10-Q 1 nl-20220630x10q.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, 2022

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 July 28, 2022  48,815,734.

NL INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

Page
number

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets -
December 31, 2021; June 30, 2022 (unaudited)

3

Condensed Consolidated Statements of Income (unaudited) -
Three and six months ended June 30, 2021 and 2022

5

Condensed Consolidated Statements of Comprehensive Income (unaudited) -
Three and six months ended June 30, 2021 and 2022

6

Condensed Consolidated Statements of Equity (unaudited) -
Three and six months ended June 30, 2021 and 2022

7

Condensed Consolidated Statements of Cash Flows (unaudited) -
Six months ended June 30, 2021 and 2022

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

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 6.

Exhibits

35

Items 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, 

June 30, 

    

2021

    

2022

 

  

 

  (unaudited)

ASSETS

Current assets:

 

  

 

  

Cash and cash equivalents

$

147,002

$

151,248

Restricted cash and cash equivalents

 

2,765

 

2,827

Accounts and other receivables, net

 

15,609

 

17,599

Receivables from affiliates

106

Inventories, net

 

25,642

 

33,303

Prepaid expenses and other

 

2,630

 

3,881

Total current assets

 

193,648

 

208,964

Other assets:

 

  

 

  

Restricted cash and cash equivalents

 

25,475

 

25,422

Note receivable from affiliate

 

18,700

 

16,600

Marketable securities

 

34,435

 

54,306

Investment in Kronos Worldwide, Inc.

 

264,803

 

275,853

Goodwill

 

27,156

 

27,156

Other assets, net

 

2,753

 

2,645

Total other assets

 

373,322

 

401,982

Property and equipment:

 

  

 

  

Land

 

5,071

 

5,071

Buildings

 

23,161

 

23,174

Equipment

 

70,664

 

72,754

Construction in progress

 

2,028

 

1,389

 

100,924

 

102,388

Less accumulated depreciation

 

71,742

 

72,929

Net property and equipment

 

29,182

 

29,459

Total assets

$

596,152

$

640,405

3

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

December 31, 

June 30, 

    

2021

    

2022

(unaudited)

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

3,408

$

6,420

Accrued litigation settlement

 

11,830

 

11,943

Accrued and other current liabilities

 

12,025

 

9,701

Accrued environmental remediation and related costs

 

2,643

 

2,753

Payables to affiliates

 

691

 

682

Total current liabilities

 

30,597

 

31,499

Noncurrent liabilities:

Long-term debt from affiliate

 

500

 

500

Accrued environmental remediation and related costs

 

90,297

 

90,283

Long-term litigation settlement

 

38,519

 

38,886

Deferred income taxes

 

44,056

 

51,801

Accrued pension costs

 

3,722

 

3,116

Other

 

3,490

 

3,343

Total noncurrent liabilities

 

180,584

 

187,929

Equity:

NL stockholders' equity:

Common stock

 

6,100

 

6,101

Additional paid-in capital

 

299,775

 

298,932

Retained earnings

 

297,351

 

339,327

Accumulated other comprehensive loss

 

(240,756)

 

(246,319)

Total NL stockholders' equity

 

362,470

 

398,041

Noncontrolling interest in subsidiary

 

22,501

 

22,936

Total equity

 

384,971

 

420,977

Total liabilities and equity

$

596,152

$

640,405

Commitments and contingencies (Notes 12 and 14)

See accompanying notes to Condensed Consolidated Financial Statements.

4

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

Three months ended

Six months ended

June 30, 

June 30, 

    

2021

    

2022

    

2021

    

2022

(unaudited)

Net sales

$

36,253

$

41,675

$

72,177

$

83,725

Cost of sales

 

24,947

 

28,046

 

49,836

 

58,016

Gross margin

 

11,306

 

13,629

 

22,341

 

25,709

Selling, general and administrative expense

 

5,548

 

5,884

 

10,766

 

11,658

Corporate expense

 

2,871

 

3,540

 

4,716

 

5,976

Income from operations

 

2,887

 

4,205

 

6,859

 

8,075

Equity in earnings of Kronos Worldwide, Inc.

 

7,816

 

13,991

 

13,784

 

31,524

Other income (expense):

 

  

 

  

 

  

 

  

Interest and dividend income

 

423

 

567

 

863

 

876

Marketable equity securities

 

4,575

 

19,200

 

10,935

 

19,871

Other components of net periodic pension and OPEB cost

 

(196)

 

(223)

 

(267)

 

(446)

Interest expense

 

(299)

 

(248)

 

(597)

 

(494)

Income before income taxes

 

15,206

 

37,492

 

31,577

 

59,406

Income tax expense

 

1,901

 

6,435

 

4,406

 

9,140

Net income

 

13,305

 

31,057

 

27,171

 

50,266

Noncontrolling interest in net income of subsidiary

 

608

 

805

 

1,217

 

1,457

Net income attributable to NL stockholders

$

12,697

$

30,252

$

25,954

$

48,809

Amounts attributable to NL stockholders:

 

  

 

  

 

  

 

  

Basic and diluted net income per share

$

.26

$

.62

$

.53

$

1.00

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

 

48,795

 

48,809

 

48,792

 

48,806

See accompanying notes to Condensed Consolidated Financial Statements.

5

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

    

Three months ended

Six months ended

June 30, 

June 30, 

    

2021

    

2022

    

2021

    

2022

(unaudited)

Net income

$

13,305

$

31,057

$

27,171

$

50,266

Other comprehensive income (loss), net of tax:

 

  

 

  

 

  

 

  

Currency translation

 

402

 

(8,741)

 

947

 

(7,161)

Defined benefit pension plans

 

1,144

 

856

 

2,295

 

1,729

Other postretirement benefit plans

 

(64)

 

(63)

 

(135)

 

(131)

Total other comprehensive income (loss), net

 

1,482

 

(7,948)

 

3,107

 

(5,563)

Comprehensive income

 

14,787

 

23,109

 

30,278

 

44,703

Comprehensive income attributable to noncontrolling interest

 

608

 

805

 

1,217

 

1,457

Comprehensive income attributable to NL stockholders

$

14,179

$

22,304

$

29,061

$

43,246

See accompanying notes to Condensed Consolidated Financial Statements.

6

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

Three months ended June 30, 2021 and 2022 (unaudited)

Accumulated

Additional

other

Noncontrolling

Common

paid-in

Retained

comprehensive

interest in

Total

    

stock

    

capital

    

earnings

    

loss

    

subsidiary

    

equity

Balance at March 31, 2021

$

6,098

$

300,097

$

268,205

$

(249,564)

$

21,983

$

346,819

Net income

 

 

 

12,697

 

 

608

 

13,305

Other comprehensive income, net of tax

 

 

 

 

1,482

 

 

1,482

Issuance of NL common stock

2

99

101

Dividends paid - $.06 per share

 

 

 

(2,928)

 

 

 

(2,928)

Dividends paid to noncontrolling interest

 

 

 

 

 

(330)

 

(330)

Equity transactions with noncontrolling
  interest, net and other

113

13

126

Balance at June 30, 2021

$

6,100

$

300,309

$

277,974

$

(248,082)

$

22,274

$

358,575

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

Six months ended June 30, 2021 and 2022 (unaudited)

Accumulated

Additional

other

Noncontrolling

Common

paid-in

Retained

comprehensive

interest in

Total

    

stock

    

capital

    

earnings

    

loss

    

subsidiary

    

equity

Balance at December 31, 2020

$

6,098

$

299,093

$

257,875

$

(251,189)

$

23,472

$

335,349

Net income

 

 

 

25,954

 

 

1,217

 

27,171

Other comprehensive income, net of tax

 

 

 

 

3,107

 

 

3,107

Issuance of NL common stock

2

99

101

Dividends paid - $.12 per share

 

 

 

(5,855)

 

 

 

(5,855)

Dividends paid to noncontrolling interest

 

 

 

 

 

(669)

 

(669)

Other, net

 

 

1,117

 

 

 

(1,746)

 

(629)

Balance at June 30, 2021

$

6,100

$

300,309

$

277,974

$

(248,082)

$

22,274

$

358,575

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

See accompanying notes to Condensed Consolidated Financial Statements.

7

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

    

Six months ended

June 30, 

    

2021

    

2022

(unaudited)

Cash flows from operating activities:

Net income

$

27,171

$

50,266

Depreciation and amortization

 

1,900

 

1,956

Deferred income taxes

 

4,359

 

9,099

Equity in earnings of Kronos Worldwide, Inc.

 

(13,784)

 

(31,524)

Dividends received from Kronos Worldwide, Inc.

 

12,678

 

13,384

Marketable equity securities

 

(10,935)

 

(19,871)

Noncash interest expense

 

584

 

480

Benefit plan expense greater (less) than cash funding

(191)

278

Other, net

 

26

 

(32)

Change in assets and liabilities:

 

  

 

  

Accounts and other receivables, net

 

(5,559)

 

(1,995)

Inventories, net

 

(1,691)

 

(7,735)

Prepaid expenses and other

 

(355)

 

(1,249)

Accounts payable and accrued liabilities

 

(367)

 

663

Accounts with affiliates

 

327

 

(115)

Accrued environmental remediation and related costs

 

(506)

 

96

Other noncurrent assets and liabilities, net

 

(43)

 

(76)

Net cash provided by operating activities

 

13,614

 

13,625

Cash flows from investing activities:

 

  

 

Capital expenditures

 

(1,598)

 

(2,215)

Note receivable from affiliate:

 

  

 

Collections

 

22,200

 

12,400

Loans

 

(18,700)

 

(10,300)

Other, net

150

Net cash provided by investing activities

 

1,902

 

35

Cash flows from financing activities:

 

  

 

  

Dividends paid

 

(5,855)

 

(6,833)

Subsidiary treasury stock acquired

(755)

(1,744)

Dividends paid to noncontrolling interests in subsidiary

 

(669)

 

(812)

Other, net

(16)

Net cash used in financing activities

 

(7,279)

 

(9,405)

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

Operating, investing and financing activities

8,237

4,255

Balance at beginning of period

 

165,272

 

175,242

Balance at end of period

$

173,509

$

179,497

Supplemental disclosures - cash paid for:

 

  

 

  

Interest

$

13

$

14

Income taxes, net

 

34

 

164

See accompanying notes to Condensed Consolidated Financial Statements.

8

NL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(unaudited)

Note 1 – Organization and basis of presentation:

Organization – At June 30, 2022, Valhi, Inc. (NYSE: VHI) held approximately 83% of our outstanding common stock and a wholly-owned subsidiary of Contran Corporation held approximately 92% 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, 2022 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, 2021 that we filed with the SEC on March 9, 2022 (the “2021 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, 2021 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, 2021) 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, 2022 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 2021 Consolidated Financial Statements contained in our 2021 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, 

    

2021

    

2022

(In thousands)

Trade receivables - CompX

$

15,616

$

17,643

Accrued insurance recoveries

 

43

 

Other receivables

 

20

 

26

Allowance for doubtful accounts

 

(70)

 

(70)

Total

$

15,609

$

17,599

9

Note 3 – Inventories, net:

December 31, 

June 30, 

    

2021

    

2022

(In thousands)

Raw materials

$

5,042

$

7,249

Work in process

 

16,767

 

20,958

Finished products

 

3,833

 

5,096

Total

$

25,642

$

33,303

Note 4 – Marketable securities:

Our marketable securities consist of investments 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. Any unrealized gains or losses on the securities are recognized in Marketable equity securities on our Condensed Consolidated Statements of Income.

Fair value

measurement

Market

Cost

Unrealized

    

level

    

value

    

basis

    

gain

(In thousands)

December 31, 2021

Noncurrent assets

Valhi common stock

 

1

$

34,435

$

24,347

$

10,088

June 30, 2022

Noncurrent assets

Valhi common stock

 

1

$

54,306

$

24,347

$

29,959

At December 31, 2021 and June 30, 2022, we held approximately 1.2 million shares of common stock of our immediate parent company, Valhi, Inc. At December 31, 2021 and June 30, 2022, the quoted per share market price of Valhi common stock was $28.75 and $45.34, 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, 2021 and June 30, 2022, we owned approximately 35.2 million shares of Kronos common stock. At June 30, 2022, the quoted market price of Kronos’ common stock was $18.40 per share, or an aggregate market value of $648.0 million. At December 31, 2021, the quoted market price was $15.01 per share, or an aggregate market value of $528.6 million.

The change in the carrying value of our investment in Kronos during the first six months of 2022 is summarized below.

    

Amount

(In millions)

Balance at the beginning of the period

$

264.8

Equity in earnings of Kronos

 

31.5

Dividends received from Kronos

 

(13.4)

Equity in Kronos' other comprehensive income:

Currency translation

(9.0)

Defined benefit pension plans

1.4

Other

.6

Balance at the end of the period

$

275.9

10

Selected financial information of Kronos is summarized below:

December 31, 

June 30, 

    

2021

    

2022

(In millions)

Current assets

$

1,258.0

$

1,247.9

Property and equipment, net

 

503.4

 

472.0

Investment in TiO2 joint venture

 

101.9

 

106.0

Other noncurrent assets

 

149.5

 

137.6

Total assets

$

2,012.8

$

1,963.5

Current liabilities

$

288.8

$

281.5

Long-term debt

 

449.8