling activities brought about by the general economic slowdown and eco logical pressares. The division is a leading supplier of oil and gas well drilling materials and services, and provides products and services to the mining, water treatment, oil and gas production, brew ing, foundry, grease, paint, livestock feed, steel and other industries. International sales of drilling fluids increased substantially, particularly in Southeast Asia, South America, Nigeria and the Middle East. Sales gains were recorded in the logging, perforating and other wireline services of the McCullough Services Department. New and up dated equipment has enhanced McCullough's capabilities for remedial work on producing oil and gas wells. Growth was achieved in sales of chemicals used for water treatment and for corrosion and scale control, and in sales to the non-soap grease market. Baroid has mining and processing opera tions in the United States, Canada, Italy and Latin America for barite, bentonite and other basic materials used in drilling fluids and foundry products. The growing drilling activity in Southeast Asia is consuming ever-increasing amounts of drilling fluids material. The division has continued to strengthen its position in this area by further development of Australian bentonite deposits. Preliminary exploration and metallurgical work were completed on a new source of barite in northern Canada, to serve the expected Arctic drilling operations. Computerized Drilling Control (CDC) units were put into operation in 1971 after an exten sive period of field testing. The CDC system is a new and unique well-servicing concept which utilizes on-site computers to analyze drilling functions and to optimize drilling rates based on minimum cost operations. CDC is a vital part of Baroid's drilling engineering concept, an integrated system of information gathering, analyzing, and engineering direction through out the entire drilling process. The outlook for 1972 is for continued growth in foreign sales of drilling fluids, demand for McCullough Services, utilization of oil field rental equipment, grease industry sales and wireline services. 0000-NLI-000018929 13 Other products For the Paint Division, manufacturer and mar partnership composed of Allied Chemical Nu keter of d u t c h bo y * paints, 1971 was a good clear Products, Inc.(a wholly-owned subsidiary year with both sales and earnings increasing. of Allied Chemical Corporation) and Gulf Oil For 1972 a completely new and expanded Corporation. Under the agreement, the com consumer advertising and merchandising pro pany will design and fabricate special equip gram has been developed featuring the quality ment required for the transportation of irradiated aspects of both interior and exterior d u t c h bo y fuel and will transport such fuel by truck, rail, paints. This program will make extensive use and/or water from various utility reactor sites of all major television networks, local TV spots, located throughout the United States to the newspapers and point-of-sale material. Allied-Gulf reprocessing plant at Barnwell, TAM Division sales and earnings declined in South Carolina. The agreement also calls for 1971 mainly due to slow market conditions of the company's rendering of reactor-site serv its various customers. Because of unprofitable ices in connection with the handling and operation, the division is dropping ferro transportation of the irradiated fuel. It is con titanium alloys used to deoxidize steel. New templated that shipments will begin in July product prospects include development of a 1973 and continue for approximately twenty chemical compound filter for kidney machines years. and chemical compounds that will improve Construction of the Magnesium Division's flame retardancy in wool. magnesium metal and chemical complex by Earnings by The Chas. Taylor's Sons Com the Great Salt Lake in Utah neared completion pany, a specialty refractories manufacturing at the end of 1971. It will be on stream in the subsidiary, increased significantly as a result first half of 1972. Operation at full capacity of of an effective cost reduction program begun 45.000 tons per year of magnesium metal and' in 1970. 80.000 tons per year of chlorine should be real Sales of Taylor refractories to the Common ized by late 1973 and will expand U.S. output Market through Chas. Taylor Sons, S.A. in Bel of magnesium metal by one-third. gium increased over 1970. To meet this grow This plant will use a new process for extract ing demand, construction began last year on a ing magnesium metal from the Great Salt new plant in Langerbrugge, Belgium which will Lake's brine water. This new process, com manufacture refractory cements, moldables bined with a greater concentration of raw and castables. material--magnesium chloride--in the lake, will Based upon the terms and conditions of an allow magnesium to be more competitive with accepted proposal, the company's Nuclear other lightweight materials. New technology to Division is presently negotiating a long-term decrease the costs of manufacturing is also agreement with Allied-Gulf Nuclear Services, a being developed. i i Our Latex House Paint, hke other widely known Dutcn Boy^. interior and exterior paints, represents a standard ot for thousands of satisfied homeowners. N L Industries will become a leading supplier of magnesium metal in 1972 when >t$ unique brine preparation and electro lytic cell production facility comes on stream. Magnesium chloride-rich brine from the Great Sait Lake is to be com centrated as feed to the plant. 0000-NLI-000018930 Affiliates TiVET a scarp reduction in sales for 1971 resulted :n a substantial loss for the year for T:tar,'um Metals Corporation of America a subsidiary jointly owned by the com pany and Allegheny Ludlum Industries, Inc. TiM- reported a loss of $9,885,000 on 1971 sales of S37.277.000 as compared to 1970 losses of S5.641,000 on sales of $49,947,000. Many key factors contributed to the con tinued pressure on earnings. Curtailment and lagging production of military and civilian air craft. which utilize large quantities of titanium, directly affected titanium metal consumption. Overcapacity, very low selling prices, inflation ary cost increases, high depreciation and inter est charges, titanium sponge imports and a three month strike that ended in January, 1972 at the Toronto, Ohio, mill products plant were also contributing factors. In meeting the adverse conditions in the in dustry. t imet reduced its work force. Prior to the strike at Toronto, Ohio, the sponge and ingot operation at the Henderson, Nevada plant was shut down since adequate inventories were available. The Henderson plant was re opened in early 1972. Outside the aerospace industry, there is growing interest in the use of titanium tubing. This type of welded tubing has demonstrated long service life with its resistance to acidic corrosion and is finding use in desalting, power plant surface condensers, oil refineries and chemical processing equipment, t imet has im proved the technique of tubing manufacture to the point where titanium is now competitive with many of the more commonly used tubing materials. Titanium electrode markets have found broader acceptance in 1971, and requirements for commercially pure grade material are grow ing Anodes for wet chlorine gas and cathodes for electrolytic refining of copper remain most promising for large potential users of titanium strip products. Although titanium is finding growing markets in other areas, the aerospace industry is still by far the largest user of this metal. As economic conditions in this industry improve, titanium usage will increase. An upsurge in business investment should also increase usage as new plants are built which utilize equipment con taining titanium metal. LAKE VIEW TRUST AND SAVINGS BANK Despite profit-squeezing lending rates and sluggish demand for loans, Lake View Trust and Savings Bank achieved net earnings of $4,137,000, which compared favorably with 1970 net earnings of $4,466,000. The Bank retained its standing among the top ten banks in the State of Illinois and con tinues as the largest bank in Chicago outside the Loop. It reached an all-time high in average gross daily deposits of $298 million for the year 1971. Total assets at year end were $345,462,000, compared to $327,429,000 for 1970. Deposit growth and account retention were due to improved customer service. Marketing, planning and promotional activities were strengthened in 1971, resulting in marked gains in several banking service areas. The Bank Holding Company Act Amend ments of 1970 provide that a bank holding company such as N L Industries, Inc. shall not after December 31, 1980 engage in any activities otherthan banking or activities closely related to banking, subject to conditions that the Federal Reserve Board may impose. While the company must divest itself of control of the Bank by December 31, 1980, it might be necessary or advisable to do so prior to that date if the Federal Reserve Board objected to acquisitions or new activities of N L Industries. THE CANADA METAL COMPANY, LIMITED, a 50 percent owned subsidiary, had lower sales and earnings than in 1970. Overall perform ance generally followed the pattern of lower profit margins and declining prices of base metals experienced in the United States. Can ada Metal is a manufacturer of nonferrous metal products and alloys. MINERAL DEPOSITS, LIMITED, an 85 percent owned subsidiary in Australia, had a good year. Sales of zircon, used as a raw material in refractory products, increased. Exports of its Reichert mining equipment also increased. A desalting plant in Key West. Florida, received in 1971 the longest welded titanium tubes ever produced. Fabricated at TIMET, these 105-toot titanium tubes combat the corrosive effects ot sea water in the process ot converting salt water to trash water. 0000-NLI-000018931 15 New facilities Financial report INDUSTRIES s al es : Sales in 1971 amounted to $925,008,000, rep- -esenting a 1% increase from 1970 sales. Foreign sales n 1971 increased over 1970, whereas United States sales declined. 1971 1970 United States core:gn $762,001,000 $779,226,000 163,007,000 136,651,000 $925,008,000 $915,877,000 ear n in g s : Income before extraordinary charges for 1971 totaled 522,757,000 or $.95 per share. Extraor dinary charges, net of applicable income taxes, of $19,500,000, equal to $.81 per share, reduced 1971 net income to $3,257,000, or $.14 per share. The extraordinary charges result from the abandon ment of facilities that manufactured certain types of titanium pigments in the United States and Canada. Tnese facilities had become unprofitable because of high operating costs for the pigment grades manufac tured. Closing these facilities will not have a significant effect on sales and will not significantly diminish the company's output of titanium pigments. The provision for the extraordinary charges has been applied against the assets to which they relate; princi pally property, plant and equipment. Estimates for other expenses of closing down these facilities, which are not significant, are included in current liabilities. The portion of the extraordinary charges, net of appli cable income tax, related to foreign operations amounted to $4,988,000. Comparative income, before extraordinary charges, of United States and foreign operations were as follows: United States Foreign 1971 $ 12,788,000 9,969,000 $ 22,757,000 1970 $ 23,066,000 12,552,000 $ 35,618,000 Per share of common stock: Income before extraordinary charges Extraordinary charges, net of tax Net income $ .95 ( .81 ) $ .14 $1.50 -- $1.50 l in e s o f BUSINESS: The Company's primary lines of business accounted for approximately the percentages of consolidated net sales and of income before extraor dinary 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 charts at right. Sales Metals & Bearings l 1 i Titanium Pigments Die Castings Chemicals & Plastics Oil Well Materials & Services Other Products 1971 1970 1969 1968 1967 Profits Metals & Bearings Titanium Pigments Die Castings Chemicals ft Plastics Oil Well Materials ft Services Other Products 1971 1970 1969 1968 1967 0000-NL1-000018933 17 s t a r t -u p c o s t s : Included in other assets at December 31, 1971 is $810,000 of deferred start-up costs relating to the construction of the magnesium plant in Utah. Ad ditional start-up costs are expected to be deferred in the early part of 1972. Amortization of deferred start-up costs will commence in 1972 and such costs will be amortized over a period of five years. t a x es o n in c o me : Exclusive of the income taxes re lated to the extraordinary charges, the provision for United States and foreign taxes on income amounted to $16,290,000 in 1971, compared to $26,987,000 in 1970. The provision for deferred income taxes amounted to $5,191,000 and $4,096,000 for 1971 and 1970, respec tively. Deferred income taxes are due principally to ac celerated depreciation utilized for tax purposes and the capitalization of interest expense on funds borrowed to construct the magnesium plant. The applicable tax bene fit related to the extraordinary charges has been re flected as adjustments to the reserves for current taxes and deferred taxes on income. The Company's United States income tax returns have been examined and settled through 1967. The years 1968 and 1969 are now under examination. 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. d iv id e n d s : A dividend of $.25 per share was paid in each of the four quarters of 1971. Dividend payments per share for 1971 totaled $1.00 as compared with $1,525 for 1970. INDUSTRIES Financial report continued f in a n c ia l p o s it io n : Total assets increased to $782,420,000 and shareholders' equity, exclusive of treasury stock, amounted to $415,091,000. 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 (Millions ol Dollars) 1967 196S 1969 875 700 525 350 175 1970 1971 At December 31,1971, net assets of consolidated foreign subsidiaries aggregated $109,617,000. Book value per share amounted to $17.05 at the end of 1971, compared with $17.89 at the beginning of the year. Working capital at year end amounted to $250,279,000 as compared with $241,739,000 at December 31, 1970. This change resulted principally from conversion of short term borrowings to long-term debt. Working capital at year end 1971 and 1970 follows: United States Foreign 1971 $204,259,000 46,020,000 $250,279,000 1970 $204,233,000 37,506.000 $241,739.000 The source and utilization of working capital is shown ;n the Consolidated statement of changes in financial position on page 22. Inventories at the end of 1971 amounted to $184,236,000, as compared to $196,405,000 at the end of 1970. A comparative summary follows: Raw materials Finished and in process Supplies 1971 $ 42,795,000 120,668,000 20,773,000 $184,236,000 1970 $ 50,472,000 126,137.000 19,796,000 $196,405,000 18 OOOO-N'LI-OOOO 18934 PHOPEHTY, PLANT a n d e q u ipme n t : During the year the 'c~-.panv ^vested $83 990 000 in property, plant and y*'j: p 6 nt Uaior exDenditures were made for the Magnesium Divi sor's oiant in Utah; a West German plant which will manufacture gellants; a plant in Belgium designed to -oauce anti-corrosive pigments; expansion of the Nor man mining facility; and expenditures in connection - ;he env -onmentai control program. n>e adiustments to property, plant and equipment result>rom the extraordinary charges have been applied oirechy against the applicable category of manufactur ing propeTes and related depreciation reserves. 4 summary of property accounts follows: 1971 Manufacturing properties Lard $ 14,451,000 Buiicncs 145,393,000 Machmeny and equipment 429,600,000 Miring properties 48,131,000 :ntargib;es not being amortized 22,492,000 660,067,000 .ess reserves 334,042,000 $326,025,000 1970 $ 14,851,000 146.107.000 418.038.000 43.676.000 22.492.000 645.164.000 341,363,000 $303,801,000 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. l o n g -t e r m DEBT: At December 31, 1971 long-term debt had increased to $234,050,000 from $180,902,000 at the end of 1970. The composition of long-term debt at December 31, follows: 7y2% debentures due December 15, 1995 1971 1970 $100,000,000 $ - 43/s% subordinated debentures, due in annual installments of $850,000 through 1973 and $1,297,000 thereafter to April 1988 24,676,000 24.798.000 6V2 % deutsche mark bearer bonds, due 1973 through 1979 15,750,000 16.275.000 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 72,500,000 94.938.000 Bank loans-5'/2 % to 9% 11,735,000 39.290.000 Other 9,389,000 5,601,000 $234,050,000 $180,902,000 In January 1971, the Company issued $100,000,000 of 7V2% debentures due December 15, 1995, the pro ceeds of which have been used to repay indebtedness to banks. Commencing in 1976, the Company is required to make annual sinking fund payments sufficient to re tire $5,000,000 principal amount of debentures. Also commencing in 1976, at its option, the Company may annually redeem, at face value, $5,000,000 of deben tures. The Company has a further option to redeem outstanding debentures at decreasing premium amounts until 1990 and at face value thereafter. Debentures re deemed at the option of the Company may be credited against sinking fund obligations. The 43/e% subordinated debentures outstanding at December 31, 1971 and 1970 are after deducting $937,000 and $1,665,000 respectively, representing the principal amount of debentures held by the Company. Under the terms of the Company's June 1, 1971 renego tiated 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 pro vides that the Company must maintain consolidated working capital of at least $150,000,000 and contains certain restrictions on additional borrowings. These re strictions at December 31, 1971 would limit increases in long-term debt to approximately $75,000,000. At the current level of debt, the restriction on additional borrow ing would limit the amount of retained earnings available for cash dividend declarations to approximately $112,000,000, and the working capital restriction would reduce this amount to $100,279,000. 0000-NLI-000018935 19 Consolidated statement of income and retained earnings (Note d INDUSTRIES 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 Depreciation, depletion and amortization Selling, general and administrative Interest Minority interest Income before United States and foreign income taxes Provision for United States and foreign income taxes (Pagel 8) Income before extraordinary charges Extraordinary charges, net of applicable income taxes of $19,489,000 (Pagel 7) Net income: income per share of common stock (based on average shares outstanding) Income before extraordinary charges Extraordinary charges, net of tax Net income Years ended December 31 1971 1970 (Restated) $925,008,000 ( 1,179,000) 2,898,000 3,831,000 930,558,000 707,419,000 26,344,000 146,243,000 11,505,000 -- 891,511,000 39,047,000 16,290,000 22,757,000 19,500,000 3,257,000 $ .95 ( .81) $ .14 $915,877,000 752.000 2,790,000 1,153,000 920,572,000 680,918,000 25,319,000 140,756,000 10,684,000 290,000 857.967,000 62,605.000 26,987,000 35,618,000 -- 35,618,000 SI.50 -- $1.50 Retained earnings at beginning of year Less: Dividends paid--1971, $1.00 per share; 1970--$1.525 per share Adjustments relating to acquisitions (Note 2) Retained earnings at end of year 345,295,000 348,552,000 23,948,000 2,097,000 $322,507,000 347,295.000 382.913.COO 36,261,000 1.357.000 S345 295.000 Reference is made to accompanying notes and financial report 0000-NLI-000018936 20 Consolidated balance sheet INDUSTRIES Assets Current assets: Cash Accounts and notes receivable, less allowances of $2,704,000 in 1971 and $2,630,000 in 1970 Inventories (Note 3) 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 $334,042,000 in 1971 and $341,363,000 in 1970 (Page19) Other assets (Page 18) December 31 1971 1970 (Restated) $ 25,653,000 146,075,000 184,236,000 3,872,000 359,836,000 $ 25,906,000 142,015,000 196,405,000 3,927,000 368,253,000 43,894,000 42,215,000 326,025,000 10,450,000 $782,420,000 45,395,000 45,632,000 303,801,000 6.727,000 $769,808,000 Liabilities Current liabilities: Loans payable Accounts payable and accrued liabilities Taxes on income Total current liabilities Long-term debt(Page19) Deferred taxes on income (related principally to accelerated depreciation) Other liabilities and reserves (Note 2) Minority interest (Note 2) $ 22,988,000 77,355,000 9,214,000 109,557,000 234,050,000 19,499,000 10,280,000 -- S 39,202,000 79,384,000 7,928,000 126,5,14,000 180,902,000 23,877,000 8,732,000 3,709,000 Shareholders' Equity (Notes 1,2,4 and Page19) 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: 1971, 185,258 shares; 1970,361,126 shares 60,443,000 32,141,000 322,507,000 415,091,000 6,057,000 409,034,000 $782,420,000 60,443,000 32,158,000 345,295,000 437,896,000 1 1,822,000 426,074,000 $769,808,000 Reference is made to accompanying notes and financial report 0000-IYLI-000018937 21 Consolidated statement of changes in financial position INDUSTRIES II Source 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 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 Other Increase (decrease) in working capital Details of the above increases (decreases) are as follows: Cash Accounts and notes receivable Inventories Prepaid expenses Loans payable Accounts payable and accrued liabilities Taxes on income Years ended December 31 1971 1970 (Restated) $ 22,757,000 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 S 35,618,000 25,319,000 4,096,000 ( 2,316,000) 62,717,000 -- -- 62,717,000 4,522,000 86,214,000 2,628,000 938,000 396,000 157,415.000 36,261 000 58,462,000 3,607,000 1,409,000 1,088,000 117,000 1,608,000 102,552,000 S 54,863,000 $( 743,000) 435,000 20,275,000 ( 47.000) 19,920,000 29,564,000 ( 4,631,000) 10,010,000 34,943.000 S 54,863,000 ' i. ci. : ar tr< m SL ir s Reference is made to accompanying notes and financial reoort 0000-NL1-000018938 Notes to financial statements INDUSTRIES i. c o n s o l id a t io n p r in c ip l es . The consolidated finan cial statements include the accounts of the Company anc all wholly-owned domestic and foreign subsidiaries translated at appropriate rates of exchange. The Company's investment in major unconsolidated majority-owned foreign subsidiaries and in 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 sub sidiaries. To conform with recent developments in accounting principles, commencing in 1971 the Company retroac tively adopted the practice of reporting its investments m companies owned 50% or less and minor majorityowned foreign subsidiaries at its equity in their under lying net assets and including in income its equity in the net income of these companies. Previously, investments in these companies were carried at cost, and income thereon reflected only to the extent received as divi dends. As a result of this change, amounts previously reported for 1970 have been restated as follows: Net Income Income per common share Investments: Partially owned companies, at equity, and other investments, at cost Total Retained Earnings (In Thousands) Previously Reported Rsstatsd $ 38,071 $ 35,618 $1.60 $1.50 $ 28,473 $328,136 $ 45,632 $345,295 Pertinent financial data pertaining to foreign operations is shown on pages 17 and 18 . Financial data regarding partially-owned companies fol lows: Titanium Metals Corp. of America Mineral Deposits, Limited Canada Mstal Co., Ltd. % owned by N L 50% 85% 50% Assets 1971 1970 (In Thousands) $65,621 $11,767 $12,448 75,387 10,258 13,227 Liabilities 1971 1970 51,321 51,202 5,765 4,740 1,955 2,386 Net income (loss) as reported 1971 1970 (9,885) (5,641) 1,678 1,486 930 1,616 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 $1,874,000. Following is a summary of pertinent financial informa tion relating to the Lake View Trust and Savings Bank: Assets Deposits and other liabilities N L's equity in Bank's net income Less: Interest cost to N L, after applicable tax benefit of $1,141,000 in 1971 and $1,617,000 in 1970, on funds borrowed to purchase bank Net income attributable to Bank (in Thousands) 1971 1970 $345,462 $327,429 $320,972 $301,278 4,133 4,459 1,235 1,669 $ 2,898 $ 2,790 See Report of Affiliates, page 15, for comments relating to the Bank Holding Company Act of 1970. 2. ACQUISITIONS. During 1971, the Company exchanged 175,003 shares of its treasury stock for the outstanding stock held by the minority interest of Morris P, Kirk & Son, Inc. and acquired, for cash, all of the outstanding preferred stock of National Lead Company, S.A. (the Company owns all of the outstanding common stock). These acquisitions have been accounted for as pur chases and the results of operations since date of purchase are included for 1971. As a result of these transactions, retained earnings were charged $2,097,000, representing the appropriate portion of the excess of the cost of treasury shares Issued over the fair value of the net assets acquired, and the reserve for foreign opertions was credited $3,093,000, representing the excess of the carrying value of the net assets acquired over the purchase price, primarily because of the anticipated currency devaluation in Argentina at date of purchase. The effect of this major currency devaluation, which occurred during 1971, amounted to $2,574,000 and was charged to the reserve for foreign operations. 3. in v e n t o r ie s . Inventories are valued at the lower of cost (principally average cost) or market. Certain metal inventories are valued using the last-in, first-out method, which results in such inventories being stated at less than current replacement cost at December 31, 1971. The valuation of a portion of these same inventories is further reduced by the use of the base stock method. Pursuant to such method, an inventory reserve (amount ing to $10,356,000 in 1971 and $11,471,000 in 1970) is maintained. OOOO-iVLI-OOOO 18939 4. c a p it a l s t o c k a n d s t o c k o p t io n s . Under provisions 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 employees. 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 five years from date of grant. Details of shares under option at December 31, 1971 and transactions during the year follow: Balance at January 1, 1971 Granted Less: Exercised Expired Balance at December 31, 1971 Price per share of shares granted and outstanding at December 31, 1971 Shares exercisable Available for future options at December 31,1971 395,400 -- 1,300 25,500 368,600 $20 to $36 368,600 329,700 The excess ($17,000) of the cost of treasury shares is sued (1,300 shares) over the proceeds on the exercise of options was charged to capital surplus. In addition the Company purchased 435 of its own shares during 1971. In connection with the acquisition of the Bunting Brass & Bronze Company in 1968, the Company granted to hold ers of stock options previously granted by Bunting, sub stitute stock options. During the year, no options were exercised and options for 476 shares at $20.50 per share are outstanding at December 31, 1971. 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. 5. p e n s io n s . The Company and its subsidiaries have various pension plans covering the majority of their em ployees. Total pension costs approximated $10,900,000 in 1971 and $10,100,000 in 1970. 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. With respect to one of the major plans, there was a change during the year in the actuarial method and certain actuarial assumptions used in com puting pension cost as well as amendment of certain benefits. The effect of these changes on pension cost and net income was not material. Unfunded vested bene fits at December 31, 1971 amounted to approximately $15,096,000. 6. c o n t in g e n c y . The Company has agreed with the Insurance companies from which Titanium Metals Cor poration of America (t ime t ), a 50% owned company, has borrowed $30,000,000 under loan agreements that if, at any time, the net working capital of t imet falls below $12,500,000, it will make an investment in t imet 24 in an amount equal to 50% of such deficiency. Com pliance with this provision has been waived by the And ers to the extent that from July 31,1971 to December 31 1974, t ime t may maintain working capital in an amount not less than $6,000,000. At December 31, 1971, the 'et working capital of t imet as defined in the loan agree ment was $6,591,000. 7. l it ig a t io n . See comments regarding pending litiga tion on page4. 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, 1971 and 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 auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances, We did not examine 'he financial statements of certain consolidated subsidiaries in 1970 whose total assets and total sales comprised 17% and 14%, respectively, of the corresponding consolidated totals, in 1971 ,\e have examined the financial statements of certain of those subsidiaries not examined by us in 1970 and the total assets and total sales of the remaining subsidiaries whose financial statements were not examined by us in 1971 were not material in relation to the corresponding 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 nccme statement caption "Equity in partially-owned companies," wmcn statements reflect net losses of $4,307,000 and $1,409,000 for 1971 and 1970, respectively, applicable to the Company All of these statements were examined by other certified public accountants whose reports thereon were furnished to us. Our opinion expressed herein, insofar as it relates to the amounts included for such subsidiaries and partially-owned companies, is based solely ucon such reports. We made a similar examination of the financial statements of the Company and its Consolidated Subsidiaries !or the year 1970. In our opinion, based upon our examination and the reports of other certified public accountants, the aforementioned financial statements present fairly the consolidated financial position of N L Industries, Inc. and its Consolidated Subsidiaries at December 31, 1971 and 1970, and the consolidated resuits of their operations and cf oranges in financial position for the years then ended, in conformity with gen erally accepted accounting principles applied on a consistent cas s LYBRAND, ROSS BROS. 4 MONTGOMERY New York, February 18, 1972 0000-NLI-000018940  en \ ear review of operations I -jus ds of dollars, except per share figures 1 Ia B::~e rf3re taxes and extraordinary I'5"5 i`ore extraordinary items V ^c: ne :=r c mmon share in; me before extraordinary items Ne' occme s said on common shares :er c mmon share - e-: -ssets .abilities ' '-'Vm: capital "-b-ert plant and equipment, net expenditures -t:rec ation t a sets :'s-eh ciders' equity 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 $925,008 $915,877 $929,785 $858,195 $818,905 $865,687 S837.215 $735,189 $664,606 $615 269 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 62.605 35.618 35,618 95,435 50,842 50,842 95,490 49,177 49,177 95,122 52,842 55,891 115,686 63,941 63.941 114.986 61.601 61,601 110,014 58.691 58,691 98.205 51.433 51.433 96,131 49.824 49.824 1.50 1.50 36,261 1.525 368,253 126.514 241,739 303,801 58.462 25.319 769.808 426.074 2.13 2.13 40,272 1.70 348,333 161,457 186,876 273,169 37,161 22,651 714,872 423,587 2.05 2.05 39,062 1.625 312,077 108,016 204,061 252,883 39,264 18,187 612.608 424,209 2.21 2.34 38,786 1.625 320,171 101,855 218,316 226,060 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 2,04 2.04 38,034 1,625 270.275 80.280 189.995 171.696 15,712 15.159 473 743 373,507 : pe- share figures reflect the 2 for 1 stock split which took place in 1969. -"a - amounts have been restated (See Note 1 to consolidated financial statements). 0000-NLI-000018941