10-Q 1 nl-20240331x10q.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 March 31, 2024

OR

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 May 2, 2024  48,833,484.

NL INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

Page
number

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets -
December 31, 2023; March 31, 2024 (unaudited)

3

Condensed Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 2023 and 2024

5

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) -
Three months ended March 31, 2023 and 2024

6

Condensed Consolidated Statements of Equity (unaudited) -
Three months ended March 31, 2023 and 2024

7

Condensed Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 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

32

Item 4.

Controls and Procedures

32

Part II.

OTHER INFORMATION

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 6.

Exhibits

33

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

2

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

December 31, 

March 31, 

    

2023

    

2024

 

  

 

  (unaudited)

ASSETS

Current assets:

 

  

 

  

Cash and cash equivalents

$

111,522

$

138,257

Restricted cash and cash equivalents

 

2,917

 

2,919

Marketable securities

53,149

29,662

Accounts and other receivables, net

 

17,101

 

17,372

Receivables from affiliates

628

601

Inventories, net

 

30,712

 

27,543

Prepaid expenses and other

 

2,235

 

1,948

Total current assets

 

218,264

 

218,302

Other assets:

 

  

 

  

Restricted cash and cash equivalents

 

26,943

 

27,072

Note receivable from affiliate

 

10,600

 

9,800

Marketable securities

 

18,194

 

20,577

Investment in Kronos Worldwide, Inc.

 

247,582

 

237,221

Goodwill

 

27,156

 

27,156

Other assets, net

 

2,060

 

3,504

Total other assets

 

332,535

 

325,330

Property and equipment:

 

  

 

  

Land

 

5,390

 

5,390

Buildings

 

23,239

 

23,262

Equipment

 

74,315

 

74,650

Construction in progress

 

676

 

536

 

103,620

 

103,838

Less accumulated depreciation

 

77,757

 

78,654

Net property and equipment

 

25,863

 

25,184

Total assets

$

576,662

$

568,816

3

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

December 31, 

March 31, 

    

2023

    

2024

(unaudited)

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

3,148

$

3,074

Accrued litigation settlement

 

11,830

 

11,887

Accrued and other current liabilities

 

13,182

 

7,397

Accrued environmental remediation and related costs

 

1,655

 

1,584

Payables to affiliates

 

634

 

660

Total current liabilities

 

30,449

 

24,602

Noncurrent liabilities:

Long-term debt from affiliate

 

500

 

500

Accrued environmental remediation and related costs

 

89,451

 

89,363

Long-term litigation settlement

 

16,122

 

16,199

Deferred income taxes

 

41,733

 

41,439

Accrued pension costs

 

1,571

 

1,584

Other

 

5,074

 

5,045

Total noncurrent liabilities

 

154,451

 

154,130

Equity:

NL stockholders' equity:

Preferred stock

Common stock

 

6,103

 

6,103

Additional paid-in capital

 

298,868

 

298,868

Retained earnings

 

284,462

 

287,395

Accumulated other comprehensive loss

 

(219,621)

 

(224,240)

Total NL stockholders' equity

 

369,812

 

368,126

Noncontrolling interest in subsidiary

 

21,950

 

21,958

Total equity

 

391,762

 

390,084

Total liabilities and equity

$

576,662

$

568,816

Commitments and contingencies (Notes 11 and 13)

See accompanying notes to Condensed Consolidated Financial Statements.

4

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three months ended

March 31, 

    

2023

    

2024

(unaudited)

Net sales

$

41,151

$

37,971

Cost of sales

 

28,447

 

28,304

Gross margin

 

12,704

 

9,667

Selling, general and administrative expense

 

5,664

 

5,952

Corporate expense

 

2,843

 

2,359

Income from operations

 

4,197

 

1,356

Equity in earnings (losses) of Kronos Worldwide, Inc.

 

(4,637)

 

2,476

Other income (expense):

 

  

 

  

Interest and dividend income

 

1,965

 

2,551

Marketable equity securities

 

(5,498)

 

2,383

Other components of net periodic pension and OPEB cost

 

(346)

 

(318)

Interest expense

 

(199)

 

(145)

Income (loss) before income taxes

 

(4,518)

 

8,303

Income tax expense

 

1,421

 

988

Net income (loss)

 

(5,939)

 

7,315

Noncontrolling interest in net income of subsidiary

 

777

 

476

Net income (loss) attributable to NL stockholders

$

(6,716)

$

6,839

Amounts attributable to NL stockholders:

 

  

 

  

Basic and diluted net income (loss) per share

$

(.14)

$

.14

Weighted average shares used in the calculation of
  net income (loss) per share

 

48,816

 

48,833

See accompanying notes to Condensed Consolidated Financial Statements.

5

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

    

Three months ended

March 31, 

    

2023

    

2024

(unaudited)

Net income (loss)

$

(5,939)

$

7,315

Other comprehensive income (loss), net of tax:

 

  

 

  

Currency translation

 

(1,666)

 

(4,966)

Defined benefit pension plans

 

393

 

379

Marketable debt securities

(48)

14

Other postretirement benefit plans

 

(60)

 

(47)

Total other comprehensive loss, net

 

(1,381)

 

(4,620)

Comprehensive income (loss)

 

(7,320)

 

2,695

Comprehensive income attributable to noncontrolling interest

 

773

 

475

Comprehensive income (loss) attributable to NL stockholders

$

(8,093)

$

2,220

See accompanying notes to Condensed Consolidated Financial Statements.

6

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

Three months ended March 31, 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)

 

 

 

(6,716)

 

 

777

 

(5,939)

Other comprehensive loss, net of tax

 

 

 

 

(1,377)

 

(4)

 

(1,381)

Dividends paid - $.07 per share

 

 

 

(3,417)

 

 

 

(3,417)

Dividends paid to noncontrolling interest

 

 

 

 

 

(388)

 

(388)

Other, net

(346)

(346)

Balance at March 31, 2023

$

6,101

$

298,252

$

290,309

$

(224,368)

$

20,982

$

391,276

Balance at December 31, 2023

$

6,103

$

298,868

$

284,462

$

(219,621)

$

21,950

$

391,762

Net income

 

 

 

6,839

 

 

476

 

7,315

Other comprehensive loss, net of tax

 

 

 

 

(4,619)

 

(1)

 

(4,620)

Dividends paid - $.08 per share

 

 

 

(3,906)

 

 

 

(3,906)

Dividends paid to noncontrolling interest

 

 

 

 

 

(467)

 

(467)

Balance at March 31, 2024

$

6,103

$

298,868

$

287,395

$

(224,240)

$

21,958

$

390,084

See accompanying notes to Condensed Consolidated Financial Statements.

7

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

    

Three months ended

March 31, 

    

2023

    

2024

(unaudited)

Cash flows from operating activities:

Net income (loss)

$

(5,939)

$

7,315

Depreciation and amortization

1,010

 

926

Deferred income taxes

 

1,362

 

931

Equity in (earnings) losses of Kronos Worldwide, Inc.

 

4,637

 

(2,476)

Dividends received from Kronos Worldwide, Inc.

 

6,692

 

6,692

Marketable equity securities

 

5,498

 

(2,383)

Benefit plan expense less than cash funding

 

330

 

346

Noncash interest income

(800)

(492)

Noncash interest expense

 

187

 

133

Other, net

 

(8)

 

(19)

Change in assets and liabilities:

 

  

 

  

Accounts and other receivables, net

 

(845)

 

(267)

Inventories, net

 

1,012

 

3,107

Prepaid expenses and other

 

172

 

286

Accounts payable and accrued liabilities

 

(4,498)

 

(5,688)

Accounts with affiliates

 

(253)

 

54

Accrued environmental remediation and related costs

 

(836)

 

(160)

Other noncurrent assets and liabilities, net

 

(443)

 

(1,561)

Net cash provided by operating activities

 

7,278

 

6,744

Cash flows from investing activities:

 

  

 

Capital expenditures

 

(270)

 

(305)

Marketable securities:

Purchases

(32,824)

Proceeds from maturities

8,000

24,000

Note receivable from affiliate:

 

  

 

Collections

 

7,800

 

6,000

Loans

 

(6,800)

 

(5,200)

Net cash provided by (used in) investing activities

 

(24,094)

 

24,495

Cash flows from financing activities:

 

  

 

Dividends paid

 

(3,417)

 

(3,906)

Dividends paid to noncontrolling interests in subsidiary

 

(388)

 

(467)

Net cash used in financing activities

 

(3,805)

 

(4,373)

Cash and cash equivalents and restricted cash and cash
  equivalents - net change from:

Operating, investing and financing activities

(20,621)

26,866

Balance at beginning of year

 

97,502

 

141,382

Balance at end of period

$

76,881

$

168,248

Supplemental disclosures - cash paid (received) for:

 

  

 

  

Interest

$

12

$

13

Income taxes, net

 

171

 

(128)

See accompanying notes to Condensed Consolidated Financial Statements.

8

NL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(unaudited)

Note 1 – Organization and basis of presentation:

Organization – At March 31, 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 March 31, 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 period ended March 31, 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, 

March 31, 

    

2023

    

2024

(In thousands)

Trade receivables - CompX

$

17,131

$

17,399

Other receivables

 

40

 

43

Allowance for doubtful accounts

 

(70)

 

(70)

Total

$

17,101

$

17,372

9

Note 3 – Inventories, net:

December 31, 

March 31, 

    

2023

    

2024

(In thousands)

Raw materials

$

5,738

$

4,986

Work in process

 

19,042

 

17,715

Finished products

 

5,932

 

4,842

Total

$

30,712

$

27,543

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)

March 31, 2024

Current assets - Fixed income securities

2

$

29,662

$

29,676

$

(14)

Noncurrent assets - Valhi common stock

1

$

20,577

$

24,347

$

(3,770)

At December 31, 2023 and March 31, 2024, we held approximately 1.2 million shares of common stock of our immediate parent company, Valhi, Inc. At December 31, 2023 and March 31, 2024, the quoted per share market price of Valhi common stock was $15.19 and $17.18, 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 March 31, 2024, we owned approximately 35.2 million shares of Kronos common stock. At March 31, 2024, the quoted market price of Kronos’ common stock was $11.80 per share, or an aggregate market value of $415.6 million. At December 31, 2023, the quoted market price was $9.94 per share, or an aggregate market value of $350.1 million.

10

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

    

Amount

(In millions)

Balance at the beginning of the period

$

247.6

Equity in earnings of Kronos

 

2.5

Dividends received from Kronos

 

(6.7)

Equity in Kronos' other comprehensive income (loss):

Currency translation

(6.3)

Defined benefit pension plans

.1

Balance at the end of the period

$

237.2

Selected financial information of Kronos is summarized below:

December 31, 

March 31, 

    

2023

    

2024

(In millions)

Current assets

$

1,117.4

$

984.7

Property and equipment, net

 

482.9

 

461.6

Investment in TiO2 joint venture

 

111.0

 

108.7

Other noncurrent assets

 

126.7

 

124.4

Total assets

$

1,838.0

$

1,679.4

Current liabilities

$

370.8

$

267.9

Long-term debt

 

440.9

 

426.9

Accrued pension costs

 

150.0

 

143.6

Other noncurrent liabilities

 

68.0

 

66.6

Stockholders’ equity

 

808.3

 

774.4

Total liabilities and stockholders’ equity

$

1,838.0

$

1,679.4

Three months ended

March 31, 

    

2023

    

2024

(In millions)

Net sales

$

426.3

$

478.8

Cost of sales

 

395.5

 

407.3

Income (loss) from operations

 

(18.3)

 

19.5

Income tax expense (benefit)

 

(6.9)

 

3.5

Net income (loss)

 

(15.2)

 

8.1

Note 6 – Accrued and other current liabilities:

December 31, 

March 31, 

    

2023

    

2024

(In thousands)

Employee benefits

$

11,290

$

5,447

Other

 

1,892

 

1,950

Total

$

13,182

$

7,397

11

Note 7 – Long-term debt:

During the first three months of 2024, our wholly-owned subsidiary, NLKW Holding, LLC had no borrowings or repayments under its $50 million secured revolving credit facility with Valhi. At March 31, 2024, $.5 million was outstanding and $49.5 million was available for future borrowing under this facility. Outstanding borrowings bear interest at the prime rate plus 1.875% per annum, and the average interest rate as of and for the three months ended March 31, 2024 was 10.38%. We are in compliance with all covenants at March 31, 2024.

Note 8 – Other noncurrent liabilities:

December 31, 

March 31, 

    

2023

    

2024

(In thousands)

Reserve for uncertain tax positions

$

3,707

$

3,707

OPEB

 

524

 

746

Insurance claims and expenses

 

579

 

535

Other

 

264

 

57

Total

$

5,074

$

5,045

Note 9 – Revenue recognition:

The following table disaggregates our net sales by reporting unit, which are the categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Three months ended

March 31, 

    

2023

    

2024

(In thousands)

Net sales:

Security Products

$

27,342

$

29,887

Marine Components

 

13,809

 

8,084

Total

$

41,151

$

37,971

Note 10 – Employee benefit plans:

The components of net periodic defined benefit pension cost are presented in the table below.

Three months ended

March 31, 

    

2023

    

2024

(In thousands)

Interest cost

$

450

$

365

Expected return on plan assets

(414)

(335)

Recognized actuarial losses

 

358

 

333

Total

$

394

$

363

We currently expect our 2024 contributions to our defined benefit pension plans to be approximately $1.0 million.

12

Note 11 – Income taxes:

Three months ended

March 31, 

    

2023

    

2024

(In thousands)

Expected tax expense (benefit), at U.S. federal statutory
  income tax rate of 21%

$

(949)

$

1,744

Rate differences on equity in earnings (losses) of Kronos,
  net of dividends

 

2,305

 

(782)

U.S. state income taxes and other, net

 

65

 

26

Income tax expense

$

1,421

$

988

Comprehensive provision (benefit) for income taxes allocable to:

 

  

 

  

Net income (loss)

$

1,421

$

988

Additional paid-in capital

 

(92)

 

Other comprehensive income (loss):

 

  

 

  

Currency translation

 

(443)

 

(1,320)

Pension plans

 

104

 

101

Other

 

(34)

 

(8)

Total

$

956

$

(239)

In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings (losses) of Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we receive from Kronos are nontaxable to us. Accordingly, we do not recognize and we are not required to pay income taxes on dividends from Kronos. We received aggregate dividends from Kronos of $6.7 million in each of the first quarters of 2023 and 2024. The amounts shown in the above table of our income tax rate reconciliation for rate differences on equity in earnings (losses) of Kronos, net of dividends, represent the income tax benefit associated with the nontaxable dividends we received from Kronos compared to the amount of deferred income taxes we recognized on our equity in earnings (losses) of Kronos.

13

Note 12 – Stockholders’ equity:

Accumulated other comprehensive loss - Changes in accumulated other comprehensive loss attributable to NL stockholders, including amounts resulting from our investment in Kronos Worldwide (see Note 5), are presented in the table below.

Three months ended

March 31, 

    

2023

    

2024

(In thousands)

Accumulated other comprehensive loss, (net of tax and noncontrolling interest):

Currency translation:

Balance at beginning of period

$

(178,191)

$

(177,119)

Other comprehensive loss

 

(1,666)

 

(4,966)

Balance at end of period

$

(179,857)

$

(182,085)

Defined benefit pension plans:

Balance at beginning of period

$

(43,857)

$

(41,373)

Other comprehensive income -

Amortization of prior service cost and net losses included in
  net periodic pension cost

 

393

 

379

Balance at end of period

$

(43,464)

$

(40,994)

OPEB plans:

Balance at beginning of period

$

(893)

$

(1,114)

Other comprehensive loss -

Amortization of net gain included in net periodic
  OPEB cost

 

(60)

 

(47)

Balance at end of period

$

(953)

$

(1,161)

Marketable debt securities:

Balance at beginning of period

$

(50)

$

(15)

Other comprehensive income (loss) - unrealized gain (loss)
arising during the period

(44)

15

Balance at end of period

$

(94)

$

Total accumulated other comprehensive loss:

Balance at beginning of period

$

(222,991)

$

(219,621)

Other comprehensive loss

(1,377)

(4,619)

Balance at end of period

$

(224,368)

$

(224,240)

See Note 10 for amounts related to our defined benefit pension plans.

Note 13 – Commitments and contingencies:

General

We are involved in various environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our current and former businesses. At least quarterly our management discusses and evaluates the status of any pending litigation or claim to which we are a party or which has been asserted against us. The factors considered in such evaluation include, among other things, the nature of such pending cases and claims, the status of such pending cases and claims, the advice of legal counsel and our experience in similar cases and claims (if any). Based on such evaluation, we make a determination as to whether we believe (i) it is probable a loss has been incurred, and if so, if the amount of such loss (or a range of loss) is reasonably estimable, or (ii) it is reasonably possible but not probable a loss has been incurred, and if so, if the amount of such loss (or a range of loss) is reasonably estimable, or (iii) the probability a loss has been incurred is remote.

14

Lead pigment litigation

Our former operations included the manufacture of lead pigments for use in paint and lead-based paint. We, other former manufacturers of lead pigments for use in paint and lead-based paint (together, the “former pigment manufacturers”), and the Lead Industries Association (LIA), which discontinued business operations in 2002, have been named as defendants in various legal proceedings seeking damages for personal injury, property damage and governmental expenditures allegedly caused by the use of lead-based paints. Certain of these actions have been filed by or on behalf of states, counties, cities or their public housing authorities and school districts, and certain others have been asserted as class actions. These lawsuits seek recovery under a variety of theories, including public and private nuisance, negligent product design, negligent failure to warn, strict liability, breach of warranty, conspiracy/concert of action, aiding and abetting, enterprise liability, market share or risk contribution liability, intentional tort, fraud and misrepresentation, violations of state consumer protection statutes, supplier negligence and similar claims.

The plaintiffs in these actions generally seek to impose on the defendants responsibility for lead paint abatement and health concerns associated with the use of lead-based paints, including damages for personal injury, contribution and/or indemnification for medical expenses, medical monitoring expenses and costs for educational programs. To the extent the plaintiffs seek compensatory or punitive damages in these actions, such damages are generally unspecified. In some cases, the damages are unspecified pursuant to the requirements of applicable state law. A number of cases are inactive or have been dismissed or withdrawn. Most of the remaining cases are in various pre-trial stages. Some are on appeal following dismissal or summary judgment rulings or a trial verdict in favor of either the defendants or the plaintiffs.

We believe we have substantial defenses to these actions, and we intend to continue to deny all allegations of wrongdoing and liability and to defend against all actions vigorously. We do not believe it is probable we have incurred any liability with respect to pending lead pigment litigation cases to which we are a party, and with respect to all such lead pigment litigation cases to which we are a party, we believe liability to us that may result, if any, in this regard cannot be reasonably estimated, because:

we have never settled any of the market share, intentional tort, fraud, nuisance, supplier negligence, breach of warranty, conspiracy, misrepresentation, aiding and abetting, enterprise liability, or statutory cases (other than the Santa Clara case discussed below),
no final, non-appealable adverse judgments have ever been entered against us, and
we have never ultimately been found liable with respect to any such litigation matters, including over 100 cases over a thirty-year period for which we were previously a party and for which we have been dismissed without any finding of liability.

Accordingly, we have not accrued any amounts for any of the pending lead pigment and lead-based paint litigation cases filed by or on behalf of states, counties, cities or their public housing authorities and school districts, or those asserted as class actions. In addition, we have determined that liability to us which may result, if any, cannot be reasonably estimated at this time because there is no prior history of a loss of this nature on which an estimate could be made and there is no substantive information available upon which an estimate could be based.

In the terms of the County of Santa Clara v. Atlantic Richfield Company, et al. (Superior Court of the State of California, County of Santa Clara, Case No. 1-00-CV-788657) global settlement agreement, we have two annual installment payments remaining ($12.0 million due in September 2024 and $16.7 million for the final installment due in September 2025). Our final installment will be made with funds already on deposit at the court, which are included in noncurrent restricted cash on our Condensed Consolidated Balance Sheets, that are committed to the settlement, including all accrued interest at the date of payment, with any remaining balance to be paid by us (and any amounts on deposit in excess of the final payment would be returned to us).  See Note 16 to our 2023 Annual Report.

New cases may continue to be filed against us. We do not know if we will incur liability in the future in respect to any of the pending or possible litigation in view of the inherent uncertainties involved in court and jury rulings. In the future, if new information regarding such matters becomes available to us (such as a final, non-appealable adverse verdict against us or otherwise ultimately being found liable with respect to such matters), at that time we would consider such information in evaluating any remaining cases then-pending against us as to whether it might then have become probable we have incurred liability with respect to these matters, and whether such liability, if any, could have become reasonably estimable. The resolution of any of these cases could result in the recognition of a loss contingency accrual that could have a material adverse impact on our net income for the interim or annual period during which such liability is recognized and a material adverse impact on our consolidated financial condition and liquidity.

15

Environmental matters and litigation

Our operations are governed by various environmental laws and regulations. Certain of our businesses are and have been engaged in the handling, manufacture or use of substances or compounds that may be considered toxic or hazardous within the meaning of applicable environmental laws and regulations. As with other companies engaged in similar businesses, certain of our past and current operations and products have the potential to cause environmental or other damage. We have implemented and continue to implement various policies and programs in an effort to minimize these risks. Our policy is to maintain compliance with applicable environmental laws and regulations at all of our plants and to strive to improve environmental performance. From time to time, we may be subject to environmental regulatory enforcement under U.S. statutes, the resolution of which typically involves the establishment of compliance programs. It is possible that future developments, such as stricter requirements of environmental laws and enforcement policies, could adversely affect our production, handling, use, storage, transportation, sale or disposal of such substances. We believe all of our facilities are in substantial compliance with applicable environmental laws.

Certain properties and facilities used in our former operations, including divested primary and secondary lead smelters and former mining locations, are the subject of civil litigation, administrative proceedings or investigations arising under federal and state environmental laws and common law. Additionally, in connection with past operating practices, we are currently involved as a defendant, potentially responsible party (PRP) or both, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (CERCLA), and similar state laws in various governmental and private actions associated with waste disposal sites, mining locations, and facilities that we or our predecessors, our subsidiaries or their predecessors currently or previously owned, operated or used, certain of which are on the United States Environmental Protection Agency’s (EPA) Superfund National Priorities List or similar state lists. These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to natural resources. Certain of these proceedings involve claims for substantial amounts. Although we may be jointly and severally liable for these costs, in most cases we are only one of a number of PRPs who may also be jointly and severally liable, and among whom costs may be shared or allocated. In addition, we are occasionally named as a party in a number of personal injury lawsuits filed in various jurisdictions alleging claims related to environmental conditions alleged to have resulted from our operations.

Obligations associated with environmental remediation and related matters are difficult to assess and estimate for numerous reasons including the:

complexity and differing interpretations of governmental regulations,
number of PRPs and their ability or willingness to fund such allocation of costs,
financial capabilities of the PRPs and the allocation of costs among them,
solvency of other PRPs,
multiplicity of possible solutions,
number of years of investigatory, remedial and monitoring activity required,
uncertainty over the extent, if any, to which our former operations might have contributed to the conditions allegedly giving rise to such personal injury, property damage, natural resource and related claims, and
number of years between former operations and notice of claims and lack of information and documents about the former operations.

In addition, the imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes regarding site cleanup costs or the allocation of costs among PRPs, solvency of other PRPs, the results of future testing and analysis undertaken with respect to certain sites or a determination that we are potentially responsible for the release of hazardous substances at other sites, could cause our expenditures to exceed our current estimates. Actual costs could exceed accrued amounts or the upper end of the range for sites for which estimates have been made, and costs may be incurred for sites where no estimates presently can be made. Further, additional environmental and related matters may arise in the future. If we were to incur any future liability, this could have a material adverse effect on our consolidated financial statements, results of operations and liquidity.

We record liabilities related to environmental remediation and related matters (including costs associated with damages for personal injury or property damage and/or damages for injury to natural resources) when estimated future expenditures are probable and reasonably estimable. We adjust such accruals as further information becomes available to us or as circumstances change. Unless the amounts and timing of such estimated future expenditures are fixed and reasonably determinable, we generally do not discount estimated

16

future expenditures to their present value due to the uncertainty of the timing of the payout. We recognize recoveries of costs from other parties, if any, as assets when their receipt is deemed probable.

We do not know and cannot estimate the exact time frame over which we will make payments for our accrued environmental and related costs. The timing of payments depends upon a number of factors, including but not limited to the timing of the actual remediation process; which in turn depends on factors outside of our control. At each balance sheet date, we estimate the amount of our accrued environmental and related costs which we expect to pay within the next twelve months, and we classify this estimate as a current liability. We classify the remaining accrued environmental costs as a noncurrent liability.

Changes in the accrued environmental remediation and related costs during the first three months of 2024 are as follows:

Amount

    

(In thousands)

Balance at the beginning of the period

$

91,106

Additions charged to expense, net

 

170

Payments, net

 

(329)

Balance at the end of the period

$

90,947

Amounts recognized in the Condensed Consolidated Balance Sheet at the end of the period:

Current liability

$

1,584

Noncurrent liability

89,363

Balance at the end of the period

$

90,947

On a quarterly basis, we evaluate the potential range of our liability for environmental remediation and related costs at sites where we have been named as a PRP or defendant, including sites for which our wholly-owned environmental management subsidiary, NL Environmental Management Services, Inc. (EMS), has contractually assumed our obligations. At March 31, 2024, we had accrued approximately $91 million related to approximately 33 sites associated with remediation and related matters we believe are at the present time and/or in their current phase reasonably estimable. The upper end of the range of reasonably possible costs to us for remediation and related matters for which we believe it is possible to estimate costs is approximately $118 million, including the amount currently accrued. These accruals have not been discounted to present value.

We believe it is not reasonably possible to estimate the range of costs for certain sites. At March 31, 2024, there were approximately five sites for which we are not currently able to reasonably estimate a range of costs. For these sites, generally the investigation is in the early stages, and we are unable to determine whether or not we actually had any association with the site, the nature of our responsibility, if any, for the contamination at the site, if any, and the extent of contamination at and cost to remediate the site. The timing and availability of information on these sites is dependent on events outside of our control, such as when the party alleging liability provides information to us. At certain of these previously inactive sites, we have received general and special notices of liability from the EPA and/or state agencies alleging that we, sometimes with other PRPs, are liable for past and future costs of remediating environmental contamination allegedly caused by former operations. These notifications may assert that we, along with any other alleged PRPs, are liable for past and/or future clean-up costs. As further information becomes available to us for any of these sites, which would allow us to estimate a range of costs, we would at that time adjust our accruals. Any such adjustment could result in the recognition of an accrual that would have a material effect on our consolidated financial statements, results of operations and liquidity.

Insurance coverage claims

We are involved in certain legal proceedings with a number of our former insurance carriers regarding the nature and extent of the carriers’ obligations to us under insurance policies with respect to certain lead pigment and asbestos lawsuits. The issue of whether insurance coverage for defense costs or indemnity or both will be found to exist for our lead pigment and asbestos litigation depends upon a variety of factors and we cannot assure you that such insurance coverage will be available.

We have agreements with certain of our former insurance carriers pursuant to which the carriers reimburse us for a portion of our future lead pigment litigation defense costs, and one such carrier reimburses us for a portion of our future litigation defense costs. We are not able to determine how much we will ultimately recover from these carriers for defense costs incurred by us because of certain issues that arise regarding which defense costs qualify for reimbursement. While we continue to seek additional insurance recoveries, we do not know if we will be successful in obtaining reimbursement for either defense costs or indemnity. Accordingly, we recognize insurance recoveries in income only when receipt of the recovery is probable and we are able to reasonably estimate the amount of the recovery.

17

For a complete discussion of certain litigation involving us and certain of our former insurance carriers, refer to our 2023 Annual Report.

Other litigation

In addition to the litigation described above, we and our affiliates are also involved in various other environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to present and former businesses. In certain cases, we have insurance coverage for these items, although we do not expect additional material insurance coverage for environmental matters. We currently believe the disposition of all of these various other claims and disputes (including asbestos-related claims), individually and in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or liquidity beyond the accruals already provided.

Note 14 – Financial instruments: