Business context and reporting period
NL Industries, Inc. (NYSE: NL) filed this unaudited Form 10-Q for the quarter ended March 31, 2021. The filing describes NL as a holding company: it consolidates majority-owned CompX International, a manufacturer of security and marine components, and accounts for its approximately 30% interest in Kronos Worldwide, a titanium dioxide producer, under the equity method. The request metadata names “NLI Holdings, Inc.”; the filing itself is for NL Industries, Inc.
Financial performance and liquidity
Unless noted otherwise, dollar amounts are in millions. Income statement and cash flow amounts compare Q1 2021 with Q1 2020; balance sheet amounts compare March 31, 2021 with December 31, 2020.
| Metric | Q1 2021 / March 31, 2021 | Comparable / prior period |
|---|---|---|
| Net sales | $35.9 | $32.3 |
| Gross margin | $11.0; approximately 30.7% of sales | $10.4; approximately 32.3% of sales |
| Income from operations | $4.0; approximately 11.1% of sales | $2.5; approximately 7.8% of sales |
| Net income attributable to NL stockholders | $13.3; $0.27 per share | $1.9; $0.04 per share |
| Cash provided by operating activities | $2.1 | $3.6 |
| Capital expenditures | $0.6 | $0.4 |
| Cash, cash equivalents and restricted cash | $163.1 | $165.3 |
| Debt at NL / CompX | $0.5 affiliate borrowing; CompX had no debt | — |
Unrestricted cash and cash equivalents were $134.8 million at quarter-end; an additional $28.2 million was restricted. Current assets were $175.1 million and current liabilities $24.9 million. NL reported $49.5 million available on its $50 million affiliate revolving facility and said it was in covenant compliance. Total equity was $346.8 million.
Material changes versus Q1 2020
- Sales rose 11%, led by Marine Components, whose sales increased 47% to $10.0 million; Security Products sales increased 2% to $25.9 million.
- CompX operating income grew 16% to $5.8 million. Marine Components benefited from towboat demand and a broader recreational marine recovery; Security Products operating income fell 4% to $5.5 million, with higher-cost inventory pressuring margins.
- NL’s reported earnings improvement was driven substantially by a $18.4 million year-over-year swing in gains and losses on marketable equity securities: a $6.4 million gain in 2021 versus a $12.1 million loss in 2020. NL held Valhi shares, whose market value increased to $24.6 million from $18.2 million at year-end.
- Equity in Kronos earnings declined 27% to $6.0 million. Kronos’s sales rose 10% to $465.0 million, but operating income fell 22% to $34.0 million and net income fell to $19.6 million from $27.0 million.
- Operating cash flow decreased by $1.5 million. NL paid $2.9 million in dividends versus $2.0 million a year earlier, after increasing its quarterly dividend from $0.04 to $0.06 per share.
Outlook, risks and unusual items
- CompX expected 2021 revenue and operating income to exceed 2020, while noting that some Security Products markets remained below pre-pandemic levels. Management cited supply-chain disruptions and higher fixed costs per unit as risks; disruptions had caused some customer pauses but had not materially reduced sales to date.
- Kronos expected 2021 sales and operating income to exceed 2020, supported by higher TiO₂ prices and volumes. It cited rising feedstock and shipping costs, currency effects, pandemic uncertainty and supply-chain disruption. These are affiliate forecasts, not consolidated NL guidance.
- Environmental remediation accruals totaled $93.0 million for approximately 32 sites; the upper end of the reasonably estimable cost range was approximately $114 million, including accrued amounts. Costs at approximately five sites could not then be reasonably estimated.
- NL had accrued litigation settlements of approximately $61.5 million in total current and noncurrent liabilities. Under the Santa Clara lead-pigment settlement, five annual installments remained: $12.0 million for each of the next four installments and $16.7 million for the final installment. Other lead-pigment claims were not accrued because NL said loss was not considered probable or reasonably estimable; an adverse outcome could materially affect results, financial condition or liquidity.
- NL reported $0.5 million of firm capital-project commitments and expected approximately $1.2 million of 2021 pension contributions. It said it expected sufficient liquidity for obligations through March 31, 2022, based on current expectations.
- After quarter-end, Kronos entered a new $225 million revolving credit facility maturing in April 2026; it had no borrowings under the facility when reported. NL said disclosure controls were effective and that no material changes to internal control over financial reporting occurred during the quarter.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for NL Industries, Inc., not “NLI Holdings, Inc.”
- Assess how much of reported net income depended on the non-operating Valhi securities gain, and distinguish it from recurring operating performance and Kronos equity earnings.
- Track CompX’s recovery by reporting unit, especially Security Products margins, marine demand, and the effects of supply and input-cost pressures.
- Review environmental and litigation exposure, including the $93.0 million environmental accrual, unestimable sites, settlement payment schedule and potential insurance recoveries.
- Evaluate liquidity using unrestricted versus restricted cash, affiliate financing and dividends from subsidiaries and Kronos; NL’s parent-level liquidity depends substantially on subsidiary and affiliate distributions.