NL INDUSTRIES INC [NL] Filings

10-Q 1 nl-20240630x10q.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, 2024

☐ 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 August 1, 2024 48,847,734.

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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, 2023; June 30, 2024 (unaudited)	3

	Condensed Consolidated Statements of Operations (unaudited) - Three and six months ended June 30, 2023 and 2024	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Three and six months ended June 30, 2023 and 2024	6

	Condensed Consolidated Statements of Equity (unaudited) - Three and six months ended June 30, 2023 and 2024	7

	Condensed Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2023 and 2024	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	36

Item 4.	Controls and Procedures	36

Part II.	OTHER INFORMATION	36

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	37

Item 5.	Other Information	37

Item 6.	Exhibits	37

Items 2, 3, and 4 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,
	2023		2024
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	111,522	$	167,453
Restricted cash and cash equivalents		2,917		2,896
Marketable securities		53,149		11,934
Accounts and other receivables, net		17,101		15,654
Receivables from affiliates		628		179
Inventories, net		30,712		27,363
Prepaid expenses and other		2,235		1,878

Total current assets		218,264		227,357

Other assets:
Restricted cash and cash equivalents		26,943		27,231
Note receivable from affiliate		10,600		9,200
Marketable securities		18,194		21,356
Investment in Kronos Worldwide, Inc.		247,582		237,268
Goodwill		27,156		27,156
Other assets, net		2,060		5,721

Total other assets		332,535		327,932

Property and equipment:
Land		5,390		5,390
Buildings		23,239		23,262
Equipment		74,315		74,651
Construction in progress		676		770
		103,620		104,073
Less accumulated depreciation		77,757		79,336

Net property and equipment		25,863		24,737

Total assets	$	576,662	$	580,026

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NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)


	December 31,		June 30,
	2023		2024
			(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,148	$	3,791
Accrued litigation settlement		11,830		11,943
Accrued and other current liabilities		13,182		10,681
Accrued environmental remediation and related costs		1,655		2,511
Payables to affiliates		634		635

Total current liabilities		30,449		29,561

Noncurrent liabilities:
Long-term debt from affiliate		500		500
Accrued environmental remediation and related costs		89,451		89,280
Long-term litigation settlement		16,122		16,276
Deferred income taxes		41,733		42,877
Accrued pension costs		1,571		1,249
Other		5,074		5,067

Total noncurrent liabilities		154,451		155,249

Equity:
NL stockholders' equity:
Preferred stock		—		—
Common stock		6,103		6,105
Additional paid-in capital		298,868		299,099
Retained earnings		284,462		291,322
Accumulated other comprehensive loss		(219,621)		(223,434)

Total NL stockholders' equity		369,812		373,092

Noncontrolling interest in subsidiary		21,950		22,124

Total equity		391,762		395,216

Total liabilities and equity	$	576,662	$	580,026

Commitments and contingencies (Notes 11 and 13)

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,
	2023		2024		2023		2024

	(unaudited)
Net sales	$	36,616	$	35,887	$	77,767	$	73,858
Cost of sales		26,343		24,722		54,790		53,026

Gross margin		10,273		11,165		22,977		20,832

Selling, general and administrative expense		5,906		6,084		11,570		12,036
Corporate expense		2,946		4,290		5,789		6,649

Income from operations		1,421		791		5,618		2,147

Equity in earnings (losses) of Kronos Worldwide, Inc.		(2,516)		5,973		(7,153)		8,449

Other income (expense):
Interest and dividend income		2,145		2,678		4,110		5,229
Marketable equity securities		(5,461)		779		(10,959)		3,162
Loss on pension plan termination		(4,911)		—		(4,911)		—
Other components of net periodic pension and OPEB cost		(370)		(318)		(716)		(636)
Interest expense		(199)		(148)		(398)		(293)

Income (loss) before income taxes		(9,891)		9,755		(14,409)		18,058

Income tax expense (benefit)		(7,300)		1,302		(5,879)		2,290

Net income (loss)		(2,591)		8,453		(8,530)		15,768
Noncontrolling interest in net income of subsidiary		517		618		1,294		1,094

Net income (loss) attributable to NL stockholders	$	(3,108)	$	7,835	$	(9,824)	$	14,674

Amounts attributable to NL stockholders:
Basic and diluted net income (loss) per share	$	(.06)	$	.16	$	(.20)	$	.30

Weighted average shares used in the calculation of net income (loss) per share		48,824		48,841		48,820		48,837

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,
	2023		2024		2023		2024

	(unaudited)
Net income (loss)	$	(2,591)	$	8,453	$	(8,530)	$	15,768

Other comprehensive income (loss), net of tax:
Currency translation		(1,219)		466		(2,885)		(4,500)
Defined benefit pension plans		4,676		378		5,069		757
Marketable debt securities		(121)		8		(169)		22
Other postretirement benefit plans		(58)		(45)		(118)		(92)

Total other comprehensive income (loss), net		3,278		807		1,897		(3,813)

Comprehensive income (loss)		687		9,260		(6,633)		11,955
Comprehensive income attributable to noncontrolling interest		525		619		1,298		1,094

Comprehensive income (loss) attributable to NL stockholders	$	162	$	8,641	$	(7,931)	$	10,861

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, 2023 and 2024 (unaudited)
							Accumulated
			Additional				other		Noncontrolling
	Common		paid-in		Retained		comprehensive		interest in		Total
	stock		capital		earnings		loss		subsidiary		equity
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

Balance at March 31, 2024	$	6,103	$	298,868	$	287,395	$	(224,240)	$	21,958	$	390,084
Net income		—		—		7,835		—		618		8,453
Other comprehensive income, net of tax		—		—		—		806		1		807
Issuance of NL common stock		2		98		—		—		—		100
Dividends paid - $.08 per share		—		—		(3,908)		—		—		(3,908)
Dividends paid to noncontrolling interest		—		—		—		—		(469)		(469)
Other, net		—		133		—		—		16		149

Balance at June 30, 2024	$	6,105	$	299,099	$	291,322	$	(223,434)	$	22,124	$	395,216


	Six months ended June 30, 2023 and 2024 (unaudited)
							Accumulated
			Additional				other		Noncontrolling
	Common		paid-in		Retained		comprehensive		interest in		Total
	stock		capital		earnings		loss		subsidiary		equity

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

Balance at December 31, 2023	$	6,103	$	298,868	$	284,462	$	(219,621)	$	21,950	$	391,762
Net income		—		—		14,674		—		1,094		15,768
Other comprehensive loss, net of tax		—		—		—		(3,813)		—		(3,813)
Issuance of NL common stock		2		98		—		—		—		100
Dividends paid - $.16 per share		—		—		(7,814)		—		—		(7,814)
Dividends paid to noncontrolling interest		—		—		—		—		(936)		(936)
Other, net		—		133		—		—		16		149

Balance at June 30, 2024	$	6,105	$	299,099	$	291,322	$	(223,434)	$	22,124	$	395,216

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,
	2023		2024

	(unaudited)
Cash flows from operating activities:
Net income (loss)	$	(8,530)	$	15,768
Depreciation and amortization		2,009		1,846
Deferred income taxes		(5,957)		2,149
Equity in (earnings) losses of Kronos Worldwide, Inc.		7,153		(8,449)
Dividends received from Kronos Worldwide, Inc.		13,384		13,384
Marketable equity securities		10,959		(3,162)
Loss on pension plan termination		4,911		—
Benefit plan expense greater than cash funding		355		343
Noncash interest income		(1,839)		(752)
Noncash interest expense		374		267
Other, net		199		52
Change in assets and liabilities:
Accounts and other receivables, net		2,787		2,050
Inventories, net		(2,585)		3,201
Prepaid expenses and other		508		372
Accounts payable and accrued liabilities		(1,777)		(1,637)
Accounts with affiliates		622		29
Accrued environmental remediation and related costs		(999)		684
Other noncurrent assets and liabilities, net		(646)		(3,867)
Net cash provided by operating activities		20,928		22,278

Cash flows from investing activities:
Capital expenditures		(478)		(730)
Marketable securities:
Purchases		(49,966)		—
Proceeds from maturities		26,000		42,000
Note receivable from affiliate:
Collections		14,700		13,400
Loans		(13,700)		(12,000)
Net cash provided by (used in) investing activities		(23,444)		42,670

Cash flows from financing activities:
Dividends paid		(6,834)		(7,814)
Dividends paid to noncontrolling interests in subsidiary		(778)		(936)
Net cash used in financing activities		(7,612)		(8,750)

Cash and cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		(10,128)		56,198
Balance at beginning of year		97,502		141,382

Balance at end of period	$	87,374	$	197,580

Supplemental disclosures - cash paid (received) for:
Interest	$	24	$	26
Income taxes, net		(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, 2024

(unaudited)

Note 1 – Organization and basis of presentation:

Organization – At June 30, 2024, 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, Thomas C. Connelly (the husband of Ms. Simmons’ late sister) and various family trusts established for the benefit of Ms. Simmons, Mr. Connelly and their children and for which Ms. Simmons, Mr. Connelly or Mr. Connelly’s sister, as applicable, serve as trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly or his sister serves as trustee, the trustee 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, 2024 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, 2023 that we filed with the SEC on March 6, 2024 (the “2023 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, 2023 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, 2023) 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, 2024 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 2023 Consolidated Financial Statements contained in our 2023 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,
	2023		2024

	(In thousands)
Trade receivables - CompX	$	17,131	$	15,505
Other receivables		40		219
Allowance for doubtful accounts		(70)		(70)
Total	$	17,101	$	15,654

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Note 3 – Inventories, net:


	December 31,		June 30,
	2023		2024

	(In thousands)
Raw materials	$	5,738	$	5,254
Work in process		19,042		17,071
Finished products		5,932		5,038
Total	$	30,712	$	27,363

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) on our Condensed Consolidated Statements of Operations.


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

		(In thousands)
December 31, 2023
Current assets - Fixed income securities	2	$	53,149	$	53,181	$	(32)
Noncurrent assets - Valhi common stock	1	$	18,194	$	24,347	$	(6,153)

June 30, 2024
Current assets - Fixed income securities	2	$	11,934	$	11,935	$	(1)
Noncurrent assets - Valhi common stock	1	$	21,356	$	24,347	$	(2,991)

At December 31, 2023 and June 30, 2024, we held approximately 1.2 million shares of common stock of our immediate parent company, Valhi, Inc. At December 31, 2023 and June 30, 2024, the quoted per share market price of Valhi common stock was $15.19 and $17.83, 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, 2023 and June 30, 2024, we owned approximately 35.2 million shares of Kronos common stock. At June 30, 2024, the quoted market price of Kronos’ common stock was $12.55 per share, or an aggregate market value of $442.0 million. At December 31, 2023, the quoted market price was $9.94 per share, or an aggregate market value of $350.1 million.

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The change in the carrying value of our investment in Kronos during the first six months of 2024 is summarized below.


	Amount
	(In millions)
Balance at the beginning of the period	$	247.6
Equity in earnings of Kronos		8.4
Dividends received from Kronos		(13.4)
Equity in Kronos' other comprehensive income (loss):