NL INDUSTRIES INC [NL] Filings

10-Q 1 nl-20230630x10q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-640

NL INDUSTRIES, INC.

(Exact name of Registrant as specified in its charter)

New Jersey

13-5267260

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

5430 LBJ Freeway, Suite 1700

Dallas, Texas 75240-2620

(Address of principal executive offices)

Registrant’s telephone number, including area code: (972) 233-1700

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	NL	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Number of shares of the registrant’s common stock, $.125 par value per share, outstanding on July 28, 2023 48,833,484.

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NL INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

		Page number
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets - December 31, 2022; June 30, 2023 (unaudited)	3

	Condensed Consolidated Statements of Operations (unaudited) - Three and six months ended June 30, 2022 and 2023	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Three and six months ended June 30, 2022 and 2023	6

	Condensed Consolidated Statements of Equity (unaudited) - Three and six months ended June 30, 2022 and 2023	7

	Condensed Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2022 and 2023	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	34

Item 4.	Controls and Procedures	34

Part II.	OTHER INFORMATION	34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	35

Item 6.	Exhibits	35

Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

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NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	December 31,		June 30,
	2022		2023
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	68,868	$	58,523
Restricted cash and cash equivalents		2,864		2,913
Marketable securities		70,164		95,716
Accounts and other receivables, net		17,870		15,081
Receivables from affiliates		636		601
Inventories, net		31,290		33,765
Prepaid expenses and other		2,276		1,774

Total current assets		193,968		208,373

Other assets:
Restricted cash and cash equivalents		25,770		25,938
Note receivable from affiliate		13,200		12,200
Marketable securities		26,350		15,391
Investment in Kronos Worldwide, Inc.		292,206		268,469
Goodwill		27,156		27,156
Other assets, net		2,523		1,771

Total other assets		387,205		350,925

Property and equipment:
Land		5,390		5,390
Buildings		23,181		23,181
Equipment		74,113		74,525
Construction in progress		722		434
		103,406		103,530
Less accumulated depreciation		74,712		76,407

Net property and equipment		28,694		27,123

Total assets	$	609,867	$	586,421

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NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)


	December 31,		June 30,
	2022		2023
			(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,537	$	5,224
Accrued litigation settlement		11,830		11,943
Accrued and other current liabilities		13,393		9,671
Accrued environmental remediation and related costs		2,627		1,850
Payables to affiliates		665		650

Total current liabilities		32,052		29,338

Noncurrent liabilities:
Long-term debt from affiliate		500		500
Accrued environmental remediation and related costs		89,731		89,509
Long-term litigation settlement		27,427		27,688
Deferred income taxes		50,119		43,682
Accrued pension costs		3,012		2,754
Other		4,279		4,176

Total noncurrent liabilities		175,068		168,309

Equity:
NL stockholders' equity:
Common stock		6,101		6,103
Additional paid-in capital		298,598		298,868
Retained earnings		300,442		283,784
Accumulated other comprehensive loss		(222,991)		(221,098)

Total NL stockholders' equity		382,150		367,657

Noncontrolling interest in subsidiary		20,597		21,117

Total equity		402,747		388,774

Total liabilities and equity	$	609,867	$	586,421

Commitments and contingencies (Notes 12 and 14)

See accompanying notes to Condensed Consolidated Financial Statements.

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NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2023		2022		2023

	(unaudited)
Net sales	$	41,675	$	36,616	$	83,725	$	77,767
Cost of sales		28,046		26,343		58,016		54,790

Gross margin		13,629		10,273		25,709		22,977

Selling, general and administrative expense		5,884		5,906		11,658		11,570
Corporate expense		3,540		2,946		5,976		5,789

Income from operations		4,205		1,421		8,075		5,618

Equity in earnings (losses) of Kronos Worldwide, Inc.		13,991		(2,516)		31,524		(7,153)

Other income (expense):
Interest and dividend income		567		2,145		876		4,110
Marketable equity securities		19,200		(5,461)		19,871		(10,959)
Loss on pension plan termination		—		(4,911)		—		(4,911)
Other components of net periodic pension and OPEB cost		(223)		(370)		(446)		(716)
Interest expense		(248)		(199)		(494)		(398)

Income (loss) before income taxes		37,492		(9,891)		59,406		(14,409)

Income tax expense (benefit)		6,435		(7,300)		9,140		(5,879)

Net income (loss)		31,057		(2,591)		50,266		(8,530)
Noncontrolling interest in net income of subsidiary		805		517		1,457		1,294

Net income (loss) attributable to NL stockholders	$	30,252	$	(3,108)	$	48,809	$	(9,824)

Amounts attributable to NL stockholders:
Basic and diluted net income (loss) per share	$	.62	$	(.06)	$	1.00	$	(.20)

Weighted average shares used in the calculation of net income per share		48,809		48,824		48,806		48,820

See accompanying notes to Condensed Consolidated Financial Statements.

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NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2023		2022		2023

	(unaudited)
Net income (loss)	$	31,057	$	(2,591)	$	50,266	$	(8,530)

Other comprehensive income (loss), net of tax:
Currency translation		(8,741)		(1,219)		(7,161)		(2,885)
Defined benefit pension plans		856		4,676		1,729		5,069
Marketable debt securities		—		(121)		—		(169)
Other postretirement benefit plans		(63)		(58)		(131)		(118)

Total other comprehensive income (loss), net		(7,948)		3,278		(5,563)		1,897

Comprehensive income (loss)		23,109		687		44,703		(6,633)
Comprehensive income attributable to noncontrolling interest		805		525		1,457		1,298

Comprehensive income (loss) attributable to NL stockholders	$	22,304	$	162	$	43,246	$	(7,931)

See accompanying notes to Condensed Consolidated Financial Statements.

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NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)


	Three months ended June 30, 2022 and 2023 (unaudited)
							Accumulated
			Additional				other		Noncontrolling
	Common		paid-in		Retained		comprehensive		interest in		Total
	stock		capital		earnings		loss		subsidiary		equity

Balance at March 31, 2022	$	6,100	$	300,210	$	312,492	$	(238,371)	$	22,747	$	403,178
Net income		—		—		30,252		—		805		31,057
Other comprehensive loss, net of tax		—		—		—		(7,948)		—		(7,948)
Issuance of NL common stock		1		119		—		—		—		120
Dividends paid - $.07 per share		—		—		(3,417)		—		—		(3,417)
Dividends paid to noncontrolling interest		—		—		—		—		(406)		(406)
Other, net		—		(1,397)		—		—		(210)		(1,607)

Balance at June 30, 2022	$	6,101	$	298,932	$	339,327	$	(246,319)	$	22,936	$	420,977

Balance at March 31, 2023	$	6,101	$	298,252	$	290,309	$	(224,368)	$	20,982	$	391,276
Net income (loss)		—		—		(3,108)		—		517		(2,591)
Other comprehensive income, net of tax		—		—		—		3,270		8		3,278
Issuance of NL common stock		2		98		—		—		—		100
Dividends paid - $.07 per share		—		—		(3,417)		—				(3,417)
Dividends paid to noncontrolling interest		—		—		—		—		(390)		(390)
Other, net		—		518		—		—		—		518

Balance at June 30, 2023	$	6,103	$	298,868	$	283,784	$	(221,098)	$	21,117	$	388,774


	Six months ended June 30, 2022 and 2023 (unaudited)
							Accumulated
			Additional				other		Noncontrolling
	Common		paid-in		Retained		comprehensive		interest in		Total
	stock		capital		earnings		loss		subsidiary		equity

Balance at December 31, 2021	$	6,100	$	299,775	$	297,351	$	(240,756)	$	22,501	$	384,971
Net income		—		—		48,809		—		1,457		50,266
Other comprehensive loss, net of tax		—		—		—		(5,563)		—		(5,563)
Issuance of NL common stock		1		119		—		—		—		120
Dividends paid - $.14 per share		—		—		(6,833)		—		—		(6,833)
Dividends paid to noncontrolling interest		—		—		—		—		(812)		(812)
Other, net		—		(962)		—		—		(210)		(1,172)

Balance at June 30, 2022	$	6,101	$	298,932	$	339,327	$	(246,319)	$	22,936	$	420,977

Balance at December 31, 2022	$	6,101	$	298,598	$	300,442	$	(222,991)	$	20,597	$	402,747
Net income (loss)		—		—		(9,824)		—		1,294		(8,530)
Other comprehensive income, net of tax		—		—		—		1,893		4		1,897
Issuance of NL common stock		2		98		—		—		—		100
Dividends paid - $.14 per share		—		—		(6,834)		—		—		(6,834)
Dividends paid to noncontrolling interest		—		—		—		—		(778)		(778)
Other, net		—		172		—		—		—		172

Balance at June 30, 2023	$	6,103	$	298,868	$	283,784	$	(221,098)	$	21,117	$	388,774

See accompanying notes to Condensed Consolidated Financial Statements.

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NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Six months ended
	June 30,
	2022		2023

	(unaudited)
Cash flows from operating activities:
Net income (loss)	$	50,266	$	(8,530)
Depreciation and amortization		1,956		2,009
Deferred income taxes		9,099		(5,957)
Equity in (earnings) losses of Kronos Worldwide, Inc.		(31,524)		7,153
Dividends received from Kronos Worldwide, Inc.		13,384		13,384
Marketable equity securities		(19,871)		10,959
Loss on pension plan termination		—		4,911
Benefit plan expense greater than cash funding		278		355
Noncash interest income		—		(1,839)
Noncash interest expense		480		374
Other, net		(32)		199
Change in assets and liabilities:
Accounts and other receivables, net		(1,995)		2,787
Inventories, net		(7,735)		(2,585)
Prepaid expenses and other		(1,249)		508
Accounts payable and accrued liabilities		663		(1,777)
Accounts with affiliates		(115)		622
Accrued environmental remediation and related costs		96		(999)
Other noncurrent assets and liabilities, net		(76)		(646)
Net cash provided by operating activities		13,625		20,928

Cash flows from investing activities:
Capital expenditures		(2,215)		(478)
Marketable securities:
Purchases		—		(49,966)
Proceeds from maturities		—		26,000
Note receivable from affiliate:
Collections		12,400		14,700
Loans		(10,300)		(13,700)
Other, net		150		—
Net cash provided by (used in) investing activities		35		(23,444)

Cash flows from financing activities:
Dividends paid		(6,833)		(6,834)
Subsidiary treasury stock acquired		(1,744)		—
Dividends paid to noncontrolling interests in subsidiary		(812)		(778)
Other, net		(16)		—
Net cash used in financing activities		(9,405)		(7,612)

Cash and cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		4,255		(10,128)
Balance at beginning of year		175,242		97,502

Balance at end of period	$	179,497	$	87,374

Supplemental disclosures - cash paid (received) for:
Interest	$	14	$	24
Income taxes, net		164		(570)

See accompanying notes to Condensed Consolidated Financial Statements.

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NL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

Note 1 – Organization and basis of presentation:

Organization – At June 30, 2023, Valhi, Inc. (NYSE: VHI) held approximately 83% of our outstanding common stock and a wholly-owned subsidiary of Contran Corporation held approximately 91% of Valhi’s outstanding common stock. A majority of Contran’s outstanding voting stock is held directly by Lisa K. Simmons and various family trusts established for the benefit of Ms. Simmons, Thomas C. Connelly (the husband of Ms. Simmons’ late sister) and their children and for which Ms. Simmons or Mr. Connelly, as applicable, serve as trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly serves as trustee, he is required to vote the shares of Contran voting stock held by such trusts in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. Simmons. The remainder of Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and her late sister and their children and for which a third-party financial institution serves as trustee. Consequently, at June 30, 2023 Ms. Simmons and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi and us.

Basis of presentation – Consolidated in this Quarterly Report are the results of our majority-owned subsidiary, CompX International Inc. We also own approximately 31% of Kronos Worldwide, Inc. (Kronos). CompX (NYSE American: CIX) and Kronos (NYSE: KRO) each file periodic reports with the Securities and Exchange Commission (SEC).

The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 that we filed with the SEC on March 8, 2023 (the “2022 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. We have condensed the Consolidated Balance Sheet at December 31, 2022 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date, and we have omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, 2022) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Our results of operations for the interim periods ended June 30, 2023 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our 2022 Consolidated Financial Statements contained in our 2022 Annual Report.

Unless otherwise indicated, references in this report to “NL,” “we,” “us” or “our” refer to NL Industries, Inc. and its subsidiaries and affiliate, Kronos, taken as a whole.

Note 2 – Accounts and other receivables, net:


	December 31,		June 30,
	2022		2023

	(In thousands)
Trade receivables - CompX	$	17,910	$	15,114
Other receivables		30		37
Allowance for doubtful accounts		(70)		(70)
Total	$	17,870	$	15,081

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Note 3 – Inventories, net:


	December 31,		June 30,
	2022		2023

	(In thousands)
Raw materials	$	6,245	$	6,548
Work in process		19,983		22,024
Finished products		5,062		5,193
Total	$	31,290	$	33,765

Note 4 – Marketable securities:

Our marketable securities consist of investments in debt and equity securities. Our current marketable securities are debt securities invested in U.S. government treasuries and are classified as available-for-sale. The fair value of our marketable debt securities are determined using Level 2 inputs because although these securities are traded, in many cases the market is not active and the period-end valuation is generally based on the last trade of the period, which may be several days prior to the end of the period. We accumulate unrealized gains and losses on marketable debt securities as part of accumulated other comprehensive income (loss), net of related deferred income taxes.

Our noncurrent marketable securities are equity securities and consist of our investment in the publicly-traded shares of our immediate parent company Valhi, Inc. Our shares of Valhi common stock are accounted for as available-for-sale securities, which are carried at fair value using quoted market prices in active markets and represent a Level 1 input within the fair value hierarchy, as defined by ASC Topic 820, Fair Value Measurements and Disclosures. We record any unrealized gains or losses on the securities in other income (expense), net on our Condensed Consolidated Statements of Operations.


	Fair value			Cost or
	measurement	Market		amortized		Unrealized
	level	value		cost		gain (loss), net

		(In thousands)
December 31, 2022
Current assets
Fixed income securities	2	$	70,164	$	70,226		(62)
Noncurrent assets
Valhi common stock	1	$	26,350	$	24,347	$	2,003

June 30, 2023
Current assets
Fixed income securities	2	$	95,716	$	96,032	$	(316)
Noncurrent assets
Valhi common stock	1	$	15,391	$	24,347	$	(8,956)

At December 31, 2022 and June 30, 2023, we held approximately 1.2 million shares of common stock of our immediate parent company, Valhi, Inc. At December 31, 2022 and June 30, 2023, the quoted per share market price of Valhi common stock was $22.00 and $12.85, respectively.

The Valhi common stock we own is subject to restrictions on resale pursuant to certain provisions of the SEC Rule 144. In addition, as a majority-owned subsidiary of Valhi, we cannot vote our shares of Valhi common stock under Delaware General Corporation Law, but we receive dividends from Valhi on these shares, when declared and paid.

Note 5 – Investment in Kronos Worldwide, Inc.:

At December 31, 2022 and June 30, 2023, we owned approximately 35.2 million shares of Kronos common stock. At June 30, 2023, the quoted market price of Kronos’ common stock was $8.73 per share, or an aggregate market value of $307.5 million. At December 31, 2022, the quoted market price was $9.40 per share, or an aggregate market value of $331.1 million.

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The change in the carrying value of our investment in Kronos during the first six months of 2023 is summarized below.


	Amount
	(In millions)
Balance at the beginning of the period	$	292.2
Equity in loss of Kronos		(7.1)
Dividends received from Kronos		(13.4)
Equity in Kronos' other comprehensive income (loss):
Currency translation		(3.8)
Defined benefit pension plans		.5
Other		.1
Balance at the end of the period	$	268.5

Selected financial information of Kronos is summarized below: