NL INDUSTRIES
2020
ANNUAL REPORT
NL INDUSTRIES, INC. CORPORATE AND OTHER INFORMATION
Board of Directors
Corporate Officers
Loretta J. Feehan
Robert D. Graham
Chair of the Board (non-executive)
Financial Consultant
Vice Chairman and Chief Executive
Officer
Robert D. Graham
Vice Chairman and
Chief Executive Officer
John E. Harper (a)
Private Investor
Courtney J. Riley
President
Andrew B. Nace
Executive Vice President
Patty S. Brinda
Meredith W. Mendes (a)
Vice President and Controller
Management of Subsidiary and
Affiliate
CompX International Inc.
Scott C. James
President and
Chief Executive Officer
Kronos Worldwide, Inc.
Robert D. Graham
Vice Chairman, President and
Chief Executive Officer
Chief Operating Officer and Principal
Gresham Partners LLC
Cecil H. Moore, Jr. (a)(b)
Retired Partner
KPMG LLP
Gen. Thomas P. Stafford (ret.) (a)(b)
United States Air Force (retired)
Board Committees
(a) Audit Committee
(b) Management Development and
Compensation Committee
Clarence B. Brown, III
Vice President, Associate
General Counsel and Secretary
Steve S. Eaton
Vice President,
Internal Control over
Financial Reporting
Bryan A. Hanley
Vice President and Treasurer
Patricia A. Kropp
Vice President, Employee Benefits
John R. Powers, III
Vice President and General
Counsel
Amy A. Samford
Vice President and Chief Financial
Officer
Darci B. Scott
Vice President, Tax
Annual Meeting
Form 10-K Report
Transfer Agent
The 2021 Annual Meeting of
Stockholders will be held at the
Conference Center at Three Lincoln
Centre, 5430 LBJ Freeway, Suite 350,
Dallas, Texas, 75240-2620, 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,
2020, 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:
Janet Keckeisen
Investor Relations
NL Industries, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2620
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 505000
Louisville, Kentucky 40233-5000
Telephone: (877) 373-6374
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
American 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, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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 75240-2620
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (972) 233-1700
Title of each class
Common stock
Trading Symbol(s)
NL
Name of each exchange on which registered
NYSE
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 every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or
emerging growth company (as defined in Rule 12b-2 of the Act). See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐ Accelerated filer
☒ Smaller reporting company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public
accounting firm that prepared or issued its audit report. ☐
Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the 8.4 million shares of voting stock held by nonaffiliates of NL Industries, Inc. as of June 30,
2020 (the last business day of the Registrant’s most recently-completed second fiscal quarter) approximated $28.6 million.
Number of shares of the registrant’s common stock, $.125 par value per share, outstanding on February 26, 2021: 48,788,984.
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.
PART I
ITEM 1.
BUSINESS
The Company
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 American: 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, 2020, Valhi, Inc. (NYSE: VHI) held approximately 83% of our outstanding common
stock and a wholly-owned subsidiary of Contran Corporation held an aggregate of 92% of Valhi’s outstanding
common stock. As discussed in Note 1 to our Consolidated Financial Statements, Lisa K. Simmons and a trust
established for the benefit of Ms. Simmons and her late sister and their children (the “Family Trust”) may be
deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of
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 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 and 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
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129) Unexpected or earlier-than-expected industry capacity expansion (such as the TiO2 industry)
(cid:129)
Changes in raw material and other operating costs (such as energy, ore, zinc, aluminum, steel 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)
(cid:129)
(cid:129) General global economic and political conditions that harm the worldwide economy, disrupt our supply
chain, increase material costs or reduce demand or perceived demand for Kronos’ TiO2 and our products
- 2 -
or impair our ability to operate our facilities (including changes in the level of gross domestic product in
various regions of the world, natural disasters, terrorist acts, global conflicts and public health crises such
as COVID-19)
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
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129) Our ability to protect or defend intellectual property rights
(cid:129)
Potential difficulties in integrating future acquisitions
(cid:129)
Potential difficulties in upgrading or implementing accounting and manufacturing software systems
(cid:129)
The introduction of trade barriers or trade disputes
(cid:129)
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 and between the euro and the
Norwegian krone), or possible disruptions to our business resulting from uncertainties associated with the
euro or other currencies
(cid:129)
(cid:129) Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires,
explosions, unscheduled or unplanned downtime, transportation interruptions, cyber-attacks and public
health crises such as COVID-19)
(cid:129) Decisions to sell operating assets other than in the ordinary course of business
(cid:129) Kronos’ ability to renew or refinance credit facilities
(cid:129) Our ability to maintain sufficient liquidity
(cid:129)
(cid:129)
(cid:129) Uncertainties associated with CompX’s development of new products and product features
(cid:129)
The timing and amounts of insurance recoveries
The ability of our subsidiaries or affiliates to pay us dividends
The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future
tax reform
(cid:129) Our ability to utilize income tax attributes or changes in income tax rates related to such attributes, the
benefits of which may or may not have been recognized under the more-likely-than-not recognition
criteria
Environmental matters (such as those requiring compliance with emission and discharge standards for
existing and new facilities or new developments regarding environmental remediation at sites related
to our former operations)
(cid:129)
(cid:129) Government laws and regulations and possible changes therein (such as changes in government
regulations which might impose various obligations on former manufacturers of lead pigment and
lead-based paint, including us, with respect to asserted health concerns associated with the use of such
products), including new environmental health and safety regulations such as those seeking to limit or
classify TiO2 or its use
The ultimate resolution of pending litigation (such as our lead pigment and environmental matters)
Possible future litigation.
(cid:129)
(cid:129)
Should one or more of these risks materialize or if the consequences of such a development worsen, or
should the underlying assumptions prove incorrect, actual results could differ materially from those currently
forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement
whether as a result of changes in information, future events or otherwise.
- 3 -
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 2 to our Consolidated Financial Statements, which is
incorporated herein by reference.
Component Products
CompX International Inc. -
86% owned at
December 31, 2020
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, 2020
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 93% of Kronos’ net sales in 2020, 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 utilized in a variety of applications and industries. CompX manufactures mechanical and electrical
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, throttle controls, wake enhancement systems, trim tabs and related hardware and accessories for
the recreational marine and other industries. CompX continuously seeks to diversify into new markets and identify
new applications and features for its products, which it believes 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 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, high security medical cabinetry, integrated
inventory and access control secured narcotics boxes, electronic circuit panels, storage compartments, gas station
security, vending and cash containment machines. CompX’s Security Products segment has one manufacturing
facility in Mauldin, South Carolina and one in Grayslake, Illinois which is shared with Marine Components.
CompX believes it is a North American market leader in the manufacture and sale of cabinet locks and other locking
mechanisms. These products include:
(cid:129)
(cid:129)
(cid:129)
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), TuBar® and
Turbine™; and
CompX innovative CompX eLock® and StealthLock® electronic 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, radio frequency or other keypad credential.
A substantial portion of CompX’s Security Products’ sales consist 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 and
smaller original equipment manufacturer distributors via its STOCK LOCKS® distribution program.
- 4 -
CompX’s Marine Components business manufactures and distributes stainless steel exhaust components,
gauges, throttle controls, wake enhancement systems, trim tabs and related hardware and accessories primarily for
performance and ski/wakeboard boats. CompX’s Marine Components business has a facility in Neenah, Wisconsin
and a facility in Grayslake, Illinois which is shared with Security Products. 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:
(cid:129)
(cid:129)
original equipment and aftermarket stainless steel exhaust headers, exhaust pipes, mufflers and other
exhaust components;
high performance gauges such as GPS speedometers and tachometers;
(cid:129) mechanical and electronic controls and throttles;
(cid:129) wake enhancement devices, trim tabs, steering wheels, and billet aluminum accessories; and
(cid:129)
dash panels, LED indicators, and wire harnesses; and
(cid:129)
grab handles, pin cleats and other accessories.
The following table sets forth the location, size and business operations for each of CompX’s principal
operating facilities at December 31, 2020:
Facility Name
Owned Facilities:
National (1)
Grayslake(1)
Custom(1)
Business
Operations
SP
SP/MC
MC
Location
Mauldin, SC
Grayslake, IL
Neenah, WI
Size
(square feet)
198,000
133,000
95,000
SP – Security Products business
MC – Marine Components business
(1)
ISO-9001 registered facilities
CompX believes all of its facilities are well maintained and satisfactory for their intended purposes.
Raw materials - The primary raw materials used in CompX’s manufacturing processes are:
(cid:129)
Security Products - zinc and brass (for the manufacture of locking mechanisms).
(cid:129) Marine Components - stainless steel (for the manufacture of exhaust headers and pipes and wake
enhancement systems), aluminum (for the manufacture of throttles and trim tabs) and other
components.
These raw materials are purchased from several suppliers, are readily available from numerous sources and
accounted for approximately 12% of our total cost of sales for 2020. Total material costs, including purchased
components, represented approximately 43% of our cost of sales in 2020.
CompX occasionally enters into short-term commodity-related raw material supply arrangements to
mitigate the impact of future price increases in commodity-related raw materials, including zinc, brass and stainless
steel. These arrangements generally provide for stated unit prices based upon specified purchase volumes, which
help CompX to stabilize its commodity-related raw material costs to a certain extent. At other times CompX may
make spot market buys of larger quantities of raw materials to take advantage of favorable pricing or volume-based
discounts. Markets for the primary commodity-related raw materials used in the manufacture of CompX’s locking
mechanisms, primarily zinc and brass, remained relatively stable through 2019 and 2020. Similarly, over the same
periods, the market for stainless steel, the primary raw material used for the manufacture of marine exhaust headers
and pipes and wake enhancement systems, remained relatively stable. While CompX expects the markets for its
primary commodity-related raw materials to remain stable during 2021, it recognizes that economic conditions could
- 5 -
introduce renewed volatility on these and other manufacturing materials. When purchased on the spot market, each
of these raw materials may be subject to sudden and unanticipated price increases. When possible, CompX seeks to
mitigate the impact of fluctuations in these raw material costs on its margins through improvements in production
efficiencies or other operating cost reductions. In the event CompX is unable to 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 its 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 it believes 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 one year to 19 years at December 31, 2020.
CompX’s major trademarks and brand names in addition to CompX® include:
Security Products
CompX® Security Products™
National Cabinet Lock®
Fort Lock®
Timberline® Lock
Chicago Lock®
STOCK LOCKS®
KeSet®
TuBar®
StealthLock®
ACE®
ACE® II
CompX eLock®
Security Products
Marine Components
Lockview®
System 64®
SlamCAM®
RegulatoR®
CompXpress®
GEM®
Turbine™
NARC iD®
NARC®
ecoForce®
CompX Marine®
Custom Marine®
Livorsi® Marine
Livorsi II® Marine
CMI Industrial®
Custom Marine® Stainless Exhaust
The #1 Choice in Performance
Boating®
Mega Rim®
Race Rim®
Vantage View®
GEN-X®
Sales, marketing and distribution - A majority of CompX’s component sales are direct to large OEM
customers through its factory-based sales and marketing professionals supported by engineers working in concert
with field salespeople and
independent manufacturer’s representatives. CompX selects 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 substantial portion of CompX’s Security Products sales are
made through distributors. CompX has a significant North American market share of cabinet lock security product
sales as a result of the locksmith distribution channel. CompX supports its locksmith distributor sales with a line of
standardized products used by the largest segments of the marketplace. These products are packaged and
merchandised for easy availability and handling by distributors and end users.
CompX sells to a diverse customer base with only one customer representing 10% or more of its sales in
2020 (United States Postal Service representing 17%). CompX’s largest ten customers accounted for approximately
48% of its sales in 2020.
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 segments of the market, where product design, quality, durability and service are valued by the customer.
CompX’s Security Products business competes against a number of domestic and foreign manufacturers. CompX’s
Marine Components business competes with small domestic manufacturers and is minimally affected by foreign
competitors.
Regulatory and environmental matters - CompX’s operations are subject to federal, state and local 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. CompX’s
- 6 -
operations also are subject to federal, state and local laws and regulations relating to worker health and safety.
CompX believes it 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 its results. CompX currently does not
anticipate any significant costs or expenses relating to such matters; however, it is possible future laws and
regulations may require CompX to incur significant additional expenditures.
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, North America and the Asia Pacific region. Kronos believes it 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, we believe 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 we believe 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
2% since 2000. Per capita consumption of TiO2 in Western Europe and North America 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 for the foreseeable future. We believe that Western Europe and North America currently each account for
approximately 17% of global TiO2 consumption. Markets for TiO2 are generally increasing in South America,
Eastern Europe, the Asia Pacific region and China and we believe these are significant markets which will continue
to grow 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 100 years. Kronos believes it is the largest producer of
TiO2 in Europe with 46% of its 2020 sales volumes attributable to markets in Europe. The table below shows
Kronos’ estimated market share for its significant markets, Europe and North America, for the last three years.
Europe
North America
2018
2019
2020
13%
17%
18%
19%
17%
18%
Kronos believes it is the leading seller of TiO2 in several countries, including Germany, with an estimated
9% share of worldwide TiO2 sales volume in 2020. Overall, Kronos is one of the top five producers of TiO2 in the
world.
- 7 -
Kronos offers its customers a broad portfolio of products that include 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 its customers in either a powder or slurry form via rail, truck and/or
ocean carrier. Sales of Kronos’ core TiO2 pigments represented approximately 93% of its net sales in 2020. Kronos
and its agents and distributors primarily sell 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, 2020:
Sales volume percentages
by geographic region
Sales volume percentages
by end-use
Europe
North America
Asia Pacific
Rest of World
46%
36%
11%
7%
Coatings
Plastics
Paper
Other
58%
30%
6%
6%
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 of
plastics, including whiteness and opacity. TiO2 is used to provide opacity to 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.
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
- 8 -
tablet 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 7% of its net sales in 2020:
(cid:129) 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. Kronos supplies ilmenite to its sulfate plants in Europe. Kronos also sells ilmenite ore to third
parties, some of whom are its competitors, and it sells an ilmenite-based specialty product to the oil
and gas industry. The mines have estimated ilmenite reserves that are expected to last at least 50 years.
(cid:129) Kronos manufactures and sells iron-based chemicals, which are co-products and processed co-products
of sulfate and chloride process TiO2 pigment production. These co-product chemicals are marketed
through its Ecochem division and are primarily used as treatment and conditioning agents for industrial
effluents and municipal wastewater as well as in the manufacture of iron pigments, cement and
agricultural products.
(cid:129) 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 products 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
remained stable relative to sulfate process pigments, and in 2020, 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, pharmaceuticals 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).
(cid:129)
(cid:129)
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.
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 treatments.
Kronos produced 536,000 metric tons of TiO2 in 2018, 546,000 metric tons of TiO2 in 2019 and 517,000
metric tons of TiO2 in 2020. Kronos’ production volumes 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 95% in 2018, 98% in 2019 and 92% in 2020. Kronos’ production rates in 2018 were
impacted by maintenance activities at certain facilities and by the first quarter implementation of a productivity-
enhancing improvement project at its Belgium facility. Kronos’ production rates in 2020 were impacted by the
- 9 -
COVID-19 pandemic as Kronos decreased production levels early in the third quarter to correspond with a
temporary decline in market demand.
Kronos operates facilities throughout North America and Europe, including the only sulfate process plant in
North America and 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 near Lake Charles, Louisiana.
Kronos’ production capacity has increased by approximately 5% over the past ten years due to
debottlenecking programs, incurring only moderate capital expenditures. Kronos expects to operate its TiO2 plants
at near full practical capacity levels in 2021.
The following table presents the division of Kronos’ expected 2021 manufacturing capacity by plant
location and type of manufacturing process:
Facility
Description
Leverkusen, Germany (1)
Nordenham, Germany
Langerbrugge, Belgium
TiO2 production, chloride process, co-products
TiO2 production, sulfate process, co-products
TiO2 production, chloride process, co-products, titanium
chemicals products
Fredrikstad, Norway (2)
Varennes, Canada
TiO2 production, sulfate process, co-products
TiO2 production, chloride and sulfate process, slurry
Lake Charles, LA, US (3)
TiO2 production, chloride process
facility, titanium chemicals products
Total
% of capacity by TiO2
manufacturing process
Chloride Sulfate
31%
-
17
-
17
14
79%
-%
11
-
7
3
-
21%
(1)
(2)
(3)
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 Kronos’ current TiO2 production
capacity, but Kronos 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. In conjunction with Kronos’ long-term strategy to increase chloride
process production, Kronos phased-out sulfate production at the Leverkusen facility during 2020.
The Fredrikstad facility is located on public land and is leased until 2063.
Kronos operates the facility near Lake Charles through a joint venture with Venator Investments LLC
(Venator Investments), a wholly-owned subsidiary of Venator Group, of which Venator Materials PLC
(Venator) owns 100% and the amount indicated in the table above represents the share of TiO2 produced by
the joint venture to which it is entitled. The joint venture owns the land and facility.
Kronos owns the land underlying all of its principal production facilities unless otherwise indicated in the
table above.
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 near Lake Charles, Louisiana,
which converts dry pigment primarily manufactured for Kronos at the Lake Charles TiO2 facility into a slurry form
that is then shipped to customers.
Kronos has corporate and administrative offices located in the U.S., Germany, Norway, Canada, Belgium,
France and the United Kingdom and various sales offices located in North America.
- 10 -
TiO2 manufacturing joint venture - Kronos Louisiana, Inc., one of Kronos’ subsidiaries, and Venator
Investments each own a 50% interest in a manufacturing joint venture, Louisiana Pigment Company, L.P. (LPC).
LPC owns and operates a chloride-process TiO2 plant located near Lake Charles, Louisiana. Kronos and Venator
share production from the plant equally pursuant to separate offtake agreements, unless Kronos and Venator
otherwise agree.
A supervisory committee directs the business and affairs of the joint venture, including production and
output decisions. This committee is composed of four members, two of whom Kronos appoints and two of whom
Venator 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 Venator appoints the other.
Kronos does not consolidate LPC 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. All costs and capital expenditures are shared equally with Venator with the exception of
feedstock (purchased natural rutile ore or chlorine 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 chlorine slag), chlorine and petroleum 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 Limited under a long-term supply contract which automatically renewed at the end of
2020 and extends through December 31, 2023. The contract automatically renews bi-annually but can be terminated
if written notice is given at least twelve months prior to the current contract end date. Kronos also purchases
upgraded slag from Rio Tinto Iron and Titanium Limited under a long-term supply contract that automatically
renewed at the end of 2020 and extends through December 31, 2022. The contract automatically renews annually
but can be terminated if written notice is given at least twelve months prior to the contract end date. Kronos
purchases rutile ore primarily from Sierra Rutile Limited under a contract that expires in 2022 and Base Titanium
Limited under a contract that expires at the end of 2022. In the past Kronos has been, and it expects that it will
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.
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 2020. Kronos expects ilmenite production from its mines to meet its
European sulfate process feedstock requirements for the foreseeable future. For Kronos’ Canadian sulfate process
plant, it purchases sulfate grade slag primarily from Rio Tinto Fer et Titane Inc. under a supply contract that renews
annually, subject to termination upon twelve months written notice. Kronos expects the raw materials purchased
under this contract, 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 it is required to purchase. The pricing under these agreements is generally
negotiated quarterly or semi-annually.
- 11 -
The following table summarizes Kronos’ raw materials purchased or mined in 2020.
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)
478
294
23
Sales and marketing - Kronos’ marketing strategy is aimed at developing and maintaining strong
relationships with new and existing customers. Because TiO2 represents a significant input cost for its customers,
the purchasing decisions are often made by its customers’ senior management. Kronos works to maintain close
relationships with the key decision makers through in-depth and frequent contact. Kronos endeavors to extend these
commercial and technical relationships to multiple levels within its customers’ organizations using its direct sales
force and technical service group to accomplish this objective. Kronos believes this has helped build customer
loyalty to Kronos and strengthened 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 its 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 segments where it believes it can realize higher selling prices. This focus includes
continuously reviewing and optimizing its customer and product portfolios.
Kronos also works directly with its customers to monitor the success of its products in their end-use
applications, evaluate the need for improvements in its 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 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 in Europe and 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 export
markets, where Kronos has increased its marketing efforts over the last several years, Kronos’ sales are made
through its direct sales force, sales agents and distributors. In addition to Kronos’ direct sales force and sales agents,
many of its sales agents also act as distributors to service its customers in all regions. Kronos offers customer and
technical service to customers who purchase its products through distributors as well as to its larger customers
serviced by its direct sales force.
Kronos sells to a diverse customer base with only one customer representing 10% or more of its net sales in
2020 (Behr Process Corporation – 10%). Kronos’ largest ten customers accounted for approximately 34% of net
sales in 2020.
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 coatings production in the spring to meet demand during the spring and summer painting seasons. With
certain exceptions, such as the COVID-19 pandemic, 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 its product availability during the higher demand periods normally experienced in the
second and third quarters.
- 12 -
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 traded
through a commodity market, its pricing is largely a product of negotiation between suppliers and their respective
customers. Price and availability are the most significant competitive factors along with quality and customer
service for the majority of its product grades. Increasingly, Kronos is focused on providing pigments that are
differentiated to meet specific customer requests and specialty grades that are differentiated from its competitors’
products. During 2020, Kronos had an estimated 9% share of worldwide TiO2 sales volume, and based on sales
volume Kronos believes it is the leading seller of TiO2 in several countries, including Germany.
Kronos’ principal competitors are The Chemours Company, Tronox Incorporated, Lomon Billions and
Venator Materials PLC. The top five TiO2 producers (i.e. Kronos and its four principal competitors) account for
approximately 52% of the world’s production capacity.
The following chart shows Kronos’ estimate of worldwide production capacity in 2020:
Worldwide production capacity – 2020
Chemours
Tronox
Lomon Billions
Venator
Kronos
Other
15%
13%
9%
8%
7%
48%
Chemours has approximately one-half of total North American TiO2 production capacity and is Kronos’
principal North American competitor. In the second quarter of 2019, Tronox acquired certain of the TiO2 assets of
Cristal Global. Lomon Billions added approximately 200,000 tons of chloride capacity in 2019 and 2020 and has
announced plans to add an additional 200,000 tons by 2023.
Over the past ten years, Kronos and its competitors increased industry capacity through debottlenecking
projects, which in part compensated for the shut-down of various TiO2 plants throughout the world. Although
overall industry demand is expected to increase in 2021, Kronos does not expect any significant efforts will be
undertaken by Kronos or its principal competitors to further increase capacity for the foreseeable future, other than
through debottlenecking projects and the Lomon Billions expansion mentioned above. If actual developments differ
from Kronos’ expectations, the TiO2 industry’s and Kronos’ performance could be unfavorably affected.
The TiO2 industry is characterized by high barriers to entry consisting of high capital costs, proprietary
technology and significant lead times 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 products
and applications. Kronos’ expenditures for these activities were approximately $16 million in 2018, $17 million in
2019 and $16 million in 2020. Kronos expects to spend approximately $17 million on research and development in
2021.
Kronos continually seeks to improve the quality of its grades and has been successful in developing new
grades for existing and new applications to meet the needs of its customers and increase product life cycles. Since
the beginning of 2016, Kronos has added ten 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
- 13 -
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 it 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 three years to 20 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 trademarks that it uses in
connection with the products it manufactures and sells and has developed goodwill in connection with its 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 Kronos’ business could be harmed if it fails to maintain confidentiality of its
trade secrets used in this technology.
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 its 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 its facilities and to strive to improve its environmental performance and overall sustainability.
Kronos updates its Kronos Sustainability Report biennially (available on Kronos’ website at www.kronostio2.com),
which highlights Kronos’ focus on sustainability of its manufacturing operations, as well as Kronos’ environmental,
social and governance strategy. It is possible that future developments, such as stricter requirements in
environmental laws and enforcement policies, could adversely affect its 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, Kronos 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 those of the EU.
- 14 -
At Kronos’ sulfate plant facility in Germany, it recycles spent sulfuric acid either through contracts with
third parties or at its own facility. In addition, at Kronos’ German sulfate-process location it has a contract with a
third-party to treat certain sulfate-process effluents. At Kronos’ 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. Kronos believes that all of its facilities are
in substantial compliance with applicable environmental laws.
From time to time, new environmental, health and safety regulations are passed or proposed in the
countries in which Kronos operates or sells its products, seeking to regulate its operations or to restrict, limit or
classify TiO2. Kronos believes that it is in substantial compliance with laws applicable to the regulation of TiO2.
However, increased regulatory scrutiny could affect consumer perception of TiO2 or limit the marketability and
demand for TiO2 or products containing TiO2 and increase its regulatory and compliance costs.
On February 18, 2020 the European Union published a regulation classifying TiO2 powder and powder
mixtures containing TiO2 as a suspected carcinogen via inhalation under its EU Regulation No. 1272/2008 on
classification, labeling and packing of substances and mixtures. The regulation will enter into force on October 1,
2021 at which time hazard labels will be required on certain TiO2 powder products and certain powder mixtures
containing TiO2 in the EU. This classification of TiO2 is based on scientifically questioned animal test data.
Separate studies of TiO2 workers conducted by the TiO2 industry have shown no TiO2 specific links to cancer.
Kronos intends to comply with the new requirements including working with customers and other stakeholders on
compliance matters as appropriate.
Kronos’ capital expenditures related to ongoing environmental compliance, protection and improvement
programs, including capital expenditures which are primarily focused on increasing operating efficiency but also
result in improved environmental protection such as lower emissions from its manufacturing facilities, were $21.8
million in 2020 and are currently expected to be approximately $23 million in 2021.
Other
In addition to our 86% ownership of CompX and our 30% ownership of Kronos at December 31, 2020, we
also own 100% of EWI RE, Inc., an inactive subsidiary that was formerly an insurance brokerage and risk
management services company. In the fourth quarter of 2019, we sold the insurance and risk management business
of EWI for proceeds of $3.25 million and recognized a gain of $3.0 million. We also hold certain marketable
securities and other investments. See Notes 13 and 16 to our Consolidated Financial Statements.
Human capital resources
Employees – We operate through our subsidiaries and through our intercorporate services agreement with
Contran (see Note 16 to our Consolidated Financial Statements), we have no direct employees. Our operating
results depend in part on Kronos’ and CompX’s ability to successfully manage their human capital resources,
including attracting, identifying, and retaining key talent. Kronos and CompX each have a well-trained labor force
with a substantial number of long-tenured employees. Kronos and CompX provide competitive compensation and
benefits to their employees, some of which for Kronos are offered under collective bargaining agreements. In
addition to salaries, these programs, which vary by country/region, can include annual bonuses, a defined benefit
pension plan (for Kronos), a defined contribution plan with employer matching opportunities, healthcare and
insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources,
employee assistance programs, and tuition assistance.
As of December 31, 2020, CompX employed 513 people, all in the United States.
- 15 -
As of December 31, 2020, Kronos employed the following number of people:
Europe
Canada
United States (1)
Total
1,839
350
53
2,242
(1)
Excludes employees of Kronos’ LPC joint venture.
CompX believes its labor relations are good at all of its facilities. Certain employees at each of Kronos’
production facilities are organized by labor unions. Kronos strives to maintain good relationships with all its
employees, including the unions and workers’ councils representing those employees. 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 2021. At December 31, 2020, approximately 86% of Kronos’ worldwide workforce is organized
under collective bargaining agreements. Kronos did not experience any work stoppages during 2020, although it is
possible that there could be future work stoppages or other labor disruptions that could materially and adversely
affect its business, results of operations, financial position or liquidity.
Health and safety – Kronos and CompX believe protecting the health and safety of their employees,
customers, business partners and the natural environment are core values. Kronos and CompX are committed to
conducting their businesses in ways that provide all personnel with a safe and healthy work environment and have
established safety and environmental programs and goals to achieve such results. Kronos and CompX expect their
manufacturing facilities to produce their products safely and in compliance with local permits and policies intended
to protect the environment and have established global policies designed to promote such compliance. Kronos and
CompX require employees to comply with legal and regulatory requirements and their policies, standards and
practices.
Diversity and inclusion – Kronos and CompX recognize that everyone deserves respect and equal treatment.
Kronos and CompX embrace diversity and collaboration in their workforces and business initiatives. Kronos and
CompX are equal opportunity employers and base employment decisions on merit, competence and qualifications,
without regard to race, color, national origin, gender, age, religion, disability, sex, sexual orientation or other
characteristics protected by applicable law in the jurisdictions in which they operate. Kronos and CompX promote a
respectful, diverse and inclusive workplace in which all individuals are treated with respect and dignity.
Environmental, Social and Governance (“ESG”) - We seek to operate our businesses in line with sound
ESG principles that include corporate governance, social responsibility, sustainability, and cybersecurity. At our
facilities, we undertake various environmental sustainability programs, and we promote social responsibility and
volunteerism through programs designed to support and give back to the local communities in which we operate. At
a corporate level, we engage in periodic reviews of our cybersecurity programs, including cybersecurity risk and
threats, and we have established stock ownership guidelines for our non-employee directors. In addition, Kronos
publishes a Sustainability Report on its website every two years to provide its customers, stockholders and other
stakeholders with additional information on its approach to sustainability.
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 17 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
- 16 -
market, 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.
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.
Operational Risk Factors
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.
Kronos’ sales and profitability are largely dependent on the TiO2 industry. In 2020, 93% of Kronos’ sales
were attributable to sales of TiO2. TiO2 is used in many “quality of life” products for which demand historically has
been linked to global, regional and local gross domestic product and discretionary spending, which can be
negatively impacted by regional and world events or economic conditions. Such events are likely to cause a
decrease in demand for Kronos’ products and, as a result, may have an adverse effect on our results of operations
and financial condition.
Pricing within the global TiO2 industry over the long term is cyclical and changes in economic conditions
worldwide 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
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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 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 operating losses.
The global market in which Kronos operates its business is concentrated, with the top five TiO2 producers
accounting for approximately 52% 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 Kronos’ products if their costs are lower than Kronos’ costs. In addition, some of Kronos’
competitors’ financial, technological and other resources may be greater than its resources and such competitors
may be better able to withstand changes in market conditions. Kronos’ competitors may be able to respond more
quickly than it can to new or emerging technologies and changes in customer requirements. Further, consolidation
of Kronos’ competitors or customers may result in reduced demand for its products or make it more difficult for
Kronos to compete with its competitors. The occurrence of any of these events could result in reduced earnings or
operating losses.
CompX operates in mature and highly competitive markets, 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 its efforts on the middle and high-end segment of the market where it feels that it can
compete due to the importance of product design, quality and durability to the customer. However, CompX’s 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.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Competitors may be able to drive down prices for CompX’s products beyond its ability to adjust costs
because their costs are lower than CompX, especially products sourced from Asia.
Competitors’ financial, technological and other resources may be greater than CompX’s resources,
which may enable them to more effectively withstand changes in market conditions.
Competitors may be able to respond more quickly than CompX can to new or emerging technologies
and changes in customer requirements.
Consolidation of CompX’s competitors or customers in any of the markets in which it competes may
result in reduced demand for its products.
(cid:129) A reduction of CompX’s market share with one or more of its key customers, or a reduction in one or
more of its key customers’ market share for their end-use products, may reduce demand for its
products.
(cid:129) New competitors could emerge by modifying their existing production facilities to manufacture
products that compete with CompX’s products.
(cid:129)
(cid:129)
CompX may not be able to sustain a cost structure that enables it to be competitive.
Customers may no longer value CompX’s product design, quality or durability over the lower cost
products of its competitors.
CompX’s development of innovative features for current products is critical to sustaining and growing its sales.
Historically, CompX’s ability to provide value-added custom engineered products that address
requirements of technology and space utilization has been a key element of its success. CompX spends a significant
amount of time and effort to refine, improve and adapt its existing products for new customers and applications.
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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 (“GAAP”), the amount of CompX’s
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 product features requires the coordination of the
design, manufacturing and marketing of the new product features 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 CompX 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 it introduces will achieve the same
degree of success that it has achieved with its existing products. Introduction of new product features typically
requires CompX 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 it will be able to increase production volumes without encountering these or other
problems, which might negatively impact our financial condition or results of operations.
Higher costs or unavailability of CompX’s raw materials could negatively impact our financial results.
Certain 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 and aluminum are
the major raw materials used in the manufacture of marine components. 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.
Certain components used in CompX’s products are manufactured by foreign suppliers located in China and
elsewhere. Global economic and political conditions, including natural disasters, terrorist acts, global conflicts and
public health crises such as pandemics, could prevent CompX’s vendors from being able to supply these
components. Should CompX’s vendors not be able to meet their supply obligations or should CompX be otherwise
unable to obtain necessary raw materials or components, CompX may incur higher supply costs or may be required
to reduce production levels, either of which may decrease our liquidity or negatively impact our financial condition
or results of operations as CompX may be unable to offset the higher costs with increases in its selling prices or
reductions in other operating costs.
Higher costs or limited availability of Kronos’ raw materials may reduce its earnings and decrease its liquidity.
In addition, many of Kronos’ raw material contracts contain fixed quantities it is required to purchase.
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
Kronos’ TiO2 facilities are available from a limited number of suppliers around the world. Political and economic
instability in the countries from which Kronos purchases its raw materials could adversely affect their availability.
If Kronos’ worldwide vendors were unable to meet their contractual obligations and it were unable to obtain
necessary raw materials, Kronos could incur higher costs for raw materials or may be required to reduce production
levels. Kronos experienced increases in its feedstock costs in 2019 and during the first half of 2020, before they
moderated in the second half of 2020. Kronos expects its feedstock costs in 2021 to remain relatively consistent
with average 2020 costs. Kronos may also experience higher operating costs such as energy costs, which could
affect its profitability. Kronos may not always be able to increase its 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 2023. While Kronos believes it will be able to renew these contracts, there can be no assurance it
will be successful in renewing them or in obtaining long-term extensions to them prior to expiration. Kronos’
current agreements (including those entered into through January 2021) require it to purchase certain minimum
quantities of feedstock with minimum purchase commitments aggregating approximately $1.2 billion beginning in
2021. In addition, Kronos has other long-term supply and service contracts that provide for various raw materials
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and services. These agreements require Kronos to purchase certain minimum quantities or services with minimum
purchase commitments aggregating approximately $86 million at December 31, 2020. Kronos’ commitments under
these contracts could adversely affect our financial results if Kronos significantly reduces its production and was
unable to modify the contractual commitments.
COVID-19 has affected Kronos’ and CompX’s operations and may continue to affect operations during 2021.
Our results of operations during 2020 were significantly impacted by the COVID-19 pandemic, primarily
in the second and third quarters, specifically through reduced demand for many of Kronos’ and CompX’s products
resulting from the rapid contraction of the global economy. The extent of the impact of the COVID-19 pandemic on
our future operations will depend on the time period and degree to which the COVID-19 pandemic persists in the
global economy, including the timing and extent to which Kronos’ and CompX’s customers’ operations continue to
be impacted, their customers’ perception as to when consumer demand for their products will return to pre-pandemic
levels and on any future disruptions in their operations or their suppliers’ operations, all of which are difficult to
predict.
CompX has 513 employees and operates three facilities, each of which specializes in certain manufacturing
processes and is therefore dependent upon the other facilities to some extent to manufacture finished goods. With
the onset of COVID-19, within each facility CompX enhanced cleaning and sanitization procedures, mandated
social distancing and implemented other health and safety protocols. CompX is designated an essential business in
the states where it operates and is therefore permitted to fully operate during the pandemic, but because the COVID-
19 pandemic affected the health and safety of its employees, CompX temporarily closed its Illinois facility for one
week in the second quarter. It is possible CompX may have additional temporary closures at one or more of its
facilities for the health and safety of its workforce before the end of the pandemic if conditions warrant.
Kronos has 2,242 employees and operates facilities throughout North America and Europe. With the onset
of COVID-19, within each facility Kronos enhanced cleaning and sanitization procedures, mandated social
distancing and implemented other health and safety protocols. Kronos is also designated an essential business in the
countries where it operates and is therefore permitted to fully operate during the pandemic. It is possible Kronos
may have temporary closures at one or more of its facilities for the health and safety of its workforce before the end
of the pandemic if conditions warrant.
Financial Risk Factors
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 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.
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Kronos’ leverage may impair our financial condition.
As of December 31, 2020, Kronos’ total consolidated debt was approximately $487 million, substantially
all of which relates to its Senior Secured Notes issued in September 2017. Kronos’ level of debt could have
important consequences to its stockholders and creditors, including:
(cid:129) making it more difficult for Kronos to satisfy its obligations with respect to its liabilities;
(cid:129)
increasing its vulnerability to adverse general economic and industry conditions;
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
requiring that a portion of its cash flows from operations be used for the payment of interest on its debt,
which reduces its ability to use its cash flow to fund working capital, capital expenditures, dividends
on its common stock, acquisitions or general corporate requirements;
limiting the ability of Kronos’ subsidiaries to pay dividends to it;
limiting Kronos’ ability to obtain additional financing to fund future working capital, capital
expenditures, acquisitions or general corporate requirements;
limiting Kronos’ flexibility in planning for, or reacting to, changes in its business and the industry in
which it operates; and
placing Kronos at a competitive disadvantage relative to other less leveraged competitors.
Indebtedness outstanding under Kronos’ revolving North American credit facility and revolving European
credit facility accrues interest at variable rates. To the extent market interest rates rise, the cost of Kronos’ debt
could increase, adversely affecting its financial condition, results of operations and cash flows.
In addition to Kronos’ indebtedness, Kronos is party to various lease and other agreements (including
feedstock purchase contracts and other long-term supply and service contracts, as discussed above) pursuant to
which, along with its indebtedness, Kronos is committed to pay approximately $591 million in 2021. Kronos’
ability to make payments on and refinance its debt and to fund planned capital expenditures depends on its 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 its control. In addition, Kronos’ ability to borrow funds under its
revolving 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 it to pay its
debts when they become due and to fund its 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
its debt on favorable terms could have a material adverse effect on its financial condition and impact its ability to
pay a dividend to us.
Legal, Compliance and Regulatory Risk Factors
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. We entered into a legal settlement in one public-nuisance lead pigment case and have
- 21 -
recognized a material liability related to the settlement. Any additional liability we might incur in the future for
these matters 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.”
If Kronos’ or CompX’s intellectual property were to be declared invalid, or copied by or become known to
competitors, or if Kronos’ and CompX’s competitors were to develop similar or superior intellectual property or
technology, their ability to compete could be adversely impacted.
is
important
tradenames,
to Kronos’ and CompX’s businesses and
Protection of intellectual property rights, including patents, trade secrets, confidential information,
trademarks and
their competitive
positions. Kronos and CompX endeavor to protect their intellectual property rights in key jurisdictions in which
their products are produced or used and in jurisdictions into which their products are imported. However, Kronos
and CompX may be unable to obtain protection for their intellectual property in key jurisdictions. Although Kronos
and CompX have applied for numerous patents and trademarks throughout the world, they may have to rely on
judicial enforcement of their patents and other proprietary rights. Kronos’ and CompX’s patents and other
intellectual property rights may be challenged, invalidated, circumvented, and rendered unenforceable or otherwise
compromised. A failure to protect, defend or enforce intellectual property could have an adverse effect on our
financial condition and results of operations. Similarly, third parties may assert claims against Kronos and Compx
and their customers and distributors alleging their products infringe upon third-party intellectual property rights.
Although it is the practice of Kronos to enter into confidentiality agreements with its employees and third
parties to protect its proprietary expertise and other trade secrets, these agreements may not provide sufficient
protection for its trade secrets or proprietary know-how, or adequate remedies for breaches of such agreements may
not be available in the event of an unauthorized use or disclosure of such trade secrets and know-how. Kronos also
may not be able to readily detect breaches of such agreements. The failure of Kronos’ patents or confidentiality
agreements to protect its proprietary technology, know-how or trade secrets could result in a material loss of its
competitive position, which could lead to significantly lower revenues, reduced profit margins or loss of market
share.
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 its technology and designs. Despite these
measures, any of CompX’s intellectual property rights could be challenged, invalidated, circumvented or
misappropriated. Others may independently discover CompX’s trade secrets and proprietary information, and in
such cases CompX could not assert any trade secret rights against such parties. Further, CompX does not know if
any of its pending trademark or patent applications will be approved. Costly and time-consuming litigation could be
necessary to enforce and determine the scope of 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, CompX may be unable to protect its technology and designs adequately against unauthorized
third party use, which could adversely affect its competitive position.
Third parties may claim that CompX or its customers are infringing upon their intellectual property
rights. Even if CompX believes such claims are without merit, they can be time-consuming and costly to defend and
distract management’s and technical staff’s attention and resources. Claims of intellectual property infringement
also might require CompX to redesign affected technology, enter into costly settlement or license agreements or pay
costly damage awards, or face a temporary or permanent injunction prohibiting CompX from marketing or selling
certain technology. If CompX cannot or does 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.
If Kronos or CompX must take legal action to protect, defend or enforce intellectual property rights, any
suits or proceedings could result in significant costs and diversion of resources and management’s attention, and
- 22 -
Kronos or CompX may not prevail in any such suits or proceedings. A failure to protect, defend or enforce
intellectual property rights could have an adverse effect on our financial condition and results of operations.
Environmental, health and safety laws and regulations, particularly as it relates to Kronos, may result in
increased regulatory scrutiny which could decrease demand for Kronos’ products, increase Kronos’
manufacturing and compliance costs or obligations and result in unanticipated losses which could negatively
impact its financial results or limit its ability to operate its business.
From time to time, new environmental, health and safety regulations are passed or proposed in the
countries in which Kronos operates or sells its products, seeking to regulate its operations or to restrict, limit or
classify TiO2, or its use (such as the classification of TiO2 powder as a suspected carcinogen in the EU). Increased
regulatory scrutiny could affect consumer perception of TiO2 or limit the marketability and demand for TiO2 or
products containing TiO2 and increase Kronos’ manufacturing and regulatory compliance obligations and
costs. Increased compliance obligations and costs or restrictions on certain TiO2 applications could negatively
impact Kronos’ future financial results through increased costs of production, or reduced sales which may decrease
its liquidity, operating income and results of operations, which could in turn negatively impact our investment in
Kronos.
Global climate change legislation could negatively impact our financial results or limit Kronos’ and CompX’s
ability to operate their businesses.
CompX operates production facilities in the United States and Kronos operates production facilities in
North America and Europe. Kronos and CompX believe that all of their 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, primarily electricity and natural gas. To
date the climate change legislation in effect has not had a material adverse effect on its financial results. However,
if further greenhouse gas legislation were to be enacted in one or more countries, it could negatively impact Kronos’
and CompX’s future results from operations through increased costs of production, particularly as it relates to
energy requirements or the need to obtain emissions permits. If such increased costs of production were to
materialize, Kronos and CompX may be unable to pass on price increases to their customers to compensate for
increased production costs, which may decrease our liquidity, income from operations and results of operations.
General Risk Factors
Technology failures or cyber security breaches could have a material adverse effect on our operations.
Kronos and CompX rely on integrated information technology systems to manage, process and analyze
data, including to facilitate the manufacture and distribution of their products to and from their plants, receive,
process and ship orders, manage the billing of and collections from their customers and manage payments to
vendors. Although Kronos and CompX have systems and procedures in place to protect information technology
systems, there can be no assurance that such systems and procedures would be sufficiently effective. Therefore, any
of Kronos’ and CompX’s information technology systems may be susceptible to outages, disruptions or destruction
as well as cyber security breaches or attacks, resulting in a disruption of their business operations, injury to people,
harm to the environment or their assets, and/or the inability to access Kronos’ and CompX’s information technology
systems. If any of these events were to occur, our results of operations and financial condition could be adversely
affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
- 23 -
ITEM 2.
PROPERTIES
Our principal executive offices are located in an office building located at 5430 LBJ Freeway, Dallas,
Texas, 75240-2620. 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 required for this Item in Note 17 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.
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 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. Other than with respect to the Santa Clara, California
public nuisance case discussed below, we do not believe it is probable we have incurred any liability with respect to
all of the lead pigment litigation cases to which we are a party, and with respect to all such lead pigment litigation
cases to which we are a party, other than with respect to the Santa Clara case discussed below, we believe liability to
us that may result, if any, in this regard cannot be reasonably estimated, because:
(cid:129) 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 (other than the Santa Clara case discussed below),
no final, non-appealable adverse judgements have ever been entered against us, and
(cid:129)
(cid:129) we have never ultimately been found liable with respect to any such litigation matters, including over
100 cases over a thirty-year period for which we were previously a party and for which we have been
dismissed without any finding of liability.
Accordingly, other than with respect to the Santa Clara case discussed below, 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 at this time because
- 24 -
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 the matter titled 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) on July 24, 2019, an order approving a global
settlement agreement entered into among all of the plaintiffs and the three defendants remaining in the case (the
Sherwin Williams Company, ConAgra Grocery Products and us) was entered by the court and the case was
dismissed with prejudice. The global settlement agreement provides that an aggregate $305 million will be paid
collectively by the three co-defendants in full satisfaction of all claims resulting in a dismissal of the case with
prejudice and the resolution of (i) all pending and future claims by the plaintiffs in the case, and (ii) all potential
claims for contribution or indemnity between us and our co-defendants in respect to the case. In the agreement, we
expressly deny any and all liability and the dismissal of the case with prejudice was entered by the court without a
final judgment of liability entered against us. The settlement agreement fully concludes this matter.
Under the terms of the global settlement agreement, each defendant must pay an aggregate $101.7 million
to the plaintiffs as follows: $25.0 million within sixty days of the court’s approval of the settlement and dismissal of
the case, and the remaining $76.7 million in six annual installments beginning on the first anniversary of the initial
payment ($12.0 million for the first five installments and $16.7 million for the sixth installment). Our sixth
installment will be made with funds already on deposit at the court, which is included in noncurrent restricted cash
on our Consolidated Balance Sheets, that are committed to the settlement, including all accrued interest at the date
of payment, with any remaining balance to be paid by us (and any amounts on deposit in excess of the final payment
would be returned to us). Pursuant to the settlement agreement, also during the third quarter of 2019 we placed an
additional $9.0 million into an escrow account which is included in noncurrent restricted cash on our Consolidated
Balance Sheets.
As previously disclosed during the second quarter of 2018 and based on the terms of a May 2018
settlement agreement between us and the plaintiffs which had an aggregate cost of $80 million to us, we determined
that the loss to us could be reasonably estimated and recognized a net $62 million pre-tax charge with respect to this
matter ($45 million for the amount to be paid by us upon approval of the terms of the settlement and $17 million for
the net present value of the five payments aggregating $20 million to be paid by us in installments beginning four
years from such approval). The May 2018 settlement was never approved by the court and was superseded in July
2019 by the global settlement agreement discussed above.
At June 30, 2019, based on the terms of the global settlement agreement approved by the court in July 2019
we increased the amount accrued for the litigation settlement and a final immaterial adjustment was made to the
litigation settlement accrual in the third quarter of 2019. For financial reporting purposes, using a discount rate of
1.9% per annum, we discounted the aggregate $101.7 million settlement to the estimated net present value of $96.3
million. We recognized litigation settlement expense of $19.3 million ($19.6 million expense in the second quarter
of 2019 and $.3 million credit in the third quarter of 2019). We made the initial $25.0 million payment in
September 2019 and the first annual installment payment of $12.0 million in September 2020. We recognized an
aggregate of $.6 million in accretion expense in the second half of 2019 and an aggregate of $1.3 million in 2020.
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
- 25 -
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. In April 2015, a class was certified consisting of parents or legal guardians of children who
lived in certain “high risk” areas in Illinois between August 18, 1995 and February 19, 2008, and incurred an
expense or liability for having their children’s blood lead levels tested. In May 2020, the Illinois Supreme Court
held in our favor a ruling that the parents of children whose lead testing costs were fully paid by Medicaid did not
fall within the certified class of persons who had incurred an expense or liability for such testing. In August 2020,
NL and other defendants asked the trial court to de-certify the class and enter a final judgement dismissing the case.
In November 2018, NL was served with
in
Pennsylvania. Each county alleges that NL and several other defendants created a public nuisance by selling and
promoting lead-containing paints and pigments in the counties. The plaintiffs seek abatement and declaratory
relief. We believe these lawsuits are inconsistent with Pennsylvania law and without merit, and we intend to defend
ourselves vigorously.
two complaints filed by county governments
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. statutes, the resolution of which typically involves the
establishment of compliance programs. It is possible that future developments, such as stricter requirements of
environmental laws and enforcement policies, could adversely affect our production, handling, use, storage,
transportation, sale or disposal of such substances. We believe all of our facilities are in substantial compliance with
applicable environmental laws.
Certain properties and facilities used in our former operations, including divested primary and secondary
lead smelters and former mining locations, are the subject of civil litigation, administrative proceedings or
investigations arising under federal and state environmental laws and common law. Additionally, in connection
with past operating practices, we are currently involved as a defendant, potentially responsible party (PRP) or both,
pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act (CERCLA), and similar state laws in various governmental and
private actions associated with waste disposal sites, mining locations, and facilities that we or our predecessors, our
subsidiaries or their predecessors currently or previously owned, operated or used, certain of which are on the
United States Environmental Protection Agency’s (EPA) Superfund National Priorities List or similar state lists.
These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to
natural resources. Certain of these proceedings involve claims for substantial amounts. Although we may be jointly
and severally liable for these costs, in most cases we are only one of a number of PRPs who may also be jointly and
severally liable, and among whom costs may be shared or allocated. In addition, we are occasionally named as a
party in a number of personal injury lawsuits filed in various jurisdictions alleging claims related to environmental
conditions alleged to have resulted from our operations.
- 26 -
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,
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129) multiplicity of possible solutions,
(cid:129)
(cid:129)
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.
(cid:129)
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 (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, 2019 and
December 31, 2020, we had 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, 2020, we had accrued approximately $93 million related to
approximately 32 sites associated with remediation and related matters 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 $114 million,
including the amount currently accrued. These accruals have not been discounted to present value.
We believe it is not reasonably possible to estimate the range of costs for certain sites. At December 31,
2020, there were approximately five 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, if
any, 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
- 27 -
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 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
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 Unilateral Administrative Order (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 March 2017, in a parallel lawsuit
initiated by NL in state court against the State of New Jersey, which has significant potential liability as compared to
NL, the New Jersey Supreme Court ruled that the State of New Jersey had not waived its immunity under the Spill
Act for its pre-1977 conduct. In August 2017, NL filed an amended complaint in the State court alleging post-1977
conduct by the State that led to contamination. In September 2017, the State filed its answer and counterclaims. In
October 2020, NL and the State voluntarily dismissed the State court lawsuit pursuant to a tolling agreement that
allows the lawsuit to potentially be refiled in the future. NL’s federal court lawsuit seeking contribution from other
parties remains pending.
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. In March 2015, the Eighth Circuit Court of Appeals
denied Asarco’s request for an interlocutory appeal of the stay order and the trial court’s indefinite stay remains in
place.
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. In May 2015, the trial court
- 28 -
on its own motion entered an indefinite stay of the litigation. In June 2015, Asarco filed an appeal of the stay in the
Eighth Circuit Court of Appeals. NL has moved to dismiss that appeal as improperly filed. In October 2015, the
Eighth Circuit Court of Appeals granted NL’s motion to dismiss Asarco’s appeal and the trial court’s indefinite stay
remains in place.
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. In April 2016, the case was stayed and administratively terminated pending court-ordered
mediation. In October 2017, the parties informed the court that further mediation would not be fruitful. The case
was reopened in December 2017. We will continue to deny liability and defend vigorously against all of the claims.
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. In April 2019, EPA issued a
second UAO to NL and approximately 27 other PRPs for performance of certain work related to the Remedial
Design at the site. 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.
In January 2020, we were sued in Atlantic Richfield, Co. v. NL Industries, Inc., (United States District
Court for the District of Colorado, Case 1:20-cv-00234). This is a CERCLA cost recovery action brought by a past
owner and operator of certain mining properties located in Rico, Colorado. We intend to deny liability and will
defend vigorously against all claims.
In December 2020, NL and several other defendants were sued in California Department of Toxic
Substances v. NL Industries, Inc., (United States District Court for the Central District of California, Case 2:20-cv-
11293). This complaint by a California state agency asserts claims under CERCLA, a state environmental statute,
and the common law relating to lead contamination allegedly connected to a secondary lead smelter located in
Vernon, California. We intend to deny liability and will defend vigorously against all claims.
In February 2021, NL and several other defendants were sued in 68th Street Site Working Group. v. 7-
Eleven Industries, Inc., (United States District Court for the District of Maryland, Case 1:20-cv-03385). This is a
CERCLA contribution action brought by a group of potentially responsible parties performing the cleanup of a
number of landfills against a large number of defendants. We intend to deny liability and will defend vigorously
against all claims.
Other litigation
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 104 of these types of cases pending, involving a total
of approximately 579 plaintiffs. In addition, the claims of approximately 8,715 plaintiffs have been administratively
dismissed or placed on the inactive docket in Ohio 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:
(cid:129)
facts concerning historical operations,
(cid:129)
the rate of new claims,
(cid:129)
the number of claims from which we have been dismissed, and
(cid:129)
our prior experience in the defense of these matters,
- 29 -
we believe 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 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 of these various other claims and disputes (including asbestos-related claims), 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.
We have agreements with certain of our former insurance carriers pursuant to which the carriers reimburse
us for a portion of our future lead pigment litigation defense costs, and one such carrier reimburses us for a portion
of our future asbestos litigation defense costs. We are not able to determine how much we will ultimately recover
from these carriers for defense costs incurred by us because of certain issues that arise regarding which defense costs
qualify for reimbursement. While we continue to seek additional insurance recoveries, we do not know if we will be
successful in obtaining reimbursement for either defense costs or indemnity. Accordingly, we recognize insurance
recoveries in income only when receipt of the recovery is probable and we are able to reasonably estimate the
amount of the recovery.
In 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. Other insurers have
been added as parties to the case and have also sought a declaratory judgment regarding their obligations under
certain insurance policies. NL has filed a counterclaim seeking a declaratory judgment that all of the insurers are
obligated to provide NL with certain coverage and seeking damages for breach of contract. In December 2020, the
trial court denied the insurers’ motion for summary judgment, finding that the arguments raised by the insurers did
not bar NL from coverage under the relevant policies. We continue to believe the insurers’ claims are without merit
and we intend to defend NL’s rights and prosecute NL’s claims in this action vigorously.
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
- 30 -
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 26,
2021, there were approximately 1,700 holders of record of our common stock.
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, 2015 through December 31, 2020. The
graph shows the value at December 31 of each year assuming an original investment of $100 at December 31, 2015
and the reinvestment of dividends.
December 31,
2017
469
136
100
2018
115
130
73
$
$
$
2019
129
171
91
2020
164
203
100
NL common stock
S&P 500 Composite Stock Index
S&P 500 Industrial Conglomerates Index
2015
$ 100
100
100
$
$
2016
268
112
109
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
S&P 500 Index
S&P 500 Industrial Conglomerates
NL
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.
- 31 -
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, 2020, 79,900 shares are available for award under this plan. See Note 15 to our Consolidated
Financial Statements.
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.”
2016
Years ended December 31,
2017
2019
(In millions, except per share data)
2018
2020
STATEMENTS OF OPERATIONS DATA:
Net sales
Income from component products operations
Equity in earnings of Kronos
Net income (loss)
Net income (loss) attributable to NL stockholders
$
108.9 $
15.6
13.2
16.7
15.3
112.0 $
15.2
107.8
117.8
116.1
118.2 $
17.8
62.3
(39.0)
(41.0)
124.2 $
17.7
26.5
28.0
25.8
114.5
11.8
19.4
16.1
14.7
DILUTED EARNINGS PER SHARE DATA:
Net income (loss) attributable to NL stockholders
Cash dividends per share
Weighted average common shares outstanding
.31 $
- $
.30
$
$
.16
48,701 48,711 48,727 48,745 48,776
2.38 $
- $
(.84) $
- $
.53 $
- $
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
$
$
385.0 $
.5
177.9
194.3
551.6 $
.5
335.3
353.1
547.2 $
.5
284.1
303.6
557.5 $
.5
304.5
327.2
548.2
.5
311.9
335.3
27.7 $
(30.6)
.2
18.6 $
(13.6)
(.3)
17.1 $
1.3
(.3)
27.4 $
9.9
(.5)
19.0
(3.1)
(8.5)
- 32 -
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 American: 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, throttle
controls, wake enhancement systems, trim tabs and related hardware and accessories for the recreational marine and
other industries through its Marine Components 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.
Net income (loss) overview
Our net income attributable to NL stockholders was $14.7 million, or $.30 per share, in 2020 compared to
net income of $25.8 million, or $.53 per share, in 2019 and a net loss of $41.0 million, or $.84 per share, in 2018.
As more fully described below, the decrease in our earnings per share attributable to NL stockholders from
2019 to 2020 is primarily due to the net effects of:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
a pre-tax litigation settlement expense of $19.3 million in 2019 (mostly recognized in the second
quarter),
equity in earnings from Kronos in 2020 of $19.4 million compared to $26.5 million in 2019,
unfavorable relative changes in the value of marketable equity securities of $7.8 million,
lower income from operations attributable to CompX of $5.9 million in 2020,
lower insurance recoveries in 2020 of $5.0 million related primarily to a single insurance recovery
settlement of $4.5 million in 2019 for certain past and future litigation defense costs,
a gain of $4.4 million in 2019 related to a sale of excess property, recognized in the third quarter,
a gain of $3.0 million in 2019 related to the sale of our insurance and risk management business,
recognized in the fourth quarter, and
lower litigation fees and related costs of $2.1 million in 2020.
As more fully described below, the increase in our earnings per share attributable to NL stockholders from
2018 to 2019 is primarily due to the net effects of:
(cid:129)
(cid:129)
(cid:129)
a pre-tax litigation settlement expense of $19.3 million in 2019 (mostly recognized in the second
quarter) compared to $62.0 million recognized in the second quarter of 2018,
equity in earnings from Kronos in 2019 of $26.5 million compared to $62.3 million in 2018,
favorable relative changes in the value of marketable equity securities of $60.0 million,
- 33 -
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
higher insurance recoveries in 2019 of $3.8 million related primarily to a single insurance recovery
settlement of $4.5 million for certain past and future litigation defense costs,
a gain of $4.4 million in 2019 related to a sale of excess property, recognized in the third quarter,
a gain of $3.0 million in 2019 related to the sale of our insurance and risk management business,
recognized in the fourth quarter,
lower environmental remediation and related costs of $3.3 million in 2019, and
lower litigation fees and related costs of $2.2 million in 2019.
Our 2020 net income per share attributable to NL stockholders includes income of $.01 per share related to
Kronos’ first quarter recognition of an insurance settlement gain.
Our 2019 net income per share attributable to NL stockholders includes:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
a loss of $.31 per share, net of income tax benefit, related to the litigation settlement expense,
recognized mainly in the second quarter,
income of $.08 per share, net of income tax expense, related to insurance recoveries, recognized
mainly in the second quarter,
income of $.07 per share, net of income tax expense, related to a gain from a sale of excess property,
recognized in the third quarter,
income of $.05 per share, net of income tax expense, related to a gain from the sale of our insurance
and risk management business, recognized in the fourth quarter,
a loss of $.03 per share related to Kronos’ fourth quarter recognition of a non-cash deferred income tax
expense primarily related to the revaluation of Kronos’ net deferred income tax asset in Germany as a
result of a decrease in the German trade tax rate,
income of $.01 per share related to Kronos’ fourth quarter recognition of an income tax benefit related
to the favorable settlement of a prior year tax matter in Germany, and
income of $.01 per share related to Kronos’ insurance settlement gain recognized in the fourth quarter.
Our 2018 net loss per share attributable to NL stockholders includes:
a loss of $1.01 per share related to the litigation settlement expense, recognized in the second quarter,
a loss of $.02 per share related to Kronos’ tax on global intangible low-tax income, recognized in the
fourth quarter, and
a loss of $.01 per share related to Kronos’ reserve for uncertain tax positions, recognized in the first
and fourth quarters.
(cid:129)
(cid:129)
(cid:129)
Outlook
We currently expect our net income attributable to NL stockholders in 2021 to be higher than 2020
primarily due to higher expected equity in earnings from Kronos partially offset by higher litigation fees and related
costs and higher environmental remediation and related costs.
- 34 -
Income (loss) from operations
The following table shows the components of our income (loss) from operations.
CompX
Insurance recoveries
Other income, net
Litigation settlement expense, net
Corporate expense
Income (loss) from operations
n.m. Not meaningful.
$
$
2018
Years ended December 31,
2019
(Dollars in millions)
17.7 $
5.1
7.4
(19.3)
(12.5)
(1.6) $
17.8 $
1.3
.6
(62.0)
(18.4)
(60.7) $
% Change
2018-19 2019-20
2020
11.8
.1
-
-
(9.5)
2.4
(1) %
296
1,056
(69)
(32)
97
(33) %
(98)
n.m.
n.m.
(24)
246
The following table shows the components of our income (loss) before income taxes exclusive of our
income (loss) from operations.
$
$
$
Equity in earnings of Kronos
Marketable equity securities
Other components of net periodic pension
and OPEB cost
Interest and dividend income
Interest expense
n.m. Not meaningful
CompX International Inc.
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Income from operations
Percentage of net sales:
Cost of sales
Gross margin
Operating costs and expenses
Income from operations
2018
Years ended December 31,
2019
(Dollars in millions)
26.5 $
(.9)
62.3 $
(60.9)
% Change
2018-19 2019-20
2020
19.4
(8.7)
(58) %
(99)
(27) %
905
(.1)
5.0
-
(1.4)
6.7
(.7)
(.8)
2.6
(1.3)
1,096
32
n.m.
(43)
(61)
98
2018
Years ended December 31,
2019
(Dollars in millions)
124.2 $
85.2
39.0
21.3
17.7 $
118.2 $
79.9
38.3
20.5
17.8 $
% Change
2018-19 2019-20
2020
114.5
81.7
32.8
21.0
11.8
5 %
7
2
4
(1)
(8) %
(4)
(16)
(1)
(33)
67.6 %
32.4
17.3
15.1
68.6 %
31.4
17.1
14.2
71.3 %
28.7
18.4
10.3
Net sales - Net sales decreased approximately $9.7 million in 2020 compared to 2019 primarily due to
lower Security Products sales across a variety of markets due to reduced demand resulting from the COVID-19
pandemic, offset slightly by higher Marine Component sales to the towboat market. Relative changes in selling
prices did not have a material impact on net sales comparisons.
- 35 -
Net sales increased approximately $6.0 million in 2019 compared to 2018 primarily due to higher Marine
Components sales to the towboat market. Relative changes in selling prices did not have a material impact on net
sales comparisons.
Cost of sales and gross margin - Cost of sales decreased in 2020 compared to 2019 primarily due to the
effects of lower sales for CompX’s Security Products business slightly offset by the higher CompX Marine
Component sales discussed above. Gross margin as a percentage of sales decreased over the same period primarily
as a result of the lower gross margin percentage at Security Products.
Cost of sales increased in 2019 compared to 2018 due to the effects of increased sales for both CompX’s
Security Products and Marine Components businesses and increased labor costs at Security Products. As a result,
gross margin as a percentage of sales decreased over the same period. The decrease in gross margin percentage is
the result of the decline in Security Products gross margin percentage in 2019 as compared to 2018.
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 businesses and its corporate management activities, as well as gains and
losses on property and equipment. Operating costs and expenses as a percentage of sales increased in 2020
compared to 2019 due to the effect of lower sales. Operating costs and expenses as a percentage of sales in 2019
were comparable to 2018.
Income from operations - As a percentage of net sales, operating income decreased from 2019 to 2020 and
decreased from 2018 to 2019. Operating margins were primarily impacted by the factors impacting net sales, cost
of sales, gross margin and operating costs discussed above.
General - CompX’s profitability primarily depends on its ability to utilize production capacity effectively,
which is affected by, among other things, the demand for its products and its ability to control manufacturing costs,
primarily comprised of labor costs and materials. The materials used in its 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 43% of CompX’s cost of sales in 2020,
with commodity-related raw materials accounting for approximately 12% of cost of sales. During 2019 and 2020,
markets for the primary commodity-related raw materials used in the manufacture of its locking mechanisms,
primarily zinc and brass, remained relatively stable. Over those same periods, the market for stainless steel, the
primary raw material used for the manufacture of marine exhaust headers and pipes and wake enhancement systems,
also remained relatively stable. While CompX expects the markets for its primary commodity-related raw materials
to remain stable during 2021, it recognizes that economic conditions could introduce renewed volatility on these and
other manufacturing materials.
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. See Item 1 - “Business- Raw
Materials.”
- 36 -
Results by reporting unit
The key performance indicator for CompX’s reporting units is the level of their income from operations
(see discussion below).
2018
Years ended December 31,
2019
(Dollars in millions)
2020
% Change
2018-19 2019-20
Security Products:
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Operating income
$
$
98.4 $
65.5
32.9
11.0
21.9 $
99.3 $
67.1
32.2
11.2
21.0 $
87.9
62.1
25.8
10.9
14.9
1 %
2
(2)
3
(4)
(12) %
(7)
(20)
(3)
(29)
Gross margin
Operating income margin
33.4 %
22.3
32.5 %
21.2
29.4 %
17.0
Security Products - Security Products net sales decreased 12% to $87.9 million in 2020 compared to $99.3
million in 2019. Certain Security Products market segments were slower to recover from the negative impact of
COVID-19, primarily in the second and third quarters, including transportation which had $4.4 million lower sales
than 2019, distribution customers which were $2.5 million lower than 2019, and office furniture which was $1.8
million lower than the same period in 2019. Gross margin and operating income margin for 2020 declined as
compared to 2019 primarily due to lower sales and higher cost inventory produced during the second and third
quarters and sold in the last half of the year. Security Products inventory produced during the second and third
quarters of 2020 had a higher carrying value compared to prior periods due to higher cost per unit of production as a
result of lower production volumes during these quarters of 2020. This negatively impacted its gross margin and
operating income margin as this higher cost inventory was sold during the last half of 2020. Additionally, gross
margin and operating income margin were unfavorably impacted by employer paid medical costs unrelated to the
pandemic which increased $2.1 million in 2020 compared to 2019.
Security Products net sales increased 1% to $99.3 million in 2019 compared to $98.4 million in 2018,
primarily due to higher sales to government security and medical cart manufacturing markets, partially offset by
lower sales to the transportation, electronic control panel and distribution markets. As a percentage of sales, gross
margin and operating income for 2019 declined as compared to 2018 primarily due to increased labor rates and
associated payroll costs resulting from regional pressure on wages for certain skilled labor positions, partially offset
by favorable medical costs.
2018
Years ended December 31,
2019
(Dollars in millions)
2020
% Change
2018-19 2019-20
Marine Components:
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Operating income
$
$
19.8 $
14.4
5.4
2.7
2.7 $
24.9 $
18.2
6.7
3.1
3.6 $
26.6
19.6
7.0
2.9
4.1
26 %
26
25
16
33
7 %
8
5
(4)
12
Gross margin
Operating income margin
27.2 %
13.8
27.0 %
14.6
26.4 %
15.3
Marine Components - Marine Components net sales increased 7% in 2020 as compared to 2019 primarily
due to increased sales of $2.9 million to the towboat market, primarily wake enhancement systems and surf pipes to
- 37 -
an original equipment boat manufacturer, predominantly in the second half of the year. Gross margin as a percentage
of sales in 2020 was slightly below 2019 due to higher cost inventory produced during the second quarter and sold
in the third quarter of the year, as well as higher depreciation expense resulting from the timing of capital
expenditures. Operating income as a percentage of net sales increased in 2020 compared to 2019 principally due to
the slight decrease in operating costs and expenses.
Marine Components net sales increased 26% in 2019 as compared to 2018 primarily due to increased sales
to the towboat market, primarily wake enhancement systems and surf pipes to an original equipment boat
manufacturer. Gross margin as a percentage of sales in 2019 was comparable to 2018. Operating income as a
percentage of net sales increased in 2019 compared to 2018 principally due to improved coverage on operating costs
and expenses facilitated by higher production volumes.
Outlook - In the second half of 2020, CompX’s sales began to recover from the historically low levels it
experienced during the second quarter, with sales steadily improving for the remainder of the year. The COVID-19
pandemic continues to impact its operations and demand for its products particularly in the transportation, office
furniture and distribution markets served by CompX’s Security Products reporting unit. In the second half of the
year, CompX’s manufacturing operations returned to more normal production rates as demand from CompX’s
customers began to return, although for CompX’s Security Products reporting unit, below pre-pandemic levels.
CompX’s global and domestic supply chains remain intact, and CompX has experienced minimal supply chain
disruptions. The markets CompX sells to have recovered to varying degrees, and CompX continues to work closely
with all its customers and monitor their progress as they continue to adjust their operations. Even with the severe
downturn during the second quarter, CompX’s Marine Component reporting unit sales outpaced prior year as
demand for recreational boats increased as people sought socially distanced, outdoor activities. CompX expects
these trends to continue for at least the first part of 2021.
Considerable effort continues at all of CompX’s locations to manage COVID-19 conditions including
enhanced health and safety protocols and cleaning and disinfecting efforts. Throughout the course of the COVID-19
pandemic, CompX has focused efforts on maintaining efficient operations while closely managing expenses and
capital projects. In this regard, CompX is constantly evaluating staffing levels and believes current staffing levels
are aligned with CompX’s sales and production forecasts for the first part of 2021.
The advance of the COVID-19 pandemic and the global efforts to mitigate its spread have resulted in sharp
contractions of vast areas of the global economy and are expected to continue to challenge workers, businesses and
governments for the foreseeable future. Government actions in various regions have generally permitted the
gradual resumption of commercial activities following various regional shutdowns, but further government action
restricting economic activity is possible in an effort to mitigate increases in COVID-19 cases in certain regions. The
success and timing of these mitigating actions will depend in part on continued deployment of effective tools to fight
COVID-19, including availability of testing, effective treatments and vaccine distribution, before economic growth
is likely to return to pre-pandemic levels. Even as these measures are implemented and become effective, they will
not directly address the business and employment losses already experienced. As a result, CompX expects U.S. and
worldwide gross domestic product to be significantly impacted for an indeterminate period.
Based on current conditions, CompX expects to report increased revenue and operating income in 2021
compared to 2020 but CompX does not expect CompX’s Security Products reporting unit to return to pre-pandemic
levels experienced in 2019. As noted above, CompX’s Security Products production volumes remain below 2019
levels. As a result, CompX expects to continue to experience the negative impact of higher fixed costs per unit of
production during 2021 which will continue to challenge gross margins in this reporting unit. The severity of the
impact of COVID-19 on 2021 will depend on customer demand for CompX’s products, including the timing and
extent to which its customers’ operations continue to be impacted, on CompX customers’ perception as to when
consumer demand for their products will return to pre-pandemic levels and on any future disruptions in CompX’s
operations or its suppliers’ operations, all of which are difficult to predict. CompX’s operations teams meet
frequently to ensure it is taking appropriate actions to maintain a safe working environment for all CompX’s
employees, minimize operational disruptions, manage inventory levels and improve operating margins. It is possible
CompX may temporarily close one or more of its facilities for the health and safety of its employees before the
COVID-19 pandemic is over.
- 38 -
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. We recognized $5.1 million in insurance recoveries in
2019 primarily related to a single settlement we reached with one of our insurance carriers in which they agreed to
reimburse us for a portion of our past and future 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. See Note 17 to our Consolidated Financial Statements.
Other income, net - Other income, net in 2019 includes a gain of $4.4 million related to a sale of excess
property in the third quarter and a gain of $3.0 million related to the sale of our insurance and risk management
business in the fourth quarter. See Note 13 to our Consolidated Financial Statements.
Litigation settlement expense - We recognized a pre-tax $62.0 million and $19.3 million litigation
settlement expense net of expected insurance recoveries in 2018 and 2019, respectively, related to the lead pigment
litigation in California. See Note 17 to our Consolidated Financial Statements.
Corporate expense - Corporate expenses were $9.5 million in 2020, $3.0 million or 24% lower than in
2019 primarily due to lower litigation fees and related costs and lower administrative expenses partially offset by
higher environmental remediation and related costs. Included in corporate expenses are:
(cid:129)
(cid:129)
litigation fees and related costs of $1.9 million in 2020 compared to $4.0 million in 2019, and
environmental remediation and related costs of $.1 million in 2020 compared to a benefit of $.6 million
in 2019.
Corporate expenses were $12.5 million in 2019, $5.9 million or 32% lower than in 2018 primarily due to
lower litigation fees and related costs and lower environmental remediation and related costs. Included in corporate
expenses are:
(cid:129)
(cid:129)
litigation fees and related costs of $4.0 million in 2019 compared to $6.2 million in 2018, and
environmental remediation and related benefit of $.6 million in 2019 compared to costs of $2.7 million
in 2018.
Overall, we currently expect that our general corporate expenses in 2021 will be higher than in 2020
primarily due to higher expected litigation fees and related costs and higher environmental remediation and related
costs.
The level of our litigation fees and related costs varies from period to period depending upon, among other
things, the number of cases in which we are currently involved, the nature of such cases and the current stage of
such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable). See Note 17 to our Consolidated
Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved
during 2021 or the nature of such cases were to change, our corporate expenses could be higher than we currently
estimate.
Obligations for environmental remediation and related 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 2021, our
corporate expenses would be higher than we currently estimate. In addition, we adjust our environmental accruals
- 39 -
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 17 to our Consolidated
Financial Statements.
Interest and dividend income - Interest income decreased $4.1 million in 2020 compared to 2019 primarily
due to lower average balances and lower interest rates on CompX’s revolving promissory note receivable from
Valhi as well as lower average interest rates on invested balances partially offset by higher cash and cash
equivalents available for investment. Interest income increased $1.7 million in 2019 compared to 2018 primarily
due to higher cash and cash equivalent and restricted cash and cash equivalent balances available for investment,
higher average outstanding balances under CompX’s loan to Valhi under a promissory note and higher average
interest rates. We also recognized $.6 million of accrued interest income on the insurance recovery receivable in the
second quarter of 2019.
Marketable equity securities - Unrealized gains or losses on our marketable equity securities are
recognized in Marketable equity securities on our Consolidated Statements of Operations. See Note 5 to our
Consolidated Financial Statements.
Income tax expense (benefit) - We recognized an income tax benefit of $15.4 million in 2018, an income
tax expense of $.6 million in 2019 and an income tax benefit of $2.5 million in 2020.
In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings of
Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we receive from
Kronos are nontaxable to us. Accordingly, we do not recognize and we are not required to pay income taxes on
dividends from Kronos. Therefore, our full-year effective income tax rate will generally be lower than the U.S. federal
statutory income tax rate in years during which we receive dividends from Kronos and recognize equity in earnings of
Kronos. Conversely, our effective income tax rate will generally be higher than the U.S. federal statutory income tax
rate in years during which we receive dividends from Kronos and recognize equity in losses of Kronos. During interim
periods, our effective income tax rate may not necessarily correspond to the foregoing due to the application of
accounting for income taxes in interim periods which requires us to base our effective rate on full year projections. We
received aggregate dividends from Kronos of $23.9 million in 2018 and $25.4 million in each of 2019 and 2020.
Our effective tax rate attributable to our equity in earnings (losses) of Kronos, including the effect of non-taxable
dividends we received from Kronos, was 12.9% expense in 2018, .9% expense in 2019 and a 6.4% benefit in 2020.
The reduction in our effective rate from 2018 to 2019 and from 2019 to 2020 is primarily attributable to the net effects
of Kronos’ lower earnings in 2019 as compared to 2018 and 2019 as compared to 2020 and the impact of the income
tax benefit related to the non-taxable dividends received from Kronos.
We record a valuation allowance to reduce our deferred income tax assets to the amount that is expected to
be realized under the more-likely-than-not recognition criteria. 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 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. This could result in an adjustment to the valuation allowance up to the full deferred tax asset
that would either increase or decrease, as applicable, reported net income in the period such change in estimate was
made. At December 31, 2020, we had approximately $28.8 million of deferred tax assets primarily related to our
litigation and environmental accruals. At this time, we consider it more-likely-than-not that we will have sufficient
taxable income in the future that will allow us to realize these deferred tax assets.
See Note 14 to our Consolidated Financial Statements for more information about our 2020 income tax
items, including a tabular reconciliation of our statutory tax expense (benefit) to our actual tax expense (benefit).
Noncontrolling interest - Noncontrolling interest in net income of CompX attributable to continuing
operations is consistent in 2018 and 2019 and lower in 2020 due to lower earnings of CompX in 2020.
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.
- 40 -
Equity in earnings of Kronos Worldwide, Inc.
Net sales
Cost of sales
Gross margin
Income from operations
Other income (loss), net
Interest expense
Income before income taxes
Income tax expense
Net income
$
$
$
$
2018
Years ended December 31,
2019
(Dollars in millions)
2020
2018-19
2019-20
% Change
1,661.9 $
1,099.7
562.2 $
1,731.1 $
1,344.9
386.2 $
1,638.8
1,287.6
351.2
4 %
22 %
(5) %
(4) %
330.1 $
(16.8)
(19.5)
293.8
88.8
205.0 $
145.8 $
(6.0)
(18.7)
121.1
34.0
87.1 $
116.2
(17.2)
(19.0)
80.0
16.1
63.9
(56) %
64
(4)
(20) %
(187)
2
Percentage of net sales:
Cost of sales
Income from operations
Equity in earnings of
Kronos Worldwide, Inc.
TiO2 operating statistics:
Sales volumes*
Production volumes*
66 %
20 %
78 %
8 %
79 %
7 %
$
62.3 $
26.5 $
19.4
491
536
566
546
531
517
15 %
2 %
(6) %
(5) %
Change in TiO2 net sales:
TiO2 product pricing
TiO2 sales volumes
TiO2 product mix/other
Changes in currency exchange rates
Total
* Thousands of metric tons
(6) %
15
(2)
(3)
4 %
(2) %
(6)
2
1
(5) %
Industry conditions and 2020 overview - Kronos started 2020 with average TiO2 selling prices 1% lower
than at the beginning of 2019. At the end of 2020, Kronos’ average TiO2 selling prices were comparable to the end
of the third quarter of 2020 and 3% lower than at the beginning of the year. Kronos experienced lower sales
volumes in all major markets in 2020 as compared to sales volumes in 2019, primarily due to demand contraction
related to the COVID-19 pandemic, which mainly impacted the second and third quarters.
The following table shows Kronos’ capacity utilization rates during 2019 and 2020. Kronos’ production
rates in 2020 were impacted by the COVID-19 pandemic as it decreased production levels early in the third quarter
to correspond with a temporary decline in market demand, then increased production levels later in the third quarter
and into the fourth quarter to align with improved demand and its market expectations for the near term.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Overall
2019
2020
97%
97%
97%
100%
98%
95%
96%
86%
92%
92%
- 41 -
Net sales - Kronos’ net sales decreased $92.3 million, or 5%, in 2020 compared to 2019, primarily due to a
6% decrease in sales volumes (which decreased net sales by approximately $104 million) and a 2% decrease in
average TiO2 selling prices (which decreased net sales by approximately $35 million). In addition to the impact of
lower sales volumes and lower average selling prices, Kronos estimates that changes in currency exchange rates
(primarily the euro) increased its net sales by approximately $9 million, or 1%, as compared to 2019.
Kronos’ sales volumes decreased 6% in 2020 as compared to the sales volumes of 2019 due to lower sales
volumes in all major markets, with the European and export markets experiencing the most significant reductions.
A significant portion of the sales volume decrease occurred in the second and third quarters as a result of the
demand contraction related to the COVID-19 pandemic.
Kronos’ net sales increased $69.2 million, or 4%, in 2019 compared to 2018, primarily due to the net effect
of a 6% decrease in average TiO2 selling prices (which decreased net sales by approximately $100 million), a 15%
increase in sales volumes (which increased net sales by approximately $249 million) and changes in currency
exchange rates. TiO2 selling prices will increase or decrease generally as a result of competitive market pressures,
changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs.
Kronos’ sales volumes increased 15% in 2019 as compared to the sales volumes of 2018 primarily due to
strength in the European, North American and export markets in 2019 as compared to 2018. In addition to the
impact of changes in average TiO2 selling prices and sales volumes, Kronos estimates that changes in currency
exchange rates decreased its net sales by approximately $49 million, or 3%, as compared to 2018.
Cost of sales and gross margin - Kronos’ cost of sales decreased $57.3 million, or 4%, in 2020 compared
to 2019 due to the net effect of a 6% decrease in sales volumes, higher raw materials and other production costs of
approximately $6 million (including higher cost for third-party feedstock and other raw materials) and currency
exchange rate fluctuations. Kronos’ cost of sales per metric ton of TiO2 sold in 2020 was higher as compared to
2019 (excluding the effect of changes in currency exchange rates) primarily due to a moderate rise in the cost of
third-party feedstock we procured in 2019 and the first half of 2020. Kronos’ cost of sales as a percentage of net
sales increased to 79% in 2020 compared to 78% in 2019 primarily due to the unfavorable effects of lower average
TiO2 selling prices and higher raw materials and other production costs, as discussed above, partially offset by
improved sales and production volumes from its ilmenite mine operations.
Kronos’ gross margin as a percentage of net sales decreased to 21% in 2020 compared to 22% in 2019. As
discussed and quantified above, Kronos’ gross margin as a percentage of net sales decreased primarily due to the net
effect of lower sales volumes, lower average TiO2 selling prices, higher raw materials and other production costs
and higher sales from its ilmenite mine operations.
Kronos’ cost of sales increased $245.2 million or 22% in 2019 compared to 2018 primarily due to the net
impact of a 15% increase in sales volumes, higher raw materials and other production costs of approximately $122
million (including higher cost for third-party feedstock costs, energy and other raw materials) and currency
fluctuations (primarily the euro). Kronos’ cost of sales as a percentage of net sales increased to 78% in 2019
compared to 66% in 2018 primarily due to the unfavorable effects of lower average selling prices and higher raw
materials and other production costs, as discussed above.
Kronos’ gross margin as a percentage of net sales decreased to 22% in 2019 compared to 34% in 2018. As
discussed and quantified above, Kronos’ gross margin decreased primarily due to the net effect of lower average
selling prices, higher sales volumes and higher raw materials and other production costs.
Other operating income and expense, net - Kronos’ selling, general and administrative expenses decreased
$9.6 million, or 4%, in 2020 compared to 2019 primarily due to variable costs related to lower overall sales volumes.
Kronos’ selling, general and administrative expenses were $228.2 million in 2019, which were comparable to such
expenses in 2018.
Income from operations - Income from operations decreased by $29.6 million, from $145.8 million in
2019 to $116.2 million in 2020. Income from operations as a percentage of net sales was 7% in 2020 compared to
8% in 2019. This decrease was driven by the lower gross margin discussed above for the comparable periods.
- 42 -
Kronos estimates that changes in currency exchange rates increased income from operations by approximately $6
million in 2020 as compared to 2019 as discussed in the Effects of currency exchange rates section below.
Kronos’ income from operations in 2020 was also minimally impacted by the effects of Hurricane Laura
which temporarily halted production at LPC on August 24, 2020. Although storm damage to core manufacturing
facilities was not severe, a variety of factors, including loss of utilities, limited availability of employees to return to
work and restrictions on the facility’s access to raw materials, prevented the resumption of operations until
September 25, 2020. LPC believes insurance (subject to applicable deductibles) will cover a majority of its losses,
including those related to property damage and the disruption of its operations. The Kronos warehouse and slurry
facilities located near LPC’s facility were also temporarily closed due to the hurricane, but property damage to these
facilities was not significant. Kronos’ 2020 income from operations includes immaterial costs related to Hurricane
Laura, primarily costs to relocate inventory and modify shipping schedules in order to maintain service levels to its
customers following the hurricane. Kronos believes insurance (subject to applicable deductibles) will cover a
majority of its losses from the hurricane, including property damage, business interruption losses related to its share
of LPC’s lost production and other costs resulting from the disruption of operations, but no insurance recoveries
have yet been recognized as the allowable damage claim amounts are not presently determinable. On October 9,
2020 Hurricane Delta caused an additional temporary halt to production at the LPC facility. Damages resulting
from Hurricane Delta were not as severe and production activities were resumed within five days from the time of
initial shutdown prior to landfall of the hurricane. Similar to Hurricane Laura, losses determined to be incurred by
LPC and Kronos as a result of Hurricane Delta are expected to be recoverable from insurance (subject to applicable
deductibles).
Kronos’ income from operations decreased by $184.3 million, from $330.1 million in 2018 to $145.8
million in 2019. Income from operations as a percentage of net sales was 8% in 2019 compared to 20% in 2018.
This decrease was driven by the decrease in gross margin discussed above for the comparable periods. Kronos
estimates that changes in currency exchange rates decreased income from operations by approximately $3 million in
2019 as compared to 2018.
Other non-operating income (expense) - Kronos recognized a loss of $1.1 million in 2020 and $.1 million
in 2019 on the change in value of its marketable equity securities. Other components of net periodic pension and
postretirement benefits other than pensions, or OPEB, cost in 2020 increased $4.2 million compared to 2019
primarily due to increased amortization costs from previously unrecognized actuarial losses as a result of lower
discount rates and lower expected returns on plan assets. Interest expense in 2020 was comparable to 2019.
Kronos’ loss on marketable equity securities was $.1 million in 2019 and $7.3 million in 2018. Other
components of net periodic pension and OPEB cost in 2019 was comparable to 2018. Interest expense in 2019 was
comparable to 2018.
Income tax expense - Kronos recognized income tax expense of $16.1 million in 2020 compared to income
tax expense of $34.0 million in 2019. The decrease is primarily due to lower earnings in 2020 and the jurisdictional
mix of such earnings. In addition, Kronos’ income tax expense in 2019 includes an income tax benefit recognized in
the fourth quarter of $3.0 million related to the favorable settlement of a prior year tax matter in Germany, with $1.5
million recognized as a current cash tax benefit and $1.5 million recognized as a non-cash deferred income tax
benefit related to an increase to its German net operating loss carryforward. In addition, in the fourth quarter of
2019, Kronos recognized a non-cash deferred income tax expense of $5.5 million primarily related to the revaluation
of its net deferred income tax asset in Germany resulting from a decrease in the German trade tax rate.
Kronos recognized income tax expense of $34.0 million in 2019 compared to income tax expense of $88.8
million in 2018. The decrease is primarily due to lower earnings in 2019. In addition, Kronos’ income tax expense
in 2019 includes an income tax benefit recognized in the fourth quarter of $3.0 million related to the favorable
settlement of a prior year tax matter in Germany, with $1.5 million recognized as a current cash tax benefit and $1.5
million recognized as a non-cash deferred income tax benefit related to an increase to Kronos’ German net operating
loss carryforward. In addition, in the fourth quarter of 2019, Kronos recognized a non-cash deferred income tax
expense of $5.5 million primarily related to the revaluation of its net deferred income tax asset in Germany resulting
from a decrease in the German trade tax rate.
- 43 -
Kronos’ earnings are subject to income tax in various U.S. and non-U.S. jurisdictions. Generally, Kronos’
consolidated effective income tax rate is higher than the U.S. federal statutory tax rate of 21% primarily because the
income tax rates applicable to the pre-tax earnings (losses) of its non-U.S. operations are generally higher than the
income tax rates applicable to its U.S. operations. However, in 2020 Kronos’ consolidated effective income tax rate
is lower than the U.S. federal statutory rate of 21% due to the effect of lower earnings and tax benefits associated
with losses incurred in certain high tax jurisdictions.
Kronos’ consolidated effective income tax rate in 2021 is expected to be higher than the U.S. federal
statutory rate of 21% because the income tax rates applicable to the earnings (losses) of its non-U.S. operations will
be higher than the income tax rates applicable to its U.S. operations and due to the expected mix of earnings.
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 (and consequently Kronos’ non-
U.S. operations will generally hold U.S. dollars from time to time). Certain raw materials used in all Kronos’
production facilities, primarily titanium-containing feedstocks, are purchased primarily in U.S. dollars, while labor
and other production and administrative costs are incurred primarily in local currencies. Consequently, the
translated U.S. dollar value of Kronos’ non-U.S. sales and operating results are subject to currency exchange rate
fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of
period-to-period operating results. In addition to the impact of the translation of sales and expenses over time,
Kronos’ non-U.S. operations also generate currency transaction gains and losses which primarily relate to (i) the
difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarily
U.S. dollar denominated) are initially accrued and when such amounts are settled with the non-local currency and
(ii) changes in currency exchange rates during time periods when Kronos’ non-U.S. operations are holding non-local
currency (primarily U.S. dollars).
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 - 2020 vs. 2019
Transaction gains/(losses) recognized
Translation
gains -
impact of
2019
2020
Change rate changes
(In millions)
Total currency
impact
2020 vs. 2019
$
- $
2
- $
(4)
-
$
(6)
$
9
12
9
6
Impact on:
Net sales
Income from operations
The $9 million increase in Kronos’ net sales (translation gain) was caused primarily by a weakening of the
U.S. dollar relative to the euro, as its euro-denominated sales were translated into more U.S. dollars in 2020 as
compared to 2019. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in
2020 did not have a significant effect on the reported amount of Kronos’ net sales, as a substantial portion of the
sales generated by its Canadian and Norwegian operations are denominated in the U.S. dollar.
The $6 million increase in income from operations was comprised of the following:
(cid:129)
Lower net currency transaction gains of approximately $6 million primarily caused by relative changes
in currency exchange rates at each applicable balance sheet date between the U.S. dollar and the euro,
Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which
causes increases or decreases, as applicable, in U.S. dollar-denominated receivables and payables and
- 44 -
U.S. dollar currency held by Kronos’ non-U.S. operations, and in Norwegian krone denominated
receivables and payables held by its non-U.S. operations, and
(cid:129) Approximately $12 million from net currency translation gains primarily caused by a strengthening of
the U.S. dollar relative to the Canadian dollar and Norwegian krone, as local currency-denominated
operating costs were translated into fewer U.S. dollars in 2020 as compared to 2019, and such
translation, as it related to the U.S. dollar relative to the euro, had a nominal effect on income from
operations in 2020 as compared to 2019.
Impact of changes in currency exchange rates - 2019 vs. 2018
Transaction gains/(losses) recognized
Translation
gains
impact of
2018
2019
Change rate changes
(In millions)
Total currency
impact
2019 vs. 2018
$
- $
10
$
-
2
- $
(8)
(49 ) $
5
(49)
(3)
Impact on:
Net sales
Income from operations
The $49 million decrease in Kronos’ net sales (translation loss) was caused primarily by a strengthening of
the U.S. dollar relative to the euro, as its euro-denominated sales were translated into fewer U.S. dollars in 2019 as
compared to 2018. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in
2019 did not have a significant effect on the reported amount of Kronos’ net sales, as a substantial portion of the
sales generated by its Canadian and Norwegian operations are denominated in the U.S. dollar.
The $3 million decrease in Kronos’ income from operations was comprised of the following:
(cid:129)
Lower net currency transactions gains of approximately $8 million primarily caused by relative
changes in currency exchange rates at each applicable balance sheet date between the U.S. dollar and
the euro, Canadian dollar and the Norwegian krone, which causes increases or decreases, as applicable,
in U.S. dollar-denominated receivables and payables and U.S. dollar currency held by Kronos’ non-
U.S. operations, and
(cid:129) Approximately $5 million from net currency translation gains primarily caused by the strengthening of
the U.S. dollar relative to the Canadian dollar and Norwegian krone, as Kronos’ local currency-
denominated operating costs were translated into fewer U.S. dollars in 2019 as compared to 2018,
partially offset by the strengthening of the U.S. dollar relative to the euro as the reduction in net sales
caused by such strengthening of the stronger U.S. dollar on euro-denominated sales more than offset
the favorable effect of euro-denominated operating costs being translated into fewer U.S. dollars in
2019 as compared to 2018.
Outlook
In the second half of 2020 Kronos’ sales volumes increased from the reduced levels it experienced during
the first half of the year, primarily during the second quarter. However, the COVID-19 pandemic, including the
measures employed to mitigate its spread, continued to impact Kronos’ operations through reduced demand for its
products and resulted in lower sales and earnings in 2020 than otherwise would have been expected. Kronos’
manufacturing facilities operated at near planned production rates in the first half of 2020, however, early in the
third quarter Kronos decreased its production levels to align with demand and its market expectations for the near
term, and late in the third quarter and into the fourth quarter Kronos began increasing production levels as demand
improved.
The advance of the COVID-19 pandemic and the global efforts to mitigate its spread have resulted in sharp
contractions of vast areas of the global economy and are expected to continue to challenge workers, businesses and
governments for the foreseeable future. Government actions in various regions have generally permitted the
resumption of commercial activities following various regional shutdowns, but further government action restricting
- 45 -
economic activity is possible in an effort to mitigate increases in COVID-19 in certain regions. As a result, Kronos
expects U.S. and worldwide gross domestic product to be significantly impacted for an indeterminate period of time.
While many of Kronos’ products are used by its customers in end-products that thus far have remained in demand
across the world economy, Kronos believes overall demand for its products and its customers’ products will
continue to be impacted by reduced economic activity.
Despite negative impacts and continued uncertainty on worldwide gross domestic product from COVID-19,
Kronos has experienced increasing demand for its products in the second half of 2020 and expects these demand
levels to continue into 2021. As such, Kronos expects its 2021 sales and income from operations to be higher than
in 2020, principally as a result of higher average TiO2 selling prices and higher sales volumes. Kronos also expects
its production volumes in 2021 to be slightly higher as compared to 2020 production volumes, in line with expected
increased demand for its products. The full extent of the COVID-19 impact on Kronos’ operations will depend on
numerous factors, including customer demand for its products, any future disruption in its operations or its
suppliers’ operations and the timing and effectiveness of measures deployed to fight COVID-19, all of which are
uncertain and cannot be predicted. Kronos will continue to monitor current and anticipated near-term customer
demand throughout the year and further align its production and inventory levels accordingly.
Kronos experienced increases in its feedstock costs in 2019 and during the first half of 2020 before the
costs moderated in the second half of 2020. Kronos expects its feedstock costs to remain relatively consistent in
2021 as compared to the average 2020 costs. To-date, the availability of raw materials has not been adversely
impacted by the COVID-19 pandemic.
At the beginning of 2020, Kronos’ average TiO2 selling prices were 1% lower than at the beginning of
2019 and average TiO2 selling prices decreased 3% during 2020. Due to increasing customer demand experienced
in the second half of 2020, Kronos expects prices to rise slightly in 2021.
Kronos’ manufacturing and administrative facilities are generally located in densely populated regions of
Europe and North America which have experienced substantial outbreaks of COVID-19 and are in varying stages of
outbreak and recovery. Kronos continues to employ a variety of methods to protect the health and well-being of its
workforce and its customers, including the implementation of contact tracing, deep cleaning and disinfecting of
facilities, work-from-home strategies and staggered shift deployment, among other health and safety protocols. To-
date, Kronos has had limited cases of COVID-19 among its workforce and all of its facilities have remained open
and operational. Kronos commends its employees for their continuing efforts and support in these challenging times
as Kronos works to foster their physical and economic health as well as that of the company.
Operations outside the United States
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, 2020, Kronos
had substantial net assets denominated in the euro, Canadian dollar and Norwegian krone.
Critical accounting policies and estimates
Our significant accounting policies are more fully described in Note 1 to our Consolidated Financial
Statements. Our Consolidated Financial Statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (GAAP) which requires us to make estimates, judgments and
assumptions we believe are reasonable based on our historical experience, observation of known trends in our
company and the industry as a whole and information available from other outside sources. Our estimates affect the
reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense during the reporting period. Actual results
may differ significantly from those initial estimates.
We believe the most critical accounting policies and estimates involving significant judgment primarily
relate to contingencies, certain long-lived assets, considerations in the recoverability and impairment assessments for
goodwill and defined benefit pension plans. We have discussed the development, selection and disclosure of our
- 46 -
critical accounting estimates with the Audit Committee of our Board of Directors.
(cid:129) 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).
Obligations for environmental remediation costs are difficult to assess 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
2021, our corporate expenses would be higher than we currently estimate. In addition, we adjust our
environmental remediation and related costs accruals (and potential range of our liabilities) as further
information becomes available to us or as circumstances change which involves our judgment
regarding current facts and circumstances for each site and is subject to various assumptions and
estimates. Such further information or changed circumstances could result in an increase in our
accrued environmental costs. See Note 17 to our Consolidated Financial Statements.
(cid:129)
Long-lived assets - The net book value of our property and equipment totaled $28.9 million at
December 31, 2020, all of which relates to CompX. We assess property and equipment for impairment
only when circumstances 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 are
present. We did not evaluate any long-lived assets for impairment during 2020 because no such
impairment indicators were present.
(cid:129) Goodwill - Our net goodwill totaled $27.2 million at December 31, 2020, all related to CompX’s
Security Products reporting unit. Goodwill is required to be tested annually or 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. CompX performs its annual goodwill impairment test in the
third quarter of each year or 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. Such
events or circumstances may include: adverse industry or economic trends, lower projections of
profitability, or a sustained decline in CompX’s market capitalization. These events or circumstances,
among other items, may be indications of potential impairment issues which are triggering events
requiring the testing of an asset’s carrying value for recoverability. An entity may first assess
qualitative factors to determine whether it is necessary to complete the two-step quantitative
impairment test using a more-likely-than-not criteria. If an entity believes it is more-likely-than-not
the fair value of a reporting unit is greater than its carrying value, including goodwill, the two-step
quantitative impairment test can be bypassed. Alternatively, an entity has an unconditional option to
bypass the qualitative assessment and proceed directly to performing the two-step quantitative
impairment test.
When performing a qualitative assessment 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 CompX’s 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.
- 47 -
Evaluations of possible impairment utilizing the two-step quantitative impairment test require CompX
to estimate, among other factors: forecasts of future operating results, revenue growth, operating
margin, tax rates, capital expenditures, depreciation, working capital, weighted average cost of capital,
long-term growth rates, risk premiums, terminal values, and fair values of reporting units and assets.
The goodwill impairment test is subject to uncertainties arising from such events as changes in
competitive conditions, the current general economic environment, material changes in growth rate
assumptions that could positively or negatively impact anticipated future operating conditions and cash
flows, changes in the discount rate, and the impact of strategic decisions. If any of these factors were
to materially change such change may require revaluation of the reported goodwill. Changes in
estimates or the application of alternative assumptions could produce significantly different results.
In 2020, CompX used the qualitative assessment for its annual impairment test and determined it was
not necessary to perform the quantitative goodwill impairment test, as it concluded it is more-likely-
than-not the fair value of the Security Products reporting unit exceeded its carrying amount. See Notes
1 and 7 to our Consolidated Financial Statements.
(cid:129) Defined benefit pension plans - We maintain a defined benefit pension plan in the U.S. and a plan in
the United Kingdom (U.K.) See Note 11 to our Consolidated Financial Statements. We recognized
consolidated defined benefit pension plan expense of $.7 million in 2018, $1.6 million in 2019 and
$1.0 million in 2020. 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 our plans
of approximately $2.8 million in 2018, $3.2 million in 2019 and $1.8 million in 2020.
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 Sheets.
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, 2020, our projected benefit obligations for defined benefit plans comprised $43.8
million related to the U.S. plan and $9.1 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.
- 48 -
We used the following discount rates for our defined benefit pension plans:
Obligations at
December 31, 2018 and
expense in 2019
4.1%
2.8%
Discount rates used for:
Obligations at
December 31, 2019 and
expense in 2020
3.1%
2.0%
Obligations at
December 31, 2020 and
expense in 2021
2.2%
1.4%
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 on the average remaining life expectancy
of the inactive participants.
At December 31, 2020, approximately 74% of the plan assets were related to our plan 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. See Note 11 to our Consolidated Financial Statements.
Our assumed long-term rates of return on plan assets for 2018, 2019 and 2020 were as follows:
United States
United Kingdom
2018
2019
2020
7.5%
6.5%
5.5%
2.8%
4.5%
3.3%
Our long-term rate of return on plan asset assumptions in 2021 used for purposes of determining our
2021 defined benefit pension plan expense is 4.0% for the U.S. plan and 1.3% for the U.K. plan.
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.
Based on the actuarial assumptions described above and our current expectation for what actual
average currency exchange rates will be during 2021, we expect to recognize defined benefit pension
expense of approximately $1.0 million in 2021. In comparison, we expect to be required to contribute
approximately $1.2 million to such plans during 2021.
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 each of our plans as of December 31, 2020, our aggregate projected benefit
obligations would have increased by approximately $1.1 million at that date. Such a change would not
- 49 -
materially impact our defined benefit pension expense for 2021. Similarly, if we lowered the assumed
long-term rate of return on plan assets by 25 basis points for our plans, such a change would not
materially impact our defined benefit pension expense for 2021.
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. 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 $19.0 million in 2020 compared to $27.4 million in 2019.
The $8.4 million net decrease in cash provided by operating activities includes the net effects of:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
First annual installment payment of $12.0 million in 2020 compared to the initial cash payment of
$25.0 million in 2019 related to the litigation settlement discussed in Note 17 to our Consolidated
Financial Statements;
higher net cash used for relative changes in receivables, inventories, prepaid expenses, payables and
accrued liabilities in 2020 of $14.8 primarily due to the reclassification of $15.0 million from accrued
insurance recovery receivable to noncurrent restricted cash in 2019;
lower income from operations from CompX in 2020 of $5.9 million;
lower cash received for insurance recoveries in 2020 of $5.3 million;
lower cash paid for environmental remediation and related costs in 2020 of $2.0 million related to
settlement of an environmental site in 2019; and
a $2.8 million decrease in interest received in 2020 due to lower average interest rates and to a lesser
extent a lower average affiliate receivable balance, partially offset by the relative timing of interest
received.
Net cash provided by operating activities was $27.4 million in 2019 compared to $17.1 million in 2018.
The $10.3 million net increase in cash provided by operating activities includes the net effects of:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
a cash payment of $25.0 million for the first installment of the litigation settlement discussed in Note
17 to our Consolidated Financial Statements;
lower net cash used for relative changes in receivables, inventories, prepaid expenses, payables and
accrued liabilities in 2019 of $17.9 million primarily due to the reclassification of $15.6 million from
accrued insurance recovery receivable to noncurrent restricted cash;
lower cash paid for environmental remediation and related costs in 2019 of $13.3 million related to
settlement of an environmental site in 2018;
higher cash received for insurance recoveries in 2019 of $4.2 million;
lower cash received for income taxes in 2019 of $1.6 million;
higher dividends received from Kronos in 2019 of $1.5 million; and
a $1.1 million increase in interest received in 2019.
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.
- 50 -
2018
Years ended December 31,
2019
(In millions)
2020
Net cash provided by (used in) operating activities:
CompX
NL Parent and wholly-owned subsidiaries
Eliminations
Total
$
$
17.2 $
2.1
(2.2)
17.1 $
18.5
11.9
(3.0)
27.4
$
$
15.5
7.8
(4.3)
19.0
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, 2019 to December 31, 2020
primarily as a result of the timing of sales and collections in the last month of 2020 as compared to 2019. As shown
below, our average number of days in inventory decreased from December 31, 2019 to December 31, 2020
primarily as a result of rapid sales growth for the Marine Components reporting unit in the fourth quarter of 2020.
For comparative purposes, we have provided 2018 numbers below.
Days sales outstanding
Days in inventory
Investing activities
2018
40 days
80 days
2019
36 days
81 days
2020
33 days
75 days
Capital expenditures, substantially all of which relate to CompX, have primarily emphasized improving
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 facilities and technology infrastructure. Capital expenditures
were $3.1 million in 2018, $3.2 million in 2019 and $1.7 million in 2020. As a result of the COVID-19 pandemic,
CompX limited 2020 expenditures to those required to meet its expected customer demand and those required to
properly maintain its facilities and technology infrastructure.
Investing activities also include net collections by CompX from Valhi of $4.2 million ($46.8 million of
gross borrowings and $51.0 million of gross repayments) in 2018, net collections of $5.9 million ($34.9 million of
gross borrowings and $40.8 million of gross repayments) in 2019 and net borrowings of $1.4 million ($34.8 million
of gross borrowings and $33.4 million of gross repayments) in 2020 under a promissory note receivable from an
affiliate. See Note 16 to our Consolidated Financial Statements.
During 2019, investing activities also included proceeds from a sale of excess property of $4.6 million in
the third quarter and net proceeds from the sale of our insurance and risk management business of $2.9 million in the
fourth quarter.
Financing activities
During 2020, our board of directors approved and we paid quarterly dividends of $.04 per share to NL
stockholders aggregating $7.8 million. In February 2021 our board of directors declared a first quarter 2021
dividend of $.06 per share, to be paid on March 25, 2021 to NL stockholders of record as of March 15, 2021. The
declaration and payment of future dividends, and the amount thereof, is discretionary and is dependent upon our
financial condition, cash requirements, contractual obligations and restrictions and other factors deemed relevant by
our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or
timing of any future dividends which might be paid. There are currently no contractual restrictions on the amount of
dividends which we may pay.
Cash flows from financing activities include CompX dividends paid to its stockholders other than us
aggregating $.3 million in 2018, $.5 million in 2019 and $.7 million in 2020.
- 51 -
Outstanding debt obligations
At December 31, 2020, NL had outstanding debt obligations of $.5 million under its secured revolving
credit facility with Valhi, and CompX did not have any outstanding debt obligations. We are in compliance with all
of the covenants contained in our revolving credit facility with Valhi at December 31, 2020. See Note 10 to our
Consolidated Financial Statements.
Kronos’ North American and European revolvers and its senior secured notes contain a number of
covenants and restrictions which, among other things, restrict its ability to incur additional debt, incur liens, pay
dividends or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and
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 covenants at December 31, 2020. Kronos believes that it will be able to
continue to comply with the financial covenants contained in its credit facilities through their maturity.
Future cash requirements
Liquidity
Our primary source of liquidity on an ongoing basis is our cash flow from operating activities and credit
facilities with affiliates 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, 2020, we had aggregate cash, cash equivalents and restricted cash of $165.3 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
$
$
70.6
94.7
165.3
In addition, at December 31, 2020 we owned 1.2 million shares of Valhi common stock with an aggregate
market value of $18.2 million. See Note 5 to our Consolidated Financial Statements. We also owned 35.2 million
shares of Kronos common stock at December 31, 2020 with an aggregate market value of $525.1 million. See Note
6 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.
- 52 -
Based upon our expectations of 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, 2021). If actual developments differ materially from our expectations, our liquidity could be
adversely affected. In this regard, Valhi has agreed to loan us up to $50 million on a revolving basis. At December
31, 2020, we had $.5 million in outstanding borrowings under this facility, and we had $49.5 million available for
future borrowing under the facility. See Note 10 to our Consolidated Financial Statements.
Capital expenditures
Capital expenditures for 2021 are estimated at approximately $4 million, substantially all of which relate to
CompX. CompX’s 2021 capital investments are primarily to maintain and improve the cost-effectiveness of its
facilities and equipment.
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 2021, based on the number of shares of common stock of these affiliates we own as of
December 31, 2020 and their current regular quarterly dividend rate, is presented in the table below. In this regard,
in March 2021 CompX increased its regular quarterly dividend from $.10 to $.20 per share, beginning with its
dividend payable in March 2021.
Kronos
CompX
Valhi
Total expected annual dividends
Shares held at
December 31, 2020
(In millions)
Quarterly
dividend rate
Annual expected
dividend
(In millions)
35.2 $
10.8
1.2
.18 $
.20
.08
$
25.4
8.6
.4
34.4
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.
Off balance sheet financing arrangements
We do not have any material off-balance sheet financing arrangements.
Commitments and contingencies
We are subject to certain commitments and contingencies, as more fully described in Note 17 to our
Consolidated Financial Statements or in Part I, Item 3 of this report. In addition to those legal proceedings described
in Note 17 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,
- 53 -
results of operations or liquidity, enactment of such legislation could have such an effect.
As more fully described in the Notes to our Consolidated Financial Statements, we are party to various
debt, leases and other agreements which contractually and unconditionally commit us to pay certain amounts in the
future. See Note 10 to our Consolidated Financial Statements. The following table summarizes our contractual
commitments as of December 31, 2020 by the type and date of payment.
Payment due date
Contractual commitment
2021
2022/2023
Indebtedness: principal payments
Legal settlement
Operating leases
Purchase obligations
Fixed asset acquisitions
$
- $
12.0
.1
13.1
.3
25.5 $
$
.5
24.0
-
-
-
24.5
2024/2025
(In millions)
$
- $
28.7
-
-
-
28.7 $
$
2026
and after
Total
- $
-
-
-
-
- $
.5
64.7
.1
13.1
.3
78.7
The timing and amount shown for principal payments on our outstanding indebtedness (which consists of
our secured revolving credit facility with Valhi) is based on the contractual maturity date of such indebtedness.
Interest expense associated with such outstanding indebtedness at December 31, 2020 is not material. The amount
shown for our commitments related to legal settlement, 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 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 include:
(cid:129) Amounts 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. Our defined benefit pension plans are discussed in greater detail in Note 11 to our
Consolidated Financial Statements. We currently expect we will be required to contribute an
aggregate of $1.2 million to our defined benefit pension plans during 2021, as discussed in further
detail above.
(cid:129) 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.
Recent accounting pronouncements
See Note 19 to our Consolidated Financial Statements.
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.
Interest rates - We are exposed to market risk from changes in interest rates, primarily related to our
indebtedness. We have an outstanding principal amount of indebtedness of $.5 million at December 31, 2020
bearing interest at prime plus 1.875% (5.13% at December 31, 2020) with a maturity date of December 31, 2023.
The carrying value of such outstanding indebtedness approximates its fair value.
- 54 -
We are also exposed to market risk from changes in interest rates, primarily related to CompX’s note
receivable from affiliate. The outstanding principal amount of the note receivable from affiliate of $29.5 million at
December 31, 2020 bears interest at prime plus 1.0% (4.25% at December 31, 2020). We received interest income of
$1.5 million from the note during 2020.
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, 2019 and 2020 was $26.9 million
and $18.2 million, respectively. The potential change in the aggregate fair value of these investments, assuming a
10% change in prices, would be $2.7 million and $1.8 million at December 31, 2019 and 2020, respectively.
Raw materials - CompX will occasionally enter into short-term commodity-related raw material supply
arrangements to mitigate the impact of future increases in commodity-related raw material costs. CompX does not
have long-term supply agreements for its raw material requirements because either it believes the risk of
unavailability of those raw materials is low and it believes the downside risk of price volatility to be too great or
because long-term supply agreements for those materials are generally not available. CompX does not engage in
commodity raw material hedging programs.
Other - The 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
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means
controls and other procedures that are designed to ensure that information required to be disclosed in the reports that
we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the Act), is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information we
are required to disclose in the reports we file or submit to the SEC under the Act is accumulated and communicated
to our management, including our principal executive officer and our principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure.
Each of Robert D. Graham, our Vice Chairman of the Board and Chief Executive Officer and Amy Allbach
Samford, our Vice President and Chief Financial Officer, have evaluated the design and effectiveness of our
disclosure controls and procedures as of December 31, 2020. 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
- 55 -
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles (“GAAP”), and includes those policies and procedures that:
(cid:129)
(cid:129)
(cid:129)
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, 2020.
This annual report does not include an attestation report of our registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by our registered public
accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual
report.
Other
As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal
control over financial reporting of equity method investees and (ii) internal control over the preparation of any
financial statement schedules which would be required by Article 12 of Regulation S-X. However, our assessment
of internal control over financial reporting with respect to equity method investees did include controls over the
recording of amounts related to our investment that are recorded in the consolidated financial statements, including
controls over the selection of accounting methods for our investments, the recognition of equity method earnings
and losses and the determination, valuation and recording of our investment account balances.
Changes in internal control over financial reporting
There has been no change to our internal control over financial reporting during the quarter ended
December 31, 2020 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 2020, our
chief executive officer filed such annual certification with the NYSE. The 2020 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, 2020 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 2021 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 2021 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 2021 proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to our 2021 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 2021 proxy statement.
- 57 -
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(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, 2020) 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, 2020 will be furnished to the Commission upon request.
Item No.
Exhibit Index
3.1
3.2
4.1
10.1
10.2
10.3
10.4
Certificate of Amended and Restated Certificate of Incorporation dated May 22, 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.
Amended and Restated Bylaws of NL Industries, Inc. as of May 23, 2008 - incorporated by reference
to Exhibit 3.2 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.
Description of the Registrant’s Capital Stock. - incorporated by reference to Exhibit 4.1 to the
Registrant’s Annual Report on Form 10-K (File No. 001-00640) for the year ended December 31,
2019.
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. (P)
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. (P)
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. (P)
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. (P)
- 58 -
Item No.
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12**
10.13
10.17 *
10.18 *
10.19 *
10.20
10.21
Exhibit Index
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. (P)
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. (P)
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. (P)
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).
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
10.10 to Kronos International, Inc.’s Registration Statement on Form S-4 (File No. 333-100047).
Unsecured Revolving Demand Promissory Note dated December 31, 2020 in the principal amount of
$40.0 million executed by Valhi, Inc. and payable to the order of Kronos Worldwide, Inc.
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, 2016 – incorporated by reference to Exhibit 10.26 to the Kronos Worldwide, Inc. Annual
Report on Form 10-K (File No. 001-31763) for the year ended December 31, 2015.
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.
Second Amended and Restated Agreement Regarding Shared Insurance among CompX International
Inc., Contran Corporation, Kronos Worldwide, Inc., NL Industries, Inc. and Valhi, Inc. dated January
25, 2019 – 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, 2018.
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.
- 59 -
Item No.
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
Exhibit Index
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.
Tax Agreement between Valhi, Inc. and Kronos Worldwide, Inc. dated as of January 1, 2020 -
incorporated by reference to Exhibit 10.1 to the Kronos Worldwide, Inc. Annual Report on Form 10-K
(File No. 001-31763) for the year ended December 31, 2019.
Tax Agreement among NL Industries, Inc., Valhi, Inc. and Contran Corporation dated as of January 1,
2020 - incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K
(File No. 001-00640) for the year ended December 31, 2019.
Unsecured Revolving Demand Promissory Note dated December 31, 2020 in the original principal
amount of $40.0 million executed by Valhi, Inc. and payable to the order of CompX International Inc.
- incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of CompX
International Inc. (File No. 1-13905) for the year ended December 31, 2020.
Loan Agreement between NLKW Holding, LLC, as Borrower, and Valhi, Inc., as Lender, dated as of
November 14, 2016 incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File
No. 001-00640) of the Registrant dated November 14, 2016 and filed on November 15, 2016.
Pledge and Security Agreement made by and between NLKW Holding, LLC in favor of Valhi, Inc.,
dated as of November 14, 2016 incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K (File No. 001-00640) of the Registrant dated November 14, 2016 and filed on November 15,
2016.
Back-to-Back Loan Agreement between the registrant, as Borrower, and NLKW Holding, LLC, as
Lender, dated as of November 14, 2016 incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K (File No. 001-00640) of the Registrant dated November 14, 2016 and filed on
November 15, 2016.
Back-to-Back Pledge and Security Agreement made by and between the registrant in favor of Valhi,
Inc., dated as of November 14, 2016 incorporated by reference to Exhibit 10.4 to the Current Report
on Form 8-K (File No. 001-00640) of the Registrant dated November 14, 2016 and filed on November
15, 2016.
Indenture, dated as of September 13, 2017, among Kronos International, Inc., the guarantors named
therein, and Deutsche Bank Trust Company Americas, as trustee, collateral agent, paying agent,
transfer agent and registrar – incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K (File No. 001-31763) of Kronos Worldwide, Inc. dated September 13, 2017 and filed on
September 13, 2017.
Pledge Agreement, dated as of September 13, 2017, among Kronos International, Inc., the guarantors
named therein and Deutsche Bank Trust Company Americas, as collateral agent – incorporated by
reference to Exhibit 4.2 to the Current Report on Form 8-K (File No. 001-31763) of Kronos
Worldwide, Inc. dated September 13, 2017 and filed on September 13, 2017.
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
- 60 -
Item No.
32.1 **
Certification
Exhibit Index
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, 2020.
101.INS**
Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document
101.SCH**
Inline XBRL Taxonomy Extension Schema
101.CAL**
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF**
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB**
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE**
Inline XBRL Taxonomy Extension Presentation Linkbase
104
*
**
(P)
Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Management contract, compensatory plan or arrangement.
Filed herewith
Paper exhibits
- 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 10, 2021
(Vice Chairman 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/ Loretta J. Feehan
Loretta J. Feehan, March 10, 2021
(Chair of the Board (non-executive))
/s/ John E. Harper
John E. Harper, March 10, 2021
(Director)
/s/ Robert D. Graham
Robert D. Graham, March 10, 2021
(Vice Chairman and Chief Executive Officer)
/s/ Meredith W. Mendes
Meredith W. Mendes, March 10, 2021
(Director)
/s/ Amy Allbach Samford
Amy Allbach Samford, March 10, 2021
(Vice President and Chief Financial Officer,
Principal Financial Officer)
/s/ Cecil H. Moore, Jr.
Cecil H. Moore, Jr., March 10, 2021
(Director)
/s/ Patty S. Brinda
Patty S. Brinda, March 10, 2021
(Vice President and Controller,
Principal Accounting Officer)
/s/ Thomas P. Stafford
Thomas P. Stafford, March 10, 2021
(Director)
- 62 -
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, 2019 and 2020
Consolidated Statements of Operations – Years ended December 31, 2018, 2019 and 2020
Consolidated Statements of Comprehensive Income (Loss) - Years ended December 31, 2018,
2019 and 2020
Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2018, 2019 and 2020
Consolidated Statements of Cash Flows - Years ended December 31, 2018, 2019 and 2020
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-6
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 Board of Directors and Stockholders of NL Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NL Industries, Inc. and its subsidiaries
(the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of
operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three
years in the period ended December 31, 2020, including the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the
results of its operations and its cash flows for each of the three years in the period ended December 31,
2020 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of
the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a
separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Environmental Remediation and Related Matters
As described in Note 17 to the consolidated financial statements, management evaluates the potential
range of the Company’s liability for environmental remediation and related costs at sites where the
Company has been named as a potentially responsible party (PRP) or defendant. As of December 31,
2020, management accrued approximately $93 million related to approximately 32 sites associated with
remediation and related matters. Liabilities related to environmental remediation and related matters
(including costs associated with damages for property damage and/or damages for injury to natural
resources) are recorded when management determines that estimated future expenditures are probable
and reasonably estimable. As disclosed by management, environmental remediation and related costs
accruals (and the potential range of the Company’s liabilities) are adjusted as further information
becomes available or as circumstances change which involves management’s judgment regarding current
facts and circumstances for each site and is subject to various assumptions and estimates.
The principal considerations for our determination that performing procedures relating to environmental
remediation and related matters is a critical audit matter are the significant judgment by management
when assessing the accruals and the potential range of the Company’s liabilities and when determining
whether estimated future expenditures are probable and reasonably estimable, which in turn led to a high
degree of auditor judgment, subjectivity and effort in performing procedures and evaluating evidence
related to management’s assessment of the accruals and the potential range of the liabilities.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing
the effectiveness of controls relating to management’s evaluation of environmental remediation and
related matters (including costs and estimates associated with damages for property damage and/or
damages for injury to natural resources), including controls over determining whether estimated future
expenditures are probable and reasonably estimable, as well as the related financial statement disclosures.
These procedures also included, among others, (i) obtaining the rollforward of environmental accrual
activity for each matter and, for a sample of sites, reviewing and discussing site activity with management,
(ii) obtaining and evaluating responses to letters of audit inquiry from internal and external legal counsel,
and (iii) evaluating the sufficiency of the Company’s environmental remediation and related matters
disclosures.
Dallas, Texas
March 10, 2021
We have served as the Company’s auditor since 1924.
F-3
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts and other receivables, net
Receivables from affiliates
Inventories, net
Prepaid expenses and other
Total current assets
Other assets:
Restricted cash and cash equivalents
Note receivable from affiliate
Marketable securities
Investment in Kronos Worldwide, Inc.
Goodwill
Other assets, net
Total other assets
Property and equipment:
Land
Buildings
Equipment
Construction in progress
Less accumulated depreciation
Net property and equipment
December 31,
2019
2020
$
129,730 $
2,695
11,929
581
18,348
1,401
137,039
2,695
11,142
313
18,337
1,638
164,684
171,164
25,445
28,100
26,877
248,355
27,156
5,860
25,538
29,500
18,206
242,374
27,156
5,262
361,793
348,036
4,940
23,047
67,718
1,002
96,707
65,692
31,015
4,940
23,146
68,227
1,010
97,323
68,373
28,950
Total assets
$
557,492 $
548,150
F-4
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued litigation settlement
Accrued and other current liabilities
Accrued environmental remediation and related costs
Payables to affiliates
Income taxes
$
Total current liabilities
Noncurrent liabilities:
Long-term debt from affiliate
Accrued environmental remediation and related costs
Long-term litigation settlement
Deferred income taxes
Accrued pension costs
Other
December 31,
2019
2020
3,438 $
11,830
10,601
3,065
801
73
29,808
500
91,443
60,081
33,957
8,230
6,260
2,647
11,830
10,253
2,027
725
25
27,507
500
91,389
49,403
33,830
6,392
3,780
Total noncurrent liabilities
200,471
185,294
Equity:
NL stockholders' equity:
Preferred stock, no par value; 5,000 shares authorized; none issued
Common stock, $.125 par value; 150,000 shares authorized; 48,756 and
48,789 shares issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total NL stockholders' equity
-
-
6,094
299,102
251,000
(251,690)
6,098
299,093
257,875
(251,189)
304,506
311,877
Noncontrolling interest in subsidiary
22,707
23,472
Total equity
327,213
335,349
Total liabilities and equity
$
557,492 $
548,150
Commitments and contingencies (Notes 14 and 17)
See accompanying Notes to Consolidated Financial Statements.
F-5
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Net sales
Cost of sales
Gross margin
Selling, general and administrative expense
Other operating income (expense):
Insurance recoveries
Other income, net
Litigation settlement expense, net
Corporate expense
Years ended December 31,
2019
124,243 $
85,280
2018
118,217 $
79,946
2020
114,537
81,689
$
38,271
38,963
32,848
20,460
21,297
21,031
1,298
644
(62,000)
(18,419)
5,138
7,444
(19,266)
(12,591)
81
18
-
(9,559)
Income (loss) from operations
(60,666)
(1,609)
2,357
Equity in earnings of Kronos Worldwide, Inc.
62,316
26,470
19,437
Other income (expense):
Interest and dividend income
Marketable equity securities
Other components of net periodic pension and OPEB cost
Interest expense
5,069
(60,941)
(115)
(37)
6,672
(863)
(1,375)
(681)
2,599
(8,671)
(784)
(1,350)
Income (loss) before income taxes
(54,374)
28,614
13,588
Income tax expense (benefit)
(15,361)
579
(2,515)
Net income (loss)
Noncontrolling interest in net income of subsidiary
(39,013)
2,004
28,035
2,191
16,103
1,423
Net income (loss) attributable to NL stockholders
Amounts attributable to NL stockholders:
Basic and diluted net income (loss) per share
$
$
(41,017) $
25,844 $
14,680
(.84) $
.53 $
.30
Weighted average shares used in the calculation of net
income (loss) per share
48,727
48,745
48,776
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,
2019
2020
2018
Net income (loss)
$
(39,013) $
28,035 $
16,103
Other comprehensive income (loss), net of tax:
Currency translation
Defined benefit pension plans
Other postretirement benefit plans
(7,967)
(2,335)
(162)
(409)
(2,971)
(40)
3,268
(2,447)
(320)
Total other comprehensive income (loss), net
(10,464)
(3,420)
501
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interest
(49,477)
2,004
24,615
2,191
16,604
1,423
Comprehensive income (loss) attributable to NL stockholders
$
(51,481) $
22,424 $
15,181
See accompanying Notes to Consolidated Financial Statements.
F-7
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F-8
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
2019
2020
2018
Cash flows from operating activities:
Net income (loss)
Depreciation and amortization
Deferred income taxes
Equity in earnings of Kronos Worldwide, Inc.
Dividends received from Kronos Worldwide, Inc.
Marketable equity securities
Cash funding of benefit plans in excess of net
benefit plan expense
Noncash interest expense
Net gain from sale of excess property
Net gain from sale of business
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
$ (39,013) $
3,476
(15,178)
(62,316)
23,948
60,941
28,035 $
3,685
430
(26,470)
25,356
863
16,103
3,827
(2,530)
(19,437)
25,356
8,671
(1,875)
-
-
-
(2)
(16,786)
(1,846)
(162)
61,769
16
1,113
(13,698)
16,689
(1,574)
646
(4,424)
(3,000)
281
15,487
(1,439)
(77)
(26,365)
33
444
(3,703)
19,227
(792)
1,321
-
-
93
1,121
(193)
(237)
(13,163)
(77)
193
(1,092)
(141)
Net cash provided by operating activities
17,076
27,435
19,023
Cash flows from investing activities:
Capital expenditures
Note receivable from affiliate:
Loans
Collections
Proceeds from sale of excess property
Proceeds from sale of business
Cash, cash equivalents and restricted cash and cash
equivalents of business at time of sale
Other
(3,118)
(3,166)
(1,740)
(46,800)
51,000
-
-
(34,900)
40,800
4,636
2,925
(34,828)
33,428
-
-
-
225
(504)
125
-
-
Net cash provided by (used in) investing activities
1,307
9,916
(3,140)
Cash flows from financing activities:
Dividends paid
Distributions to noncontrolling interests in subsidiary
-
(335)
-
(470)
(7,805)
(676)
Net cash used in financing activities
(335)
(470)
(8,481)
F-9
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Years ended December 31,
2019
2020
2018
Cash, cash equivalents and restricted cash and cash equivalents
- net change from:
Operating, investing and financing activities
Balance at beginning of year
Balance at end of year
Supplemental disclosures:
Cash paid for (received):
Interest
Income taxes, net
Noncash investing - receivable from sale of business
18,048 $
7,402
$
102,941
157,870
120,989
$ 120,989 $ 157,870 $ 165,272
36,881 $
$
34 $
36 $
(1,716)
-
(118)
325
27
46
-
See accompanying Notes to Consolidated Financial Statements.
F-10
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
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
American: CIX). We operate in the chemicals industry through our noncontrolling interest in Kronos Worldwide,
Inc. (NYSE: KRO).
Organization - At December 31, 2020, Valhi, Inc. (NYSE: VHI) held approximately 83% of our
outstanding common stock and a wholly-owned subsidiary of Contran Corporation held approximately 92% of
Valhi’s outstanding common stock. A majority of Contran's outstanding voting stock is held directly by Lisa K.
Simmons and various family trusts established for the benefit of Ms. Simmons, Thomas C. Connelly (the husband of
Ms. Simmons’ late sister) and their children and for which Ms. Simmons or Mr. Connelly, as applicable, serve as
trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly serves as trustee,
he is required to vote the shares of Contran voting stock held by such trusts in the same manner as Ms. Simmons.
Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. Simmons. The remainder of
Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the
benefit of Ms. Simmons and her late sister and their children and for which a third-party financial institution serves
as trustee. Consequently, at December 31, 2020 Ms. Simmons and the Family Trust may be deemed to control
Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi and us.
Our results of operations for 2020 were significantly impacted by the COVID-19 pandemic, primarily in
the second and third quarters, due to government mandated closures and reduced demand for many of CompX’s and
Kronos’ products resulting from the rapid contraction of vast areas of the global economy. The extent of the impact
of the COVID-19 pandemic on our future operations will depend on the time period and degree to which the
COVID-19 pandemic persists in the global economy, including the timing and extent to which CompX’s and Kronos’
customers’ operations continue to be impacted, their customers’ perception as to when consumer demand for their
products will return to pre-pandemic levels and on any future disruptions in their operations or their suppliers’
operations, all of which are difficult to predict.
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 14% 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 are translated to U.S.
dollars. The functional currency of Kronos’ non-U.S. subsidiaries is generally the local currency of their country.
Accordingly, Kronos translates the assets and liabilities at year-end rates of exchange, while it translates its 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 (loss), net of related
deferred income taxes. Kronos recognizes currency transaction gains and losses in income which is reflected as part
of our equity in earnings (losses) of Kronos.
F-11
Cash and cash equivalents - We classify bank time deposits and highly-liquid investments with original
maturities of three months or less as cash equivalents.
Restricted cash and cash equivalents - We classify cash equivalents that have been segregated or are
otherwise limited in use as restricted. Such restrictions include cash pledged as collateral with respect to
performance obligations or letters of credit required by regulatory agencies for certain environmental remediation
sites and cash pledged as collateral with respect to certain workers compensation liabilities or legal settlements. 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. Restricted cash equivalents
classified as a current asset or a non-current asset are presented separately on our Consolidated Balance Sheets.
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:
(cid:129)
(cid:129)
(cid:129)
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. Unrealized gains or losses on the
securities are recognized in Marketable equity securities on our Consolidated Statements of Operations. We base
realized gains and losses upon the specific identification of the securities sold. See Notes 5 and 11.
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. See Note 3.
Inventories and cost of sales - We state inventories at the lower of cost or net realizable value. We record
a provision 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 costs 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. See
Note 4.
Investment in Kronos Worldwide, Inc. - We account for our 30% non-controlling interest in Kronos by
the equity method. Distributions received from Kronos are classified for statement of cash flow purposes using the
“nature of distribution” approach under ASC Topic 230. See Note 6.
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. See Note 7.
Leases - We enter into various arrangements (or leases) that convey the rights to use and control identified
underlying assets for a period of time in exchange for consideration. We lease various facilities and equipment.
F-12
From time to time, we may also enter into an arrangement in which the right to use and control an identified
underlying asset is embedded in another type of contract. We determine if an arrangement is a lease (including
leases embedded in another type of contract) at inception. All of our leases are classified as operating leases under
ASC Topic 842 Leases. Operating leases are not material.
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. 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 defined benefit pension and defined
contribution retirement plans are described in Note 11. We also provide certain postretirement benefits other than
pensions (OPEB), consisting of health care and life insurance benefits, to certain U.S. and Canadian retired
employees, which are not material. See Note 12.
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 17. As a member of the Contran Tax Group, we are party to a tax sharing agreement with Valhi and
Contran which provides that we compute our provision for income taxes on a separate-company basis using the tax
elections made by Contran. Pursuant to our tax sharing agreement, 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. We received net refunds from Valhi for
income taxes of $1.7 million in 2018, $.2 million in 2019 and nil in 2020.
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 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 deemed to be 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. Deferred income tax assets and liabilities for each
tax-paying jurisdiction in which we operate are netted and presented as either a noncurrent deferred income tax asset
or liability, as applicable. 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 that we believe does not meet the more-likely-than-not recognition criteria.
We account for the tax effects of a change in tax law as a component of the income tax provision related to
continuing operations in the period of enactment, including the tax effects of any deferred income taxes originally
established through a financial statement component other than continuing operations (i.e. other comprehensive
income). Changes in applicable income tax rates over time as a result of changes in tax law, or times in which a
deferred income tax asset valuation allowance is initially recognized in one year and subsequently reversed in a later
year, can give rise to “stranded” tax effects in accumulated other comprehensive income in which the net
accumulated income tax (benefit) remaining in accumulated other comprehensive income does not correspond to the
then-applicable income tax rate applied to the pre-tax amount which resides in accumulated other comprehensive
income. As permitted by GAAP, our accounting policy is to remove any such stranded tax effect remaining in
F-13
accumulated other comprehensive income, by recognizing an offset to our provision for income taxes related to
continuing operations, only at the time when there is no remaining pre-tax amount in accumulated other
comprehensive income. For accumulated other comprehensive income related to currency translation, this would
occur only upon the sale or complete liquidation of one of our non-U.S. subsidiaries. For defined pension benefit
plans and OPEB plans, this would occur whenever one of our subsidiaries which previously sponsored a defined
benefit pension or OPEB plan had terminated such a plan and had no future obligation or plan asset associated with
such a plan.
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
their receipt probable. At December 31, 2019 and December 31, 2020, we had not recognized any such receivables
for recoveries. We expense any environmental remediation related legal costs as incurred. See Note 17.
Net sales - Our sales involve single performance obligations to ship our products pursuant to customer
purchase orders. In some cases, the purchase order is supported by an underlying master sales agreement, but our
purchase order verification notice generally evidences the contract with our customer by specifying the key terms of
product and quantity ordered, price and delivery and payment terms. In accordance with Revenue from Contracts
with Customers (ASC 606), we record revenue when we satisfy our performance obligations to our customers by
transferring control of our products to them, which generally occurs at point of shipment or upon delivery. Such
transfer of control is also evidenced by transfer of legal title and other risks and rewards of ownership (giving the
customer the ability to direct the use of, and obtain substantially all of the benefits of, the product), and our
customers becoming obligated to pay us and it is probable we will receive payment. In certain arrangements we
provide shipping and handling activities after the transfer of control to our customer (e.g. when control transfers
prior to delivery). In such arrangements shipping and handling are considered fulfillment activities, and accordingly,
such costs are accrued when the related revenue is recognized.
Revenue is recorded in an amount that reflects the net consideration we expect to receive in exchange for
our products. Prices for our products are based on terms specified in published list prices and purchase orders, which
generally do not include financing components, noncash consideration or consideration paid to our customers. As
our standard payment terms are less than one year, we have elected the practical expedient under ASC 606 and we
have not assessed whether a contract has a significant financing component. We state sales net of price, early
payment and distributor discounts as well as volume rebates (collectively, variable consideration). Variable
consideration, to the extent present, is not material and is recognized as the amount to which we are most-likely to
be entitled, using all information (historical, current and forecasted) that is reasonably available to us, and only to
the extent that a significant reversal in the amount of the cumulative revenue recognized is not probable of occurring
in a future period. Differences, if any, between estimates of the amount of variable consideration to which we will
be entitled and the actual amount of such variable consideration have not been material in the past. We report any
tax 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, use, value added and excise taxes) on a net basis (meaning we
do not recognize these taxes either in our revenues or in our costs and expenses).
Frequently, we receive orders for products to be delivered over dates that may extend across reporting
periods. We invoice for each delivery upon shipment and recognize revenue for each distinct shipment when all
sales recognition criteria for that shipment have been satisfied. As scheduled delivery dates for these orders are
within a one year period, under the optional exemption provided by ASC 606, we do not disclose sales allocated to
future shipments of partially completed contracts.
F-14
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. We expense advertising costs and
research and development costs as incurred. Advertising costs were not significant in any year presented.
Corporate expenses - Corporate expenses include environmental, legal and other costs attributable to
formerly-owned business units.
Note 2 - Business and 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, throttle controls, wake
enhancement systems, trim tabs and related hardware and accessories primarily for performance and ski/wakeboard
boats.
The following table disaggregates our net sales by reporting unit, which are the categories that depict how
the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (as required
by ASC 606).
Net sales:
Security Products
Marine Components
Total
2018
Years ended December 31,
2019
(In thousands)
2020
$
$
98,383
19,834
118,217
$
$
99,328
24,915
124,243
$
$
87,863
26,674
114,537
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
Mexico
Other
Total
2018
Years ended December 31,
2019
(In thousands)
2020
$
$
108,773
6,436
1,438
1,570
118,217
$
$
114,186
7,257
922
1,878
124,243
$
$
107,712
4,423
431
1,971
114,537
All of our net property and equipment is located in the United States at December 31, 2019 and 2020.
F-15
Note 3 - 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 17.
Note 4 - Inventories, net:
Raw materials
Work in process
Finished products
Total
Note 5 - Marketable securities:
December 31,
2019
2020
(In thousands)
$
$
11,940 $
28
31
(70)
11,929 $
10,801
18
393
(70)
11,142
December 31,
2019
2020
(In thousands)
2,941 $
11,771
3,636
18,348 $
3,220
11,668
3,449
18,337
$
$
Our marketable securities consist of investments in the publicly-traded shares of our immediate parent
company Valhi, Inc. Our shares of Valhi common stock are accounted for as available-for-sale securities, which are
carried at fair value using quoted market prices in active markets and represent a Level 1 input within the fair value
hierarchy. Unrealized gains or losses on the securities are recognized in Marketable equity securities on our
Consolidated Statements of Operations.
December 31, 2019
Noncurrent assets
Valhi common stock
December 31, 2020
Noncurrent assets
Valhi common stock
Fair value
measurement Market
value
level
Cost
basis
(In thousands)
Unrealized
gain (loss)
1
1
$
26,877 $
24,347 $
2,530
$
18,206 $
24,347 $
(6,141)
At December 31, 2019 and 2020, we held approximately 1.2 million shares of our immediate parent
company, Valhi. See Note 1. The per share quoted market price of Valhi common stock at December 31, 2019 and
2020 was $22.44 and $15.20, respectively. Valhi implemented a reverse split of its common stock at a ratio of 1-
for-12 effective on June 1, 2020. We have adjusted all share and per-share disclosures related to our investment in
Valhi stock for all periods prior to June 2020 to give effect to the reverse stock split. The reverse stock split had no
financial statement impact to us, and our ownership interest in Valhi did not change as a result of the split.
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
F-16
common stock under Delaware General Corporation Law, but we do receive dividends from Valhi on these shares,
when declared and paid.
Note 6 - Investment in Kronos Worldwide, Inc.:
At December 31, 2019 and 2020, we owned approximately 35.2 million shares of Kronos common stock.
The per share quoted market price of Kronos common stock at December 31, 2019 and 2020 was $13.40 and $14.91
per share, respectively, or an aggregate market value of $471.9 million and $525.1 million, respectively. 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 of Kronos
Dividends received from Kronos
Equity in Kronos' other comprehensive income (loss):
Currency translation
Defined benefit pension plans
Other postretirement benefit plans
Other
Balance at the end of the year
$
$
2018
Years ended December 31,
2019
(In millions)
$
$
229.5
62.3
(23.9)
255.5
26.5
(25.4)
(10.1)
(2.2)
(.1)
-
255.5
$
(.5)
(6.7)
(.1)
(.9)
248.4
$
2020
248.4
19.4
(25.4)
4.1
(3.7)
(.1)
(.3)
242.4
Selected financial information of Kronos is summarized below:
December 31,
2019
2020
(In millions)
Current assets
Property and equipment, net
Investment in TiO2 joint venture
Other noncurrent assets
Total assets
Current liabilities
Long-term debt
Accrued pension costs
Other noncurrent liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Net sales
Cost of sales
Income from operations
Income tax expense
Net income
$
F-17
$
$
$
$
1,219.7
490.6
90.2
165.3
1,965.8
270.6
444.0
307.4
127.7
816.1
1,965.8
$
$
$
$
2018
Years ended December 31,
2019
(In millions)
$
$
1,661.9
1,099.7
330.1
88.8
205.0
1,731.1
1,344.9
145.8
34.0
87.1
1,218.3
524.6
103.3
190.5
2,036.7
260.2
486.7
372.6
120.7
796.5
2,036.7
2020
1,638.8
1,287.6
116.2
16.1
63.9
Note 7 - Goodwill:
All of our goodwill is related to our component products operations and was generated from CompX’s
acquisitions of certain business units. There have been no changes in the carrying amount of our goodwill during
the past three years.
We assign goodwill based on the reporting unit (as that term is defined in ASC Topic 350-20-20 Goodwill)
which corresponds to CompX’s security products operations. 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 an impairment might be present.
In 2018, 2019 and 2020, our goodwill was tested for impairment only 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. As
permitted by GAAP, during 2018, 2019 and 2020 we used the qualitative assessment of ASC 350-20-35 for our
annual impairment test and determined it was not necessary to perform the quantitative goodwill impairment test.
Such discounted cash flows are a Level 3 input as defined by ASC 820-10-35. Prior to 2018, all of the goodwill
related to CompX’s marine components operations (which aggregated $10.1 million) was impaired, and all of the
goodwill related to our wholly-owned subsidiary EWI Re, Inc., (EWI) an insurance brokerage and risk management
services company (which aggregated $6.4 million), was impaired. Our gross goodwill at December 31, 2020 was
$43.7 million.
Note 8 - Other assets, net:
Pension asset
Other
Total
Note 9 - Accrued and other current liabilities:
Employee benefits
Other
Total
Note 10 - Long-term debt:
$
$
$
$
December 31,
2019
2020
(In thousands)
4,294
1,566
5,860
$
$
December 31,
2019
2020
(In thousands)
8,917
1,684
10,601
$
$
3,881
1,381
5,262
9,000
1,253
10,253
In November 2016, we entered into a financing transaction with Valhi. Previously, and in contemplation of the
financing transaction described herein, we formed NLKW Holding, LLC and capitalized it with 35.2 million shares of
the common stock of Kronos held by us.
The financing transaction consisted of two steps. Under the first step, NLKW entered into a $50 million
revolving credit facility (the “Valhi Credit Facility”) pursuant to which NLKW can borrow up to $50 million from Valhi
(with such commitment amount subject to increase from time to time at Valhi’s sole discretion). Proceeds from any
borrowings by NLKW under the Valhi Credit Facility would be available for one or more loans from NLKW to us in
accordance with the terms of the second step of the financing transaction: a Back-to-Back Credit Facility, as described
below. Outstanding borrowings under the Valhi Credit Facility bear interest at the prime rate plus 1.875% per annum,
payable quarterly, with all amounts due on December 31, 2023. The maximum principal amount which may be
outstanding from time-to-time under the Valhi Credit Facility is limited to 50% of the amount determined by multiplying
F-18
the number of shares of Kronos common stock pledged by the most recent closing price of such security on the New
York Stock Exchange. Borrowings under the Valhi Credit Facility are collateralized by the assets of NLKW (consisting
primarily of the shares of Kronos common stock pledged) and 100% of the membership interest in NLKW held by us.
The Valhi Credit Facility contains a number of covenants and restrictions which, among other things, restrict NLKW’s
ability to incur additional debt, incur liens, and merge or consolidate with, or sell or transfer substantially all of NLKW’s
assets to, another entity, and require NLKW to maintain a minimum specified level of consolidated net worth. Upon an
event of default, Valhi will be entitled to terminate its commitment to make further loans to NLKW, to declare the
outstanding loans (with interest) immediately due and payable, and, in the case of certain insolvency events with respect
to NLKW or us, to exercise its rights with respect to the collateral. Such collateral rights include the right to purchase all
of the shares of Kronos common stock pledged at a purchase price equal to the aggregate market value of such stock
(with such market value determined by an independent third-party valuation provider), less amounts owing to Valhi
under the Valhi Credit Facility, with up to 50% of such purchase price being payable by Valhi in the form of an
unsecured promissory note bearing interest at the prime rate plus 2.75% per annum, payable quarterly, with all amounts
due no later than five years from the date of purchase, and with the remainder of such purchase price payable in cash at
the date of purchase.
Contemporaneously with the entering into the Valhi Credit Facility, NLKW entered into a $50 million
revolving credit facility (the “Back-to-Back Credit Facility”) with us, pursuant to which we can borrow up to $50 million
from NLKW (with such commitment amount subject to increase from time to time in NLKW’s sole discretion).
Proceeds from any borrowings under the Back-to-Back Credit Facility would be available for our general corporate
purposes, including providing resources to assist us in the resolution of certain claims and contingent liabilities which
may be asserted against us. Outstanding borrowings under the Back-to-Back Credit Facility bear interest at the same rate
and are payable on the same maturity date as are borrowings by NLKW under the Valhi Credit Facility. Borrowings
under the Back-to-Back Credit Facility are on an unsecured basis; however, as a condition thereto, we pledged to Valhi
as collateral for the Valhi Credit Facility our 100% membership interest in NLKW. Any outstanding borrowings and
interest on such borrowings under the Back-to-Back Credit Facility are eliminated in the preparation of the consolidated
financial statements.
We had outstanding borrowings under the Valhi Credit Facility of $.5 million as of December 31, 2019 and
2020. The interest rate as of December 31, 2020 and the average interest rate for the year then ended were 5.13%
and 5.42%, respectively. See Note 16. NLKW is in compliance with all of the covenants contained in the Valhi
Credit Facility at December 31, 2020.
Note 11 - 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 approximated $3.1
million in 2018, $3.2 million in 2019 and $3.0 million in 2020.
Defined benefit pension plans - We maintain a defined benefit pension plan in the U.S. We also maintain
a plan in the United Kingdom (U.K.) 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.
In accordance with applicable U.K. pension regulations, we entered into an agreement in March 2021 for
the bulk annuity purchase, or “buy-in” with a specialist insurer of defined benefit pension plans. Following the buy-
in, individual policies will replace the bulk annuity policy in a “buy-out” which is expected to be completed in late
2021 or early 2022. The buy-out is expected to be completed with existing plan funds. At the completion of the
buy-out we will remove the assets and liabilities of the U.K. pension plan from our Consolidated Financial
Statements and a plan settlement gain or loss (which we are currently unable to estimate) will be included in net
periodic pension cost. At December 31, 2020, the U.K. plan had a benefit obligation of $9.1 million, plan assets of
$13.0 million and a pension plan asset of $3.9 million was recognized in our Consolidated Balance Sheet.
F-19
We expect to contribute approximately $1.2 million to our defined benefit pension plans during 2021.
Benefit payments to all plan participants out of plan assets are expected to be the equivalent of:
Years ending December 31,
2021
2022
2023
2024
2025
Next 5 years
$
Amount
(In thousands)
3,623
3,625
3,581
3,501
3,420
15,913
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
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,
2019
2020
(In thousands)
49,249
1,884
1
2,582
260
(3,626)
50,350
40,626
5,752
3,173
1
387
(3,626)
46,313
(4,037)
$
$
50,350
1,483
-
4,353
307
(3,620)
52,873
46,313
5,308
1,841
-
418
(3,620)
50,260
(2,613)
4,294
$
3,881
(101)
(8,230)
(4,037)
28,687
24,650
$
(102)
(6,392)
(2,613)
28,209
25,596
50,350
$
52,873
$
$
$
$
$
The amounts shown in the table above for actuarial losses at December 31, 2019 and 2020 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
F-20
income taxes, are recognized in our accumulated other comprehensive income (loss) at December 31, 2019 and
2020.
The total net underfunded status of our defined benefit pension plans decreased from $4.0 million at
December 31, 2019 to $2.6 million at December 31, 2020 due to the change in plan assets during 2020 exceeding
the change in our PBO during 2020. The increase in our plan assets in 2020 was primarily attributable to net plan
asset returns in 2020 and employer contributions. The increase in our PBO in 2020 was primarily attributable to
actuarial losses due to the decrease in discount rates from year end 2019.
The table below details the changes in other comprehensive income (loss) during 2018, 2019 and 2020.
2018
Years ended December 31,
2019
(In thousands)
2020
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
$
$
(2,709)
1,937
(772)
$
$
1,330
1,584
2,914
$
$
(934)
1,412
478
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 2018, 2019 and 2020, net of deferred
income taxes, was recognized as a component of our accumulated other comprehensive income (loss) at
December 31, 2017, 2018 and 2019, respectively.
Net periodic pension cost:
Interest cost on PBO
Expected return on plan assets
Recognized actuarial losses
Total
2018
Years ended December 31,
2019
(In thousands)
2020
$
$
1,808
(3,043)
1,937
702
$
$
1,884
(1,899)
1,584
1,569
$
$
1,483
(1,850)
1,412
1,045
F-21
Certain information concerning our defined benefit pension plans (including information concerning certain
plans for which ABO exceeds the fair value of plan assets as of the indicated date) 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 (only
our U.S. plan):
PBO
ABO
Fair value of plan assets
December 31,
2019
2020
(In thousands)
$
$
$
$
$
42,198
8,152
50,350
33,867
12,446
46,313
42,198
42,198
33,867
43,754
9,119
52,873
37,260
13,000
50,260
43,754
43,754
37,260
$
$
$
$
$
The weighted-average discount rate assumptions used in determining the actuarial present value of our
benefit obligations as of December 31, 2019 and 2020 are 2.9% and 2.1%, respectively. Such weighted-average
rates were determined using the projected benefit obligations at each date. Since our plans are closed to new
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, 2019 and 2020.
The weighted-average rate assumptions used in determining the net periodic pension cost for 2018, 2019
and 2020 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 rate of return on plan assets
Years ended December 31,
2019
2018
2020
3.4%
7.2%
3.9%
4.7%
2.9%
4.2%
Variances from actuarially assumed rates will result in increases or decreases in accumulated pension
obligations, pension expense and funding requirements in future periods.
Prior to 2018, 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 benefit plans sponsored by Contran and certain of its
affiliates, including us. For 2018, the long-term rate of return assumption for our U.S. plan assets was 7.5%, based
on 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. During 2018, Contran and the other employer-sponsors
(including us) implemented a restructuring of the CMRT, in which a substantial part of each plan’s units in the
CMRT were redeemed in exchange for a pro-rata portion of a substantial part of the CMRT’s investments.
Following such restructuring, the plans held directly in the aggregate the investments previously held directly by the
CMRT which had been exchanged for CMRT units as part of the restructuring. Certain investments held directly by
the CMRT were not part of such restructuring and remained investments of the CMRT at December 31, 2018.
During 2019, the remaining investments of the CMRT allocable to our U.S. plan were transferred and are held as
F-22
direct investments of our U.S. plan at December 31, 2019 and December 31, 2020. Such restructuring was
implemented in part so each plan could more easily align the composition of its plan asset portfolio with the plan’s
benefit obligations.
In determining the expected long-term rate of return on our U.S. and non-U.S. 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. In the U.S. we currently have a plan asset target allocation of 38% to equity securities,
54% to fixed income securities, and the remainder is allocated to multi-asset strategies. The expected long-term rate
of return for such investments is approximately 9%, 3% and 2%, respectively (before plan administrative
expenses). The majority of U.S. plan assets are Level 1 inputs because they are traded in active markets and
approximately 34% of our U.S. plan assets are invested in funds that are valued at net asset value (NAV) and, in
accordance with ASC 820-10, not subject to classification in the fair value hierarchy. The non-U.S. plan assets
consist of marketable securities which are Level 1 inputs because they trade in active markets.
We regularly review our actual asset allocation for each plan, and will periodically rebalance the
investments in each plan to more accurately reflect the targeted allocation and/or maximize the overall long-term
return when considered appropriate.
The composition of our pension plan assets by fair value level at December 31, 2019 and 2020 is shown in
the table below.
December 31, 2019:
U.S.
Equities
Fixed income
Cash and other
U.K. - Other
Total
December 31, 2020:
U.S.
Equities
Fixed income
Cash and other
U.K. - Other
Total
Fair Value Measurements
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Quoted
prices
in active
markets
(Level 1)
Assets
measured
at NAV
Total
(In thousands)
$
$
13,439 $
16,290
4,138
12,446
46,313 $
3,789 $
16,290
3,197
12,446
35,722 $
- $
-
-
-
- $
439 $
-
-
-
439 $
9,211
-
941
-
10,152
Fair Value Measurements
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Quoted
prices
in active
markets
(Level 1)
Assets
measured
at NAV
Total
(In thousands)
$
$
14,636 $
18,747
3,877
13,000
50,260 $
2,158 $
18,747
3,052
13,000
36,957 $
- $
-
-
-
- $
538 $
-
-
-
538 $
11,940
-
825
-
12,765
F-23
Note 12 - Other noncurrent liabilities:
December 31,
2019
2020
Reserve for uncertain tax positions
OPEB
Insurance claims and expenses
Other
Total
$
$
Our reserve for uncertain tax positions is discussed in Note 14.
Note 13 - Other operating income (expense):
$
(In thousands)
4,053
1,129
665
413
6,260
$
1,717
985
653
425
3,780
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 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. Insurance recoveries in 2019 primarily related to a single settlement we reached with one of our
insurance carriers in which they agreed to reimburse us for a portion of our past and future litigation defense costs.
See Note 17.
Other income, net in 2019 includes a gain of $4.4 million related to a sale of excess property in the third
quarter. In the fourth quarter of 2019 we sold our insurance and risk management business for proceeds of $3.25
million and recognized a gain of $3.0 million on the sale.
F-24
Note 14 - Income taxes:
The provision for income taxes and the difference between such provision for income taxes and the amount
that would be expected using the U.S. federal statutory income tax rate are presented below.
Expected tax expense (benefit), at U.S. federal statutory
income tax rate of 21%
$
Rate differences on equity in earnings of Kronos, net of dividends
Change in federal tax rate, net
U.S. state income taxes and other, net
Income tax expense (benefit)
Components of income tax expense (benefit):
Currently payable (receivable)
Deferred income tax expense (benefit)
Income tax expense (benefit)
Comprehensive provision for income taxes (benefit) allocable to:
Income (loss) from continuing operations
Additional paid-in capital
Other comprehensive income (loss):
Currency translation
Pension plans
OPEB plans
Total
$
$
$
$
$
2018
Years ended December 31,
2019
(In millions)
2020
(11.4)
(5.0)
.8
.2
(15.4)
(.2)
(15.2)
(15.4)
(15.4)
-
(2.1)
(.6)
-
(18.1)
$
$
$
$
$
$
6.0
(5.3)
-
(.1)
.6
.2
.4
.6
.6
(.2)
(.1)
(.8)
-
(.5)
$
$
$
$
$
$
2.9
(5.3)
-
(.1)
(2.5)
-
(2.5)
(2.5)
(2.5)
(.1)
.9
(.7)
(.1)
(2.5)
The components of the net deferred tax liability at December 31, 2019 and 2020 are summarized in the
following table.
December 31,
2019
2020
Assets
Liabilities
Assets
Liabilities
(In millions)
.4 $
-
-
.3
.7
1.2
31.7
-
.2
-
-
34.5
(34.5)
- $
- $
(5.4)
(2.8)
-
-
-
-
(1.7)
-
(2.3)
(56.3)
(68.5)
34.5
(34.0) $
.4 $
-
-
.3
.5
1.1
29.1
-
-
-
-
31.4
(31.4)
- $
-
(3.6)
(2.6)
-
-
-
-
(1.7)
-
(2.3)
(55.0)
(65.2)
31.4
(33.8)
$
Tax effect of temporary differences related to:
Inventories
Marketable securities
Property and equipment
Accrued OPEB costs
Accrued pension costs
Accrued employee benefits
Accrued environmental liabilities
Goodwill
Other accrued liabilities and deductible differences
Other taxable differences
Investment in Kronos Worldwide, Inc.
Adjusted gross deferred tax assets (liabilities)
Netting of items by tax jurisdiction
Net noncurrent deferred tax liability
$
F-25
In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings
(losses) of Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we
receive from Kronos are nontaxable to us. Accordingly, we do not recognize and we are not required to pay income
taxes on dividends from Kronos. We received aggregate dividends from Kronos of $23.9 million in 2018 and $25.4
million in each of 2019 and 2020. See Note 6. The amounts shown in the table above of our income tax rate
reconciliation for rate differences on equity in earnings (losses) of Kronos represent the benefit associated with the
nontaxable dividends we receive from Kronos compared to the amount of deferred income taxes we recognize on
our undistributed equity in earnings (losses) of Kronos.
At December 31, 2020, we had NOL carryforwards for federal income tax purposes of approximately $26.6
million all of which have an indefinite carryforward period subject to an 80% annual usage limitation. Our deferred
tax asset for such NOL carryforward is net of a portion of our uncertain tax positions as discussed below.
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.
At December 31, 2018, 2019, and 2020, the gross amount of our uncertain tax positions (exclusive of the
effect of interest and penalties) was $7.3 million, and there was no change in such amount during the past three
years. Prior to 2007, we made certain pro-rata distributions to our stockholders in the form of Kronos common
stock and we recognized a taxable gain related to such distributions. Our uncertain tax positions are attributable to
such prior period distribution of Kronos common stock. As discussed in Note 1, we are part of the Contran Tax
Group and we have not paid this liability because Contran has not paid the liability to the applicable tax authority.
This liability would be payable by Contran to the applicable tax authority if the shares of Kronos common stock
were to be sold or otherwise disposed outside of the Contran Tax Group. At December 31, 2020, $5.6 million of our
uncertain tax position is classified as a component of our noncurrent deferred tax liability. If our uncertain tax
position at December 31, 2020 was recognized, a benefit of $7.3 million would affect our effective income tax rate.
We currently estimate that our unrecognized tax benefits will not change materially during the next twelve months.
We and Contran file income tax returns in U.S. federal and various state and local jurisdictions. Our U.S.
income tax returns prior to 2017 are generally considered closed to examination by applicable tax authorities.
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into
law in response to the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to
refundable payroll tax credits, deferment of employer side social security payments, modifications to net operating
loss carryovers and carrybacks, modifications to the limitation of business interest for 2019 and 2020 and technical
corrections to tax depreciation methods for qualified improvement property. We have evaluated the relevant
provisions of the CARES Act and do not expect the NOL carryback provisions to result in a cash tax benefit to us
because we do not have any prior year refundable income taxes and other provisions of the CARES Act will not
have a material impact on our tax provision.
Income tax matters related to Kronos
Kronos has substantial net operating loss (NOL) carryforwards in Germany (the equivalent of $531 million
for German corporate tax purposes at December 31, 2020) and in Belgium (the equivalent of $20 million for Belgian
corporate tax purposes at December 31, 2020). At December 31, 2020, Kronos has concluded that no deferred
income tax asset valuation allowance is required to be recognized with respect to such carryforwards, principally
because (i) such carryforwards have an indefinite carryforward period, (ii) Kronos has utilized a portion of such
carryforwards during the most recent three-year period and (iii) Kronos currently expects to utilize the remainder of
such carryforwards over the long term. However, prior to the complete utilization of such carryforwards, if Kronos
were to generate additional losses in its German or Belgian operations for an extended period of time, or if
applicable law were to change such that the carryforward period was no longer indefinite, it is possible that Kronos
might conclude the benefit of such carryforwards would no longer meet the more-likely-than-not recognition
criteria, at which point Kronos would be required to recognize a valuation allowance against some or all of the then-
remaining tax benefit associated with the carryforwards.
F-26
Prior to the enactment of the 2017 Tax Act, the undistributed earnings of Kronos’ European subsidiaries
were deemed to be permanently reinvested (Kronos had not made a similar determination with respect to the
undistributed earnings of its Canadian subsidiary). Pursuant to the one-time repatriation tax (Transition Tax)
provisions of the 2017 Tax Act which imposed a one-time repatriation tax on post-1986 undistributed earnings,
Kronos recognized a provisional current income tax expense of $76.2 million in the fourth quarter of 2017 based on
information available at that date. During the third quarter of 2018, in conjunction with finalizing its federal income
tax return and based on additional information that became available (including proposed regulations issued by the
IRS in August 2018 with respect to the Transition Tax), Kronos recognized a provisional income tax benefit of $1.7
million which amount is recorded as a measurement-period adjustment, reducing the provisional income tax expense
recognized in the fourth quarter of 2017. Kronos elected to pay such tax over an eight year period beginning in
2018. At December 31, 2020 the balance of its unpaid Transition Tax $56.6 million, which will be paid in annual
installments over the remainder of the eight year period. Of such $56.6 million, $50.6 million is recorded as a
noncurrent payable to affiliate (income taxes payable to Valhi) classified as a noncurrent liability in its Consolidated
Balance Sheet at December 31, 2020, and $6.0 million is included with its current payable to affiliate (income taxes
payable to Valhi) classified as a current liability (a portion of its noncurrent income tax payable to affiliate was
reclassified to its current payable to affiliate for the portion of its 2020 Transition Tax installment due within the
next twelve months).
In the fourth quarter of 2019, Kronos recognized an income tax benefit of $3.0 million primarily related to
the favorable settlement of a prior year tax matter in Germany, with $1.5 million recognized as a current cash tax
benefit and $1.5 million recognized as a non-cash deferred income tax benefit related to an increase to its German
net operating loss carryforward. In addition, Kronos recognized a non-cash deferred income tax expense of $5.5
million primarily related to the revaluation of its net deferred income tax asset in Germany resulting from a decrease
in the German trade tax rate.
As a result of prior audits in certain jurisdictions which are now settled, in 2008 Kronos filed Advance
Pricing Agreement Requests with the tax authorities in the U.S., Canada and Germany. These requests have been
under review with the respective tax authorities since 2008 and prior to 2016, it was uncertain whether an agreement
would be reached between the tax authorities and whether Kronos would agree to execute and finalize such
agreements. During the first quarter of 2018, Kronos’ German subsidiary executed and finalized the related
Advance Pricing Agreement with the Competent Authority for Germany effective for tax years 2005 - 2017. In the
first quarter of 2018, Kronos recognized a net $1.4 million non-cash income tax benefit related to an APA tax
settlement payment between its German and Canadian subsidiaries.
Tax authorities are examining certain of Kronos’ U.S. and non-U.S. tax returns and may propose tax
deficiencies, including penalties and interest. Because of the inherent uncertainties involved in settlement initiatives
and court and tax proceedings, Kronos cannot guarantee that these tax matters, if any, will be resolved in Kronos’
favor, and therefore its potential exposure, if any, is also uncertain. Kronos believes it has adequate accruals for
additional taxes and related interest expense which could ultimately result from tax examinations. Kronos believes
the ultimate disposition of tax examinations should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
Under the Cares Act, the modification to the business interest provisions increases the business interest
limitation from 30% of adjusted taxable income to 50% of adjusted taxable income which increases Kronos’
allowable interest expense deduction for 2019 and 2020. Consequently, in the first quarter of 2020 Kronos
recognized a cash tax benefit of $.5 million related to the reversal of the valuation allowance recognized in 2019 for
the portion of the disallowed interest expense Kronos did not expect to fully utilize at December 31, 2019 and
Kronos has considered such modifications in its 2020 provision for income taxes. Kronos has determined other
provisions of the CARES Act did not have a material impact on its provision for income taxes in 2020.
F-27
Note 15 - Stockholders’ equity:
Long-term incentive compensation plan - We have a long-term incentive plan that provides for the award
of stock to our board of directors, up to a maximum of 200,000 shares. We awarded 12,600 shares in 2018, 28,250
shares in 2019 and 33,250 shares in 2020 under this plan. At December 31, 2020, 79,900 shares were available for
future grants.
Long-term incentive compensation plans 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, 2020, Kronos had 127,400 shares
available for award and CompX had 140,950 shares available for award.
Dividends - We did not pay dividends during 2018 or 2019. During 2020, our board of directors approved
and we paid quarterly dividends of $.04 per share to stockholders aggregating $7.8 million. The declaration and
payment of future dividends, and the amount thereof, is discretionary and is dependent upon our financial condition,
cash requirements, contractual obligations and restrictions and other factors deemed relevant by our board of
directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any
future dividends which might be paid. There are currently no contractual restrictions on the amount of dividends
which we may pay.
F-28
Accumulated other comprehensive loss - Changes in accumulated other comprehensive loss attributable to
NL stockholders, including amounts resulting from our investment in Kronos Worldwide (see Note 6), are presented
in the table below.
Accumulated other comprehensive loss, net of tax:
Currency translation:
Balance at beginning of year
Other comprehensive income (loss)
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 loss arising during the year
Balance at end of year
Marketable securities:
Balance at beginning of year
Change in accounting principle
Balance at beginning of year, as adjusted
Other comprehensive income:
Unrealized gain arising during the year
Balance at end of year
Other postretirement benefit plans:
Balance at beginning of year
Other comprehensive loss
Balance at end of year
Total accumulated other comprehensive loss, net of tax:
Balance at beginning of year
Change in accounting principle
Balance at beginning of year, as adjusted
Other comprehensive income (loss)
Balance at end of year
2018
Years ended December 31,
2019
(In thousands)
2020
$
$
$
$
$
$
$
$
$
$
(164,467)
(7,967)
(172,434)
$
$
(172,434)
(409)
(172,843)
$
$
(172,843)
3,268
(169,575)
(72,951)
$
(75,286)
$
(78,257)
(2,335)
-
(75,286)
46,069
(46,069)
-
-
-
(388)
(162)
(550)
(191,737)
(46,069)
(237,806)
(10,464)
(248,270)
$
$
$
$
$
$
$
3,539
(6,510)
(78,257)
-
-
-
-
-
(550)
(40)
(590)
(248,270)
-
(248,270)
(3,420)
(251,690)
$
$
$
$
$
$
$
4,330
(6,777)
(80,704)
-
-
-
-
-
(590)
(320)
(910)
(251,690)
-
(251,690)
501
(251,189)
See Note 5 for further discussion on our marketable securities and see Note 11 for amounts related to our
defined benefit pension plans.
Note 16 - Related party transactions:
We may be deemed to be controlled by Ms. Simmons and the Family Trust. 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
F-29
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 and payables to affiliates are summarized in the table below:
Current receivables from affiliates:
Other - trade items
Refundable income taxes from Valhi
Total
Current payables to affiliates:
Other - trade items
Income taxes payable to Valhi
Total
December 31,
2019
2020
(In thousands)
$
$
$
$
565
16
581
801
-
801
$
$
$
$
313
-
313
696
29
725
From time to time, we may 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. On November 14, 2016, NLKW entered into the Valhi Credit Facility whereby we could borrow
up to $50 million. NLKW had borrowings outstanding of $.5 million as of December 31, 2019 and 2020 under the
Valhi Credit Facility, and we incurred a nominal amount of interest expense under such credit facility for the years
ended December 31, 2018, 2019 and 2020. See Note 10. In addition prior to 2018, CompX entered into an
unsecured revolving demand promissory note with Valhi whereby CompX has agreed to loan Valhi up to $40
million. CompX’s loan to Valhi, as amended, bears interest at prime plus 1.00%, payable quarterly, with all
principal due on demand, but in any event no earlier than December 31, 2022. Loans made to Valhi at any time are
at CompX’s discretion. At December 31, 2019 and 2020, the outstanding principal balance receivable from Valhi
under the promissory note was $28.1 million and $29.5 million, respectively. Interest income (including unused
commitment fees) on CompX’s loan to Valhi was $2.1 million in 2018, $2.4 million in 2019 and $1.5 million in
2020.
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
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 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. We, CompX
and Kronos negotiate fees annually and agreements renew quarterly. The net ISA fees charged to us by Contran,
(including amounts attributable to Kronos for all periods) aggregated approximately $32.0 million in 2018, $36.1
million in 2019 and $33.4 million in 2020.
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. Tall Pines Insurance Company, a subsidiary of Valhi, underwrites certain insurance policies for Contran
F-30
and certain of its subsidiaries and affiliates, including us. 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. EWI RE, Inc., a subsidiary of ours and Valhi, brokered certain of our insurance policies,
provided claims and risk management services and, where appropriate, engaged certain third-party risk management
consultants prior to our sale of EWI’s insurance and risk management business to a third party in November 2019.
Consistent with insurance industry practices, Tall Pines receives commissions from reinsurance underwriters and/or
assesses fees for certain of the policies that it underwrites, and prior to November 2019 EWI received commissions
from the insurance and reinsurance underwriters for the policies that it brokered. The aggregate amounts we paid
under the group insurance program (including amounts attributable to Kronos for all periods, including its Louisiana
Pigment Company joint venture) were $12.6 million in 2018 and $14.9 million through the date of the sale in 2019.
These amounts principally represent insurance premiums paid to Tall Pines or EWI, including amounts paid to EWI
that EWI then remitted, net of brokerage commissions, to insurers. Following the sale of EWI’s insurance and risk
management business, Contran engaged the third-party insurance broker that purchased the business to provide
many of the services previously provided by EWI, and we continue to utilize Tall Pines to underwrite certain
insurance risks. The aggregate amount paid under the group insurance program by us (including amounts
attributable to Kronos for all periods, including its Louisiana Pigment Company joint venture) in 2020 was $22.2
million, which amount principally represents insurance premiums, including $15.6 million for policies written by
Tall Pines. Amounts paid under the group insurance program also include payments to insurers or reinsurers (which
prior to the sale were made through EWI) for the reimbursement of claims within our applicable deductible or
retention ranges that such insurers and reinsurers paid to third parties on our behalf, as well as amounts for claims
and risk management services and various other third-party fees and expenses incurred by the program. We expect
these relationships will continue in 2021.
With respect to certain of such jointly-owned 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, and in the event that the
available coverage under a particular policy would become exhausted by one or more claims, Contran and certain of
its subsidiaries and affiliates, including us, have entered into a loss sharing agreement under which any uninsured
loss arising because the available coverage had been exhausted by one or more claims will be shared ratably by
those entities that had 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.
Contran and certain of its subsidiaries, including us, participate in a combined information technology data
recovery program that Contran provides from a data recovery center that it established. Pursuant to the program,
Contran and certain of its subsidiaries, including us, as a group share information technology data recovery services.
The program apportions its costs among the participating companies. The aggregate amount we paid to Contran for
such services (including amounts attributable to Kronos for all periods) was $.3 million in 2018, $.2 million in 2019
and $.3 million in 2020. Under the terms of a sublease agreement between Contran and Kronos, Kronos leases
certain office space from Contran. Kronos paid Contran $.1 million in 2019 and $.4 million in 2020 for such rent
and related ancillary services. We expect that these relationships with Contran will continue in 2021.
Note 17 - 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
F-31
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. 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 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. Other than with respect to the Santa Clara, California
public nuisance case discussed below, we do not believe it is probable we have incurred any liability with respect to
all of the lead pigment litigation cases to which we are a party, and with respect to all such lead pigment litigation
cases to which we are a party, other than with respect to the Santa Clara case discussed below, we believe liability to
us that may result, if any, in this regard cannot be reasonably estimated, because:
(cid:129) 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 (other than the Santa Clara case discussed below),
no final, non-appealable adverse judgements have ever been entered against us, and
(cid:129)
(cid:129) we have never ultimately been found liable with respect to any such litigation matters, including over
100 cases over a thirty-year period for which we were previously a party and for which we have been
dismissed without any finding of liability.
Accordingly, other than with respect to the Santa Clara case discussed below, 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 at this time 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 the matter titled 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) on July 24, 2019, an order approving a global
settlement agreement entered into among all of the plaintiffs and the three defendants remaining in the case (the
Sherwin Williams Company, ConAgra Grocery Products and us) was entered by the court and the case was
dismissed with prejudice. The global settlement agreement provides that an aggregate $305 million will be paid
collectively by the three co-defendants in full satisfaction of all claims resulting in a dismissal of the case with
prejudice and the resolution of (i) all pending and future claims by the plaintiffs in the case, and (ii) all potential
claims for contribution or indemnity between us and our co-defendants in respect to the case. In the agreement, we
expressly deny any and all liability and the dismissal of the case with prejudice was entered by the court without a
final judgment of liability entered against us. The settlement agreement fully concludes this matter.
Under the terms of the global settlement agreement, each defendant must pay an aggregate $101.7 million
to the plaintiffs as follows: $25.0 million within sixty days of the court’s approval of the settlement and dismissal of
the case, and the remaining $76.7 million in six annual installments beginning on the first anniversary of the initial
payment ($12.0 million for the first five installments and $16.7 million for the sixth installment). Our sixth
installment will be made with funds already on deposit at the court, which is included in noncurrent restricted cash
on our Consolidated Balance Sheets, that are committed to the settlement, including all accrued interest at the date
of payment, with any remaining balance to be paid by us (and any amounts on deposit in excess of the final payment
would be returned to us). Pursuant to the settlement agreement, also during the third quarter of 2019 we placed an
additional $9.0 million into an escrow account which is included in noncurrent restricted cash on our Consolidated
Balance Sheets.
F-32
As previously disclosed during the second quarter of 2018 and based on the terms of a May 2018
settlement agreement between us and the plaintiffs which had an aggregate cost of $80 million to us, we determined
that the loss to us could be reasonably estimated and recognized a net $62 million pre-tax charge with respect to this
matter ($45 million for the amount to be paid by us upon approval of the terms of the settlement and $17 million for
the net present value of the five payments aggregating $20 million to be paid by us in installments beginning four
years from such approval). The May 2018 settlement was never approved by the court and was superseded in July
2019 by the global settlement agreement discussed above.
At June 30, 2019, based on the terms of the global settlement agreement approved by the court in July 2019
we increased the amount accrued for the litigation settlement and a final immaterial adjustment was made to the
litigation settlement accrual in the third quarter of 2019. For financial reporting purposes, using a discount rate of
1.9% per annum, we discounted the aggregate $101.7 million settlement to the estimated net present value of $96.3
million. We recognized litigation settlement expense of $19.3 million ($19.6 million expense in the second quarter
of 2019 and $.3 million credit in the third quarter of 2019). We made the initial $25.0 million payment in
September 2019 and the first annual installment payment of $12.0 million in September 2020. We recognized an
aggregate of $.6 million in accretion expense in the second half of 2019 and an aggregate of $1.3 million in 2020.
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. statutes, the resolution of which typically involves the
establishment of compliance programs. It is possible that future developments, such as stricter requirements of
environmental laws and enforcement policies, could adversely affect our production, handling, use, storage,
transportation, sale or disposal of such substances. We believe all of our facilities are in substantial compliance with
applicable environmental laws.
Certain properties and facilities used in our former operations, including divested primary and secondary
lead smelters and former mining locations, are the subject of civil litigation, administrative proceedings or
investigations arising under federal and state environmental laws and common law. Additionally, in connection
with past operating practices, we are currently involved as a defendant, potentially responsible party (PRP) or both,
pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act (CERCLA), and similar state laws in various governmental and
private actions associated with waste disposal sites, mining locations, and facilities that we or our predecessors, our
subsidiaries or their predecessors currently or previously owned, operated or used, certain of which are on the
United States Environmental Protection Agency’s (EPA) Superfund National Priorities List or similar state lists.
These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to
natural resources. Certain of these proceedings involve claims for substantial amounts. Although we may be jointly
and severally liable for these costs, in most cases we are only one of a number of PRPs who may also be jointly and
severally liable, and among whom costs may be shared or allocated. In addition, we are occasionally named as a
F-33
party in a number of personal injury lawsuits filed in various jurisdictions alleging claims related to environmental
conditions alleged to have resulted from our operations.
Obligations associated with environmental remediation and related matters are difficult to assess and
estimate for numerous reasons including the:
complexity and differing interpretations of governmental regulations,
number of PRPs and their ability or willingness to fund such allocation of costs,
financial capabilities of the PRPs and the allocation of costs among them,
solvency of other PRPs,
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129) multiplicity of possible solutions,
(cid:129)
(cid:129)
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.
(cid:129)
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 (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, 2019 and
December 31, 2020, we had 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-34
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.
Balance at the beginning of the year
Additions charged (credited) 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
2018
Years ended December 31,
2019
(In thousands)
2020
111,909 $
2,735
(16,433)
$
98,211
(579)
(3,124)
94,508
82
(1,174)
98,211 $
94,508
$
93,416
5,027 $
93,184
3,065
91,443
$
2,027
91,389
98,211 $
94,508
$
93,416
$
$
$
$
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, 2020, we had accrued approximately $93 million related to
approximately 32 sites associated with remediation and related matters 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 $114 million,
including the amount currently accrued. These accruals have not been discounted to present value.
We believe it is not reasonably possible to estimate the range of costs for certain sites. At December 31,
2020, there were approximately five 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, if
any, 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.
Insurance coverage claims
We are involved in certain legal proceedings with a number of our former insurance carriers regarding the
nature and extent of the carriers’ obligations to us under insurance policies with respect to certain lead pigment and
asbestos lawsuits. The issue of whether insurance coverage for defense costs or indemnity or both will be found to
exist for our lead pigment and asbestos litigation depends upon a variety of factors and we cannot assure you that
such insurance coverage will be available.
We have agreements with certain of our former insurance carriers pursuant to which the carriers reimburse
us for a portion of our future lead pigment litigation defense costs, and one such carrier reimburses us for a portion
of our future asbestos litigation defense costs. We are not able to determine how much we will ultimately recover
from these carriers for defense costs incurred by us because of certain issues that arise regarding which defense costs
qualify for reimbursement. While we continue to seek additional insurance recoveries, we do not know if we will be
F-35
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.
Other litigation
In addition to the litigation described above, we and our affiliates are also involved in various other
environmental, contractual, product liability, patent (or intellectual property), employment and other claims and
disputes incidental to present and former businesses. In certain cases, we have insurance coverage for these items,
although we do not expect additional material insurance coverage for environmental matters. We currently believe
the disposition of all of these various other claims and disputes (including asbestos-related claims), individually and
in the aggregate, should not have a material adverse effect on our consolidated financial position, results of
operations or liquidity beyond the accruals already provided.
Concentrations of credit risk
Component products are sold primarily in North America to original equipment manufacturers. The ten
largest customers related to our Component Products operations accounted for approximately 44% of total sales in
2018, 47% in 2019 and 48% in 2020. One customer of CompX’s Security Products business accounted for 13% of
total sales in 2018, 14% in 2019 and 17% in 2020.
Income taxes
We are a party to a tax sharing agreement with Contran and Valhi 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 sharing agreement.
Note 18 - Financial instruments:
See Note 5 for information on how we determine fair value of our marketable securities.
The following table presents the financial instruments that are not carried at fair value but which require
fair value disclosure as of December 31, 2019 and 2020:
December 31, 2019
Fair
value
Carrying
amount
December 31, 2020
Fair
value
Carrying
amount
(In thousands)
Cash, cash equivalents and restricted cash
$
157,870 $
157,870 $
165,272 $
165,272
Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are
considered equivalent to fair value.
Note 19 - Recent accounting pronouncement:
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)
ASU 2019-12, Simplifying the Accounting for Income Taxes, which changes the accounting for certain income tax
transactions and reduces complexity in accounting for income taxes in certain areas. The ASU introduces new
guidance including providing a policy election for an entity to not allocate consolidated current and deferred tax
expense when a member of a consolidated tax return is not subject to income tax in its separate financial statements
and is a disregarded entity by the taxing authority; and providing guidance to evaluate whether a step-up in tax basis
of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The
F-36
ASU also changes existing guidance in a number of areas, including: the method of making an intraperiod allocation
of total income tax expense if there is a loss in continuing operations and gains outside of continuing operations;
determining when a deferred tax liability is recognized after an investor in a non-U.S. entity transitions to or from
the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and
determining how to apply the income tax guidance to franchise taxes that are partially based on income. We
adopted this ASU as of January 1, 2020. The adoption of this ASU did not have a material effect on our
Consolidated Financial Statements.
Note 20 - Quarterly results of operations (unaudited):
March 31
June 30
September 30
December 31
(In millions, except per share data)
Quarter ended
Year ended December 31, 2019
Net sales
Gross margin
Net income (loss)
Amounts attributable to NL stockholders:
Net income (loss)
Income (loss) per common share
Year ended December 31, 2020
Net sales
Gross margin
Net income
Amounts attributable to NL stockholders:
Net income
Income per common share
$
$
$
$
$
$
31.2 $
9.6
15.7
15.2 $
.31 $
32.3 $
10.4
2.5
1.9 $
.04 $
33.7 $
11.0
6.6
5.9 $
.12 $
23.8 $
7.4
4.9
4.6 $
.09 $
29.7 $
9.4
(1.0)
(1.6) $
(.03) $
28.4 $
7.3
4.1
3.9 $
.08 $
29.6
9.0
6.7
6.3
.13
30.0
7.7
4.6
4.3
.09
We recognized the following amounts during 2019:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
loss of $15.2 million, net of income tax expense, mainly in the second quarter related to the litigation
settlement expense (see Note 17);
income of $3.5 million, net of income tax expense, in the third quarter related to a gain from a sale of
excess property (see Note 13);
income of $2.4 million, net of income tax expense, in the fourth quarter related to a gain from the sale
of our insurance and risk management business (see Note 13);
income of $4.1 million, net of income tax expense, ($.2 million, $3.7 million and $.2 million in the
first, second and third quarters, respectively) related to insurance recoveries (see Note 17);
loss of $1.3 million included in our equity in earnings of Kronos related to Kronos’ fourth quarter
recognition of a non-cash deferred income tax expense primarily related to the revaluation of Kronos’
net deferred income tax asset in Germany as a result of a decrease in the German trade tax rate (see
Note 14);
income of $.7 million included in our equity in earnings of Kronos related to Kronos’ fourth quarter
recognition of an income tax benefit related to the favorable settlement of a prior year tax matter in
Germany (see Note 14); and
income of $.5 million, included in our equity in earnings of Kronos, related to Kronos’ insurance
settlement gain recognized in the fourth quarter.
We recognized the following amounts during 2020:
(cid:129)
(cid:129)
income of $.3 million, included in our equity in earnings of Kronos, related to Kronos’ insurance
settlement gain recognized in the first quarter; and
income of $.1 million, net of income tax expense related to insurance recoveries in the second quarter
(see Note 17).
F-37
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.
United Lead Company
NLKW Holding, LLC
Jurisdiction of
incorporation
or organization
Delaware
Delaware
New York
United Kingdom
New Jersey
New Jersey
New Jersey
EXHIBIT 21.1
% of voting
securities held at
December 31, 2020 (1)
86
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, 2020 (File No. 1-13905)
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, 2020 (File No. 1-31763)
(3)
NL Industries, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240-2620
(972) 233-1700