UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2019

Commission file number 1-640

 

NL INDUSTRIES, INC.

(Exact name of Registrant as specified in its charter)

 

 

New Jersey

 

13-5267260

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer Identification No.)

5430 LBJ Freeway, Suite 1700

Dallas, Texas 75240-2620

(Address of principal executive offices)

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

 

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

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock

 

NL

 

NYSE

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

Large accelerated filer          

Accelerated filer

Non-accelerated filer

Smaller reporting company  

Emerging growth company  

 

 

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

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

Number of shares of the registrant’s common stock, $.125 par value per share, outstanding on August 1, 2019:  48,755,734.

 

 


NL INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

 

 

 

Page
number

Part I.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

 

 

Condensed Consolidated Balance Sheets - December 31, 2018;  June 30, 2019 (unaudited)

3

 

 

Condensed Consolidated Statements of Operations (unaudited) – Three and six months ended June 30, 2018 and 2019

5

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) – Three and six months ended June 30, 2018 and 2019

6

 

 

Condensed Consolidated Statements of Equity (unaudited) – Three and six months ended June 30, 2018 and 2019

7

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) -  Six months ended June 30, 2018 and 2019

8

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

9

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

38

 

Item 4.

Controls and Procedures

38

 

 

 

 

 

 

Part II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

39

 

Item 1A.

Risk Factors

39

 

Item 6.

Exhibits

39

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,

 

 

 

June 30,

 

 

2018

 

 

 

2019

 

 

 

 

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

116,259

 

 

 

$

128,582

 

Restricted cash and cash equivalents

 

3,727

 

 

 

 

2,980

 

Accrued insurance recovery related to litigation settlement

 

15,000

 

 

 

 

 

Accounts and other receivables, net

 

12,440

 

 

 

 

15,178

 

Inventories, net

 

17,102

 

 

 

 

17,830

 

Receivable from affiliate

 

792

 

 

 

 

7

 

Prepaid expenses and other

 

1,324

 

 

 

 

1,088

 

 

 

 

 

 

 

 

 

 

Total current assets

 

166,644

 

 

 

 

165,665

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

Notes receivable from affiliate

 

34,000

 

 

 

 

40,000

 

Marketable securities

 

27,740

 

 

 

 

42,688

 

Investment in Kronos Worldwide, Inc.

 

255,565

 

 

 

 

264,118

 

Goodwill

 

27,156

 

 

 

 

27,156

 

Accrued insurance recovery related to litigation settlement

 

 

 

 

 

15,575

 

Other assets, net

 

4,111

 

 

 

 

3,915

 

 

 

 

 

 

 

 

 

 

Total other assets

 

348,572

 

 

 

 

393,452

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

Land

 

5,151

 

 

 

 

5,151

 

Buildings

 

22,842

 

 

 

 

22,813

 

Equipment

 

67,446

 

 

 

 

67,633

 

Construction in progress

 

603

 

 

 

 

662

 

 

 

 

 

 

 

 

 

 

 

 

96,042

 

 

 

 

96,259

 

Less accumulated depreciation

 

64,016

 

 

 

 

64,541

 

 

 

 

 

 

 

 

 

 

Net property and equipment

 

32,026

 

 

 

 

31,718

 

 

 

 

 

 

 

 

 

 

Total assets

$

547,242

 

 

 

$

590,835

 

 

3

 


 

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

 

 

December 31,

 

 

 

June 30,

 

 

2018

 

 

 

2019

 

 

 

 

 

 

 

(unaudited)

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

$

4,831

 

 

 

$

3,688

 

Accrued litigation settlement

 

60,000

 

 

 

 

25,000

 

Accrued and other current liabilities

 

10,854

 

 

 

 

8,942

 

Accrued environmental remediation and related costs

 

5,027

 

 

 

 

4,744

 

Payable to affiliates

 

567

 

 

 

 

567

 

Income taxes

 

44

 

 

 

 

48

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

81,323

 

 

 

 

42,989

 

 

 

 

 

 

 

 

 

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Long-term debt from affiliate

 

500

 

 

 

 

500

 

Accrued pension costs

 

10,389

 

 

 

 

9,851

 

Accrued environmental remediation and related costs

 

93,184

 

 

 

 

92,057

 

Long-term litigation settlement

 

17,000

 

 

 

 

71,571

 

Deferred income taxes

 

31,373

 

 

 

 

35,447

 

Other

 

9,915

 

 

 

 

9,794

 

 

 

 

 

 

 

 

 

 

Total noncurrent liabilities

 

162,361

 

 

 

 

219,220

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

NL stockholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

6,090

 

 

 

 

6,094

 

Additional paid-in capital

 

301,139

 

 

 

 

299,404

 

Retained earnings

 

225,156

 

 

 

 

246,238

 

Accumulated other comprehensive loss

 

(248,270

)

 

 

 

(245,065

)

 

 

 

 

 

 

 

 

 

Total NL stockholders' equity

 

284,115

 

 

 

 

306,671

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest in subsidiary

 

19,443

 

 

 

 

21,955

 

 

 

 

 

 

 

 

 

 

Total equity

 

303,558

 

 

 

 

328,626

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

$

547,242

 

 

 

$

590,835

 

Commitments and contingencies (Note 14)

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

4

 


 

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

 

(unaudited)

 

 

Net sales

$

32,385

 

 

$

33,730

 

 

$

60,798

 

 

$

64,907

 

 

Cost of sales

 

21,151

 

 

 

22,791

 

 

 

40,061

 

 

 

44,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

11,234

 

 

 

10,939

 

 

 

20,737

 

 

 

20,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

5,251

 

 

 

5,317

 

 

 

10,380

 

 

 

10,650

 

 

Other operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance recoveries

 

200

 

 

 

4,714

 

 

 

363

 

 

 

4,997

 

 

Other income, net

 

8

 

 

 

9

 

 

 

627

 

 

 

9

 

 

Litigation settlement expense, net

 

(62,000

)

 

 

(19,571

)

 

 

(62,000

)

 

 

(19,571

)

 

Corporate expense

 

(4,816

)

 

 

(3,663

)

 

 

(12,769

)

 

 

(5,719

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(60,625

)

 

 

(12,889

)

 

 

(63,422

)

 

 

(10,371

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of Kronos Worldwide, Inc.

 

23,645

 

 

 

8,944

 

 

 

45,124

 

 

 

18,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

(18,685

)

 

 

9,486

 

 

 

(20,266

)

 

 

14,948

 

 

Other components of net periodic pension and

  OPEB cost

 

(99

)

 

 

(428

)

 

 

(198

)

 

 

(856

)

 

Interest and dividend income

 

1,222

 

 

 

2,123

 

 

 

2,294

 

 

 

3,642

 

 

Interest expense

 

(8

)

 

 

(9

)

 

 

(16

)

 

 

(18

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

(54,550

)

 

 

7,227

 

 

 

(36,484

)

 

 

25,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(12,588

)

 

 

667

 

 

 

(9,258

)

 

 

3,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(41,962

)

 

 

6,560

 

 

 

(27,226

)

 

 

22,286

 

 

Noncontrolling interest in net income of subsidiary

 

653

 

 

 

682

 

 

 

1,140

 

 

 

1,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to NL stockholders

$

(42,615

)

 

$

5,878

 

 

$

(28,366

)

 

$

21,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to NL stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per share

$

(.87

)

 

$

.12

 

 

$

(.58

)

 

$

.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in the calculation

   of net income (loss) per share

 

48,721

 

 

 

48,740

 

 

 

48,718

 

 

 

48,734

 

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

5

 


 

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

 

 

Three months ended

 

 

Six months ended

 

 

June 30,

 

 

June 30,

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

(unaudited)

 

Net income (loss)

$

(41,962

)

 

$

6,560

 

 

$

(27,226

)

 

$

22,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation

 

(6,108

)

 

 

1,720

 

 

 

(3,517

)

 

 

1,695

 

Defined benefit pension plans

 

974

 

 

 

817

 

 

 

1,957

 

 

 

1,645

 

Other postretirement benefit plans

 

(65

)

 

 

(65

)

 

 

(138

)

 

 

(135

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss), net

 

(5,199

)

 

 

2,472

 

 

 

(1,698

)

 

 

3,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

(47,161

)

 

 

9,032

 

 

 

(28,924

)

 

 

25,491

 

Comprehensive income attributable to noncontrolling interest

 

653

 

 

 

682

 

 

 

1,140

 

 

 

1,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to NL stockholders

$

(47,814

)

 

$

8,350

 

 

$

(30,064

)

 

$

24,287

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

6

 


 

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three and six months ended June 30, 2018 and 2019

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Noncontrolling

 

 

 

 

 

 

Common

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

interest in

 

 

Total

 

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

subsidiary

 

 

equity

 

Balance at December 31, 2017

$

6,089

 

 

$

300,866

 

 

$

220,104

 

 

$

(191,737

)

 

$

17,756

 

 

$

353,078

 

Change in accounting principle –

  ASU 2016-01

 

 

 

 

 

 

 

46,069

 

 

 

(46,069

)

 

 

 

 

 

 

Balance at January 1, 2018, as adjusted

 

6,089

 

 

 

300,866

 

 

 

266,173

 

 

 

(237,806

)

 

 

17,756

 

 

 

353,078

 

Net income

 

 

 

 

 

 

 

14,249

 

 

 

 

 

 

487

 

 

 

14,736

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

3,501

 

 

 

 

 

 

3,501

 

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(83

)

 

 

(83

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

 

6,089

 

 

 

300,866

 

 

 

280,422

 

 

 

(234,305

)

 

 

18,160

 

 

 

371,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

(42,615

)

 

 

 

 

 

653

 

 

 

(41,962

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

(5,199

)

 

 

 

 

 

(5,199

)

Issuance of NL common stock

 

1

 

 

 

119

 

 

 

 

 

 

 

 

 

 

 

 

120

 

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(84

)

 

 

(84

)

Other, net

 

 

 

 

154

 

 

 

 

 

 

 

 

 

18

 

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

$

6,090

 

 

$

301,139

 

 

$

237,807

 

 

$

(239,504

)

 

$

18,747

 

 

$

324,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

$

6,090

 

 

$

301,139

 

 

$

225,156

 

 

$

(248,270

)

 

$

19,443

 

 

$

303,558

 

Net income

 

 

 

 

 

 

 

15,204

 

 

 

 

 

 

522

 

 

 

15,726

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

733

 

 

 

 

 

 

733

 

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(117

)

 

 

(117

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

6,090

 

 

 

301,139

 

 

 

240,360

 

 

 

(247,537

)

 

 

19,848

 

 

 

319,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

5,878

 

 

 

 

 

 

682

 

 

 

6,560

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

2,472

 

 

 

 

 

 

2,472

 

Issuance of NL common stock

 

4

 

 

 

96

 

 

 

 

 

 

 

 

 

 

 

 

100

 

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(118

)

 

 

(118

)

Equity transactions with noncontrolling

  interest, net and other

 

 

 

 

(1,831

)

 

 

 

 

 

 

 

 

1,543

 

 

 

(288

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

$

6,094

 

 

$

299,404

 

 

$

246,238

 

 

$

(245,065

)

 

$

21,955

 

 

$

328,626

 

 

 

 

 

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

7

 


 

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)  

 

Six months ended

 

 

June 30,

 

 

2018

 

 

2019

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

(27,226

)

 

$

22,286

 

Depreciation and amortization

 

1,752

 

 

 

1,808

 

Deferred income taxes

 

(9,312

)

 

 

3,215

 

Equity in earnings of Kronos Worldwide, Inc.

 

(45,124

)

 

 

(18,169

)

Marketable equity securities

 

20,266

 

 

 

(14,948

)

Dividends received from Kronos Worldwide, Inc.

 

11,974

 

 

 

12,678

 

Cash funding of benefit plans in excess of net benefit plan expense

 

(137

)

 

 

(224

)

Other, net

 

371

 

 

 

577

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts and other receivables, net

 

(3,414

)

 

 

(3,319

)

Inventories, net

 

(1,300

)

 

 

(839

)

Prepaid expenses and other

 

224

 

 

 

235

 

Accounts payable and accrued liabilities

 

43,266

 

 

 

(2,995

)

Income taxes

 

12

 

 

 

3

 

Accounts with affiliates

 

1,799

 

 

 

784

 

Accrued environmental remediation and related costs

 

3,552

 

 

 

(1,410

)

Other noncurrent assets and liabilities, net

 

16,760

 

 

 

19,530

 

 

 

 <