Business context and reporting period
This summary covers NL Industries, Inc.’s fiscal year ended December 31, 2021, compared with 2020. The supplied filing is for NL Industries, Inc.; the request metadata names NLI Holdings, Inc. NL is primarily a holding company: it consolidates its 87%-owned CompX component-products business and accounts for its 30%-owned Kronos Worldwide titanium dioxide (TiO₂) producer using the equity method. Accordingly, NL’s reported net sales do not include Kronos’ sales. Valhi owned approximately 83% of NL at year-end.
Financial results and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| NL net sales | $140.8 million | $114.5 million |
| NL income from operations | $10.5 million | $2.4 million |
| Net income attributable to NL stockholders | $51.2 million | $14.7 million |
| Basic and diluted earnings per share | $1.05 | $0.30 |
| Net cash provided by operating activities | $17.6 million | $19.0 million |
| Capital expenditures | $4.1 million | $1.7 million |
- NL’s net income growth reflected higher equity earnings from Kronos ($34.3 million versus $19.4 million), a $16.2 million unrealized gain on marketable equity securities versus an $8.7 million loss in 2020, and improved CompX operating income. These securities gains are market-sensitive and do not represent operating performance.
- CompX sales increased 23% to $140.8 million; gross margin was 30.3% versus 28.7%, and operating margin was 14.6% versus 10.3%. CompX operating income rose 74% to $20.5 million.
- Kronos reported sales of $1.939 billion, operating income of $187.1 million and net income of $112.9 million. Sales rose 18%, operating income 61%, and net income 77% from 2020. Its gross margin improved to 23% from 21%; NL’s share of Kronos earnings was $34.3 million.
- Year-end cash, cash equivalents and restricted cash totaled $175.2 million, including $147.0 million of cash and cash equivalents and $28.2 million of restricted cash. NL also held $34.4 million of Valhi shares and reported a $528.6 million market value for its Kronos shares; the Kronos investment’s carrying amount was $264.8 million.
- NL reported total assets of $596.2 million, total liabilities of $211.2 million and total equity of $385.0 million. Current assets were $193.6 million and current liabilities $30.6 million; restricted cash and other asset composition should be considered when assessing liquidity.
- NL had $0.5 million of debt outstanding under its affiliate facility and $49.5 million of borrowing availability. CompX had no debt. Kronos had approximately $449.8 million of long-term debt on its own balance sheet; this is not NL parent debt.
- NL paid $11.7 million in dividends in 2021 ($0.24 per share). In March 2022, NL declared a $0.07-per-share quarterly dividend. Operating cash flow declined despite higher earnings, with working-capital uses and timing of interest receipts among the factors cited.
Material changes versus the prior comparable period
- NL’s reported net income more than tripled, supported by the recovery in CompX and Kronos results and the reversal from a marketable-securities loss to a gain. NL operating income improved from $2.4 million to $10.5 million.
- CompX’s sales recovered from pandemic-affected 2020 levels. Security Products sales increased 20%, and Marine Components sales increased 34%. Higher raw-material, labor and shipping costs pressured Marine Components’ gross margin.
- Kronos benefited from stronger TiO₂ prices and volumes: average selling prices rose 8% and sales volumes rose 6% in 2021. Production operated at full practical capacity, compared with 92% utilization in 2020.
- NL operating cash flow decreased $1.4 million to $17.6 million. Inventory rose to $25.6 million from $18.3 million; days in inventory increased to 96 from 75, and days sales outstanding increased to 42 from 33.
- NL’s environmental remediation accrual was approximately $92.9 million at year-end, little changed from $93.4 million in 2020. Restricted cash and marketable securities increased during 2021.
Outlook, risks and contingencies
- NL expects 2022 net income attributable to NL stockholders to exceed 2021, excluding potential changes in marketable-security values. Management cited expected higher CompX operating income and Kronos equity earnings, partly offset by higher litigation and environmental costs.
- CompX expects 2022 sales and operating income to increase, based on strong demand. It also expects rising materials, labor and shipping costs to pressure gross margins; the benefit from price increases and surcharges is uncertain. Staffing constraints and supply-chain delays remain risks.
- Kronos expects 2022 sales and operating income to be higher, with near-full-capacity production and higher selling prices. Management expects lower sales volumes than 2021 based on inventory levels, while feedstock, energy, logistics and other production costs are expected to rise and continue challenging margins.
- NL’s largest disclosed contingencies include lead-pigment litigation and environmental matters. The Santa Clara settlement requires NL to pay $101.7 million in total; the company had paid the initial $25.0 million and two $12.0 million annual installments by year-end 2021. The balance sheet included $50.3 million of accrued settlement liabilities. Other lead-pigment cases remain pending; the company says liabilities, if any, generally cannot be reasonably estimated.
- Environmental liabilities were accrued at approximately $92.9 million for about 32 sites; the estimated upper end of reasonably possible costs for estimable matters was approximately $118 million, including the accrual. Costs for approximately five sites could not be reasonably estimated. The auditor identified this estimation as a critical audit matter.
- Other risks include TiO₂ market cyclicality and competition, rising and potentially volatile input costs, Kronos’ leverage and ability to refinance, reliance on distributions from subsidiaries and Kronos, foreign exchange, COVID-19-related disruptions, regulation of TiO₂, cybersecurity, and potential climate-related costs or operational impacts. Kronos expects additional capital spending following a Norwegian mine dam’s reclassification to the highest oversight level.
- NL reported effective disclosure controls and internal control over financial reporting as of year-end. The independent auditor issued an unqualified opinion on the financial statements; its report did not provide an opinion on internal control effectiveness.
Important facts for investors to verify
- Confirm the issuer identity: the supplied document is NL Industries, Inc.’s Form 10-K, not a filing identified as NLI Holdings, Inc.
- Review the audited statements and notes for the distinction between NL’s consolidated CompX results and its equity-method investment in Kronos, including Kronos’ separate debt and liquidity position.
- Assess cash available for parent-company needs separately from restricted cash, and consider dependence on subsidiary and affiliate dividends and related-party arrangements.
- Track environmental accrual assumptions, the unestimable sites, and future developments in lead-pigment litigation and insurance recoveries.
- Compare 2022 results with management’s expectations, particularly input-cost pass-through, CompX margins and staffing, Kronos prices and volumes, and the effect of marketable-security values on NL’s earnings.