NL INDUSTRIES
2014
ANNUAL REPORT
NL INDUSTRIES, INC. CORPORATE AND OTHER INFORMATION
Board of Directors
Corporate Officers
Loretta J. Feehan
Financial Consultant
Robert D. Graham
Vice Chairman, President and
Chief Executive Officer
C.H. Moore, Jr. (a)
Retired Partner
KPMG LLP
Steven L. Watson
Chairman
Robert D. Graham
Vice Chairman, President and
Chief Executive Officer
Gregory M. Swalwell
Executive Vice President, Finance and
Chief Financial Officer
Gen. Thomas P. Stafford (ret.) (a)(b)
United States Air Force (retired)
Bobby D. O’Brien
Executive Vice President
Operating Management of Subsidiary
and Affiliate
CompX International Inc.
David A. Bowers
Vice Chairman, President and
Chief Executive Officer
Kronos Worldwide, Inc.
Steven L. Watson
Chairman
Bobby D. O’Brien
Vice Chairman, President and
Chief Executive Officer
Steven L. Watson
Chairman
Terry N. Worrell (a)(b)
President
Worrell Investments, Inc.
Board Committee
(a) Audit Committee
(b) Management Development and
Compensation Committee
Kelly D. Luttmer
Executive Vice President and
Global Tax Director
Tim C. Hafer
Vice President and Controller
A. Andrew R. Louis
Vice President, Secretary and
Associate General Counsel
Andrew B. Nace
Vice President
Courtney J. Riley
Vice President, Environmental Affairs
John A. St. Wrba
Vice President and Treasurer
Annual Meeting
Form 10-K Report
Transfer Agent
The 2015 Annual Meeting of
Stockholders will be held at the office of
the Company, Three Lincoln Centre,
5430 LBJ Freeway, Suite 1700, Dallas,
Texas, 75240-2697, on the day and time
as set forth in the notice of the meeting,
proxy statement and form of proxy that
will be mailed to stockholders in advance
of the meeting.
The Company’s Annual Report on Form
10-K for the year ended December 31,
2014, as filed with the Securities and
Exchange Commission, is printed as part
of this Annual Report. Additional copies
are available without charge upon
written request to:
A. Andrew R. Louis
Vice President, Secretary
NL Industries, Inc.
Three Lincolon Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
Computershare acts as transfer agent,
registrar and dividend paying agent for
the Company’s common stock.
Communications regarding stockholder
accounts, dividends and change of
address should be directed to:
Computershare Trust Company, N.A.
P.O. Box 30170
College Station, Texas 77842-3170
Telephone: (877) 373-6374
Internet address:
http://www.computershare.com/investor
Visit us on the Web
http://www.nl-ind.com
Stock and Class A Exchanges
NL’s common shares are listed on the New York Stock
Exchange under the symbol “NL”
Kronos’ common shares are listed on the New York Stock
Exchange under the symbol “KRO.”
CompX’s Class A common shares are listed on the NYSE
Amex under the symbol “CIX.”
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934:
For the fiscal year ended December 31, 2014
Commission file number 1-640
NL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
New Jersey
(State or other jurisdiction of
incorporation or organization)
13-5267260
(IRS Employer
Identification No.)
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
(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
Common stock
Name of each exchange on which registered
New York Stock Exchange
No securities are registered pursuant to Section 12(g) of the Act.
Indicate by check mark:
If the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
If the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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
Whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). Yes No
If disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes No
Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company (as defined in Rule 12b-2 of the Act).
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the 6.8 million shares of voting stock held by nonaffiliates of NL Industries, Inc. as of June 30,
2014 (the last business day of the Registrant’s most recently-completed second fiscal quarter) approximated $63.3 million.
As of February 27, 2015, 48,682,884 shares of the Registrant’s common stock were outstanding.
Documents incorporated by reference
The information required by Part III is incorporated by reference from the Registrant’s definitive proxy statement to be filed
with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
ITEM 1.
The Company
BUSINESS
PART I
NL Industries, Inc. was organized as a New Jersey corporation in 1891. Our common stock trades on the
New York Stock Exchange, or the NYSE, under the symbol NL. References to “NL Industries,” “NL,” the
“Company,” the “Registrant,” “we,” “our,” “us” and similar terms mean NL Industries, Inc. and its subsidiaries and
affiliate, unless the context otherwise requires.
Our principal executive offices are located at Three Lincoln Center, 5430 LBJ Freeway, Suite 1700, Dallas,
TX 75240. Our telephone number is (972) 233-1700. We maintain a website at www.nl-ind.com.
Business summary
We are primarily a holding company. We operate in the component products industry through our
majority-owned subsidiary, CompX International Inc. (NYSE MKT: CIX). We operate in the chemicals industry
through our noncontrolling interest in Kronos Worldwide, Inc. CompX and Kronos (NYSE: KRO); each file
periodic reports with the Securities and Exchange Commission (SEC).
Organization
At December 31, 2014, Valhi, Inc. (NYSE: VHI) held approximately 83% of our outstanding common
stock and a wholly-owned subsidiary of Contran Corporation held an aggregate of 93% of Valhi’s outstanding
common stock. As discussed in Note 1 to our Consolidated Financial Statements, Lisa K. Simmons, Serena
Simmons Connelly and Annette C. Simmons may be deemed to control Contran, Valhi, and us.
Forward-looking statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended. Statements in this Annual Report that are not historical facts
are forward-looking in nature and represent 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 that the expectations reflected in such 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 actual future results to differ materially from those described
herein are the risks and uncertainties discussed in this Annual Report and those described from time to time in our
other filings with the SEC include, but are not limited to, the following:
Future supply and demand for our products
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 and brass costs) 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 material (such as ore)
General global economic and political conditions (such as changes in the level of gross domestic
product in various regions of the world and the impact of such changes on demand for, among other
things, TiO2 and component products)
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Competitive products and substitute products
Price and product competition from low-cost manufacturing sources (such as China)
Customer and competitor strategies
Potential consolidation of Kronos’ competitors
Potential consolidation of Kronos’ customers
The impact of pricing and production decisions
Competitive technology positions
Potential difficulties in integrating future acquisitions
Potential difficulties in upgrading or implementing new manufacturing and accounting software systems
The introduction of trade barriers
Possible disruption of Kronos’ or CompX’s business, or increases in our cost of doing business resulting
from terrorist activities or global conflicts
The impact of current or future government regulations (including employee healthcare benefit related
regulations)
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), or possible disruptions to our
business resulting from potential instability resulting from uncertainties associated with the euro
Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires,
explosions, unscheduled or unplanned downtime, transportation interruptions and cyber attacks)
Decisions to sell operating assets other than in the ordinary course of business
Kronos’ ability to renew or refinance credit facilities
Our ability to maintain sufficient liquidity
The timing and amounts of insurance recoveries
The extent to which our subsidiaries or affiliates were to become unable to pay us dividends
The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters
Uncertainties associated with CompX’s development of new product features
Our ability to utilize income tax attributes or changes in income tax rates related to such attributes, the
benefits of which 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 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)
The ultimate resolution of pending litigation (such as our lead pigment and environmental matters)
Possible future litigation.
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
- 3 -
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.
Operations and equity investment
Information regarding our operations and the companies conducting such operations is set forth below.
Geographic financial information is included in Note 3 to our Consolidated Financial Statements, which is
incorporated herein by reference.
Component Products
CompX International Inc. -
87% owned at
December 31, 2014
CompX manufactures engineered components that are sold to a variety of
industries including recreational transportation (including boats), postal, office
and institutional furniture, cabinetry, tool storage, healthcare, gas stations and
vending equipment. CompX has three production facilities in the United States.
Chemicals
Kronos Worldwide, Inc. -
30% owned at
December 31, 2014
Kronos is a leading global producer and marketer of value-added titanium
dioxide pigments, or TiO2, a base industrial product used in imparting
whiteness, brightness, opacity and durability to a diverse range of customer
applications and end-use markets, including coatings, plastics, paper, inks, food,
cosmetics and other industrial and consumer “quality-of-life” products. Kronos
has production facilities in Europe and North America. Sales of TiO2
represented about 90% of Kronos’ net sales in 2014, with sales of other
products that are complementary to Kronos’ TiO2 business comprising the
remainder.
COMPONENT PRODUCTS - COMPX INTERNATIONAL INC.
Industry overview - Through our majority-owned subsidiary, CompX, we manufacture engineered
components that are sold to a variety of industries including recreational transportation (including boats), postal,
office and institutional furniture, cabinetry, tool storage, healthcare, gas stations and vending equipment. We
continuously seek to diversify into new markets and identify new applications and features for our products, which
we believe provide a greater potential for higher rates of earnings growth as well as diversification of risk.
Manufacturing, operations and products - CompX’s Security Products business, with one manufacturing
facility in South Carolina and one in Illinois shared with the Marine Components business, manufactures mechanical
and electrical cabinet locks and other locking mechanisms used in a variety of applications including ignition
systems, mailboxes, file cabinets, desk drawers, tool storage cabinets, vending and gaming machines, high security
medical cabinetry, electrical circuit panels, storage compartments and gas station security. We believe that CompX
is a North American market leader in the manufacture and sale of cabinet locks and other locking mechanisms.
These products include:
disc tumbler locks which provide moderate security and generally represent the lowest cost lock to
produce;
pin tumbler locking mechanisms which are more costly to produce and are used in applications
requiring higher levels of security, including KeSet® and System 64® (which each allow the user to
change the keying on a single lock 64 times without removing the lock from its enclosure) and TuBar®;
and
our innovative CompX eLock® and Stealthlock® electrical locks which provide stand-alone or
networked security and audit trail capability for drug storage and other valuables through the use of a
proximity card, magnetic stripe or keypad credentials.
A substantial portion of CompX’s Security Products sales consists of products with specialized adaptations
to an individual customer’s specifications, some of which are listed above. CompX also has a standardized product
line suitable for many customers which is offered through a North American distribution network to locksmith
distributors and smaller original equipment manufacturers (OEMs) via its STOCK LOCKS® distribution program.
- 4 -
CompX’s Marine Components business, with a facility in Wisconsin and a facility shared with the Security
Products business in Illinois, manufactures and distributes stainless steel exhaust components, gauges, throttle
controls, hardware and accessories primarily for performance and ski/wakeboard boats. CompX’s specialty marine
component products are high-precision components designed to operate within tight tolerances in the highly
demanding marine environment. These products include:
original equipment and aftermarket stainless steel exhaust headers, exhaust pipes, mufflers and other
exhaust components;
high-performance gauges such as GPS speedometers and tachometers;
mechanical and electronic controls and throttles;
steering wheels and other billet aluminum accessories; and
dash panels, LED lighting, wire harnesses and other accessories.
The following table sets forth the location, size and business operations for each of CompX’s operating
facilities at December 31, 2014:
Facility Name
Owned Facilities:
National (1)
Grayslake(1)
Custom(2)
Leased Facilities:
Business
Operations
SP
SP/MC
MC
Location
Mauldin, SC
Grayslake, IL
Neenah, WI
Size
(square feet)
198,000
120,000
95,000
Distribution Center
SP/MC
Rancho Cucamonga, CA
11,500
SP – Security Products business
MC – Marine Components business
ISO-9001 registered facilities
(1)
ISO-9002 registered facility
(2)
We believe all of CompX’s facilities are well maintained and satisfactory for their intended purposes.
Raw materials - The primary raw materials used in CompX’s manufacturing processes are:
zinc and brass (used in the Security Products business for the manufacture of locking mechanisms);
and
stainless steel (used primarily in the Marine Components business for the manufacture of exhaust
headers and pipes and other components).
These raw materials are purchased from several suppliers, are readily available from numerous sources and
accounted for approximately 10% of our total cost of sales for 2014. Total material costs, including purchased
components, represented approximately 49% of our cost of sales in 2014.
CompX occasionally enters into short-term commodity-related raw material supply arrangements to
mitigate the impact of future increases in commodity-related raw material costs. These arrangements generally
provide for stated unit prices based upon specified purchase volumes, which help us to stabilize our commodity
related raw material costs to a certain extent. We periodically enter into such arrangements for zinc and brass. We
expect commodity related raw material prices to remain relatively stable during 2015; however, these raw materials
purchased on the spot market are sometimes subject to unanticipated and sudden price increases. Commodity
related raw materials purchased outside of these arrangements are sometimes subject to unanticipated and sudden
price increases. We generally seek to mitigate the impact of fluctuations in these raw material costs on our margins
through improvements in production efficiencies or other operating cost reductions. In the event we are unable to
- 5 -
offset raw material cost increases with other cost reductions, it may be difficult to recover those cost increases
through increased product selling prices or raw material surcharges due to the competitive nature of the markets
served by our products. Consequently, overall operating margins can be affected by commodity related raw material
cost pressures. Commodity market prices are cyclical, reflecting overall economic trends, specific developments in
consuming industries and speculative investor activities.
Patents and trademarks - CompX holds a number of patents relating to component products, certain of
which we believe to be important to CompX and its continuing business activity. Patents generally have a term of
20 years, and CompX’s patents have remaining terms ranging from less than 1 year to 18 years at December 31,
2014. CompX’s major trademarks and brand names include:
Marine Components
Custom Marine®
Livorsi® Marine
Livorsi II® Marine
CMI™ Industrial Mufflers
Custom Marine® Stainless Exhaust
The #1 Choice in Performance Boating®
Mega Rim®
Race Rim®
CompX Marine®
Vantage View®
GEN-X®
Security Products
CompX® Security Products™
National Cabinet Lock®
Fort Lock®
Fort®
Timberline®
Chicago Lock®
STOCK LOCKS®
KeSet®
TuBar®
StealthLock®
ACE®
ACE® II
CompX eLock®
Lockview®
System64®
SlamCAM®
RegulatoR®
CompXpress®
GEM®
Sales, marketing and distribution - A majority of CompX’s component sales are sold directly to large
OEM customers through our factory-based sales and marketing professionals supported by engineers working in
concert with field salespeople and independent manufacturer’s representatives. We select manufacturer’s
representatives based on special skills in certain markets or relationships with current or potential customers.
In addition to sales to large OEM customers, a significant portion of CompX’s Security Products sales are
made through distributors. We have a significant North American market share of cabinet lock security product
sales as a result of the locksmith distribution channel. We support our locksmith distributor sales with a line of
standardized products used by the largest businesses of the marketplace. These products are packaged and
merchandised for easy availability and handling by distributors and end users.
In 2014, CompX’s ten largest customers, all Security Products customers, accounted for approximately
47% of our total sales. United States Postal Service and Harley Davidson accounted for approximately 13% and
12%, respectively, of total sales for the year ended December 31, 2014. Overall, our customer base is diverse and
the loss of any single customer would not in itself have a material adverse effect on our operations.
Competition - The markets in which CompX participates are highly competitive. CompX competes
primarily on the basis of product design, including space utilization and aesthetic factors, product quality and
durability, price, on-time delivery, service and technical support. CompX focuses its efforts on the middle and high-
end businesses of the market, where product design, quality, durability and service are valued by the customer. The
Security Products business competes against a number of U.S. and non-U.S. manufacturers. The Marine
Components business competes with small U.S. manufacturers and is minimally affected by non-U.S. competitors.
- 6 -
Regulatory and environmental matters - CompX’s operations are subject to federal, state and local
environmental laws and regulations relating to the use, storage, handling, generation, transportation, treatment,
emission, discharge, disposal, remediation of and exposure to hazardous and non-hazardous substances, materials
and wastes (“Environmental Laws”.) CompX’s operations are also subject to federal, state and local regulations
relating to worker health and safety. We believe that CompX is in substantial compliance with all such laws and
regulations. To date, the costs of maintaining compliance with such laws and regulations have not significantly
impacted our results of operations. We currently do not anticipate any significant costs or expenses relating to such
matters; however, it is possible future laws and regulations may require us to incur significant additional
expenditures.
Discontinued operations - On December 28, 2012, we completed the sale of CompX’s Furniture
Components operations. See Note 2 to our Consolidated Financial Statements.
Employees - As of December 31, 2014, CompX employed 532 people, all in the United States. We believe
our labor relations are good at all of our facilities.
CHEMICALS - KRONOS WORLDWIDE, INC.
Business overview - Kronos is a leading global producer and marketer of value-added titanium dioxide
pigments, or TiO2, a base industrial product used in a wide range of applications. Kronos, along with its distributors
and agents, sells and provides technical services for its products to approximately 4,000 customers in 100 countries
with the majority of sales in Europe and North America. We believe that Kronos has developed considerable
expertise and efficiency in the manufacture, sale, shipment and service of its products in domestic and international
markets.
TiO2 is a white inorganic pigment used in a wide range of products for its exceptional durability and its
ability to impart whiteness, brightness and opacity. TiO2 is a critical component of everyday applications, such as
coatings, plastics and paper, as well as many specialty products such as inks, food and cosmetics. TiO2 is widely
considered to be superior to alternative white pigments in large part due to its hiding power (or opacity), which is the
ability to cover or mask other materials effectively and efficiently. TiO2 is designed, marketed and sold based on
specific end-use applications.
TiO2 is the largest commercially used whitening pigment because it has a high refractive rating giving it
more hiding power than any other commercially produced white pigment. In addition, TiO2 has excellent resistance
to interaction with other chemicals, good thermal stability and resistance to ultraviolet degradation. Although there
are other white pigments on the market, Kronos believes that there are no effective substitutes for TiO2 because no
other white pigment has the physical properties for achieving comparable opacity and brightness or can be
incorporated in as cost-effective a manner. Pigment extenders such as kaolin clays, calcium carbonate and
polymeric opacifiers are used together with TiO2 in a number of end-use markets. However, these products are not
able to duplicate the opacity performance characteristics of TiO2 and Kronos believes that these products are
unlikely to have a significant impact on the use of TiO2.
TiO2 is considered a “quality-of-life” product. Demand for TiO2 has generally been driven by worldwide
gross domestic product and has generally increased with rising standards of living in various regions of the world.
According to industry estimates, TiO2 consumption has grown at a compound annual growth rate of approximately
3.0% since 1990. Per capita consumption of TiO2 in Western Europe and the United States far exceeds that in other
areas of the world, and these regions are expected to continue to be the largest consumers of TiO2 on a per capita
basis. Kronos believes that Western Europe and North America currently account for approximately 19% and 17%
of global TiO2 consumption, respectively. Markets for TiO2 are generally increasing in South America, Eastern
Europe, the Asia Pacific region and China and Kronos believes these are significant markets where it expects
continued growth as economies in these regions continue to develop and quality-of-life products, including TiO2,
experience greater demand.
Products and end-use markets - Kronos, including its predecessors, has produced and marketed TiO2 in
North America and Europe, its primary markets, for over 90 years. We believe that Kronos is the largest producer
of TiO2 in Europe with approximately one-half of its sales volumes attributable to markets in Europe.
- 7 -
The table below shows Kronos’ market share for its significant markets, Europe and North America, for the
last three years.
Europe
North America
2012
2013
2014
19%
19%
18%
18%
18%
17%
We believe that Kronos is the leading seller of TiO2 in several countries, including Germany, with an
estimated 9% share of worldwide TiO2 sales volume in 2014. Overall, Kronos is one of the top five producers of
TiO2 in the world.
Kronos offers its customers a broad portfolio of products that includes over 40 different TiO2 pigment
grades under the Kronos® trademark, which provide a variety of performance properties to meet customers’ specific
requirements. Kronos’ major customers include domestic and international paint, plastics, decorative laminate and
paper manufacturers. Kronos ships TiO2 to customers in either a powder or slurry form via rail, truck and/or ocean
carrier. Sales of its core TiO2 pigments represented approximately 90% of Kronos’ net sales in 2014. Kronos and its
agents and distributors primarily sell and provide technical services for Kronos’ products in three major end-use
markets: coatings, plastics and paper.
The following tables show Kronos’ approximate TiO2 sales volume by geographic region and end use for
the year ended December 31, 2014:
Sales Volumes Percentages
by Geographic Region
Sales Volumes Percentages
by End-use
Europe
North America
Asia Pacific
Rest of World
50%
33%
7%
10%
Coatings
Plastics
Other
Paper
56%
31%
8%
5%
Some of the principal applications for Kronos’ products include the following.
TiO2 for coatings - Kronos’ TiO2 is used to provide opacity, durability, tinting strength and brightness in
industrial coatings, as well as coatings for commercial and residential interiors and exteriors, automobiles, aircraft,
machines, appliances, traffic paint and other special purpose coatings. The amount of TiO2 used in coatings varies
widely depending on the opacity, color and quality desired. In general, the higher the opacity requirement of the
coating, the greater the TiO2 content.
TiO2 for plastics - Kronos produces TiO2 pigments that improve the optical and physical properties in
plastics, including whiteness and opacity. TiO2 is used to provide opacity in items such as containers and packaging
materials, and vinyl products such as windows, door profiles and siding. TiO2 also generally provides hiding power,
neutral undertone, brightness and surface durability for housewares, appliances, toys, computer cases and food
packages. TiO2’s high brightness along with its opacity is used in some engineering plastics to help mask their
undesirable natural color. TiO2 is also used in masterbatch, which is a concentrate of TiO2 and other additives and is
one of the largest uses for TiO2 in the plastics end-use market. In masterbatch, the TiO2 is dispersed at high
concentrations into a plastic resin and is then used by manufacturers of plastic containers, bottles, packaging and
agricultural films.
TiO2 for paper - Kronos’ TiO2 is used in the production of several types of paper, including laminate
(decorative) paper, filled paper and coated paper to provide whiteness, brightness, opacity and color stability.
Although Kronos sells its TiO2 to all segments of the paper end-use market, its primary focus is on the TiO2 grades
used in paper laminates, where several layers of paper are laminated together using melamine resin under high
temperature and pressure. The top layer of paper contains TiO2 and plastic resin and is the layer that is printed with
decorative patterns. Paper laminates are used to replace materials such as wood and tile for such applications as
counter tops, furniture and wallboard. TiO2 is beneficial in these applications because it assists in preventing the
material from fading or changing color after prolonged exposure to sunlight and other weathering agents.
- 8 -
TiO2 for other applications - Kronos produces TiO2 to improve the opacity and hiding power of printing
inks. TiO2 allows inks to achieve very high print quality while not interfering with the technical requirements of
printing machinery, including low abrasion, high printing speed and high temperatures. Kronos’ TiO2 is also used in
textile applications where TiO2 functions as an opacifying and delustering agent. In man-made fibers such as rayon
and polyester, TiO2 corrects an otherwise undesirable glossy and translucent appearance. Without the presence of
TiO2, these materials would be unsuitable for use in many textile applications.
Kronos produces high purity sulfate process anatase TiO2 used to provide opacity, whiteness and brightness
in a variety of cosmetic and personal care products, such as skin cream, lipstick, eye shadow and toothpaste.
Kronos’ TiO2 is also found in food products, such as candy and confectionaries and in pet foods where it is used to
obtain uniformity of color and appearance. In pharmaceuticals, Kronos’ TiO2 is used commonly as a colorant in pill
and capsule coatings as well as in liquid medicines to provide uniformity of color and appearance. Kronos® purified
anatase grades meet the applicable requirements of the CTFA (Cosmetics, Toiletries and Fragrances Association),
USP and BP (United States Pharmacopoeia and British Pharmacopoeia) and the FDA (United States Food and Drug
Administration).
Kronos’ TiO2 business is enhanced by the following three complementary businesses, which comprised
approximately 10% of its net sales in 2014:
Kronos owns and operates two ilmenite mines in Norway pursuant to a governmental concession with
an unlimited term. Ilmenite is a raw material used directly as a feedstock by some sulfate-process TiO2
plants. We believe that Kronos has a significant competitive advantage because its mines supply the
feedstock requirements for all of its European sulfate-process plants. Kronos also sells ilmenite ore to
third-parties, some of which are competitors. The mines have estimated ilmenite reserves that are
expected to last at least 50 years.
Kronos manufactures and sells iron-based chemicals, which are co-products and processed co-products
of the sulfate and chloride process TiO2 pigment production. These co-product chemicals are marketed
through Kronos’ Ecochem division and are primarily used as treatment and conditioning agents for
industrial effluents and municipal wastewater as well as for the manufacture of iron pigments, cement
and agricultural products.
Kronos manufactures and sells titanium oxychloride and titanyl sulfate, which are side-stream
specialty products from the production of TiO2. Titanium oxychloride is used in specialty applications
in the formulation of pearlescent pigments, production of electroceramic capacitors for cell phones and
other electronic devices. Titanyl sulfate productions are used in pearlescent pigments, natural gas pipe
and other specialty applications.
Manufacturing, operations and properties - Kronos produces TiO2 in two crystalline forms: rutile and
anatase. Rutile TiO2 is manufactured using both a chloride production process and a sulfate production process,
whereas anatase TiO2 is only produced using a sulfate production process. Manufacturers of many end-use
applications can use either form, especially during periods of tight supply for TiO2. The chloride process is the
preferred form for use in coatings and plastics, the two largest end-use markets. Due to environmental factors and
customer considerations, the proportion of TiO2 industry sales represented by chloride process pigments has
increased relative to sulfate process pigments, and in 2014, chloride process production facilities represented
approximately 45% of industry capacity. The sulfate process is preferred for use in selected paper products,
ceramics, rubber tires, man-made fibers, food products and cosmetics. Once an intermediate TiO2 pigment has been
produced by either the chloride or sulfate process, it is “finished” into products with specific performance
characteristics for particular end-use applications through proprietary processes involving various chemical surface
treatments and intensive micronizing (milling).
Chloride process - The chloride process is a continuous process in which chlorine is used to extract
rutile TiO2. The chloride process produces less waste than the sulfate process because much of the
chlorine is recycled and feedstock bearing higher titanium content is used. The chloride process also
has lower energy requirements and is less labor-intensive than the sulfate process, although the
chloride process requires a higher-skilled labor force. The chloride process produces an intermediate
base pigment with a wide range of properties.
- 9 -
Sulfate process - The sulfate process is a batch process in which sulfuric acid is used to extract the
TiO2 from ilmenite or titanium slag. After separation from the impurities in the ore (mainly iron), the
TiO2 is precipitated and calcined to form an intermediate base pigment ready for sale or can be
upgraded through finishing treatment.
Kronos produced 511,000 metric tons of TiO2 in 2014, up from the 474,000 metric tons produced in 2013.
Kronos’ production amounts include its share of the output produced by its TiO2 manufacturing joint-venture
discussed below in “TiO2 Manufacturing Joint Venture.” Kronos’ average production capacity utilization rates were
approximately 85%, 86%, and 92% of capacity in 2012, 2013, and 2014 respectively. Kronos’s production
utilization rates in 2013 were impacted by the previously-reported lockout at its Canadian production facility that
began in June 2013. Kronos operated its Canadian plant at approximately 15% of the plant’s capacity with non-
union management employees during the lockout. Kronos’ production rates in 2014 were also impacted by such
lockout, as restart of production at the facility did not begin until February 2014. Kronos’ production rates in 2014
were also impacted by the implementation of certain productivity-enhancing improvement projects at other facilities
as well as necessary improvements to ensure continued compliance with its permit regulations which resulted in
longer-than-normal maintenance shutdowns in some instances.
Kronos operates four TiO2 plants in Europe (one in each of Leverkusen, Germany; Nordenham, Germany;
Langerbrugge, Belgium; and Fredrikstad, Norway). In North America, Kronos has a TiO2 plant in Varennes,
Quebec, Canada and, through the manufacturing joint venture described below in “TiO2 Manufacturing Joint
Venture,” a 50% interest in a TiO2 plant in Lake Charles, Louisiana.
Kronos’ production capacity in 2014 was 555,000 metric tons, approximately three-fourths of which was
from the chloride production process.
The following table presents the division of Kronos’ expected 2015 manufacturing capacity by plant
location and type of manufacturing process:
% of Capacity by TiO2
Manufacturing Process
Sulfate
Chloride
Facility
Leverkusen, Germany (1)
Description
TiO2 production, chloride and sulfate process,
co-products
Nordenham, Germany
TiO2 production, sulfate process, co-products
Langerbrugge, Belgium
TiO2 production, chloride process, co-products,
titanium chemicals products
Fredrikstad, Norway (2)
TiO2 production, sulfate process, co-products
Varennes, Canada
TiO2 production, chloride and sulfate process,
slurry facility, titanium chemicals products
Lake Charles, Louisiana (3)
TiO2 production, chloride process
39 %
-
21
-
21
19
25%
40
-
22
13
-
Total
100 %
100%
(1) The Leverkusen facility is located within an extensive manufacturing complex owned by Bayer AG. Kronos
owns the Leverkusen facility, which represents about one-third of its current TiO2 production capacity, but it
leases the land under the facility from Bayer under a long-term agreement which expires in 2050. Lease
payments are periodically negotiated with Bayer for periods of at least two years at a time. A majority-owned
subsidiary of Bayer provides some raw materials, including chlorine, auxiliary and operating materials,
utilities and services necessary to operate the Leverkusen facility under separate supplies and services
agreements.
(2) The Fredrikstad plant is located on public land and is leased until 2063.
- 10 -
(3) Kronos operates the Lake Charles facility in a joint venture with Tioxide Americas, LLC (Tioxide), a
subsidiary of Huntsman Corporation and the amount indicated in the table above represents the share of the
TiO2 produced by the joint venture to which Kronos is entitled. See in “TiO2 Manufacturing Joint Venture.”
Kronos owns the land underlying all of its principle production facilities unless otherwise indicated in the
table above.
Kronos’ production capacity has increased by approximately 16% over the past ten years due to
debottlenecking programs, with only moderate capital expenditures. We believe that Kronos’ annual attainable
production capacity for 2015 is approximately 555,000 metric tons. While we expect Kronos’ production capacity
will be higher in 2015 as compared to 2014, we expect that Kronos will operate at less-than-full production capacity
in 2015, due principally to completing the implementation of certain productivity-enhancing capital improvement
projects at certain facilities which will result in longer-than-normal maintenance shutdowns in some instances.
Kronos also operates two ilmenite mines in Norway pursuant to a governmental concession with an
unlimited term. In addition, Kronos operates a rutile slurry manufacturing plant in Lake Charles, Louisiana, which
converts dry pigment manufactured for Kronos at the Lake Charles TiO2 facility into a slurry form that is then
shipped to customers.
Kronos has various corporate and administrative offices located in the U.S., Germany, Norway, Canada and
Belgium and various sales offices located in the U.S., Canada, Belgium, France, the Netherlands and the United
Kingdom.
TiO2 Manufacturing Joint Venture - Kronos and Tioxide each own a 50% interest in a manufacturing joint
venture, Louisiana Pigment Company, L.P. or LPC. LPC owns and operates a chloride process TiO2 facility located
in Lake Charles, Louisiana. Kronos shares production from the plant equally with Huntsman pursuant to separate
offtake agreements.
A supervisory committee directs the business and affairs of LPC, including production and output
decisions. This committee is composed of four members, two of whom Kronos appoints and two of whom
Huntsman appoints. Two general managers manage the operations of the joint venture acting under the direction of
the supervisory committee. Kronos appoints one general manager and Huntsman appoints the other.
The joint venture is not consolidated in Kronos’ financial statements, because Kronos does not control it.
Kronos accounts for its interest in the joint venture by the equity method. The joint venture operates on a break-
even basis and therefore Kronos does not have any equity in earnings of the joint venture. Kronos is required to
purchase one half of the TiO2 produced by the joint venture. Kronos shares all costs and capital expenditures equally
with Huntsman with the exception of feedstock (purchased natural rutile ore or slag) and packaging costs for the
pigment grades produced. Kronos’ share of net costs is reported as cost of sales as the TiO2 is sold.
Raw materials - The primary raw materials used in chloride process TiO2 are titanium-containing feedstock
(purchased natural rutile ore or slag), chlorine and coke. Chlorine is available from a number of suppliers, while
petroleum coke is available from a limited number of suppliers. Titanium-containing feedstock suitable for use in
the chloride process is available from a limited but increasing number of suppliers principally in Australia, South
Africa, Canada, India and the United States. Kronos purchases chloride process grade slag from Rio Tinto Iron and
Titanium under a long-term supply contract that expires at the end of 2016 and from Tronox Mineral Sands (PTY)
LTD under a supply contract that expires in December 2015. Kronos purchases upgraded slag from Q.I.T. Fer et
Titane Inc. (a subsidiary of Rio Tinto Iron and Titanium) under a long-term supply contract that expires at the end
of 2015. Kronos purchases natural rutile ore under contracts primarily from Iluka Resources, Limited (under a new
contract entered into in January 2015) and Sierra Rutile Limited, both of which expire in 2015. In the past Kronos
has been, and expects to continue to be successful in obtaining short-term and long-term extensions to these and
other existing supply contracts prior to their expiration. Kronos expects the raw materials purchased under these
contracts, and contracts that it may enter into, will meet its chloride process feedstock requirements over the next
several years.
- 11 -
The primary raw materials used in sulfate process TiO2 are titanium-containing feedstock, primarily
ilmenite or purchased sulfate grade slag and sulfuric acid. Sulfuric acid is available from a number of suppliers.
Titanium-containing feedstock suitable for use in the sulfate process is available from a limited number of suppliers
principally in Norway, Canada, Australia, India and South Africa. As one of the few vertically-integrated producers
of sulfate process TiO2, Kronos operates two rock ilmenite mines in Norway, which provided all of the feedstock for
its European sulfate process TiO2 plants in 2014. Kronos expects ilmenite production from its mines to meet its
European sulfate process feedstock requirements for the foreseeable future. For its Canadian sulfate process plant,
Kronos purchases sulfate grade slag primarily from Q.I.T. Fer et Titane Inc. (a subsidiary of Rio Tinto Iron and
Titanium), under a supply contract that expires in 2015. Kronos expects the raw materials purchased under these
contracts, and contracts that it may enter into, to meet its sulfate process feedstock requirements over the next
several years.
Many of Kronos’ raw material contracts contain fixed quantities it is required to purchase, or specify a
range of quantities within which Kronos is required to purchase. The pricing under these agreements is generally
negotiated quarterly.
The following table summarizes Kronos’ raw materials purchased or mined in 2014.
Production process/raw material
Chloride process plants:
Purchased slag or rutile ore
Sulfate process plants:
Ilmenite ore mined and used internally
Purchased slag
Raw materials
procured or mined
(In thousands of metric tons)
460
330
29
Sales and marketing - Kronos’ marketing strategy is aimed at developing and maintaining strong customer
relationships with new and existing accounts. Because TiO2 represents a significant raw material cost for Kronos’
customers, the purchasing decisions are often made by customers’ senior management. Kronos works to maintain
close relationships with the key decision makers, through in-depth and frequent in-person meetings. Kronos
endeavors to extend these commercial and technical relationships to multiple levels within its customers’
organization by using its direct sales force and technical service group to accomplish this objective. Kronos believes
this has helped build customer loyalty to Kronos and strengthen its competitive position. Close cooperation and
strong customer relationships enable Kronos to stay closely attuned to trends in its customers’ businesses. Where
appropriate, Kronos works in conjunction with customers to solve formulation or application problems by modifying
specific product properties or developing new pigment grades. Kronos also focuses its sales and marketing efforts
on those geographic and end-use market businesses where Kronos believes it can realize higher selling prices. This
focus includes continuously reviewing and optimizing customer and product portfolios.
Kronos’ marketing strategy is also aimed at working directly with customers to monitor the success of its
products in their end-use applications, evaluate the need for improvements in product and process technology and
identify opportunities to develop new product solutions for its customers. Kronos’ marketing staff closely
coordinates with its sales force and technical specialists to ensure that the needs of its customers are met, and to help
develop and commercialize new grades where appropriate.
Kronos sells a majority of its products through its direct sales force operating from six sales offices in
Europe and one sales office in North America. Kronos also utilizes sales agents and distributors who are authorized
to sell its products in specific geographic areas. In Europe, Kronos’ sales efforts are conducted primarily through its
direct sales force and its sales agents. Kronos’ agents do not sell any TiO2 products other than Kronos® brand
products. In North America, Kronos’ sales are made primarily through its direct sales force and supported by a
network of distributors. In addition to its direct sales force and sales agents, many of Kronos’ sales agents also act
as distributors to service its smaller customers in all regions. Kronos offers customer and technical service to the
customers who purchase its products through distributors as well as to its larger customers serviced by its direct
sales force.
- 12 -
Kronos sells to a diverse customer base with only one customer representing 10% or more of its sales in
2014 (Behr Process Corporation – 10%). Kronos’ largest ten customers accounted for approximately 35% of sales
in 2014.
Neither Kronos’ business as a whole nor any of its principal product groups is seasonal to any significant
extent. However, TiO2 sales are generally higher in the second and third quarters of the year, due in part to the
increase in paint production in the spring to meet demand during the spring and summer painting seasons. With
certain exceptions, Kronos has historically operated its production facilities at near full capacity rates throughout the
entire year, which among other things helps to minimize its per-unit production costs. As a result, Kronos normally
will build inventories during the first and fourth quarters of each year, in order to maximize product availability
during the higher demand periods normally experienced in the second and third quarters.
Competition - The TiO2 industry is highly competitive. Kronos competes primarily on the basis of price,
product quality, technical service and the availability of high performance pigment grades. Since TiO2 is not a
traded commodity, its pricing is largely a product of negotiation between suppliers and their respective customers.
Although certain TiO2 grades are considered specialty pigments, the majority of Kronos’ grades and substantially all
of its production are considered commodity pigments with price and availability being the most significant
competitive factors along with quality and customer service. During 2014, Kronos had an estimated 9% share of
worldwide TiO2 sales volume, and based on sales volumes, we believe that Kronos is the leading seller of TiO2 in
several countries, including Germany.
Kronos’ principal competitors are E.I. du Pont de Nemours & Co., or Dupont; Millennium Inorganic
Chemicals, Inc. (a subsidiary of National Titanium Dioxide Company Ltd.), or Cristal; Huntsman Corporation; and
Tronox Incorporated. The top five TiO2 producers account for approximately 54% of the world’s production
capacity. Huntsman completed its purchase of the TiO2 business of Sachtleben Chemie GmbH in 2014 and has also
announced its intent to spin-off the consolidated TiO2 business within two years of the acquisition. In February
2015, Huntsman announced a plan to reduce its TiO2 capacity by approximately 100,000 metric tons at one of its
European sulfate process facilities. DuPont has announced its intent to spin-off its TiO2 operations into a separate
publicly-traded company by mid-2015.
The following chart shows Kronos’ estimate of worldwide production capacity in 2014:
Worldwide Production Capacity – 2014
DuPont
Huntsman
Cristal
Kronos
Tronox
Other
16 %
13 %
11 %
8 %
6 %
46 %
DuPont has over one-half of total North American TiO2 production capacity and is Kronos’ principal North
American competitor.
Over the past ten years, Kronos and its competitors have increased industry capacity through
debottlenecking projects, which in part compensated for the shutdown of various TiO2 plants in France, the United
States and China. In addition, in May 2011, DuPont announced a comprehensive plan to add approximately 350,000
metric tons of global capacity. Although overall industry demand is expected to be generally higher in 2015 as
compared to 2014 as a result of improving worldwide economic conditions, Kronos does not expect any other
significant efforts will be undertaken by it or its principal competitors to further increase capacity for the foreseeable
future, other than through debottlenecking projects. If actual developments differ from its expectations, the TiO2
industry’s performance and that of Kronos own could be unfavorably affected.
- 13 -
The TiO2 industry is characterized by high barriers to entry consisting of high capital costs, proprietary
technology and significant lead times (typically three to five years in our experience) required to construct new
facilities or to expand existing capacity. Kronos believes it is unlikely any new TiO2 plants will be constructed in
Europe or North America in the foreseeable future.
Research and development - Kronos employs scientists, chemists, process engineers and technicians who
are engaged in research and development, process technology and quality assurance activities in Leverkusen,
Germany. These individuals have the responsibility for improving Kronos’ chloride and sulfate production
processes, improving product quality and strengthening Kronos’ competitive position by developing new
applications. Kronos’ expenditures for these activities were approximately $19 million in 2012, $18 million in 2013
and $19 million in 2014. Kronos expects to spend $21 million on research and development in 2015.
Kronos continually seeks to improve the quality of its grades and has been successful at developing new
grades for existing and new applications to meet the needs of its customers and increase product life cycles. Since
2009, Kronos has added four new grades for pigments and other applications.
Patents, trademarks, trade secrets and other intellectual property rights - Kronos has a comprehensive
intellectual property protection strategy that includes obtaining, maintaining and enforcing its patents, primarily in
the United States, Canada and Europe. Kronos also protects its trademark and trade secret rights and has entered
into license agreements with third parties concerning various intellectual property matters. Kronos has also from
time to time been involved in disputes over intellectual property.
Patents - Kronos has obtained patents and has numerous patent applications pending that cover its products
and the technology used in the manufacture of its products. Kronos’ patent strategy is important to Kronos and its
continuing business activities. In addition to maintaining its patent portfolio, Kronos seeks patent protection for its
technical developments, principally in the United States, Canada and Europe. U.S. patents are generally in effect for
20 years from the date of filing. Kronos’ U.S. patent portfolio includes patents having remaining terms ranging
from one year to 19 years.
Trademarks and trade secrets - Kronos’ trademarks, including Kronos®, are covered by issued and or
pending registrations, including in Canada and the United States. Kronos protects the marks that it uses in
connection with the products it manufactures and sells and has developed goodwill in connection with the long-term
use of its trademarks. Kronos conducts research activities in secret and it protects the confidentiality of its trade
secrets through reasonable measures, including confidentiality agreements and security procedures including data
security. Kronos relies upon unpatented proprietary knowledge and continuing technological innovation and other
trade secrets to develop and maintain its competitive position. Kronos’ proprietary chloride production process is an
important part of its technology and its business could be harmed if Kronos fails to maintain confidentiality of its
trade secrets used in this technology.
Employees - As of December 31, 2014, Kronos employed the following number of people:
Europe
Canada
United States (1)
Total
2,110
330
45
2,485
(1) Excludes employees of Kronos’ Louisiana joint venture.
Certain employees at each of Kronos’ production facilities are organized by labor unions. In Europe,
Kronos’ union employees are covered by master collective bargaining agreements for the chemical industry that are
generally renewed annually. In Canada, Kronos’ union employees are covered by a collective bargaining agreement
that expires in June 2018. At December 31, 2014, approximately 85% of Kronos’ worldwide workforce is
organized under collective bargaining agreements. It is possible that there could be future work stoppages or other
labor disruptions that could materially and adversely affect Kronos’ business, results of operations, financial
position or liquidity.
- 14 -
Regulatory and environmental matters - Kronos’ operations and properties are governed by various
environmental laws and regulations, which are complex, change frequently and have tended to become stricter over
time. These environmental laws govern, among other things, the generation, storage, handling, use and
transportation of hazardous materials; the emission and discharge of hazardous materials into the ground, air or
water; and the health and safety of employees. Certain of Kronos’ operations are, or have been, engaged in the
generation, storage, 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 Kronos’ past and current operations and products have the potential to cause
environmental or other damage. Kronos has implemented and continues to implement various policies and
programs in an effort to minimize these risks. Kronos’ policy is to comply with applicable environmental laws and
regulations at all of its facilities and to strive to improve environmental performance. It is possible that future
developments, such as stricter requirements in environmental laws and enforcement policies, could adversely affect
Kronos’ operations, including production, handling, use, storage, transportation, sale or disposal of hazardous or
toxic substances or require Kronos to make capital and other expenditures to comply, and could adversely affect its
consolidated financial position and results of operations or liquidity.
Kronos’ U.S. manufacturing operations are governed by federal, state and local environmental and worker
health and safety laws and regulations. These include the Resource Conservation and Recovery Act, or RCRA, the
Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Toxic Substances Control Act and the Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act, or CERCLA, as well as the state counterparts of
these statutes. Some of these laws hold current or previous owners or operators of real property liable for the costs
of cleaning up contamination, even if these owners or operators did not know of, and were not responsible for, such
contamination. These laws also assess liability on any person who arranges for the disposal or treatment of
hazardous substances, regardless of whether the affected site is owned or operated by such person. Although
Kronos has not incurred and does not currently anticipate any material liabilities in connection with such
environmental laws, it may be required to make expenditures for environmental remediation in the future.
While the laws regulating operations of industrial facilities in Europe vary from country to country, a
common regulatory framework is provided by the European Union, or the EU. Germany and Belgium are members
of the EU and follow its initiatives. Norway is not a member but generally patterns its environmental regulatory
actions after the EU.
At Kronos’ sulfate plant facilities in Germany, it recycles spent sulfuric acid either through contracts with
third parties or at its own facilities. In addition, at Kronos’ German locations it has a contract with a third party to
treat certain sulfate-process effluents. At its Norwegian plant, Kronos ships spent acid to a third party location
where it is used as a neutralization agent. These contracts may be terminated by either party after giving three or
four years advance notice, depending on the contract.
From time to time, Kronos’ facilities may be subject to environmental regulatory enforcement under U.S.
and non-U.S. statutes. Typically Kronos establishes compliance programs to resolve these matters. Occasionally,
Kronos may pay penalties. To date such penalties have not involved amounts having a material adverse effect on
Kronos’ consolidated financial position, results of operations or liquidity. We believe that all of Kronos’ facilities
are in substantial compliance with applicable environmental laws.
Kronos’ capital expenditures related to ongoing environmental compliance, protection and improvement
programs, including capital expenditures which are primarily focused on increased operating efficiency but also
result in improved environmental protection such as lower emissions from its manufacturing facilities, were $12.3
million in 2014 and are currently expected to be approximately $14 million in 2015.
Other
In addition to our 87% ownership of CompX and our 30% ownership of Kronos at December 31, 2014, we
also own 100% of EWI RE, Inc., an insurance brokerage and risk management services company. We also hold
certain marketable securities and other investments. See Notes 6 and 16 to our Consolidated Financial Statements.
- 15 -
Regulatory and environmental matters - We discuss regulatory and environmental matters in the
respective business sections contained elsewhere herein and in Item 3 - “Legal Proceedings.” In addition, the
information included in Note 18 to our Consolidated Financial Statements under the captions “Lead pigment
litigation” and “Environmental matters and litigation” is incorporated herein by reference.
Insurance - We maintain insurance for our businesses and operations, with customary levels of coverage,
deductibles and limits. See also Item 3 – “Legal Proceedings – Insurance coverage claims” and Note 17 to our
Consolidated Financial Statements.
Business strategy - 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. From time to time, we also evaluate the restructuring of ownership interests among our respective
subsidiaries and related companies.
We and other entities that may be affiliated with Contran routinely 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. In some
instances, we have actively managed the businesses acquired with a focus on maximizing return-on-investment
through cost reductions, capital expenditures, improved operating efficiencies, selective marketing to address market
niches, disposition of marginal operations, use of leverage and redeployment of capital to more productive assets. In
other instances, we have disposed of the acquired interest in a company prior to gaining control. We intend to
consider such activities in the future and may, in connection with such activities, consider issuing additional equity
securities and increasing our indebtedness.
Available information - Our fiscal year ends December 31. We furnish our shareholders with annual
reports containing audited financial statements. In addition, we file annual, quarterly and current reports, proxy and
information statements and other information with the SEC. Our consolidated subsidiary (CompX) and our
significant equity method investee (Kronos) also file annual, quarterly, and current reports, proxy and information
statements and other information with the SEC. We also make our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments thereto available free of charge through our website at
www.nl-ind.com as soon as reasonably practicable after they have been filed with the SEC. We also provide to
anyone, without charge, copies of such documents upon written request. Such requests should be directed to the
attention of the Corporate Secretary at our address on the cover page of this Form 10-K.
Additional information, including our Audit Committee charter, our Code of Business Conduct and Ethics
and our Corporate Governance Guidelines can be found on our website. Information contained on our website is not
part of this Annual Report.
The general public may read and copy any materials we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information about the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC maintains
an internet website that contains reports, proxy and information statements and other information regarding issuers
that file electronically with the SEC at www.sec.gov.
ITEM 1A. RISK FACTORS
Listed below are certain risk factors associated with us and our businesses. See also certain risk factors
discussed in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Policies and Estimates.” In addition to the potential effect of these risk factors, any risk factor
which could result in reduced earnings or operating losses, or reduced liquidity, could in turn adversely affect our
ability to service our liabilities or pay dividends on our common stock or adversely affect the quoted market prices
for our securities.
- 16 -
We could incur significant costs related to legal and environmental matters.
We formerly manufactured lead pigments for use in paint. We and others have 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. These lawsuits seek recovery under a variety of theories, including
public and private nuisance, negligent product design, negligent failure to warn, strict liability, breach of warranty,
conspiracy/concert of action, aiding and abetting, enterprise liability, market share or risk contribution liability,
intentional tort, fraud and misrepresentation, violations of state consumer protection statutes, supplier negligence
and similar claims. The plaintiffs in these actions generally seek to impose on the defendants responsibility for lead
paint abatement and health concerns associated with the use of lead-based paints, including damages for personal
injury, contribution and/or indemnification for medical expenses, medical monitoring expenses and costs for
educational programs. As with all legal proceedings, the outcome is uncertain. Any liability we might incur in the
future could be material. See also Item 3 - “Legal Proceedings - Lead pigment litigation.”
Certain properties and facilities used in our former operations are the subject of litigation, administrative
proceedings or investigations arising under various environmental laws. These proceedings seek cleanup costs,
personal injury or property damages and/or damages for injury to natural resources. Some of these proceedings
involve claims for substantial amounts. Environmental obligations are difficult to assess and estimate for numerous
reasons, and we may incur costs for environmental remediation in the future in excess of amounts currently
estimated. Any liability we might incur in the future could be material. See also Item 3 - “Legal Proceedings -
Environmental matters and litigation.”
Our assets consist primarily of investments in our operating subsidiaries and affiliates, and we are dependent
upon distributions from our subsidiaries and affiliates.
The majority of our operating cash flows are generated by our operating subsidiaries and affiliates, and our
ability to service liabilities and to pay dividends on our common stock (to the extent such dividends are declared by
our board of directors) depends to a large extent upon the cash dividends or other distributions we receive from our
subsidiaries and affiliates. Our subsidiaries and affiliates are separate and distinct legal entities and they have no
obligation, contingent or otherwise, to pay such cash dividends or other distributions to us. In addition, the payment
of dividends or other distributions from our subsidiaries and affiliates could be subject to restrictions on, or taxation
of, dividends or repatriation of earnings under applicable law, monetary transfer restrictions, currency exchange
regulations in jurisdictions in which our subsidiaries and affiliates operate or any other restrictions imposed by
current or future agreements to which our subsidiaries and affiliates may be a party, including debt instruments.
Events beyond our control, including changes in general business and economic conditions, could adversely impact
the ability of our subsidiaries and affiliates to pay dividends or make other distributions to us. If our subsidiaries
and affiliates were to become unable to make sufficient cash dividends or other distributions to us, our ability to
service our liabilities and to pay dividends on our common stock (if declared) could be adversely affected.
In addition, a significant portion of our assets consist of ownership interests in our subsidiaries and
affiliates. If we were required to liquidate any of such securities in order to generate funds to satisfy our liabilities,
we may be required to sell such securities at a time or times at which we would not be able to realize what we
believe to be the actual value of such assets.
Many of the markets in which we operate are mature and highly competitive resulting in pricing pressure
and the need to continuously reduce costs.
Many of the markets CompX serves are highly competitive, with a number of competitors offering similar
products. CompX focuses efforts on the middle and high-end business of the market where we feel that we can
compete due to the importance of product design, quality and durability to the customer. However, our ability to
effectively compete is impacted by a number of factors. The occurrence of any of these factors could result in
reduced earnings or operating losses.
Competitors may be able to drive down prices for our products because their costs are lower than our
costs, especially products sourced from Asia.
- 17 -
Competitors’ financial, technological and other resources may be greater than our resources, which
may enable them to more effectively withstand changes in market conditions.
Competitors may be able to respond more quickly than we can to new or emerging technologies and
changes in customer requirements.
Consolidation of our competitors or customers in any of the markets in which we compete may result
in reduced demand for our products.
New competitors could emerge by modifying their existing production facilities to manufacture
products that compete with our products.
We may not be able to sustain a cost structure that enables us to be competitive.
Customers may no longer value our product design, quality or durability over the lower cost products
of our competitors.
Our development of innovative features for our current component products is critical to sustaining and
growing our sales.
Historically, CompX’s ability to provide value-added custom engineered component products that address
requirements of technology has been a key element of its success. We spend a significant amount of time and effort
to refine, improve and adapt our existing products for new customers and applications. Since expenditures for these
types of activities are not considered research and development expense under accounting principles generally
accepted in the United States of America, the amount of our research and development expenditures, which is not
significant, is not indicative of the overall effort involved in the development of new product features. The
introduction of new products and features requires the coordination of the design, manufacturing and marketing of
such products with current and potential customers. The ability to coordinate these activities with current and
potential customers may be affected by factors beyond CompX’s control. While we will continue to emphasize the
introduction of innovative new product features that target customer-specific opportunities, we do not know if any
new product features CompX introduces will achieve the same degree of success that it has achieved with its
existing products. Introduction of new product features typically requires us to increase production volume on a
timely basis while maintaining product quality. Manufacturers often encounter difficulties in increasing production
volumes, including delays, quality control problems and shortages of qualified personnel or raw materials. As
CompX attempts to introduce new product features in the future, we do not know if CompX will be able to increase
production volume without encountering these or other problems, which might negatively impact our financial
condition or results of operations.
Future acquisitions of CompX could subject us to a number of operational risks.
A key component of CompX’s strategy is to grow and diversify its business through targeted acquisitions.
CompX’s ability to successfully execute this component of its strategy entails a number of risks, including:
the identification of suitable growth opportunities;
an inaccurate assessment of acquired liabilities that were undisclosed or not properly disclosed;
the entry into markets in which we may have limited or no experience;
the diversion of management’s attention from our core businesses;
the potential loss of key employees or customers of the acquired businesses;
the potential of not identifying that acquired products infringe on the intellectual property rights of
others;
difficulties in realizing projected efficiencies, synergies and cost savings; and
an increase in our indebtedness and a limitation in our ability to access additional capital when needed.
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Failure to protect our intellectual property rights or claims by others that we infringe their intellectual
property rights could substantially harm our business.
CompX relies on patent, trademark and trade secret laws in the United States and similar laws in other
countries to establish and maintain intellectual property rights in our technology and designs. Despite these
measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated.
Others may independently discover our trade secrets and proprietary information, and in such cases we could not
assert any trade secret rights against such parties. Further, we do not know if any of our pending trademark or patent
applications will be approved. Costly and time-consuming litigation could be necessary to enforce and determine
the scope of our intellectual property rights. In addition, the laws of certain countries do not protect intellectual
property rights to the same extent as the laws of the United States. Therefore, in certain jurisdictions, we may be
unable to protect our technology and designs adequately against unauthorized third party use, which could adversely
affect our competitive position.
Third parties may claim that we or our customers are infringing upon their intellectual property rights.
Even if we believe that such claims are without merit, they can be time-consuming and costly to defend and distract
our management and technical staff’s attention and resources. Claims of intellectual property infringement also
might require us to redesign affected technology, enter into costly settlement or license agreements or pay costly
damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our
technology. If we cannot or do not license the infringed technology on reasonable pricing terms or at all, or
substitute similar technology from another source, our business could be adversely impacted.
Global climate change legislation could negatively impact our financial results or limit our ability to operate
our businesses.
CompX operates production facilities in the United States and Kronos operates production facilities in
several countries in North America and Europe. We believe that all production facilities are in substantial
compliance with applicable environmental laws. Legislation has been passed, or proposed legislation is being
considered, to limit greenhouse gases through various means including emissions permits and/or energy taxes. In
several production facilities, Kronos consumes large amounts of energy, including electricity and natural gas. To
date the climate change legislation in effect has not had a material adverse effect on our financial results. However,
if greenhouse gas legislation were to be enacted in one or more countries, it could negatively impact our future
results from operations through increased costs of production, particularly as it relates to our energy requirements.
If such increased costs of production were to materialize, we may be unable to pass price increases onto our
customers to compensate for increased production costs, which may decrease our liquidity, income from operations
and results of operations.
Higher costs or limited availability of our raw materials may decrease our liquidity.
Certain of the raw materials used in CompX’s products are commodities that are subject to significant
fluctuations in price in response to world-wide supply and demand as well as speculative investor activity. Zinc and
brass are the principal raw materials used in the manufacture of security products. Stainless steel tubing is the major
raw material used in the manufacture of marine exhaust systems. These raw materials are purchased from several
suppliers and are generally readily available from numerous sources. CompX occasionally enters into short-term
raw material supply arrangements to mitigate the impact of future increases in commodity-related raw material
costs. Materials purchased outside of these arrangements are sometimes subject to unanticipated and sudden price
increases. Should our vendors not be able to meet their contractual obligations or should we otherwise be unable to
obtain necessary raw materials, we may incur higher costs for raw materials or may be required to reduce production
levels, either of which may decrease our liquidity as we may be unable to offset the higher costs with increases in
our selling prices or reductions in other operating costs.
For Kronos, the number of sources for and availability of certain raw materials is specific to the particular
geographical region in which a facility is located. For example, titanium-containing feedstocks suitable for use in its
TiO2 facilities are available from a limited number of suppliers around the world. Political and economic instability
in the countries from which Kronos purchases raw material supplies could adversely affect their availability. If
Kronos’ worldwide vendors were unable to meet their contractual obligations and it was unable to obtain necessary
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raw materials, Kronos could incur higher costs for raw materials or may be required to reduce production levels.
Kronos experienced significantly higher ore costs in 2012 which carried over into 2013. Kronos saw moderation in
the purchase cost of third-party feedstock ore in 2013 and throughout 2014, but such reductions did not begin to be
significantly reflected in Kronos’ cost of sales until the third quarter of 2013. Kronos may also experience higher
operating costs such as energy costs, which could affect its profitability. Kronos may not always be able to increase
selling prices to offset the impact of any higher costs or reduced production levels, which could reduce its earnings
and decrease its liquidity.
Kronos has long-term supply contracts that provide for its TiO2 feedstock requirements that currently
expire through 2016. While Kronos believes it will be able to renew these contracts, there can be no assurance it
will be successful in renewing these contracts or in obtaining long-term extensions to these contracts prior to
expiration. Kronos’ current agreements (including those entered into in January 2015) require Kronos to purchase
certain minimum quantities of feedstock with minimum purchase commitments aggregating approximately $532
million in years subsequent to December 31, 2014. In addition, Kronos has other long-term supply and service
contracts that provide for various raw materials and services. These agreements require Kronos to purchase certain
minimum quantities or services with minimum purchase commitments aggregating approximately $164 million at
December 31, 2014. Kronos’ commitments under these contracts could adversely affect its financial results if it
significantly reduced production and was unable to modify the contractual commitments.
Demand for, and prices of, certain of Kronos’ products are influenced by changing market conditions for its
products, which may result in reduced earnings or in operating losses.
A significant portion of our net income is attributable to sales of TiO2 by Kronos. Approximately 90% of
Kronos’ revenues are attributable to sales of TiO2. Pricing within the global TiO2 industry over the long term is
cyclical, and changes in economic conditions, especially in Western industrialized nations, can significantly impact
Kronos’ earnings and operating cash flows. Historically, the markets for many of Kronos’ products have
experienced alternating periods of increasing and decreasing demand. Relative changes in the selling prices for
Kronos’ products are one of the main factors that affect the level of its profitability. In periods of increasing
demand, Kronos’ selling prices and profit margins generally will tend to increase, while in periods of decreasing
demand Kronos’ selling prices and profit margins generally tend to decrease. In addition, pricing may affect
customer inventory levels as customers may from time to time accelerate purchases of TiO2 in advance of
anticipated price increases or defer purchases of TiO2 in advance of anticipated price decreases. Kronos’ ability to
further increase capacity without additional investment in greenfield or brownfield capacity increases may be
limited and as a result, Kronos’ profitability may become even more dependent upon the selling prices of its
products.
The TiO2 industry is concentrated and highly competitive and Kronos faces price pressures in the markets in
which it operates, which may result in reduced earnings or in operating losses.
The global market in which Kronos operates is concentrated, with the top five TiO2 producers accounting
for over 50% of the world’s production capacity and is highly competitive. Competition is based on a number of
factors, such as price, product quality and service. Some of Kronos’ competitors may be able to drive down prices
for its products if their costs are lower than Kronos’ costs. In addition, some of the competitors’ financial,
technological and other resources may be greater than Kronos’ resources and such competitors may be better able to
withstand changes in market conditions. Kronos’ competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. Further, consolidation of competitors or customers
may result in reduced demand for Kronos’ products or make it more difficult for Kronos to compete with
competitors. The occurrence of any of these events could result in reduced earnings or operating losses.
Kronos’ leverage may impair our financial condition or limit our ability to operate our businesses.
As of December 31, 2014, Kronos had consolidated debt of approximately $348.6 million, which relates
primarily to a term loan entered into in February 2014. Kronos’ level of debt could have important consequences to
its stockholders (including us) and creditors, including:
making it more difficult for Kronos to satisfy its obligations with respect to its liabilities;
increasing its vulnerability to adverse general economic and industry conditions;
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requiring that a portion of Kronos’ cash flows from operations be used for the payment of interest on
its debt, which reduces its ability to use cash flow to fund working capital, capital expenditures,
dividends on its common stock, acquisitions or general corporate requirements;
limiting its ability to obtain additional financing to fund future working capital, capital expenditures,
dividends on its common stock, acquisitions or general corporate requirements;
limiting its flexibility in planning for, or reacting to, changes in Kronos’ business and the industry in
which it operates; and
placing it at a competitive disadvantage relative to other less leveraged competitors.
In addition to Kronos’ indebtedness, at December 31, 2014, Kronos is party to various lease and other
agreements (including feedstock ore purchase contracts as previously described) pursuant to which, along with its
indebtedness, Kronos is committed to pay approximately $454 million in 2015. Kronos’ ability to make payments
on and refinance its debt, and to fund planned capital expenditures, depends on Kronos’ future ability to generate
cash flow. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control. In addition, Kronos’ ability to borrow funds under its or its subsidiaries’
credit facilities in the future will in some instances depend in part on its ability to maintain specified financial ratios
and satisfy certain financial covenants contained in the applicable credit agreement.
Kronos’ business may not generate cash flows from operating activities sufficient to enable Kronos to pay
its debts when they become due and to fund other liquidity needs. As a result, Kronos may need to refinance all or a
portion of its debt before maturity. Kronos may not be able to refinance any of its debt in a timely manner on
favorable terms, if at all in the current credit markets. Any inability to generate sufficient cash flows or to refinance
Kronos’ debt on favorable terms could have a material adverse effect on its financial condition.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None
ITEM 2.
PROPERTIES
Our principal executive offices are located in an office building located at 5430 LBJ Freeway, Dallas,
Texas, 75240-2697. The principal properties used in the operations of our subsidiaries and affiliates, including
certain risks and uncertainties related thereto, are described in the applicable business sections of Item 1 –
“Business.” We believe that our facilities are generally adequate and suitable for our respective uses.
ITEM 3.
LEGAL PROCEEDINGS
We are involved in various legal proceedings. In addition to information that is included below, we have
included certain of the information called for by this Item in Note 18 to our Consolidated Financial Statements, and
we are incorporating that information here by reference.
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 Industries Association (LIA), which discontinued business operations in
2002, have 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
have been filed by or on behalf of states, counties, cities or their public housing authorities and school districts, and
certain others have been asserted as class actions. These lawsuits seek recovery under a variety of theories,
including public and private nuisance, negligent product design, negligent failure to warn, strict liability, breach of
warranty, conspiracy/concert of action, aiding and abetting, enterprise liability, market share or risk contribution
liability, intentional tort, fraud and misrepresentation, violations of state consumer protection statutes, supplier
negligence and similar claims.
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The plaintiffs in these actions generally seek to impose on the defendants responsibility for lead paint
abatement and health concerns associated with the use of lead-based paints, including damages for personal injury,
contribution and/or indemnification for medical expenses, medical monitoring expenses and costs for educational
programs. To the extent the plaintiffs seek compensatory or punitive damages in these actions, such damages are
generally unspecified. In some cases, the damages are unspecified pursuant to the requirements of applicable state
law. A number of cases are inactive or have been dismissed or withdrawn. Most of the remaining cases are in
various pre-trial stages. Some are on appeal following dismissal or summary judgment rulings in favor of either the
defendants or the plaintiffs.
We believe that these actions are without merit, and we intend to continue to deny all allegations of
wrongdoing and liability and to defend against all actions vigorously. We do not believe it is probable that we have
incurred any liability with respect to all of the lead pigment litigation cases to which we are a party, and liability to
us that may result, if any, in this regard cannot be reasonably estimated, because:
we have never settled any of the market share, intentional tort, fraud, nuisance, supplier negligence,
breach of warranty, conspiracy, misrepresentation, aiding and abetting, enterprise liability, or statutory
cases,
no final, non-appealable adverse verdicts have ever been entered against us, and
we have never ultimately been found liable with respect to any such litigation matters, including over
100 cases over a twenty-year period for which we were previously a party and for which we have been
dismissed without any finding of liability.
Accordingly, we have not accrued any amounts for any of the pending lead pigment and lead-based paint
litigation cases filed by or on behalf of states, counties, cities or their public housing authorities and school districts,
or those asserted as class actions. In addition, we have determined that liability to us which may result, if any,
cannot be reasonably estimated because there is no prior history of a loss of this nature on which an estimate could
be made and there is no substantive information available upon which an estimate could be based.
In one of these lead pigment cases, in April 2000 we were served with a complaint (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) brought by a number of California government entities against the former pigment manufacturers,
the LIA and certain paint manufacturers. The County of Santa Clara sought to recover compensatory damages for
funds the plaintiffs had expended or would in the future expend for medical treatment, educational expenses,
abatement or other costs due to exposure to, or potential exposure to, lead paint, disgorgement of profit, and punitive
damages. In July 2003, the trial judge granted defendants’ motion to dismiss all remaining claims. Plaintiffs
appealed and the intermediate appellate court reinstated public nuisance, negligence, strict liability, and fraud claims
in March 2006. A fourth amended complaint was filed in March 2011 on behalf of The People of California by the
County Attorneys of Alameda, Ventura, Solano, San Mateo, Los Angeles and Santa Clara, and the City Attorneys of
San Francisco, San Diego and Oakland. That complaint alleged that the presence of lead paint created a public
nuisance in each of the prosecuting jurisdictions and sought its abatement. In July and August 2013, the case was
tried. In January 2014, the Court issued a judgment finding us, The Sherwin Williams Company and ConAgra
jointly and severally liable for the abatement of lead paint in pre-1980 homes, and ordered the defendants to pay an
aggregate $1.15 billion to the people of the State of California to fund such abatement. In February 2014, we filed a
motion for a new trial, and in March 2014 the court denied the motion. Subsequently in March 2014, we filed a
notice of appeal with the Sixth District Court of Appeal for the State of California and the appeal is proceeding with
the appellate court. NL believes that this judgment is inconsistent with California law and is unsupported by the
evidence, and we will defend vigorously against all claims.
The Santa Clara case is unusual in that this is the second time that an adverse verdict in the lead pigment
litigation has been entered against NL (the first adverse verdict against NL was ultimately overturned on appeal).
We have concluded that the likelihood of a loss in this case has not reached a standard of “probable” as
contemplated by ASC 450, given (i) the substantive, substantial and meritorious grounds on which the adverse
verdict in the Santa Clara case will be appealed, (ii) the uniqueness of the Santa Clara verdict (i.e. no final, non-
appealable verdicts have ever been rendered against us, or any of the other former lead pigment manufacturers,
based on the public nuisance theory of liability or otherwise), and (iii) the rejection of the public nuisance theory of
liability as it relates to lead pigment matters in many other jurisdictions (no jurisdiction in which a plaintiff has
asserted a public nuisance theory of liability has ever successfully been upheld). In addition, liability that may
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result, if any, cannot be reasonably estimated, as NL continues to have no basis on which an estimate of liability
could be made, as discussed above. However, as with any legal proceeding, there is no assurance that any appeal
would be successful, and it is reasonably possible, based on the outcome of the appeals process, that NL may in the
future incur some liability resulting in the recognition of a loss contingency accrual that could have a material
adverse impact on our results of operations, financial position and liquidity.
In June 2000, a complaint was filed in Illinois state court, Lewis, et al. v. Lead Industries Association, et al
(Circuit Court of Cook County, Illinois, County Department, Chancery Division, Case No. 00CH09800.) Plaintiffs
seek to represent two classes, one consisting of minors between the ages of six months and six years who resided in
housing in Illinois built before 1978, and another consisting of individuals between the ages of six and twenty years
who lived in Illinois housing built before 1978 when they were between the ages of six months and six years and
who had blood lead levels of 10 micrograms/deciliter or more. The complaint seeks damages jointly and severally
from the former pigment manufacturers and the LIA to establish a medical screening fund for the first class to
determine blood lead levels, a medical monitoring fund for the second class to detect the onset of latent diseases and
a fund for a public education campaign. In April 2008, the trial court judge certified a class of children whose blood
lead levels were screened venously between August 1995 and February 2008 and who had incurred expenses
associated with such screening. In March 2012, the trial court judge decertified the class. In June 2012, the trial
court judge granted plaintiffs the right to appeal his decertification order, and in August 2012 the appellate court
granted plaintiffs permission to appeal. In March 2013, the appellate court agreed with the trial court’s rationale
regarding legislative requirements to screen children’s blood lead levels and remanded the case for further
proceedings in the trial court. In July 2013, plaintiffs moved to vacate the decertification. In October 2013, the
judge denied plaintiffs’ motion to vacate the decertification of the class. In March 2014, plaintiffs filed a new class
certification motion.
Between January 2007 and May 2011, we were served with nine complaints filed in the Circuit Court in
Milwaukee County, Wisconsin or in the United District Court, Eastern District of Wisconsin. The plaintiffs are 173
minor children who allege injuries purportedly caused by lead on the surfaces of the homes in which they
resided. Plaintiffs seek compensatory and punitive damages. The defendants in these cases include us, American
Cyanamid Company, Armstrong Containers, Inc., E.I. Du Pont de Nemours & Company, Atlantic Richfield
Company and The Sherwin-Williams Company. Property owners are also defendants in each of the cases. Two of
the cases remained in State Court (Clark and Williams); four were removed to Federal court (Burton, Owens, B.
Stokes, and Gibson); and three were filed in Federal Court (Sifuentes, Allen and Valoe). In December 2014, all of
these cases as to NL were dismissed with prejudice.
In addition to the foregoing litigation, various legislation and administrative regulations have, from time to
time, been proposed that seek to (a) impose various obligations on present and former manufacturers of lead
pigment and lead-based paint with respect to asserted health concerns associated with the use of such products and
(b) 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, the imposition of market share liability or other legislation could have such an effect.
New cases may continue to be filed against us. We cannot assure you that we will not 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.
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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. and non-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 that 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 also a party to 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,
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. We cannot assure you that actual costs will not exceed accrued
amounts or the upper end of the range for sites for which estimates have been made, and we cannot assure you that
costs will not be incurred for sites where no estimates presently can be made. Further, additional environmental and
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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. At December 31, 2013 and 2014,
we have not recognized any receivables for recoveries.
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.
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 December 31, 2014, we had accrued approximately $110 million related to
approximately 47 sites associated with remediation and related matters that we believe are at the present time and/or
in their current phase reasonably estimable. The upper end of the range of reasonably possible costs to us for
remediation and related matters for which we believe it is possible to estimate costs is approximately $149 million,
including the amount currently accrued.
We believe that it is not reasonably possible to estimate the range of costs for certain sites. At December
31, 2014, there were approximately 5 sites for which we are not currently able to reasonably estimate a range of
costs. For these sites, generally the investigation is in the early stages, and we are unable to determine whether or
not we actually had any association with the site, the nature of our responsibility, if any, for the contamination at the
site and the extent of contamination at and cost to remediate the site. The timing and availability of information on
these sites is dependent on events outside of our control, such as when the party alleging liability provides
information to us. At certain of these previously inactive sites, we have received general and special notices of
liability from the EPA and/or state agencies alleging that we, sometimes with other PRPs, are liable for past and
future costs of remediating environmental contamination allegedly caused by former operations. These notifications
may assert that we, along with any other alleged PRPs, are liable for past and/or future clean-up costs. As further
information becomes available to us for any of these sites, which would allow us to estimate a range of costs, we
would at that time adjust our accruals. Any such adjustment could result in the recognition of an accrual that would
have a material effect on our consolidated financial statements, results of operations and liquidity.
In June 2006, we and several other PRPs received a Unilateral Administrative Order (UAO) from the EPA
regarding a formerly-owned mine and milling facility located in Park Hills, Missouri. The Doe Run Company is the
current owner of the site, which was purchased by a predecessor of Doe Run from us in approximately 1936. Doe
Run is also named in the Order. In April 2008, the parties signed a definitive cost sharing agreement for sharing of
the costs anticipated in connection with the order and in May 2008, the parties began work at the site as required by
the UAO and in accordance with the cost sharing agreement. In the fourth quarter of 2010, NL reached its capped
payment obligation under the cost sharing agreement with Doe Run. In the fourth quarter of 2013, Doe Run
completed the remainder of the construction work. A Removal Action Report and Post-Removal Site Control plan
will be submitted to the EPA in 2015.
In June 2008, we received a Directive and Notice to Insurers from the New Jersey Department of
Environmental Protection (NJDEP) regarding the Margaret’s Creek site in Old Bridge Township, New Jersey.
NJDEP alleged that a waste hauler transported waste from one of our former facilities for disposal at the site in the
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early 1970s. NJDEP referred the site to the EPA, and in November 2009, the EPA added the site to the National
Priorities List under the name “Raritan Bay Slag Site.” In 2012, EPA notified NL of its potential liability at this site.
In May 2013, EPA issued its Record of Decision for the site. In June 2013, NL filed a contribution suit
under CERCLA and the New Jersey Spill Act titled NL Industries, Inc. v. Old Bridge Township, et al. (United States
District Court for the District of New Jersey, Civil Action No. 3:13-cv-03493-MAS-TJB) against the current owner,
Old Bridge Township, and several federal and state entities NL alleges designed and operated the site and who have
significant potential liability as compared to NL which is alleged to have been a potential source of material placed
at the site by others. NL’s suit also names certain former NL customers of the former NL facility alleged to be the
source of some of the materials. In January 2014, EPA issued a UAO to NL for clean-up of the site based on the
EPA’s preferred remedy set forth in the Record of Decision. NL is in discussions with EPA about NL’s performance
of a defined amount of the work at the site and is otherwise taking actions necessary to respond to the UAO. If these
discussions and actions are unsuccessful, NL will defend vigorously against all claims while continuing to seek
contribution from other PRPs.
In September 2008, we received a Special Notice letter from the EPA for liability associated with the Tar
Creek Superfund site in Ottawa County (Tar Creek) and a demand for related past and future costs. We responded
with a good-faith offer to pay certain of the EPA’s past costs and to complete limited work in the areas in which we
operated. In October 2008, we received a claim from the State of Oklahoma for past, future and relocation costs in
connection with the site. We are involved in an ongoing dialogue with the EPA and the State of Oklahoma
regarding a potential settlement.
In June 2009, we were served with a complaint in Consolidation Coal Company v. 3M Company, et al.
(United States District Court, Eastern District of North Carolina, Civil Action No. 5:09-CV-00191-FL). The
complaint seeks to recover against NL and roughly 170 other defendants under CERCLA for past and future
response costs. The plaintiffs allege that NL’s former Albany operation allegedly sent three PCB-containing
transformers to the Ward Transformer Superfund Site. In December 2012, NL received a notice of potential
responsibility for past costs from the EPA. We have denied liability and will defend vigorously against all claims.
In August 2009, we were served with a complaint in Raritan Baykeeper, Inc. d/b/a NY/NJ Baykeeper et al.
v. NL Industries, Inc. et al. (United States District Court, District of New Jersey, Case No. 3:09-cv-04117). This
is a citizen’s suit filed by two local environmental groups pursuant to the Resource Conservation and Recovery Act
and the Clean Water Act against NL, current owners, developers and state and local government entities. The
complaint alleges that hazardous substances were and continue to be discharged from our former Sayreville, New
Jersey property into the sediments of the adjacent Raritan River. The former Sayreville site is currently being
remediated by owner/developer parties under the oversight of the NJDEP. The plaintiffs seek a declaratory
judgment, injunctive relief, imposition of civil penalties and an award of costs. We have denied liability and will
defend vigorously against all claims
In June 2011, we were served in ASARCO LLC v. NL Industries, Inc., et al. (United States District Court,
Western District of Missouri, Case No. 4:11-cv-00138-DGK). The plaintiff brought this CERCLA contribution
action against several defendants to recover a portion of the amount it paid in settlement with the U.S. Government
during its Chapter 11 bankruptcy in relation to the Tar Creek site, the Cherokee County Superfund Site in southeast
Kansas, the Oronogo-Duenweg Lead Mining Belt Superfund Site in Jasper County, Missouri and the Newton
County Mine Tailing Site in Newton County, Missouri. We have denied liability and will defend vigorously against
all of the claims. In the second quarter of 2012, NL filed a motion to stay the case. In the first quarter of 2013,
NL’s motion was granted and the court entered an indefinite stay. In the first quarter of 2015, Asarco was granted
permission to seek an interlocutory appeal of that stay order. If an appeal is permitted, NL will vigorously defend
the trial court’s decision to stay the litigation.
In September 2011, we were served in ASARCO LLC v. NL Industries, Inc., et al. (United States District
Court, Eastern District of Missouri, Case No. 4:11-cv-00864). The plaintiff brought this CERCLA contribution
action against several defendants to recover a portion of the amount it paid in settlement with the U.S. Government
during its Chapter 11 bankruptcy in relation to the Southeast Missouri Mining District. We have denied liability and
will defend vigorously against all of the claims.
- 26 -
In July 2012, we were served in EPEC Polymers, Inc., v. NL Industries, Inc., (United States District Court
for the District of New Jersey, Case 3:12-cv-03842-PGS-TJB). The plaintiff, a landowner of property located across
the Raritan River from our former Sayreville, New Jersey operation, claims that contaminants from NL’s former
Sayreville operation came to be located on its land. The complaint seeks compensatory and punitive damages and
alleges, among other things, trespass, private nuisance, negligence, strict liability, and claims under CERCLA and
the New Jersey Spill Act. We have denied liability and will defend vigorously against all of the claims.
In March 2013, NL received Special Notice from EPA for Operable Unit 1, residential area, at the Big
River Mine Tailings Superfund Site in St. Francois County, Missouri. The site encompasses approximately eight
former mine and mill areas, only one of which is associated with former NL operations, as well as adjacent
residential areas. NL initiated a dialog with EPA regarding a potential settlement for this operable unit.
In September 2013, EPA issued to NL and 34 other PRPs general notice of potential liability and a demand
for payment of past costs and performance of a Remedial Design for the Gowanus Canal Superfund Site in Brooklyn,
New York. In March 2014, EPA issued a UAO to NL and approximately 27 other PRPs for performance of the
Remedial Design at the site. EPA contends that NL is liable as the alleged successor to the Doehler Die Casting
Company, and therefore responsible for any potential contamination at the Site resulting from Doehler’s
ownership/operation of a warehouse and a die casting plant it owned 90 years ago. NL believes that it has no
liability at the Site. NL is currently in discussions with EPA regarding a de minimis settlement and is otherwise
taking actions necessary to respond to the UAO. If these discussions are unsuccessful, NL will continue to deny
liability and will defend vigorously against all of the claims.
Other litigation
In addition to the matters 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 that the disposition of all claims and disputes, individually or 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.
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. In addition to information that is included below, we have included
certain of the information called for by this Item in Note 18 to our Consolidated Financial Statements, and we are
incorporating that information here by reference.
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. See Note 18 to our Consolidated Financial Statements.
- 27 -
We have settled insurance coverage claims concerning environmental claims with certain of our principal
former insurance carriers. We do not expect further material settlements relating to environmental remediation
coverage.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable
- 28 -
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock is listed and traded on the New York Stock Exchange (NYSE: NL). As of February 27,
2015, there were approximately 2,569 holders of record of our common stock. The following table sets forth the
high and low closing per share sales prices for our common stock for the periods indicated, according to Bloomberg,
and cash dividends paid during such periods. On February 27, 2015 the closing price of our common stock was
$7.86.
Year ended December 31, 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
January 1, 2015 through February 27, 2015
High
Low
$
$
13.52 $
12.64
11.89
11.74
11.76 $
10.98
10.37
9.16
8.65
12.16
10.40
10.57
10.10
10.19
8.41
7.20
6.71
6.86
Cash
dividends
paid
.125
.125
.125
.125
-
-
-
-
-
In February 2014, our Board of Directors deferred consideration of a first quarter 2014 cash dividend, and
no dividend was paid in the first quarter. In May 2014, after considering our results of operations, financial
conditions and cash requirements for our businesses, our Board of Directors suspended our regular quarterly
dividend. The declaration and payment of future dividends, and the amount thereof, is discretionary and is
dependent upon these 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.
- 29 -
Performance graph
Set forth below is a table and line graph comparing the yearly change in our cumulative total stockholder
return on our common stock against the cumulative total return of the S&P 500 Composite Stock Price Index and the
S&P 500 Industrial Conglomerates Index for the period from December 31, 2009 through December 31, 2014. The
graph shows the value at December 31 of each year assuming an original investment of $100 at December 31, 2009
and the reinvestment of dividends.
NL common stock
S&P 500 Composite Stock Price Index
S&P 500 Industrial Conglomerates Index
$
2009
100
100
100
2010
2011
2012
2013
171 $
115
119
205 $
117
120
189 $
136
143
2014
148
205
205
192 $
180
202
The information contained in the performance graph shall not be deemed “soliciting material” or “filed”
with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act, except to the extent we
specifically request that the material be treated as soliciting material or specifically incorporate this performance
graph by reference into a document filed under the Securities Act or the Securities Exchange Act.
Equity compensation plan information
We have an equity compensation plan, which was approved by our shareholders, pursuant to which an
aggregate of 200,000 shares of our common stock can be awarded to members of our board of directors. At
December 31, 2014, 186,000 shares are available for award under this plan. See Note 13 to our Consolidated
Financial Statements.
- 30 -
ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our Consolidated Financial
Statements and Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
2010
Years ended December 31,
2013
2012
2011
(In millions, except per share data)
2014
STATEMENTS OF OPERATIONS DATA:
Net sales
Income from component products operations
Equity in earnings (losses) of Kronos
Net income (loss)
Net income (loss) attributable to NL stockholders:
$
$
$
$
Continuing operations
Discontinued operations (1)
$
Net income (loss) attributable to NL stockholders $
76.1 $
5.9 $
45.6 $
70.8 $
70.9 $
(.5)
70.4 $
79.8 $
6.4 $
97.6 $
82.7 $
78.1 $
3.6
81.7 $
83.2 $
5.4 $
66.4 $
79.1 $
92.0 $
9.3 $
(31.0 ) $
(54.5 ) $
56.7 $
17.8
74.5 $
(55.3 ) $
-
(55.3 ) $
103.8
13.6
30.2
29.6
28.5
-
28.5
DILUTED EARNINGS PER SHARE DATA:
Net income (loss) attributable to NL stockholders:
Continuing operations
Discontinued operations (1)
Cash dividends per share
Weighted average common shares outstanding
BALANCE SHEET DATA (at year end):
Total assets
Long-term debt, including current maturities
NL stockholders' equity
Total equity
STATEMENTS OF CASH FLOW DATA:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
(1) See Note 2 to our Consolidated Financial
Statements
$
$
$
$
$
1.41 $
(.01)
1.40 $
.50 $
48,627
1.61 $
.07
1.68 $
.50 $
48,658
1.16 $
.37
1.53 $
.50 $
(1.14 ) $
-
(1.14 ) $
.50 $
48,667 48,672
.59
-
.59
-
48,679
553.7 $
74.5
252.9
263.9
761.2 $
37.3
415.0
426.0
680.8 $
18.5
374.8
388.1
685.8 $
-
355.4
369.0
500.8
-
237.0
251.5
5.4 $
2.8
(17.8)
48.2 $
9.8
(61.5)
18.0 $
92.2
(44.1 )
14.9 $
3.0
(43.3 )
23.6
(3.3)
(.3)
- 31 -
ITEM 7.
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 noncontrolling interest in Kronos Worldwide,
Inc. Both CompX (NYSE MKT: CIX) and Kronos (NYSE: KRO) file periodic reports with the 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 recreational transportation, postal, office and institutional furniture, cabinetry,
tool storage and healthcare applications. CompX also manufactures stainless steel exhaust systems, gauges and
throttle controls for the recreational marine and other industries through its Marine Components operations. In
December 2012, CompX completed the sale of its Furniture Components business. See Note 2 to our Consolidated
Financial Statements. Unless otherwise noted, the discussion of our results of operations in Management’s
Discussion and Analysis is focused on our continuing operations.
We account for our 30% non-controlling interest in Kronos by the equity method. Kronos is a leading
global producer and marketer of value-added titanium dioxide pigments. TiO2 is used for a variety of manufacturing
applications including coatings, plastics, paper and other industrial products.
Income from continuing operations overview
Our net income from continuing operations attributable to NL stockholders was $28.5 million, or $.59 per
share, in 2014 compared to a net loss of $55.3 million, or $1.14 per share, in 2013 and net income from continuing
operations attributable to NL stockholders of $56.7 million, or $1.16 per share in 2012.
As more fully described below, the increase in our earnings per share from 2013 to 2014 is primarily due to:
equity in earnings from Kronos in 2014 of $30.2 million compared to equity in losses from Kronos in
2013 of $31.0 million,
lower environmental remediation and related costs in 2014 of $62.4 million,
higher income from operations attributable to CompX in 2014 of $4.3 million, and
lower litigation and related costs in 2014 of $3.2 million.
As more fully discussed below, the decrease in our earnings per share attributable to continuing operations
from 2012 to 2013 is primarily due to the net effect of:
equity in losses from Kronos in 2013 of $31.0 million compared to equity in earnings from Kronos in
2012 of $66.4 million,
higher environmental remediation and related costs in 2013 of $54.4 million,
a pre-tax gain on the sale of the shares of the Titanium Metals Corporation (TIMET) common stock we
owned in 2012 of $16.6 million,
a real-estate litigation settlement gain of $15.0 million recognized in 2012 related to the settlement of
condemnation proceedings on real property we formerly owned,
higher income from operations attributable to CompX in 2013 of $3.9 million, and
higher litigation and related costs in 2013 of $2.7 million.
- 32 -
Our 2014 net income from continuing operations attributable to NL stockholders includes:
income of $.14 per share, net of income taxes, related to insurance recoveries we recognized, and
income of $.02 per share, net of income taxes, included in our equity in Kronos related to a net
reduction of Kronos’ reserve for uncertain tax positions.
Our 2013 net loss from continuing operations attributable to NL stockholders includes:
income of $.13 per share, net of income taxes, related to insurance recoveries we recognized,
an aggregate charge of $.09 per share included in our equity in Kronos related to unabsorbed fixed
production and other costs as a result of Kronos’ Canadian plant lockout, and costs associated with the
terms of a new collective bargaining agreement reached with its Canadian workforce,
a charge of $.09 per share included in our equity in Kronos related to Kronos’ third quarter litigation
settlement charge, and
an aggregate charge of $.02 per share included in our equity in Kronos related to Kronos’ voluntary
prepayments of $390 million of its term loan consisting of the write-off of original issue discount costs
and deferred financing costs associated with such prepayments.
Our 2012 income from continuing operations attributable to NL stockholders includes the following:
a charge of $.02 per share included in our equity in Kronos related to Kronos’ charge for the early
extinguishment of its remaining 6.5% Senior Notes due 2013 consisting of a call premium, interest
from the indenture discharge date to the redemption date and the write-off of unamortized deferred
financing costs and original issue discount associated with the redeemed Senior Notes,
a charge of $.13 per share related to the goodwill impairment,
income of $.04 per share related to certain insurance recoveries we recognized,
income of $.22 per share related to the gain on the sale of our TIMET shares in 2012,
income of $.20 per share related to the real-estate litigation settlement gain,
income of $.04 per share related to the sale of certain real property owned by us, and
a charge for the write-down of assets held for sale of $.02 per share.
Outlook for 2015
We currently expect our net income attributable to NL stockholders in 2015 to be somewhat lower than
2014 primarily due to lower anticipated insurance recoveries and lower income from operations attributable to
CompX, offset in part by lower environmental and related costs.
Critical accounting policies and estimates
The accompanying “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” is based upon our Consolidated Financial Statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP). The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reported period. On an ongoing basis, we evaluate our estimates,
including those related to the recoverability of long-lived assets, pension and other postretirement benefit obligations
and the underlying actuarial assumptions related thereto, the realization of deferred income tax assets and accruals
for litigation, income tax and other contingencies. We base our estimates on historical experience and on various
other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for
making judgments about the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ
significantly from previously-estimated amounts under different assumptions or conditions.
- 33 -
The following critical accounting policies affect our more significant judgments and estimates used in the
preparation of our Consolidated Financial Statements:
Investments - We own investments in Valhi, Inc. that we account for as marketable securities carried at
fair value or that we account for under the equity method. For these investments, we evaluate the fair
value at each balance sheet date. We use quoted market prices, Level 1 inputs as defined in
Accounting Standards Codification (ASC) 820-10-35, Fair Value Measurements and Disclosures, to
determine fair value for certain of our marketable debt securities and publicly traded investees. We
record an impairment charge when we believe an investment has experienced an other-than-temporary
decline in fair value below its cost basis (for marketable securities) or below its carrying value (for
equity method investees). Further adverse changes in market conditions or poor operating results of
underlying investments could result in losses or our inability to recover the carrying value of the
investments that may not be reflected in an investment’s current carrying value, thereby possibly
requiring us to recognize an impairment charge in the future. At December 31, 2014, the carrying
value (which equals fair value) of all of our marketable securities equaled or exceeded the cost basis of
such investments, see Note 6 to our Consolidated Financial Statements. At December 31, 2014, the
$13.02 per share quoted market price of our investment in Kronos (our only equity method investee)
exceeded its per share net carrying value by over 193%.
Long-lived assets - We assess property and equipment for impairment only when circumstances (as
specified in ASC 360-10-35, Property, Plant, and Equipment) indicate an impairment may exist. Our
determination is based upon, among other things, our estimates of the amount of future net cash flows
to be generated by the long-lived asset (Level 3 inputs) and our estimates of the current fair value of
the asset. Significant judgment is required in estimating such cash flows. Adverse changes in such
estimates of future net cash flows or estimates of fair value could result in an inability to recover the
carrying value of the long-lived asset, thereby possibly requiring an impairment charge to be
recognized in the future. We do not assess our property and equipment for impairment unless certain
impairment indicators specified in ASC Topic 360-10-35 are present. We did not evaluate any long-
lived assets for impairment during 2014 because no such impairment indicators were present.
Goodwill - Our net goodwill totaled $27.2 million at December 31, 2014. We perform a goodwill
impairment test annually in the third quarter of each year. Goodwill is also evaluated for impairment
at other times whenever an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying value. All of our net goodwill at
December 31, 2014 is related to CompX. Since 2013, we have used the qualitative assessment of ASC
350-20-35 for our annual impairment test and determined it was not necessary to perform the two-step
quantitative goodwill impairment test. See Note 8 to our Consolidated Financial Statements.
Considerable management judgment is necessary to evaluate the qualitative impact of events and
circumstances on the fair value of a reporting unit. Events and circumstances considered in our
impairment evaluations, such as historical profits and stability of the markets served, are consistent
with factors utilized with our internal projections and operating plan. However, future events and
circumstances could result in materially different findings which could result in the recognition of a
material goodwill impairment.
Benefit plans - We maintain various defined benefit pension plans and postretirement benefits other
than pensions (OPEB). The amounts recognized as defined benefit pension and OPEB expenses and
the reported amounts of pension asset and accrued pension and OPEB costs are actuarially determined
based on several assumptions, including discount rates, expected rates of returns on plan assets,
expected health care trend rates and expected mortality. Variances from these actuarially assumed
rates will result in increases or decreases, as applicable, in the recognized pension and OPEB
obligations, pension and OPEB expenses and funding requirements. These assumptions are more fully
described below under the heading “Assumptions on defined benefit pension plans and OPEB plans.”
- 34 -
Income taxes - We recognize deferred taxes for future tax effects of temporary differences between
financial and income tax reporting. While we have considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for a valuation allowance, it is
possible that in the future we may change our estimate of the amount of the deferred income tax assets
that would more-likely-than-not be realized in the future resulting in an adjustment to the deferred
income tax asset valuation allowance that would either increase or decrease, as applicable, reported net
income in the period the change in estimate was made.
We record a reserve for uncertain tax where we believe it is more-likely-than-not our position will not
prevail with the applicable tax authorities. It is possible that that in the future we may change our
assessment regarding the probability that our tax positions will prevail that would require an
adjustment to the amount of our reserve for uncertain tax positions that could either increase or
decrease, as applicable, reported net income in the period the change in assessment was made.
Contingencies - We record accruals for environmental, legal and other contingencies and commitments
when estimated future expenditures associated with such contingencies become probable, and the
amounts can be reasonably estimated. However, new information may become available, or
circumstances (such as applicable laws and regulations) may change, thereby resulting in an increase
or decrease in the amount required to be accrued for such matters (and therefore a decrease or increase
in reported net income in the period of such change).
Income from operations of CompX and Kronos is impacted by certain significant judgments and estimates,
as summarized below:
Chemicals (Kronos) - allowance for doubtful accounts, impairment of equity method investments,
long-lived assets, defined benefit pension and OPEB plans, loss accruals and income taxes, and
Component products (CompX) - impairment of goodwill and long-lived assets, loss accruals and
income taxes.
In addition, general corporate and other items are impacted by the significant judgments and estimates for
impairment of marketable securities and equity method investments, defined benefit pension and OPEB plans,
deferred income tax asset valuation allowances and loss accruals.
Income (loss) from operations attributable to continuing operations
The following table shows the components of our income (loss) from operations attributable to continuing
operations.
$
CompX
Insurance recoveries
Litigation settlement gain
Other income, net
Goodwill impairment
Corporate expense
2012
Year ended December 31,
2013
(Dollars in millions)
9.3 $
9.4
-
.1
-
(87.0)
5.4 $
3.3
15.0
3.6
(6.4)
(29.0)
% Change
2012-13 2013-14
2014
13.6
10.4
-
.1
-
(21.3)
72 %
185
(100 )
(99 )
(100 )
201
46 %
10
-
-
-
(76)
Income (loss) from continuing
operations
$
(8.1) $
(68.2) $
2.8
(747 ) %
104 %
- 35 -
The following table shows the components of our income (loss) before income taxes attributable to
continuing operations exclusive of our income (loss) from operations.
Equity in earnings (losses) of Kronos
Interest and dividend income
Interest expense
CompX International Inc.
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Assets held for sale write-down
Income from operations
Percentage of net sales:
$
$
$
2012
Year ended December 31,
2013
(Dollars in millions)
(31.0) $
2.9
(.1)
66.4 $
3.2
(1.0)
% Change
2012-13 2013-14
2014
30.2
1.6
-
(147 ) %
(9 )
(88 )
197 %
(45)
(100)
2012
Year ended December 31,
2013
(Dollars in millions)
92.0 $
64.4
27.6
18.3
-
9.3 $
83.2 $
58.9
24.3
17.7
1.2
5.4 $
% Change
2012-13 2013-14
2014
103.8
71.6
32.2
18.6
-
13.6
11 %
10
13
3
(100 )
72
13 %
11
17
2
-
46
Cost of sales
Gross margin
Operating costs and expenses
Assets held for sale write-down
Income from operations
71 %
29
21
1
7
70 %
30
20
-
10
69 %
31
18
-
13
Net sales - Net sales increased $11.8 million in 2014 primarily due to strong demand within CompX’s
Security Products business, including a new initiative for an existing government customer, increased market
penetration in electronic locks and strong demand in transportation markets. Sales from CompX’s Marine
Components business also contributed to the increase, reflecting greater penetration into non high-performance
marine markets. Relative changes in selling prices did not have a material impact on net sales comparisons.
Net sales increased approximately $8.8 million in 2013 principally due to higher demand for high security
pin tumbler locks within the Security Products business, and to a lesser extent from an increase in Marine
Component sales outside of the high performance boat market through gains in market share. Relative changes in
selling prices did not have a material impact on net sales comparisons.
Cost of sales and gross margin - Cost of sales and gross margin both increased from 2013 to 2014
primarily due to increased sales volumes. As a percentage of sales, cost of sales decreased 1% primarily due to
improved coverage of fixed manufacturing costs over increased production volumes to meet higher demand for
CompX’s products, partially offset by the impact of lower variable margins due to relative changes in customer and
product mix within CompX’s Security Products business.
Cost of sales and gross margin both increased from 2012 to 2013 primarily due to increased sales volumes.
As a percentage of sales, cost of sales decreased 1% resulting in an increase in gross margin of 1% primarily due to
improved cost efficiencies from higher sales, partially offset by higher self-insured medical costs in 2013 as
discussed below.
- 36 -
Operating costs and expenses - Operating costs and expenses consist primarily of sales and administrative
related personnel costs, sales commissions and advertising expenses directly related to product sales and
administrative costs relating to CompX’s business and corporate management activities, as well as gains and losses
on plant, property and equipment. Operating costs and expenses increased slightly in 2014 compared to 2013
primarily as a result of increased administrative personnel costs and increased depreciation for CompX’s Security
Products business, partially offset by reduced corporate administrative personnel costs. Operating costs and
expenses increased in 2013 compared to 2012, and increased in 2012 as compared to 2011, as a result of increased
administrative support costs relating to the higher sales.
Write-down and loss on disposal of assets held for sale - We recorded a write-downs on assets held for
sale of $1.2 million (including a $.8 million loss on disposal of assets held for sale) in 2012, relating to a certain
facility held for sale that was no longer in use. The write-down is included in corporate operating expense. See
Note 9 to the Consolidated Financial Statements.
Income from operations - As a percentage of net sales, income from operations increased by
approximately 3% in 2014 compared to 2013, and increased 3% in 2013 compared to 2012. These increases were
primarily the result of the factors affecting cost of sales, gross margin, operating costs and the write-down and loss
on disposal of assets held for sale as discussed above.
General - CompX’s profitability primarily depends on our ability to utilize our production capacity
effectively, which is affected by, among other things, the demand for our products and our ability to control our
manufacturing costs, primarily comprising labor costs and materials. The materials used in our products consist of
purchased components and raw materials some of which are subject to fluctuations in the commodity markets such
as zinc, brass and stainless steel. Total material costs represented approximately 49% of our cost of sales in 2014,
with commodity related raw materials accounting for approximately 10% of our cost of sales. With the exception of
a moderate midyear 2014 increase in mined metals, including zinc, worldwide commodity raw material costs were
mostly stable during 2012, 2013 and 2014. CompX occasionally entered into short-term commodity-related raw
material supply arrangements to mitigate the impact of future increases in commodity related raw material costs.
See Item 1 - “Business- Raw Materials.”
- 37 -
Results by reporting unit
The key performance indicator for CompX’s reporting units is the level of their income from operations
(see discussion below).
2012
Year ended December 31,
2013
(Dollars in millions)
2014
% Change
2012-13 2013-14
Net sales:
Security Products
Marine Components
Total net sales
Gross margin:
Security Products
Marine Components
Total gross margin
Income (loss) from operations:
Security Products
Marine Components
Corporate operating expenses
Total income from operations
$
$
$
$
$
$
73.7 $
9.5
83.2 $
81.5 $
10.5
92.0 $
91.5
12.4
103.9
11 %
11
11
12 %
17
13
23.0 $
1.3
24.3 $
25.8 $
1.8
27.6 $
14.1 $
(.8)
(7.9)
5.4 $
16.1 $
(.1)
(6.7)
9.3 $
29.5
2.7
32.2
18.7
.7
(5.8)
13.6
12
43
13
15
50
17
14
82
(16 )
72
16
576
(12)
46
Income (loss) from operations margin:
Security Products
Marine Components
Total income from operations margin
19 %
(9)
7
20 %
(1)
10
20 %
6
13
Security Products - Security Products net sales increased 12% to $91.5 million in 2014 compared to $81.5
million in 2013. The increase in sales is primarily due to an increase of approximately $5.0 million in sales of new
products for an existing government customer, additional sales of $2.9 million into transportation markets on strong
demand from motorcycle and recreational vehicle OEM customers and a $1.7 million increase in electronic lock
sales in 2014 due to increased market penetration and two significant project installations. Gross margin for 2014 is
comparable to the same period in 2013 as improved coverage of fixed costs over increased production volumes were
offset by lower variable margins. Additionally, operating costs and expenses for 2014 increased approximately $1.2
million, primarily as a result of increased administrative personnel and benefits costs of approximately $.5 million
and increased depreciation of $.2 million. Security products income from operations as a percentage of net sales for
2014 is comparable to 2013 primarily as a result of the factors impacting gross margin and operating costs and
expenses discussed above.
Security Products net sales increased 11% to $81.5 million in 2013 compared to $73.7 million in 2012.
The increase in sales is primarily due to an increase in sales to certain high security pin tumbler lock customers of
$7.6 million. Growth of our Security Products operations was aided by our ongoing efforts to diversify our products
and customers. Income from operations margin percentages increased in 2013 compared to 2012 by 1% primarily
due to improved cost efficiencies from higher sales, partially offset by higher self-insured medical costs of $.6
million in 2013, $.5 million of which impacted cost of sales and $.1 million of which impacted selling and
administration expenses.
Marine Components - Marine Components net sales increased 17% in 2014 as compared to 2013. The
increase was primarily the result of gains in market share for products sold to the ski/wakeboard boat market and
other non high-performance marine markets. As a percentage of net sales, gross margin and the loss from
operations percentage improved primarily due to variable margins related to product mix and increased leverage of
fixed costs as a result of higher volumes.
- 38 -
Marine Components net sales increased 11% in 2013 as compared to 2012. The increase was primarily the
result of a $.8 million increase in sales to the ski/wakeboard boat market and other non-high performance marine
markets. As a percentage of net sales, loss from operations margin percentage improved in 2013 compared to 2012
primarily due to increased leverage of fixed costs as a result of the higher sales.
Outlook - The robust demand for our products experienced in 2014 was supported by high demand from
certain large OEM customers and unusually high demand from a number of customers for significant government
security applications. Consistent with trends in the North American economy, demand from small business
customers was soft for much of the year, but improved during the fourth quarter. In addition, we continue to
experience the benefits of diversification in our product offerings and ongoing innovation to serve new markets,
most recently with our line of electronic locks for multiple high security applications. We anticipate continued
strong demand for our products in 2015, though we do not expect security product demand for government security
applications to approach 2014 volumes. As in prior periods, we will continue to monitor general economic
conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation in
staffing levels and consistent execution of our lean manufacturing and cost improvement initiatives. Additionally,
we continue to seek opportunities to gain market share in markets we currently serve, to expand into new markets
and to develop new product features in order to mitigate the impact of changes in demand as well as broaden our
sales base.
General corporate items, interest and dividend income, interest expense, provision for income taxes,
noncontrolling interest and related party transactions
Insurance recoveries - We have agreements with certain insurance carriers pursuant to which the carriers
reimburse us for a portion of our past lead pigment and asbestos litigation defense costs. Insurance recoveries
include amounts we received from these insurance carriers. Substantially all of the $10.4 million of insurance
recoveries we recognized in 2014 relate to a settlement we reached with one of our insurance carriers in September
2014 in which they agreed to reimburse us for a portion of our past litigation defense costs.
The agreements with certain of our insurance carriers also include reimbursement for a portion of our
future 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. Accordingly, these insurance recoveries are recognized when receipt is probable and the amount is
determinable. Substantially all of the insurance recoveries recognized in 2012 and 2013 relate to reimbursement of
ongoing litigation defense costs. See Notes 17 and 18 to our Consolidated Financial Statements.
Litigation settlement gains and other operating income - In 2012, we reported a $15.0 million pre-tax gain
related to the third and final closing associated with certain real property we formerly owned in New Jersey. See
Note 18 to our Consolidated Financial Statements.
Other operating income in 2012 includes $3.2 million from the sale of certain real property owned by us for
which we had a nominal carrying value.
Corporate expense - Corporate expenses were $21.3 million in 2014, $65.7 million or 76% lower than in
2013 primarily due to lower environmental and related costs. Included in 2014 corporate expenses are:
litigation and related costs of $7.0 million compared to $10.2 million in 2013, and
environmental and related costs of $6.5 million compared to $68.9 million in 2013.
Corporate expenses were $87.0 million in 2013, $58.0 million or 201% higher than in 2012 primarily due
to higher environmental and related costs. Included in 2013 corporate expenses are:
litigation and related costs of $10.2 million compared to $7.5 million in 2012 and
environmental and related costs of $68.9 million compared to $14.5 million in 2012.
- 39 -
Overall, we currently expect that our net general corporate expenses in 2015 will be lower than in 2014
primarily due to lower expected environmental remediation and related costs and lower litigation and related costs.
The level of our litigation and related expenses 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 18 to our Consolidated
Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved
during 2015 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 2015, 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 18 to our Consolidated
Financial Statements.
Goodwill impairment - In 2012, we recognized a $6.4 goodwill impairment related to our EWI insurance
brokerage business. See Note 8 to our Consolidated Financial Statements.
Securities transactions, net - We recognized a $16.6 million pre-tax gain in the fourth quarter of 2012 on
the sale, pursuant to a tender offer, of our 1.4 million shares of TIMET stock for $23.9 million. See Note 6 to our
Consolidated Financial Statements.
Interest and dividend income - Dividend income decreased $1.3 million in 2014 compared to 2013 related
to the reduction of Valhi’s quarterly dividend from $.05 per share to $.02 per share, effective with its second quarter
2014 dividend.
Dividend income decreased $.4 million in 2013 compared to 2012 due to the sale of our TIMET stock in
December 2012.
Interest expense - Substantially all of our interest expense in 2012 and 2013 relates to certain of CompX’s
indebtedness. CompX prepaid such indebtedness in July 2013, after which we have not had any outstanding
indebtedness. We do not expect to have any outstanding indebtedness during 2015.
Income tax expense (benefit) - We recognized income tax expense of $19.9 million in 2012, an income tax
benefit of $41.9 million in 2013, and income tax expense of $5.0 million in 2014. In 2012, there was no income tax
benefit associated with the $6.4 million goodwill impairment charge attributable to EWI because such impairment
charge is not deductible for income tax purposes. 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 effective income tax rate will
generally be lower than the U.S. federal statutory income tax rate in periods during which we receive dividends from
Kronos and recognize equity in earnings of Kronos (such as in 2012 and 2014). Conversely, our effective income
tax rate will generally be higher than the U.S. federal statutory income tax rate in periods during which we receive
dividends from Kronos and recognize equity in losses of Kronos (such as in 2013). We received aggregate
dividends from Kronos of $21.1 million in each of 2012, 2013 and 2014, and accordingly our effective tax rate
attributable to our equity in earnings (losses) of Kronos, including the effect of the non-taxable dividends from
Kronos, was 23.9% in 2012, 58.9% in 2013 and 10.5% in 2014.
See Note 14 to our Consolidated Financial Statements for a tabular reconciliation of our statutory tax
expense to our actual tax expense.
- 40 -
Noncontrolling interest - Noncontrolling interest in net income of CompX attributable to continuing
operations is consistent in each of 2012, 2013 and 2014. Noncontrolling interest in net income of CompX
attributable to discontinued operations (exclusive of the gain on sale of the discontinued operations) was $.5 million
in 2012. The noncontrolling interest related to the sale of such operations in 2012 is $3.6 million. See Note 2 to our
Consolidated Financial Statements.
Discontinued operations - On December 28, 2012, we completed the sale of CompX’s Furniture
Components operations. See Note 2 to our Consolidated Financial Statements.
Related party transactions - We are a party to certain transactions with related parties. See Notes 1 and 16
to our Consolidated Financial Statements. It is our policy to engage in transactions with related parties on terms, in
our opinion, no less favorable to us than we could obtain from unrelated parties.
Equity in Earnings of Kronos Worldwide, Inc.
2012
Year ended December 31,
2013
(Dollars in millions)
1,732.4 $
1,620.2
112.2 $
1,976.3 $
1,415.9
560.4 $
359.6 $
(2.1)
(26.7)
330.8
112.3
218.5 $
(132.6) $
(7.7)
(19.6)
(159.9)
(57.9)
(102.0) $
2014
% Change
2012-13
2013-14
(12 ) %
14 %
(5) %
(20) %
(137 ) %
213 %
1,651.9
1,302.2
349.7
149.7
1.0
(17.0)
133.7
34.5
99.2
Net sales
Cost of sales
Gross margin
Income (loss) from operations
Other, net
Interest expense
Income (loss) before
income taxes
Income tax expense (benefit)
Net income (loss)
Percentage of net sales:
$
$
$
$
Cost of sales
Income (loss) from operations
72 %
18 %
94 %
(8) %
79 %
9 %
Equity in earnings (loss) of
Kronos
Worldwide, Inc.
TiO2 operating statistics:
Sales volumes*
Production volumes*
Change in TiO2 net sales:
TiO2 product pricing
TiO2 sales volumes
TiO2 product mix
Changes in currency exchange
rates
Total
* Thousands of metric tons
$
66.4 $
(31.0) $
30.2
470
469
498
474
496
511
6 %
1 %
(19 ) %
6 %
- %
1 %
(12 ) %
- %
8 %
(6) %
- %
- %
%
1
(5) %
- 41 -
Industry conditions and 2014 overview - After about a year of decreasing selling prices within the TiO2
industry, Kronos’ TiO2 selling prices were generally stable during the second half of 2013. However, as a result of
competitive pressures, Kronos’ average selling prices decreased throughout 2014, and Kronos’ average selling
prices at the end of 2014 were 9% lower than at the end of 2013, with lower prices in all major markets, most
notably in certain export markets. Kronos experienced significantly lower sales to its generally lower-margin export
markets in the first half of 2014 compared to the same period of 2013 while other major markets remained steady;
however, Kronos experienced higher sales in most major markets, including the export markets, in the second half
of 2014 as compared to the second half of 2013. Demand for TiO2 products has generally been stable in 2014 in
most European and U.S. markets.
Kronos operated its production facilities at reduced capacity rates in 2013 (approximately 92%, 90%, 82%
and 81% of practical capacity in the first through fourth quarter periods, respectively). While Kronos’ production
capacity utilization rates in the second half of 2013 were impacted by the union labor lockout at its Canadian
production facility that ended in December 2013, its utilization rates were also impacted by such lockout in the first
quarter of 2014, as restart of production at the facility did not begin until February 2014. Kronos operated its
production facilities at overall average capacity utilization rates of 90%, 97% 96% and 86% in the first, second, third
and fourth quarters of 2014, respectively. Kronos’ production rates in the fourth quarter of 2014 were impacted by
the implementation of certain productivity-enhancing improvement projects at certain facilities, as well as necessary
improvements to ensure continued compliance with its permit regulations, which resulted in longer-than-normal
maintenance shutdowns in some instances.
Kronos’ cost of sales per metric ton of TiO2 sold in 2013 (particularly in the first quarter) was significantly
higher than TiO2 sold in 2014, as a substantial portion of the TiO2 products it sold in the first quarter (and to a lesser-
extent the second quarter) of 2013 was produced with the higher-cost feedstock ore procured in 2012. Kronos saw
moderation in the cost of TiO2 feedstock ore procured from third parties in 2013 and throughout 2014, but such
reductions did not begin to be significantly reflected in its cost of sales until the third quarter of 2013.
Net sales - Kronos’ net sales decreased 5% or $80.5 million in 2014 compared to 2013, primarily due a 6%
decrease in average TiO2 selling prices (which decreased net sales by approximately $104 million).
Kronos’ net sales decreased 12% or $243.9 million in 2013 compared to 2012, primarily due to the net
effects of a 19% decrease in average TiO2 selling prices (which decreased net sales by approximately $375 million)
and a 6% increase in sales volumes (which increased net sales by approximately $119 million). 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 in 2014 remained relatively stable compared to 2013 as slightly higher sales in
Europe were offset by lower sales in certain export markets. In addition, Kronos estimates the favorable effect of
changes in currency exchange rates increased its net sales by approximately $12 million, or 1%, as compared to
2013.
Kronos’ sales volumes increased 6% in 2013 as compared to 2012 due to increased customer demand
primarily in European and certain export markets, partially offset by decreased demand in North American markets.
In addition, Kronos estimates the favorable effect of changes in currency exchange rates increased its net sales by
approximately $18 million, or 1%, as compared to 2012.
Cost of sales - Kronos’ cost of sales decreased $318.0 million or 20% in 2014 compared to 2013 due to the
net impact of lower raw materials and other production costs of approximately $250 million (primarily caused by the
lower third-party feedstock ore costs, as discussed above), an 8% increase in TiO2 production volumes and currency
fluctuations (primarily the euro). Kronos’ cost of sales as a percentage of net sales decreased to 79% in 2014
compared to 94% in 2013, primarily due to the net effects of lower raw material and other production costs and the
lower average TiO2 selling prices discussed above. In addition, cost of sales in 2013 includes approximately $19
million of unabsorbed fixed production and other manufacturing costs associated with the lockout at the Canadian
TiO2 production facility and approximately $9 million of one-time costs resulting from the terms of the new
collective bargaining agreement for Kronos’ Canadian workforce, each of which were charged directly to cost of
sales as discussed below.
- 42 -
Unionized employees in Kronos’ Canadian TiO2 production facility were covered by a collective
bargaining agreement that expired June 15, 2013. The Canadian facility represents approximately 19% of Kronos’
worldwide TiO2 production capacity. The union employees represented by the Confederation des Syndicat National
(CSN) rejected Kronos’ revised global offer, and Kronos declared a lockout of unionized employees upon the
expiration of the existing contract. Effective the end of November 2013, a new collective bargaining agreement was
reached with CSN and production at the facility resumed in February 2014. During the lockout Kronos operated its
Canadian plant at approximately 15% of the plant’s capacity with non-union management employees. The
reduction in Kronos’ TiO2 production volumes at its Canadian facility resulted in approximately $19 million of
unabsorbed fixed production and other manufacturing costs that were charged directly to cost of sales. In addition,
Kronos recognized approximately $9 million in expenses associated with reaching a new collective bargaining
agreement, consisting of a net $7 million non-cash charge due to the curtailment of one of Kronos’ Canadian defined
benefit pension plans and its Canadian other postretirement benefit plan and approximately $2 million of severance
and other back-to-work expenses.
Kronos’ cost of sales increased $204.3 million or 14% in 2013 compared to 2012 due to the net impact of
higher raw materials and other production costs of approximately $115 million (primarily caused by the higher
third-party feedstock ore costs), a 6% increase in sales volumes, a 1% increase in production volumes and currency
fluctuations (primarily the euro). Kronos’ cost of sales per metric ton of TiO2 sold in the first half of 2013 was
significantly higher than TiO2 sold in the first half of 2012, as a substantial portion of the TiO2 products it sold in the
first quarter of 2012 (and a portion of the TiO2 products it sold in the second quarter of 2012) was produced with
lower-cost feedstock ore purchased in 2011, while a substantial portion of the TiO2 products Kronos sold in the first
quarter of 2013 (and a portion of the TiO2 products it sold in the second quarter of 2013) was produced with higher-
cost feedstock ore purchased in 2012. As expected, the cost of sales per metric ton of TiO2 sold in the second half of
2013 was lower than the cost of sales per metric ton of TiO2 sold in the second half of 2012 primarily due to the
lower feedstock ore costs as discussed and quantified above. Cost of sales as a percentage of net sales increased to
94% in 2013 compared to 72% in 2012 primarily due to the combined effects of higher raw materials and other
production costs and the lower average TiO2 selling prices as discussed above. In addition, cost of sales in 2013
includes approximately $19 million of unabsorbed fixed production and other manufacturing costs associated with
the lockout at Kronos’ Canadian TiO2 production facility and approximately $9 million of one-time costs resulting
from the terms of the new collective bargaining agreement for its Canadian workforce, each of which were charged
directly to cost of sales as discussed above.
Kronos reduced its TiO2 production volumes during 2012 in order to align inventory levels with lower
demand, which resulted in approximately $25 million of unabsorbed fixed production costs that were charged
directly to cost of sales.
Other operating expense, net - Kronos’ other operating expense in 2013 includes a litigation settlement
charge of $35 million.
Gross margin and income (loss) from operations - Kronos’ income from operations increased by $282.3
million from a loss of $132.6 million in 2013 to income of $149.7 million in 2014. Income (loss) from operations as
a percentage of net sales increased to 9% in 2014 from (8)% in 2013. This increase was driven by the improvement
in gross margin, which increased to 21% in 2014 compared to 6% in 2013 and by the 2013 litigation settlement
charge as discussed above. As discussed and quantified above, Kronos’ gross margin increased primarily due to the
net effect of lower manufacturing costs (primarily raw materials), lower selling prices, higher production volumes
and 2013 costs associated with reaching a new Canadian collective bargaining agreement and related unabsorbed
fixed costs charged directly to cost of sales.
Kronos’ income from operations decreased by $492.2 million from income of $359.6 million in 2012 to a
loss of $132.6 million in 2013. Income (loss) from operations as a percentage of net sales decreased to (8)% in 2013
from 18% in 2012. This decrease was driven by the decline in gross margin, which decreased to 6% in 2013
compared to 28% in 2012, and the 2013 litigation settlement charge discussed above. As discussed and quantified
above, Kronos’ gross margin has decreased primarily due to the net effects of lower selling prices, higher
manufacturing costs (primarily raw materials), higher sales volumes, costs associated with reaching a new Canadian
collective bargaining agreement, and lower unabsorbed fixed costs charged directly to cost of sales. Additionally,
changes in currency exchange rates have positively affected Kronos’ gross margin and income from operations.
- 43 -
Kronos estimates that changes in currency exchange rates increased income from operations by approximately $42
million in 2014 as compared to 2013. Kronos estimates that changes in currency exchange rates decreased income
from operations by approximately $2 million in 2013 compared to 2012.
As a percentage of net sales, selling, general and administrative expenses were relatively consistent at
approximately 12%, 11%, and 9% for 2014, 2013, and 2012, respectively.
Other non-operating income (expense) - In 2013, Kronos recognized an aggregate $8.9 million pre-tax
charge, consisting of the write-off of unamortized original issue discount costs and deferred financing costs related
to the voluntary prepayment of its prior term loan by $390 million. Kronos recognized an aggregate $7.2 million
pre-tax charge in the second quarter of 2012 related to the early extinguishment of its remaining Senior Secured
Notes. Kronos also recognized a $3.9 million securities transaction loss in the fourth quarter of 2012 on the sale,
pursuant to a tender offer, of its 4.2 million shares of TIMET stock for $70.0 million.
Kronos’ interest expense decreased $2.6 million from $19.6 million in 2013 to $17.0 million in 2014
primarily due lower average interest rates on outstanding borrowings in 2014 partially offset by higher average debt
levels. Interest expense decreased $7.1 million from $26.7 million in 2012 to $19.6 million in 2013 primarily due to
lower average debt levels in 2013.
Kronos’ interest and dividend income decreased $7.8 million to $1.2 million in 2013 primarily due to lower
balances available for investment, principally related to its loan to Valhi which was completely repaid in December
2012. Interest income on its loan to Valhi was $7.1 million in 2012.
Income tax provision - Kronos recognized income tax expense of $34.5 million in 2014 compared to an
income tax benefit of $57.9 million in 2013. This difference is primarily due to Kronos’ increased earnings in
2014. In addition, Kronos’ income tax expense in 2014 was favorably impacted by an aggregate non-cash income
tax benefit of $5.1 million related to a net reduction in its reserve for uncertain tax positions.
Kronos recognized an income tax benefit of $57.9 million in 2013 compared to an income tax provision of
$112.3 million in 2012. This difference is primarily due to Kronos’ decreased earnings in 2013. Kronos’ income
tax provision in 2012 includes a net incremental tax benefit of $3.1 million. Kronos determined during the third
quarter of 2012 that due to global changes in the business it would not remit certain dividends from its non-U.S.
jurisdictions. As a result, certain tax attributes were available for carryback to offset prior year tax expense and
Kronos’ provision for income taxes in the third quarter of 2012 included an incremental tax benefit of $11.1 million.
During the fourth quarter of 2012 as a result of a change in circumstances related to Kronos’ sale and the sale by
certain of its affiliates of their shares of TIMET common stock, which sale provided an opportunity for Kronos and
other members of the consolidated U.S. federal income tax group to elect to claim foreign tax credits, Kronos
determined that it could tax-efficiently remit non-cash dividends from its non-U.S. jurisdictions before the end of the
year that absent the TIMET sale would not have been considered. Kronos’ provision for income taxes in the fourth
quarter of 2012 includes an incremental tax related to the non-cash dividend distributions of $8.0 million.
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 its 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 its sales generated from its non-U.S. operations is denominated in the U.S. dollar. Certain raw materials used
worldwide, primarily titanium-containing feedstocks, are purchased in U.S. dollars, while labor and other production
costs are purchased 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 the difference between the currency exchange rates in
effect when non-local currency sales or operating costs are initially accrued and when such amounts are settled with
the non-local currency.
- 44 -
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 - 2014 vs. 2013
Transaction gains/(losses) recognized
2013
2014
Change
(In millions)
Translation
gain/(loss)-
impact of rate
changes
Total
currency
impact
2014 vs.2013
Impact on:
Net sales
Income from operations
$
- $
(4)
- $
4
- $
8
12 $
34
12
42
Impact of changes in currency exchange rates - 2013 vs. 2012
Transaction gains/(losses) recognized
2012
2013
Change
(In millions)
Translation
gain/(loss)-
impact of rate
changes
Total
currency
impact
2013 vs.2012
Impact on:
Net sales
Income from operations
$
Outlook
- $
(1)
- $
(4)
- $
(3)
18 $
1
18
(2)
During 2014 Kronos operated its production facilities at 92% of practical capacity. This reflects an
increased plant utilization rate as compared to 2013, with its utilization rates impacted in the second half of 2013
and the first quarter of 2014 by the lockout at its Canadian production facility, and impacted in the fourth quarter of
2014 by the implementation of certain productivity-enhancing improvement projects at other facilities, as well as
necessary improvements to ensure continued compliance with its permit regulations, which resulted in longer-than-
normal maintenance shutdowns in some instances. While Kronos expects its production volumes to be higher in
2015 as compared to 2014, Kronos expects to continue to operate below full production capacity in 2015, due
principally to completing the implementation of certain productivity-enhancing capital improvement projects at
certain facilities which will result in longer-than-normal maintenance shutdowns in some instances. Assuming
economic conditions do not deteriorate in the various regions of the world, Kronos expect its sales volumes to be
higher in 2015 as compared to 2014. Kronos will continue to monitor current and anticipated near-term customer
demand levels and align its production and inventories accordingly.
Kronos experienced moderation in the cost of TiO2 feedstock ore procured in 2013 and throughout 2014,
and consequently its cost of sales per metric ton of TiO2 sold in 2014 was significantly lower than its cost of sales
per metric ton of TiO2 sold in 2013. Given the time lag between when Kronos procures third-party feedstock ore
and when the TiO2 product produced with such third-party feedstock is sold and recognized in its cost of sales,
Kronos expect its cost of sales per metric ton of TiO2 sold in 2015 will be slightly lower than the cost of sales per
metric ton of TiO2 sold in 2014. Although the cost of feedstock ore has and continues to moderate, as discussed
below its average TiO2 selling prices have declined during 2014. Kronos started 2014 with selling prices 6% lower
than the beginning of 2013, and its average selling prices at the end of 2014 were 9% below prices at the end of
2013. Industry data indicates that overall TiO2 inventory held by producers has been significantly decreased. In
addition, Kronos believes most customers hold very low inventories of TiO2 with many operating on a just-in-time
basis. Kronos continues to see evidence of improvement in demand for its TiO2 products in certain of its primary
markets. The extent to which Kronos will be able to achieve any price increases in the near term will depend on
market conditions.
Overall, Kronos currently expects that income from operations in 2015 will be comparable to 2014, as the
favorable effect of higher sales volumes will be mostly offset by the effects of lower anticipated average selling
prices (since its average selling prices at the beginning of 2015 are 9% lower than the beginning of 2014).
- 45 -
Due to the constraints of high capital costs and extended lead time associated with adding significant new
TiO2 production capacity, especially for premium grades of TiO2 products produced from the chloride process,
Kronos believes increased and sustained profit margins will be necessary to financially justify major expansions of
TiO2 production capacity required to meet expected future growth in demand. As a result of customer decisions
over the last year and the resulting adverse effect on global TiO2 pricing, some industry projects to increase TiO2
production capacity have been cancelled or deferred indefinitely and announcements have been made regarding the
closure of certain facilities. Given the lead time required for production capacity expansions, a shortage of TiO2
products could occur if economic conditions improve and global demand levels for TiO2 increase sufficiently.
Kronos’ expectations for its future operating results are based upon a number of factors beyond its control,
including worldwide growth of gross domestic product, competition in the marketplace, continued operation of
competitors, unexpected or earlier-than-expected capacity additions or reductions and technological advances. If
actual developments differ from Kronos’ expectations, its results of operations could be unfavorably affected.
Assumptions on defined benefit pension plans and OPEB plans
Defined benefit pension plans - We maintain various defined benefit pension plans in the U.S. and the
U.K., and Kronos maintains various defined benefit pension plans in the U.S., Europe and Canada. See Note 15 to
our Consolidated Financial Statements.
Under defined benefit pension plan accounting, defined benefit pension plan expense and prepaid and
accrued pension costs are each recognized based on certain actuarial assumptions, principally the assumed discount
rate, the assumed long-term rate of return on plan assets and the assumed increase in future compensation levels.
We recognize the full funded status of our defined benefit pension plans as either an asset (for overfunded plans) or
a liability (for underfunded plans) in our Consolidated Balance Sheet.
We recognized consolidated defined benefit pension plan expense of $.1 million in 2012, pension plan
income of $.6 million in 2013, and pension plan expense of $.1 million 2014. The funding requirements for these
defined benefit pension plans are generally based upon applicable regulations (such as ERISA in the U.S.) and will
generally differ from pension expense recognized under GAAP for financial reporting purposes. We made
contributions to all of our plans of approximately $2.2 million in 2012, $1.5 million in 2013, and $1.6 million in
2014.
The discount rates we use for determining defined benefit pension expense and the related pension
obligations are based on current interest rates earned on long-term bonds that receive one of the two highest ratings
given by recognized rating agencies in the applicable country where the defined benefit pension benefits are being
paid. In addition, we receive third-party advice about appropriate discount rates, and these advisors may in some
cases use their own market indices. We adjust these discount rates as of each December 31 valuation date to reflect
then-current interest rates on such long-term bonds. We use these discount rates to determine the actuarial present
value of the pension obligations as of December 31 of that year. We also use these discount rates to determine the
interest component of defined benefit pension expense for the following year.
At December 31, 2014, our projected benefit obligations for defined benefit plans comprised $50.3 million
related to U.S. plans and $10.9 million for the U.K. plan, which is associated with a former disposed business. We
use different discount rate assumptions in determining our defined benefit pension plan obligations and expense for
the plans we maintain in the United States and the U.K. as the interest rate environment differs from country to
country.
- 46 -
We used the following discount rates for our defined benefit pension plans:
Obligations at
December 31, 2012 and
expense in 2013
3.6%
4.5%
Discount rates used for:
Obligations at
December 31, 2013 and
expense in 2014
4.5%
4.5%
Obligations at
December 31, 2014 and
expense in 2015
3.8%
3.5%
United States
United Kingdom
The assumed long-term rate of return on plan assets represents the estimated average rate of earnings
expected to be earned on the funds invested or to be invested from the plans’ assets provided to fund the benefit
payments inherent in the projected benefit obligations. Unlike the discount rate, which is adjusted each year based
on changes in current long-term interest rates, the assumed long-term rate of return on plan assets will not
necessarily change based upon the actual short-term performance of the plan assets in any given year. Defined
benefit pension expense each year is based upon the assumed long-term rate of return on plan assets for each plan,
the actual fair value of the plan assets as of the beginning of the year and an estimate of the amount of contributions
to and distributions from the plan during the year. Differences between the expected return on plan assets for a
given year and the actual return are deferred and amortized over future periods based either upon the expected
average remaining service life of the active plan participants (for plans for which benefits are still being earned by
active employees) or the average remaining life expectancy of the inactive participants (for plans in which benefits
are not still being earned by active employees).
At December 31, 2014, approximately 78% of the plan assets related to plan assets for our plans in the
U.S., with the remainder related to the U.K. plan. We use different long-term rates of return on plan asset
assumptions for our U.S. and U.K. defined benefit pension plan expense because the respective plan assets are
invested in a different mix of investments and the long-term rates of return for different investments differ from
country to country.
In determining the expected long-term rate of return on plan asset assumptions, we consider the long-term
asset mix (e.g. equity vs. fixed income) for the assets for each of our plans and the expected long-term rates of return
for such asset components. In addition, we receive third-party advice about appropriate long-term rates of return.
Substantially all of the assets of our U.S. plan are invested in the Combined Master Retirement Trust (CMRT), a
collective investment trust sponsored by Contran to permit the collective investment by certain master trusts which
fund certain employee benefits sponsored by Contran and certain of its affiliates, including us. Such assumed asset
mixes are discussed in Note 15 to our Consolidated Financial Statements.
Our pension plan weighted average asset allocations by asset category were as follows:
Equity securities and limited partnerships
Fixed income securities
Other, mainly cash
Total
December 31,
2013
2014
64%
35
1
100%
66 %
32
2
100 %
We regularly review our actual asset allocation for our U.K. plan, and will periodically rebalance the
investments in the plan to more accurately reflect the targeted allocation. The CMRT trustee and investment
committee do not maintain a specific target asset allocation in order to achieve their objectives, but instead they
periodically change the asset mix of the CMRT based upon, among other things, advice they receive from third-
party advisors and their expectations regarding potential returns for various investment alternatives and what asset
mix will generate the greatest overall return.
- 47 -
Our assumed long-term rates of return on plan assets for 2012, 2013 and 2014 were as follows:
United States
United Kingdom
2012
2013
2014
10.0%
5.8%
10.0%
5.8%
7.5 %
6.0 %
We currently expect to use the same long-term rate of return on plan asset assumptions in 2015 as we used
in 2014 for purposes of determining the 2015 defined benefit pension plan expense.
To the extent that a plan’s particular pension benefit formula calculates the pension benefit in whole or in
part based upon future compensation levels, the projected benefit obligations and the pension expense would be
based in part upon expected increases in future compensation levels. However, we have no active employees
participating in our defined benefit pension plans. Such plans are closed to additional participants and assumptions
regarding future compensation levels are not applicable for our plans.
In addition to the actuarial assumptions discussed above, because we maintain a defined benefit pension
plan in the U.K., the amount of recognized defined benefit pension expense and the amount of net pension asset and
net pension liability will vary based upon relative changes in currency exchange rates.
A reduction in the assumed discount rate generally results in an actuarial loss, as the actuarially-determined
present value of estimated future benefit payments will increase. Conversely, an increase in the assumed discount
rate generally results in an actuarial gain. In addition, an actual return on plan assets for a given year that is greater
than the assumed return on plan assets results in an actuarial gain, while an actual return on plan assets that is less
than the assumed return results in an actuarial loss. Other actual outcomes that differ from previous assumptions,
such as individuals living longer or shorter than assumed in mortality tables, which are also used to determine the
actuarially-determined present value of estimated future benefit payments, changes in such mortality table
themselves or plan amendments, will also result in actuarial losses or gains. These amounts are recognized in other
comprehensive income. In addition, any actuarial gains generated in future periods would reduce the negative
amortization effect included in earnings of any cumulative unrecognized actuarial losses, while any actuarial losses
generated in future periods would reduce the favorable amortization effect included in earnings of any cumulative
unrecognized actuarial gains.
During 2014, all of our defined benefit pension plans generated a combined net actuarial loss of
approximately $9.5 million. This actuarial loss resulted primarily from the decrease in discount rates from
December 31, 2013 to December 31, 2014, the adoption of new mortality tables for our U.S. plan in 2014 and the
actual 2014 return on plan assets being lower than the expected return.
Based on the actuarial assumptions described above and our current expectation for what actual average
currency exchange rates will be during 2015, we expect to recognize defined benefit pension expense of
approximately $.4 million in 2015. In comparison, we expect to be required to contribute approximately $.8 million
to such plans during 2015.
As noted above, defined benefit pension expense and the amounts recognized as accrued pension costs are
based upon the actuarial assumptions discussed above. We believe that all of the actuarial assumptions used are
reasonable and appropriate. However, if we had lowered the assumed discount rate by 25 basis points for all of our
plans as of December 31, 2014, our aggregate projected benefit obligations would have increased by approximately
$1.4 million at that date. Such a change would not materially impact our defined benefit pension expense for 2014.
Similarly, if we lowered the assumed long-term rate of return on plan assets by 25 basis points for all of our plans,
such a change would not materially impact our defined benefit pension expense for 2014.
OPEB plans - We provide certain health care and life insurance benefits for eligible retired employees in
the U.S. Under other postretirement employee benefits (OPEB) accounting, OPEB expense and accrued OPEB
costs are based on certain actuarial assumptions, principally the assumed discount rate and the assumed rate of
increases in future health care costs. We recognize the full unfunded status of our OPEB plans as a liability. See
- 48 -
Note 15 to our Consolidated Financial Statements for a discussion of the consolidated OPEB cost we recognized
during the last three years, the amount of our accrued OPEB costs and the associated actuarial assumptions utilized.
Based on such actuarial assumptions and amended benefit formula, we expect to recognize consolidated
OPEB income of approximately $.6 million in 2015. In comparison, we expect to be required to make
approximately $.5 million of contributions during 2015.
We believe that all of the actuarial assumptions used are reasonable and appropriate. If we had lowered
the assumed discount rate by 25 basis points for all of our OPEB plans as of December 31, 2014, our aggregate
projected benefit obligations would not materially impact our OPEB costs. Similarly, a one percent assumed change
in health care trend rates would not materially impact our OPEB costs.
Non-U.S. Operations
Kronos - Kronos has substantial operations located outside the United States (principally Europe and
Canada) for which the functional currency is not the U.S. dollar. As a result, the reported amount of our net
investment in Kronos will fluctuate based upon changes in currency exchange rates. At December 31, 2014, Kronos
had substantial net assets denominated in the euro, Canadian dollar, Norwegian krone and British pound sterling.
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 (loss) from operations. Our Consolidated
Statements of Cash Flows for the year ended December 31, 2012 has not been revised for discontinued operations
resulting from the sale of CompX's Furniture Components business. See Note 2 to our Consolidated Financial
Statements.
Changes in working capital are primarily related to changes in receivables and inventories (as discussed
below) and payables and accrued liabilities.
Net cash provided by operating activities was $23.6 million in 2014 compared to $14.9 million in 2013.
The $8.7 million net increase in cash provided by operating activities includes the net effects of:
higher income from operations attributable to CompX of $4.3 million,
lower amount of net cash used for relative changes in receivables (excluding insurance recoveries),
inventories, payables and accrued liabilities in 2014 of $4.4 million, primarily related to relatively
higher accounts receivable and inventory balances in 2014 (as discussed below),
higher cash paid for environmental remediation and related costs in 2014 of $6.8 million, and
higher cash received for insurance recoveries in 2014 of $3.9 million.
Cash flows provided by operating activities decreased from $18.0 million in 2012 to $14.9 million in 2013.
The $3.1 million decrease in cash provided by operating activities includes the net effects of:
the $7.4 million of income from operations in 2012 attributable to CompX’s disposed operations,
higher income from continuing operations attributable to CompX’s continuing operations in 2013 of
$3.9 million,
higher amount of net cash used for relative changes in receivables, inventories, payables and accrued
liabilities in 2013 of $8.3 million,
lower cash paid for environmental remediation and related costs in 2013 of $4.8 million,
- 49 -
lower cash paid for interest in 2013 of $.8 million and
lower cash paid for income taxes in 2013 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 tables below is a reference to NL Industries, Inc.,
as the parent company of CompX and our other wholly-owned subsidiaries.
2012
Years ended December 31,
2013
(In millions)
2014
Net cash provided by (used in) operating activities:
CompX
NL Parent and wholly-owned subsidiaries
Eliminations
Total
$
$
13.8 $
9.6
(5.4)
18.0 $
(4.1) $
22.0
(3.0)
14.9 $
12.2
13.5
(2.1)
23.6
Relative changes in working capital can have a significant effect on cash flows from operating activities.
As shown below, our total average days sales outstanding decreased from December 31, 2013 to December 31, 2014
primarily as a result of the timing of sales and collections in the last month of 2014 compared to 2013. As shown
below, our average number of days in inventory increased from December 31, 2013 to December 31, 2014 primarily
as a result of intentional fourth quarter inventory build up to prepare for anticipated sales in early 2015. For
comparative purposes, we have provided 2012 numbers below.
Days sales outstanding
Days in inventory
Investing activities
2012
40 days
71 days
2013
35 days
76 days
2014
32 days
90 days
Net cash provided by investing activities totaled $92.2 million in 2012 and $3.0 million in 2013. Net cash
used in investing activities totaled $3.3 million in 2014. Capital expenditures, substantially all of which relate to
CompX, have primarily emphasized improving our manufacturing facilities and investing in manufacturing
equipment, utilizing new technologies and increased automation of the manufacturing process, to provide for
increased productivity and efficiency in order to meet expected customer demand and properly maintain our
facilities and technology infrastructure. Capital expenditures were $4.5 million in 2012, $3.5 million in 2013 and
$2.8 million in 2014. Capital expenditures for 2012 include amounts attributable to our disposed operations. See
Note 2 to our Consolidated Financial Statements. Capital expenditures of approximately $.6 million in 2012, $.8
million in 2013, and $.5 million in 2014, relate to the implementation of a new manufacturing and accounting
system for CompX’s Security Products business and Marine Components business that was implemented in January
2014.
Other than capital expenditures, the significant items impacting investing activities for the noted periods are
as follows:
During 2013:
we collected $3.0 million in principal payments on a note receivable,
we received $1.6 million in net proceeds from the sale of assets held for sale, and
we reduced restricted cash by $2.0 million due to lower requirements for us to maintain such restricted
cash balances in connection with our environmental remediation activities.
- 50 -
During 2012:
we received $15.6 million from the final closing contained in a settlement agreement related to
condemnation proceedings on certain real property we formerly owned in New Jersey,
we sold CompX’s Furniture Components operations for net proceeds of $58.0 million less cash of the
disposed operations of $5.4 million,
we sold our 1.4 million shares of common stock of TIMET for $24.1 million, and
we received $6.8 million in proceeds from the sale of certain real property we owned in North Carolina
and from the sale of CompX’s assets held for sale which was previously included in assets held for
sale.
Financing activities
Net cash used in financing activities totaled $44.1 million in 2012, $43.3 million in 2013, and $.3 million in
2014.
During 2012 and 2013, we paid a regular quarterly dividend to stockholders of $.125 per share ($24.3
million in each of 2012 and 2013). In February 2014, our Board of Directors deferred consideration of a first
quarter 2014 cash dividend and no dividend was paid in the first quarter. In May 2014, after considering our results
of operations, financial conditions and cash requirements for our businesses, our Board of Directors suspended our
regular quarterly dividend. The declaration and payment of future dividends, and the amount thereof, is
discretionary and is dependent upon these 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.
Distributions to noncontrolling interests consist of CompX dividends paid to shareholders other than us.
During 2013:
CompX made $18.5 million repayments on its outstanding long-term debt, including the July 2013
prepayment of the remaining outstanding principal balance plus accrued interest without penalty.
During 2012:
CompX repaid an aggregate of $3.8 million on its promissory note payable,
CompX repaid $2.0 million that was outstanding under its revolving credit facility,
we paid an aggregate and final $9.0 million on a promissory note issued in conjunction with a litigation
settlement, and
we had net repayments of $4.1 million on our promissory note with Valhi.
Outstanding debt obligations
At December 31, 2014, NL and CompX did not have any outstanding debt obligations.
The terms of Kronos’ indebtedness contain a number of covenants and restrictions which, among other
things, restrict Kronos’ 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 contains other provisions and restrictive covenants
customary in lending transactions of this type. 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, certain 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, certain 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’ European revolving credit
facility also requires the maintenance of certain financial ratios, and one of such requirements is based on the ratio
of net debt to the last twelve months EBITDA of the borrowers. Kronos is in compliance with all of its debt
- 51 -
covenants at December 31, 2014. Kronos believes that it will be able to continue to comply with the financial
covenants contained in its credit facilities through their maturity.
Liquidity
Our primary source of liquidity on an ongoing basis is our cash flow from operating activities and credit
facilities with affiliates and banks 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 December 31, 2014, we had aggregate cash, cash equivalents and restricted cash of $78.0 million,
substantially all of which was held in the U.S. A detail (in millions) by entity is presented in the table below.
CompX
NL Parent and wholly-owned subsidiaries
Total
$
$
45.6
32.4
78.0
In addition, at December 31, 2014 we owned 14.4 million shares of Valhi common stock with an aggregate
market value of $92.1 million. See Note 6 to our Consolidated Financial Statements. We also owned 35.2 million
shares of Kronos common stock at December 31, 2014 with an aggregate market value of $458.6 million. See Note
7 to our 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.
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 December 31, 2015). 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 $40 million on a revolving basis. At
December 31, 2014, we had no outstanding borrowings under this facility, and the full $40 million was available for
future borrowing. The amount of any such outstanding loan Valhi would make to us is at Valhi’s discretion. We
currently do not expect to be required to borrow any material amounts from Valhi during 2015 under this facility.
Capital expenditures
Capital expenditures for 2015 are estimated at approximately $3.9 million, substantially all of which relate
to CompX. Capital spending for 2015 is expected to be funded through cash on hand and cash generated from
operations.
- 52 -
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 2015, based on the number of shares of common stock of these affiliates we own as of
December 31, 2014 and their current regular quarterly dividend rate, is presented in the table below.
Kronos
CompX
Valhi
Total expected annual dividends
Shares held at
December 31, 2014
(In millions)
35.2
10.8
14.4
$
Quarterly
dividend rate
Annual expected
dividend
(In millions)
.15
.05
.02
$
$
21.1
2.2
1.1
24.4
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.
Summary of other contractual commitments
As more fully described in the notes to our Consolidated Financial Statements, we are party to various
leases and other agreements which contractually and unconditionally commit us to pay certain amounts in the future.
See Notes 18 to our Consolidated Financial Statements. The following table summarizes our contractual
commitments as of December 31, 2014 by the type and date of payment.
Contractual commitment
Operating leases
Purchase obligations
Income taxes
Fixed asset acquisitions
Payment due date
2015
2016/2017 2018/2019
(In millions)
2020
and after Total
$
$
.2 $
12.4
.6
1.0
14.2 $
.3 $
1.0
-
-
1.3 $
- $
-
-
-
- $
- $
-
-
-
- $
.5
13.4
.6
1.0
15.5
The amount shown for our commitments related to operating leases and fixed asset acquisitions are based
upon the contractual payment amount and the contractual payment date for such commitments. The timing and
amount shown for raw material and other purchase obligations, which consist of all open purchase orders and
contractual obligations (primarily commitments to purchase raw materials) is also based on the contractual payment
amount and the contractual payment date for such commitments. Fixed asset acquisitions include firm purchase
commitments for capital projects.
The above table does not reflect any amounts that we might pay to fund our defined benefit pension and
OPEB plans, as the timing and amount of any such future fundings are unknown and dependent on, among other
things, the future performance of defined benefit pension plan assets, interest rate assumptions and actual future
retiree medical costs. We expect to fund an aggregate of $2.3 million to our defined benefit pension and OPEB
plans during 2015, as discussed in further detail above.
- 53 -
The above table also does not reflect any amounts that we might pay to settle any of our uncertain tax
positions, as the timing and amount of any such future settlements are unknown and dependent on, among other
things, the timing of tax audits. See Note 14 to our Consolidated Financial Statements.
Commitments and contingencies
We are subject to certain commitments and contingencies, as more fully described in Note 18 to our
Consolidated Financial Statements or in Part I, Item 3 of this report. In addition to those legal proceedings described
in Note 18 to our Consolidated Financial Statements, 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.
Off balance sheet financing arrangements
Other than operating lease commitments disclosed in Note 18 to our Consolidated Financial Statements, we
are not party to any material off-balance sheet financing arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General - We are exposed to market risk from changes in currency exchange rates, interest rates, raw
materials and equity security prices.
Marketable security prices - We are exposed to market risk due to changes in prices of the marketable
securities which we own. The fair value of our equity securities at December 31, 2013 and 2014 was $252.7 million
and $92.1 million, respectively. The potential change in the aggregate fair value of these investments, assuming a
10% change in prices, would be $25.3 million and $9.2 million at December 31, 2013 and 2014, respectively.
Raw materials - CompX will occasionally enter into short-term raw material arrangements to mitigate the
impact of future increases in raw material costs. Otherwise, we generally do not have long-term supply agreements
for our raw material requirements because either we believe the risk of unavailability of those raw materials is low
and we believe the price to be stable or because long-term supply agreements for those materials are generally not
available. We do not engage in commodity hedging programs.
Other - The above discussion and sensitivity analysis presented above include forward-looking statements
of market risk which assume hypothetical changes in market prices. Actual future market conditions will likely
differ materially from such assumptions. Accordingly, such forward-looking statements should not be considered to
be projections of future events, gains or losses. Such forward-looking statements are subject to certain risks and
uncertainties some of which are listed in “Business."
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in a separate section of this Annual Report. See “Index
of Financial Statements” (page F-1).
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
- 54 -
ITEM 9A.
Evaluation of disclosure controls and procedures
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 Robert D. Graham, our Vice Chairman of the Board, President and Chief Executive Officer and Gregory M.
Swalwell, our Executive Vice President and Chief Financial Officer, have evaluated the design and effectiveness of
our disclosure controls and procedures as of December 31, 2014. Based upon their evaluation, these executive
officers have concluded that our disclosure controls and procedures are effective as of the date of this evaluation.
Management’s report on 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 the
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 being made only
in accordance with authorizations of 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 Consolidated Financial Statements.
Our evaluation of the effectiveness of internal control over financial reporting is based upon the framework
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission in 2013 (commonly referred to as the “2013 COSO” framework). Based on our
evaluation under that framework, we have concluded that our internal control over financial reporting was effective
as of December 31, 2014.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that has audited our
consolidated financial statements included in this Annual Report, has audited the effectiveness of our internal
control over financial reporting as of December 31, 2014, as stated in their report, which is included in the Annual
Report on Form 10-K.
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.
- 55 -
Remediation of previously disclosed material weakness
A material weakness is a deficiency or a combination of deficiencies in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis. As disclosed in our June 30, 2014 Form 10-Q, during
the first quarter of 2014, CompX implemented a new enterprise resource planning (“ERP”) system covering
financial, production and logistics processes. CompX concluded that, from the date of implementation through June
30, 2014, it did not maintain effective monitoring controls over user access to the new ERP system, which
constitutes a material weakness. Specifically, within the new ERP system CompX did not maintain information
technology and business process controls over evaluating and monitoring user access rights and transactions
processed for appropriate segregation of duties including producing reports to monitor activity related to the
appropriateness of access. CompX has taken the following steps to remediate the identified material weakness.
Since June 30, 2014, CompX has implemented control procedures, including information technology and business
process controls, to address management’s ability to evaluate and effectively monitor user access rights and
segregation of duties. CompX believes these additional control procedures have strengthened its internal controls
over financial reporting and addressed the material weakness. Testing of the effectiveness of these controls has been
completed and CompX concluded the remediation measures described above are in place and operating effectively.
As a result, CompX is able to conclude that the material weakness has been remediated as of December 31, 2014.
Changes in internal control over financial reporting
There have been no changes to our internal control over financial reporting during the quarter ended
December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Certifications
Our chief executive officer is required to annually file a certification with the New York Stock Exchange
(NYSE), certifying our compliance with the corporate governance listing standards of the NYSE. During 2014, our
chief executive officer filed such annual certification with the NYSE. The 2014 certification was unqualified.
Our chief executive officer and chief financial officer are also required to, among other things, quarterly
file certifications with the SEC regarding the quality of our public disclosures, as required by Section 302 of the
Sarbanes-Oxley Act of 2002. We have filed the certifications for the quarter ended December 31, 2014 as Exhibits
31.1 and 31.2 to this Annual Report on Form 10-K.
ITEM 9B.
OTHER INFORMATION
Not applicable
- 56 -
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to our 2015 definitive proxy statement
to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this
report.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our 2015 proxy statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to our 2015 proxy statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to our 2015 proxy statement. See also
Note 16 to our Consolidated Financial Statements.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The Information required by this Item is incorporated by reference to our 2015 proxy statement.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) and (c) Financial Statements
The Registrant
The consolidated financial statements of the Registrant listed on the accompanying Index of Financial
Statements (see page F-1) are filed as part of this Annual Report.
50%-or-less persons
The consolidated financial statements of Kronos (30%-owned at December 31, 2014) are incorporated
by reference in Exhibit 99.1 of this Annual Report pursuant to Rule 3-09 of Regulation S-X.
Management’s Report on Internal Control Over Financial Reporting of Kronos is not included as part of
Exhibit 99.1. The Registrant is not required to provide any other consolidated financial statements
pursuant to Rule 3-09 of Regulation S-X.
(b)
Exhibits
We have included as exhibits the items listed in the Exhibit Index. We will furnish a copy of any of the
exhibits listed below upon payment of $4.00 per exhibit to cover our cost to furnish the exhibits.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, any instrument defining the rights of holders of long-
term debt issues and other agreements related to indebtedness which do not exceed 10% of consolidated
total assets as of December 31, 2014 will be furnished to the Commission upon request.
We will also furnish, without charge, a copy of our amended and restated Code of Business Conduct
and Ethics, as adopted by the board of directors on February 15, 2013, upon request. Such requests
should be directed to the attention of our Corporate Secretary at our corporate offices located at 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240.
- 57 -
Item No.
Exhibit Index
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Certificate of Amended and Restated Certificate of Incorporation dated May 22, 2008 - incorporated
by reference to Exhibit 1 to the Registrant’s Proxy Statement on Schedule 14A (File No. 001-00640)
for the annual meeting held on May 21, 2008.
Amended and Restated Bylaws of NL Industries, Inc. as of May 23, 2008 - incorporated by reference
to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-00640) filed with the
U.S. Securities and Exchange Commission on May 23, 2008.
Lease Contract dated June 21, 1952, between Farbenfabriken Bayer Aktiengesellschaft and
Titangesellschaft mit beschrankter Haftung (German language version and English translation thereof)
- incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K (File No.
001-00640) for the year ended December 31, 1985.
Formation Agreement dated as of October 18, 1993 among Tioxide Americas Inc., Kronos Louisiana,
Inc. and Louisiana Pigment Company, L.P. - incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-00640) for the quarter ended September
30, 1993.
Joint Venture Agreement dated as of October 18, 1993 between Tioxide Americas Inc. and Kronos
Louisiana, Inc. - incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on
Form 10-Q (File No. 001-00640) for the quarter ended September 30, 1993.
Kronos Offtake Agreement dated as of October 18, 1993 between Kronos Louisiana, Inc. and
Louisiana Pigment Company, L.P. - incorporated by reference to Exhibit 10.4 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-00640) for the quarter ended September 30, 1993.
Amendment No. 1 to Kronos Offtake Agreement dated as of December 20, 1995 between Kronos
Louisiana, Inc. and Louisiana Pigment Company, L.P. - incorporated by reference to Exhibit 10.22 to
the Registrant’s Annual Report on Form 10-K (File No. 001-00640) for the year ended December 31,
1995.
Tioxide Americas Offtake Agreement dated as of October 18, 1993 between Tioxide Americas Inc.
and Louisiana Pigment Company, L.P. - incorporated by reference to Exhibit 10.5 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-00640) for the quarter ended September 30, 1993.
Amendment No. 1 to Tioxide Americas Offtake Agreement dated as of December 20, 1995 between
Tioxide Americas Inc. and Louisiana Pigment Company, L.P. - incorporated by reference to Exhibit
10.24 to the Registrant’s Annual Report on Form 10-K (File No. 001-00640) for the year ended
December 31, 1995.
Parents’ Undertaking dated as of October 18, 1993 between ICI American Holdings Inc. and Kronos
Worldwide, Inc. (f/k/a Kronos, Inc.) - incorporated by reference to Exhibit 10.9 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-00640) for the quarter ended September 30, 1993.
Allocation Agreement dated as of October 18, 1993 between Tioxide Americas Inc., ICI American
Holdings, Inc., Kronos Worldwide, Inc. (f/k/a Kronos, Inc.). and Kronos Louisiana, Inc. - incorporated
by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-00640)
for the quarter ended September 30, 1993.
10.10
Form of Assignment and Assumption Agreement, dated as of January 1, 1999, between Kronos Inc.
(formerly known as Kronos (USA), Inc.) and Kronos International, Inc. - incorporated by reference to
Exhibit 10.9 to Kronos International, Inc.’s Registration Statement on Form S-4 (File No. 333-
100047).
- 58 -
Item No.
Exhibit Index
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Form of Cross License Agreement, effective as of January 1, 1999, between Kronos Inc. (formerly
known as Kronos (USA), Inc.) and Kronos International, Inc. - incorporated by reference to Exhibit to
Kronos International, Inc.’s Registration Statement on Form S-4 (File No. 333-100047).
Euro 80,000,000 Facility Agreement, dated June 25, 2002, among Kronos Titan GmbH & Co. OHG,
Kronos Europe S.A./N.V., Kronos Titan A/S and Titania A/S, as borrowers, Kronos Titan GmbH &
Co. OHG, Kronos Europe S.A./N.V. and Kronos Norge AS, as guarantors, Kronos Denmark ApS, as
security provider, Deutsche Bank AG, as mandated lead arranger, Deutsche Bank Luxembourg S.A.,
as agent and security agent, and KBC Bank NV, as fronting bank, and the financial institutions listed
in Schedule 1 thereto, as lenders - incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q of NL Industries, Inc. (File No. 001-00640) for the quarter ended June 30, 2002.
First Amendment Agreement, dated September 3, 2004, Relating to a Facility Agreement dated June
25, 2002 among Kronos Titan GmbH, Kronos Europe S.A./N.V., Kronos Titan AS and Titania A/S, as
borrowers, Kronos Titan GmbH, Kronos Europe S.A./N.V. and Kronos Norge AS, as guarantors,
Kronos Denmark ApS, as security provider, with Deutsche Bank Luxembourg S.A., acting as agent -
incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 of Kronos
Worldwide, Inc. (File No. 333-119639).
Second Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
June 14, 2005 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A. as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A./N.V,
Kronos Titan AS, Kronos Norge AS, Titania AS and Kronos Denmark ApS - incorporated by
reference to Exhibit 10.3 to the Annual report on Form 10-K (File No. 333-100047) of Kronos
International, Inc. for the year ended December 31, 2009.
Third Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
May 26, 2008 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A., as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A.,/N.V,
Kronos Titan AS, Kronos Norge AS, Titania AS and Kronos Denmark ApS - incorporated by
reference to Exhibit 10.4 to the Annual report on Form 10-K (File No. 333-100047) of Kronos
International, Inc. for the year ended December 31, 2009.
Fourth Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
September 15, 2009 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A., as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A./N.V.,
Kronos Titan AS, Kronos Norge AS, Titania AS and Kronos Denmark ApS - incorporated by
reference to Exhibit 10.5 to the Annual report on Form 10-K (File No. 333-100047) of Kronos
International, Inc. for the year ended December 31, 2009.
Fifth Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
October 28, 2010 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A., as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A./N.V.,
Kronos Titan AS, Kronos Norge AS, Titania AS and Kronos Denmark ApS - incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K of Kronos International, Inc. dated
October 28, 2010 (File No. 333-100047).
Sixth Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
September 27, 2012 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A., as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A./N.V,
Kronos Titan AS, Titania AS, Kronos Norge AS, and Kronos Denmark ApS - incorporated by
reference to Exhibit 10.1 to the Kronos Worldwide, Inc. Current Report on Form 8-K (File No. 001-
31763) filed with the U.S. Securities and Exchange Commission on October 3, 2012.
- 59 -
Item No.
Exhibit Index
10.19
10.20
10.21
10.22
10.23
10.24
10.25 *
10.26 *
10.27 *
10.28
10.29
10.30
Restated and Amended Agreement by and between Richards Bay Titanium (Proprietary) Limited
(acting through its sales agent Rio Tinto Iron & Titanium Limited) and Kronos (US), Inc. effective
January 1, 2012 - incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of
Kronos Worldwide, Inc. (File No. 001-31763) for the quarter ended March 31, 2013.
Seventh Amended and Restated Unsecured Revolving Promissory Note dated December 31, 2014 in
the original principal amount of $100.0 million executed by Valhi, Inc. and payable to the order of
Kronos Worldwide, Inc. incorporated by reference to Exhibit 10.25 to the Current Report on Form 10-
K to Kronos Worldwide, Inc.
Credit Agreement, dated June 13, 2012, by and among Kronos Worldwide, Inc. and Wells Fargo
Bank, National Association - incorporated by reference to Exhibit 10.1 to the Kronos Worldwide, Inc.
Current Report on Form 8-K (File No. 001-31763) dated June 13, 2012 and filed on June 18, 2012.
Credit Agreement, dated February 18, 2014, by and among Kronos Worldwide, Inc. and Deutsche
Bank AG New York Branch - incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K (File No. 001-31763) of Kronos Worldwide, Inc. dated February 18, 2014 and filed on February
18, 2014.
Guaranty and Security Agreement, dated February 18, 2014, among Kronos Worldwide, Inc., Kronos
Louisiana, Inc., Kronos (US), Inc., Kronos International, Inc. and Deutsche Bank AG New York
Branch - incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-
31763) of Kronos Worldwide, Inc. dated February 18, 2014 and filed on February 18, 2014.
Intercreditor Agreement dated as of February 18, 2014, by and between Wells Fargo Capital Finance
and Deutsche Bank AG New York Branch, and acknowledged by Kronos Worldwide, Inc., Kronos
Louisiana, Inc. and Kronos (US), Inc. - incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K (File No. 001-31763) of Kronos Worldwide, Inc. dated February 18, 2014 and
filed on February 18, 2014.
Kronos Worldwide, Inc. 2012 Director Stock Plan - incorporated by reference to Exhibit 4.4 of
Kronos Worldwide, Inc. Registration statement on Form S-8 (File No. 333-113425). Filed on May 31,
2012.
CompX International Inc. 2012 Director Stock Plan - incorporated by reference to Exhibit 10.2 of
CompX International Inc.’s Annual Report on Form 10-K (File No. 001-00640) for the year ended
December 31, 2012.
NL Industries, Inc. 2012 Director Stock Plan - incorporated by reference to Exhibit 4.4 of Registrant’s
statement on Form S-8 (File No. 001-00640) Filed on May 31, 2012.
Insurance Sharing Agreement, effective January 1, 1990, by and between the Registrant, NL
Insurance, Ltd. (an indirect subsidiary of Tremont Corporation) and Baroid Corporation - incorporated
by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K (File No. 001-00640)
for the year ended December 31, 1991.
Insurance Sharing Agreement dated October 30, 2003 by and among CompX International Inc.,
Contran Corporation, Keystone Consolidated Industries, Inc., Kronos Worldwide, Inc., Titanium
Metals Corp., Valhi, Inc. and NL Industries, Inc. - incorporated by reference to Exhibit 10.48 to the
Registrant’s Annual Report on Form 10-K (File No. 001-00640) for the year ended December 31,
2003.
Intercorporate Services Agreement by and between Contran Corporation and Kronos Worldwide, Inc.
- incorporated by reference to Exhibit 10.1 to the Kronos Worldwide, Inc. Quarterly Report on Form
10-Q (File No. 001-31763) for the quarter ended March 31, 2004.
- 60 -
Item No.
Exhibit Index
10.31
10.32
10.33
10.34
Intercorporate Services Agreement between CompX International Inc. and Contran Corporation
effective as of January 1, 2004 - incorporated by reference to Exhibit 10.2 to the CompX International
Inc. Annual Report on Form 10-K (File No. 1-13905) for the year ended December 31, 2003.
Intercorporate Services Agreement by and between Contran Corporation and NL Industries, Inc.
effective as of January 1, 2004 - incorporated by reference to Exhibit 10.1 to the NL Industries, Inc.
Quarterly Report on Form 10-Q (File No. 001-00640) for the quarter ended March 31, 2004.
Amended and Restated Tax Agreement between Valhi, Inc. and Kronos Worldwide, Inc. -
incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K of Kronos Worldwide,
Inc. (File No. 001-31763) for the year ended December 31, 2012.
Amended and Restated Tax Agreement among NL Industries, Inc., Valhi, Inc. and Contran
Corporation effective December 1, 2012 incorporated by reference to Exhibit 10.40 to the annual
Report on Form 10-K (File No. 001-00640) of the Registrant for the year ended December 31, 2012.
10.35 **
Fifth Amended and Restated Unsecured Revolving Demand Promissory Note dated December 31,
2014 in the original principal amount of $40.0 million executed by NL Industries, Inc. and payable to
the order of Valhi, Inc.
21.1 **
Subsidiaries of the Registrant.
23.1 **
Consent of PricewaterhouseCoopers LLP with respect to NL’s consolidated financial statements.
23.2 **
Consent of PricewaterhouseCoopers LLP with respect to Kronos’ consolidated financial statements.
31.1 **
Certification
31.2 **
Certification
32.1 **
Certification
99.1
Consolidated financial statements of Kronos Worldwide, Inc. - incorporated by reference to Kronos’
Annual Report on Form 10-K (File No. 1-31763) for the year ended December 31, 2013.
101.INS **
XBRL Instance Document
101.SCH **
XBRL Taxonomy Extension Schema
101.CAL **
XBRL Taxonomy Extension Calculation Linkbase
101.DEF **
XBRL Taxonomy Extension Definition Linkbase
101.LAB **
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
101.PRE **
* Management contract, compensatory plan or arrangement.
**
Filed herewith
- 61 -
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
NL Industries, Inc.
(Registrant)
By:/s/ Robert D. Graham
Robert D. Graham, March 12, 2015
(Vice Chairman, President and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
/s/ Steven L. Watson
Steven L. Watson, March 12, 2015
(Chairman of the Board)
/s/ Thomas P. Stafford
Thomas P. Stafford, March 12, 2015
(Director)
/s/ Loretta J. Feehan
Loretta J. Feehan, March 12, 2015
(Director)
/s/ Tim C. Hafer
Tim C. Hafer, March 12, 2015
(Vice President and Controller,
Principal Accounting Officer)
/s/ Robert D. Graham
Robert D. Graham, March 12, 2015
(Vice Chairman, President and Chief Executive Officer)
/s/ C. H. Moore, Jr.
C. H. Moore, Jr., March 12, 2015
(Director)
/s/ Terry N. Worrell
Terry N. Worrell, March 12, 2015
(Director)
/s/ Gregory M. Swalwell
Gregory M. Swalwell, March 12, 2015
(Executive Vice President and
Chief Financial Officer, Principal Financial Officer)
SUBSIDIARIES OF THE REGISTRANT
NAME OF CORPORATION
CompX International Inc. (2)
Kronos Worldwide, Inc. (3)
EWI RE, Inc.
EWI RE (UK), LIMITED
NL Environmental Management
Services, Inc.
The 1230 Corporation
United Lead Company
________________________________________________________________________________________________
Jurisdiction of
incorporation
or organization
Delaware
Delaware
New York
United Kingdom
New Jersey
California
New Jersey
EXHIBIT 21.1
% of voting
securities held at
December 31, 2014 (1)
87
30
100
100
100
100
100
(1) Held by the Registrant or the indicated subsidiary of the Registrant
(2) Subsidiaries of CompX International Inc. are incorporated by reference to Exhibit 21.1 of CompX’s Annual
Report on Form 10-K for the year ended December 31, 2014 (File No. 1-13905)
(3) Subsidiaries of Kronos Worldwide, Inc. are incorporated by reference to Exhibit 21.1 of Kronos’ Annual
Report on Form 10-K for the year ended December 31, 2014 (File No. 1-31763)
NL INDUSTRIES, INC.
Annual Report on Form 10-K
Items 8, 15(a) and 15(c)
Index of Financial Statements
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2013 and 2014
Consolidated Statements of Operations - Years ended December 31, 2012, 2013 and 2014
Consolidated Statements of Comprehensive Income (Loss) - Years ended December 31, 2012, 2013
and 2014
Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2012, 2013 and 2014
Consolidated Statements of Cash Flows - Years ended December 31, 2012, 2013 and 2014
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-5
F-7
F-8
F-9
F-11
All financial statement schedules have been omitted either because they are not applicable or required, or the
information that would be required to be included is disclosed in the Notes to the Consolidated Financial Statements.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of NL Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
operations, of comprehensive income (loss), of stockholders’ equity and of cash flows present fairly, in all material
respects, the financial position of NL Industries, Inc. and its subsidiaries at December 31, 2013 and 2014, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for
these financial statements, for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal
Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these
financial statements and on the Company’s internal control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Dallas, Texas
March 12, 2015
F-2
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts and other receivables, net
Receivable from affiliates
Inventories, net
Prepaid expenses and other
Deferred income taxes
December 31,
2013
2014
$
52,609 $
3,343
10,517
115
13,235
809
3,786
72,560
3,995
9,256
-
16,863
792
4,567
Total current assets
84,414
108,033
Other assets:
Marketable securities
Investment in Kronos Worldwide, Inc.
Goodwill
Other assets, net
Deferred income taxes
Total other assets
Property and equipment:
Land
Buildings
Equipment
Construction in progress
Less accumulated depreciation
Net property and equipment
252,677
284,523
27,156
2,707
19
92,131
237,719
27,156
2,143
20
567,082
359,169
5,138
20,793
58,195
2,588
86,714
52,385
5,138
21,176
62,264
909
89,487
55,931
34,329
33,556
Total assets
$
685,825 $
500,758
F-3
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued and other current liabilities
Accrued environmental remediation and related costs
Payable to affiliates
Income taxes
Total current liabilities
Noncurrent liabilities:
Accrued pension cost
Accrued postretirement benefits (OPEB) costs
Accrued environmental remediation and related costs
Deferred income taxes
Other
Total noncurrent liabilities
Equity:
NL stockholders' equity:
December 31,
2013
2014
$
3,006 $
11,150
4,859
49
6
6,115
10,862
6,984
659
7
19,070
24,627
5,453
3,268
108,777
161,933
18,329
12,242
3,341
103,031
87,725
18,342
297,760
224,681
Preferred stock, no par value; 5,000 shares authorized; none issued
Common stock, $.125 par value; 150,000 shares authorized; 48,669 and
48,674 shares issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total NL stockholders' equity
6,084
300,223
84,089
(35,016 )
6,085
300,388
112,588
(182,039)
355,380
237,022
Noncontrolling interest in subsidiary
13,615
14,428
Total equity
368,995
251,450
Total liabilities and equity
$
685,825 $
500,758
Commitments and contingencies (Notes 14 and 18)
See accompanying notes to consolidated financial statements.
F-4
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years ended December 31,
2013
2014
2012
Net sales
Cost of sales
Gross margin
Selling, general and administrative expense
Other operating income (expense):
Insurance recoveries
Litigation settlement gain
Assets held for sale write-down
Other income, net
Goodwill impairment
Corporate expense
$
83,196 $
58,869
92,045 $
64,471
103,846
71,598
24,327
27,574
32,248
17,747
18,246
18,641
3,311
14,964
(1,162)
3,612
(6,406)
(28,958)
9,427
-
-
29
-
(87,042 )
10,368
-
-
186
-
(21,323)
Income (loss) from operations
(8,059)
(68,258 )
2,838
Equity in earnings (loss) of Kronos Worldwide, Inc.
Other income (expense):
Securities transactions, net
Interest and dividends
Interest expense
66,437
(31,007 )
30,161
16,567
3,200
(1,023)
11
2,927
(127 )
16
1,618
-
Income (loss) from continuing operations before taxes
77,122
(96,454 )
34,633
Income tax expense (benefit)
19,933
(41,911 )
5,003
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Noncontrolling interest in net income of subsidiary
57,189
21,893
(54,543 )
-
79,082
4,546
(54,543 )
790
29,630
-
29,630
1,131
Net income (loss) attributable to NL stockholders
$
74,536 $
(55,333 ) $
28,499
F-5
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Years ended December 31,
2013
2014
2012
Amounts attributable to NL stockholders:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) attributable to NL stockholders
Basic and diluted net income (loss) per share:
Continuing operations
Discontinued operations
Net income (loss) per share
Cash dividends per share
$
$
$
$
$
56,730 $
17,806
(55,333 ) $
-
28,499
-
74,536 $
(55,333 ) $
28,499
1.16 $
.37
(1.14 ) $
-
1.53 $
(1.14 ) $
.50 $
.50 $
.59
-
.59
-
Weighted average shares used in the calculation of net
income (loss) per share
48,667
48,672
48,679
See accompanying notes to consolidated financial statements.
F-6
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Years ended December 31,
2013
2014
2012
Net income (loss)
$
79,082 $
(54,543 ) $
29,630
Other comprehensive income (loss), net of tax:
Marketable securities
Currency translation
Defined benefit pension plans
Other postretirement benefit plans
(81,032)
(3,606)
(6,924)
(449)
48,750
1,349
9,758
380
(107,057)
(20,357)
(18,616)
(993)
Total other comprehensive income (loss), net
(92,011)
60,237
(147,023)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interest
(12,929)
3,064
5,694
790
(117,393)
1,131
Comprehensive income (loss) attributable to NL stockholders
$
(15,993) $
4,904 $
(118,524)
See accompanying notes to consolidated financial statements.
F-7
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S
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
$
Net income (loss)
Depreciation and amortization
Deferred income taxes
Provision for inventory reserves
Cash funding of benefit plans in excess of net benefit plan
expense
Equity in (earnings) loss of Kronos Worldwide, Inc.
Dividends received from Kronos Worldwide, Inc.
Net gains from:
Real estate-related litigation settlement
Securities transactions, net
Sale of business unit
Reversal of accrued contingent consideration
Goodwill impairment
Assets held for sale write-down
Other, net
Change in assets and liabilities:
Accounts and other receivables, net
Inventories, net
Prepaid expenses and other
Accounts payable and accrued liabilities
Income taxes
Accounts with affiliates
Accrued environmental remediation and related costs
Other noncurrent assets and liabilities, net
Years ended December 31,
2013
2012
2014
79,082 $
5,826
27,433
454
(431)
(66,437)
21,132
(14,964)
(16,567)
(23,674)
(778)
6,406
1,162
(3,103)
(476)
174
(1,871)
1,550
(1,450)
729
6,369
(2,566)
(54,543 ) $
3,335
(41,891 )
228
(1,224 )
31,007
21,132
-
(11 )
-
-
-
-
81
(1,461 )
(2,240 )
166
(3,347 )
-
(369 )
65,630
(1,588 )
29,630
3,601
4,167
24
(2,557)
(30,161)
21,132
-
(16)
-
-
-
-
210
1,220
(3,652)
18
2,855
5
726
(3,621)
(29)
Net cash provided by operating activities
18,000
14,905
23,552
Cash flows from investing activities:
Capital expenditures
Proceeds from real estate-related litigation settlement
Collection of promissory note receivable
Change in restricted cash equivalents, net
Net proceeds from the disposal of:
Assets held for sale
Marketable securities
Property, plant and equipment and other assets
Proceeds from disposal of operations
Cash of disposed business unit
Purchase of marketable securities
Other
(4,564)
15,603
-
(2,159)
3,555
24,146
3,290
58,027
(5,426)
(227)
-
(3,541 )
3,034
2,018
1,559
272
5
-
-
(261 )
(102 )
(2,858)
-
-
(384)
-
660
-
-
-
(643)
(48)
Net cash provided by (used in) investing activities
92,245
2,984
(3,273)
F-9
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Cash flows from financing activities:
Cash dividends paid
Distributions to noncontrolling interests in subsidiary
Indebtedness:
Borrowings
Repayments
Deferred financing costs paid
Years ended December 31,
2013
2012
2014
(24,333)
(818)
(24,336 )
(451 )
-
(328)
40,550
(59,406)
(79)
-
(18,480 )
-
-
-
-
Net cash used in financing activities
(44,086)
(43,267 )
(328)
Cash and cash equivalents - net change from:
Operating, investing and financing activities
Effect of exchange rate changes on cash
66,159
176
(25,378 )
-
19,951
-
Net change for the year
66,335
(25,378 )
19,951
Balance at beginning of year
11,652
77,987
52,609
Balance at end of year
Supplemental disclosures:
Cash paid for:
Interest
Income taxes, net
Non-cash investing and financing activities - accrual for
capital expenditures
$
$
77,987 $
52,609 $
72,560
982 $
2,525
222 $
302
484
(313 )
-
193
(34)
See accompanying notes to consolidated financial statements.
F-10
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
Note 1 - Summary of significant accounting policies:
Nature of our business - NL Industries, Inc. (NYSE: NL) is primarily a holding company. We operate in
the component products industry through our majority-owned subsidiary, CompX International Inc. (NYSE MKT:
CIX). We operate in the chemicals industry through our noncontrolling interest in Kronos Worldwide, Inc. (NYSE:
KRO).
Organization - At December 31, 2014, Valhi, Inc. (NYSE: VHI) held approximately 83% of our
outstanding common stock and a wholly-owned subsidiary of Contran Corporation held approximately 93% of
Valhi’s outstanding common stock. Substantially all of Contran’s outstanding voting stock is held by family trusts
established for the benefit of Lisa K. Simmons and Serena Simmons Connelly, daughters of Harold C. Simmons,
and their children (for which Ms. Lisa Simmons and Ms. Connelly are co-trustees) or is held directly by Ms.
Lisa Simmons and Ms. Connelly or persons or entities related to them, including their step-mother Annette C.
Simmons, the widow of Mr. Simmons. Prior to his death in December 2013, Mr. Simmons served as sole trustee of
the family trusts. Under a voting agreement entered into by all of the voting stockholders of Contran, effective in
February 2014 and as amended, the size of the board of directors of Contran was fixed at five members,
Ms. Lisa Simmons, Ms. Connelly and Ms. Annette Simmons (and in the event of their death, their heirs) each has
the right to designate one of the five members of the Contran board and the remaining two members of the Contran
board must consist of members of Contran management. Ms. Lisa Simmons, Ms. Connelly, and Ms. Annette
Simmons each serve as members of the Contran board. The voting agreement expires in February 2017 (unless Ms.
Lisa Simmons, Ms. Connelly and Ms. Annette Simmons otherwise unanimously agree), and the ability of Ms. Lisa
Simmons, Ms. Connelly, and Ms. Annette Simmons to each designate one member of the Contran board is
dependent upon each of their continued beneficial ownership of at least 5% of the combined voting stock of
Contran. Consequently, Ms. Lisa Simmons, Ms. Connelly and Ms. Annette Simmons may be deemed to control
Contran, Valhi and us.
Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to NL Industries, Inc. and
its subsidiaries and affiliate, Kronos, taken as a whole.
Management’s estimates - In preparing our financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP), we are required to make estimates and assumptions that
affect the reported amounts of our assets and liabilities and disclosures of contingent assets and liabilities at each
balance sheet date and the reported amounts of our revenues and expenses during each reporting period. Actual
results may differ significantly from previously-estimated amounts under different assumptions or conditions.
Principles of consolidation - Our consolidated financial statements include the financial position, results of
operations and cash flows of NL and our wholly-owned and majority-owned subsidiaries, including CompX. We
account for the 13% of CompX stock we do not own as a noncontrolling interest. We eliminate all material
intercompany accounts and balances. Changes in ownership of our wholly-owned and majority-owned subsidiaries
are accounted for as equity transactions with no gain or loss recognized on the transaction unless there is a change in
control.
Currency translation - The financial statements of Kronos’ non-U.S. subsidiaries (and prior to December
2012, our non-U.S. consolidated subsidiaries) are translated to U.S. dollars. The functional currency of our non-
U.S. subsidiaries is generally the local currency of their country. Accordingly, we translate the assets and liabilities
at year-end rates of exchange, while we translate their revenues and expenses at average exchange rates prevailing
during the year. We accumulate the resulting translation adjustments in stockholders’ equity as part of accumulated
other comprehensive income, net of related deferred income taxes and noncontrolling interest. We recognize
currency transaction gains and losses in income. In December 2012 we sold CompX’s Furniture Components
business, which comprised all of CompX’s consolidated subsidiaries whose functional currency was not the U.S.
dollar. See Note 2.
F-11
Cash and cash equivalents - We classify bank time deposits and government and commercial notes and
bills with original maturities of three months or less as cash equivalents.
Restricted cash equivalents - We classify cash equivalents that have been segregated or are otherwise
limited in use as restricted. To the extent the restricted amount relates to a recognized liability, we classify such
restricted amount as either a current or noncurrent asset to correspond with the classification of the liability. To the
extent the restricted amount does not relate to a recognized liability, we classify restricted cash as a current asset.
See Note 9.
Marketable securities and securities transactions - We carry marketable securities at fair value.
Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, establishes a
consistent framework for measuring fair value and, with certain exceptions, this framework is generally applied to
all financial statement items required to be measured at fair value. The standard requires fair value measurements to
be classified and disclosed in one of the following three categories:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 - Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the assets or liability; and
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable.
We classify all of our marketable securities as available-for-sale and unrealized gains or losses on these
securities are recognized through other comprehensive income, net of related deferred income taxes. We base
realized gains and losses upon the specific identification of securities sold. See Note 6.
Accounts receivable - We provide an allowance for doubtful accounts for known and estimated potential
losses arising from sales to customers based on a periodic review of these accounts.
Inventories and cost of sales - We state inventories at the lower of cost or market, net of allowance for
obsolete and slow-moving inventories. We generally base inventory costs for all inventory categories on an average
cost that approximates the first-in, first-out method. Inventories include the costs for raw materials, the cost to
manufacture the raw materials into finished goods and overhead. Depending on the inventory’s stage of completion,
our manufacturing costs can include the costs of packing and finishing, utilities, maintenance and depreciation,
shipping and handling, and salaries and benefits associated with our manufacturing process. We allocate fixed
manufacturing overhead based on normal production capacity. Unallocated overhead costs resulting from periods
with abnormally low production levels are charged to expense as incurred. As inventory is sold to third parties, we
recognize the cost of sales in the same period that the sale occurs. We periodically review our inventory for
estimated obsolescence or instances when inventory is no longer marketable for its intended use and we record any
write-down equal to the difference between the cost of inventory and its estimated net realizable value based on
assumptions about alternative uses, market conditions and other factors.
Investment in Kronos Worldwide, Inc. - We account for our 30% non-controlling interest in Kronos by
the equity method. See Note 7.
Goodwill - Goodwill represents the excess of cost over fair value of individual net assets acquired in
business combinations. Goodwill is not subject to periodic amortization. We evaluate goodwill for impairment,
annually, or when circumstances indicate the carrying value may not be recoverable. We adopted ASC 350-20-35 in
the third quarter of 2013 which allows an entity to first assess qualitative factors to determine whether it is necessary
to perform the two-step quantitative goodwill impairment test. An entity is not required to calculate the fair value of
a reporting unit unless the entity determines, based on a qualitative assessment considering the totality of relevant
events and circumstances, that it is more likely than not that its fair value of the reporting unit is less than its
carrying amount. See Note 8.
F-12
Property and equipment; depreciation expense - We state property and equipment, including purchased
computer software for internal use, at cost. We compute depreciation of property and equipment for financial
reporting purposes principally by the straight-line method over the estimated useful lives of 15 to 40 years for
buildings and 3 to 20 years for equipment and software. We use accelerated depreciation methods for income tax
purposes, as permitted. Depreciation expense was $3.2 million in 2012, $3.3 million in 2013, and $3.6 million in
2014. Upon sale or retirement of an asset, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is recognized in income currently. Expenditures for maintenance, repairs and minor
renewals are expensed; expenditures for major improvements are capitalized.
We perform impairment tests when events or changes in circumstances indicate the carrying value may not
be recoverable. We consider all relevant factors. We perform impairment tests by comparing the estimated future
undiscounted cash flows associated with the asset to the asset’s net carrying value to determine whether impairment
exists.
Employee benefit plans - Accounting and funding policies for our retirement and post-retirement benefits
other than pensions (OPEB) plans are described in Note 15.
Income taxes - We, Valhi and our qualifying subsidiaries are members of Contran’s consolidated U.S.
federal income tax group (the Contran Tax Group) and we and certain of our qualifying subsidiaries also file
consolidated unitary state income tax returns with Contran in qualifying U.S. jurisdictions. As a member of the
Contran Tax Group, we are jointly and severally liable for the federal income tax liability of Contran and the other
companies included in the Contran Tax Group for all periods in which we are included in the Contran Tax Group.
See Note 18. We are party to a tax sharing agreement with Valhi and Contran pursuant to which we generally
compute our provision for income taxes on a separate-company basis and we make payments to or receive payments
from Valhi in amounts that we would have paid to or received from the U.S. Internal Revenue Service or the
applicable state tax authority had we not been a member of the Contran Tax Group. Refunds are limited to amounts
previously paid under the Contran Tax Agreement unless the individual company was entitled to a refund from the
U.S. Internal Revenue Service on a separate company basis. The separate company provisions and payments are
computed using the tax elections made by Contran. We received net income tax refunds from Valhi of $.2 million
in 2012 and $.1 million in 2014, and we made net payments to Valhi for income taxes of $.3 million in 2013.
We recognize deferred income tax assets and liabilities for the expected future tax consequences of
temporary differences between the income tax and financial reporting carrying amounts of our assets and liabilities,
including investments in our subsidiaries and affiliates who are not members of the Contran Tax Group and
undistributed earnings of non-U.S. subsidiaries which are not permanently reinvested. In addition, we recognize
deferred income taxes with respect to the excess of the financial reporting carrying amount over the income tax basis
of our direct investment in Kronos common stock because the exemption under GAAP to avoid recognition of such
deferred income taxes is not available to us. In December 2012, we sold CompX’s Furniture Components
operations, which comprised all of CompX’s non-U.S. operating subsidiaries. See Note 2. We periodically evaluate
our deferred tax assets in the various taxing jurisdictions in which we operate and adjust any related valuation
allowance based on the estimate of the amount of such deferred tax assets which we believe do not meet the more-
likely-than-not recognition criteria.
We record a reserve for uncertain tax positions for tax positions where we believe it is more-likely-than-not
our position will not prevail with the applicable tax authorities. The amount of the benefit associated with our
uncertain tax positions that we recognize is limited to the largest amount for which we believe the likelihood of
realization is greater than 50%. We accrue penalties and interest on the difference between tax positions taken on
our tax returns and the amount of benefit recognized for financial reporting purposes. We classify our reserves for
uncertain tax positions in a separate current or noncurrent liability, depending on the nature of the tax position. See
Note 14.
Environmental remediation costs - We record liabilities related to environmental remediation obligations
when estimated future expenditures are probable and reasonably estimable. We adjust these accruals as further
information becomes available to us or as circumstances change. We generally do not discount estimated future
expenditures to present value. We recognize any recoveries of remediation costs from other parties when we deem
F-13
their receipt probable. We expense any environmental remediation related legal costs as incurred. At December 31,
2013 and 2014, we had not recognized any receivables for recoveries. See Note 18.
Net sales - We record sales when products are shipped and title and other risks and rewards of ownership
have passed to the customer. Amounts charged to customers for shipping and handling costs are not material. We
state sales net of price, early payment and distributor discounts and volume rebates. We report taxes assessed by a
governmental authority that we collect from our customers that is both imposed on and concurrent with our revenue
producing activities (such as sales and use taxes) on a net basis (meaning we do not recognize these taxes in either
our revenues or in our costs and expenses).
Selling, general and administrative expenses; advertising costs; research and development costs -
Selling, general and administrative expenses include costs related to marketing, sales, distribution, research and
development, and administrative functions such as accounting, treasury and finance, as well as costs for salaries and
benefits, travel and entertainment, promotional materials and professional fees. Advertising costs and research and
development costs related to continuing operations, expensed as incurred, were not material in any year presented.
Corporate expenses - Corporate expenses include environmental, legal and other costs attributable to
formerly-owned business units.
Earnings per share – Basic and diluted earnings per share of common stock is based upon the weighted
average number of our common shares actually outstanding during each period.
Note 2 - Discontinued operations:
In December 2012, we completed the sale of CompX’s Furniture Components operations for proceeds, net
of expenses, of approximately $58.0 million in cash. We recognized a pre-tax gain of $23.7 million on the disposal
of these operations ($14.5 million, or $.30 per basic and diluted share, net of income taxes and noncontrolling
interest in CompX). Such pre-tax gain includes income of $10.4 million associated with the reclassification out of
accumulated other comprehensive income related to currency translation. The income taxes associated with the pre-
tax gain on disposal is less than the U.S. statutory income tax rate of 35% principally due to the utilization of foreign
tax credits, the benefit of which had previously not been recognized under the “more-likely-than-not” recognition
criteria.
Selected financial data for the operations of the disposed Furniture Components business is presented
below:
Net sales
Income from operations
Income from discontinued operations:
Income before taxes
Income tax expense
Income from discontinued operations, net of tax
Year ended
December 31,
2012
(In thousands)
$
$
$
$
60,722
7,364
7,284
3,484
3,800
We have reclassified our 2012 Consolidated Statement of Operations to reflect the disposed business as
discontinued operations. We have not reclassified our December 31, 2012 Consolidated Statement of Cash Flows to
reflect discontinued operations.
F-14
In conjunction with the sale of CompX’s Furniture Components business, the buyer was not interested in
retaining certain undeveloped land located in Taiwan owned by our Taiwanese Furniture Component business. In
2013, an agreement was entered into with a third party to sell the land for $3.0 million, all of which was received
during 2013.
Note 3 - Geographic information:
We operate in the security products industry and marine components industry through our majority
ownership of CompX. CompX manufactures and sells security products including locking mechanisms and other
security products for sale to the transportation, postal, office and institutional furniture, cabinetry, tool storage,
healthcare and other industries with a facility in South Carolina and a facility shared with Marine Components in
Illinois. CompX also manufactures and distributes stainless steel exhaust systems, gauges and throttle controls
primarily for recreational boats.
For geographic information, the point of origin (place of manufacture) for all net sales is the U.S., the point
of destination for net sales is based on the location of the customer.
Net sales - point of destination:
United States
Canada
Other
Total
Years ended December 31,
2012
2013
2014
(In thousands)
$
$
78,268 $
2,194
2,734
87,307 $
2,195
2,543
98,994
1,927
2,925
83,196 $
92,045 $
103,846
All of our net property and equipment is located in the United States at December 31, 2013 and 2014.
Note 4 - Accounts and other receivables, net:
Trade receivables – CompX
Accrued insurance recoveries
Other receivables
Allowance for doubtful accounts
Total
Accrued insurance recoveries are discussed in Note 18.
December 31,
2013
2014
(In thousands)
8,662 $
1,877
106
(128)
8,825
346
163
(78 )
10,517 $
9,256
$
$
F-15
Note 5 - Inventories, net:
Raw materials
Work in process
Finished products
Total
Note 6 - Marketable securities:
December 31, 2013
Noncurrent assets
Valhi common stock
December 31, 2014
Noncurrent assets
Valhi common stock
December 31,
2013
2014
(In thousands)
3,565 $
6,696
2,974
3,393
10,271
3,199
13,235 $
16,863
$
$
Fair value
measurement
level
Market
value
Cost
basis
Unrealized
gain (loss)
(In thousands)
1
1
$
252,677 $
24,347 $
228,330
$
92,131 $
24,347 $
67,784
At December 31, 2013 and 2014, we held approximately 14.4 million shares of our immediate parent
company, Valhi. See Note 1. We account for our investment in Valhi common stock as available-for-sale
marketable equity securities and any unrealized gains or losses on the securities are recognized through other
comprehensive income, net of deferred income taxes. Our shares of Valhi common stock are carried at fair value
based on quoted market prices, representing a Level 1 input within the fair value hierarchy. At December 31, 2013
and 2014, the quoted market prices of Valhi common stock were $17.58 and $6.41 per share, respectively.
Prior to December 2012, we held approximately 1.4 million shares, or .8%, of Titanium Metals
Corporation’s (TIMET) outstanding common stock. TIMET was also an affiliate of ours, as Contran, Mr. Harold
Simmons and persons and other entities related to Mr. Simmons (including us) owned a majority of TIMET’s
outstanding common stock. In December 2012, we sold all of our shares of TIMET common stock for $23.9 million
($16.50 per share) pursuant to a cash tender offer by a third party, and all of our affiliates also sold their shares of
TIMET common stock for the same price. Securities transactions in 2012 consist of a $16.6 million pre-tax gain we
recognized on the sale of these TIMET shares.
The Valhi common stock we own is subject to the 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 do receive dividends from Valhi on these shares,
when declared and paid.
Note 7 - Investment in Kronos Worldwide, Inc.:
At December 31, 2013 and 2014, we owned approximately 35.2 million shares of Kronos common stock.
The per share quoted market price of Kronos at December 31, 2013 and 2014 was $19.05 and $13.02 per share,
respectively, or an aggregate market value of $670.9 million and $458.6 million, respectively.
F-16
In January 2015, the remaining 200,000 shares of our Kronos common stock pledged in connection with
certain liabilities incurred in environmental-related settlement obligations were released to us and the trust was
terminated following the December 2014 prepayment of the last amounts owed under the settlement agreement.
The change in the carrying value of our investment in Kronos during the past three years is summarized
below:
Balance at the beginning of the year
Equity in earnings (loss) of Kronos
Dividends received from Kronos
Equity in Kronos' other comprehensive income:
$
Marketable securities
Currency translation
Defined benefit pension plans
Other postretirement benefit plans
Other
Year ended December 31,
2012
2013
(In millions)
2014
281.3 $
66.4
(21.1)
(.3)
8.6
(11.6)
(.2)
-
323.1 $
(31.0 )
(21.1 )
2.0
2.0
8.5
1.2
(.2 )
284.5
30.2
(21.1)
(4.2)
(31.3)
(20.1)
(.3)
-
Balance at the end of the year
$
323.1 $
284.5 $
237.7
Selected financial information of Kronos is summarized below:
Current assets
Property and equipment, net
Investment in TiO2 joint venture
Other noncurrent assets
Total assets
Current liabilities
Long-term debt
Accrued pension and postretirement benefits
Other noncurrent liabilities
Stockholders' equity
$
$
$
December 31,
2013
2014
(In millions)
781.2 $
536.3
102.3
199.3
886.2
479.7
89.0
187.6
1,619.1 $
1,642.5
278.0 $
180.4
171.6
54.0
935.1
237.9
344.7
245.2
33.6
781.1
Total liabilities and stockholders' equity
$
1,619.1 $
1,642.5
F-17
Net sales
Cost of sales
Income (loss) from operations
Net income (loss)
Note 8 - Goodwill:
Year ended December 31,
2012
2013
2014
(In millions)
$
1,976.3 $
1,415.9
359.6
218.5
1,732.4 $
1,620.2
(132.6)
(102.0)
1,651.9
1,302.2
149.7
99.2
Substantially all of our goodwill is related to our component products operations and was generated from
CompX’s acquisitions of certain business units. Prior to December 31, 2012, we also had approximately $6.4
million of goodwill which resulted from our acquisition of our subsidiary, EWI Re, Inc., (EWI), an insurance
brokerage and risk management services company. EWI brokers certain insurance policies for Contran and certain
of its affiliates, including us and Kronos, as well as certain third parties. See Note 16.
We have assigned goodwill related to the component products operations to three reporting units (as that
term is defined in ASC Topic 350-20-20 Goodwill): one consisting of CompX’s security products operations, one
consisting of CompX’s furniture components operations and one consisting of CompX’s marine component
operations. Prior to 2012, all of the goodwill related to CompX’s marine components operations (which aggregated
$10.1 million) was impaired. Our gross goodwill at December 31, 2014 was $43.7 million.
We test for Goodwill impairment at the reporting unit level. In accordance with ASC 350-20-35, we test
for goodwill impairment during the third quarter of each year or when circumstances arise that indicate impairment
might be present. Prior to 2013, we used a quantitative assessment in determining the estimated fair value of the
reporting units, using appropriate valuation techniques such as discounted cash flows. Such discounted cash flows
are a Level 3 input as defined by ASC 820-10-35. If the carrying amount of goodwill exceeds its implied fair value,
an impairment charge is recorded. In 2013 we adopted the guidance in ASU No. 2011-08 for testing goodwill for
impairment by assessing qualitative factors to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test. Based on our qualitative assessment, a quantitative assessment was not required for 2013
or 2014.
In 2012, 2013 and 2014, goodwill for all applicable reporting units was tested for impairment in the third
quarter of each year in connection with our annual testing. No impairment was indicated as part of such annual
review of goodwill. However, as a result of the December 2012 disposition of CompX’s furniture components
business and the December 2012 sale of all common stock of TIMET owned by Contran Corporation and its
affiliates (including us), a significant portion of EWI’s insurance brokerage business was lost. Consequently, we
reevaluated goodwill associated with EWI due to the triggering event caused by the significant impact these
dispositions had on EWI’s business and concluded that all of our goodwill related to EWI was impaired.
Accordingly, we recognized a $6.4 million goodwill impairment in December 2012. In addition, we had goodwill of
approximately $14.3 million attributable to the disposed CompX furniture components operations. In December
2012 we sold CompX’s furniture components operations. See Note 2.
F-18
Changes in the carrying amount of our goodwill related to CompX’s two reporting units as well as the
goodwill related to EWI during the past three years are presented in the table below.
Balance at December 31, 2011
Sale of disposed operations
Goodwill impairment
Changes in currency exchange rates
Security
Products
Furniture
Components EWI Re, Inc.
(In thousands)
$
13,991 $
(14,286)
-
295
27,156 $
-
-
-
6,406
-
(6,406 )
-
Balance at December 31, 2012, 2013 and 2014
$
- $
27,156 $
-
Note 9 - Other assets:
Restricted cash
Assets held for sale
Pension asset
Other
Total
December 31,
2013
2014
(In thousands)
1,687 $
532
364
124
2,707 $
1,420
590
-
133
2,143
$
$
Prior to 2013, our assets held for sale consisted of two facilities (land, building and building improvements)
and certain unimproved land, all of which were formerly used in CompX’s operations. These assets were classified
as “assets held for sale” when they ceased to be used in our operations and met all of the applicable criteria under
U.S. GAAP. During 2012, we obtained updated independent appraisals of the significant assets. Based on these
appraisals, we recognized a write-down in the third quarter of $.4 million to reduce the carrying value of the assets
to their estimated fair value less cost to sell. Subsequently, we sold one of the facilities in December 2012 for net
proceeds of $3.6 million, which net proceeds were less than the carrying amount of the assets and we therefore
recognized a loss on the sale of the facility of approximately $.8 million in 2012. In 2013, we sold the remaining
facility for net proceeds of $1.6 million, which approximated the carrying value of the assets as of the date of the
sale. At December 31, 2013 and 2014, our assets held for sale consisted only of the unimproved land.
The write-down on the asset held for sale in 2012 and loss on the sale of the facility are included in loss
from operations.
Note 10 - Accrued liabilities:
Employee benefits
Professional fees and settlements
Other
Total
December 31,
2013
2014
(In thousands)
7,653 $
1,855
1,642
8,278
951
1,633
11,150 $
10,862
$
$
F-19
Note 11 - Other noncurrent liabilities:
Reserve for uncertain tax positions
Insurance claims and expenses
Other
Total
December 31,
2013
2014
(In thousands)
16,832 $
575
922
16,832
589
921
18,329 $
18,342
$
$
Our reserve for uncertain tax positions is discussed in Note 14.
Note 12 - Long-term debt:
We have a revolving promissory note with Valhi that, as amended, allows us to borrow up to $40 million.
Our borrowings from Valhi under this revolving note are unsecured bear interest at prime rate plus 2.75% with all
principal due on demand, but in any event no earlier than March 31, 2016 and no later than December 31, 2016.
The amount of the outstanding borrowings at any time is solely at the discretion of Valhi. We had no outstanding
borrowings under this revolving promissory note at December 31, 2013 and 2014. See Note 16.
Note 13 - Stockholders’ equity:
Long-term incentive compensation plan - Prior to 2012, we had a long-term incentive compensation plan
that provided for the discretionary grant of restricted common stock, stock options, stock appreciation rights (SARs)
and other incentive compensation to our officers and other key employees and non-employee directors, including
individuals who are employed by Kronos. During 2012 we awarded an aggregate of 6,000 shares of our common
stock pursuant to this plan to members of our board of directors. In February 2012, our board of directors voted to
replace the existing long-term incentive plan with a new plan that would provide for the award of stock to our board
of directors, and up to a maximum of 200,000 shares could be awarded. The new plan was approved at our May
2012 shareholder meeting and shortly thereafter the prior long-term incentive compensation plan terminated. We
awarded 5,000 and 9,000 shares respectively, under this plan in 2013 and 2014 and 186,000 shares were available
for future grants at December 31, 2014
Long-term incentive compensation plan of subsidiaries and affiliates - CompX and Kronos each have a
share based incentive compensation plan pursuant to which an aggregate of up to 200,000 shares of their common
stock can be awarded to members of their board of directors. At December 31, 2014, Kronos had 185,000 shares
available for award and CompX had 188,000 shares available for award.
Dividends - In February 2014, our Board of Directors deferred consideration of a first quarter 2014 cash
dividend, and no dividend was paid in the first quarter. In May 2014, after considering our results of operations,
financial conditions and cash requirements for our businesses, our Board of Directors suspended our regular
quarterly dividend. The declaration and payment of future dividends, and the amount thereof, is discretionary and is
dependent upon these and other factors deemed relevant by our Board of Directors.
F-20
Accumulated other comprehensive income (loss) - Changes in accumulated other comprehensive income
(loss) attributable to NL stockholders for 2012, 2013 and 2014 are presented in the table below.
Accumulated other comprehensive income (loss), net of tax:
Marketable securities:
Balance at beginning of year
Other comprehensive income (loss):
Years ended December 31,
2012
2013
2014
(In thousands)
$
186,451 $
105,419 $
154,169
Unrealized gain (loss) arising during the year
Less reclassification adjustment for amounts
included in realized gain
(71,184)
48,514
(107,057)
(9,848)
236
-
Balance at end of year
$
105,419 $
154,169 $
47,112
Currency translation:
Balance at beginning of year
Other comprehensive income (loss):
Arising during the year
Less reclassification adjustment for amounts
included in
gain on disposal
Balance at end of year
Defined benefit pension plans:
Balance at beginning of year
Other comprehensive income (loss):
Amortization of prior service cost and net losses
included in net periodic pension cost
Net actuarial gain (loss) arising during the year
Plan curtailment
Balance at end of year
OPEB plans:
Balance at beginning of year
Other comprehensive income (loss):
Amortization of prior service credit and net losses
included in net periodic OPEB cost
Net actuarial gain arising during year
Plan amendment
Balance at end of year
Total accumulated other comprehensive income (loss), net of
tax:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
$
(133,041) $
(135,165 ) $
(133,816)
6,605
1,349
(20,357)
(8,729)
-
-
(135,165) $
(133,816 ) $
(154,173)
(59,478) $
(66,402 ) $
(56,644)
2,254
(9,178)
-
2,776
5,952
1,030
2,107
(20,723)
-
(66,402) $
(56,644 ) $
(75,260)
1,344 $
895 $
1,275
(552)
103
-
(663 )
395
648
(626)
(367)
-
895 $
1,275 $
282
(4,724) $
(90,529)
(95,253 ) $
60,237
(35,016)
(147,023)
(95,253) $
(35,016 ) $
(182,039)
$
$
$
$
$
$
$
F-21
The marketable securities reclassification adjustment in 2012 consists principally of the securities
transaction gain related to the sale of TIMET common stock discussed in Note 6. The currency translation
reclassification adjustment in 2012 relates to CompX’s disposition of its furniture components operations discussed
in Note 2. See Note 15 for amounts related to our defined benefit pension plans and OPEB plans.
Note 14 - Income taxes:
The provision for income taxes attributable to continuing operations, the difference between such
provision for income taxes, the amount that would be expected using the U.S. federal statutory income tax rate of
35% and the comprehensive provision for income taxes are presented below.
Expected tax expense (benefit), at U.S. federal statutory income tax rate of
35%
Incremental U.S. tax and rate differences on equity in earnings
Nondeductible goodwill impairment
U.S. state income taxes and other, net
Income tax expense (benefit)
Components of income tax expense (benefit):
Currently payable (receivable):
Deferred income taxes (benefit)
Income tax expense (benefit)
Comprehensive provision for income taxes (benefit) allocable to:
Income (loss) from continuing operations
Discontinued operations
Other comprehensive income (loss):
Marketable securities
Currency translation
Pension plans
OPEB plans
Total
$
$
$
$
$
Years ended December 31
2012
2013
2014
(In millions)
27.0 $
(7.4)
2.2
(1.9)
19.9 $
(33.8 ) $
(7.4 )
-
(.7 )
(41.9 ) $
12.1
(7.4)
-
.3
5.0
Years ended December 31
2012
2013
2014
(In millions)
(15.0) $
34.9
19.9 $
- $
(41.9 )
(41.9 ) $
.8
4.2
5.0
Years ended December 31
2012
2013
2014
(In millions)
19.9 $
9.1
(41.9 ) $
-
(43.6)
3.0
(3.7)
(.2)
26.2
.7
5.3
.2
5.0
-
(57.6)
(11.0)
(10.0)
(.5)
$
(15.5) $
(9.5 ) $
(74.1)
F-22
The components of the net deferred tax liability at December 31, 2013 and 2014 are summarized in the
following table.
Tax effect of temporary differences related to:
Inventories
Marketable securities
Property and equipment
Accrued OPEB costs
Accrued pension costs
Accrued environmental liabilities
Other accrued liabilities and deductible differences
Other taxable differences
Investment in Kronos Worldwide, Inc.
Tax loss and tax credit carryforwards
Adjusted gross deferred tax assets (liabilities)
Netting of items by tax jurisdiction
Less net current deferred tax asset
Years ended December 31
2013
2014
Assets
Liabilities
Assets
Liabilities
(In millions)
$
.9 $
-
-
1.3
1.7
40.1
2.5
-
-
1.8
48.3
(44.5)
3.8
3.8
- $
(88.1 )
(4.1 )
-
-
-
-
(7.7 )
(106.5 )
-
(206.4 )
44.5
(161.9 )
-
.8 $
-
-
1.4
4.4
38.9
2.6
-
-
2.2
50.3
(45.7 )
4.6
4.6
-
(31.9)
(4.6)
-
-
-
-
(6.8)
(90.1)
-
(133.4)
45.7
(87.7)
-
Net noncurrent deferred tax liability
$
- $ (161.9 ) $
- $
(87.7)
Tax authorities are examining certain of our U.S. and non-U.S. tax returns, including those of Kronos, and
tax authorities have or may propose tax deficiencies, including penalties and interest. We cannot guarantee that
these tax matters will be resolved in our favor due to the inherent uncertainties involved in settlement initiatives and
court and tax proceedings. We believe that we have adequate accruals for additional taxes and related interest
expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax
examinations should not have a material adverse effect on our consolidated financial position, results of operations
or liquidity.
In 2011 and 2012, Kronos received notices of re-assessment from the Canadian federal and provincial tax
authorities related to the years 2002 through 2004. Kronos objected to the re-assessments and believed the position
was without merit. In the second quarter of 2014, the Appeals Division of the Canadian Revenue Authority ruled in
Kronos’ favor and reversed in their entirety such notices of reassessment. As a result, Kronos recognized a non-cash
income tax benefit of $3.0 million related to the release of a portion of its reserve for uncertain tax positions in the
second quarter of 2014 related to the completion of this Canadian income tax audit. Also during the second quarter
of 2014, Kronos recognized a non-cash income tax benefit of $3.1 million related to the release of a portion of its
reserve for uncertain tax positions in conjunction with the completion of an audit of its U.S. income tax return for
2009.
At December 31, 2012, 2013, and 2014, the amount of our uncertain tax positions (exclusive of the effect
of interest and penalties) was $16.8 million, and there was no change in such amount during the past three years.
We currently estimate that our unrecognized tax benefits will decrease by approximately $4.6 million during the
next twelve months due to the expiration of certain statutes of limitation. If our uncertain tax positions were
recognized, a benefit of $15.2 million would affect our effective income tax rate in each of 2012, 2013 and 2014.
We accrue interest and penalties on our uncertain tax positions as a component of our provision for income taxes.
The amount of interest and penalties we accrued during 2012, 2013 and 2014 was not material.
We file income tax returns in various U.S. federal, state and local jurisdictions. Our U.S. income tax
returns prior to 2011 are generally considered closed to examination by applicable tax authorities.
F-23
Note 15 - Employee benefit plans:
Defined contribution plans - We maintain various defined contribution pension plans. Company
contributions are based on matching or other formulas. Defined contribution plan expense attributable to continuing
operations approximated $1.9 million in 2012, $2.1 million in 2013 and $2.4 million in 2014.
Accounting for defined benefit pension and postretirement benefits other than pension (OPEB) plans -
We recognize all changes in the funded status of these plans through other income. Any future changes will be
recognized either in net income, to the extent they are reflected in periodic benefit cost, or through other
comprehensive income.
Defined benefit plans - We maintain a defined benefit pension plan in the U.S. We also maintain a plan in
the United Kingdom related to a former disposed business unit in the U.K. The benefits under our defined benefit
plans are based upon years of service and employee compensation. The plans are closed to new participants and no
additional benefits accrue to existing plan participants. Our funding policy is to contribute annually the minimum
amount required under ERISA (or equivalent non-U.S.) regulations plus additional amounts as we deem appropriate.
We expect to contribute approximately $.8 million to all of our defined benefit pension plans during 2015.
Benefit payments to all plan participants out of plan assets are expected to be the equivalent of:
Years ending December 31,
2015
2016
2017
2018
2019
Next 5 years
$
Amount
(In thousands)
3,621
3,673
3,742
3,803
3,820
19,527
F-24
The funded status of our defined benefit pension plans is presented in the table below.
Change in projected benefit obligations (PBO):
Benefit obligations at beginning of the year
Interest cost
Participant contributions
Actuarial losses (gains)
Change in currency exchange rates
Benefits paid
Benefit obligations at end of the year
Change in plan assets:
Fair value of plan assets at beginning of the year
Actual return on plan assets
Employer contributions
Participant contributions
Change in currency exchange rates
Benefits paid
Fair value of plan assets at end of year
Funded status
Amounts recognized in the balance sheet:
Noncurrent pension asset
Accrued pension costs:
Current
Noncurrent
Total
Accumulated other comprehensive loss - actuarial losses, net
Total
Accumulated benefit obligations (ABO)
December 31,
2013
2014
(In thousands)
$
$
$
$
$
$
$
59,415 $
2,161
7
(3,696 )
223
(3,452 )
54,658
45,498
5,589
1,510
7
250
(3,452 )
49,402
(5,256 ) $
364 $
(167 )
(5,453 )
(5,256 ) $
24,557 $
19,301 $
54,658 $
54,658
2,538
9
8,585
(669)
(3,896)
61,225
49,402
2,404
1,553
9
(656)
(3,896)
48,816
(12,409)
-
(167)
(12,242)
(12,409)
33,135
20,726
61,225
The amounts shown in the table above for actuarial losses at December 31, 2013 and 2014 have not been
recognized as components of our periodic defined benefit pension cost as of those dates. These amounts will be
recognized as components of our periodic defined benefit cost in future years. These amounts, net of deferred
income taxes, are recognized in our accumulated other comprehensive income (loss) at December 31, 2013 and
2014. We expect that $1.3 million of the unrecognized actuarial losses will be recognized as a component of our
periodic defined benefit pension cost in 2015.
F-25
The table below details the changes in other comprehensive income during 2012, 2013 and 2014.
2012
Years ended December 31,
2013
(In thousands)
2014
Changes in plan assets and benefit obligations
recognized in other comprehensive income (loss):
Net actuarial gain (loss) arising during the year
Amortization of unrecognized net actuarial loss
Total
$
$
$
(426)
1,353
5,305 $
1,238
(9,519)
934
927
$
6,543 $
(8,585)
The components of our net periodic defined benefit pension cost are presented in the table below. The
amount shown below for the amortization of unrecognized actuarial losses in 2012, 2013 and 2014, net of deferred
income taxes, was recognized as a component of our accumulated other comprehensive income (loss) at
December 31, 2011, 2012 and 2013, respectively.
2012
Years ended December 31,
2013
(In thousands)
2014
Net periodic pension cost:
Interest cost on PBO
Expected return on plan assets
Recognized actuarial losses
Total
$
$
2,379 $
(3,658)
1,353
2,161 $
(3,975)
1,238
2,538
(3,409 )
934
74 $
(576) $
63
Certain information concerning our defined benefit pension plans is presented in the table below.
PBO at end of the year
U.S. plan
U.K. plan
Total
Fair value of plan assets at end of the year
U.S. plan
U.K. plan
Total
Plans for which the ABO exceeds plan assets:
PBO
ABO
Fair value of plan assets
December 31,
2013
2014
(In thousands)
$
44,850
9,808
$
54,658
$
39,230
10,172
$
49,402
$
44,850
44,850
39,230
$
$
$
$
$
50,351
10,874
61,225
38,131
10,685
48,816
61,225
61,225
48,816
The weighted-average discount rate assumptions used in determining the actuarial present value of our
benefit obligations as of December 31, 2013 and 2014 are 4.5% and 3.8%, respectively. Such weighted-average
rates were determined using the projected benefit obligations at each date. Since our plans are closed to new
F-26
participants and no new additional benefits accrue to existing plan participants, assumptions regarding future
compensation levels are not applicable. Consequently, the accumulated benefit obligations for all of our defined
benefit pension plans were equal to the projected benefit obligations at December 31, 2013 and 2014.
The weighted-average rate assumptions used in determining the net periodic pension cost for 2012, 2013
and 2014 are presented in the table below. Such weighted-average discount rates were determined using the
projected benefit obligations as of the beginning of each year and the weighted-average long-term return on plan
assets was determined using the fair value of plan assets as of the beginning of each year.
Rate
Discount rate
Long-term return on plan assets
Years ended December 31,
2013
2014
2012
4.3%
9.2%
3.7 %
9.2 %
4.5%
7.2%
Variances from actuarially assumed rates will result in increases or decreases in accumulated pension
obligations, pension expense and funding requirements in future periods.
At December 31, 2013 and 2014, substantially all of the assets attributable to our U.S. plan were invested
in the Combined Master Retirement Trust (CMRT), a collective investment trust sponsored by Contran to permit the
collective investment by certain master trusts that fund certain employee benefits plans sponsored by Contran and
certain of its affiliates. Prior to his death in December 2013, Mr. Simmons was the sole trustee of the CMRT, and he
along with the CMRT’s investment committee, of which Mr. Simmons was a member, actively managed the
investments of the CMRT. The CMRT’s long-term investment objective was to provide a rate of return exceeding a
composite of broad market equity and fixed income indices (including the S&P 500 and certain Russell indices)
while utilizing both third-party investment managers as well as investments directed by Mr. Simmons (prior to his
death). During the history of the CMRT from its inception in 1988 through December 31, 2013, the average annual
rate of return was 14%. For the years ended December 31, 2012 and 2013, the assumed long-term rate of return for
plan assets invested in the CMRT was 10%. In determining the appropriateness of the long-term rate of return
assumption, we primarily relied on the historical rates of return achieved by the CMRT, although we considered
other factors as well including, among other things, the investment objectives of the CMRT’s managers and their
expectation that such historical returns would in the future continue to be achieved over the long-term.
Following the death of Mr. Simmons in December 2013, the Contran board of directors in January 2014
appointed a financial institution as the new directed trustee of the CMRT, and the Contran board appointed five
individuals (all executive officers of Contran) as the new investment committee of the CMRT. The new investment
committee is in the process of reallocating to current and/or new investment managers or various mutual funds and
comingled funds the portion of the CMRT assets that had previously been under direct and active management by
Mr. Simmons. Such reallocation will be done prudently over a period of time, given the diverse asset composition
of this portion of the portfolio. Concurrent with this change in investment strategy in which there is no longer a
portion of the CMRT’s assets under direct and active management by Mr. Simmons, and considering the long-term
asset mix of the assets of the CMRT and the expected long-term rates of return for such asset components as well as
advice from Contran’s actuaries, beginning in 2014 the assumed long-term rate of return for plan assets invested in
the CMRT was reduced to 7.5%.
F-27
The CMRT unit value is determined semi-monthly, and the plans have the ability to redeem all or any
portion of their investment in the CMRT at any time based on the most recent semi-monthly valuation. However, the
plans do not have the right to individual assets held by the CMRT and the CMRT has the sole discretion in
determining how to meet any redemption request. For purposes of our plan asset disclosure, we consider the
investment in the CMRT as a Level 2 input because (i) the CMRT value is established semi-monthly and the plans
have the right to redeem their investment in the CMRT, in part or in whole, at any time based on the most recent
value and (ii) observable inputs from Level 1 or Level 2 were used to value approximately 83% and 80% of the
assets of the CMRT at December 31, 2013 and 2014, respectively, as noted below. The aggregate fair value of all of
the CMRT assets, including funds of Contran and its other affiliates that also invest in the CMRT, and supplemental
asset mix details of the CMRT are as follows:
CMRT asset value
CMRT fair value input:
Level 1
Level 2
Level 3
CMRT asset mix:
Domestic equities, principally publicly traded
International equities, publicly traded
Fixed income securities, publicly traded
Privately managed limited partnerships
Other, primarily cash
December 31,
2013
2014
(In millions)
722.8 $
715.5
$
79%
4
17
67 %
13
20
100%
100 %
53%
-
35
11
1
48 %
11
32
7
2
100%
100 %
The composition of our December 31, 2013 and 2014 pension plan assets by fair value level is shown in the
table below. The amounts shown for plan assets invested in the CMRT include a nominal amount of cash held by
our U.S. pension plan which is not part of the plans investment in the CMRT.
December 31, 2013:
CMRT
Other
Total
December 31, 2014:
CMRT
Other
Total
Fair Value Measurements
Total
Quoted Prices in
Active Markets
(Level 1)
(In thousands)
Significant
Other
Observable
Inputs (Level 2)
39,230 $
10,172
- $
10,172
39,230
-
49,402 $
10,172 $
39,230
38,131 $
10,685
- $
10,685
38,131
-
48,816 $
10,685 $
38,131
$
$
$
$
F-28
Postretirement benefits other than pensions - We provide certain health care and life insurance benefits
for eligible retired employees. These plans are closed to new participants, and no additional benefits accrue to
existing plan participants. The majority of all retirees are required to contribute a portion of the cost of their benefits
and certain current and future retirees are eligible for reduced health care benefits at age 65. We have no OPEB plan
assets, rather, we fund postretirement benefits as they are incurred, net of any contributions by the retiree. At
December 31, 2014, we currently expect to contribute approximately $.5 million to all OPEB plans during 2015.
Contribution to our OPEB plans to cover benefit payments expected to be paid to OPEB plan participants are
summarized in the table below:
Years ending December 31,
2015
2016
2017
2018
2019
Next 5 years
$
Amount
(In thousands)
541
498
454
412
370
1,301
The funded status of our OPEB plans is presented in the table below.
Change in accumulated OPEB obligations:
Obligations at beginning of the year
Interest cost
Actuarial (gain) loss
Net benefits paid
Obligations at end of the year
Fair value of plan assets
Funded status
Accrued OPEB costs recognized in the balance sheet:
Current
Noncurrent
Total
Accumulated other comprehensive income (loss):
Net actuarial losses
Prior service credit
Total
December 31,
2013
2014
(In thousands)
$
$
$
$
$
$
4,505 $
105
(240 )
(506 )
3,864
-
(3,864 ) $
(596 ) $
(3,268 )
(3,864 ) $
464 $
(1,806 )
(1,342 ) $
3,864
114
385
(481)
3,882
-
(3,882)
(541)
(3,341)
(3,882)
1,025
(1,162)
(137)
The amounts shown in the table above for unrecognized actuarial losses and prior service credit at
December 31, 2013 and 2014 have not been recognized as components of our periodic OPEB cost as of those dates.
These amounts will be recognized as components of our periodic OPEB cost in future years. These amounts, net of
deferred income taxes, are now recognized in our accumulated other comprehensive income at December 31, 2013
and 2014. We expect to recognize approximately $.6 million of the prior service credit and approximately $.1
million of actuarial gains as a component of our periodic OPEB cost in 2015.
F-29
The table below details the changes in other comprehensive income during 2012, 2013 and 2014.
Changes in benefit obligations recognized in other
comprehensive income (loss):
Net actuarial gain (loss) arising during the year
Amortization of unrecognized:
Actuarial loss
Prior service credit
Total
Years ended December 31,
2012
2013
2014
(In thousands)
$
$
282 $
240 $
(99)
(698)
(146 )
(688 )
(385)
(176)
(644)
(515) $
(594 ) $
(1,205)
The components of our periodic OPEB cost are presented in the table below. The amounts shown below
for the amortization of unrecognized actuarial losses and prior service credit in 2013 and 2014, net of deferred
income taxes, were recognized as components of our accumulated other comprehensive income at December 31,
2012, 2013 and 2014 respectively.
Net periodic OPEB cost (income):
Interest cost
Amortization of actuarial gain
Amortization of prior service credit
Total
Years ended December 31,
2012
2013
2014
(In thousands)
$
$
157 $
(99)
(698)
105 $
(146 )
(688 )
(640) $
(729 ) $
114
(176)
(644)
(706)
A summary of our key actuarial assumptions used to determine the net benefit obligation as of
December 31, 2013 and 2014 follows:
Health care inflation:
Initial rate
Ultimate rate
Year of ultimate rate achievement
Discount rate
2013
2014
7.0%
5.0%
2018
3.2%
7.0 %
5.0 %
2021
3.0 %
The assumed health care cost trend rates have an effect on the amount we report for health care plans. A
one-percent change in assumed health care cost trend rates would not have a material effect on the net periodic
OPEB cost for 2014 or on the accumulated OPEB obligation at December 31, 2014.
The weighted-average discount rate used in determining the net periodic OPEB cost for 2014 was 3.2%
(the rate was 2.5% in 2013 and 3.3% in 2012). The weighted-average rate was determined using the projected
benefit obligation as of the beginning of each year.
Variances from actuarially-assumed rates will result in additional increases or decreases in accumulated
OPEB obligations, net periodic OPEB cost and funding requirements in future periods.
F-30
Note 16 - Related party transactions:
We may be deemed to be controlled by Ms. Lisa Simmons, Ms. Connelly and Ms. Annette Simmons. See
Note 1. Corporations that may be deemed to be controlled by or affiliated with such individuals sometimes engage
in (a) intercorporate transactions such as guarantees, management and expense sharing arrangements, shared fee
arrangements, joint ventures, partnerships, loans, options, advances of funds on open account, and sales, leases and
exchanges of assets, including securities issued by both related and unrelated parties and (b) common investment
and acquisition strategies, business combinations, reorganizations, recapitalizations, securities repurchases, and
purchases and sales (and other acquisitions and dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included transactions which resulted in the
acquisition by one related party of a publicly-held noncontrolling interest in another related party. While no
transactions of the type described above are planned or proposed with respect to us other than as set forth in these
financial statements, we continuously consider, review and evaluate, and understand that Contran and related entities
consider, review and evaluate such transactions. Depending upon the business, tax and other objectives then
relevant, it is possible that we might be a party to one or more such transactions in the future.
Current receivables from and payables to affiliates are summarized in the table below:
Current receivables from affiliates:
Income taxes receivable from Valhi
Other - trade items
Total
Current payables to affiliates:
Income taxes payable to Valhi
Other - trade items
Total
December 31,
2013
2014
(In thousands)
$
$
$
$
54 $
61
115 $
- $
49
49 $
-
-
-
583
76
659
From time to time, we will have loans and advances outstanding between us and various related parties,
pursuant to term and demand notes. We generally enter into these loans and advances for cash management
purposes. When we loan funds to related parties, we are generally able to earn a higher rate of return on the loan
than the lender would earn if the funds were invested in other instruments and when we borrow from related parties,
we are generally able to pay a lower rate of interest than we would pay if we borrowed from unrelated parties.
While certain of such loans may be of a lesser credit quality than cash equivalent instruments otherwise available to
us, we believe that we have evaluated the credit risks involved and reflected those credit risks in the terms of the
applicable loans. In this regard, prior to 2012, we entered into a promissory note with Valhi, whereby, as
subsequently amended, we may borrow up to $40 million. Interest expense on our promissory note to Valhi
aggregated approximately $.3 million in 2012. During 2013 and 2014, we had no borrowings under this note. See
Note 12.
Under the terms of various intercorporate services agreements (ISAs) we enter into with Contran,
employees of Contran will provide certain management, tax planning, financial and administrative services to the
other company on a fee basis. Such charges are based upon estimates of the time devoted by the Contran employees
to our affairs and the compensation and other expenses associated with those persons. Because of the large number
of companies affiliated with Contran, we believe we benefit from cost savings and economies of scale gained by not
having certain management, financial and administrative staffs duplicated at each entity, thus allowing certain
Contran employees to provide services to multiple companies but only be compensated by Contran. The net ISA
fees charged to us by Contran, (including amounts attributable to Kronos for all periods), approved by the
independent members of the applicable board of directors, aggregated approximately $21.2 million in 2012, $24.1
million in 2013 and $21.9 million in 2014. This agreement is renewed annually, and we expect to pay
approximately $23.3 million under the ISA during 2015.
F-31
Tall Pines Insurance Company and EWI RE, Inc. provide for or broker certain insurance policies for
Contran and certain of its subsidiaries and affiliates, including ourselves. Tall Pines and EWI are subsidiaries of
Valhi. Consistent with insurance industry practices, Tall Pines and EWI receive commissions from insurance and
reinsurance underwriters and/or assess fees for the policies that they provide or broker. The aggregate premiums
paid to Tall Pines and EWI by us (including amounts attributable to Kronos for all periods), were $11.7 million in
2012, $10.4 million in 2013 and $10.0 million in 2014. These amounts principally included payments for insurance
and reinsurance premiums paid to third parties, but also included commissions paid to Tall Pines and EWI. Tall
Pines purchases reinsurance from third-party insurance carriers with an A.M. Best Company rating of generally at
least A- (excellent) for substantially all of the risks it underwrites. We expect these relationships with Tall Pines and
EWI will continue in 2015.
Contran and certain of its subsidiaries and affiliates, including us, purchase certain of their insurance
policies as a group, with the costs of the jointly-owned policies being apportioned among the participating
companies. With respect to certain of such policies, it is possible that unusually large losses incurred by one or
more insured party during a given policy period could leave the other participating companies without adequate
coverage under that policy for the balance of the policy period. As a result, Contran and certain of its subsidiaries
and affiliates, including us, have entered into a loss sharing agreement under which any uninsured loss is shared by
those entities who have submitted claims under the relevant policy. We believe the benefits in the form of reduced
premiums and broader coverage associated with the group coverage for such policies justifies the risk associated
with the potential for any uninsured loss.
Note 17 - Other operating income (expense):
We have agreements with certain insurance carriers pursuant to which the carriers reimburse us for a
portion of our past lead pigment and asbestos litigation defense costs. Insurance recoveries include amounts we
received from these insurance carriers. The majority of the $10.4 million of insurance recoveries we recognized in
2014 relate to a new settlement we reached with one of our insurance carriers in September 2014 in which they
agreed to reimburse us for a portion of our past litigation defense costs.
The agreements with certain of our insurance carriers also include reimbursement for a portion of our
future 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. Accordingly, these insurance recoveries are recognized when the receipt is probable and the amount
is determinable. Substantially all of the insurance recoveries received in 2012 and 2013 are reimbursement for
ongoing litigation defense costs. See Note 18.
The litigation settlement gain we recognized in 2012 is discussed in Note 18. Other operating income, net,
in 2012 includes $3.2 million from the sale of certain real property owned by us for which we had a nominal
carrying value.
Note 18 - Commitments and contingencies:
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 Industries Association (LIA), which discontinued business operations in
2002, have 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
have been filed by or on behalf of states, counties, cities or their public housing authorities and school districts, and
certain others have been asserted as class actions. These lawsuits seek recovery under a variety of theories,
including public and private nuisance, negligent product design, negligent failure to warn, strict liability, breach of
warranty, conspiracy/concert of action, aiding and abetting, enterprise liability, market share or risk contribution
liability, intentional tort, fraud and misrepresentation, violations of state consumer protection statutes, supplier
negligence and similar claims.
F-32
The plaintiffs in these actions generally seek to impose on the defendants responsibility for lead paint
abatement and health concerns associated with the use of lead-based paints, including damages for personal injury,
contribution and/or indemnification for medical expenses, medical monitoring expenses and costs for educational
programs. To the extent the plaintiffs seek compensatory or punitive damages in these actions, such damages are
generally unspecified. In some cases, the damages are unspecified pursuant to the requirements of applicable state
law. A number of cases are inactive or have been dismissed or withdrawn. Most of the remaining cases are in
various pre-trial stages. Some are on appeal following dismissal or summary judgment rulings or a trial verdict in
favor of either the defendants or the plaintiffs.
We believe that these actions are without merit, and we intend to continue to deny all allegations of
wrongdoing and liability and to defend against all actions vigorously. We do not believe it is probable that we have
incurred any liability with respect to all of the lead pigment litigation cases to which we are a party, and liability to
us that may result, if any, in this regard cannot be reasonably estimated, because:
we have never settled any of the market share, intentional tort, fraud, nuisance, supplier negligence,
breach of warranty, conspiracy, misrepresentation, aiding and abetting, enterprise liability, or statutory
cases,
no final, non-appealable adverse verdicts have ever been entered against us, and
we have never ultimately been found liable with respect to any such litigation matters, including over
100 cases over a twenty-year period for which we were previously a party and for which we have been
dismissed without any finding of liability.
Accordingly, we have not accrued any amounts for any of the pending lead pigment and lead-based paint
litigation cases filed by or on behalf of states, counties, cities or their public housing authorities and school districts,
or those asserted as class actions. In addition, we have determined that liability to us which may result, if any,
cannot be reasonably estimated because there is no prior history of a loss of this nature on which an estimate could
be made and there is no substantive information available upon which an estimate could be based.
In one of these lead pigment cases, in April 2000 we were served with a complaint in 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) brought by a number of California government entities against the former pigment
manufacturers, the LIA and certain paint manufacturers. The County of Santa Clara sought to recover compensatory
damages for funds the plaintiffs have expended or will in the future expend for medical treatment, educational
expenses, abatement or other costs due to exposure to, or potential exposure to, lead paint, disgorgement of profit,
and punitive damages. In July 2003, the trial judge granted defendants’ motion to dismiss all remaining claims.
Plaintiffs appealed and the intermediate appellate court reinstated public nuisance, negligence, strict liability, and
fraud claims in March 2006. A fourth amended complaint was filed in March 2011 on behalf of The People of
California by the County Attorneys of Alameda, Ventura, Solano, San Mateo, Los Angeles and Santa Clara, and the
City Attorneys of San Francisco, San Diego and Oakland. That complaint alleged that the presence of lead paint
created a public nuisance in each of the prosecuting attorney jurisdictions and seeks its abatement. In July and
August 2013, the case was tried. In January 2014, the Judge issued a judgment finding us, The Sherwin Williams
Company and ConAgra Grocery Products Company jointly and severally liable for the abatement of lead paint in
pre-1980 homes, and ordered the defendants to pay an aggregate $1.15 billion to the State of California to fund such
abatement. In February 2014, we filed a motion for a new trial, and in March 2014 the court denied the motion.
Subsequently in March 2014, we filed a notice of appeal with the Sixth District Court of Appeal for the State of
California and the appeal is proceeding with the appellate court. NL believes that this judgment is inconsistent with
California law and is unsupported by the evidence, and we will defend vigorously against all claims.
The Santa Clara case is unusual in that this is the second time that an adverse verdict in the lead pigment
litigation has been entered against NL (the first adverse verdict against NL was ultimately overturned on appeal).
We have concluded that the likelihood of a loss in this case has not reached a standard of “probable” as
contemplated by ASC 450, given (i) the substantive, substantial and meritorious grounds on which the adverse
verdict in the Santa Clara case will be appealed, (ii) the uniqueness of the Santa Clara verdict (i.e. no final, non-
appealable verdicts have ever been rendered against us, or any of the other former lead pigment manufacturers,
based on the public nuisance theory of liability or otherwise), and (iii) the rejection of the public nuisance theory of
F-33
liability as it relates to lead pigment matters in many other jurisdictions (no jurisdiction in which a plaintiff has
asserted a public nuisance theory of liability has ever successfully been upheld). In addition, liability that may
result, if any, cannot be reasonably estimated, as NL continues to have no basis on which an estimate of liability
could be made, as discussed above. However, as with any legal proceeding, there is no assurance that any appeal
would be successful, and it is reasonably possible, based on the outcome of the appeals process, that NL may in the
future incur some liability resulting in the recognition of a loss contingency accrual that could have a material
adverse impact on our results of operations, financial position and liquidity.
New cases may continue to be filed against us. We cannot assure you that we will not 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. and non-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 that 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,
F-34
financial capabilities of the PRPs and the allocation of costs among them,
solvency of other PRPs,
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. We cannot assure you that actual costs will not exceed accrued
amounts or the upper end of the range for sites for which estimates have been made, and we cannot assure you that
costs will not 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 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. At December 31, 2013 and 2014, we have not recognized any
receivables for recoveries.
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.
F-35
The table below presents a summary of the activity in our accrued environmental costs during the past three
years. The amount charged to expense is included in corporate expense on our Consolidated Statements of
Operations.
2012
Years ended December 31,
2013
(In thousands)
2014
Balance at the beginning of the year
Additions charged to expense, net
Payments, net
Balance at the end of the year
Amounts recognized in the balance sheet:
Current liability
Noncurrent liability
Balance at the end of the year
$
$
$
$
41,637 $
14,467
(8,098)
48,006 $
68,929
(3,299)
113,636
6,485
(10,106 )
48,006 $
113,636 $
110,015
5,667 $
42,339
4,859 $
108,777
6,984
103,031
48,006 $
113,636 $
110,015
Of the $10.1 million payments in 2014, $2.9 million relates to certain payments which were previously
discounted to their present value because the timing and amounts of such payments were fixed and determinable.
Such payments were discounted to present value using a 3.0% discount rate using the interest method for years 2011
through 2016. The amount of such discount charged to expense in any individual year was not material. Those
payments aggregated $6.0 million on an undiscounted basis. We paid $2.0 million in 2012, $1.0 million in 2013 and
$2.9 million (including a $1.9 million prepayment in full) in 2014.
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 December 31, 2014, we had accrued approximately $110 million related to
approximately 47 sites associated with remediation and related matters that we believe are at the present time and/or
in their current phase reasonably estimable. The upper end of the range of reasonably possible costs to us for
remediation and related matters for which we believe it is possible to estimate costs is approximately $149 million,
including the amount currently accrued. Other than as indicated above, these accruals have not been discounted to
present value.
We believe that it is not possible to estimate the range of costs for certain sites. At December 31, 2014,
there were approximately 5 sites for which we are not currently able to estimate a range of costs. For these sites,
generally the investigation is in the early stages, and we are unable to determine whether or not we actually had any
association with the site, the nature of our responsibility, if any, for the contamination at the site and the extent of
contamination at and cost to remediate the site. The timing and availability of information on these sites is
dependent on events outside of our control, such as when the party alleging liability provides information to us. At
certain of these previously inactive sites, we have received general and special notices of liability from the EPA
and/or state agencies alleging that we, sometimes with other PRPs, are liable for past and future costs of remediating
environmental contamination allegedly caused by former operations. These notifications may assert that we, along
with any other alleged PRPs, are liable for past and/or future clean-up costs. As further information becomes
available to us for any of these sites which would allow us to estimate a range of costs, we would at that time adjust
our accruals. Any such adjustment could result in the recognition of an accrual that would have a material effect on
our consolidated financial statements, results of operations and liquidity.
F-36
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 four 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 January 2014, we were served with a complaint in Certain Underwriters at Lloyds, London, et al v. NL
Industries, Inc. (Supreme Court of the State of New York, County of New York, Index No. 14/650103). The
plaintiff, a former insurance carrier of ours, is seeking a declaratory judgment of its obligations to us under
insurance policies issued to us by the plaintiff with respect to certain lead pigment lawsuits. The case is now
proceeding in the trial court. We believe the action is without merit and intend to defend NL’s rights in this action
vigorously.
In February 2014, we were served with a complaint in Zurich American Insurance Company, as successor-
in-interest to Zurich Insurance Company, U.S. Branch vs. NL Industries, Inc, and The People of the State of
California, acting by and through county Counsels of Santa Clara, Alameda, Los Angeles, Monterey, San Mateo,
Solano and Ventura Counties and the city Attorneys of Oakland, San Diego, and San Francisco, et al (Superior
Court of California, County of Santa Clara, Case No.: 1-14-CV-259924). In January 2015, an Order of Deposit
Under CCP § 572 was entered by the trial court.
Other litigation
Prior to 2012 certain real property we owned that is subject to environmental remediation was taken from
us in a condemnation proceeding by a governmental authority in New Jersey. The condemnation proceeds, the
adequacy of which we disputed, were placed into escrow with a court in New Jersey. Because the funds were in
escrow with the court and were beyond our control, we never gave recognition to such condemnation proceeds for
financial reporting purposes. Subsequently, we reached a definitive settlement agreement with such governmental
authority and a real estate developer, among others, pursuant to which, among other things, we would receive certain
agreed-upon amounts in satisfaction of our claim to just compensation for the taking of our property in the
condemnation proceeding at three separate closings, and we would be indemnified against certain environmental
liabilities related to such property, in exchange for the release of our equitable lien on specified portions of the
property at each closing. The first and second closing occurred prior to 2012. In May 2012, we received an
aggregate of $15.6 million cash for the third and final closing and our equitable lien on a portion of such property
was released. For financial reporting purposes, we have accounted for the consideration received in each closing by
the full accrual method of accounting for real estate sales (since the settlement agreement arose out of a dispute
concerning the adequacy of the condemnation proceeds of our former real property in New Jersey). Under this
method, we recognized a pre-tax gain of $15 million in the second quarter of 2012 based on the excess of the $15.6
million cash received over our carrying value of the property from which our equitable lien was released. Similarly,
the cash consideration we received in each closing is reflected as an investing activity in our Consolidated Statement
of Cash Flows.
We have been named as a defendant in various lawsuits in several jurisdictions, alleging personal injuries
as a result of occupational exposure primarily to products manufactured by our former operations containing
asbestos, silica and/or mixed dust. In addition, some plaintiffs allege exposure to asbestos from working in various
facilities previously owned and/or operated by us. There are 186 of these types of cases pending, involving a total
F-37
of approximately 736 plaintiffs. In addition, the claims of approximately 8,692 plaintiffs have been administratively
dismissed or placed on the inactive docket in Ohio, Indiana and Texas state courts. We do not expect these claims
will be re-opened unless the plaintiffs meet the courts’ medical criteria for asbestos-related claims. We have not
accrued any amounts for this litigation because of the uncertainty of liability and inability to reasonably estimate the
liability, if any. To date, we have not been adjudicated liable in any of these matters. Based on information
available to us, including:
facts concerning historical operations,
the rate of new claims,
the number of claims from which we have been dismissed and
our prior experience in the defense of these matters.
We believe that the range of reasonably possible outcomes of these matters will be consistent with our
historical costs (which are not material). Furthermore, we do not expect any reasonably possible outcome would
involve amounts material to our consolidated financial position, results of operations or liquidity. We have sought
and will continue to vigorously seek, dismissal and/or a finding of no liability from each claim. In addition, from
time to time, we have received notices regarding asbestos or silica claims purporting to be brought against former
subsidiaries, including notices provided to insurers with which we have entered into settlements extinguishing
certain insurance policies. These insurers may seek indemnification from us.
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, 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.
Concentrations of credit risk
Component products are sold primarily in North America to original equipment manufacturers. The ten
largest customers related to our continuing operations accounted for approximately 38% in 2012, 42% in 2013 and
47% in 2014. United States Postal Service, a customer of CompX’s Security Products business accounted for 13%
of total sales in 2013 and 2014. Harley Davidson, also a customer of CompX’s Security Products business,
accounted for approximately 12% of total sales in each of 2012, 2013 and 2014.
Other
Rent expense related to continuing operations, principally for CompX operating facilities and equipment
was not significant in 2012, 2013 or 2014 and at December 31, 2014, future minimum rentals under noncancellable
operating leases are also not significant.
Income taxes
We and Valhi have agreed to a policy providing for the allocation of tax liabilities and tax payments as
described in Note 1. Under applicable law, we, as well as every other member of the Contran Tax Group, are each
jointly and severally liable for the aggregate federal income tax liability of Contran and the other companies
included in the Contran Tax Group for all periods in which we are included in the Contran Tax Group. Valhi has
agreed, however, to indemnify us for any liability for income taxes of the Contran Tax Group in excess of our tax
liability computed in accordance with the tax allocation policy.
F-38
Note 19 - Financial instruments:
The following table summarizes the valuation of our short-term investments and marketable securities on a
fair value basis as of December 31, 2013 and 2014:
Fair value measurements
Significant
other
observable
inputs
(Level 2)
Quoted prices
in active
markets
(Level 1)
(In thousands
Significant
unobservable
inputs
(Level 3)
Total
$
$
252,677 $
252,677 $
92,131 $
92,131 $
- $
- $
-
-
December 31, 2013
Marketable securities
December 31, 2014
Marketable securities
The following table presents the financial instruments that are not carried at fair value but which require
fair value disclosure as December 31, 2013 and 2014:
December 31, 2013
December 31, 2014
Carrying
Amount
Fair
Value
Carrying
Amount
(In thousands)
Fair
Value
Cash, cash equivalents and restricted cash
$
Noncontrolling interest in CompX common stock
NL stockholders' equity
57,639 $
13,615
355,380
57,639 $
23,119
544,174
77,975 $
14,428
237,022
77,975
19,936
418,673
The fair value of our noncontrolling interest in CompX and NL stockholder’s equity are based upon quoted
market prices at each balance sheet date, which represent Level 1 inputs. The fair value of our promissory notes
payable and our variable interest rate debt represent Level 2 inputs and are deemed to approximate book value. Due
to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered
equivalent to fair value.
Note 20 – Recent accounting pronouncements:
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No.
2014-09, Revenue from Contracts with Customers (Topic 606). This standard replaces existing revenue recognition
guidance, which in many cases was tailored for specific industries, with a uniform accounting standard applicable to
all industries and transactions. The new standard is effective for us beginning with the first quarter of 2017. Entities
may elect to adopt ASU No. 2014-09 retrospectively for all periods for all contracts and transactions which occurred
during the period (with a few exceptions for practical expediency) or retrospectively with a cumulative effect
recognized as of the date of adoption. ASU No. 2014-09 is a fundamental rewriting of existing GAAP with respect
to revenue recognition, and we are evaluating the effect the Standard will have on our Consolidated Financial
Statements. In addition, we have not yet determined the method we will use to adopt the Standard.
F-39
Note 21 - Quarterly results of operations (unaudited):
Year ended December 31, 2013
Net sales
Gross margin
Net income (loss)
Net loss attributable to NL stockholders
Loss per common share attributable to NL
stockholders
Year ended December 31, 2014
Net sales
Gross margin
Net income (loss)
Net loss attributable to NL stockholders
Loss per common share attributable to NL
stockholders
Quarter ended
March 31
June 30
Sept. 30
Dec. 31
(In thousands, except per share data)
$
$
$
$
21,453 $
6,020
(1,998)
(2,118)
24,039 $
7,610
(14,018)
(14,255)
24,209 $
7,514
(5,684 )
(5,940 )
22,344
6,430
(32,843)
(33,020)
(0.04) $
(0.29) $
(0.12 ) $
(0.68)
25,781 $
7,749
4,034
3,755
26,848 $
8,613
5,806
5,472
26,473 $
8,142
14,180
13,889
24,744
7,744
5,610
5,383
0.08 $
0.11 $
0.29 $
0.11
We recognized the following amounts during 2013:
aggregate pre-tax income of $9.4 million ($.6 million, $.9 million, $2.2 million, and $5.7 million in the
first, second, third, and fourth quarter, respectively), related to insurance recoveries, see Note 18,
$6.8 million ($4.5 million net of tax) charge included in our equity in net loss of Kronos related to
Kronos’ third quarter litigation settlement charge.
an aggregate charge of $1.8 million ($1.1 million net of tax) included in our equity in net loss of
Kronos related to Kronos’ voluntary prepayments of its term loan ($290 million principal amount in
the first quarter and the remaining $100 million outstanding in the third quarter) consisting of the
write-off of original issue discount costs and deferred financing costs associated with such
prepayments.
An aggregate charge of $6.3 million ($4.1 million net of tax) included in our equity in net loss of
Kronos related to Kronos’ unabsorbed fixed production and other costs as a result of its Canadian plant
lockout in the third and fourth quarters as well as a pension curtailment charge and severance and other
back-to-work expenses associated with reaching terms of the new Canadian collective bargaining
agreement. Approximately $1.6 ($1.1 million net of tax) million of the costs (primarily related to
unabsorbed fixed production costs) related to the third quarter of 2013 with the remaining costs
recognized in the fourth quarter of 2013.
We recognized the following amounts during 2014:
aggregate pre-tax income of $10.4 million ($.8 million, $.4 million, $8.8 million, and $.4 million in the
first, second, third, and fourth quarter, respectively), related to insurance recoveries, see Note 18,
income of $.02 per share, net of income taxes, included in our equity in Kronos related to a net
reduction of Kronos’ reserve for uncertain tax positions recognized in the second quarter of 2014.
The sum of the quarterly per share amounts may not equal the annual per share amounts due to relative
changes in the weighted average number of shares used in the per share computations.
F-40
NL Industries, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240-2697
News Release
FOR IMMEDIATE RELEASE
Contact: Gregory M. Swalwell
Executive Vice President and
Chief Financial Officer
(972) 233-1700
NL REPORTS FOURTH QUARTER 2014 RESULTS
DALLAS, TEXAS – March 12, 2015 - NL Industries, Inc. (NYSE: NL) today reported net income
attributable to NL stockholders of $5.4 million, or $.11 per share, in the fourth quarter of 2014 compared
to a net loss attributable to NL stockholders of $33.0 million, or $.68 per share, in the fourth quarter of
2013. For the full year of 2014, NL reported net income attributable to NL stockholders of $28.5 million,
or $.59 per share, compared to a net loss attributable to NL stockholders of $55.3 million, or $1.14 per
share in 2013.
Net sales increased $2.4 million in the fourth quarter of 2014 and $11.8 million in the full year of 2014
compared to the same periods in 2013, primarily due to strong demand within CompX’s Security Products
business, including a new initiative for an existing government customer, increased market penetration in
electronic locks and strong demand in transportation markets. Sales from CompX’s Marine Components
business also contributed to the increase, reflecting greater penetration into non high-performance marine
markets. Income from operations attributable to CompX increased to $3.0 million in the fourth quarter of
2014 compared to $2.0 million in the fourth quarter of 2013, and increased to $13.6 million in the full year of
2014 compared to $9.3 million in the full year of 2013, primarily due to improved coverage of fixed
manufacturing costs over increased production volumes to meet the higher demand for CompX’s products,
partially offset by the impact of lower variable margins due to relative changes in customer and product mix
as well as increased administrative personnel costs and increased depreciation within CompX’s Security
Products business.
Kronos’ net sales of $373.5 million in the fourth quarter of 2014 were $4.9 million, or 1%, higher than in
the fourth quarter of 2013. Kronos’ net sales of $1,651.9 million in the full year of 2014 were $80.5
million, or 5%, lower than in the full year 2013. Kronos’ net sales increased in the fourth quarter of 2014
as compared to the fourth quarter of 2013 primarily due to higher sales volumes largely offset by lower
average TiO2 selling prices. Kronos’ net sales decreased in the full year of 2014 primarily due to lower
average TiO2 selling prices. Kronos’ average TiO2 selling prices decreased 10% in the fourth quarter of
2014 as compared to the fourth quarter of 2013, and decreased 6% for the full year as compared to 2013.
Kronos’ average TiO2 selling prices at the end of 2014 were 9% lower than at the end of 2013, with lower
prices in all major markets, most notably in certain export markets. TiO2 sales volumes in the fourth
quarter of 2014 were 14% higher than in the fourth quarter of 2013, while sales volumes for the full year
2014 remained relatively stable compared to 2013 as slightly higher sales in Europe were offset by lower
sales in certain export markets. Fluctuations in currency exchange rates also impacted Kronos’ net sales
comparisons, decreasing net sales by approximately $11 million in the fourth quarter and increasing net
sales by approximately $12 million in the full year 2014 as compared to the comparable periods in 2013.
The table at the end of this press release shows how each of these items impacted the overall change in
Kronos’ sales.
Kronos’ income from operations increased by $32.4 million from a loss of $.9 million in the fourth quarter
of 2013 to income of $31.5 million in the fourth quarter of 2014. For the full year, Kronos’ income from
operations increased $ 282.3 million from a loss of $132.6 million in 2013 compared to income of $149.7
million in 2014. Kronos’ income from operations improved in 2014 due to the net effects of lower raw
materials and other production costs, lower average TiO2 selling prices, higher production volumes,
higher sales volumes in the fourth quarter period of 2014 and a 2013 litigation settlement charge of $35
million (NL’s equity interest was $4.5 million or $.09 per share, net of income tax benefit.) Kronos’ income
from operations in the fourth quarter of 2013 was negatively impacted by one-time costs of approximately
$9 million resulting from the terms of the new collective bargaining agreement reached with Kronos’
Canadian workforce consisting principally of a non-cash pension charge of approximately $7 million due
to the curtailment of one of Kronos’ Canadian defined benefit pension plans and severance and other
back-to-work expenses. Kronos’ income from operations in the 2013 periods was also negatively
impacted by approximately $19 million of unabsorbed fixed production and other manufacturing costs
associated with the lockout at the Canadian TiO2 production facility, of which approximately $12 million
related to the fourth quarter.
Kronos’ TiO2 production volumes were 7% higher in the fourth quarter of 2014 as compared to the fourth
quarter of 2013, and were 8% higher in 2014 over 2013. While Kronos’ production utilization rates in the
second half of 2013 were impacted by the lockout at its Canadian production facility that began in June
2013 and ended in December 2013, Kronos’ utilization rates were also impacted by such lockout in the
first quarter of 2014, as restart of production of the facility did not begin until February 2014. Kronos
operated its production facilities at an overall average capacity utilization rate of 92% in 2014 (90%, 97%,
96% and 86% in each of the first, second, third and fourth quarters, respectively). Kronos’ production
rates in the fourth quarter of 2014 were impacted by the implementation of certain productivity-enhancing
improvement projects at certain facilities as well as necessary improvements to ensure continued
compliance with its permit regulations, which resulted in longer-than-normal maintenance shutdowns in
some instances. Fluctuations in currency exchange rates also increased Kronos’ income from operations
by approximately $13 million in the fourth quarter and by approximately $42 million for the year.
As previously reported, Kronos recognized an aggregate non-cash pre-tax interest charge of $8.9 million
in 2013 associated with the write-off of unamortized original issue discount costs and deferred financing
costs, related to the voluntary prepayment of its of $390 million term loan. NL’s aggregate equity interest
in such charges was $1.2 million (or $.02 per share, net of income tax benefit).
Kronos’ income tax expense in 2014 includes an aggregate non-cash income tax benefit of $5.1 million
(NL’s equity interest was $1.0 million, or $.02 per share, net of income taxes) related to a net reduction of
its reserve for uncertain tax positions (mostly in the second quarter).
Insurance recoveries reflect in part amounts we received from certain of our former insurance carriers,
and relate to the recovery of prior lead pigment and asbestos litigation defense costs incurred by us.
Such insurance recoveries aggregated $10.4 million ($6.7 million, or $.14 per share, net of income taxes)
in 2014 as compared to $9.4 million ($6.1 million, or $.13 per share, net of income taxes) in 2013.
Substantially all of the insurance recoveries we recognized in 2014 relate to a settlement we reached in
the third quarter with one of our insurance carriers in which they agreed to reimburse us for a portion of
our past lead pigment litigation defense costs.
Corporate expenses decreased $56.4 million in the fourth quarter of 2014 as compared to the fourth
quarter of 2013, and decreased $65.7 million in the full year 2014 as compared to 2013, primarily due to
lower environmental remediation and related costs in 2014.
The statements in this release relating to matters that are not historical facts are forward-looking
statements that represent management's beliefs and assumptions based on currently available
information. Although NL believes that the expectations reflected in such forward-looking statements are
reasonable, we cannot give any assurances that these expectations will prove to be correct. Such
statements by their nature involve substantial risks and uncertainties that could significantly impact
expected results, and actual future results could differ materially from those described in such forward-
looking statements. While it is not possible to identify all factors, we continue to face many risks and
uncertainties. Among the factors that could cause actual future results to differ materially include, but are
not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Future supply and demand for our products
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)
-2-
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Changes in raw material and other operating costs (such as energy, ore, zinc and brass
costs) 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 material (such as ore)
General global economic and political conditions (such as changes in the level of gross
domestic product in various regions of the world and the impact of such changes on
demand for, among other things, TiO2 and component products)
Competitive products and substitute products
Price and product competition from low-cost manufacturing sources (such as China)
Customer and competitor strategies
Potential consolidation of Kronos’ competitors
Potential consolidation of Kronos’ customers
The impact of pricing and production decisions
Competitive technology positions
Potential difficulties in integrating future acquisitions
Potential difficulties in upgrading or implementing new manufacturing and accounting software
systems
The introduction of trade barriers
Possible disruption of Kronos’ or CompX’s business, or increases in our cost of doing
business resulting from terrorist activities or global conflicts
The impact of current or future government regulations (including employee healthcare benefit
related regulations)
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), or possible
disruptions to our business resulting from potential instability resulting from uncertainties
associated with the euro
Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters,
fires, explosions, unscheduled or unplanned downtime, transportation interruptions and
cyber attacks)
Decisions to sell operating assets other than in the ordinary course of business
Kronos’ ability to renew or refinance credit facilities
Our ability to maintain sufficient liquidity
The timing and amounts of insurance recoveries
The extent to which our subsidiaries or affiliates were to become unable to pay us dividends
The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters
Uncertainties associated with CompX’s development of new product features
Our ability to utilize income tax attributes or changes in income tax rates related to such
attributes, the benefits of which 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 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)
The ultimate resolution of pending litigation (such as our lead pigment and environmental
matters)
Possible future litigation.
Should one or more of these risks materialize (or 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.
NL Industries, Inc. is engaged in the component products (security products and performance marine
components), chemicals (TiO2) and other businesses.
-3-
NL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except earnings per share)
Net sales
Cost of sales
Gross margin
Selling, general and administrative expense
Other operating income (expense):
Insurance recoveries
Other income, net
Corporate expense
Income (loss) from operations
Equity in earnings (loss) of Kronos Worldwide, Inc.
General corporate items:
Interest and dividend income
Interest expense
Income (loss) before taxes
Income tax expense (benefit)
Net income (loss)
Noncontrolling interest in net income of subsidiary
Three months ended
December 31,
Year ended
December 31,
2013
2014
2013
2014
(Unaudited)
$
22.3
15.8
$
24.7
17.0
$
92.0
64.4
103.8
$
71.6
6.5
4.5
5.6
.1
(60.2)
(52.5)
.9
.7
-
(50.9)
(18.1)
(32.8)
.2
7.7
4.7
.4
-
(3.8)
(.4)
6.1
.3
-
6.0
.4
5.6
.2
27.6
18.3
9.4
.1
(87.0)
(68.2)
(31.0)
2.9
(.1)
(96.4)
(41.9)
(54.5)
.8
32.2
18.6
10.4
.1
(21.3)
2.8
30.2
1.6
-
34.6
5.0
29.6
1.1
Net income (loss) attributable to NL stockholders
$
(33.0)
$
5.4
$
(55.3)
$
28.5
Net income (loss) per share attributable to NL stockholders
$
(.68)
$
.11
$
(1.14)
$
.59
Weighted average shares used in the
calculation of net income (loss) per share
48.7
48.7
48.7
48.7
-4-
NL INDUSTRIES, INC.
COMPONENTS OF INCOME (LOSS) FROM OPERATIONS
(In millions)
(Unaudited)
CompX - component products
Insurance recoveries
Other income, net
Corporate expense
Three months ended
December 31,
Year ended
December 31,
2013
2014
2013
2014
$
2.0
5.6
.1
(60.2)
$
3.0
.4
-
(3.8)
$
9.3
9.4
.1
(87.0)
$
13.6
10.4
.1
(21.3)
Income (loss) from operations
$
(52.5)
$
(.4)
$
(68.2)
$
2.8
CHANGE IN KRONOS’ TiO2 SALES
(Unaudited)
Percentage change in sales:
TiO2 product pricing
TiO2 sales volume
TiO2 product mix
Changes in currency exchange rates
Total
Three months ended
December 31,
2014 vs. 2013
Year ended
December 31,
2014 vs. 2013
(10) %
14
-
(3)
%
1
(6) %
-
-
1
%
(5)
-5-
NL Industries, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240-2697
(972) 233-1700