NL INDUSTRIES
2021
ANNUAL REPORT
NL INDUSTRIES, INC. CORPORATE AND OTHER INFORMATION
Management of Subsidiary and
Affiliate
CompX International Inc.
Scott C. James
Director, President and
Chief Executive Officer
Kronos Worldwide, Inc.
Robert D. Graham
Vice Chairman and
Chief Executive Officer
Board of Directors
Corporate Officers
Loretta J. Feehan
Chair of the Board (non-executive)
Financial Consultant
Robert D. Graham
Vice Chairman of the Board
John E. Harper (a)
Private Investor
Meredith W. Mendes (a)
Chief Operating Officer and Partner
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
Robert D. Graham
Vice Chairman of the Board
Courtney J. Riley
President and Chief Executive Officer
Andrew B. Nace
Executive Vice President
Amy A. Samford
Senior Vice President and
Chief Financial Officer
Bryan A. Hanley
Vice President and Treasurer
Patricia A. Kropp
Vice President, Employee Benefits
John R. Powers, III
Vice President and General
Counsel
Bart W. Reichert
Vice President, Internal Audit
Amy E. Ruf
Vice President and Controller
Darci B. Scott
Vice President, Tax
Annual Meeting
Form 10-K Report
Transfer Agent
The 2022 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, 2021, 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:
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:
Janet Keckeisen
Investor Relations
NL Industries, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2620
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, 2021
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)
Registrant’s telephone number, including area code: (972) 233-1700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock
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, 2021 (the last business day of the
Registrant’s most recently-completed second fiscal quarter) approximated $54.7 million.
Number of shares of the registrant’s common stock, $.125 par value per share, outstanding on February 28, 2022: 48,802,734.
Documents incorporated by reference
The information required by Part III is incorporated by reference from the Registrant’s definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
ITEM 1.
BUSINESS
The Company
PART I
NL Industries, Inc. was organized as a New Jersey corporation in 1891. Our common stock trades on the New
York Stock Exchange, or the NYSE, under the symbol NL. References to “NL Industries,” “NL,” the “Company,” the
“Registrant,” “we,” “our,” “us” and similar terms mean NL Industries, Inc. and its subsidiaries and affiliate, unless the
context otherwise requires.
Our principal executive offices are located at Three Lincoln Center, 5430 LBJ Freeway, Suite 1700, Dallas, TX
75240. Our telephone number is (972) 233-1700. We maintain a website at www.nl-ind.com.
Business summary
We are primarily a holding company. We operate in the component products industry through our majority-
owned subsidiary, CompX International Inc. (NYSE 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, 2021, 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. 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;
• Unexpected or earlier-than-expected industry capacity expansion (such as the TiO2 industry);
• Changes in raw material and other operating costs (such as energy, ore, zinc, 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;
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• Changes in the availability of raw material (such as ore);
• General global economic and political conditions that harm the worldwide economy, disrupt our supply
chain, increase material and energy costs or reduce demand or perceived demand for Kronos’ TiO2 and our
products 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;
• Our ability to protect or defend intellectual property rights;
• Potential difficulties in integrating future acquisitions;
• Potential difficulties in upgrading or implementing accounting and manufacturing software systems;
• The introduction of trade barriers or trade disputes;
• 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;
• 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);
• Decisions to sell operating assets other than in the ordinary course of business;
• Kronos’ ability to renew or refinance credit facilities;
• Potential increases in interest rates;
• Our ability to maintain sufficient liquidity;
• The timing and amounts of insurance recoveries;
• The ability of our subsidiaries or affiliates to pay us dividends;
• Uncertainties associated with CompX’s development of new products and product features;
• The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future
tax reform;
• 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;
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• Environmental matters (such as those requiring compliance with emission and discharge standards for
existing and new facilities or new developments regarding environmental remediation at sites related to our
former operations);
• Government laws and regulations and possible changes therein (such as changes in government regulations
which might impose various obligations on former manufacturers of lead pigment and lead-based paint,
including us, with respect to asserted health concerns associated with the use of such products), 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); and
• Possible future litigation.
Should one or more of these risks materialize or if the consequences of such a development worsen, or should the
underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected.
We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes
in information, future events or otherwise.
Operations and equity investment
Information regarding our operations and the companies conducting such operations is set forth below.
Geographic financial information is included in Note 2 to our Consolidated Financial Statements, which is incorporated
herein by reference.
Component Products
CompX International Inc. -
87% owned at December 31,
2021
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, 2021
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 92% of Kronos’ net
sales in 2021, 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 business has one manufacturing facility in Mauldin, South
Carolina and one in Grayslake, Illinois which is shared with its Marine Components business. CompX believes it is a
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North American market leader in the manufacture and sale of cabinet locks and other locking mechanisms. These products
include:
•
disc tumbler locks which provide moderate security and generally represent the lowest cost lock CompX
produces;
•
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’s 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.
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:
•
•
original equipment and aftermarket stainless steel exhaust headers, exhaust pipes, mufflers and other exhaust
components;
high performance gauges such as GPS speedometers and tachometers;
• mechanical and electronic controls and throttles;
• wake enhancement devices, trim tabs, steering wheels, and billet aluminum accessories;
•
•
dash panels, LED indicators, and wire harnesses; and
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, 2021:
Facility Name
Owned Facilities:
National (1)
Grayslake(1)
Custom(1)
SP – Security Products business
MC – Marine Components business
(1)
ISO-9001 registered facilities
Business
Size
Operations Location
(square feet)
SP
SP/MC
MC
Mauldin, SC
Grayslake, IL
Neenah, WI
198,000
133,000
95,000
CompX believes all of its facilities are well maintained and satisfactory for their intended purposes.
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Raw materials - The primary raw materials used in CompX’s manufacturing processes are:
• Security Products - zinc and brass (for the manufacture of locking mechanisms).
• 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 16% of our total cost of sales for 2021. Total material costs, including purchased components,
represented approximately 44% of our cost of sales in 2021.
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. Prices for the
primary commodity-related raw materials used in the manufacture of CompX’s locking mechanisms, primarily zinc and
brass, remained relatively stable during 2020 but generally increased throughout 2021. The prices for stainless steel, the
primary raw material used for the manufacture of marine exhaust headers and pipes and wake enhancement systems,
remained relatively stable in 2020 but experienced significant volatility during 2021. Based on current economic
conditions, CompX expects the prices for zinc, brass, and stainless steel, and other manufacturing materials to be volatile
during 2022. 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 its 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 18 years at December 31, 2021.
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®
TuBa®
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
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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 2021
(United States Postal Service representing 16%). CompX’s largest ten customers accounted for approximately 51% of its
sales in 2021.
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 has a history of incorporating environmental management and
compliance in its operations and decision making. CompX operates three low-emission manufacturing facilities and
CompX’s production processes requiring waste-water discharge are consolidated at its Mauldin, South Carolina facility.
This facility has received a ReWa Gold Award from Renewable Water Resources, an organization which sets regulatory
and water policies for the Mauldin facility’s geographic region, for multiple years for its exemplary performance. In
addition, CompX operates extensive scrap metal recycling programs to reduce landfill waste.
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 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
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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 3% 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. Kronos
believes that Western Europe and North America currently each account for approximately 16% of global TiO2
consumption. Markets for TiO2 are generally increasing in China, the Asia Pacific region, South America and Eastern
Europe and Kronos believes 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 2021 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
18 %
19 %
2019
2020
2021
15 %
17 %
17 %
18 %
Kronos believes it is the leading seller of TiO2 in several countries, including Germany, with an estimated 8%
share of worldwide TiO2 sales volume in 2021. Overall, Kronos is one of the top five producers of TiO2 in the world.
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 dry or slurry form via rail, truck and/or ocean carrier. Sales of Kronos’ core
TiO2 pigments represented approximately 92% of its net sales in 2021. 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, 2021:
Sales volume percentages
by geographic region
Sales volume percentages
by end-use
Europe
North America
Asia Pacific
Rest of World
46 %
37 %
10 %
7 %
Coatings
Plastics
Paper
Other
56 %
30 %
8 %
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,
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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 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 8% of its net sales in 2021:
• 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.
• 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.
• Kronos manufactures and sells other specialty chemicals, which are side-stream specialty products from the
production of TiO2. Such specialty chemicals are used in applications in the formulation of pearlescent
pigments, production of electroceramic capacitors for cell phones and other electronic devices and 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
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TiO2 industry sales represented by chloride process pigments has remained stable relative to sulfate process pigments, and
in 2021, 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).
• 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 546,000, 517,000, and 545,000 metric tons of TiO2 in 2019, 2020 and 2021, respectively.
Kronos’ production volumes include its share of the output produced by its TiO2 manufacturing joint venture discussed
below. Kronos’ average production capacity utilization rates were approximately 98% in 2019, 92% in 2020 and full
practical capacity in 2021. Kronos’ production rates in 2020 were impacted by the 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, a 50% interest in a TiO2 plant near Lake Charles, Louisiana.
As part of Kronos’ long-term strategy to increase chloride process production, Kronos phased-out sulfate
production at its Leverkusen facility during 2020. Kronos’ chloride process production and remaining sulfate 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 2022.
The following table presents the division of Kronos’ expected 2022 manufacturing capacity by plant location and
type of manufacturing process:
Facility
Leverkusen, Germany (1)
Nordenham, Germany
Langerbrugge, Belgium
Description
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 %
—
— %
11
17
—
17
15
80 %
—
6
3
—
20 %
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(1) The Leverkusen facility is located within an extensive manufacturing complex owned by Bayer AG. Kronos owns the
Leverkusen facility, which represents about one-third of 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.
(2) The Fredrikstad facility is located on public land and is leased until 2063.
(3) 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.
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
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Africa, Sierra Leone, Canada and India. Kronos purchases feedstock for its chloride process TiO2 from the following
primary suppliers for certain contractually specified volumes for delivery extending, in some cases, through 2023:
Supplier
Rio Tinto Iron and Titanium Ltd
Rio Tinto Iron and Titanium Ltd
Tizir Titanium & Iron AS
Sierra Rutile Limited
Base Titanium Limited
Product
Renewal Terms
Chloride process grade slag
Upgraded slag
Chloride process grade slag
Rutile ore
Rutile ore
Auto-renews bi-annually
Auto-renews annually
Renewal terms upon negotiations
Renewal terms upon negotiations
Renewal terms upon negotiations
In the past Kronos has been, and expects 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. Contracts may be terminated with a 12-month written notice (generally for multi-year agreement terms)
or based on certain defaults by either party or failure to agree on pricing as noted in the agreements.
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 2021. 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.
The following table summarizes Kronos’ raw materials purchased or mined in 2021.
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)
437
252
27
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 helps build customer loyalty to Kronos and strengthens 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
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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® branded 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 and no single customer comprised 10% or more of its net sales in 2021.
Kronos’ largest ten customers accounted for approximately 32% of net sales in 2021.
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
during the third quarter of 2020 as a result of 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.
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 2021, Kronos had an estimated
8% 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 2021:
Worldwide production capacity – 2021
Chemours
Tronox
Lomon Billions
Venator
Kronos
Other
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15 %
13 %
11 %
7 %
6 %
48 %
Chemours has approximately one-half of total North American TiO2 production capacity and is Kronos’ principal
North American competitor. In 2019, Tronox acquired certain of the TiO2 assets of Cristal Global. Lomon Billions
announced it added approximately 260,000 tons of chloride capacity in 2019 and plans to add an additional 200,000 tons
by 2023.
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. 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 2022, other than through debottlenecking projects and the Lomon Billions expansion mentioned above, Kronos does
not expect any significant efforts will be undertaken by Kronos or its principal competitors to further increase capacity
and Kronos believes it is unlikely any new TiO2 plants will be constructed in Europe or North America for the foreseeable
future. If actual developments differ from Kronos’ expectations, the TiO2 industry’s and Kronos’ performance could be
unfavorably affected.
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 $17 million in 2019, $16 million in 2020 and $17 million in 2021.
Kronos expects to spend approximately $18 million on research and development in 2022.
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 2017, Kronos has added nine new grades for pigments and other applications.
Patents, trademarks, trade secrets and other intellectual property rights - Kronos has a comprehensive
intellectual property protection strategy that includes obtaining, maintaining and enforcing its patents, primarily in the
United States, Canada and Europe. Kronos also protects its trademark and trade secret rights and has entered into license
agreements with third parties concerning various intellectual property matters. Kronos has also from time to time been
involved in disputes over intellectual property.
Patents – Kronos has obtained patents and has numerous patent applications pending that cover its products and
the technology used in the manufacture of its products. Kronos’ patent strategy is important to 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 two 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
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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. 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.
During 2021, Kronos was notified by government authorities in Norway that the classification of a dam at its mine facilities
was changed to the highest level for Norwegian classification of dam structures. As a result, its mine operations are subject
to a higher degree of oversight and regulation than existed prior to this change in classification, and Kronos expects to
incur additional capital expenditures to adapt to the higher classification standards.
Kronos has a history of identifying new ways to reduce consumption and waste by converting byproducts to co-
products through its ecochem® products. Annually Kronos updates and publishes its Safety, Environment, Energy and
Quality Policy which is translated into local languages and distributed to all its employees and shared publicly via its
website. Kronos has implemented rigorous procedures for incident reporting and investigation, including root cause
analysis of environmental and safety incidents and near misses. Because TiO2 production requires significant energy input,
Kronos is focused on energy efficiency at all production locations. Three of its five production facilities maintain
certifications to the ISO 50001:2018 Energy Management standard and all locations have local energy teams in place.
These teams are responsible for maintaining ISO 50001:2018 certifications (where applicable), performing regular reviews
of local energy consumption, making recommendations regarding capital projects that reduce energy consumption or
enhance efficiency, and partnering with local government authorities through grant opportunities to reduce energy
consumption and associated Greenhouse Gas (“GHG”) emissions. Kronos also actively manages potential water-related
risks, including flooding and water shortages. Kronos’ manufacturing facilities are strategically located adjacent to sources
of water, which it uses for process operations and for shipping and receiving raw materials and finished products. Water-
critical processes are identified and ongoing efforts to minimize water use are incorporated into environmental planning.
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.
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
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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 dry TiO2 and mixtures containing
dry TiO2 as a suspected carcinogen via inhalation under its EU Regulation No. 1272/2008 on classification and labeling
substances and mixtures. The regulation went into force on October 1, 2021 when hazard labels were required on certain
dry TiO2 products and certain mixtures containing dry TiO2 in the EU. Kronos’ dry TiO2 products do not meet the criteria
set forth in the regulation and therefore do not require classification labels.
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 $14.2 million in 2021
and are currently expected to be approximately $32 million in 2022.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)
Through our subsidiaries and affiliates, we seek to operate our businesses in line with sound ESG principles that
include corporate governance, social responsibility, sustainability, and cybersecurity. We believe ESG means conducting
operations with high standards of environmental and social responsibility, practicing exemplary ethical standards, focusing
on safety as a top priority, respecting and supporting our local communities, and continuously developing our employees.
At their facilities, Kronos and CompX undertake various environmental sustainability programs, and promote social
responsibility and volunteerism through programs designed to support and give back to the local communities in which
each operates. Each of Kronos’ and CompX’s locations maintain site-specific safety programs and disaster response and
business continuity plans. All manufacturing facilities have detailed, site-specific emergency response procedures that
Kronos and CompX believe adequately address regulatory compliance, vulnerability to potential hazards, emergency
response and action plans, employee training, alarms and warning systems and crisis communication.
At a corporate level, Kronos and CompX engage in periodic reviews of their cybersecurity programs, including
cybersecurity risk and threats. Cybersecurity programs are built on operations and compliance foundations. Operations
focus on continuous detection, prevention, measurement, analysis, and response to cybersecurity alerts and incidents and
on emerging threats. Compliance establishes oversight of our cybersecurity programs by creating risk-based controls to
protect the integrity, confidentiality, accessibility, and availability of company data stored, processed, or transferred. We
periodically update our board of directors on cyber-related risks and cybersecurity programs.
In an effort to align our non-employee directors’ financial interests with those of our stockholders, our Board
established share ownership guidelines for our non-management directors.
Kronos has taken steps to integrate ESG considerations into operating decisions with other critical business
factors. Kronos biennially publishes an ESG Report, which is available on its public website. The primary purpose of its
ESG Report is to describe Kronos’ policies and programs in the area of ESG, including certain internal metrics and
benchmarks related to various aspects of ESG. Kronos voluntarily developed these internal metrics and benchmarks,
which Kronos uses to identify progress and opportunities for improvement. These metrics are not intended to be directly
comparable to similar metrics utilized by other companies to track ESG performance.
HUMAN CAPITAL RESOURCES
Employees - We operate through our subsidiaries and affiliate and through our intercorporate services agreement
with Contran (see Note 16 to our Consolidated Financial Statements). We have no direct employees. Our operating results
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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, 2021, CompX employed 570 people, all in the United States.
As of December 31, 2021, Kronos employed the following number of people:
Europe
Canada
United States (1)
Total
1,840
353
55
2,248
(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. At December 31, 2021,
approximately 88% of Kronos’ worldwide workforce is organized under collective bargaining agreements. Kronos did not
experience any work stoppages during 2021, 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 workforce, customers,
business partners and the natural environment are core values. Kronos and CompX are committed to maintaining a strong
safety culture where all workers meet or exceed required industry performance standards and continuously seek to improve
occupational and process safety performance. Kronos and CompX conduct 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 products safely and in
compliance with local regulations, policies, standards and practices intended to protect the environment and people and
have established global policies designed to promote such compliance. Kronos and CompX require employees to comply
with such requirements. Kronos and CompX provide their workers with the tools and training necessary to make the
appropriate decisions to prevent accidents and injuries. Each of Kronos’ and CompX’s operating facilities develops,
maintains, and implements safety programs encompassing key aspects of their operations. In addition, management
reviews and evaluates safety performance throughout the year.
CompX uses a Lost Time Incident Rate as a key measure of worker safety. The Lost Time Incident Rate is a
standard Occupational Safety and Health Administration metric that calculates the number of incidents that result in time
away from work. CompX had a Lost Time Incident Rate of three in 2019, nil in 2020, and one in 2021.
Kronos monitors conditions that could lead to a safety incident and keep track of injuries through reporting
systems in accordance with laws in the jurisdictions in which it operates. With this data Kronos calculates incident
frequency rates to assess the quality of its safety performance. Kronos also tracks overall safety performance at the global
level. Each Kronos operating location is subject to local laws and regulations that dictate what injuries are required to be
recorded and reported, which may differ from location to location and result in different methods of injury rate calculation.
For internal global tracking, benchmarking and identification of opportunities for improvement, Kronos collects the
location specific information and applies a US-based injury rate calculation to arrive at a global total frequency rate, which
is expressed as the number of incidents at its operating locations per 200,000 hours. This internal safety metric may not be
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directly comparable to a recordable incident rate calculated under US law. Kronos’ global total frequency rate was 1.59 in
2019, 1.61 in 2020 and 1.08 in 2021.
Diversity and inclusion - We 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.
OTHER
In addition to our 87% ownership of CompX and our 30% ownership of Kronos at December 31, 2021, 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.
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 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
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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 2021, 92% 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 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.
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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.
• 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.
• 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.
• New competitors could emerge by modifying their existing production facilities to manufacture products that
compete with CompX’s products.
• 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. 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
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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 and ensure supply. 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 its facilities are located. 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 or increased
regulations in the countries from which Kronos purchases or mines its raw material supplies could adversely affect raw
material availability. If Kronos or Kronos’ worldwide vendors are unable to meet their planned or contractual obligations
and Kronos was 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 feedstock costs in 2020 and 2021, and Kronos
expects feedstock costs to continue to increase in 2022. 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 supply contracts that provide for its TiO2 feedstock requirements that currently expire in either 2022
or 2023. While Kronos believes it will be able to renew these contracts, Kronos does not know if 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 February 2022) require it to purchase certain minimum quantities of feedstock with minimum
purchase commitments aggregating approximately $800 million beginning in 2022. In addition, Kronos has other long-
term supply and service contracts that provide for various raw materials and services. These agreements require Kronos to
purchase certain minimum quantities or services with minimum purchase commitments aggregating approximately $64
million at December 31, 2021. 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.
Our results of operations have been and may continue to be negatively impacted by COVID-19, specifically from
disruptions to Kronos’ and CompX’s supply chain, transportation networks and customers, which may compress margins,
including as a result of preventative and precautionary measures that Kronos and CompX, other businesses, and
governments are taking. In addition, the ability of our suppliers and customers to operate may be significantly impacted
by individuals contracting or being exposed to COVID-19 or as a result of associated control measures. Given the dynamic
and uncertain nature and duration of COVID-19 and related variants, and the effectiveness of actions globally to contain
or mitigate its effects, we cannot reasonably estimate the long-term impact of COVID-19 on our businesses, results of
operations and overall financial performance.
CompX has 570 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, CompX enhanced cleaning and sanitization procedures within each facility and implemented other health
and safety protocols. CompX has generally been able to operate successfully through the pandemic; however, with the
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increase spread of new variants of COVID-19 it is possible CompX may have temporary closures at one or more of its
facilities for the health and safety of its workforce if conditions warrant.
Kronos has 2,248 employees and operates facilities throughout North America and Europe. With the onset of
COVID-19, Kronos enhanced cleaning and sanitization procedures within each facility and implemented other health and
safety protocols. Kronos has also been able to fully operate each of its facilities 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 if conditions warrant.
Our assets consist primarily of investments in our operating subsidiaries and affiliate, and we are dependent upon
distributions from our subsidiaries and affiliate.
The majority of our operating cash flows are generated by our operating subsidiaries and affiliate, and our ability
to service liabilities and pay dividends on our common stock depends to a large extent upon the cash dividends or other
distributions we receive from our subsidiaries and affiliate. Our subsidiaries and affiliate are separate and distinct legal
entities and they have no obligation, contingent or otherwise, to pay cash dividends or other distributions to us. In addition,
the payment of dividends or other distributions from our subsidiaries and affiliate could be subject to restrictions under
applicable law, monetary transfer restrictions, currency exchange regulations in jurisdictions in which our subsidiaries and
affiliate operate or any other restrictions imposed by current or future agreements to which our subsidiaries and affiliate
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 affiliate to pay dividends or make other
distributions to us. If our subsidiaries and affiliate 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 could be adversely
affected.
In addition, a significant portion of our assets consist of ownership interests in our subsidiaries and affiliate. If
we were required to liquidate our subsidiaries’ and affiliate’s securities in order to generate funds to satisfy our liabilities,
we may be required to sell such securities at a time or times for less than what we believe to be the long-term value of such
assets.
Kronos’ leverage may impair our financial condition.
Kronos has a significant amount of debt, primarily related to its Senior Notes issued in September 2017. As of
December 31, 2021, Kronos’ total consolidated debt was approximately $451 million. Kronos’ level of debt could have
important consequences to its stockholders and creditors, including:
• making it more difficult for Kronos to satisfy its obligations with respect to its liabilities;
•
increasing its vulnerability to adverse general economic and industry conditions;
•
•
•
•
•
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’ global revolving 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.
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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 $551 million in 2022. 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 facility 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 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.
Protection of intellectual property rights, including patents, trade secrets, confidential information, trademarks
and tradenames, is important to Kronos’ and CompX’s businesses 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
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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 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. 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 operations, raw materials, and 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.
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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. Many of Kronos’ and CompX’s facilities require large amounts of energy, including electricity and
natural gas, in order to conduct operations. The U.S. government and various non-U.S. governmental agencies of countries
in which Kronos and CompX operate have determined that the consumption of energy derived from fossil fuels is a major
contributor to climate change and have introduced or are contemplating regulatory changes in response to the potential
impact of climate change, including legislation regarding carbon emission costs, emissions and renewable energy targets.
International treaties or agreements may also result in increasing regulation of GHG emissions, including emissions
permits and/or energy taxes or the introduction of carbon emissions trading mechanisms. To date, the existing GHG permit
system in effect in the various countries in which Kronos or CompX operates has not had a material adverse effect on
financial results. Until the timing, scope and extent of any future regulation becomes known, we cannot predict the effect
on Kronos’ or CompX’s business, results of operations or financial condition. However, if further GHG legislation were
to be enacted in one or more countries, it could negatively impact Kronos or CompX future results of operations through
increased costs of production, particularly as it relates to their energy requirements or their need to obtain emissions
permits. If such increased costs of production were to materialize, Kronos or CompX may be unable to pass price increases
on to their customers to compensate for increased production costs, which may decrease their liquidity, operating income
and results of operations. In addition, any adopted future regulations focused on climate change and/or GHG regulations
could negatively impact Kronos’ or CompX’s ability (or that of its customers and suppliers) to compete with companies
situated in areas not subject to such regulations.
General Risk Factors
Kronos’ operating as a global business presents risks associated with global and regional economic, political, and
regulatory environments.
Kronos has significant international operations which, along with its customers and suppliers, could be
substantially affected by a number of risks arising from operating a multi-national business, including trade barriers, tariffs,
economic sanctions, exchange controls, global and regional economic downturns, natural disasters, terrorism, armed
conflict (such as the current conflict between Russia and Ukraine), health crises (such as the coronavirus) and political
conditions. Kronos may encounter difficulties enforcing agreements or other legal rights and the effective tax rate may
fluctuate based on the variability of geographic earnings and statutory tax rates, including costs associated with the
repatriation of non-U.S. earnings. TiO2 production requires significant energy input, and economic sanctions or supply
disruptions resulting from armed conflict could lead to additional volatility in global energy prices and energy supply
disruptions. These risks, individually or in the aggregate, could have an adverse effect on Kronos’ results of operations
and financial condition.
Technology failures or cybersecurity 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 from power outages, telecommunications
failures, employee error, cybersecurity breaches or attacks, and other similar events. This could result in a disruption of
Kronos’ or CompX’s business operations, injury to people, harm to the environment or its assets, and/or the inability to
access our information technology systems and could adversely affect its results of operations and financial
condition. Kronos and CompX have in the past experienced, and expect to continue to experience, cyber-attacks, including
phishing, and other attempts to breach, or gain unauthorized access to, their systems, and vulnerabilities introduced into
their systems by trusted third-party vendors who have experienced cyber-attacks. To date Kronos and CompX have not
suffered breaches in their systems, either directly or through a trusted third-party vendor, which have led to material losses.
Due to the increase in global cybersecurity incidents it has become increasingly difficult to obtain insurance coverage on
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reasonable pricing terms to mitigate some risks associated with technology failures or cybersecurity breaches, and Kronos
and CompX are experiencing such difficulties in obtaining insurance coverage.
Physical impacts of climate change could have a material adverse effect on Kronos’ or CompX’s costs and operations.
Climate change may increase both the frequency and severity of extreme weather conditions and natural disasters,
such as hurricanes, thunderstorms, tornadoes, drought and snow or ice storms. Extreme weather conditions may increase
our costs or cause damage to Kronos’ or CompX’s facilities, and any damage resulting from extreme weather may not be
fully insured. Climate change has also been associated with rising sea levels and many of Kronos’ facilities are located
near coastal areas or waterways where rising sea levels or flooding could disrupt its operations or adversely impact its
facilities. Furthermore, periods of extended inclement weather or associated droughts or flooding may inhibit Kronos’ or
CompX’s facility operations and delay or hinder shipments of products to customers. Any such events could have a
material adverse effect on Kronos’ or CompX’s costs or results of operations.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None
ITEM 2.
PROPERTIES
Our principal executive offices are located in an office building located at 5430 LBJ Freeway, Dallas, Texas,
75240-2620. 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.
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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:
• 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 judgments have ever been entered against us, and
•
• we have never ultimately been found liable with respect to any such litigation matters, including over 100
cases over a 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.
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
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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 and second annual
installment payments of $12.0 million each in September 2020 and 2021. We recognized an aggregate of $.6 million in
accretion expense in the second half of 2019 and an aggregate of $1.3 million and $1.1 million in 2020 and 2021,
respectively.
In November 2018, NL was served with two complaints filed by county governments 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. In February 2022,
the Pennsylvania Commonwealth Court entered orders staying all proceedings in the trial courts and granting defendants’
request for an interlocutory appeal of earlier trial court rulings allowing the cases to proceed. The stay will remain in place
until defendants’ appeals are resolved.
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
Certain properties and facilities used in our former operations, including divested primary and secondary lead
smelters and former mining locations, are the subject of civil litigation, administrative proceedings or investigations arising
under federal and state environmental laws and common law. Additionally, in connection with past operating practices,
we are currently involved as a defendant, potentially responsible party (PRP) or both, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act (CERCLA), and similar state laws in various governmental and private actions associated with waste
disposal sites, mining locations, and facilities that we or our predecessors, our subsidiaries or their predecessors currently
or previously owned, operated or used, certain of which are on the United States Environmental Protection Agency’s
(EPA) Superfund National Priorities List or similar state lists. These proceedings seek cleanup costs, damages for personal
injury or property damage and/or damages for injury to natural resources. Certain of these proceedings involve claims for
substantial amounts. Although we may be jointly and severally liable for these costs, in most cases we are only one of a
number of PRPs who may also be jointly and severally liable, and among whom costs may be shared or allocated. In
addition, we are occasionally named as a party in a number of personal injury lawsuits filed in various jurisdictions alleging
claims related to environmental conditions alleged to have resulted from our operations.
Obligations associated with environmental remediation and related matters are difficult to assess and estimate for
numerous reasons including the:
•
•
•
•
complexity and differing interpretations of governmental regulations,
number of PRPs and their ability or willingness to fund such allocation of costs,
financial capabilities of the PRPs and the allocation of costs among them,
solvency of other PRPs,
• multiplicity of possible solutions,
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•
•
•
number of years of investigatory, remedial and monitoring activity required,
uncertainty over the extent, if any, to which our former operations might have contributed to the conditions
allegedly giving rise to such personal injury, property damage, natural resource and related claims, and
number of years between former operations and notice of claims and lack of information and documents
about the former operations.
In addition, the imposition of more stringent standards or requirements under environmental laws or regulations,
new developments or changes regarding site cleanup costs or the allocation of costs among PRPs, solvency of other PRPs,
the results of future testing and analysis undertaken with respect to certain sites or a determination that we are potentially
responsible for the release of hazardous substances at other sites, could cause our expenditures to exceed our current
estimates. Actual costs could exceed accrued amounts or the upper end of the range for sites for which estimates have been
made, and costs may 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, 2020 and December 31, 2021, 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, 2021, 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 $118 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, 2021,
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.
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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 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, which 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. We have denied liability and will defend vigorously
against all of the claims. In May 2015, the trial court on its own motion entered an indefinite stay of the litigation, which
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. We have
denied liability and will 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.
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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 have denied 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 have
denied 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. In November 2021, all claims against NL were dismissed.
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 578
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:
•
•
•
•
facts concerning historical operations,
the rate of new claims,
the number of claims from which we have been dismissed, and
our prior experience in the defense of these matters,
we believe 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.
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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. In
April 2021, the trial court entered an order staying the case while the appellate court considers the insurer’s interlocutory
appeal of the trial court’s summary judgment ruling. 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
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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 28, 2022,
there were approximately 1,625 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, 2016 through December 31, 2021. The graph shows the
value at December 31 of each year assuming an original investment of $100 at December 31, 2016 and the reinvestment
of dividends.
NL common stock
S&P 500 Composite Stock Index
S&P 500 Industrial Conglomerates Index
2016
$
2017
December 31,
2019
2018
2020
2021
100 $
100
100
175 $
122
92
43 $
116
67
48 $
153
84
61 $
181
92
98
233
97
Comparison of Cumulative Five Year Total Return
$250
$200
$150
$100
$50
$0
2016
2017
2018
2019
2020
2021
NL common stock
S&P 500 Index
S&P 500 Industrial Conglomerates
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.
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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, 2021,
66,150 shares are available for award under this plan. See Note 15 to our Consolidated Financial Statements.
ITEM 6.
RESERVED
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 overview
Our net income attributable to NL stockholders was $51.2 million, or $1.05 per share, in 2021 compared to net
income of $14.7 million, or $.30 per share, in 2020 and net income of $25.8 million, or $.53 per share, in 2019.
As more fully described below, the increase in our earnings per share attributable to NL stockholders from 2020
to 2021 is primarily due to the effects of:
•
•
•
equity in earnings from Kronos in 2021 of $34.3 million compared to $19.4 million in 2020,
favorable relative changes in the value of marketable equity securities of $24.9 million, and
higher income from operations attributable to CompX of $8.7 million in 2021.
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:
•
•
•
•
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,
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•
•
•
•
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.
Our 2019 net income per share attributable to NL stockholders includes:
•
•
•
•
•
•
•
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.
Outlook
Excluding any potential effects from changes in the relative value of marketable securities, we currently expect
our net income attributable to NL stockholders in 2022 to be higher than 2021 primarily due to higher expected income
from operations attributable to CompX and higher equity in earnings from Kronos partially offset by higher litigation fees
and related costs and higher environmental remediation and related costs.
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.
Years ended December 31,
2021
2019
2020
% Change
2019-20
2020-21
(Dollars in millions)
17.7 $
5.1
7.4
(19.3)
(12.5)
(1.6) $
11.8 $
.1
—
—
(9.5)
2.4 $
20.5
.1
—
—
(10.1)
10.5
$
$
(33)%
(98)
n.m.
n.m.
(24)
246
74 %
(12)
—
—
6
345
-35-
The following table shows the components of our income before income taxes exclusive of our income (loss)
from operations.
Equity in earnings of Kronos
Marketable equity securities unrealized (loss) gain
Other components of net periodic pension and
OPEB cost
Interest and dividend income
Interest expense
CompX International Inc.
Years ended December 31,
2020
2021
2019
(Dollars in millions)
% Change
2019-20 2020-21
$
26.5 $
(.9)
19.4 $
(8.7)
34.3
16.2
(27)%
905
77 %
287
(1.4)
6.7
(.7)
(.8)
2.6
(1.3)
(.6)
1.6
(1.1)
(43)
(61)
98
(15)
(38)
(15)
Years ended December 31,
2019
2020
2021
% Change
2019-20 2020-21
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
$ 124.2
85.2
39.0
21.3
17.7
(Dollars in millions)
$ 114.5
81.7
32.8
21.0
11.8
$ 140.8
98.1
42.7
22.2
20.5
$
$
$
(8)%
(4)
(16)
(1)
(33)
23 %
20
30
6
74
68.6 %
31.4
17.1
14.2
71.3 %
28.7
18.4
10.3
69.7 %
30.3
15.8
14.6
Net sales - Net sales increased approximately $26.3 million in 2021 compared to 2020 primarily due to higher
sales at both CompX business units, particularly in the second quarter of 2021, as many of CompX’s customers were
temporarily closed or reduced production during the second quarter of 2020 due to government ordered closures or reduced
demand resulting from the COVID-19 pandemic. Beginning in the third quarter of 2020 and continuing through 2021,
Marine Components sales exceeded pre-pandemic levels. Security Products sales generally improved since third quarter
of 2020 but did not recover to pre-pandemic levels until the second quarter of 2021 when sales improved in markets that
had been slower to recover from the COVID-19 pandemic, particularly sales to distributors and the office furniture market.
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.
Cost of sales and gross margin - Cost of sales increased in 2021 compared to 2020 primarily due to the effects
of higher sales, as well as increased production costs at both of CompX’s business units. Gross margin as a percentage of
sales increased over the same period due to the increase in CompX’s Security Products gross margin percentage partially
offset by the decrease in CompX’s Marine Components gross margin percentage.
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.
-36-
Operating costs and expenses - Operating costs and expenses consist primarily of sales and administrative-
related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative
costs relating to CompX’s businesses and its corporate management activities, as well as gains and losses on property and
equipment. Operating costs and expenses increased in 2021 compared to 2020 predominantly due to higher salary and
benefit costs which increased by $.9 million. As a percentage of sales, operating costs and expenses decreased in 2021
compared to 2020 primarily due to the effect of higher sales.
Operating costs and expenses in 2020 were comparable to 2019. As a percentage of sales, operating costs and
expenses increased in 2020 compared to 2019 due to the effect of lower sales.
Income from operations - As a percentage of net sales, operating income increased in 2021 compared to 2020
and decreased in 2020 compared 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 44% of CompX’s cost of sales in 2021, with commodity-related raw materials
accounting for approximately 16% of cost of sales. Prices for the primary commodity-related raw materials used in the
manufacture of its locking mechanisms, primarily zinc and brass, remained relatively stable during 2020 but generally
increased throughout 2021. Prices for stainless steel, the primary raw material used for the manufacture of marine exhaust
headers and pipes and wake enhancement systems, remained relatively stable in 2020 but experienced significant volatility
during 2021. Based on current economic conditions, CompX expects the prices for its primary commodity-related raw
materials and other manufacturing materials to be volatile during 2022.
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.”
Results by reporting unit
The key performance indicator for CompX’s reporting units is the level of their income from operations (see
discussion below).
2019
Years ended December 31,
2020
(Dollars in millions)
2021
% Change
2019-20 2020-21
Security Products:
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Operating income
$
$
99.3
67.1
32.2
11.2
21.0
$
$
87.9
62.1
25.8
10.9
14.9
$
$
105.1
71.5
33.6
12.0
21.6
(12) %
(7)
(20)
(3)
(29)
20 %
15
30
11
45
Gross margin
Operating income margin
32.5 %
21.2
29.4 %
17.0
32.0 %
20.6
Security Products - Security Products net sales increased 20% to $105.1 million in 2021 compared to $87.9
million in 2020 when it experienced reduced demand across a variety of markets due to the COVID-19 pandemic. Relative
to prior year, sales were $7.2 million higher to the government security market, $4.9 million higher to the transportation
market, and $2.0 million higher to distribution customers. Gross margin as a percentage of net sales for 2021 increased as
compared to 2020 due to increased coverage of fixed costs from higher sales, partially offset by higher production costs
including increased raw materials costs across a variety of commodities and component inputs, higher shipping costs, and
-37-
increased labor costs primarily due to higher overtime costs and increased headcount. Operating income margin increased
for 2021 compared to 2020 primarily due to increased coverage of operating costs and expenses on higher sales, partially
offset by the higher production costs impacting gross margin and increased sales and administrative-related salary and
benefit costs of $.7 million.
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 the COVID-19 pandemic, 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 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
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.
2019
Years ended December 31,
2021
2020
(Dollars in millions)
% Change
2019-20 2020-21
Marine Components:
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Operating income
Gross margin
Operating income margin
$
$
24.9
18.2
6.7
3.1
3.6
$
$
26.6
19.6
7.0
2.9
4.1
$
$
35.7
26.6
9.1
3.5
5.6
7 %
8
5
(4)
12
34 %
36
29
18
37
27.0 %
14.6
26.4 %
15.3
25.4 %
15.7
Marine Components - Marine Components net sales increased 34% in 2021 as compared to 2020 primarily due
to increased sales of $7.2 million to several original equipment boat manufactures in the towboat market. Gross margin as
a percentage of sales decreased in 2021 compared to 2020 as increased coverage of fixed costs from higher sales were
more than offset by higher production costs including raw materials costs (primarily stainless steel), higher shipping costs,
and increased labor costs resulting from higher overtime costs and increased headcount. Operating income as a percentage
of net sales increased slightly in 2021 compared to 2020 due to increased coverage of operating costs and expenses from
higher sales, partially offset by the factors impacting gross margin.
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 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.
Outlook – Beginning in the second half of 2020, CompX’s sales began to steadily improve from the historically
low levels it experienced during the second quarter of 2020 as a result of the COVID-19 pandemic. Throughout 2021,
CompX experienced strong demand at both its business units. CompX’s manufacturing facilities operated at elevated
production rates during 2021 in line with improved demand, although labor markets are tight in each of the regions in
which it operates and, as a result, CompX has experienced and continues to have challenges maintaining staffing levels
aligned with current and forecasted demand, particularly at its Marine Components business unit.
-38-
Based on current market conditions, CompX expects demand levels to remain strong in 2022 and it expects to
report increased net sales and operating income in 2022 compared to 2021. CompX’s supply chains remain intact, although
the current global and domestic supply chain disruptions continue to present challenges in sourcing certain raw materials
due to increased lead times, availability shortages and transportation and logistics delays. Thus far CompX has been able
to manage through these disruptions with minimal impact on its operations. In addition, CompX is experiencing increased
production costs including higher labor, shipping, and increasing costs of many of the raw materials it uses including zinc,
brass and stainless steel. In response, CompX implemented price increases and surcharges; however, the extent to which
the price increases and surcharges will mitigate the rising costs is uncertain and CompX expects increasing production
costs will negatively impact gross margins in 2022 as higher cost inventories are sold. CompX’s operations teams meet
frequently to ensure they are taking appropriate actions to minimize material or supply related operational disruptions,
manage inventory levels, and improve operating margins and to maintain a safe working environment for all its employees.
CompX’s expectations for its operations and the markets it serves are based on a number of factors outside its
control. As noted above, there are global and domestic supply chain challenges and any future impacts of the COVID-19
pandemic on CompX’s operations will depend on, among other things, any future disruption in its operations or its
suppliers’ operations, demand for its products and the timing and effectiveness of the global measures deployed to fight
COVID-19, all of which remain uncertain and cannot be predicted.
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 $19.3 million litigation settlement expense net of
expected insurance recoveries in 2019 related to the lead pigment litigation in California. See Note 17 to our Consolidated
Financial Statements.
Corporate expense - Corporate expenses were $10.1 million in 2021, $.6 million or 6% higher than in 2020
primarily due to higher environmental remediation and related costs partially offset by lower administrative expenses.
Included in corporate expenses are:
•
•
litigation fees and related costs of $1.9 million in each of 2021 and 2020, and
environmental remediation and related costs of $.8 million in 2021 compared to $.1 million in 2020.
-39-
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:
•
•
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.
Overall, we currently expect that our general corporate expenses in 2022 will be higher than in 2021 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 2022 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 2022, our corporate expenses
would be higher than we currently estimate. In addition, we adjust our environmental accruals as further information
becomes available to us or as circumstances change. Such further information or changed circumstances could result in an
increase in our accrued environmental costs. See Note 17 to our Consolidated Financial Statements.
Interest and dividend income - Interest income decreased $1.0 million in 2021 compared to 2020 primarily due to lower
average balances on CompX’s revolving promissory note receivable from Valhi. 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. 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 Income. See Note 5 to our Consolidated Financial
Statements.
Income tax expense (benefit) - We recognized an income tax expense of $.6 million in 2019, an income tax
benefit of $2.5 million in 2020 and an income tax expense of $7.5 million in 2021.
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 $25.4 million in each of 2019, 2020 and 2021. 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 .9% expense in 2019, a 6.4% benefit
in 2020 and 5.5% expense in 2021. The reduction in our effective rate from 2019 to 2020 and increase in our effective rate
from 2020 to 2021 is primarily attributable to the net effects of Kronos’ lower earnings in 2020 as compared to 2019 and
-40-
higher earnings in 2021 as compared to 2020 and the impact of the income tax benefit related to the non-taxable dividends
received from Kronos.
See Note 14 to our Consolidated Financial Statements for more information about our 2021 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 2019 and 2021 but lower in 2020 due to lower earnings of CompX in 2020 as a result of reduced demand
resulting from the COVID-19 pandemic.
Related party transactions - We are a party to certain transactions with related parties. See Notes 1 and 16 to our
Consolidated Financial Statements. It is our policy to engage in transactions with related parties on terms, in our opinion,
no less favorable to us than we could obtain from unrelated parties.
Equity in earnings of Kronos Worldwide, Inc.
Net sales
Cost of sales
Gross margin
Income from operations
Other loss, net
Interest expense
Income before income taxes
Income tax expense
Net income
Percentage of net sales:
Cost of sales
Income from operations
% Change
2019-20 2020-21
(5) %
(4)
18 %
16 %
(20) %
187
2
61 %
(18)
3
2019
Years ended December 31,
2020
(Dollars in millions)
$ 1,638.8
1,287.6
351.2
$
$ 1,939.4
1,493.2
446.2
$
2021
$ 1,731.1
1,344.9
386.2
$
$
$
145.8
(6.0)
(18.7)
121.1
34.0
87.1
$
$
116.2
(17.2)
(19.0)
80.0
16.1
63.9
$
$
187.1
(14.1)
(19.6)
153.4
40.5
112.9
78 %
8 %
79 %
7 %
77 %
10 %
Equity in earnings of Kronos Worldwide, Inc.
$
26.5
$
19.4
$
34.3
TiO2 operating statistics:
Sales volumes*
Production volumes*
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
566
546
531
517
563
545
(6) %
(5) %
6 %
5 %
(2) %
(6)
2
1
(5) %
8 %
6
1
3
18 %
Industry conditions and 2021 overview - Kronos started 2021 with average TiO2 selling prices 3% lower than at
the beginning of 2020. Kronos’ average TiO2 selling prices in 2021 were 16% higher than the beginning of the year,
including a 6% increase in the last quarter of the year, in response to its rising production costs and strong customer
-41-
demand. Kronos experienced higher sales volumes in its European, North American and Latin American markets in 2021
as compared to sales volumes in 2020, primarily due to the COVID-19 related demand contraction in 2020 which impacted
the second and third quarters and was most acute in the second quarter of 2020.
The following table shows Kronos’ capacity utilization rates during 2021 and 2020. TiO2 production volumes
were higher in 2021 as compared to 2020 to meet higher customer demand in 2021. Kronos decreased production levels
in 2020 (primarily in the third quarter) to correspond to the temporary decline in demand resulting from the COVID-19
pandemic.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Overall
2020
2021
95 %
96 %
86 %
92 %
92 %
97 %
100 %
100 %
100 %
100 %
Net sales - Kronos net sales increased $300.6 million, or 18%, in 2021 compared to 2020, primarily due to an 8%
increase in average TiO2 selling prices (which increased net sales by approximately $131 million) and a 6% increase in
sales volumes (which increased net sales by approximately $98 million). In addition to the impact of higher sales volumes
and higher average selling prices, Kronos estimates that changes in currency exchange rates (primarily the euro) increased
its net sales by approximately $43 million, or 3%, as compared to 2020. 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 6% in 2021 as compared to 2020 primarily due to higher demand in its European,
North American and Latin American markets, with a significant portion of the increase occurring in the second and third
quarters as a result of the impact of the COVID-19 pandemic on the comparable periods in 2020, as discussed above.
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.
Cost of sales and gross margin – Kronos’ cost of sales increased $205.6 million, or 16%, in 2021 compared to
2020 due to a 6% increase in sales volumes and higher production costs of approximately $69 million (including higher
costs for raw materials and energy) and the effects of currency fluctuations (primarily the Canadian dollar). Kronos’ cost
of sales as a percentage of net sales decreased to 77% in 2021 compared to 79% in 2020 primarily due to the favorable
effects of higher average TiO2 selling prices and increased coverage of fixed costs from higher production, partially offset
by higher production costs (including higher raw material and energy costs) as well as the effects of fluctuations in currency
exchange rates, as discussed below.
Gross margin as a percentage of net sales increased to 23% in 2021 compared to 21% in 2020. Kronos’ gross
margin as a percentage of net sales in 2021 increased primarily due to the net effects of higher average TiO2 selling prices,
higher production and sales volumes, higher production costs and fluctuations in currency exchange rates.
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
-42-
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. Kronos’
gross margin as a percentage of net sales 2020 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.
Other operating income and expense, net – Kronos’ selling, general and administrative expenses were
approximately 13% of net sales in each of 2021, 2020 and 2019. Kronos’ selling, general and administrative expenses
increased $30.3 million, or 14%, in 2021 compared to 2020 primarily due to higher variable costs (primarily distribution
costs) related to higher overall sales volumes. 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.
Income from operations – Kronos’ income from operations increased by $70.9 million or 61%, from $116.2
million in 2020 to $187.1 million in 2021. Income from operations as a percentage of net sales increased to 10% in 2021
from 7% in 2020. This increase was driven by the higher gross margin for the comparable periods discussed above. Kronos
estimates that changes in currency exchange rates decreased income from operations by approximately $13 million in
2021 as compared to 2020 as discussed in the Effects of currency exchange rates section below.
Kronos’ 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.
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. To date, Kronos has not yet recognized any insurance recoveries because the ultimate disposition of its portion
of the business interruption claim is not yet determinable; however, LPC has received a portion of the proceeds related to
its property damage claim. 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).
Other non-operating income (expense) - Kronos recognized a gain of $2.0 million in 2021 and a loss of $1.1
million in 2020 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 2021 decreased $2.9 million compared to 2020 primarily
due to higher expected returns on plan assets offset by the net effects of lower discount rates impacting interest cost and
previously unrecognized actuarial losses. Kronos recognized an insurance settlement gain of $1.5 million during 2020
-43-
related to a property damage claim. Interest expense in 2021 increased $.6 million compared to 2020 due to the refinancing
of Kronos’ revolving credit facility in the second quarter of 2021 and the effects of changes in currency exchange rates.
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 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.
Income tax expense - Kronos recognized income tax expense of $40.5 million in 2021 compared to income tax
expense of $16.1 million in 2020. The increase is primarily due to higher earnings in 2021 and the jurisdictional mix of
Kronos’ earnings.
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 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 was 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 2022 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 Kronos sales generated
from its non-U.S. operations is denominated in the U.S. dollar (and consequently its 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 its non-U.S. operations are holding
non-local currency (primarily U.S. dollars).
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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 -2021 vs. 2020
Translation
gains (losses)- Total currency
Transaction gains recognized
2021
2020
impact of
Change rate changes 2021 vs 2020
impact
Impact on:
Net sales
Income from operations
$
— $
(4)
— $
2
— $
6
43 $
(19)
43
(13)
(In millions)
The $43 million increase in Kronos’ net sales (translation gain) was caused primarily by a weakening of the U.S.
dollar relative to the euro, as Kronos’ euro-denominated sales were translated into more U.S. dollars in 2021 as compared
to 2020. The weakening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2021 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 $13 million decrease in income from operations was comprised of the following:
• Higher 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 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
• Approximately $19 million from net currency translation losses primarily caused by a weakening of the U.S.
dollar relative to the Canadian dollar and Norwegian krone, as local currency-denominated operating costs
were translated into more U.S. dollars in 2021 as compared to 2020, partially offset by net currency
translation gains primarily caused by a weakening of the U.S. dollar relative to the euro as the positive effects
of the weaker U.S. dollar on euro-denominated sales more than offset the unfavorable effects of euro-
denominated operating costs being translated into more U.S. dollars in 2021 as compared to 2020.
Impact of changes in currency exchange rates - 2020 vs. 2019
Transaction gains/(losses) recognized
2020
Change
2019
Translation
gains
impact of
Total currency
impact
rate changes 2020 vs. 2019
Impact on:
Net sales
Income from operations
$
— $
2
— $
(4)
— $
(6)
9 $
12
9
6
(In millions)
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.
-45-
The $6 million increase in income from operations was comprised of the following:
• 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 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
• 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.
Outlook
Based on current market conditions, Kronos expects global demand for consumer products, including those of its
customers, to remain strong throughout 2022. Therefore, Kronos expects to continue to produce at full capacity and will
match sales volumes with production volumes which will result in lower sales volumes in 2022 as compared to 2021 based
on current inventory levels. As global economic activity continued to recover from the COVID-19 pandemic throughout
2021, Kronos experienced certain disruptions in global supply chains including availability of third-party feedstock and
other raw materials along with transportation and logistics delays. Thus far, Kronos’ operations team has been able to
manage through these disruptions with minimal impact on its operations; however, Kronos expects these challenges to
continue for the foreseeable future. Kronos experienced increases in its feedstock costs in 2021 (primarily in the second
half of 2021) and it expects its feedstock costs to continue to increase in 2022 as compared to the average 2021 costs. In
addition to feedstock increases, Kronos continues to experience increasing production costs, including higher raw material
and related shipping costs and higher energy and utility costs (especially in Europe), all of which are likely to continue
into 2022. At the beginning of 2021, Kronos’ average TiO2 selling prices were 3% lower than at the beginning of 2020
and average TiO2 selling prices increased 16% in 2021. As a result of rising costs and continued strong customer demand,
Kronos expects selling prices for TiO2 will continue to rise in 2022, which Kronos expects to mitigate increases in
distribution, raw material, energy and other production costs. Kronos expects 2022 sales and income from operations will
be higher than in 2021; however, increasing costs will continue to challenge margins. Kronos continues to monitor current
and anticipated near-term customer demand levels and will align its production and inventories accordingly.
Kronos’ expectations for the TiO2 industry and its operations are based on a number of factors outside its control,
including the ongoing economic effects of the COVID-19 pandemic. As noted above, Kronos has experienced global
supply chain disruptions, including disruptions related to COVID-19, and future impacts of COVID-19 on its operations
will depend on, among other things, any future disruption in its operations or its suppliers’ operations, or related possible
shipping delays, and the timing and effectiveness of the global measures deployed to fight COVID-19 and its variants, all
of which remain uncertain and cannot be predicted.
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, 2021, 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
-46-
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 critical accounting
estimates with the Audit Committee of our Board of Directors.
• 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 2022, 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.
• Long-lived assets - The net book value of our property and equipment totaled $29.2 million at December 31,
2021, 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 2021 because no such impairment indicators were
present.
• Goodwill - Our net goodwill totaled $27.2 million at December 31, 2021, 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 a 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 quantitative impairment
test can be bypassed. Alternatively, an entity has an unconditional option to bypass the qualitative assessment
and proceed directly to performing the quantitative impairment test.
-47-
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.
Evaluations of possible impairment utilizing the 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 2021, 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.
• 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 $1.6 million in 2019, $1.0 million in 2020 and $.9 million in 2021.
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 $3.2 million
in 2019, $1.8 million in 2020 and $1.2 million in 2021.
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 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.
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 and the assumed long-term rate of return on plan assets. 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
-48-
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, 2021, our projected benefit obligations for defined benefit plans comprised $40.3 million
related to the U.S. plan and $10.1 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.
We used the following discount rates for our defined benefit pension plans:
Discount rates used for:
Obligations at
December 31,
2019 and
expense in 2020
Obligations at
December 31,
2020 and
expense in 2021
Obligations at
December 31,
2021 and
expense in 2022
United States
United Kingdom
3.1 %
2.0 %
2.2 %
1.4 %
2.6 %
1.3 %
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, 2021, approximately 76% 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 2019, 2020 and 2021 were as follows:
United States
United Kingdom
2019
2020
2021
5.5 %
2.8 %
4.5 %
3.3 %
4.0 %
1.3 %
Our long-term rate of return on plan asset assumptions in 2022 used for purposes of determining our 2022
defined benefit pension plan expense is 4.0% for the U.S. plan and 1.3% for the U.K. plan. As noted above
we are in the process of annuitizing our U.K. pension plan and, as a result, during 2021 and into 2022 all of
the assets of the U.K. plan were invested primarily in insurance contracts.
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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 2022, we expect to recognize defined benefit pension expense of
approximately $1.1 million in 2022. In comparison, we expect to be required to contribute approximately
$1.2 million to such plans during 2022.
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, 2021, our aggregate projected benefit obligations would have increased
by approximately $1.0 million at that date. Such a change would not 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 $17.6 million in 2021 compared to $19.0 million in 2020. The $1.4 million net
decrease in cash provided by operating activities includes the net effects of:
•
•
•
higher net cash used for relative changes in receivables, inventories, prepaid expenses, payables and accrued
liabilities in 2021 of $8.2 million;
higher income from operations from CompX in 2021 of $8.7 million; and
a $1.3 million decrease in interest received in 2021 due to lower average affiliate receivable balance and the
relative timing of interest received.
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:
•
•
•
•
•
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
-50-
•
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.
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.
2019
Years ended December 31,
2020
(In millions)
2021
Net cash provided by operating activities:
CompX
NL Parent and wholly-owned subsidiaries
Eliminations
Total
$
$
18.5 $
11.9
(3.0)
27.4 $
15.5 $
7.8
(4.3)
19.0 $
10.5
15.7
(8.6)
17.6
Relative changes in working capital can have a significant effect on cash flows from operating activities. As
shown below, our total average days sales outstanding increased from December 31, 2020 to December 31, 2021 primarily
as a result of the timing of sales and collections in the last month of 2021 as compared to 2020. As shown below, our
average number of days in inventory increased from December 31, 2020 to December 31, 2021 primarily due to increased
raw material and production costs as well as increased purchases of certain components and raw materials that have longer
lead times or for which we have experienced availability issues. For comparative purposes, we have provided 2019
numbers below.
Days sales outstanding
Days in inventory
Investing activities
2019
36 days
81 days
2020
33 days
75 days
2021
42 days
96 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 $3.2 million in 2019,
$1.7 million in 2020 and $4.1 million in 2021. 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. Our 2021 capital expenditures increased above pre-pandemic levels as CompX accelerated the timeline for
certain projects designed to increase its capacity and improve its capabilities in response to strong customer demand.
Investing activities also include net collections by CompX from Valhi of $5.9 million ($34.9 million of gross
borrowings and $40.8 million of gross repayments) in 2019, net borrowings of $1.4 million ($34.8 million of gross
borrowings and $33.4 million of gross repayments) in 2020 and net collections of $10.8 million ($29.8 million of gross
borrowings and $40.6 million of gross repayments) in 2021 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.
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Financing activities
Cash dividends paid totaled $7.8 million ($.16 per share, or $.04 per share per quarter) in 2020, and $11.7 million
($.24 per share, or $.06 per share per quarter) in 2021. In March 2022 our board of directors declared a first quarter 2022
dividend of $.07 per share, to be paid on March 24, 2022 to NL stockholders of record as of March 14, 2022. 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
$.5 million in 2019, $.7 million in 2020 and $1.3 million in 2021.
In addition, during 2021, CompX acquired 75,000 shares of its Class A common stock in market transactions for
an aggregate purchase price of $1.3 million.
Outstanding debt obligations
At December 31, 2021, 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, 2021. See Note 10 to our Consolidated
Financial Statements.
Kronos’ Global Revolver 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, the 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, the 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 is in compliance with all of its debt covenants at December 31, 2021. Kronos believes that it will be
able to continue to comply with the financial covenants contained in its credit facility 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, 2021, we had aggregate cash, cash equivalents and restricted cash of $175.2 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
$
$
76.5
98.7
175.2
In addition, at December 31, 2021 we owned 1.2 million shares of Valhi common stock with an aggregate market
value of $34.4 million. See Note 5 to our Consolidated Financial Statements. We also owned 35.2 million shares of Kronos
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common stock at December 31, 2021 with an aggregate market value of $528.6 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.
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, 2022). 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, 2021, 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 2022 are estimated at approximately $6.7 million, substantially all of which relate to
CompX. CompX’s 2022 capital investments are primarily to increase its capacity and its capability needs as well as to
maintain and improve the cost-effectiveness of its facilities equipment, and technology infrastructure.
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 2022,
based on the number of shares of common stock of these affiliates we own as of December 31, 2021 and their current
regular quarterly dividend rate, is presented in the table below. In this regard, in February 2022 Kronos increased its regular
quarterly dividend from $.18 to $.19 per share and in March 2022 CompX increased its regular quarterly dividend from
$.20 to $.25 per share, both increases begin with the dividends payable in March 2022.
Kronos
CompX
Valhi
Total expected annual dividends
Shares held
Quarterly Annual expected
December 31, 2021 dividend rate
(In millions)
35.2 $
10.8
1.2
.19 $
.25
.08
$
dividend
(In millions)
26.8
10.8
.4
38.0
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
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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.
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, 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. See Notes 1 and 14 to our Consolidated Financial Statements for a
description of certain income tax contingencies. Additionally, CompX has purchase obligations of $30.7 million ($30.1
million payable in 2022 and $.6 million payable in 2023) which consists of open purchase orders and contractual
obligations, primarily commitments to purchase raw materials and for capital projects in process at December 31, 2021.
The timing and amount for purchase obligations is based on the contractual payment amount and the contractual payment
date for those commitments.
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, 2021 bearing interest at prime
plus 1.875% (5.13% at December 31, 2021) with a maturity date of December 31, 2023. The carrying value of such
outstanding indebtedness approximates its fair value.
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 $18.7 million at December 31,
2021 bears interest at prime plus 1.0% (4.25% at December 31, 2021). We received interest income of $1.2 million from
the note during 2021.
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, 2020 and 2021 was $18.2 million and $34.4 million,
respectively. The potential change in the aggregate fair value of these investments, assuming a 10% change in prices,
would be $1.8 million and $3.4 million at December 31, 2020 and 2021, 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.
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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 Courtney J. Riley, our President
and Chief Executive Officer and Amy Allbach Samford, our Senior Vice President and Chief Financial Officer, have
evaluated the design and effectiveness of our disclosure controls and procedures as of December 31, 2021. Based upon
their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the
date of this evaluation.
Management’s report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
which, as defined by Exchange Act Rule 13a-15(f) means a process designed by, or under the supervision of, our principal
executive and principal financial officers, or persons performing similar functions, and effected by the board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles
(“GAAP”), and includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of our assets,
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance
with authorizations of management and directors, and
provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or
disposition of assets that could have a material effect on our Consolidated Financial Statements.
Our evaluation of the effectiveness of internal control over financial reporting is based upon the framework
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
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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,
2021.
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,
2021 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 2021, our chief executive
officer filed such annual certification with the NYSE. The 2021 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, 2021 as Exhibits 31.1 and 31.2 to
this Annual Report on Form 10-K.
ITEM 9B.
OTHER INFORMATION
Not applicable
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURSIDICTIONS THAT PREVENT INSPECTIONS
Not applicable
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to our 2022 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 2022 proxy statement.
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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 2022 proxy statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to our 2022 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 2022 proxy statement.
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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, 2021) 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,
2021 will be furnished to the Commission upon request.
Item No.
Exhibit Index
3.1
3.2
4.1
10.1
10.2
10.3
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)
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Item No.
Exhibit Index
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
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)
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.
(P)
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. (P)
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).
(P)
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). (P)
10.12**
Unsecured Revolving Demand Promissory Note dated December 31, 2021 in the principal amount of
$30.0 million executed by Valhi, Inc. and payable to the order of Kronos Worldwide, Inc.
10.13
10.17 *
10.18 *
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).
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.
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Item No.
Exhibit Index
10.19 *
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
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.
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, 2021 in the principal amount of
$30.0 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, 2021.
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.
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Item No.
Exhibit Index
10.31
10.32
10.33
10.34
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.
Credit Agreement dated as of April 20, 2021 by and among Kronos Worldwide, Inc., Kronos Louisiana,
Inc., Kronos (US), Inc., Kronos Canada, Inc., Kronos Europe NV, Kronos Titan GmbH and Wells Fargo
Bank, National Association as administrative agent and lender – incorporated by reference to Exhibit 10.1
to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-00640) for the quarter ended March 31,
2021.
Guaranty and Security Agreement dated as of April 20, 2021, by and among Kronos Worldwide, Inc.,
Kronos Louisiana, Inc., Kronos (US), Inc., Kronos Canada, Inc., Kronos International, Inc. and Wells
Fargo Bank, National Association as administrative agent and lender – 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
March 31, 2021.
21.1 **
Subsidiaries of the Registrant
23.1 **
Consent of PricewaterhouseCoopers LLP with respect to NL’s consolidated financial statements.
23.2 **
Consent of PricewaterhouseCoopers LLP with respect to Kronos’ consolidated financial statements.
31.1 **
Certification
31.2 **
Certification
32.1 **
Certification
99.1
Consolidated financial statements of Kronos Worldwide, Inc. - incorporated by reference to Kronos’
Annual Report on Form 10-K (File No. 1-31763) for the year ended December 31, 2021.
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
-61-
Item No.
Exhibit Index
101.PRE**
Inline XBRL Taxonomy Extension Presentation Linkbase
104
Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Management contract, compensatory plan or arrangement.
** Filed herewith
(P) Paper exhibits
-62-
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/Courtney J. Riley
Courtney J. Riley, March 9, 2022
(President and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated:
/s/ Loretta J. Feehan
Loretta J. Feehan, March 9, 2022
(Chair of the Board (non-executive))
/s/ Robert D. Graham
Robert D. Graham, March 9, 2022
(Vice Chairman and Director)
/s/ Amy Allbach Samford
Amy Allbach Samford, March 9, 2022
(Vice President and Chief Financial Officer,
Principal Financial Officer)
/s/ Amy E. Ruf
Amy E. Ruf, March 9, 2022
(Vice President and Controller,
Principal Accounting Officer)
/s/ John E. Harper
John E. Harper, March 9, 2022
(Director)
/s/ Meredith W. Mendes
Meredith W. Mendes, March 9, 2022
(Director)
/s/ Cecil H. Moore, Jr.
Cecil H. Moore, Jr., March 9, 2022
(Director)
/s/ Thomas P. Stafford
Thomas P. Stafford, March 9, 2022
(Director)
-63-
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 (PCAOB ID 238)
Consolidated Balance Sheets – December 31, 2020 and 2021
Consolidated Statements of Income - Years ended December 31, 2019, 2020 and 2021
Page
F-2
F-4
F-6
Consolidated Statements of Comprehensive Income - Years ended December 31, 2019, 2020 and 2021
F-7
Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2019, 2020 and 2021
Consolidated Statements of Cash Flows - Years ended December 31, 2019, 2020 and 2021
Notes to Consolidated Financial Statements
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, 2021 and 2020, and the related consolidated statements of income, of comprehensive
income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021,
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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2021 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.
PricewaterhouseCoopers LLP, 2121 N. Pearl Street, Suite 2000, Dallas, Texas 75201
T: (214) 999 1400; F: (214) 754 7991, www.pwc.com/us
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, 2021, 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 9, 2022
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
Total assets
$
December 31,
2020
2021
$
137,039
2,695
11,142
313
18,337
1,638
147,002
2,765
15,609
—
25,642
2,630
171,164
193,648
25,538
29,500
18,206
242,374
27,156
5,262
25,475
18,700
34,435
264,803
27,156
2,753
348,036
373,322
4,940
23,146
68,227
1,010
97,323
68,373
28,950
5,071
23,161
70,664
2,028
100,924
71,742
29,182
$
548,150
$
596,152
F-4
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except per share data)
LIABILITIES AND 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,
2020
2021
$
2,647
11,830
10,253
2,027
725
25
27,507
500
91,389
49,403
33,830
6,392
3,780
3,408
11,830
12,017
2,643
691
8
30,597
500
90,297
38,519
44,056
3,722
3,490
Total noncurrent liabilities
185,294
180,584
Equity:
NL stockholders' equity:
Preferred stock, no par value; 5,000 shares authorized; none issued
Common stock, $.125 par value; 150,000 shares authorized; 48,789 and
48,803 shares issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total NL stockholders' equity
Noncontrolling interest in subsidiary
Total equity
—
—
6,098
299,093
257,875
(251,189)
6,100
299,775
297,351
(240,756)
311,877
362,470
23,472
22,501
335,349
384,971
Total liabilities and equity
$
548,150
$
596,152
Commitments and contingencies (Notes 14 and 17)
See accompanying Notes to Consolidated Financial Statements.
F-5
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(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,
2020
2021
2019
$
124,243 $
85,280
114,537 $
81,689
140,815
98,066
38,963
32,848
42,749
21,297
21,031
22,223
5,138
7,444
(19,266)
(12,591)
81
18
—
(9,559)
71
29
—
(10,135)
Income (loss) from operations
(1,609)
2,357
10,491
Equity in earnings of Kronos Worldwide, Inc.
26,470
19,437
34,323
Other income (expense):
Interest and dividend income
Marketable equity securities
Other components of net periodic pension and OPEB cost
Interest expense
6,672
(863)
(1,375)
(681)
2,599
(8,671)
(784)
(1,350)
1,603
16,229
(665)
(1,142)
Income before income taxes
28,614
13,588
60,839
Income tax expense (benefit)
579
(2,515)
7,479
Net income
Noncontrolling interest in net income of subsidiary
28,035
2,191
16,103
1,423
53,360
2,172
Net income attributable to NL stockholders
$
25,844 $
14,680 $
51,188
Amounts attributable to NL stockholders:
Basic and diluted net income per share
$
.53 $
.30 $
1.05
Weighted average shares used in the calculation of
net income per share
48,745
48,776
48,797
See accompanying Notes to Consolidated Financial Statements.
F-6
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Currency translation
Defined benefit pension plans
Other postretirement benefit plans
Total other comprehensive income (loss), net
Comprehensive income
Comprehensive income attributable to noncontrolling interest
Years ended December 31,
2020
2019
2021
$
28,035 $
16,103 $
53,360
(409)
(2,971)
(40)
(3,420)
24,615
2,191
3,268
(2,447)
(320)
(1,660)
12,236
(143)
501
10,433
16,604
1,423
63,793
2,172
Comprehensive income attributable to NL stockholders
$
22,424 $
15,181 $
61,621
See accompanying Notes to Consolidated Financial Statements.
F-7
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2019, 2020 and 2021
(In thousands)
Additional
Common paid-in
capital
Retained
earnings
stock
6,090 $ 301,139 $ 225,156 $
Accumulated
other
comprehensive
loss
(248,270) $
Noncontrolling
interest in
subsidiary
Total
equity
19,443 $ 303,558
Balance at December 31, 2018 $
Net income
Other comprehensive loss, net
of tax
Issuance of NL common stock
Dividends paid to
noncontrolling interest
Other, net
—
—
4
—
—
—
25,844
—
2,191
28,035
—
96
—
(2,133)
—
—
—
—
(3,420)
—
—
—
—
—
(3,420)
100
(470)
1,543
(470)
(590)
Balance at December 31, 2019
6,094
299,102
251,000
(251,690)
22,707
327,213
Net income
Other comprehensive income,
net of tax
Issuance of NL common stock
Dividends paid - $.16 per
share
Dividends paid to
noncontrolling interest
Other, net
—
—
4
—
—
—
—
14,680
—
96
—
—
(105)
—
—
(7,805)
—
—
—
501
—
—
—
—
1,423
16,103
—
—
—
(676)
18
501
100
(7,805)
(676)
(87)
Balance at December 31, 2020
6,098
299,093
257,875
(251,189)
23,472
335,349
Net income
Other comprehensive income,
net of tax
Issuance of NL common stock
Dividends paid - $.24 per
share
Dividends paid to
noncontrolling interest
Other, net
—
—
2
—
—
—
—
51,188
—
2,172
53,360
—
99
—
—
10,433
—
—
(11,712)
—
583
—
—
—
—
—
—
—
10,433
101
—
(11,712)
(1,324)
(1,819)
(1,324)
(1,236)
Balance at December 31, 2021 $
6,100 $ 299,775 $ 297,351 $
(240,756) $
22,501 $ 384,971
See accompanying Notes to Consolidated Financial Statements.
F-8
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
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
Years ended December 31,
2020
2021
2019
$
28,035 $
16,103 $
3,685
430
(26,470)
25,356
863
(1,574)
646
(4,424)
(3,000)
281
15,487
(1,439)
(77)
(26,365)
33
444
(3,703)
19,227
3,827
(2,530)
(19,437)
25,356
8,671
(792)
1,321
—
—
93
1,121
(193)
(237)
(13,163)
(77)
193
(1,092)
(141)
53,360
3,839
7,453
(34,323)
25,356
(16,229)
(220)
1,116
—
—
(31)
(4,488)
(7,479)
(991)
(9,399)
13
279
(476)
(171)
Net cash provided by operating activities
27,435
19,023
17,609
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
(3,166)
(1,740)
(4,094)
(34,900)
40,800
4,636
2,925
(504)
125
(34,828)
33,428
—
—
—
—
(29,800)
40,600
—
—
—
2
Net cash provided by (used in) investing activities
9,916
(3,140)
6,708
Cash flows from financing activities:
Dividends paid
Subsidiary treasury stock acquired
Dividends paid to noncontrolling interests in subsidiary
Net cash used in financing activities
—
—
(470)
(470)
(7,805)
—
(676)
(11,712)
(1,311)
(1,324)
(8,481)
(14,347)
F-9
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Cash and 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:
Cash paid for (received):
Interest
Income taxes, net
Noncash investing - receivable from sale of business
Years ended December 31,
2020
2021
2019
$
$
36,881 $
120,989
157,870 $
7,402 $
157,870
165,272 $
9,970
165,272
175,242
$
36 $
(118)
325
27 $
46
—
26
32
—
See accompanying Notes to Consolidated Financial Statements.
F-10
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
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, 2021, 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, 2021 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.
Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to NL Industries, Inc. and its
subsidiaries and affiliate, Kronos, taken as a whole.
Management’s estimates - In preparing our financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP), we are required to make estimates and assumptions that affect
the reported amounts of our assets and liabilities and disclosures of contingent assets and liabilities at each balance sheet
date and the reported amounts of our revenues and expenses during each reporting period. Actual results may differ
significantly from previously-estimated amounts under different assumptions or conditions.
Principles of consolidation - Our consolidated financial statements include the financial position, results of
operations and cash flows of NL and our wholly-owned and majority-owned subsidiaries, including CompX. We account
for the 13% of CompX stock we do not own as a noncontrolling interest. We eliminate all material intercompany accounts
and balances. Changes in ownership of our wholly-owned and majority-owned subsidiaries are accounted for as equity
transactions with no gain or loss recognized on the transaction unless there is a change in control.
Currency translation - The financial statements of Kronos’ non-U.S. subsidiaries 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.
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
F-11
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 noncurrent asset are presented
separately on our Consolidated Balance Sheets.
Marketable securities and securities transactions - We carry marketable securities at fair value. Accounting
Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, establishes a consistent framework
for measuring fair value and, with certain exceptions, this framework is generally applied to all financial statement items
required to be measured at fair value. The standard requires fair value measurements to be classified and disclosed in one
of the following three categories:
• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
• Level 2 - Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the assets or liability; and
• Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable.
We classify all of our marketable securities as available-for-sale. Unrealized gains or losses on the securities are
recognized in Marketable equity securities on our Consolidated Statements of Income. 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. 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.
F-12
Property and equipment; depreciation expense - We state property and equipment, including purchased
computer software for internal use, at cost. We compute depreciation of property and equipment for financial reporting
purposes principally by the straight-line method over the estimated useful lives of 15 to 40 years for buildings and 3 to 20
years for equipment and software. We use accelerated depreciation methods for income tax purposes, as permitted. 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 $.2 million in 2019 and nil in each of 2020 and 2021.
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 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
F-13
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, 2020 and December 31, 2021, 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.
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
F-14
entertainment, promotional materials and professional fees. We expense advertising costs and research and development
costs as incurred. Advertising and research and development 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.
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
2019
Years ended December 31,
2020
(In thousands)
2021
$
$
99,328
24,915
124,243
$
$
87,863
26,674
114,537
$
$
105,124
35,691
140,815
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.
2019
Years ended December 31,
2020
(In thousands)
2021
$
$
114,186
7,257
922
1,878
124,243
$
$
107,712
4,423
431
1,971
114,537
$
$
129,160
8,061
589
3,005
140,815
December 31,
2020
2021
(In thousands)
$
$
10,801
18
393
(70)
11,142
$
$
15,616
43
20
(70)
15,609
Net sales - point of destination:
United States
Canada
Mexico
Other
Total
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.
F-15
Note 4 - Inventories, net:
Raw materials
Work in process
Finished products
Total
Note 5 - Marketable securities:
$
$
December 31,
2020
2021
$
(In thousands)
3,220
11,668
3,449
18,337
$
5,042
16,767
3,833
25,642
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 Income.
December 31, 2020
Noncurrent assets
Valhi common stock
December 31, 2021
Noncurrent assets
Valhi common stock
Fair value
measurement Market
value
level
Cost
basis
(In thousands)
Unrealized
gain (loss)
1
$
18,206 $
24,347 $
(6,141)
1
$
34,435 $
24,347 $
10,088
At December 31, 2020 and 2021, 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, 2020 and 2021 was
$15.20 and $28.75, respectively.
The Valhi common stock we own is subject to the restrictions on resale pursuant to certain provisions of the SEC
Rule 144. In addition, as a majority-owned subsidiary of Valhi we cannot vote our shares of Valhi common stock under
Delaware General Corporation Law, but we do receive dividends from Valhi on these shares, when declared and paid.
F-16
Note 6 - Investment in Kronos Worldwide, Inc.:
At December 31, 2020 and 2021, we owned approximately 35.2 million shares of Kronos common stock. The
per share quoted market price of Kronos common stock at December 31, 2020 and 2021 was $14.91 and $15.01 per share,
respectively, or an aggregate market value of $525.1 million and $528.6 million, respectively. The change in the carrying
value of our investment in Kronos during the past three years is summarized below:
2019
Years ended December 31,
2020
(In millions)
$
$
255.5
26.5
(25.4)
248.4
19.4
(25.4)
(.5)
(6.7)
(.1)
(.9)
248.4
$
4.1
(3.7)
(.1)
(.3)
242.4
$
2021
242.4
34.3
(25.4)
(2.1)
15.6
—
—
264.8
December 31,
2020
2021
(In millions)
$
$
$
$
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
$
$
$
$
2019
Years ended December 31,
2020
(In millions)
$
$
1,731.1
1,344.9
145.8
34.0
87.1
1,638.8
1,287.6
116.2
16.1
63.9
1,258.0
503.4
101.9
149.5
2,012.8
288.8
449.8
287.4
116.6
870.2
2,012.8
2021
1,939.4
1,493.2
187.1
40.5
112.9
Balance at the beginning of the period
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
$
$
Selected financial information of Kronos is summarized below:
Current assets
Property and equipment, net
Investment in TiO2 joint venture
Other noncurrent assets
Total assets
Current liabilities
Long-term debt
Accrued pension 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
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 2019, 2020 and 2021, 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 2019, 2020 and 2021 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 2019, 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, 2021 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,
2020
2021
(In thousands)
3,881
1,381
5,262
$
$
1,356
1,397
2,753
December 31,
2020
2021
(In thousands)
9,000
1,253
10,253
$
$
10,345
1,672
12,017
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 the number of shares of Kronos
F-18
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 at 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, 2020 and 2021.
The interest rate as of December 31, 2021 and the average interest rate for the year then ended was 5.13%. See Note 16.
NLKW is in compliance with all of the covenants contained in the Valhi Credit Facility at December 31, 2021.
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 $3.2 million in 2019, $3.0
million in 2020 and $3.7 million in 2021.
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 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, 2021, the U.K. plan
had a benefit obligation of $10.1 million, plan assets of $11.5 million and a pension plan asset of $1.4 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 2022. Benefit
payments to all plan participants out of plan assets are expected to be the equivalent of:
Years ending December 31,
2022
2023
2024
2025
2026
Next 5 years
$
Amount
(In thousands)
3,689
3,647
3,570
3,493
3,435
15,885
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
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
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,
2020
2021
(In thousands)
$
$
$
$
$
50,350
1,483
4,353
307
(3,620)
52,873
46,313
5,308
1,841
418
(3,620)
50,260
(2,613)
$
$
3,881
$
(102)
(6,392)
(2,613)
28,209
25,596
52,873
$
$
52,873
947
295
(73)
(3,675)
50,367
50,260
226
1,169
(40)
(3,675)
47,940
(2,427)
1,356
(61)
(3,722)
(2,427)
28,265
25,838
50,367
The amounts shown in the table above for actuarial losses at December 31, 2020 and 2021 have not been
recognized as components of our periodic defined benefit pension cost as of those dates. These amounts will be recognized
as components of our periodic defined benefit cost in future years. These amounts, net of deferred income taxes, are
recognized in our accumulated other comprehensive income (loss) at December 31, 2020 and 2021.
F-20
The total net underfunded status of our defined benefit pension plans decreased from $2.6 million at December 31,
2020 to $2.4 million at December 31, 2021 due to the change in our PBO exceeding the change in plan assets during 2021.
The decrease in our plan assets in 2021 was primarily attributable to lower net plan asset returns in 2021. The decrease in
our PBO in 2021 was primarily attributable to actuarial gains due to the increase in discount rates from year end 2020.
The table below details the changes in other comprehensive income (loss) during 2019, 2020 and 2021.
2019
Years ended December 31,
2020
(In thousands)
2021
Changes in plan assets and benefit obligations recognized in
other comprehensive income:
Net actuarial gain (loss) arising during the year
Amortization of unrecognized net actuarial gain (loss)
Total
$
$
1,330 $
1,584
2,914 $
(934) $
1,412
478 $
1,618
(1,562)
56
The components of our net periodic defined benefit pension cost are presented in the table below. The amounts
shown below for recognized actuarial losses in 2019, 2020 and 2021, net of deferred income taxes, was recognized as a
component of our accumulated other comprehensive income at December 31, 2018, 2019 and 2020, respectively.
Net periodic pension cost:
Interest cost on PBO
Expected return on plan assets
Recognized actuarial losses
Total
2019
Years ended December 31,
2020
(In thousands)
2021
$
$
1,884 $
(1,899)
1,584
1,569 $
1,483 $
(1,850)
1,412
1,045 $
947
(1,603)
1,562
906
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,
2020
2021
(In thousands)
$
$
$
$
$
43,754
9,119
52,873
37,260
13,000
50,260
43,754
43,754
37,260
40,254
10,113
50,367
36,471
11,469
47,940
40,254
40,254
36,471
$
$
$
$
$
The weighted-average discount rate assumptions used in determining the actuarial present value of our benefit
obligations as of December 31, 2020 and 2021 are 2.1% and 2.3%, 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
F-21
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, 2020 and 2021.
The weighted-average rate assumptions used in determining the net periodic pension cost for 2019, 2020 and
2021 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,
2020
2021
2019
3.9 %
4.7 %
2.9 %
4.2 %
2.1 %
3.3 %
Variances from actuarially assumed rates will result in increases or decreases in accumulated pension obligations,
pension expense and funding requirements in future periods.
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 33% to equity securities, 59% 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). Approximately 94% 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 are invested primarily in insurance contracts and are a
Level 3 input.
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, 2020 and 2021 is shown in the
table below.
Quoted prices
in active
Fair Value Measurements
Significant other
observable
Significant
unobservable
Total
markets (Level 1) inputs (Level 2) inputs (Level 3)
Assets measured
at NAV
(In thousands)
December 31, 2020:
U.S.
Equities
Fixed income
Cash and other
U.K. - Other
Total
$ 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-22
Quoted prices
in active
Fair Value Measurements
Significant other
observable
Significant
unobservable
Total
markets (Level 1) inputs (Level 2) inputs (Level 3)
Assets measured
at NAV
(In thousands)
December 31, 2021:
U.S.
Equities
Fixed income
Cash and other
U.K. - Other
Total
$ 12,951 $
21,299
2,221
11,469
$ 47,940 $
831 $
—
1,352
1,324
3,507 $
— $
—
—
—
— $
108 $
—
—
10,145
10,253 $
12,012
21,299
869
—
34,180
As noted above, in March 2021 we purchased a bulk annuity for our U.K. pension plan and such annuity is
considered a Level 3 asset included with “U.K. – Other” in the table above.
Note 12 - Other noncurrent liabilities:
Reserve for uncertain tax positions
OPEB
Insurance claims and expenses
Other
Total
$
$
December 31,
2020
2021
$
(In thousands)
1,717
985
653
425
3,780
$
1,724
787
632
347
3,490
Our reserve for uncertain tax positions is discussed in Note 14.
Note 13 - Other operating income (expense):
We have agreements with certain insurance carriers pursuant to which the carriers reimburse us for a portion of
our past lead pigment and asbestos litigation defense costs. Insurance recoveries include amounts we received from these
insurance carriers.
The 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-23
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.
2019
Years ended December 31,
2020
(In millions)
2021
Expected tax expense, at U.S. federal statutory income tax rate of 21%
Non-taxable dividends received from Kronos
U.S. state income taxes and other, net
Income tax expense (benefit)
Components of income tax expense (benefit):
Currently payable
Deferred income tax expense (benefit)
Income tax expense (benefit)
Comprehensive provision (benefit) for income taxes allocable to:
Net income (loss)
Additional paid-in capital
Other comprehensive income (loss):
Currency translation
Pension plans
OPEB plans
Total
$
$
$
$
$
$
6.0 $
(5.3)
(.1)
.6 $
2.9 $
(5.3)
(.1)
(2.5) $
.2 $
.4
.6 $
— $
(2.5)
(2.5) $
.6 $
(.2)
(2.5) $
(.1)
(.1)
(.8)
—
(.5) $
.9
(.7)
(.1)
(2.5) $
12.8
(5.3)
—
7.5
—
7.5
7.5
7.5
—
(.4)
3.2
—
10.3
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 $25.4 million in each of 2019, 2020 and 2021. See Note 6.
F-24
The components of the net deferred tax liability at December 31, 2020 and 2021 are summarized in the following
table.
December 31,
Assets
2020
Liabilities Assets
2021
Liabilities
(In millions)
$
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
$
.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) $
.5 $
—
—
.2
.5
1.3
26.7
—
.2
—
—
29.4
(29.4)
— $
—
(7.0)
(2.7)
—
—
—
—
(1.7)
—
(2.3)
(59.8)
(73.5)
29.4
(44.1)
At December 31, 2021, 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, 2019, 2020, and 2021, 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. Previously,
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 only if the shares of Kronos common stock were to be sold or otherwise disposed outside of the
Contran Tax Group. At December 31, 2021, $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, 2021 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 2018 are generally considered closed to examination by applicable tax authorities.
Income tax matters related to Kronos
Kronos has substantial net operating loss (NOL) carryforwards in Germany (the equivalent of $451 million for
German corporate tax purposes at December 31, 2021) and in Belgium (the equivalent of $19 million for Belgian corporate
tax purposes at December 31, 2021). At December 31, 2021, 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
F-25
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.
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 current income
tax expense of $74.5 million and elected to pay such tax over an eight year period beginning in 2018. At December 31,
2021 the balance of its unpaid Transition Tax is $50.6 million, which will be paid in annual installments over the remainder
of the eight year period. Of such $50.6 million, $44.7 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, 2021, and $5.9
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 2021 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.
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.
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 the limitation of business interest
for tax years beginning in 2019 and 2020 and technical corrections to tax depreciation methods for qualified improvement
property. 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. With the expiration of these CARES Act provisions at the end of 2020, Kronos
recognized an increase in disallowed interest expense and an increase in the valuation allowance of $2.8 million for the
portion of the carryforward Kronos believes does not meet the more-likely-than-not measurement criteria in 2021.
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 28,250 shares in 2019, 33,250 shares in
2020 and 13,750 shares in 2021 under this plan. At December 31, 2021, 66,150 shares were available for future grants.
F-26
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, 2021, Kronos had 120,200 shares available for award
and CompX had 136,450 shares available for award.
Dividends - We did not pay dividends during 2019. During 2020 and 2021, our board of directors approved and
we paid quarterly dividends of $.04 and $.06, respectively, per share to stockholders aggregating $7.8 million and $11.7
million, respectively. 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.
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.
2019
Years ended December 31,
2020
(In thousands)
2021
Accumulated other comprehensive loss, net of tax:
Currency translation:
Balance at beginning of period
Other comprehensive income (loss)
Balance at end of period
Defined benefit pension plans:
Balance at beginning of period
Other comprehensive income (loss):
Amortization of prior service cost and net losses included in net
periodic pension cost
Net actuarial gain (loss) arising during the year
Balance at end of period
OPEB plans:
Balance at beginning of period
Other comprehensive loss - amortization of net
gains included in net periodic OPEB cost
Balance at end of period
Total accumulated other comprehensive loss:
Balance at beginning of period
Other comprehensive income (loss)
Balance at end of period
$ (172,434) $ (172,843) $ (169,575)
(1,660)
$ (172,843) $ (169,575) $ (171,235)
3,268
(409)
$
(75,286) $
(78,257) $
(80,704)
3,539
(6,510)
(78,257) $
4,330
(6,777)
(80,704) $
4,813
7,423
(68,468)
$
$
(550) $
(590) $
(910)
(40)
$
(590) $
(320)
(910) $
(143)
(1,053)
$ (248,270) $ (251,690) $ (251,189)
10,433
$ (251,690) $ (251,189) $ (240,756)
(3,420)
501
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
F-27
as guarantees, management and expense sharing arrangements, shared fee arrangements, joint ventures, partnerships,
loans, options, advances of funds on open account, and sales, leases and exchanges of assets, including securities issued
by both related and unrelated parties and (b) common investment and acquisition strategies, business combinations,
reorganizations, recapitalizations, securities repurchases, and purchases and sales (and other acquisitions and dispositions)
of subsidiaries, divisions or other business units, which transactions have involved both related and unrelated parties and
have included transactions which resulted in the acquisition by one related party of a publicly-held noncontrolling interest
in another related party. While no transactions of the type described above are planned or proposed with respect to us other
than as set forth in these financial statements, we continuously consider, review and evaluate, and understand that Contran
and related entities consider, review and evaluate such transactions. Depending upon the business, tax and other objectives
then relevant, it is possible that we might be a party to one or more such transactions in the future.
Current receivables and payables to affiliates are summarized in the table below:
Current receivables from affiliates:
Other - trade items
Current payables to affiliates:
Other - trade items
Income taxes payable to Valhi
Total
December 31,
2020
2021
(In thousands)
313
$
—
696
29
725
$
$
682
9
691
$
$
$
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, 2020 and 2021 under the Valhi Credit Facility, and we incurred a nominal amount of
interest expense under such credit facility for the years ended December 31, 2019, 2020 and 2021. See Note 10. In addition
prior to 2019, CompX entered into an unsecured revolving demand promissory note with Valhi under which, as amended,
CompX has agreed to loan Valhi up to $30 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, 2023. Loans
made to Valhi at any time are at CompX’s discretion. At December 31, 2020 and 2021, the outstanding principal balance
receivable from Valhi under the promissory note was $29.5 million and $18.7 million, respectively. Interest income
(including unused commitment fees) on CompX’s loan to Valhi was $2.4 million in 2019, $1.5 million in 2020 and $1.2
million in 2021.
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 fees are based on the compensation of individual Contran employees providing services for us and/or estimates
of time devoted to our affairs by such 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 $36.1 million in 2019, $33.4 million in 2020 and $33.2 million in 2021.
F-28
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 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 amount we paid under the group insurance program (including amounts attributable to Kronos
for all periods, including its Louisiana Pigment Company joint venture) was $14.9 million through the date of the sale in
2019. This amount principally represents 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. During
2020 and 2021, we paid $22.2 million and $26.3 million, respectively, under the group insurance program (including
amounts attributable to Kronos for all periods, including its Louisiana Pigment Company joint venture) which amounts
principally represent insurance premiums, including $15.6 million and $19.5 million in 2020 and 2021, respectively, 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 2022.
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 Kronos paid to Contran for such services
was $.2 million in 2019 and $.3 million in both 2020 and 2021. 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
both 2020 and 2021 for such rent and related ancillary services. We expect that these relationships with Contran will
continue in 2022.
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
F-29
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:
• 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 judgments have ever been entered against us, and
• we have never ultimately been found liable with respect to any such litigation matters, including over 100
cases over a 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
F-30
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 and second annual
installment payments of $12.0 million each in September 2020 and 2021. We recognized an aggregate of $.6 million in
accretion expense in the second half of 2019 and an aggregate of $1.3 million and $1.1 million in 2020 and 2021,
respectively.
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
F-31
or previously owned, operated or used, certain of which are on the United States Environmental Protection Agency’s
(EPA) Superfund National Priorities List or similar state lists. These proceedings seek cleanup costs, damages for personal
injury or property damage and/or damages for injury to natural resources. Certain of these proceedings involve claims for
substantial amounts. Although we may be jointly and severally liable for these costs, in most cases we are only one of a
number of PRPs who may also be jointly and severally liable, and among whom costs may be shared or allocated. In
addition, we are occasionally named as a party in a number of personal injury lawsuits filed in various jurisdictions alleging
claims related to environmental conditions alleged to have resulted from our operations.
Obligations associated with environmental remediation and related matters are difficult to assess and estimate for
numerous reasons including the:
•
•
•
•
complexity and differing interpretations of governmental regulations,
number of PRPs and their ability or willingness to fund such allocation of costs,
financial capabilities of the PRPs and the allocation of costs among them,
solvency of other PRPs,
• multiplicity of possible solutions,
•
number of years of investigatory, remedial and monitoring activity required,
•
•
uncertainty over the extent, if any, to which our former operations might have contributed to the conditions
allegedly giving rise to such personal injury, property damage, natural resource and related claims, and
number of years between former operations and notice of claims and lack of information and documents
about the former operations.
In addition, the imposition of more stringent standards or requirements under environmental laws or regulations,
new developments or changes regarding site cleanup costs or the allocation of costs among PRPs, solvency of other PRPs,
the results of future testing and analysis undertaken with respect to certain sites or a determination that we are potentially
responsible for the release of hazardous substances at other sites, could cause our expenditures to exceed our current
estimates. Actual costs could exceed accrued amounts or the upper end of the range for sites for which estimates have been
made, and costs may 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, 2020 and December 31, 2021, 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-32
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 Income.
2019
Years ended December 31,
2020
(In thousands)
2021
Balance at the beginning of the period
Additions charged (credited) to expense, net
Payments, net
$
98,211 $
(579)
(3,124)
94,508 $
82
(1,174)
93,416
788
(1,264)
Balance at the end of the year
$
94,508 $
93,416 $
92,940
Amounts recognized in the balance sheet:
Current liability
Noncurrent liability
$
3,065 $
91,443
2,027 $
91,389
2,643
90,297
Balance at the end of the period
$
94,508 $
93,416 $
92,940
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, 2021, 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 $118 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, 2021,
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
F-33
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.
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 47% of total sales in 2019, 48% in
2020 and 51% in 2021. One customer of CompX’s Security Products business accounted for 14% of total sales in 2019,
17% in 2020 and 16% in 2021.
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, 2020 and 2021:
December 31, 2020
Fair
value
Carrying
amount
December 31, 2021
Fair
value
Carrying
amount
(In thousands)
Cash, cash equivalents and restricted cash
$ 165,272 $ 165,272 $ 175,242 $ 175,242
Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are
considered equivalent to fair value.
F-34
SUBSIDIARIES OF THE REGISTRANT
NAME OF CORPORATION
CompX International Inc. (2)
Kronos Worldwide, Inc. (3)
EWI RE, Inc.
NL Environmental Management Services, Inc.
United Lead Company
NLKW Holding, LLC
Jurisdiction of
incorporation
or organization
Delaware
Delaware
New York
New Jersey
New Jersey
New Jersey
EXHIBIT 21.1
% of voting
securities held at
December 31, 2021 (1)
87
30
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, 2021 (File No. 1-13905)
(3) Subsidiaries of Kronos Worldwide, Inc. are incorporated by reference to Exhibit 21.1 of Kronos’ Annual Report on Form 10-K
for the year ended December 31, 2021 (File No. 1-31763)
NL Industries, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240-2620
(972) 233-1700