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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
(Exact name of Registrant as specified in its charter)
| ||
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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.
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).
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 | ☐ |
☒ | 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
Number of shares of the registrant’s common stock, $.125 par value per share, outstanding on May 1, 2025
NL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
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, | |||||
| 2024 |
| 2025 | |||
|
|
| (unaudited) | |||
ASSETS | ||||||
Current assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash and cash equivalents |
| |
| | ||
Accounts and other receivables, net |
| |
| | ||
Inventories, net |
| |
| | ||
Prepaid expenses and other |
| |
| | ||
Total current assets |
| |
| | ||
Other assets: |
|
|
|
| ||
Restricted cash and cash equivalents |
| |
| | ||
Note receivable from affiliate |
| |
| | ||
Marketable securities |
| |
| | ||
Investment in Kronos Worldwide, Inc. |
| |
| | ||
Goodwill |
| |
| | ||
Other assets, net |
| |
| | ||
Total other assets |
| |
| | ||
Property and equipment: |
|
|
|
| ||
Land |
| |
| | ||
Buildings |
| |
| | ||
Equipment |
| |
| | ||
Construction in progress |
| |
| | ||
| |
| | |||
Less accumulated depreciation |
| |
| | ||
Net property and equipment |
| |
| | ||
Total assets | $ | | $ | | ||
3
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
December 31, | March 31, | |||||
| 2024 |
| 2025 | |||
(unaudited) | ||||||
LIABILITIES AND EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued litigation settlement |
| |
| | ||
Accrued and other current liabilities |
| |
| | ||
Accrued environmental remediation and related costs |
| |
| | ||
Payables to affiliates |
| |
| | ||
Total current liabilities |
| |
| | ||
Noncurrent liabilities: | ||||||
Long-term debt from affiliate |
| |
| | ||
Accrued environmental remediation and related costs |
| |
| | ||
Deferred income taxes |
| |
| | ||
Accrued pension costs |
| |
| | ||
Other |
| |
| | ||
Total noncurrent liabilities |
| |
| | ||
Equity: | ||||||
NL stockholders' equity: | ||||||
Preferred stock | ||||||
Common stock |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Retained earnings |
| |
| | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Total NL stockholders' equity |
| |
| | ||
Noncontrolling interest in subsidiary |
| |
| | ||
Total equity |
| |
| | ||
Total liabilities and equity | $ | | $ | | ||
Commitments and contingencies (Notes 13 and 15)
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 | ||||||
March 31, | ||||||
| 2024 |
| 2025 | |||
(unaudited) | ||||||
Net sales | $ | | $ | | ||
Cost of sales |
| |
| | ||
Gross margin |
| |
| | ||
Selling, general and administrative expense |
| |
| | ||
Corporate expense |
| |
| | ||
Income from operations |
| |
| | ||
Equity in earnings of Kronos Worldwide, Inc. |
| |
| | ||
Other income (expense): |
|
|
|
| ||
Interest and dividend income |
| |
| | ||
Marketable equity securities |
| |
| ( | ||
Other components of net periodic pension and OPEB cost |
| ( |
| ( | ||
Interest expense |
| ( |
| ( | ||
Income before income taxes |
| |
| | ||
Income tax expense (benefit) |
| |
| ( | ||
Net income |
| |
| | ||
Noncontrolling interest in net income of subsidiary |
| |
| | ||
Net income attributable to NL stockholders | $ | | $ | | ||
Amounts attributable to NL stockholders: |
|
|
|
| ||
Basic and diluted net income per share | $ | | $ | | ||
Weighted average shares used in the calculation of |
| |
| | ||
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 | |||||
March 31, | ||||||
| 2024 |
| 2025 | |||
(unaudited) | ||||||
Net income | $ | | $ | | ||
Other comprehensive income (loss), net of tax: |
|
|
|
| ||
Currency translation |
| ( |
| | ||
Defined benefit pension plans |
| |
| | ||
Marketable debt securities | | — | ||||
Other postretirement benefit plans |
| ( |
| ( | ||
Total other comprehensive income (loss), net |
| ( |
| | ||
Comprehensive income |
| |
| | ||
Comprehensive income attributable to noncontrolling interest |
| |
| | ||
Comprehensive income attributable to NL stockholders | $ | | $ | | ||
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, 2024 and 2025 (unaudited) | ||||||||||||||||||
Accumulated | ||||||||||||||||||
Additional | other | Noncontrolling | ||||||||||||||||
Common | paid-in | Retained | comprehensive | interest in | Total | |||||||||||||
| stock |
| capital |
| earnings |
| loss |
| subsidiary |
| equity | |||||||
Balance at December 31, 2023 | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Net income |
| — |
| — |
| |
| — |
| |
| | ||||||
Other comprehensive loss, net of tax |
| — |
| — |
| — |
| ( |
| ( |
| ( | ||||||
Dividends paid - $ |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Dividends paid to noncontrolling interest |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance at March 31, 2024 | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Balance at December 31, 2024 | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Net income |
| — |
| — |
| |
| — |
| |
| | ||||||
Other comprehensive income, net of tax |
| — |
| — |
| — |
| |
| — |
| | ||||||
Dividends paid - $ |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Dividends paid to noncontrolling interest |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance at March 31, 2025 | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||
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, | ||||||
| 2024 |
| 2025 | |||
(unaudited) | ||||||
Cash flows from operating activities: | ||||||
Net income | $ | | $ | | ||
Depreciation and amortization | |
| | |||
Deferred income taxes |
| |
| ( | ||
Equity in earnings of Kronos Worldwide, Inc. |
| ( |
| ( | ||
Dividends received from Kronos Worldwide, Inc. |
| |
| | ||
Marketable equity securities |
| ( |
| | ||
Benefit plan expense greater than cash funding |
| |
| | ||
Noncash interest income | ( | | ||||
Noncash interest expense |
| |
| | ||
Other, net |
| ( |
| | ||
Change in assets and liabilities: |
|
|
|
| ||
Accounts and other receivables, net |
| ( |
| | ||
Inventories, net |
| |
| ( | ||
Prepaid expenses and other |
| |
| | ||
Accounts payable and accrued liabilities |
| ( |
| ( | ||
Accounts with affiliates |
| |
| | ||
Accrued environmental remediation and related costs |
| ( |
| ( | ||
Other noncurrent assets and liabilities, net |
| ( |
| ( | ||
Net cash provided by (used in) operating activities |
| |
| ( | ||
Cash flows from investing activities: |
|
|
| |||
Capital expenditures |
| ( |
| ( | ||
Proceeds from maturities of marketable securities | | — | ||||
Note receivable from affiliate: |
|
|
| |||
Collections |
| |
| | ||
Loans |
| ( |
| ( | ||
Other | — | | ||||
Net cash provided by (used in) investing activities |
| |
| ( | ||
Cash flows from financing activities: |
|
|
| |||
Dividends paid |
| ( |
| ( | ||
Dividends paid to noncontrolling interests in subsidiary |
| ( |
| ( | ||
Net cash used in financing activities |
| ( |
| ( | ||
Cash and cash equivalents and restricted cash and cash | ||||||
Operating, investing and financing activities | | ( | ||||
Balance at beginning of year |
| |
| | ||
Balance at end of period | $ | | $ | | ||
Supplemental disclosures: |
|
|
|
| ||
Cash paid (received) for: | ||||||
Interest | $ | | $ | | ||
Income taxes, net |
| ( |
| — | ||
Noncash investing activities - |
|
|
|
| ||
Change in accruals for capital expenditures | $ | ( | $ | ( | ||
See accompanying Notes to Condensed Consolidated Financial Statements.
8
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(unaudited)
Note 1 – Organization and basis of presentation:
Organization – At March 31, 2025, Valhi, Inc. (NYSE: VHI) held approximately
Basis of presentation – Consolidated in this Quarterly Report are the results of our majority-owned subsidiary, CompX International Inc. We also own approximately
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, 2024 that we filed with the SEC on March 6, 2025 (the “2024 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, 2024 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, 2024) 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, 2025 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 2024 Consolidated Financial Statements contained in our 2024 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.
9
Note 2 – Segment information:
Our chief operating decision maker (“CODM”) evaluates segment performance based on net income and segment profit (a non-GAAP measure), which we define as gross margin less selling, general and administrative expenses directly attributable to CompX. Differences between segment profit and the amounts included in net income are included in the table below. Depreciation and amortization amounts included in the calculation of segment profit all relate to CompX and were $
Three months ended March 31, | ||||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Net sales | $ | | $ | | ||
Segment profit | | | ||||
Corporate expenses | ( | ( | ||||
Equity in earnings of Kronos Worldwide, Inc. | | | ||||
Interest and dividend income | | | ||||
Marketable equity securities | | ( | ||||
Other components of net periodic pension and OPEB cost | ( | ( | ||||
Interest expense | ( | ( | ||||
Income tax (expense) benefit | ( | | ||||
Net income | $ | | $ | | ||
See the Condensed Consolidated Financial Statements for additional financial information regarding the Company’s operating segment.
Note 3 – Accounts and other receivables, net:
December 31, | March 31, | |||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Trade receivables - CompX | $ | | $ | | ||
Other receivables |
| |
| | ||
Allowance for doubtful accounts |
| ( |
| ( | ||
Total | $ | | $ | | ||
Other receivables are discussed in Note 15.
Note 4 – Inventories, net:
December 31, | March 31, | |||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Raw materials | $ | | $ | | ||
Work in process |
| |
| | ||
Finished products |
| |
| | ||
Total | $ | | $ | | ||
Note 5 – Marketable securities:
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
10
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 Income.
Fair value | Cost or | ||||||||||
measurement | Market | amortized | Unrealized | ||||||||
| level |
| value |
| cost |
| gain (loss), net | ||||
(In thousands) | |||||||||||
December 31, 2024 | |||||||||||
Noncurrent assets - Valhi common stock |
| 1 | $ | | $ | | $ | | |||
March 31, 2025 | |||||||||||
Noncurrent assets - Valhi common stock | 1 | $ | | $ | | $ | ( | ||||
At December 31, 2024 and March 31, 2025, we held approximately
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 6 – Investment in Kronos Worldwide, Inc.:
At December 31, 2024 and March 31, 2025, we owned approximately
The change in the carrying value of our investment in Kronos during the first three months of 2025 is summarized below.
| Amount | ||
(In millions) | |||
Balance at the beginning of the period | $ | | |
Equity in earnings of Kronos |
| | |
Dividends received from Kronos |
| ( | |
Equity in Kronos' other comprehensive income: | |||
Currency translation | | ||
Defined benefit pension plans | | ||
Balance at the end of the period | $ | | |
11
Selected financial information of Kronos is summarized below:
December 31, | March 31, | |||||
| 2024 |
| 2025 | |||
(In millions) | ||||||
Current assets | $ | | $ | | ||
Property and equipment, net |
| |
| | ||
Other noncurrent assets |
| |
| | ||
Total assets | $ | | $ | | ||
Current liabilities | $ | | $ | | ||
Long-term debt |
| |
| | ||
Accrued pension costs |
| |
| | ||
Other noncurrent liabilities |
| |
| | ||
Stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
Three months ended | ||||||
March 31, | ||||||
| 2024 |
| 2025 | |||
(In millions) | ||||||
Net sales | $ | | $ | | ||
Cost of sales |
| |
| | ||
Income from operations |
| |
| | ||
Income tax expense |
| |
| | ||
Net income |
| |
| | ||
Effective July 16, 2024 (“Acquisition Date”), Kronos acquired the
Note 7 – Other assets, net:
December 31, | March 31, | |||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Pension asset | $ | | $ | | ||
Other |
| |
| | ||
Total | $ | | $ | | ||
12
Note 8 – Accrued and other current liabilities:
December 31, | March 31, | |||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Employee benefits | $ | | $ | | ||
Other |
| |
| | ||
Total | $ | | $ | | ||
Note 9 – Long-term debt:
During the first three months of 2025, our wholly-owned subsidiary, NLKW Holding, LLC had
Note 10 – Other noncurrent liabilities:
December 31, | March 31, | |||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Reserve for uncertain tax positions | $ | | $ | — | ||
OPEB |
| |
| | ||
Insurance claims and expenses |
| |
| | ||
Other |
| |
| | ||
Total | $ | | $ | | ||
Note 11 – 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, | ||||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Net sales: | ||||||
Security Products | $ | | $ | | ||
Marine Components |
| |
| | ||
Total | $ | | $ | | ||
Note 12 – Employee benefit plans:
The components of net periodic defined benefit pension cost are presented in the table below.
Three months ended | ||||||
March 31, | ||||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
$ | | $ | | |||
( | ( | |||||
| |
| | |||
Total | $ | | $ | | ||
We do
13
Note 13 – Income taxes:
Three months ended | ||||||
March 31, | ||||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Expected tax expense, at U.S. federal statutory income tax rate of | $ | | $ | | ||
Rate differences on equity in earnings of Kronos, net of dividends |
| ( |
| ( | ||
U.S. state income taxes and other, net |
| |
| | ||
Income tax expense (benefit) | $ | | $ | ( | ||
Comprehensive provision (benefit) for income taxes allocable to: |
|
|
|
| ||
Net income | $ | | $ | ( | ||
Other comprehensive income (loss): |
|
|
| |||
Currency translation |
| ( |
| | ||
Pension plans |
| |
| | ||
Other |
| ( |
| ( | ||
Total | $ | ( | $ | | ||
In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings 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 $
14
Note 14 – 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 6), are presented in the table below.
Three months ended | ||||||
March 31, | ||||||
| 2024 |
| 2025 | |||
(In thousands) | ||||||
Accumulated other comprehensive loss, (net of tax and noncontrolling interest): | ||||||
Currency translation: | ||||||
Balance at beginning of period | $ | ( | $ | ( | ||
Other comprehensive income (loss) |
| ( |
| | ||
Balance at end of period | $ | ( | $ | ( | ||
Defined benefit pension plans: | ||||||
Balance at beginning of period | $ | ( | $ | ( | ||
Other comprehensive income - | ||||||
Amortization of prior service cost and net losses included in net periodic pension cost |
| |
| | ||
Balance at end of period | $ | ( | $ | ( | ||
OPEB plans: | ||||||
Balance at beginning of period | $ | ( | $ | ( | ||
Other comprehensive loss - | ||||||
Amortization of net gain included in net periodic OPEB cost |
| ( |
| ( | ||
Balance at end of period | $ | ( | $ | ( | ||
Marketable debt securities: | ||||||
Balance at beginning of period | $ | ( | $ | | ||
Other comprehensive income - unrealized gain arising during the period | | | ||||
Balance at end of period | $ | | $ | | ||
Total accumulated other comprehensive loss: | ||||||
Balance at beginning of period | $ | ( | $ | ( | ||
Other comprehensive income (loss) | ( | | ||||
Balance at end of period | $ | ( | $ | ( | ||
See Note 12 for amounts related to our defined benefit pension plans.
Note 15 – 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.
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
15
Industries Association (“LIA”), which discontinued business operations in 2002, have previously 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 were filed by or on behalf of states, counties, cities or their public housing authorities and school districts, and certain others were asserted as class actions. We currently have no pending lead paint class action cases or pending lead paint cases brought by housing authorities, school districts or other government entities.
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 one installment payment of $
New cases may continue to be filed against us. We do not know if we will incur liability in the future in respect of 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.
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, |
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| ● | 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 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 2025 are as follows:
Amount | |||
| (In thousands) | ||
$ | | ||
Additions charged to expense, net |
| | |
Payments, net |
| ( | |
Balance at the end of the period | $ | | |
Amounts recognized in the Condensed Consolidated Balance Sheet at the end of the period: | |||
Current liability | $ | | |
Noncurrent liability | | ||
Balance at the end of the period | $ | | |
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, 2025, we had accrued approximately $
In February, 2025, the United States District Court for the District of New Jersey entered an order approving a consent decree relating to the Raritan Bay Slag Superfund Site (“RBS Site”) in Middlesex County, New Jersey. The consent decree required the United States Army Corps of Engineers (and other federal agencies), the State of New Jersey, the Township of Old Bridge, NL, and twenty-two other private companies to pay a total of $
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relating to the RBS Site. The consent decree is a global settlement of all such claims relating to the RBS Site and resolves a lawsuit captioned United States of America, et al. v. NL Industries, Inc., et al. (United States District Court for the District of New Jersey, Civil Action No. 3:24-cv-08946) as well as all claims asserted by NL and the other settling parties in NL’s previously filed contribution lawsuit, NL Industries, Inc. v. Old Bridge Township, et al., discussed above.
Under the terms of the consent decree, in the first quarter of 2025 we paid $
We believe it is not reasonably possible to estimate the range of costs for certain sites. At March 31, 2025, there were approximately
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 asbestos 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. In this regard insurance recoveries were nominal in the first quarter of 2024 and
For a complete discussion of certain litigation involving us and certain of our former insurance carriers, refer to our 2024 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 16 – Financial instruments:
See Note 5 for information on how we determine fair value of our marketable securities.
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The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure:
December 31, 2024 | March 31, 2025 | |||||||||||
Carrying | Fair | Carrying | Fair | |||||||||
| amount |
| value |
| amount |
| value | |||||
(In thousands) | ||||||||||||
Cash, cash equivalents and restricted cash | $ | $ | $ | $ | $ | |||||||
Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value.
Note 17 – Recent Accounting Pronouncements:
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires additional annual disclosure and disaggregation for the rate reconciliation, income taxes paid and income tax expense by federal, state and non-U.S. tax jurisdictions. In addition, the standard increases the disclosure requirements for items included in the rate reconciliation that meet a quantitative threshold. The ASU is effective for us beginning with our 2025 Annual Report. The ASU may be applied prospectively; however, entities have the option to apply it retrospectively. We are in the process of evaluating the additional disclosure requirements.
In November 2024, the FASB issued ASU No. 2024-03, Reporting Comprehensive Income - Expense Disaggregation Disclosures. The ASU requires additional information about specific expense categories in the notes to financial statements for both interim and annual reporting periods. The ASU is effective for us beginning with our 2027 Annual Report, and for interim reporting, in the first quarter of 2028, with early adoption permitted. We are in the process of evaluating the additional disclosure requirements.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
RESULTS OF OPERATIONS
Business overview
We are primarily a holding company. We operate in the component products industry through our majority-owned subsidiary, CompX International Inc. We also own a non-controlling interest in Kronos Worldwide, Inc. Both CompX (NYSE American: CIX) and Kronos (NYSE: KRO) file periodic reports with the Securities and Exchange Commission (“SEC”).
CompX is a leading manufacturer of engineered components utilized in a variety of applications and industries. Through its Security Products operations, CompX manufactures mechanical and electronic cabinet locks and other locking mechanisms used in postal, recreational transportation, office and institutional furniture, cabinetry, tool storage and healthcare applications. CompX also manufactures wake enhancement systems, stainless steel exhaust systems, gauges, throttle controls, trim tabs and related hardware and accessories for the recreational marine and other industries through its Marine Components operations.
We account for our approximate 31% non-controlling interest in Kronos by the equity method. Kronos is a leading global producer and marketer of value-added titanium dioxide pigments (“TiO2”). TiO2 is used for a variety of manufacturing applications including paints, plastics, paper and other industrial and specialty products.
Forward-looking information
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking in nature and represent management’s beliefs and assumptions based on currently available information. Statements in this report including, but not limited to, statements found in Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements that represent our management’s beliefs and assumptions based on currently available information. In some cases you can identify forward-looking statements by the use of words such as “believes,” “intends,” “may,” “should,” “could,” “anticipates,” “expects” or comparable terminology, or by discussions of strategies or trends. Although we believe the expectations reflected in forward-looking statements are reasonable, we do not know if these expectations will be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. The factors that could cause our actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the SEC including, but are not limited to, the following:
| ● | Future supply and demand for our products; |
| ● | Kronos’ ability to realize expected cost savings from strategic and operational initiatives; |
| ● | Kronos’ ability to integrate acquisitions, including Louisiana Pigment Company, L.P., into its operations and realize expected synergies and innovations; |
| ● | The extent of the dependence of certain of our businesses on certain market sectors; |
| ● | The cyclicality of our businesses (such as Kronos’ TiO2 operations); |
| ● | Customer and producer inventory levels; |
| ● | Unexpected or earlier-than-expected industry capacity expansion (such as the TiO2 industry); |
| ● | Changes in raw material and other operating costs (such as energy, ore, zinc, aluminum, steel and brass costs), including as a result of additional or changed tariffs on imported raw materials, and our ability to pass those costs on to our customers or offset them with reductions in other operating costs; |
| ● | Changes in the availability of raw materials (such as ore); |
| ● | General global economic and political conditions that harm the worldwide economy, disrupt our supply chain, increase material and energy costs or reduce demand or perceived demand for TiO2 and our products or impair our ability to operate our facilities (including changes in the level of gross domestic product in various regions of the world, tariffs, natural disasters, terrorist acts, global conflicts and public health crises); |
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| ● | Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, certain regional and world events or economic conditions and public health crises); |
| ● | Technology related disruptions (including, but not limited to, cyber-attacks; software implementation, upgrades, or improvements; technology processing failures; or other events) related to our technology infrastructure that could impact our ability to continue operations, or at key vendors which could impact our supply chain, or at key customers which could impact their operations and cause them to curtail or pause orders; |
| ● | Competitive products and substitute products; |
| ● | Competition from Chinese suppliers with less stringent regulatory and environmental compliance requirements; |
| ● | Customer and competitor strategies; |
| ● | Potential consolidation of Kronos’ competitors; |
| ● | Potential consolidation of Kronos’ customers; |
| ● | The impact of pricing and production decisions; |
| ● | Competitive technology positions; |
| ● | Our ability to protect or defend intellectual property rights; |
| ● | Potential difficulties in integrating future acquisitions; |
| ● | Potential difficulties in upgrading or implementing accounting and manufacturing software systems; |
| ● | The introduction of new, or changes in existing, tariffs, trade barriers or trade disputes (including tariffs imposed by the U.S. federal government on imports from Canada, where Kronos has a manufacturing facility); |
| ● | Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian krone and the Canadian dollar and between the euro and the Norwegian krone), or possible disruptions to our business resulting from uncertainties associated with the euro or other currencies; |
| ● | Decisions to sell operating assets other than in the ordinary course of business; |
| ● | Kronos’ ability to renew or refinance credit facilities or other debt instruments in the future; |
| ● | Changes in interest rates; |
| ● | Kronos’ ability to comply with covenants contained in its revolving bank credit facility; |
| ● | Our ability to maintain sufficient liquidity; |
| ● | The timing and amounts of insurance recoveries; |
| ● | The ability of our subsidiaries or affiliates to pay us dividends; |
| ● | Uncertainties associated with CompX’s development of new products and product features; |
| ● | The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform; |
| ● | Our ability to utilize income tax attributes or changes in income tax rates related to such attributes, the benefits of which may or may not have been recognized under the more-likely-than-not recognition criteria; |
| ● | Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities or new developments regarding environmental remediation or decommissioning obligations at sites related to our former operations); |
| ● | Government laws and regulations and possible changes therein (such as changes in government regulations which might impose various obligations on former manufacturers of lead pigment and lead-based paint, including us, with respect to asserted health concerns associated with the use of such products), including new environmental, sustainability, health and safety or other regulations (such as those seeking to limit or classify TiO2 or its use); |
| ● | The ultimate resolution of pending litigation (such as our lead pigment and environmental matters); and |
| ● | Pending or possible future litigation (such as litigation related to CompX’s use of certain permitted chemicals in its productions process) or other actions. |
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Should one or more of these risks materialize (or if the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.
Results of operations
Net income overview
Quarter ended March 31, 2025 compared to the quarter ended March 31, 2024
Our net income attributable to NL stockholders was $.7 million, or $.01 per share, in the first quarter of 2025 compared to $6.8 million, or $.14 per share, in the first quarter of 2024. As more fully described below, the decrease in our net income attributable to NL stockholders from 2024 to 2025 is primarily due to the net effects of:
| ● | an unrealized loss in the relative value of marketable equity securities of $8.5 million in 2025 compared to an unrealized gain of $2.4 million in 2024; |
| ● | equity in earnings of Kronos of $5.5 million in 2025 compared to $2.5 million in 2024; and |
| ● | higher CompX segment profit of $5.9 million in 2025 compared to $3.7 million in 2024. |
Our 2024 net income per share attributable to NL stockholders includes a loss of $.01 per share due to Kronos’ recognition of an aggregate charge related to a write-off of deferred financing costs.
Income from operations
The following table shows the components of our income from operations.
Three months ended | % | ||||||||
| 2024 |
| 2025 |
| Change |
| |||
(In millions) | |||||||||
CompX segment profit | $ | 3.7 | $ | 5.9 | 58 | % | |||
Corporate expense | (2.4) | (2.7) | 15 | ||||||
Income from operations | $ | 1.3 | $ | 3.2 | 132 | ||||
CompX is our component products business and corporate expense relates to NL. Each of these items is further discussed below.
The following table shows the components of our income before income taxes exclusive of our income from operations.
Three months ended |
| % |
| ||||||
| 2024 |
| 2025 |
| Change |
| |||
(In millions) |
| ||||||||
Equity in earnings of Kronos | $ | 2.5 | $ | 5.5 |
| 123 | % | ||
Marketable equity securities |
| 2.4 |
| (8.5) |
| (459) | |||
Other components of net periodic pension and OPEB cost |
| (.3) |
| (.3) |
| (10) | |||
Interest and dividend income |
| 2.6 |
| 2.0 |
| (20) | |||
Interest expense |
| (.2) |
| (.6) |
| 297 | |||
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CompX International Inc.
In the first quarter of 2025, CompX’s segment profit increased to $5.9 million compared to $3.7 million in the first quarter of 2024. The increase in segment profit in the first quarter of 2025 compared to 2024 is primarily due to higher Marine Components reporting unit sales and gross margin.
| Three months ended |
| % | ||||||
| 2024 | 2025 |
| Change | |||||
(In millions) | |||||||||
Net sales | $ | 38.0 | $ | 40.3 | 6 | % | |||
Cost of sales | 28.3 | 28.1 | (1) |
| |||||
Gross margin | 9.7 | 12.2 | 26 |
| |||||
Selling, general and administrative expenses | 6.0 | 6.3 | 6 |
| |||||
Segment profit (1) | $ | 3.7 | $ | 5.9 | 58 |
| |||
Percentage of net sales: | |||||||||
Cost of sales | 75 | % | 70 | % | |||||
Gross margin | 25 | 30 |
| ||||||
Selling, general and administrative expenses | 16 | 16 |
| ||||||
Segment profit | 10 | 15 |
| ||||||
| (1) | We use segment profit to assess the performance of CompX. Segment profit is defined as gross margin less selling, general and administrative expenses directly attributable to CompX’s operations. |
Net sales – CompX’s net sales increased $2.3 million in the first quarter of 2025 compared to the same period in 2024 due to higher Marine Components sales primarily to the towboat and government markets and to a lesser extent higher Security Products sales primarily to the government security market. See discussion of reporting units below.
Cost of sales and gross margin – CompX’s cost of sales as a percentage of sales decreased 5% in the first quarter of 2025 compared to the same period in 2024. As a result, CompX’s gross margin as a percentage of sales increased over the same period. CompX’s gross margin percentage increased in the first quarter of 2025 compared to the same period in 2024 primarily due to higher gross margin percentage at Marine Components. See discussion of reporting units below.
Selling, general and administrative expenses – CompX’s selling, general and administrative expenses consist primarily of personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to CompX’s business unit and corporate management activities, as well as any gains and losses on property and equipment. CompX’s selling, general and administrative expenses for the first quarter of 2025 increased $.3 million compared to the same period in 2024 primarily due to higher employee salaries and benefits at both reporting units. CompX’s selling, general and administrative expenses as a percentage of net sales for the first quarter of 2025 were comparable to the first quarter of 2024.
Segment profit – As a percentage of net sales, CompX’s segment profit for the first quarter of 2025 increased compared to the same period of 2024 and was primarily impacted by the factors impacting sales, cost of sales, gross margin and selling, general and administrative expenses discussed above. See discussion of reporting units below.
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Results by reporting unit
The key performance indicators for CompX’s reporting units is the level of their reporting unit profit (see discussion below). Reporting unit results exclude CompX corporate expenses.
Three months ended | % | ||||||||
| 2024 |
| 2025 |
| Change | ||||
(In millions) | |||||||||
Security Products: |
|
|
|
|
|
|
| ||
Net sales | $ | 29.9 | $ | 30.2 |
| 1 | % | ||
Cost of sales |
| 21.1 |
| 21.2 |
| 1 |
| ||
Gross margin |
| 8.8 |
| 9.0 |
| 3 |
| ||
Selling, general and administrative expenses |
| 3.3 |
| 3.5 |
| 5 |
| ||
Reporting unit profit (2) | $ | 5.5 | $ | 5.5 |
| 1 |
| ||
Gross margin |
| 29 | % |
| 30 | % |
| ||
Reporting unit profit margin |
| 18 |
| 18 |
|
|
| ||
| (2) | Reporting unit profit includes reporting unit sales less cost of sales and selling, general and administrative expenses directly attributable to the reporting unit. Interunit sales are not material. |
Security Products – Security Products net sales increased 1% in the first quarter of 2025 compared to the same period last year primarily due to $1.6 million higher sales to the government security market and $.3 million higher sales to the healthcare market, substantially offset by lower sales to various other original equipment manufacturing (“OEM”) markets including the transportation, tool storage, bank equipment and vending/gaming markets. Gross margin and reporting unit profit as a percentage of net sales in the first quarter of 2025 were comparable to the same period in 2024.
Three months ended | % | ||||||||
| 2024 |
| 2025 |
| Change | ||||
| (In millions) | ||||||||
Marine Components: | |||||||||
Net sales | $ | 8.1 | $ | 10.1 | 24 | % | |||
Cost of sales |
| 7.2 |
| 6.9 |
| (4) |
| ||
Gross margin |
| .9 |
| 3.2 |
| 254 |
| ||
Selling, general and administrative expenses |
| .9 |
| .9 |
| 7 |
| ||
Reporting unit profit (2) | $ | — | $ | 2.3 |
| n.m. |
| ||
Gross margin |
| 11 | % |
| 32 | % |
| ||
Reporting unit profit margin |
| — |
| 22 |
|
|
| ||
n.m. not meaningful
| (2) | Reporting unit profit includes reporting unit sales less cost of sales and selling, general and administrative expenses directly attributable to the reporting unit. Interunit sales are not material. |
Marine Components – Marine Components net sales increased 24% in the first quarter of 2025 compared to the same period last year primarily due to $1.7 million higher sales to the towboat market and $1.2 million higher sales to the government market, partially offset by lower sales to various other markets including $.3 million lower sales to the center console market. Gross margin as a percentage of net sales increased in the first quarter of 2025 compared to the same period last year primarily due to lower cost inventory produced during the fourth quarter of 2024 and sold in the first quarter of 2025 as well as increased coverage of fixed costs on higher sales. Reporting unit profit margin increased primarily due to increases in gross margin discussed above.
Outlook – CompX’s first quarter sales and segment profit exceeded prior year on the strength of improved demand at its Marine Components reporting unit, primarily in the towboat and government markets. CompX’s Security Products reporting unit sales improved slightly from prior year, as increased sales to the government security market were mostly offset by softness across a variety of markets.
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The raw material price increases CompX began experiencing in the third quarter of 2024 have continued through the first quarter of 2025 and it is starting to see some surcharges related to tariffs on certain commodity raw materials.
CompX expects Security Products net sales in 2025 to improve modestly over 2024, and it expects gross margin and reporting unit profit percentages in 2025 to be slightly above 2024 due to price increases implemented in the first quarter and an improved Security Products product mix. CompX expects the Marine Components reporting unit net sales to increase in 2025 predominantly due to higher expected sales to the government and industrial markets. In the first quarter Marine Components benefited from an increase in sales related to a one-time stocking event at a towboat OEM customer. For the remainder of the year, CompX expects demand from the towboat market to be consistent with 2024. Overall, CompX expects the Marine Components reporting unit to have improved gross margins and reporting unit profit percentages in 2025 compared to 2024 due to increased coverage of fixed costs on higher expected sales volumes.
CompX manufactures substantially all of its products in the U.S. and sources a substantial majority of its raw materials from U.S. suppliers. CompX also sources certain components, primarily electronic components from Asia, including China. In anticipation of the U.S. federal government tariffs announcements, CompX increased purchases of certain electronic components and other components to mitigate the potential near-term impact of tariffs. As noted above, CompX has recently experienced some raw material and component price increases related to tariffs. CompX believes it can increase selling prices to its customers to recoup its increased raw material costs, although the extent to which it can fully recover such costs will depend on a variety of factors including the ultimate tariff rate, the length of time tariffs are in effect, and the ability of CompX’s customers to substitute alternative products. CompX will continue to monitor current and anticipated near-term customer demand levels to ensure its production capabilities and inventories are aligned accordingly.
CompX’s expectations for its operations and the markets it serves are based on a number of factors outside its control. Currently, CompX’s supply chains are stable and transportation and logistical delays are minimal. CompX has in the past experienced global and domestic supply chain challenges, and any future impacts on its operations will depend on, among other things, any future disruption in its operations or its suppliers’ operations, the effect of tariffs and the impact of economic conditions, consumer confidence and geopolitical events on demand for its products or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.
General corporate and other items
Corporate expense – Corporate expenses were $2.7 million in the first quarter of 2025, $.3 million higher than in the first quarter of 2024, primarily due to higher environmental remediation and related costs and higher general and administrative costs, partially offset by lower litigation fees and related costs. Included in corporate expense in the first quarter of 2024 and 2025 are:
| ● | litigation fees and related costs of $.5 million in 2025 compared to $.7 million in 2024, and |
| ● | environmental remediation and related costs of $.6 million in 2025 compared to $.2 million in 2024. |
The level of our litigation fees and related costs varies from period to period depending upon, among other things, the number of cases in which we are currently involved, the nature of such cases and the current stage of such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable). See Note 15 to our Condensed Consolidated Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved during 2025 or the nature of such cases were to change, our corporate expenses could be higher than we currently estimate.
Obligations for environmental remediation costs are difficult to assess and estimate and it is possible that actual costs for environmental remediation will exceed accrued amounts or that costs will be incurred in the future for sites in which we cannot currently estimate our liability. If these events were to occur in 2025, our corporate expenses would be higher than we currently estimate. In addition, we adjust our environmental accruals as further information becomes available to us or as circumstances change. Such further information or changed circumstances could result in an increase in our accrued environmental costs. See Note 15 to our Condensed Consolidated Financial Statements.
Overall, we currently expect that our net general corporate expenses in 2025 will be higher than in 2024 primarily due to income recognized in 2024 related to the settlement of a liability for an environmental remediation site in the fourth quarter of 2024. See Note 15 to our Condensed Consolidated Financial Statements.
Interest and dividend income – Interest and dividend income decreased in the first quarter of 2025 compared to the same period of 2024 primarily due to lower average interest rates and decreased cash balances.
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Marketable equity securities – We recognized an unrealized loss of $8.5 million on the change in value of our marketable equity securities in the first quarter of 2025 compared to an unrealized gain of $2.4 million in the first quarter of 2024. See Note 5 to our Condensed Consolidated Financial Statements.
Income tax expense – We recognized an income tax benefit of less than $.1 million in the first quarter of 2025 compared to an income tax expense of $1.0 million in the first quarter of 2024. In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings 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. Therefore, our full-year effective income tax rate will generally be lower than the U.S. federal statutory income tax rate in years during which we receive dividends from Kronos and recognize equity in earnings of Kronos. Conversely, our effective income tax rate will generally be higher than the U.S. federal statutory income tax rate in years during which we receive dividends from Kronos and recognize equity in losses of Kronos. During interim periods, our effective income tax rate may not necessarily correspond to the foregoing due to the application of accounting for income taxes in interim periods which requires us to base our effective rate on full year projections. We received dividends from Kronos of $6.7 million and $1.8 million in the first quarters of 2024 and 2025, respectively.
Our effective tax rate attributable to our equity in earnings of Kronos, including the effect of the nontaxable dividends we received from Kronos, was an effective tax rate of 15.2% in the first three months of 2025 compared to a negative effective tax rate of 10.6% in the first three months of 2024. The change in our effective rate from 2024 to 2025 is primarily attributable to Kronos’ anticipated higher full year earnings offset by the effect of lower anticipated full year dividends in 2025 as compared to 2024. See Note 13 to our Condensed Consolidated Financial Statements for more information about our 2025 income tax items, including a tabular reconciliation of our statutory tax expense to our actual expense.
Noncontrolling interest – Noncontrolling interest in net income of CompX increased during the first quarter of 2025 compared to the same prior year period. The noncontrolling interest we recognize in each period is directly related to the level of earnings at CompX for the period.
26
Equity in earnings of Kronos Worldwide, Inc.
Three months ended | % | ||||||||
| 2024 |
| 2025 |
| Change | ||||
(In millions) |
| ||||||||
Net sales | $ | 478.8 | $ | 489.8 |
| 2 | % | ||
Cost of sales |
| 407.3 |
| 383.0 |
| (6) | |||
Gross margin | $ | 71.5 | $ | 106.8 |
| 49 | |||
Income from operations | $ | 19.5 | $ | 38.4 |
| 97 | % | ||
Interest and dividend income | 1.3 | .4 | |||||||
Marketable equity securities unrealized gain (loss) | .3 | (1.0) | |||||||
Other components of net periodic pension and OPEB cost | (.3) | (.5) | |||||||
Interest expense |
| (9.2) |
| (11.6) |
|
| |||
Income before income taxes |
| 11.6 |
| 25.7 |
|
|
| ||
Income tax expense |
| 3.5 |
| 7.6 |
|
|
| ||
Net income | $ | 8.1 | $ | 18.1 |
|
|
| ||
Percentage of net sales: |
|
|
|
|
|
|
| ||
Cost of sales |
| 85 | % |
| 78 | % |
| ||
Income from operations |
| 4 |
| 8 |
| ||||
Equity in earnings of Kronos Worldwide, Inc. | $ | 2.5 | $ | 5.5 |
|
|
| ||
TiO2 operating statistics: |
|
|
|
|
|
|
| ||
Sales volumes* |
| 130 |
| 136 |
| 5 | % | ||
Production volumes* |
| 121 |
| 143 |
| 18 | |||
Change in TiO2 net sales: |
|
|
|
|
|
|
| ||
TiO2 sales volumes | 5 | % | |||||||
TiO2 product pricing |
|
| 2 | ||||||
TiO2 product mix/other |
|
| (2) | ||||||
Changes in currency exchange rates |
|
| (3) | ||||||
Total |
| 2 | % | ||||||
* Thousands of metric tons
As previously reported, effective July 16, 2024 (“Acquisition Date”), Kronos acquired the 50% joint venture interest in Louisiana Pigment Company, L.P. (“LPC”) previously held by Venator Investments, Ltd. Prior to the acquisition, Kronos held a 50% joint venture interest in LPC. Following the acquisition, LPC became a wholly-owned subsidiary of Kronos. Kronos accounted for the acquisition as a business combination. The results of operations of LPC have been included in Kronos’ results of operations beginning as of the Acquisition Date. See Note 6 to our Condensed Consolidated Financial Statements.
Kronos’ key performance indicators are its TiO2 average selling prices, its level of TiO2 sales and production volumes and the cost of titanium-containing feedstock purchased from third parties. TiO2 selling prices generally follow industry trends, and prices will increase or decrease generally as a result of competitive market pressures.
Current industry conditions
Kronos started 2025 with average TiO2 selling prices 2% higher than at the beginning of 2024 but its average TiO2 selling prices declined 3% during the first quarter of 2025 due to market pressures in certain regions and a less favorable product sales mix. Kronos’ average TiO2 selling prices in the first three months of 2025 were 2% higher than the average prices during the first three months of 2024. Kronos had higher overall sales volumes in its North American and European markets somewhat offset by lower sales volumes in its export markets in the first three months of 2025 as compared to the same period of 2024.
Kronos operated its production facilities at 93% of practical capacity utilization in the first quarter of 2025 compared to 87% in the first quarter of 2024 in response to increased customer demand.
27
Excluding the effect of changes in currency exchange rates, Kronos’ cost of sales per metric ton of TiO2 sold in the first three months of 2025 was lower as compared to the comparable period in 2024 due to decreases in per metric ton production costs (primarily raw materials, utilities and unabsorbed fixed costs due to improved operating rates in 2025).
During the first quarter of 2025, in anticipation of the enactment of tariffs by the U.S. federal government, specifically tariffs on imports from Canada, Kronos positioned additional finished products inventory in the U.S. resulting in an increase in its distribution and warehousing costs as compared to the first quarter of 2024.
Net sales – Kronos’ net sales in the first quarter of 2025 increased 2%, or $11.0 million, compared to the first quarter of 2024 primarily due to the net effects of a 5% increase in sales volumes (which increased net sales by approximately $24 million), a 2% increase in average TiO2 selling prices (which increased net sales by approximately $10 million) and changes in product mix (which decreased net sales by approximately $10 million). In addition, Kronos estimates that changes in currency exchange rates (primarily the euro) decreased its net sales by approximately $11 million in the first quarter of 2025 as compared to the first quarter of 2024. TiO2 selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs.
Kronos’ sales volumes increased 5% in the first quarter of 2025 as compared to the first quarter of 2024 due to higher overall sales volumes in its North American and European markets somewhat offset by lower sales volumes in its export markets.
Cost of sales and gross margin – Kronos’ cost of sales decreased by $24.3 million, or 6%, in the first quarter of 2025 compared to the first quarter of 2024 due to the net effects of lower production costs including lower raw materials, utilities, and unabsorbed fixed costs due to improved operating rates, and a 5% increase in TiO2 sales volumes.
Kronos’ cost of sales as a percentage of net sales improved to 78% in the first quarter of 2025 compared to 85% in the same period of 2024 primarily due to the favorable effects of lower production costs (primarily raw materials and utilities) and higher production volumes resulting in increased coverage of fixed production costs.
Kronos’ gross margin as a percentage of net sales increased to 22% in the first quarter of 2025 compared to 15% in the first quarter of 2024. As discussed and quantified above, Kronos’ gross margin as a percentage of net sales increased primarily due to higher sales and production volumes, higher average TiO2 selling prices, lower overall production costs (primarily raw materials and utilities) and improved fixed cost absorption.
Selling, general and administrative expense – Kronos’ selling, general and administrative expense increased $7.4 million, or 14%, in the first quarter of 2025 compared to the first quarter of 2024 primarily due to higher distribution costs related to higher sales volumes and additional distribution and warehousing costs incurred to position finished products inventory in the U.S. in response to anticipated U.S. federal government tariff announcements. Selling, general and administrative expense as a percentage of net sales increased to 13% in the first quarter of 2025 compared to 11% in the first quarter of 2024 as a result of the higher distribution and warehousing costs as described above.
Income from operations – Kronos’ income from operations increased by $18.9 million to $38.4 million in the first quarter of 2025 compared to income from operations of $19.5 million in the first quarter of 2024 as a result of the factors impacting gross margin discussed above. Kronos estimates that changes in currency exchange rates decreased its income from operations by approximately $5 million in the first quarter of 2025 as compared to the same period in 2024, as discussed in the effects of currency exchange rates section below.
Other non-operating income (expense) – Kronos recognized an unrealized loss of $1.0 million in the first quarter of 2025 compared to an unrealized gain of $.3 million in the first quarter of 2024 related to the change in market price of its marketable equity securities. Kronos’ other components of net periodic pension and OPEB cost in the first quarter of 2025 increased $.2 million compared to the first quarter of 2024 primarily due to a lower expected return on plan assets. Kronos’ interest expense in the first quarter of 2025 increased $2.4 million compared to interest expense in the first quarter of 2024 primarily due to higher overall debt levels as the result of debt transactions entered into in 2024. Kronos’ interest expense in the first three months of 2024 also includes a charge of $1.5 million for the write-off of deferred financing costs.
Income tax expense – Kronos recognized income tax expense of $7.6 million in the first quarter of 2025 compared to income tax expense of $3.5 million in the first quarter of 2024. The difference is primarily due to higher earnings in the first quarter of 2025 and the jurisdictional mix of such earnings. Kronos’ earnings and losses are subject to income tax in various U.S. and non-U.S. jurisdictions, and the income tax rates applicable to the pre-tax earnings (losses) of Kronos’ non-U.S. operations are generally higher than the income tax rates applicable to its U.S. operations. Kronos would generally expect its overall effective tax rate, excluding the effect of any
28
increase or decrease in its deferred income tax asset valuation allowance or changes in its reserve for uncertain tax positions, to be higher than the U.S. federal statutory tax rate of 21% primarily because of its sizeable non-U.S. operations.
Effects of currency exchange rates
Kronos has substantial operations and assets located outside the United States (primarily in Germany, Belgium, Norway and Canada). The majority of Kronos’ sales from non-U.S. operations are denominated in currencies other than the U.S. dollar, principally the euro, other major European currencies and the Canadian dollar. A portion of Kronos’ sales generated from its non-U.S. operations is denominated in the U.S. dollar (and consequently Kronos’ non-U.S. operations will generally hold U.S. dollars from time to time). Certain raw materials used in all Kronos production facilities, primarily titanium-containing feedstocks, are purchased primarily in U.S. dollars, while labor and other production and administrative costs are incurred primarily in local currencies. Consequently, the translated U.S. dollar value of Kronos’ non-U.S. sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of period-to-period operating results. In addition to the impact of the translation of sales and expenses over time, Kronos’ non-U.S. operations also generate currency transaction gains and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarily U.S. dollar denominated) are initially accrued and when such amounts are settled with the non-local currency, (ii) changes in currency exchange rates during time periods when Kronos’ non-U.S. operations are holding non-local currency (primarily U.S. dollars), and (iii) relative changes in the aggregate fair value of currency forward contracts held from time to time. Kronos periodically uses currency forward contracts to manage a portion of its currency exchange risk, and relative changes in the aggregate fair value of any currency forward contracts it holds from time to time serves in part to mitigate the currency transaction gain or losses it would recognize from the first two items described above.
Overall, Kronos estimates that fluctuations in currency exchange rates had the following effects on its sales and income from operations for the periods indicated.
Impact of changes in currency exchange rates | |||||||||||||||
Three months ended March 31, 2025 vs March 31, 2024 | |||||||||||||||
|
| Translation |
| ||||||||||||
gains/(losses) - | Total currency | ||||||||||||||
Transaction gains (losses) recognized | impact of | impact | |||||||||||||
| 2024 |
| 2025 |
| Change |
| rate changes |
| 2025 vs 2024 | ||||||
(In millions) | |||||||||||||||
Impact on: |
|
|
|
|
| ||||||||||
Net sales | $ | — | $ | — | $ | — | $ | (11) | $ | (11) | |||||
Income from operations |
| 5 |
| (4) |
| (9) |
| 4 |
| (5) | |||||
The $11 million decrease in net sales (translation losses) was caused primarily by a strengthening of the U.S. dollar relative to the euro, as Kronos’ euro-denominated sales were translated into fewer U.S. dollars in 2025 as compared to 2024. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2025 did not have a significant effect on Kronos’ net sales, as a substantial portion of the sales generated by its Canadian and Norwegian operations is denominated in the U.S. dollar.
The $5 million decrease in income from operations was comprised of the following:
| ● | Lower net currency transaction gains of approximately $9 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S. dollar and the euro, Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which causes increases or decreases, as applicable, in U.S. dollar-denominated receivables and payables and U.S. dollar currency held by Kronos’ non-U.S. operations, and in Norwegian krone denominated receivables and payables held by its non-U.S. operations. In order to manage currency exchange rate risk associated with the maturity in September 2025 of Kronos’ €75 million 3.75% Senior Secured Notes due 2025, in the first quarter of 2025 Kronos entered into a currency forward contract to purchase €25 million at an exchange rate of €1.05 per U.S. dollar. The contract matures in September 2025. Kronos recognized a $.9 million currency transaction gain for the three months ended March 31, 2025, and |
| ● | Approximately $4 million from net currency translation gains primarily caused by a strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone, as local currency-denominated operating costs were translated into fewer U.S. dollars in 2025 as compared to 2024 which was partially offset by the effect of the strengthening of the U.S. dollar relative to the euro which caused net translation losses as the negative effects of the stronger U.S. dollar on euro-denominated sales more than offset the favorable effects on euro-denominated operating costs being translated into fewer U.S. dollars in 2025 as compared to 2024. |
29
Outlook
Overall Kronos’ customer demand improved in the first quarter of 2025 as compared to the same period in 2024, led by stronger demand in Europe. The momentum Kronos saw at the beginning of the year began to slow in the second half of the first quarter as uncertainty regarding the outcome of the U.S. federal government’s announced tariffs and responses to such tariffs from various affected countries tempered customer demand. Kronos expects demand, particularly in North America, to remain challenging until the uncertainty around tariffs is resolved; however, demand in Europe has improved in part due to the European Commission’s duties on Chinese imports of TiO2, enacted in mid-2024. Overall, it is unclear how much impact the economic uncertainty caused by potential tariffs implemented by the U.S. and other countries will have on demand in 2025. Kronos believes customer inventory levels remain low, although in the face of this uncertainty customers are demonstrating hesitancy to build inventory, and it is receiving orders on shorter notice than previously experienced, indicating a cautious demand outlook and careful inventory management. TiO2 selling prices have remained relatively stable in North America and in export markets and have increased slightly in Europe partly as a result of continued elevated costs for utilities and other raw materials. Kronos is evaluating production rates at its operating facilities based on current customer demand and expects its 2025 production rates to be near 2024 levels.
Kronos is focused on cost reduction initiatives designed to improve its long-term cost structure including certain ongoing process improvement initiatives and previously announced targeted workforce reductions and the closure of its Canadian sulfate process line, aimed at improving gross margins through the optimization of production of its purified grades. Raw material, energy, and other input costs are generally trending lower, although energy costs in Europe remain volatile and above historical levels. Kronos expects raw material and other input costs to continue to moderate in 2025. As previously disclosed, Kronos operates a TiO2 facility in Canada, with the majority of its production sold into the U.S. In the first quarter, in anticipation of the U.S. federal government’s tariff announcements, Kronos implemented mitigation strategies, including building and prepositioning inventory in the U.S. which resulted in increased shipping and warehousing costs. Currently, TiO2 and titanium ore are exempt from the announced tariffs, and Kronos does not expect to incur additional costs in the foreseeable future for tariff mitigation efforts. As a result, Kronos expects shipping and warehousing costs to normalize for the remainder of the year. Kronos plans to operate its U.S. and Canadian facilities in line with the near-term demand outlook as it sells down elevated U.S. inventory balances over the next three to six months. Despite additional tariff-related expenses incurred in the first quarter, operating income improved in the first quarter of 2025 compared to 2024, and Kronos expects improved operating results to continue during 2025, subject to maintaining current demand levels.
As noted above, Kronos acquired full control of LPC in July 2024. Kronos believes this acquisition presents a unique opportunity to add immediate value for its customers and better serve the North American marketplace by expanding its product offerings and increasing sales to new and existing customers while realizing significant synergies, including commercial, overhead, and supply chain optimization. Kronos is in the process of fully integrating the additional LPC production capacity and it expects the acquisition to positively impact its earnings in 2025, although soft demand, competitive pressures and additional debt service costs associated with increased borrowings to complete the transaction may limit this impact. As noted above, Kronos’ tariff mitigation efforts in the first quarter required working capital to build and position inventory within the U.S. Kronos expects its cash on hand to improve as it reduces inventory levels over the next several quarters. With increased borrowing availability under Kronos’ revolving credit facility and cash on hand, Kronos believes it is well-positioned to finance its working capital needs, to repay in September the €75 million 3.75% Senior Secured Notes due 2025, and to fully integrate the acquired LPC production capacity.
Kronos’ expectations for the TiO2 industry and its operations are based on factors outside its control. Kronos’ operations are affected by global and regional economic, political, and regulatory factors, and it has experienced global market disruptions. Future impacts on Kronos’ operations will depend on, among other things, future energy costs, the effects of newly enacted tariffs on jurisdictions where it or its customers and suppliers operate, its success in implementing mitigation strategies, and the impact of economic conditions, consumer confidence, and geopolitical events on its operations or those of its customers and suppliers, all of which remain uncertain and cannot be predicted.
Liquidity and Capital Resources
Consolidated cash flows
Operating activities
Trends in cash flows from operating activities, excluding the impact of deferred taxes and relative changes in assets and liabilities, are generally similar to trends in our income from operations.
30
Net cash used in operating activities was $47.5 million in the first three months of 2025 compared to net cash provided by operating activities of $6.7 million in the first three months of 2024. The decrease in cash provided by operating activities in the first three months of 2025 includes:
| ● | cash paid for environmental remediation and related costs of $57.1 million primarily due to the payment of a settlement for an environmental remediation site (see Note 15 to our Condensed Consolidated Financial Statements); |
| ● | lower dividends received from Kronos in 2025 of $4.9 million; |
| ● | higher net cash provided for relative changes in receivables, inventories, prepaids, payables and accrued liabilities in 2025 of $4.1 million; and |
| ● | higher segment profit from CompX in 2025 of $2.2 million. |
We do not have complete access to CompX’s cash flows in part because we do not own 100% of CompX. A detail of our consolidated cash flows from operating activities is presented in the table below. Intercompany dividends have been eliminated. The reference to NL Parent in the table below is a reference to NL Industries, Inc., as the parent company of CompX and our wholly-owned subsidiaries.
| Three months ended | |||||
March 31, | ||||||
| 2024 |
| 2025 | |||
(In millions) | ||||||
Net cash provided by operating activities: |
|
|
|
| ||
CompX | $ | 1.7 | $ | (.1) | ||
NL Parent and wholly-owned subsidiaries |
| 8.3 |
| (44.1) | ||
Eliminations |
| (3.3) |
| (3.3) | ||
Total | $ | 6.7 | $ | (47.5) | ||
Relative changes in working capital can have a significant effect on cash flows from operating activities. As shown below, average days sales outstanding increased from December 31, 2024 to March 31, 2025 primarily as a result of relative changes in the timing of sales and collections relative to the end of the quarter. Total average number of days in inventory at December 31, 2024 was comparable to March 31, 2025 as the increase at Security Products primarily due to increased inventory to meet current and expected customer demand was offset by the decline at Marine Components due to sales growth in the first quarter of 2025. For comparative purposes, we have provided December 31, 2023 and March 31, 2024 numbers below.
| December 31, |
| March 31, | December 31, | March 31, | |||
| 2023 |
| 2024 |
| 2024 |
| 2025 | |
Days sales outstanding |
| 36 days |
| 42 days |
| 33 days |
| 41 days |
Days in inventory |
| 95 days |
| 89 days |
| 94 days |
| 94 days |
Investing activities
Our capital expenditures, all of which relate to CompX, were $.8 million in the first three months of 2025 compared to $.3 million in the first three months of 2024. During the first three months of 2025, the promissory note balance with Valhi has net activity of nil ($.5 million of gross borrowings and $.5 million of gross repayments). During the first three months of 2024, Valhi repaid a net $.8 million under the promissory note ($5.2 million of gross borrowings and $6.0 million of gross repayments).
During the first three months of 2024, we received gross proceeds from U.S. treasury bill maturities totaling $24.0 million.
Financing activities
In February 2025, our board of directors declared a quarterly dividend of $.09 per share, and in February 2024 our board of directors declared a quarterly dividend of $.08 per share. The declaration and payment of future dividends, and the amount thereof, is discretionary and is dependent upon our financial condition, cash requirements, contractual obligations and restrictions and other factors deemed relevant by our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which might be paid. There are currently no contractual restrictions on the amount of dividends which we may pay.
31
Cash flows from financing activities in the first three months of each of 2024 and 2025 also include CompX dividends paid to its stockholders other than us.
Outstanding debt obligations
At March 31, 2025, NLKW had outstanding debt obligations of $.5 million under its secured revolving credit facility with Valhi, and CompX did not have any outstanding debt obligations. We are in compliance with all of the covenants contained in our secured revolving credit facility with Valhi at March 31, 2025. See Note 9 to our Condensed Consolidated Financial Statements.
At March 31, 2025, Kronos had $43.2 million outstanding on its revolving credit facility (the “Global Revolver”). Availability under the Global Revolver is subject to a borrowing base calculation, as defined in the agreement. The borrowing base calculated as of March 31, 2025 exceeded $300 million. Kronos’ Senior Secured Notes, the Contran Term Loan and Kronos’ Global Revolver contain a number of covenants and restrictions which, among other things, restrict its ability to incur additional debt, incur liens, pay dividends or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of these types. Certain of Kronos’ credit agreements contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons other than defaults for failure to comply with typical financial or payment covenants. For example, the credit agreements allow the lender to accelerate the maturity of the indebtedness upon a change of control (as defined in the agreement) of the borrower. In addition, the credit agreements could result in the acceleration of all or a portion of the indebtedness following a sale of assets outside the ordinary course of business. Kronos is in compliance with all of its debt covenants at March 31, 2025. Kronos believes that it will be able to continue to comply with the financial covenants contained in its credit facility through its maturity.
Future cash requirements
Liquidity
Our primary source of liquidity on an ongoing basis is our cash flow from operating activities and credit facilities with affiliates as further discussed below. We generally use these amounts to fund capital expenditures (substantially all of which relate to CompX), pay ongoing environmental remediation and litigation costs and provide for the payment of dividends (if declared).
At March 31, 2025, we had aggregate restricted and unrestricted cash and cash equivalents of $131.0 million, all of which was held in the U.S. A detail by entity is presented in the table below.
Amount | |||
(In millions) | |||
CompX |
| $ | 56.1 |
NL Parent and wholly-owned subsidiaries |
| 74.9 | |
Total | $ | 131.0 | |
In addition, at March 31, 2025 we owned approximately 1.2 million shares of Valhi common stock with an aggregate market value of $19.5 million. See Note 5 to our Condensed Consolidated Financial Statements. We also owned approximately 35.2 million shares of Kronos common stock at March 31, 2025 with an aggregate market value of $263.4 million. See Note 6 to our Condensed Consolidated Financial Statements.
We routinely compare our liquidity requirements and alternative uses of capital against the estimated future cash flows we expect to receive from our subsidiaries and affiliates. As a result of this process, we have in the past and may in the future seek to raise additional capital, incur debt, repurchase indebtedness in the market or otherwise, modify our dividend policies, consider the sale of our interests in our subsidiaries, affiliates, business, marketable securities or other assets, or take a combination of these and other steps, to increase liquidity, reduce indebtedness and fund future activities. Such activities have in the past and may in the future involve related companies.
We periodically evaluate acquisitions of interests in or combinations with companies (including related companies) perceived by management to be undervalued in the marketplace. These companies may or may not be engaged in businesses related to our current businesses. We intend to consider such acquisition activities in the future and, in connection with this activity, may consider issuing additional equity securities and increasing indebtedness. From time to time, we also evaluate the restructuring of ownership interests among our respective subsidiaries and related companies.
32
Based upon our expectations of our operating performance, and the anticipated demands on our cash resources we expect to have sufficient liquidity to meet our short-term obligations (defined as the twelve-month period ending March 31, 2026) and long-term obligations (defined as the five-year period ending March 31, 2030) including any amounts CompX might loan from time to time under the terms of its revolving loan to Valhi (which loans would be solely at CompX’s discretion). If actual developments differ materially from our expectations, our liquidity could be adversely affected. In this regard, Valhi has agreed to loan us up to $50 million on a revolving basis. At March 31, 2025, we had $.5 million in outstanding borrowings under this facility, and we had $49.5 million available for future borrowing. See Note 9 to our Condensed Consolidated Financial Statements.
Capital expenditures
Firm purchase commitments for capital projects in process at March 31, 2025 totaled $.7 million. CompX expects to spend $3.4 million during 2025 on capital investments, primarily those expenditures required to meet CompX’s existing customer demand and to properly maintain its facilities and technology infrastructure.
Repurchases of common stock
At March 31, 2025, CompX has 523,647 shares available for repurchase under a stock repurchase program authorized by its board of directors.
Dividends
Because our operations are conducted primarily through subsidiaries and affiliates, our long-term ability to meet parent company-level corporate obligations is largely dependent on the receipt of dividends or other distributions from our subsidiaries and affiliates. A detail of annual dividends we expect to receive from our subsidiaries and affiliates in 2025, based on the number of shares of common stock of these affiliates we own as of March 31, 2025 and their current regular quarterly dividend rate, is presented in the table below.
| Shares held |
| Quarterly |
| Annual expected | ||||
March 31, 2025 | dividend rate | dividend | |||||||
| (In millions) |
|
| (In millions) | |||||
Kronos |
| 35.2 | $ | .05 | $ | 7.0 | |||
CompX |
| 10.8 |
| .30 |
| 12.9 | |||
Valhi |
| 1.2 |
| .08 |
| .4 | |||
Total expected annual dividends |
|
| $ | 20.3 | |||||
Investments in our subsidiaries and affiliates and other acquisitions
We have in the past and may in the future, purchase the securities of our subsidiaries and affiliates or third-parties in market or privately-negotiated transactions. We base our purchase decisions on a variety of factors, including an analysis of the optimal use of our capital, taking into account the market value of the securities and the relative value of expected returns on alternative investments. In connection with these activities, we may consider issuing additional equity securities or increasing our indebtedness. We may also evaluate the restructuring of ownership interests of our businesses among our subsidiaries and related companies.
Commitments and contingencies
There have been no material changes in our contractual obligations since we filed our 2024 Annual Report and we refer you to that report for a complete description of these commitments.
We are subject to certain commitments and contingencies, as more fully described or referenced in our 2024 Annual Report, or in Note 15 to our Condensed Consolidated Financial Statements or in Part II, Item 1 of this report, including certain legal proceedings. In addition to such legal proceedings, various legislation and administrative regulations have, from time to time, been proposed that seek to (i) impose various obligations on present and former manufacturers of lead pigment and lead-based paint (including us) with respect to asserted health concerns associated with the use of such products and (ii) effectively overturn court decisions in which we and other pigment manufacturers have been successful. Examples of such proposed legislation include bills which would permit civil liability for damages on the basis of market share, rather than requiring plaintiffs to prove that the defendant’s product caused the alleged damage and bills which would revive actions barred by the statute of limitations. While no legislation or regulations have been enacted to date that are expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity, enactment of such legislation could have such an effect.
33
Recent accounting pronouncements
See Note 17 to our Condensed Consolidated Financial Statements.
Critical accounting policies and estimates
For a discussion of our critical accounting policies, refer to Part I, — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Annual Report. There have been no changes in our critical accounting policies during the first three months of 2025.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk, including currency exchange rates, interest rates and equity security prices. There have been no material changes in these market risks since we filed our 2024 Annual Report, and we refer you to Part I, Item 7A. – “Quantitative and Qualitative Disclosure about Market Risk” in our 2024 Annual Report. See also Note 16 to our Condensed Consolidated Financial Statements.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures – We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Each of Courtney J. Riley, our President and Chief Executive Officer and Amy Allbach Samford, our Executive Vice President and Chief Financial Officer, have evaluated the design and effectiveness of our disclosure controls and procedures as of March 31, 2025. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the date of this evaluation.
Internal control over financial reporting – Our management is responsible for establishing and maintaining adequate internal control over financial reporting which, as defined by Exchange Act Rule 13a-15(f) means a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of our assets, |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with authorizations of our management and directors, and |
| ● | Provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or disposition of assets that could have a material effect on our Condensed Consolidated Financial Statements. |
Other – As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal control over financial reporting of equity method investees and (ii) internal control over the preparation of any financial statement schedules which would be required by Article 12 of Regulation S-X. However, our assessment of internal control over financial reporting with respect to equity method investees did include controls over the recording of amounts related to our investment that are recorded in the consolidated financial statements, including controls over the selection of accounting methods for our investments, the recognition of equity method earnings and losses and the determination, valuation and recording of our investment account balances.
Changes in internal control over financial reporting – There have been no changes to our internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 15 to our Condensed Consolidated Financial Statements and our 2024 Annual Report for descriptions of certain legal proceedings.
Item 1A. Risk Factors
For a discussion of the risk factors related to our businesses, please refer to Part I, Item 1A, “Risk Factors,” in our 2024 Annual Report.
Item 6.Exhibits
31.1 | |
31.2 | |
32.1 | |
101.INS | Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | Inline XBRL Taxonomy Extension Schema |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
104 | Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
__________________________
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NL INDUSTRIES, INC. | |
(Registrant) | |
Date: May 7, 2025 | /s/ Amy Allbach Samford |
Amy Allbach Samford | |
(Executive Vice President and Chief Financial Officer, Principal Financial Officer) | |
Date: May 7, 2025 | /s/ Amy E. Ruf |
Amy E. Ruf | |
(Vice President and Controller, | |
Principal Accounting Officer) |
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