NL Industries(US:NL)2025-05-07 20:25Part I. FINANCIAL INFORMATION Financial Statements The financial statements for the quarter ended March 31, 2025, show a decrease in total assets to $520.0 million from $578.3 million at year-end 2024, primarily due to a significant reduction in cash and cash equivalents, with net income attributable to NL stockholders falling sharply to $0.7 million from $6.8 million in the prior-year quarter, driven by an $8.5 million unrealized loss on marketable equity securities, and cash flow from operations turning negative, showing a use of $47.5 million, largely due to a $56.1 million payment for an environmental settlement Condensed Consolidated Balance Sheets Total assets decreased from $578.3 million at December 31, 2024, to $520.0 million at March 31, 2025, mainly driven by a decrease in cash and cash equivalents from $163.2 million to $110.0 million and a significant reduction in current accrued environmental remediation costs, while total equity remained relatively stable at $416.8 million Condensed Consolidated Balance Sheet Summary (In thousands) | Account | Dec 31, 2024 | Mar 31, 2025 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $237,958 | $179,619 | ($58,339) | | Cash and cash equivalents | $163,154 | $109,999 | ($53,155) | | Total Assets | $578,258 | $520,025 | ($58,233) | | Total Current Liabilities | $91,062 | $30,937 | ($60,125) | | Accrued environmental remediation costs (Current) | $58,135 | $1,773 | ($56,362) | | Total Liabilities | $162,355 | $103,195 | ($59,160) | | Total Equity | $415,903 | $416,830 | $927 | Condensed Consolidated Statements of Income For the three months ended March 31, 2025, net income attributable to NL stockholders was $0.7 million ($0.01 per share), a significant decrease from $6.8 million ($0.14 per share) in the same period of 2024, primarily due to an $8.5 million unrealized loss on marketable equity securities, which contrasted with a $2.4 million gain in the prior year, partially offset by higher income from operations, which more than doubled to $3.1 million, and increased equity in earnings from Kronos Worldwide, Inc Condensed Consolidated Statements of Income (In thousands, except per share data) | Metric | Q1 2024 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | Net sales | $37,971 | $40,272 | +6.1% | | Gross margin | $9,667 | $12,163 | +25.8% | | Income from operations | $1,356 | $3,148 | +132.1% | | Equity in earnings of Kronos | $2,476 | $5,525 | +123.1% | | Marketable equity securities | $2,383 | ($8,552) | -458.9% | | Net income attributable to NL stockholders | $6,839 | $667 | -90.2% | | Basic and diluted net income per share | $0.14 | $0.01 | -92.9% | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $47.5 million in Q1 2025, a stark reversal from the $6.7 million provided by operating activities in Q1 2024, primarily driven by a $56.5 million cash outflow for accrued environmental remediation costs related to a settlement, while net cash used in financing activities increased slightly due to higher dividend payments Summary of Cash Flows (In thousands) | Cash Flow Activity | Q1 2024 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $6,744 | ($47,475) | ($54,219) | | Net cash provided by (used in) investing activities | $24,495 | ($812) | ($25,307) | | Net cash used in financing activities | ($4,373) | ($4,864) | ($491) | | Net change in cash | $26,866 | ($53,151) | ($80,017) | - The significant shift in operating cash flow was mainly due to a payment for accrued environmental remediation and related costs, which amounted to a $56.5 million use of cash in Q1 202522 Notes to Condensed Consolidated Financial Statements The notes provide details on the company's structure, investments, and contingencies, highlighting Valhi, Inc.'s 83% stake, the increase in Kronos Worldwide, Inc.'s carrying value to $259.5 million, and a significant $56.1 million payment plus interest in Q1 2025 to settle claims related to the Raritan Bay Slag Superfund Site, which substantially reduced accrued environmental liabilities - At March 31, 2025, Valhi, Inc. held approximately 83% of NL Industries' outstanding common stock, with Valhi itself controlled by Contran Corporation24 - The carrying value of the investment in Kronos increased from $250.3 million at year-end 2024 to $259.5 million at March 31, 2025, primarily due to $5.5 million in equity earnings and $5.3 million from currency translation3839 - In Q1 2025, the company paid $56.1 million plus interest to settle all claims related to the Raritan Bay Slag Superfund Site, resolving a lawsuit and representing a major use of cash during the quarter697071 Change in Accrued Environmental Remediation Costs (In thousands) | Description | Amount | | :--- | :--- | | Balance at beginning of period | $69,278 | | Additions charged to expense, net | $578 | | Payments, net | ($57,089) | | Balance at end of period | $12,767 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the sharp decline in net income to a significant unrealized loss on marketable equity securities ($8.5 million loss vs. $2.4 million gain in Q1 2024), partially offset by strong operational performance from its subsidiary CompX, whose segment profit grew 58%, and higher equity earnings from its affiliate Kronos, which increased 123%, noting that while the company's liquidity was impacted by a large environmental settlement payment, management believes it has sufficient resources for its short- and long-term obligations, supported by cash flows, affiliate dividends, and a credit facility with its parent company, Valhi Results of Operations Overall operating income increased to $3.2 million from $1.3 million in the prior-year quarter, driven by a 58% increase in CompX's segment profit, though a significant unrealized loss on marketable equity securities and lower dividend income led to a decrease in income before taxes from $8.3 million to $1.3 million - The decrease in net income attributable to NL stockholders from Q1 2024 to Q1 2025 was primarily due to the net effects of: - An $8.5 million unrealized loss on marketable equity securities in 2025 versus a $2.4 million gain in 2024 - Higher equity in earnings of Kronos ($5.5 million in 2025 vs. $2.5 million in 2024) - Higher CompX segment profit ($5.9 million in 2025 vs. $3.7 million in 2024)95 Income from Operations and Other Income (Expense) (In millions) | Component | Q1 2024 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Income from operations | $1.3 | $3.2 | +132% | | CompX segment profit | $3.7 | $5.9 | +58% | | Corporate expense | ($2.4) | ($2.7) | +15% | | Other Income (Expense) | | | | | Equity in earnings of Kronos | $2.5 | $5.5 | +123% | | Marketable equity securities | $2.4 | ($8.5) | -459% | | Interest and dividend income | $2.6 | $2.0 | -20% | CompX International Inc. CompX's segment profit increased by 58% to $5.9 million in Q1 2025, driven by a 24% sales increase in its Marine Components unit, which saw higher sales to the towboat and government markets and expanded its gross margin significantly from 11% to 32%, while the Security Products unit had comparable profit to the prior year, with higher sales to the government security market offset by softness in other OEM markets CompX Performance Summary (In millions) | Metric | Q1 2024 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $38.0 | $40.3 | +6% | | Gross Margin | $9.7 | $12.2 | +26% | | Segment Profit | $3.7 | $5.9 | +58% | | Segment Profit % | 10% | 15% | | - Marine Components net sales increased 24% due to higher sales to the towboat market ($1.7 million) and government market ($1.2 million), with its gross margin percentage increasing from 11% to 32% due to lower cost inventory and better fixed cost absorption105 - CompX expects modest sales improvement in 2025 for Security Products and increased sales for Marine Components, driven by government and industrial markets, but faces continued raw material price increases and potential tariff impacts108109 Equity in earnings of Kronos Worldwide, Inc. NL's equity in earnings from Kronos more than doubled, rising to $5.5 million in Q1 2025 from $2.5 million in Q1 2024, as Kronos's income from operations nearly doubled to $38.4 million, driven by a 5% increase in TiO2 sales volumes and a 2% increase in average selling prices, with production volumes rising 18% as facilities operated at 93% capacity, up from 87%, leading to lower per-unit costs and improved gross margins from 15% to 22% Kronos Performance Summary (In millions, except volumes) | Metric | Q1 2024 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $478.8 | $489.8 | +2% | | Income from Operations | $19.5 | $38.4 | +97% | | Net Income | $8.1 | $18.1 | +123% | | NL's Equity in Earnings | $2.5 | $5.5 | +120% | | TiO2 Sales Volumes (k tons) | 130 | 136 | +5% | | TiO2 Production Volumes (k tons) | 121 | 143 | +18% | - Kronos operated its production facilities at 93% of practical capacity in Q1 2025, up from 87% in Q1 2024, in response to increased customer demand125 - Kronos's outlook suggests demand may be challenging in North America due to tariff uncertainty, but has improved in Europe, with the company focused on cost reduction and integrating the LPC acquisition, which is expected to positively impact 2025 earnings143145 Liquidity and Capital Resources The company's liquidity decreased, with cash and cash equivalents falling to $131.0 million from $184.2 million at year-end, primarily due to a $57.1 million payment for an environmental settlement, while primary sources of liquidity are operating cash flow, expected annual dividends of $20.3 million from affiliates, and a $50 million revolving credit facility from parent company Valhi, of which $49.5 million was available at quarter-end, leading management to believe liquidity is sufficient for short- and long-term needs - Net cash used in operating activities was $47.5 million, primarily due to a $57.1 million payment for an environmental remediation settlement149155 Cash and Cash Equivalents by Entity (In millions) | Entity | Amount at Mar 31, 2025 | | :--- | :--- | | CompX | $56.1 | | NL Parent and wholly-owned subsidiaries | $74.9 | | Total | $131.0 | Expected Annual Dividends from Affiliates (In millions) | Affiliate | Expected Annual Dividend | | :--- | :--- | | Kronos | $7.0 | | CompX | $12.9 | | Valhi | $0.4 | | Total | $20.3 | - The company has access to a $50 million revolving credit facility from its parent, Valhi, with $0.5 million outstanding and $49.5 million available as of March 31, 2025165 Quantitative and Qualitative Disclosure About Market Risk The company states that there have been no material changes in its exposure to market risks, which include currency exchange rates, interest rates, and equity security prices, since the filing of its 2024 Annual Report - There have been no material changes in market risks (currency exchange rates, interest rates, equity security prices) since the 2024 Annual Report176 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025, with no material changes to the company's internal control over financial reporting during the quarter - The President and CEO, and the Executive VP and CFO, evaluated disclosure controls and procedures and concluded they are effective as of March 31, 2025177 - No changes to internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls180 Part II. OTHER INFORMATION Legal Proceedings The report refers to Note 15 of the Condensed Consolidated Financial Statements and the company's 2024 Annual Report for descriptions of its legal proceedings - For information on legal proceedings, the report directs readers to Note 15 of the financial statements and the 2024 Annual Report183 Risk Factors For a discussion of risk factors related to the business, the report refers to Item 1A, "Risk Factors," in the company's 2024 Annual Report - The report references the 2024 Annual Report for a full discussion of business-related risk factors184 Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications (31.1, 31.2, 32.1) and Inline XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act sections 302 and 906, as well as Inline XBRL documents187