NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
|
|
|
(unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
77,987
|
|
|
$
|
71,735
|
|
Restricted cash and cash equivalents
|
|
|
5,354
|
|
|
|
4,339
|
|
Accounts and other receivables, net
|
|
|
12,049
|
|
|
|
13,883
|
|
Inventories, net
|
|
|
11,223
|
|
|
|
12,257
|
|
Prepaid expenses and other
|
|
|
1,769
|
|
|
|
706
|
|
Deferred income taxes
|
|
|
4,271
|
|
|
|
4,271
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
112,653
|
|
|
|
107,191
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
179,662
|
|
|
|
197,485
|
|
Investment in Kronos Worldwide, Inc.
|
|
|
323,128
|
|
|
|
285,099
|
|
Goodwill
|
|
|
27,156
|
|
|
|
27,156
|
|
Other assets, net
|
|
|
3,854
|
|
|
|
2,255
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
533,800
|
|
|
|
511,995
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
5,138
|
|
|
|
5,138
|
|
Buildings
|
|
|
20,791
|
|
|
|
20,791
|
|
Equipment
|
|
|
59,010
|
|
|
|
57,184
|
|
Construction in progress
|
|
|
1,442
|
|
|
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,381
|
|
|
|
85,116
|
|
Less accumulated depreciation
|
|
|
52,052
|
|
|
|
51,015
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
34,329
|
|
|
|
34,101
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
680,782
|
|
|
$
|
653,287
|
|
|
|
|
|
|
|
|
|
|
- 3 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
|
|
|
(unaudited)
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Accounts payable
|
|
|
5,363
|
|
|
|
3,630
|
|
Accrued and other current liabilities
|
|
|
12,749
|
|
|
|
10,763
|
|
Accrued environmental remediation and related costs
|
|
|
5,667
|
|
|
|
4,754
|
|
Income taxes
|
|
|
6
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
24,785
|
|
|
|
20,152
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
17,480
|
|
|
|
16,980
|
|
Accrued pension costs
|
|
|
13,747
|
|
|
|
12,260
|
|
Accrued postretirement benefit (OPEB) costs
|
|
|
3,861
|
|
|
|
3,631
|
|
Accrued environmental remediation and related costs
|
|
|
42,339
|
|
|
|
55,037
|
|
Deferred income taxes
|
|
|
171,915
|
|
|
|
158,400
|
|
Other
|
|
|
18,572
|
|
|
|
18,415
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
267,914
|
|
|
|
264,723
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
NL stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
6,083
|
|
|
|
6,084
|
|
Additional paid-in capital
|
|
|
300,227
|
|
|
|
300,368
|
|
Retained earnings
|
|
|
163,758
|
|
|
|
135,217
|
|
Accumulated other comprehensive loss
|
|
|
(95,253
|
)
|
|
|
(86,603
|
)
|
|
|
|
|
|
|
|
|
|
Total NL stockholders equity
|
|
|
374,815
|
|
|
|
355,066
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in subsidiary
|
|
|
13,268
|
|
|
|
13,346
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
388,083
|
|
|
|
368,412
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
680,782
|
|
|
$
|
653,287
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 13 and 14)
See accompanying Notes to Condensed Consolidated Financial Statements.
- 4 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
Six months ended
June
30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(unaudited)
|
|
Net sales
|
|
$
|
22,147
|
|
|
$
|
24,039
|
|
|
$
|
42,575
|
|
|
$
|
45,492
|
|
Cost of sales
|
|
|
15,638
|
|
|
|
16,429
|
|
|
|
30,054
|
|
|
|
31,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
6,509
|
|
|
|
7,610
|
|
|
|
12,521
|
|
|
|
13,630
|
|
Selling, general and administrative expense
|
|
|
4,351
|
|
|
|
4,667
|
|
|
|
8,780
|
|
|
|
9,253
|
|
Other operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance recoveries
|
|
|
282
|
|
|
|
946
|
|
|
|
1,407
|
|
|
|
1,576
|
|
Litigation settlement gain
|
|
|
14,964
|
|
|
|
|
|
|
|
14,964
|
|
|
|
|
|
Other income
|
|
|
170
|
|
|
|
14
|
|
|
|
390
|
|
|
|
14
|
|
Corporate expense and other, net
|
|
|
(5,119
|
)
|
|
|
(16,325
|
)
|
|
|
(21,506
|
)
|
|
|
(21,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
12,455
|
|
|
|
(12,422
|
)
|
|
|
(1,004
|
)
|
|
|
(15,275
|
)
|
Equity in earnings (loss) of Kronos Worldwide, Inc.
|
|
|
19,624
|
|
|
|
(10,303
|
)
|
|
|
61,236
|
|
|
|
(22,790
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities transaction gains, net
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
11
|
|
Interest and dividends
|
|
|
831
|
|
|
|
735
|
|
|
|
1,542
|
|
|
|
1,473
|
|
Interest expense
|
|
|
(219
|
)
|
|
|
(58
|
)
|
|
|
(502
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
32,691
|
|
|
|
(22,042
|
)
|
|
|
61,272
|
|
|
|
(36,698
|
)
|
Income tax expense (benefit)
|
|
|
7,335
|
|
|
|
(8,024
|
)
|
|
|
15,329
|
|
|
|
(20,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
25,356
|
|
|
|
(14,018
|
)
|
|
|
45,943
|
|
|
|
(16,016
|
)
|
Income from discontinued operations, net of tax
|
|
|
889
|
|
|
|
|
|
|
|
1,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
26,245
|
|
|
|
(14,018
|
)
|
|
|
47,492
|
|
|
|
(16,016
|
)
|
Noncontrolling interest in net income of subsidiary
|
|
|
272
|
|
|
|
237
|
|
|
|
470
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to NL stockholders
|
|
$
|
25,973
|
|
|
$
|
(14,255
|
)
|
|
$
|
47,022
|
|
|
$
|
(16,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
- 5 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
Six months ended
June
30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(unaudited)
|
|
Amounts attributable to NL stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
25,199
|
|
|
$
|
(14,255
|
)
|
|
$
|
45,674
|
|
|
$
|
(16,373
|
)
|
Income from discontinued operations
|
|
|
774
|
|
|
|
|
|
|
|
1,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to NL stockholders
|
|
$
|
25,973
|
|
|
$
|
(14,255
|
)
|
|
$
|
47,022
|
|
|
$
|
(16,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.51
|
|
|
$
|
(.29
|
)
|
|
$
|
.94
|
|
|
$
|
(.34
|
)
|
Discontinued operations
|
|
|
.02
|
|
|
|
|
|
|
|
.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
.53
|
|
|
$
|
(.29
|
)
|
|
$
|
.97
|
|
|
$
|
(.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend per share
|
|
$
|
.125
|
|
|
$
|
.125
|
|
|
$
|
.250
|
|
|
$
|
.250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
48,666
|
|
|
|
48,671
|
|
|
|
48,664
|
|
|
|
48,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
- 6 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
June 30,
|
|
|
Six months
ended
June 30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(unaudited)
|
|
Net income (loss)
|
|
$
|
26,245
|
|
|
$
|
(14,018
|
)
|
|
$
|
47,492
|
|
|
$
|
(16,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
(52,742
|
)
|
|
|
(22,075
|
)
|
|
|
(78,617
|
)
|
|
|
11,826
|
|
Currency translation
|
|
|
(8,527
|
)
|
|
|
1,116
|
|
|
|
(4,390
|
)
|
|
|
(4,274
|
)
|
Defined benefit pension plans
|
|
|
566
|
|
|
|
687
|
|
|
|
1,131
|
|
|
|
1,386
|
|
Other postretirement benefit plans
|
|
|
(138
|
)
|
|
|
(144
|
)
|
|
|
(276
|
)
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
(60,841
|
)
|
|
|
(20,416
|
)
|
|
|
(82,152
|
)
|
|
|
8,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(34,596
|
)
|
|
|
(34,434
|
)
|
|
|
(34,660
|
)
|
|
|
(7,366
|
)
|
Comprehensive income attributable to noncontrolling interest
|
|
|
(173
|
)
|
|
|
(237
|
)
|
|
|
(486
|
)
|
|
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to NL stockholders
|
|
$
|
(34,769
|
)
|
|
$
|
(34,671
|
)
|
|
$
|
(35,146
|
)
|
|
$
|
(7,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
- 7 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Six months ended June 30, 2013
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Additional
paid-in
capital
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
loss
|
|
|
Noncontrolling
interest
in
subsidiary
|
|
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
6,083
|
|
|
$
|
300,227
|
|
|
$
|
163,758
|
|
|
$
|
(95,253
|
)
|
|
$
|
13,268
|
|
|
$
|
388,083
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(16,373
|
)
|
|
|
|
|
|
|
357
|
|
|
|
(16,016
|
)
|
Other comprehensive income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,650
|
|
|
|
|
|
|
|
8,650
|
|
Issuance of NL common stock
|
|
|
1
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
(12,168
|
)
|
|
|
|
|
|
|
(287
|
)
|
|
|
(12,455
|
)
|
Other, net
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
6,084
|
|
|
$
|
300,368
|
|
|
$
|
135,217
|
|
|
$
|
(86,603
|
)
|
|
$
|
13,346
|
|
|
$
|
368,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
- 8 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six months
ended
June 30,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
(unaudited)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
47,492
|
|
|
$
|
(16,016
|
)
|
Depreciation and amortization
|
|
|
2,889
|
|
|
|
1,689
|
|
Deferred income taxes
|
|
|
15,822
|
|
|
|
(18,185
|
)
|
Equity in (earnings) loss of Kronos Worldwide, Inc.
|
|
|
(61,236
|
)
|
|
|
22,790
|
|
Distributions from Kronos Worldwide, Inc.
|
|
|
10,566
|
|
|
|
10,566
|
|
Benefit plan expense greater (less) than cash funding:
|
|
|
|
|
|
|
|
|
Defined benefit pension plans
|
|
|
104
|
|
|
|
(229
|
)
|
Other postretirement benefits
|
|
|
(320
|
)
|
|
|
(364
|
)
|
Litigation settlement gain
|
|
|
(14,964
|
)
|
|
|
|
|
Securities transactions gains, net
|
|
|
|
|
|
|
(11
|
)
|
Other, net
|
|
|
282
|
|
|
|
1,118
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts and other receivables, net
|
|
|
(2,734
|
)
|
|
|
(2,333
|
)
|
Inventories, net
|
|
|
150
|
|
|
|
(1,154
|
)
|
Prepaid expenses and other
|
|
|
127
|
|
|
|
148
|
|
Accounts payable and accrued liabilities
|
|
|
(2,349
|
)
|
|
|
(3,291
|
)
|
Income taxes
|
|
|
(1,576
|
)
|
|
|
(5
|
)
|
Accounts with affiliates
|
|
|
592
|
|
|
|
(2,782
|
)
|
Accrued environmental remediation and related costs
|
|
|
12,042
|
|
|
|
11,785
|
|
Other noncurrent assets and liabilities, net
|
|
|
(2,387
|
)
|
|
|
(1,097
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,500
|
|
|
|
2,629
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,211
|
)
|
|
|
(1,553
|
)
|
Proceeds from real estate-related litigation settlement
|
|
|
15,603
|
|
|
|
|
|
Change in restricted cash equivalents
|
|
|
(284
|
)
|
|
|
1,021
|
|
Collection of note receivable
|
|
|
|
|
|
|
3,034
|
|
Proceeds from the disposal of:
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
|
|
|
|
|
1,559
|
|
Marketable securities
|
|
|
|
|
|
|
272
|
|
Property, plant and equipment and other assets
|
|
|
30
|
|
|
|
2
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
13,138
|
|
|
|
4,074
|
|
|
|
|
|
|
|
|
|
|
- 9 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six months
ended
June 30,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
(unaudited)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
$
|
(12,166
|
)
|
|
$
|
(12,168
|
)
|
Distributions to noncontrolling interests in subsidiary
|
|
|
(409
|
)
|
|
|
(287
|
)
|
Indebtedness:
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
13,050
|
|
|
|
|
|
Repayments
|
|
|
(22,300
|
)
|
|
|
(500
|
)
|
Other, net
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(21,882
|
)
|
|
|
(12,955
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsnet change from:
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
(4,244
|
)
|
|
|
(6,252
|
)
|
Effect of exchange rate changes on cash
|
|
|
72
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
11,652
|
|
|
|
77,987
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
7,480
|
|
|
$
|
71,735
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
431
|
|
|
$
|
155
|
|
Income taxes, net
|
|
|
1,977
|
|
|
|
289
|
|
Non-cash investing activity:
|
|
|
|
|
|
|
|
|
Accrual for capital expenditures
|
|
|
510
|
|
|
|
(161
|
)
|
See accompanying Notes to Condensed Consolidated Financial Statements.
- 10 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(unaudited)
Note 1Organization and basis of presentation:
Organization
At June 30, 2013, (i) Valhi, Inc. (NYSE: VHI) held approximately 83%
of our outstanding common stock and (ii) Contran Corporation and its subsidiaries held an aggregate of approximately 93% of Valhis outstanding common stock. Substantially all of Contrans outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold C. Simmons (for which Mr. Simmons is the sole trustee), or is held by Mr. Simmons or other persons or companies related to Mr. Simmons. Consequently,
Mr. Simmons may be deemed to control Contran, Valhi and us.
Basis of presentation
Consolidated
in this Quarterly Report are the results of our majority-owned subsidiary, CompX International Inc. We also own 30% of Kronos Worldwide, Inc. CompX (NYSE MKT: CIX) and Kronos (NYSE: KRO) each file periodic reports with the Securities and Exchange
Commission (SEC).
The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been
prepared on the same basis as the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2012 that we filed with the SEC on March 12, 2013 (the 2012 Annual Report). In our opinion, we
have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods
presented. We have condensed the Consolidated Balance Sheet and Statement of Stockholders Equity at December 31, 2012 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date and we have
omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, 2012) normally included in financial statements prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP). Our results of operations for the interim periods ended June 30, 2013 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this
Quarterly Report should be read in conjunction with our 2012 Consolidated Financial Statements contained in our 2012 Annual Report.
Unless otherwise indicated, references in this report to NL, we, us or our refer to NL Industries, Inc. and its subsidiaries and affiliate, Kronos, taken as
a whole.
- 11 -
Note 2Discontinued operations:
On December 28, 2012, we completed the sale of CompXs Furniture Components operations to a competitor of
that business. Selected financial data for the operations of the disposed Furniture Components operations is presented below:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2012
|
|
|
|
(In thousands)
|
|
Net sales
|
|
$
|
15,452
|
|
|
$
|
30,554
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
1,771
|
|
|
$
|
3,097
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations:
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
1,747
|
|
|
$
|
3,036
|
|
Income tax expense
|
|
|
(858
|
)
|
|
|
(1,487
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
889
|
|
|
|
1,549
|
|
Noncontrolling interest in income from discontinued operations, net of tax
|
|
|
115
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations, net of tax and noncontrolling interest
|
|
$
|
774
|
|
|
$
|
1,348
|
|
|
|
|
|
|
|
|
|
|
In accordance with generally accepted accounting principles, the assets and liabilities relating to the
Furniture Components business were eliminated from the 2012 Condensed Consolidated Balance Sheet at the date of sale. We have reclassified our June 30, 2012 Condensed Consolidated Statements of Operations to reflect the disposed operations as
discontinued operations. We have not reclassified our June 30, 2012 Condensed Consolidated Statement of Cash Flows to reflect discontinued operations.
In conjunction with the sale of CompXs Furniture Components business, the buyer was not interested in retaining certain undeveloped land located in Taiwan owned by CompXs Taiwanese Furniture
Component subsidiary. We had no additional use for the undeveloped land in Taiwan and therefore expected the land to be sold to a third party with CompX receiving the net proceeds. Based on the legal form of how we completed the disposal
transaction, our interest in such land was represented by a $3.0 million promissory note receivable at December 31, 2012, issued to CompX by its former Taiwanese subsidiary which retained legal ownership in the land to facilitate the future
sale of the land to a third party. The proceeds from the sale of the land were required to be used to settle the note receivable. During the first quarter of 2013, an agreement was entered into with a third party to sell the land for $3.0 million,
$1.8 million of which was received during the first quarter of 2013 and the remaining $1.2 million was received in the second quarter 2013. Such note receivable is classified as part of accounts receivable in our Consolidated Balance Sheets at
December 31, 2012. See Note 3.
- 12 -
Note 3Accounts and other receivables, net:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Trade receivablesCompX
|
|
$
|
8,696
|
|
|
$
|
10,904
|
|
Promissory note receivable
|
|
|
3,034
|
|
|
|
|
|
Accrued insurance recoveries
|
|
|
476
|
|
|
|
562
|
|
Income taxes receivable from Valhi
|
|
|
|
|
|
|
2,513
|
|
Other receivables
|
|
|
51
|
|
|
|
59
|
|
Refundable income taxes
|
|
|
8
|
|
|
|
8
|
|
Allowance for doubtful accounts
|
|
|
(216
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,049
|
|
|
$
|
13,883
|
|
|
|
|
|
|
|
|
|
|
Accrued insurance recoveries are discussed in Note 14.
Note 4Inventories, net:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Raw materials
|
|
$
|
3,253
|
|
|
$
|
3,926
|
|
Work in process
|
|
|
5,902
|
|
|
|
6,295
|
|
Finished goods
|
|
|
2,068
|
|
|
|
2,036
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,223
|
|
|
$
|
12,257
|
|
|
|
|
|
|
|
|
|
|
Note 5Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value
measurement
level
|
|
|
Market
value
|
|
|
Cost
basis
|
|
|
Unrealized
gains
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valhi common stock
|
|
|
1
|
|
|
$
|
179,662
|
|
|
$
|
24,347
|
|
|
$
|
155,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valhi common stock
|
|
|
1
|
|
|
$
|
197,485
|
|
|
$
|
24,347
|
|
|
$
|
173,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 and June 30, 2013, we held approximately 14.4 million shares of
Valhis common stock with a market price of $12.50 and $13.74 per share, respectively. Contran, Mr. Harold Simmons and persons and other entities related to Mr. Simmons own a majority of Valhis outstanding common stock. We
account for our investment in Valhi common stock as available-for-sale marketable equity securities and any unrealized gains or losses on the securities are recognized through other comprehensive income, net of deferred income taxes. Our shares of
Valhi common stock are carried at fair value based on quoted market prices, representing a Level 1 input within the fair value hierarchy.
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 Corporation Law, but we do receive dividends from Valhi on these shares, when declared and paid.
- 13 -
Note 6Investment in Kronos Worldwide, Inc.:
At December 31, 2012 and June 30, 2013, we owned approximately 35.2 million shares of Kronos common
stock. At June 30, 2013, the quoted market price of Kronos common stock was $16.24 per share, or an aggregate market value of $572.0 million. At December 31, 2012, the quoted market price was $19.50 per share, or an aggregate market
value of $686.8 million.
The change in the carrying value of our investment in Kronos during the first six months of 2013 is
summarized below:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Balance at the beginning of the period
|
|
$
|
323.1
|
|
Equity in loss of Kronos
|
|
|
(22.8
|
)
|
Dividends received from Kronos
|
|
|
(10.6
|
)
|
Other, principally equity in Kronos other comprehensive loss
|
|
|
(4.6
|
)
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
285.1
|
|
|
|
|
|
|
Selected financial information of Kronos is summarized below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
(In millions)
|
|
Current assets
|
|
$
|
1,223.4
|
|
|
$
|
925.5
|
|
Property and equipment, net
|
|
|
522.5
|
|
|
|
507.9
|
|
Investment in TiO
2
joint venture
|
|
|
109.9
|
|
|
|
95.2
|
|
Other noncurrent assets
|
|
|
171.2
|
|
|
|
213.7
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,027.0
|
|
|
$
|
1,742.3
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
328.4
|
|
|
$
|
275.7
|
|
Long-term debt
|
|
|
378.9
|
|
|
|
286.9
|
|
Accrued pension and postretirement benefits
|
|
|
203.3
|
|
|
|
194.1
|
|
Other noncurrent liabilities
|
|
|
54.3
|
|
|
|
48.7
|
|
Stockholders equity
|
|
|
1,062.1
|
|
|
|
936.9
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,027.0
|
|
|
$
|
1,742.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
Six months ended
June
30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(In millions)
|
|
Net sales
|
|
$
|
545.3
|
|
|
$
|
481.1
|
|
|
$
|
1,106.6
|
|
|
$
|
944.7
|
|
Cost of sales
|
|
|
382.0
|
|
|
|
471.5
|
|
|
|
681.8
|
|
|
|
931.2
|
|
Income (loss) from operations
|
|
|
110.6
|
|
|
|
(47.7
|
)
|
|
|
320.0
|
|
|
|
(94.6
|
)
|
Net income (loss)
|
|
|
64.5
|
|
|
|
(33.9
|
)
|
|
|
201.4
|
|
|
|
(75.0
|
)
|
- 14 -
Note 7Other noncurrent assets, net:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Assets held for sale
|
|
$
|
1,965
|
|
|
$
|
430
|
|
Restricted cash
|
|
|
1,694
|
|
|
|
1,688
|
|
Other
|
|
|
195
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,854
|
|
|
$
|
2,255
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2012, CompX entered into an agreement to sell one of its facilities classified
as an asset held for sale. The transaction closed during the first quarter of 2013. The net proceeds from the sale of $1.6 million approximated the carrying value of the assets as of the date of the sale.
Note 8Accrued and other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Employee benefits
|
|
$
|
7,611
|
|
|
$
|
5,562
|
|
Professional fees and legal settlements
|
|
|
2,805
|
|
|
|
3,155
|
|
Income taxes payable to Valhi
|
|
|
270
|
|
|
|
|
|
Other
|
|
|
2,063
|
|
|
|
2,046
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,749
|
|
|
$
|
10,763
|
|
|
|
|
|
|
|
|
|
|
Note 9Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Subsidiary debt:
|
|
|
|
|
|
|
|
|
CompX note payable to TIMET Finance Management Company
|
|
$
|
18,480
|
|
|
$
|
17,980
|
|
Less current maturities
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
17,480
|
|
|
$
|
16,980
|
|
|
|
|
|
|
|
|
|
|
The average interest rate on the promissory note payable to TIMET Finance Management Company as of and
for the six-month period ended June 30, 2013 was 1.3%. In July 2013, CompX prepaid the remaining outstanding principal amount of the note, plus accrued interest without penalty.
During the first six months of 2013, we had no borrowings under our promissory note with Valhi, and at June 30, 2013, the full $40
million was available for borrowing under this facility.
- 15 -
Note 10Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Reserve for uncertain tax positions
|
|
$
|
16,832
|
|
|
$
|
16,832
|
|
Insurance claims and expenses
|
|
|
586
|
|
|
|
585
|
|
Other
|
|
|
1,154
|
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,572
|
|
|
$
|
18,415
|
|
|
|
|
|
|
|
|
|
|
Note 11Employee benefit plans:
Defined benefit plans
The components of net periodic defined benefit pension cost (income) are
presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
Six months ended
June
30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(In thousands)
|
|
Interest cost
|
|
$
|
643
|
|
|
$
|
526
|
|
|
$
|
1,271
|
|
|
$
|
1,098
|
|
Expected return on plan assets
|
|
|
(915
|
)
|
|
|
(986
|
)
|
|
|
(1,829
|
)
|
|
|
(1,986
|
)
|
Recognized actuarial losses
|
|
|
331
|
|
|
|
306
|
|
|
|
662
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59
|
|
|
$
|
(154
|
)
|
|
$
|
104
|
|
|
$
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefits
The components of net periodic postretirement benefits other
than pension cost (income) are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
Six months ended
June
30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(In thousands)
|
|
Interest cost
|
|
$
|
40
|
|
|
$
|
26
|
|
|
$
|
79
|
|
|
$
|
52
|
|
Amortization of prior service credit
|
|
|
(175
|
)
|
|
|
(171
|
)
|
|
|
(349
|
)
|
|
|
(342
|
)
|
Recognized actuarial gain
|
|
|
(25
|
)
|
|
|
(37
|
)
|
|
|
(50
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(160
|
)
|
|
$
|
(182
|
)
|
|
$
|
(320
|
)
|
|
$
|
(364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
We currently expect our 2013 contributions to our defined benefit
pension plans and other postretirement plans to be approximately $2.4 million.
- 16 -
Note 12Other comprehensive income (loss):
Changes in accumulated other comprehensive income attributable to NL stockholders for the three and six months ended
June 30, 2012 and 2013 are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
June 30,
|
|
|
Six months
ended
June 30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(In thousands)
|
|
Accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
160,576
|
|
|
$
|
139,320
|
|
|
$
|
186,451
|
|
|
$
|
105,419
|
|
Other comprehensive income (loss)unrealized gains (losses)arising during the year
|
|
|
(52,742
|
)
|
|
|
(22,075
|
)
|
|
|
(78,617
|
)
|
|
|
11,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
107,834
|
|
|
$
|
117,245
|
|
|
$
|
107,834
|
|
|
$
|
117,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(129,019
|
)
|
|
$
|
(140,555
|
)
|
|
$
|
(133,041
|
)
|
|
$
|
(135,165
|
)
|
Other comprehensive income (loss)
|
|
|
(8,428
|
)
|
|
|
1,116
|
|
|
|
(4,406
|
)
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(137,447
|
)
|
|
$
|
(139,439
|
)
|
|
$
|
(137,447
|
)
|
|
$
|
(139,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(58,913
|
)
|
|
$
|
(65,703
|
)
|
|
$
|
(59,478
|
)
|
|
$
|
(66,402
|
)
|
Other comprehensive incomeamortization of net losses included in net periodic pension cost
|
|
|
566
|
|
|
|
687
|
|
|
|
1,131
|
|
|
|
1,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(58,347
|
)
|
|
$
|
(65,016
|
)
|
|
$
|
(58,347
|
)
|
|
$
|
(65,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPEB plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,206
|
|
|
$
|
751
|
|
|
$
|
1,344
|
|
|
$
|
895
|
|
Other comprehensive lossamortization of prior service credit and net gains included in net periodic OPEB
cost
|
|
|
(138
|
)
|
|
|
(144
|
)
|
|
|
(276
|
)
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,068
|
|
|
$
|
607
|
|
|
$
|
1,068
|
|
|
$
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(26,150
|
)
|
|
$
|
(66,187
|
)
|
|
$
|
(4,724
|
)
|
|
$
|
(95,253
|
)
|
Other comprehensive income (loss)
|
|
|
(60,742
|
)
|
|
|
(20,416
|
)
|
|
|
(82,168
|
)
|
|
|
8,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(86,892
|
)
|
|
$
|
(86,603
|
)
|
|
$
|
(86,892
|
)
|
|
$
|
(86,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 11 for amounts related to our defined benefit pension plans and OPEB plans.
- 17 -
Note 13Income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
Six months ended
June
30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(In millions)
|
|
Expected tax provision (benefit) at U.S. federal statutory income tax rate of 35%
|
|
$
|
11.4
|
|
|
$
|
(7.7
|
)
|
|
$
|
21.4
|
|
|
$
|
(12.8
|
)
|
Incremental U.S. tax and rate differences on equity in earnings
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
(5.9
|
)
|
|
|
(7.4
|
)
|
Nontaxable income
|
|
|
(.3
|
)
|
|
|
(.5
|
)
|
|
|
(.7
|
)
|
|
|
(.7
|
)
|
U.S. state income taxes and other, net
|
|
|
.2
|
|
|
|
.2
|
|
|
|
.5
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7.3
|
|
|
$
|
(8.0
|
)
|
|
$
|
15.3
|
|
|
$
|
(20.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
Six months ended
June
30,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(In millions)
|
|
Comprehensive provision (benefit) for income taxes allocable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
7.3
|
|
|
$
|
(8.0
|
)
|
|
$
|
15.3
|
|
|
$
|
(20.7
|
)
|
Discontinued operations
|
|
|
.9
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
(28.4
|
)
|
|
|
(11.9
|
)
|
|
|
(42.3
|
)
|
|
|
6.4
|
|
Currency translation
|
|
|
(4.4
|
)
|
|
|
.6
|
|
|
|
(2.4
|
)
|
|
|
(2.3
|
)
|
Pension plans
|
|
|
.3
|
|
|
|
.3
|
|
|
|
.6
|
|
|
|
.7
|
|
OPEB plans
|
|
|
|
|
|
|
|
|
|
|
(.2
|
)
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(24.3
|
)
|
|
$
|
(19.0
|
)
|
|
$
|
(27.5
|
)
|
|
$
|
(16.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax authorities are examining certain of our U.S. and non-U.S. tax returns, including those of Kronos,
and tax authorities have or may propose tax deficiencies, including penalties and interest. We cannot guarantee these tax matters will be resolved in our favor due to the inherent uncertainties involved in settlement initiatives and court and tax
proceedings. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse
effect on our consolidated financial position, results of operations or liquidity.
In 2011 and 2012, Kronos received notices
of re-assessment from the Canadian federal and provincial tax authorities related to the years 2002 through 2004. Kronos objects to the re-assessments and believes the position is without merit. If the full amount of the proposed adjustment
were ultimately to be assessed against Kronos, the cash tax liability would be approximately $15.6 million. Kronos believes that it has adequate accruals for this matter.
- 18 -
We currently estimate that our unrecognized tax benefits will not change materially during
the next twelve months.
Note 14Commitments and contingencies:
Lead pigment litigation
Our former operations included the manufacture of lead pigments for use in paint and lead-based paint. We, other former manufacturers of lead pigments for use in paint and lead-based paint (together, the
former pigment manufacturers), and the Lead Industries Association (LIA), which discontinued business operations in 2002, have been named as defendants in various legal proceedings seeking damages for personal injury, property damage and
governmental expenditures allegedly caused by the use of lead-based paints. Certain of these actions have been filed by or on behalf of states, counties, cities or their public housing authorities and school districts, and certain others have been
asserted as class actions. These lawsuits seek recovery under a variety of theories, including public and private nuisance, negligent product design, negligent failure to warn, strict liability, breach of warranty, conspiracy/concert of action,
aiding and abetting, enterprise liability, market share or risk contribution liability, intentional tort, fraud and misrepresentation, violations of state consumer protection statutes, supplier negligence and similar claims.
The plaintiffs in these actions generally seek to impose on the defendants responsibility for lead paint abatement and health concerns
associated with the use of lead-based paints, including damages for personal injury, contribution and/or indemnification for medical expenses, medical monitoring expenses and costs for educational programs. To the extent the plaintiffs seek
compensatory or punitive damages in these actions, such damages are generally unspecified. In some cases, the damages are unspecified pursuant to the requirements of applicable state law. A number of cases are inactive or have been dismissed or
withdrawn. Most of the remaining cases are in various pre-trial stages. Some are on appeal following dismissal or summary judgment rulings in favor of either the defendants or the plaintiffs. In addition, various other cases (in which we are not a
defendant) are pending that seek recovery for injury allegedly caused by lead pigment and lead-based paint. Although we are not a defendant in these cases, the outcome of these cases may have an impact on cases that might be filed against us in the
future.
We believe that these actions are without merit, and we intend to continue to deny all allegations of wrongdoing and
liability and to defend against all actions vigorously. We do not believe it is probable that we have incurred any liability with respect to all of the lead pigment litigation cases to which we are a party, and liability to us that may result, if
any, in this regard cannot be reasonably estimated, because:
|
|
|
we have never settled any of the market share, risk contribution, intentional tort, fraud, nuisance, supplier negligence, breach of warranty,
conspiracy, misrepresentation, aiding and abetting, enterprise liability, or statutory cases,
|
|
|
|
no final, non-appealable adverse verdicts have ever been entered against us and
|
|
|
|
we have never ultimately been found liable with respect to any such litigation matters, including over 100 cases over a twenty-year period for which we
were previously a party and for which we have been dismissed without any finding of liability.
|
- 19 -
Accordingly, we have not accrued any amounts for any of the pending lead pigment and
lead-based paint litigation cases. In addition, we have determined that liability to us which may result, if any, cannot be reasonably estimated because there is no prior history of a loss of this nature on which an estimate could be made and there
is no substantive information available upon which an estimate could be based.
New cases may continue to be filed against us.
We cannot assure you that we will not incur liability in the future in respect of any of the pending or possible litigation in view of the inherent uncertainties involved in court and jury rulings. In the future, if new information regarding such
matters becomes available to us (such as a final, non-appealable adverse verdict against us or otherwise ultimately being found liable with respect to such matters), at that time we would consider such information in evaluating any remaining cases
then-pending against us as to whether it might then have become probable we have incurred liability with respect to these matters, and whether such liability, if any, could have become reasonably estimable. The resolution of any of these cases could
result in the recognition of a loss contingency accrual that could have a material adverse impact on our net income for the interim or annual period during which such liability is recognized and a material adverse impact on our consolidated
financial condition and liquidity.
Environmental matters and litigation
Our operations are governed by various environmental laws and regulations. Certain of our businesses are and have been engaged in the
handling, manufacture or use of substances or compounds that may be considered toxic or hazardous within the meaning of applicable environmental laws and regulations. As with other companies engaged in similar businesses, certain of our past and
current operations and products have the potential to cause environmental or other damage. We have implemented and continue to implement various policies and programs in an effort to minimize these risks. Our policy is to maintain compliance with
applicable environmental laws and regulations at all of our plants and to strive to improve environmental performance. From time to time, we may be subject to environmental regulatory enforcement under U.S. and non-U.S. statutes, the resolution of
which typically involves the establishment of compliance programs. It is possible that future developments, such as stricter requirements of environmental laws and enforcement policies, could adversely affect our production, handling, use, storage,
transportation, sale or disposal of such substances. We believe that all of our facilities are in substantial compliance with applicable environmental laws.
Certain properties and facilities used in our former operations, including divested primary and secondary lead smelters and former mining locations, are the subject of civil litigation, administrative
proceedings or investigations arising under federal and state environmental laws and common law. Additionally, in connection with past operating practices, we are currently involved as a defendant, potentially responsible party (PRP) or both,
pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (CERCLA), and similar state laws in various governmental and private actions associated with waste
disposal sites, mining locations, and facilities that we or our predecessors, our subsidiaries or their predecessors currently or previously owned, operated or used, certain of which are on the United States Environmental Protection Agencys
(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
- 20 -
resources. Certain of these proceedings involve claims for substantial amounts. Although we may be jointly and severally liable for these costs, in most cases we are only one of a number of PRPs
who may also be jointly and severally liable, and among whom costs may be shared or allocated. In addition, we are also a party to a number of personal injury lawsuits filed in various jurisdictions alleging claims related to environmental
conditions alleged to have resulted from our operations.
Obligations associated with environmental remediation and related
matters are difficult to assess and estimate for numerous reasons including the:
|
|
|
complexity and differing interpretations of governmental regulations,
|
|
|
|
number of PRPs and their ability or willingness to fund such allocation of costs,
|
|
|
|
financial capabilities of the PRPs and the allocation of costs among them,
|
|
|
|
solvency of other PRPs,
|
|
|
|
multiplicity of possible solutions,
|
|
|
|
number of years of investigatory, remedial and monitoring activity required,
|
|
|
|
uncertainty over the extent, if any, to which our former operations might have contributed to the conditions allegedly giving rise to such personal
injury, property damage, natural resource and related claims and
|
|
|
|
number of years between former operations and notice of claims and lack of information and documents about the former operations.
|
In addition, the imposition of more stringent standards or requirements under environmental laws or
regulations, new developments or changes regarding site cleanup costs or the allocation of costs among PRPs, solvency of other PRPs, the results of future testing and analysis undertaken with respect to certain sites or a determination that we are
potentially responsible for the release of hazardous substances at other sites, could cause our expenditures to exceed our current estimates. We cannot assure you that actual costs will not exceed accrued amounts or the upper end of the range for
sites for which estimates have been made, and we cannot assure you that costs will not be incurred for sites where no estimates presently can be made. Further, additional environmental and related matters may arise in the future. If we were to incur
any future liability, this could have a material adverse effect on our consolidated financial statements, results of operations and liquidity.
We record liabilities related to environmental remediation and related matters when estimated future expenditures are probable and reasonably estimable. We adjust such accruals as further information
becomes available to us or as circumstances change. Unless the amounts and timing of such estimated future expenditures are fixed and reasonably determinable, we generally do not discount estimated future expenditures to their present value due to
the uncertainty of the timing of the payout. We recognize recoveries of costs from other parties, if any, as assets when their receipt is deemed probable. At June 30, 2013 and December 31, 2012, we have not recognized any receivables for
recoveries.
We do not know and cannot estimate the exact time frame over which we will make payments for our accrued
environmental and related costs. The timing of payments depends upon a number of factors, including but not
- 21 -
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.
Changes in the accrued environmental remediation and related costs during the first six months of 2013 are as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Balance at the beginning of the period
|
|
$
|
48,006
|
|
Additions charged to expense, net
|
|
|
13,041
|
|
Payments, net
|
|
|
(1,256
|
)
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
59,791
|
|
|
|
|
|
|
Amounts recognized in the Condensed Consolidated Balance Sheet at the end of the period:
|
|
|
|
|
Current liability
|
|
$
|
4,754
|
|
Noncurrent liability
|
|
|
55,037
|
|
|
|
|
|
|
Total
|
|
$
|
59,791
|
|
|
|
|
|
|
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
June 30, 2013, we had accrued approximately $60 million related to approximately 50 sites associated with remediation and related matters that we believe are at the present time and/or in their current phase reasonably estimable. The upper end
of the range of reasonably possible costs to us for remediation and related matters for which we believe it is possible to estimate costs is approximately $156 million, including the amount currently accrued.
We believe that it is not reasonably possible to estimate the range of costs for certain sites. At June 30, 2013, there were
approximately 5 sites for which we are not currently able to reasonably estimate a range of costs. For these sites, generally the investigation is in the early stages, and we are unable to determine whether or not we actually had any association
with the site, the nature of our responsibility, if any, for the contamination at the site and the extent of contamination at and cost to remediate the site. The timing and availability of information on these sites is dependent on events outside of
our control, such as when the party alleging liability provides information to us. At certain of these previously inactive sites, we have received general and special notices of liability from the EPA and/or state agencies alleging that we,
sometimes with other PRPs, are liable for past and future costs of remediating environmental contamination allegedly caused by former operations. These notifications may assert that we, along with any other alleged PRPs, are liable for past and/or
future clean-up costs. As further information becomes available to us for any of these sites, which would allow us to estimate a range of costs, we would at that time adjust our accruals. Any such adjustment could result in the recognition of an
accrual that would have a material effect on our consolidated financial statements, results of operations and liquidity.
- 22 -
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 three 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.
For a complete discussion of certain litigation involving us and certain of our former insurance carriers, refer to our 2012 Annual
Report.
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 1,125 of these types of cases pending, involving a
total of approximately 1,643 plaintiffs. In addition, the claims of approximately 8,298 plaintiffs have been administratively dismissed or placed on the inactive docket in Ohio, Indiana and Texas state courts. We do not expect these claims will
be re-opened unless the plaintiffs meet the courts medical criteria for asbestos-related claims. We have not accrued any amounts for this litigation because of the uncertainty of liability and inability to reasonably estimate the liability, if
any. To date, we have not been adjudicated liable in any of these matters. Based on information available to us, including:
|
|
|
facts concerning historical operations,
|
|
|
|
the rate of new claims,
|
|
|
|
the number of claims from which we have been dismissed and
|
|
|
|
our prior experience in the defense of these matters.
|
We believe that the range of reasonably possible outcomes of these matters will be consistent with our historical costs (which are not material). Furthermore, we do not expect any reasonably possible
outcome would involve amounts material to our consolidated financial position, results of operations or liquidity. We have sought and will continue to vigorously seek, dismissal and/or a finding of no liability from each claim. In addition,
from time to time, we have received notices regarding asbestos or silica claims purporting to be brought against former subsidiaries, including notices provided to insurers with which we have entered into settlements extinguishing certain insurance
policies. These insurers may seek indemnification from us. For a discussion of other legal proceedings to which we are a party, refer to our 2012 Annual Report.
- 23 -
In addition to the litigation described above, we and our affiliate are also involved in
various other environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to present and former businesses. In certain cases, we have insurance coverage for these items,
although we do not expect additional material insurance coverage for environmental matters.
We currently believe the
disposition of all of these various other claims and disputes, individually and in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or liquidity beyond the accruals already
provided.
Note 15Financial instruments and fair value measurements:
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 at
December 31, 2012 and June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
June 30, 2013
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
85,035
|
|
|
$
|
85,035
|
|
|
$
|
77,762
|
|
|
$
|
77,762
|
|
CompX promissory note payable to TIMET Finance Management Company
|
|
|
18,480
|
|
|
|
18,480
|
|
|
|
17,980
|
|
|
|
17,980
|
|
Noncontrolling interest in CompX common stock
|
|
|
13,268
|
|
|
|
23,409
|
|
|
|
13,346
|
|
|
|
22,922
|
|
NL stockholders equity
|
|
|
374,815
|
|
|
|
557,259
|
|
|
|
355,066
|
|
|
|
549,958
|
|
The fair value of our noncontrolling interest in CompX and NL stockholders equity are based upon
quoted market prices at each balance sheet date, which represent Level 1 inputs as defined by ASC Topic 820-10-35. The fair value of CompXs promissory note payable represents a Level 2 input and is deemed to approximate book value. Due to
their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value.
- 24 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
RESULTS OF OPERATIONS
Business and results of operations 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 non-controlling interest in Kronos Worldwide, Inc. Both CompX (NYSE MKT: CIX) and Kronos (NYSE: KRO) file periodic reports with the Securities and Exchange Commission (SEC).
CompX is a leading manufacturer of engineered components utilized in a variety of applications and industries. Through its Security
Products division, CompX manufactures mechanical and electronic cabinet locks and other locking mechanisms used in recreational transportation, postal, office and institutional furniture, cabinetry, tool storage and healthcare applications. CompX
also manufactures stainless steel exhaust systems, gauges and throttle controls for the recreational marine and other industries through its Marine Components division. In December 2012, CompX completed the sale of its Furniture Components business.
See Note 2 to our Condensed Consolidated Financial Statements. Unless otherwise noted, the discussion of our results of operations in Managements Discussion and Analysis is focused on our continuing operations.
We account for our 30% non-controlling interest in Kronos by the equity method. Kronos is a leading global producer
and marketer of value-added titanium dioxide pigments (TiO
2
).
TiO
2
is used for a variety of manufacturing applications
including coatings, plastics, paper and other industrial and specialty products.
Forward-looking information
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in
this Quarterly Report on Form 10-Q that are not historical facts are forward-looking in nature and represents managements beliefs and assumptions based on currently available information. Statements found in this report including, but not
limited to, the statements found in Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements that represent our managements beliefs and assumptions
based on currently available information. In some cases you can identify these 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 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 our actual
future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the SEC, which 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
|
- 25 -
|
|
|
The cyclicality of our businesses (such as Kronos TiO
2
operations)
|
|
|
|
Customer and producer inventory levels
|
|
|
|
Unexpected or earlier-than-expected industry capacity expansion (such as the TiO
2
industry)
|
|
|
|
Changes in raw material and other operating costs (such as energy, ore, zinc and brass costs) and our ability to pass those costs on to our customers
or offset them with reductions in other operating costs
|
|
|
|
Changes in the availability of raw material (such as ore)
|
|
|
|
General global economic and political conditions (such as changes in the level of gross domestic product in various regions of the world and the impact
of such changes on demand for, among other things, TiO
2
and
component products)
|
|
|
|
Competitive pricing, products and substitute products
|
|
|
|
Customer and competitor strategies
|
|
|
|
Uncertainties associated with the development of new product features
|
|
|
|
Potential consolidation of Kronos competitors
|
|
|
|
Potential consolidation of Kronos customers
|
|
|
|
The impact of pricing and production decisions
|
|
|
|
Competitive technology positions
|
|
|
|
Potential difficulties in integrating future acquisitions
|
|
|
|
Potential difficulties in implementing new manufacturing and accounting software systems
|
|
|
|
The introduction of trade barriers
|
|
|
|
Possible disruption of Kronos or CompXs business, or increases in our cost of doing business resulting from terrorist activities or global
conflicts
|
|
|
|
The impact of current or future government regulations (including employee healthcare benefit related regulations)
|
|
|
|
Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian krone and the
Canadian dollar), or possible disruptions to our business resulting from potential instability resulting from uncertainties associated with the euro
|
|
|
|
Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime,
transportation interruptions and cyber attacks)
|
|
|
|
Decisions to sell operating assets other than in the ordinary course of business
|
|
|
|
CompXs and Kronos ability to renew or refinance debt
|
|
|
|
Our ability to maintain sufficient liquidity
|
|
|
|
The timing and amounts of insurance recoveries
|
|
|
|
The extent to which our subsidiaries or affiliates were to become unable to pay us dividends
|
|
|
|
The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters
|
|
|
|
Uncertainties associated with the development of new product features
|
|
|
|
Our ability to utilize income tax attributes or changes in income tax rates related to such attributes, the benefits of which have been recognized
under the more-likely-than-not recognition criteria
|
|
|
|
Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities or new developments
regarding environmental remediation at sites related to our former operations)
|
- 26 -
|
|
|
Government laws and regulations and possible changes therein (such as changes in government regulations which might impose various obligations on
former manufacturers of lead pigment and lead-based paint, including us, with respect to asserted health concerns associated with the use of such products)
|
|
|
|
The ultimate resolution of pending litigation (such as our lead pigment and environmental matters)
|
|
|
|
Possible future litigation.
|
Should one or more of these risks materialize or if the consequences of such a development worsen, or should the underlying assumptions prove incorrect, actual results could differ materially from those
currently 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.
Results of Operations
Net income
(loss) overview
Quarter ended June 30, 2013 compared to quarter ended June 30, 2012
Our net loss from continuing operations attributable to NL stockholders was $14.3 million, or $.29 per share, in the second quarter of
2013 compared to net income from continuing operations attributable to NL stockholders of $25.2 million, or $.51 per share, in the second quarter of 2012.
As more fully described below, the decrease in our earnings per share from 2012 to 2013 is primarily due to the net effect of:
|
|
|
Equity in losses from Kronos in 2013 compared to equity in earnings from Kronos in 2012,
|
|
|
|
litigation settlement gain of $15.0 million recognized in the second quarter of 2012 related to the settlement of condemnation proceedings on real
property we formerly owned, and
|
|
|
|
higher environmental remediation and related costs of $10.6 million in the second quarter of 2013.
|
Our 2013 net loss from continuing operations attributable to NL stockholders includes income of $.01 per share, net of income taxes,
related to insurance recoveries we recognized.
Our 2012 net income from continuing operations attributable to NL stockholders
includes:
|
|
|
income of $.20 per share, net of income taxes, related to the litigation settlement gain, and
|
|
|
|
a charge of $.02 per share included in our equity in Kronos related to Kronos charge for the early extinguishment of its remaining 6.5% Senior
Notes due 2013 consisting of a call premium, interest from the indenture discharge date to the redemption date and the write-off of unamortized deferred financing costs and original issue discount associated with the redeemed Senior Notes.
|
- 27 -
Six months ended June 30, 2013 compared to six months ended June 30, 2012
Our net loss from continuing operations attributable to NL stockholders was $16.4 million or $.34 per share in the
first six months of 2013 compared to net income from continuing operations attributable to NL stockholders of $45.7 million, or $.94 per share, in the first six months of 2012.
As more fully described below, the decrease in our earnings per share from 2012 to 2013 is primarily due to the net effect of:
|
|
|
Equity in losses from Kronos in 2013 compared to equity in earnings from Kronos in 2012, and
|
|
|
|
litigation settlement gain of $15.0 million recognized in 2012 related to the settlement of condemnation proceedings on real property we formerly
owned.
|
Our 2013 net loss from continuing operations attributable to NL stockholders includes the following:
|
|
|
income of $.02 per share, net of income taxes, related to insurance recoveries we recognized, and
|
|
|
|
a charge of $.02 per share included in our equity in Kronos consisting of the write-off of unamortized original issue discount costs and deferred
financing costs related to the voluntary prepayment of $290 million of its term loan.
|
Our 2012 net income
from continuing operations attributable to NL stockholders includes the following:
|
|
|
income of $.20 per share, net of income taxes, related to the litigation settlement gain,
|
|
|
|
income of $.02 per share, net of income taxes, related to insurance recoveries we recognized, and
|
|
|
|
a charge of $.02 per share included in our equity in Kronos related to Kronos charge for the early extinguishment of its remaining 6.5% Senior
Notes due 2013 consisting of a call premium, interest from the indenture discharge date to the redemption date and the write-off of unamortized deferred financing costs and original issue discount associated with the redeemed Senior Notes.
|
Income (loss) from operations attributable to continuing operations
The following table shows the components of our income (loss) from operations attributable to continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
%
|
|
|
Six months ended
June 30,
|
|
|
%
|
|
|
|
2012
|
|
|
2013
|
|
|
Change
|
|
|
2012
|
|
|
2013
|
|
|
Change
|
|
|
|
(In millions)
|
|
CompX
|
|
$
|
2.1
|
|
|
$
|
2.9
|
|
|
|
36
|
%
|
|
$
|
3.7
|
|
|
$
|
4.4
|
|
|
|
19
|
%
|
Insurance recoveries
|
|
|
.3
|
|
|
|
.9
|
|
|
|
200
|
%
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
7
|
%
|
Litigation settlement gain
|
|
|
15.0
|
|
|
|
|
|
|
|
(100
|
)%
|
|
|
15.0
|
|
|
|
|
|
|
|
(100
|
)%
|
Other income
|
|
|
.2
|
|
|
|
|
|
|
|
(100
|
)%
|
|
|
.4
|
|
|
|
|
|
|
|
(100
|
)%
|
Corporate expense and other, net
|
|
|
(5.1
|
)
|
|
|
(16.2
|
)
|
|
|
(219
|
)%
|
|
|
(21.5
|
)
|
|
|
(21.2
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
12.5
|
|
|
$
|
(12.4
|
)
|
|
|
|
|
|
$
|
(1.0
|
)
|
|
$
|
(15.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 28 -
Amounts attributable to CompX relate to its components products business, while the other
amounts generally relate to NL. Each of these items is further discussed below.
The following table shows the components of
our income (loss) before income taxes attributable to continuing operations exclusive of our loss from operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
|
|
|
Six months ended
June
30,
|
|
|
|
|
|
|
2012
|
|
|
2013
|
|
|
% Change
|
|
|
2012
|
|
|
2013
|
|
|
% Change
|
|
|
|
(In millions)
|
|
Equity in earnings (losses) of Kronos
|
|
$
|
19.6
|
|
|
$
|
(10.3
|
)
|
|
|
(153
|
)%
|
|
$
|
61.2
|
|
|
$
|
(22.8
|
)
|
|
|
(137
|
)%
|
Interest and dividend income
|
|
|
.8
|
|
|
|
.8
|
|
|
|
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
Interest expense
|
|
|
(.2
|
)
|
|
|
(.1
|
)
|
|
|
(74
|
)%
|
|
|
(.5
|
)
|
|
|
(.1
|
)
|
|
|
(77
|
)%
|
CompX International Inc
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
|
|
|
Six months ended
June 30,
|
|
|
|
|
|
|
2012
|
|
|
2013
|
|
|
% Change
|
|
|
2012
|
|
|
2013
|
|
|
% Change
|
|
|
|
(In millions)
|
|
Net sales
|
|
$
|
22.1
|
|
|
$
|
24.0
|
|
|
|
9
|
%
|
|
$
|
42.6
|
|
|
$
|
45.5
|
|
|
|
7
|
%
|
Cost of sales
|
|
|
15.6
|
|
|
|
16.4
|
|
|
|
5
|
%
|
|
|
30.1
|
|
|
|
31.9
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
6.5
|
|
|
|
7.6
|
|
|
|
|
|
|
|
12.5
|
|
|
|
13.6
|
|
|
|
|
|
Operating costs and expenses
|
|
|
(4.3
|
)
|
|
|
(4.7
|
)
|
|
|
9
|
%
|
|
|
(8.8
|
)
|
|
|
(9.2
|
)
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.2
|
|
|
$
|
2.9
|
|
|
|
|
|
|
$
|
3.7
|
|
|
$
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
70
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
71
|
%
|
|
|
70
|
%
|
|
|
|
|
Gross margin
|
|
|
29
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
29
|
%
|
|
|
30
|
%
|
|
|
|
|
Income from continuing operations
|
|
|
10
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
9
|
%
|
|
|
10
|
%
|
|
|
|
|
Net sales
Net sales increased 9% in the second quarter of 2013 and 7% in the first six
months of 2013 as compared to the respective periods in 2012. Net sales increased principally due to higher demand for postal products within Security Products, and to a lesser extent, from an increase in Marine Component sales outside of the high
performance boat market through gains in market share. Relative changes in selling prices did not have a material impact on net sales comparisons.
Cost of sales and gross margin
Cost of sales as a percentage of sales decreased by approximately 2% in the second quarter of 2013 compared to the second quarter of 2012. As a
result, gross margin increased over the same period. The increase in gross margin is primarily due to the improved cost efficiencies from higher sales and the impact of lower self-insured medical insurance costs in the second quarter of 2013
compared to 2012. Cost of sales as a percentage of sales decreased by approximately 1% for the first six months of 2013, primarily due to the improved efficiencies from higher sales. As a result, gross margin also increased over the same period.
- 29 -
Operating costs and expenses
Operating costs and expenses consist
primarily of sales and administrative related personnel costs, sales commissions and advertising expenses, as well as gains and losses on plant, property and equipment. As a percentage of net sales, operating costs and expenses for the second
quarter and first six months of 2013 are comparable to the same periods in 2012.
Income from operations
As
a percentage of net sales, income from operations increased by approximately 2% for the second quarter of 2013, and increased by approximately 1% for the first six months of 2013. These increases were primarily impacted by the factors affecting cost
of sales and gross margin noted above.
Results by reporting unit
The key performance indicator for CompXs reporting units is the level of their income from operations (see discussion below).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June
30,
|
|
|
%
|
|
|
Six months ended
June
30,
|
|
|
%
|
|
|
|
2012
|
|
|
2013
|
|
|
Change
|
|
|
2012
|
|
|
2013
|
|
|
Change
|
|
|
|
(In thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Products
|
|
$
|
19,248
|
|
|
$
|
20,826
|
|
|
|
8
|
%
|
|
$
|
37,442
|
|
|
$
|
39,800
|
|
|
|
6
|
%
|
Marine Components
|
|
|
2,899
|
|
|
|
3,213
|
|
|
|
11
|
%
|
|
|
5,133
|
|
|
|
5,692
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
22,147
|
|
|
$
|
24,039
|
|
|
|
9
|
%
|
|
$
|
42,575
|
|
|
$
|
45,492
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Products
|
|
$
|
5,912
|
|
|
$
|
6,800
|
|
|
|
15
|
%
|
|
$
|
11,601
|
|
|
$
|
12,439
|
|
|
|
7
|
%
|
Marine Components
|
|
|
597
|
|
|
|
810
|
|
|
|
36
|
%
|
|
|
920
|
|
|
|
1,191
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
$
|
6,509
|
|
|
$
|
7,610
|
|
|
|
17
|
%
|
|
$
|
12,521
|
|
|
$
|
13,630
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Products
|
|
$
|
3,669
|
|
|
$
|
4,475
|
|
|
|
22
|
%
|
|
$
|
7,141
|
|
|
$
|
7,667
|
|
|
|
7
|
%
|
Marine Components
|
|
|
102
|
|
|
|
312
|
|
|
|
206
|
%
|
|
|
(148
|
)
|
|
|
202
|
|
|
|
236
|
%
|
Corporate operating expense
|
|
|
(1,613
|
)
|
|
|
(1,844
|
)
|
|
|
(14
|
%)
|
|
|
(3,252
|
)
|
|
|
(3,492
|
)
|
|
|
(7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
2,158
|
|
|
$
|
2,943
|
|
|
|
36
|
%
|
|
$
|
3,741
|
|
|
$
|
4,377
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Products
|
|
|
31
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
31
|
%
|
|
|
31
|
%
|
|
|
|
|
Marine Components
|
|
|
21
|
%
|
|
|
25
|
%
|
|
|
|
|
|
|
18
|
%
|
|
|
21
|
%
|
|
|
|
|
Total gross margin
|
|
|
29
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
29
|
%
|
|
|
30
|
%
|
|
|
|
|
Income from operations margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Products
|
|
|
19
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
19
|
%
|
|
|
19
|
%
|
|
|
|
|
Marine Components
|
|
|
4
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
(3
|
%)
|
|
|
4
|
%
|
|
|
|
|
Total income from operations margin
|
|
|
10
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
9
|
%
|
|
|
10
|
%
|
|
|
|
|
- 30 -
Security Products
Security Products net sales increased 8% in the second
quarter and 6% in the first six months of 2013 compared to the same periods last year. The increase in sales is primarily due to an increase in sales to postal market customers of $1.8 million and $3.1 million in the second quarter and six month
period, respectively, due to an increase in the installation of postal boxes as the U.S. Postal Service transitions to more centralized delivery as part of their cost reduction initiatives.
Gross margin and income from operations as a percentage of sales increased approximately 2% in the second quarter of 2013 compared to the
same period in 2012 primarily due to improved cost efficiencies from higher sales and the impact of lower self-insured medical expenses of $.2 million in 2013 which impacted cost of sales and selling and administration expenses. Gross margin and
income from operations as a percentage of sales were comparable for the first six months of 2013 and 2012.
Marine
Components
Marine Components net sales increased 11% for the second quarter and six month periods in 2013 compared to the same periods in the prior year. The increase in sales is primarily due to gains in market share for products sold
to the ski/wakeboard towboat market and other non-high performance marine markets. Gross margin for the second quarter of 2013 increased 4% compared to the second quarter of 2012 and improved 3% for the six month period as compared to the prior
year. Income from operations margin increased for the second quarter and six month periods of 2013 by 6% and 7%, respectively, compared to the same periods in 2012 primarily due to increased leverage of fixed costs as a result of the higher sales.
Outlook
Consistent with the current state of the North American economy, overall demand from our customers
continues to be subject to instability. While we experienced a total increase in sales in the first half of 2013, this was the net result of sales growth in certain markets and flat or slightly down sales in other markets. As a result, we are
uncertain as to the extent that total sales will continue to grow for the remainder of 2013. While changes in market demand are not within our control, we are focused on the areas we can impact. Staffing levels are continuously evaluated in relation
to sales order rates which may result in headcount adjustments, to the extent possible, to match staffing levels with demand. We expect our continuous lean manufacturing and cost improvement initiatives to positively impact our productivity and
result in a more efficient infrastructure. Additionally, we continue to seek opportunities to gain market share in markets we currently serve, to expand into new markets and to develop new product features in order to broaden our sales base and
mitigate the impact of changes in demand.
Volatility in the costs of commodity raw materials is ongoing. Our primary
commodity raw materials are zinc, brass and stainless steel, which together represent approximately 10% of our total cost of sales. We generally seek to mitigate the impact of fluctuations in commodity raw material costs on our margins through
improvements in production efficiencies or other operating cost reductions. In the event we are unable to offset commodity raw material cost increases with other cost reductions, it may be difficult to recover those cost increases through increased
product selling prices or surcharges due to the competitive nature of the markets served by our products. Consequently, overall operating margins may be negatively affected by commodity raw material cost pressures.
- 31 -
General corporate and other items
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.
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. See Note 14 to our Condensed Consolidated Financial Statements.
Litigation settlement
gain
In May 2012, we reported a $15 million pre-tax gain related to the third and final closing associated with certain real property we formerly owned in New Jersey. See our 2012 Annual Report for a discussion of such gain.
Corporate expense
Corporate expenses were $16.3 million in the second quarter of 2013, $11.2 million
higher than in the second quarter of 2012 primarily due to higher environmental remediation and related costs in 2013. Included in corporate expense in the second quarters of 2012 and 2013 are:
|
|
|
litigation and related costs of $2.2 million in 2013 compared to $2.1 million in 2012, and
|
|
|
|
environmental remediation and related costs of $11.8 million in 2013 compared to $1.2 million in 2012.
|
Corporate expenses were $21.2 million in the first six months of 2013, which approximated corporate expenses of $21.5 million in the
first six months of 2012. Included in corporate expense in the first six months of 2012 and 2013 are:
|
|
|
litigation and related costs of $4.3 million in 2013 compared to $4.0 million in 2012, and
|
|
|
|
environmental remediation and related costs of $13.0 million in 2013 compared to $14.0 million in 2012.
|
The level of our litigation and related expenses varies from period to period depending upon, among other things, the number of cases in
which we are currently involved, the nature of such cases and the current stage of such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable). See Note 14 to the Condensed Consolidated Financial Statements. If our current
expectations regarding the number of cases in which we expect to be involved during 2013 or the nature of such cases were to change, our corporate expenses could be higher than we currently estimate.
Obligations for environmental remediation costs are difficult to assess and estimate and it is possible that actual costs for
environmental remediation will exceed accrued amounts or that costs will be incurred in the future for sites in which we cannot currently estimate our liability. If these events were to occur in 2013, 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 14 to the Condensed Consolidated Financial Statements.
- 32 -
Overall, we currently expect that our net general corporate expenses in 2013 will be
comparable to 2012. If our current expectations regarding the number of cases or sites in which we expect to be involved during 2013, or if the nature of such cases or sites were to change, our corporate expenses could be higher than we currently
estimate and involve amounts that are material.
Income tax expense (benefit)
We recognized an income tax
benefit of $8.0 million in the second quarter of 2013 compared to income tax expense of $7.3 million in the second quarter of 2012, and an income tax benefit of $20.7 million in the first six months of 2013 as compared to income tax expense of $15.3
million in the first six months of 2012 primarily due to lower earnings in 2013. See Note 13 to the Condensed Consolidated Financial Statements for more information about our 2013 income tax items and a tabular reconciliation of our statutory tax
expense (benefit) to our actual expense (benefit).
Noncontrolling interest
Noncontrolling interest in net
income of CompX attributable to continuing operations is consistent in each of the three and six month periods ended June 30, 2013 and 2012. The noncontrolling interest we recognize in each period is directly related to the level of earnings at
CompX for the period.
Discontinued operations
On December 28, 2012, we completed the sale of
CompXs Furniture Components operations. See Note 2 to our Condensed Consolidated Financial Statements.
- 33 -
Equity in earnings (loss) of Kronos Worldwide, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2012
|
|
|
2013
|
|
|
% Change
|
|
|
2012
|
|
|
2013
|
|
|
% Change
|
|
|
|
(In millions)
|
|
Kronos:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
545.3
|
|
|
$
|
481.1
|
|
|
|
(12
|
)%
|
|
$
|
1,106.6
|
|
|
$
|
944.7
|
|
|
|
(15
|
)%
|
Cost of sales
|
|
|
382.0
|
|
|
|
471.5
|
|
|
|
23
|
%
|
|
|
681.8
|
|
|
|
931.2
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
163.3
|
|
|
$
|
9.6
|
|
|
|
|
|
|
$
|
424.8
|
|
|
$
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
110.6
|
|
|
$
|
(47.7
|
)
|
|
|
(143
|
)%
|
|
$
|
320.0
|
|
|
$
|
(94.6
|
)
|
|
|
(130
|
)%
|
Interest and dividend income
|
|
|
2.0
|
|
|
|
.3
|
|
|
|
(85
|
)%
|
|
|
4.3
|
|
|
|
.6
|
|
|
|
(86
|
)%
|
Loss on prepayment of debt
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
(100
|
)%
|
|
|
(7.2
|
)
|
|
|
(6.6
|
)
|
|
|
(8
|
)%
|
Interest expense
|
|
|
(6.7
|
)
|
|
|
(5.7
|
)
|
|
|
(15
|
)%
|
|
|
(13.0
|
)
|
|
|
(12.1
|
)
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98.7
|
|
|
|
(53.1
|
)
|
|
|
|
|
|
|
304.1
|
|
|
|
(112.7
|
)
|
|
|
|
|
Income tax expense (benefit)
|
|
|
34.2
|
|
|
|
(19.2
|
)
|
|
|
(156
|
)%
|
|
|
102.7
|
|
|
|
(37.7
|
)
|
|
|
(137
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
64.5
|
|
|
$
|
(33.9
|
)
|
|
|
|
|
|
$
|
201.4
|
|
|
$
|
(75.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
70
|
%
|
|
|
98
|
%
|
|
|
|
|
|
|
62
|
%
|
|
|
99
|
%
|
|
|
|
|
Income (loss) from operations
|
|
|
20
|
%
|
|
|
(10
|
)%
|
|
|
|
|
|
|
29
|
%
|
|
|
(10
|
)%
|
|
|
|
|
Equity in earnings (loss) of Kronos Worldwide, Inc.
|
|
$
|
19.6
|
|
|
$
|
(10.3
|
)
|
|
|
|
|
|
$
|
61.2
|
|
|
$
|
(22.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TiO
2
operating statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volumes*
|
|
|
123
|
|
|
|
144
|
|
|
|
17
|
%
|
|
|
253
|
|
|
|
276
|
|
|
|
9
|
%
|
Production volumes*
|
|
|
118
|
|
|
|
124
|
|
|
|
5
|
%
|
|
|
258
|
|
|
|
246
|
|
|
|
(5
|
)%
|
Percentage change in Ti0
2
net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ti0
2
product pricing
|
|
|
|
|
|
|
|
|
|
|
(24
|
)%
|
|
|
|
|
|
|
|
|
|
|
(22
|
)%
|
Ti0
2
sales volumes
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Ti0
2
product mix
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Thousands of metric tons
|
The key performance indicators for Kronos are TiO
2
average selling prices and TiO
2
sales and production volumes.
Current industry
conditions
In May 2013, Kronos announced price increases for its TiO
2
products in all of its markets, implementation of which began in June 2013. As a result, after about a year of decreasing selling prices within the TiO
2
industry, Kronos selling prices have generally stabilized, with
increases in some accounts. Kronos average selling prices at the end of the second quarter of 2013 were 1% lower than at the end of the first quarter of 2013, and were 8% lower than at the end of 2012. Demand for TiO
2
products has increased in the second quarter, primarily in European and
export markets, as customers have generally depleted their inventories during the second half of 2012 and the first quarter of 2013 in response to general global economic uncertainty.
- 34 -
While Kronos operated its production facilities at full practical capacity rates in the
first quarter of 2012, it operated its facilities at reduced rates during the remainder of 2012 (approximately 86% of practical capacity in the second quarter, approximately 71% in the third quarter and approximately 80% in the fourth quarter) to
align production levels and inventories to current and anticipated near-term customer demand levels. Kronos continued to operate its production facilities at reduced capacity rates in the first half of 2013 (approximately 92% of practical capacity
in the first quarter and approximately 90% in the second quarter).
Kronos experienced significantly
higher costs for its raw materials such as third party feedstock ore and petroleum coke in 2012. Kronos operates two ilmenite mines in Norway, the production from which provides all of the feedstock for its European sulfate process facilities as
well as third party ilmenite ore sales. Overall, the cost per metric ton of TiO
2
Kronos produced during 2012 was approximately 50% higher as compared to 2011, primarily due to the higher feedstock ore costs procured from third parties and unabsorbed fixed production costs resulting
from reduced production volumes. However, as a substantial portion of the TiO
2
products Kronos sold in the first half of 2012 was produced with lower-cost feedstock ore purchased in 2011, its cost of sales per metric ton in the first quarter of 2012 (and to a lesser-extent the
second quarter of 2012) was significantly lower as compared to the cost per metric ton for products Kronos sold in the third and fourth quarters of 2012. Kronos has seen some moderation in the cost of TiO
2
feedstock ore procured from third parties in 2013, but such reductions
will not be fully reflected in its cost of sales until the second half of 2013. Consequently, Kronos cost of sales per metric ton of TiO
2
sold in the first half of 2013 (particularly in the first quarter) was significantly higher than what it expects its cost
of sales per metric ton of TiO
2
to be in the remainder of
2013, as a substantial portion of the TiO
2
products it sold
in the first quarter (and to a lesser-extent the second quarter) of 2013 was produced with the higher-cost feedstock ore procured in 2012.
Net sales
Kronos net sales in the second quarter of 2013 decreased 12%, or $64.2 million, compared to the second quarter of 2012 primarily due to the net effects of a 24%
decrease in average TiO
2
selling prices (which decreased net
sales by approximately $131 million) and a 17% increase in sales volumes (which increased net sales by approximately $93 million).
Kronos net sales in the six months ended June 30, 2013 decreased 15%, or $161.9 million, compared to the six months ended June 30, 2012 primarily due to the net effects of a 22% decrease
in average TiO
2
selling prices (which decreased net sales by
approximately $243 million) and a 9% increase in sales volumes (which increased net sales by approximately $100 million).
TiO
2
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 17% in the second quarter of 2013 as compared to the second quarter of 2012 and increased 9% in the
first six months of 2013 as compared to the first six months of 2012 due to higher customer demand, primarily in European and certain export markets. Kronos sales volumes in the first six months of 2013 were a new record for a first-half year.
Kronos estimates the unfavorable effect of changes in currency exchange rates decreased its net sales by approximately $3 million as compared to the second quarter of 2012 and by approximately $2 million as compared to the first six months of 2012.
- 35 -
Cost of sales
Kronos cost of sales
increased $89.5 million or 23% in the second quarter of 2013 compared to 2012 due to the net impact of higher raw material costs of approximately $26 million (primarily feedstock ore), a 17% increase in sales volumes, a 5% increase in TiO
2
production volumes and currency fluctuations (primarily the euro).
Kronos cost of sales per metric ton of TiO
2
sold in the
second quarter of 2013 was somewhat higher than TiO
2
sold in
the second quarter of 2012, as a portion of the TiO
2
products
it sold in the second quarter of 2012 was produced with lower-cost feedstock ore purchased in 2011, while a portion of the
TiO
2
products it sold in the second quarter of 2013 was
produced with higher-cost feedstock ore purchased in 2012.
Kronos cost of sales increased $249.4
million or 37% in the six months ended June 30, 2013 compared to this same period in 2012 due to the net impact of higher raw material costs of approximately $136 million (primarily feedstock ore), a 9% increase in sales volumes, a 5% decrease
in TiO
2
production volumes and currency fluctuations
(primarily the euro). Kronos cost of sales per metric ton of TiO
2
sold in the first half of 2013 was significantly higher than TiO
2
sold in the first half of 2012, as a substantial portion of the
TiO
2
products it sold in the first quarter of 2012 (and a
portion of the TiO
2
products it sold in the second quarter of
2012) was produced with lower-cost feedstock ore purchased in 2011, while a substantial portion of the TiO
2
products it sold in the first quarter of 2013 (and a portion of the
TiO
2
products it sold in the second quarter of 2013) was
produced with higher-cost feedstock ore purchased in 2012.
Overall, and as discussed above, the cost per
metric ton of TiO
2
Kronos produced during 2012 was
approximately 50% higher as compared to 2011, primarily due to the higher feedstock ore costs and unabsorbed fixed production costs resulting from reduced production volumes.
Cost of sales as a percentage of net sales increased to 98% in the second quarter of 2013 compared to 70% in the
same period of 2012 primarily due to the effects of lower average selling prices and higher raw materials costs, as discussed and quantified above. Cost of sales as a percentage of net sales increased to 99% in the first six months of 2013 compared
to 62% in the same period of 2012 primarily due to the effects of higher raw materials costs as discussed above and a 5% decrease in TiO
2
production volumes.
Unionized employees in Kronos Canadian TiO
2
production facility are covered by a collective bargaining agreement that expired June 15, 2013. The Canadian facility represents approximately 19% of Kronos worldwide TiO
2
production capacity. The union employees represented by the
Confederation des Syndicat National (CSN) rejected Kronos revised global offer, and Kronos declared a lockout of unionized employees upon the expiration of the existing contract. As of the date of this report, no agreement has been reached
with the CSN and the unionized employees remain locked out. Kronos is currently operating its Canadian plant at approximately 15% of the plants capacity with non-union management employees, and has implemented a strategy to reduce the
financial impact of operating the plant during the lockout. Kronos currently expects minimal interruptions in meeting customer demand, as orders are being filled with inventory on hand or through production from its other facilities. There is no
assurance that Kronos will able to reach an agreement with the CSN on the terms of a new collective bargaining agreement, or reach an agreement on terms that will not have a material adverse effect on its results of operations.
- 36 -
Gross margin and income (loss) from operations
Kronos income
(loss) from operations decreased by $158.3 million from income of $110.6 million in the second quarter of 2012 to a loss of $47.7 million in the second quarter of 2013. Income (loss) from operations as a percentage of net sales decreased to (10)% in
the second quarter of 2013 from 20% in the same period of 2012. This decrease was driven by the decline in gross margin, which decreased to 2% for the second quarter of 2013 compared to 30% for the second quarter of 2012. Kronos gross margin
in the second quarter has decreased primarily due to the net effects of lower selling prices, higher manufacturing costs (primarily raw materials), higher sales volumes and higher production volumes.
Kronos income (loss) from operations decreased by $414.6 million from income of $320.0 million in the first six months of 2012 to a
loss of $94.6 million in the first six months of 2013. Income (loss) from operations as a percentage of net sales decreased to (10)% in the first six months of 2013 from 29% in the same period of 2012. This decrease was driven by the decline in
gross margin, which decreased to 1% for the first six months of 2013 compared to 38% for the same period in 2012. Kronos gross margin in the first six months of 2013 has decreased primarily due to the net effects of lower selling prices,
higher manufacturing costs (primarily raw materials), higher sales volumes and lower production volumes.
Additionally,
changes in currency exchange rates have negatively affected its gross margin and income from operations. Kronos estimates that changes in currency exchange rates decreased income from operations by approximately $2 million in the second quarter of
2013 as compared to the same period in 2012 and decreased income from operations by approximately $8 million in the first six months of 2013 as compared to the same period in 2012.
Other non-operating income (expense)
In June 2012, Kronos entered into a new $400 million term loan. Kronos used a
portion of the net proceeds of the term loan to redeem the remaining outstanding 6.5% Senior Secured Notes due April 2013 (279.2 million principal amount outstanding). As a result, Kronos recognized an aggregate $7.2 million pre-tax charge in
the second quarter of 2012 related to the early extinguishment of debt, consisting of the call premium paid, interest from the June 14, 2012 indenture discharge date to the July 20, 2012 redemption date and the write-off of unamortized
deferred financing costs and original issue discount associated with the redeemed Senior Secured Notes. In the first quarter of 2013, Kronos recognized an aggregate $6.6 million pre-tax charge, consisting of the write-off of unamortized original
issue discount costs and deferred financing costs, related to the voluntary prepayment of $290 million of its term loan.
Kronos interest expense decreased $1.0 million from $6.7 million in the second quarter of 2012 to $5.7 million in the second
quarter of 2013 and decreased $.9 million from $13.0 million in the six months ended June 30, 2012 to $12.1 million in the six months ended June 30, 2013 primarily due to lower average debt levels in 2013.
Kronos interest and dividend income decreased $1.7 million to $.3 million in the second quarter of 2013 and decreased $3.7 million
to $.6 million in the six months ended June 30, 2013 primarily due to lower balances available for investment, principally related to its loan to Valhi which was completely repaid in December 2012. Interest income on Kronos loan to Valhi
was $1.7 million in the second quarter of 2012 and $3.4 million in the six months ended June 30, 2012.
- 37 -
Income tax expense (benefit)
Kronos recognized an income tax benefit of
$19.2 million in the second quarter of 2013 compared to an income tax provision of $34.2 million in the same period last year and an income tax benefit of $37.7 million in the first six months of 2013 compared to an income tax provision of $102.7
million in the same period last year. This difference is primarily due to Kronos decreased earnings.
Kronos has
substantial net operating loss carryforwards in Germany (the equivalent of $744 million and $100 million for German corporate and trade tax purposes, respectively, at December 31, 2012). At June 30, 2013, Kronos has concluded that no
deferred income tax asset valuation allowance is required to be recognized with respect to such carryforwards, principally because (i) such carryforwards have an indefinite carryforward period, (ii) Kronos has utilized a portion of such
carryforwards during the most recent three-year period and (iii) Kronos currently expects to utilize the remainder of such carryforwards over the long term. However, prior to the complete utilization of such carryforwards, particularly if
Kronos were to generate losses in its German operations for an extended period of time, 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 it
would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards.
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. Certain raw materials
used worldwide, primarily titanium-containing feedstocks, are purchased in U.S. dollars, while labor and other production costs are purchased primarily in local currencies. Consequently, the translated U.S. dollar value of Kronos non-U.S.
sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of period-to-period operating results. In addition to the impact of the
translation of sales and expenses over time, Kronos non-U.S. operations also generate currency transaction gains and losses which primarily relate to the difference between the currency exchange rates in effect when non-local currency sales or
operating costs are initially accrued and when such amounts are settled with the non-local currency.
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
three months ended June 30, 2013 vs June 30, 2012
|
|
|
|
Transaction gains
recognized
|
|
|
Translation
gain/loss -
impact of
|
|
|
Total
currency
impact
2013 vs
|
|
|
|
2012
|
|
|
2013
|
|
|
Change
|
|
|
rate changes
|
|
|
2012
|
|
|
|
(In millions)
|
|
Impact on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
Income from operations
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
2
|
|
|
|
(2
|
)
|
- 38 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of changes in currency exchange
rates
six months ended June 30, 2013 vs June 30, 2012
|
|
|
|
Transaction gains
recognized
|
|
|
Translation
gain/loss -
impact of
|
|
|
Total
currency
impact
2013 vs
|
|
|
|
2012
|
|
|
2013
|
|
|
Change
|
|
|
rate changes
|
|
|
2012
|
|
|
|
(In millions)
|
|
Impact on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
Income from operations
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(8
|
)
|
Outlook
During the first half of 2013 Kronos operated its production facilities at 91% of practical capacity, which was a higher utilization rate as compared to its utilization rates during the last three
quarters of 2012. If economic conditions improve in the various regions of the world in the remainder of 2013, Kronos expects demand for its TiO
2
products would continue to increase and it would expect its sales volumes to be higher in 2013 as compared to 2012. During
2013, Kronos will continue to monitor current and anticipated near-term customer demand levels and align its production and inventories accordingly.
Kronos saw some moderation in the cost of TiO
2
feedstock ore procured in 2013, but such reductions will not be fully reflected in its cost of sales until the second half of 2013. Consequently, Kronos cost of sales per metric ton of TiO
2
sold in the first half of 2013 was significantly higher than what it
expects its cost of sales per metric ton of TiO
2
to be in the
remainder of 2013, as a substantial portion of the TiO
2
products Kronos sold in the first quarter of 2013 (and a portion of the TiO
2
products it sold in the second quarter of 2013) was produced with the higher-cost feedstock ore procured in 2012. Although the cost of feedstock ore has and continues to moderate, such reductions have
been inadequate to compensate for the decline in selling prices for Kronos products over the past year. Kronos started 2013 with selling prices 16% lower than as compared to the beginning of 2012, and prices declined by an additional 7% in the
first quarter of 2013 and 1% in the second quarter. In May 2013, Kronos announced price increases for its TiO
2
products in all of its markets, implementation of which began in June 2013. As a result, Kronos selling prices have generally stabilized, with increases in some accounts. Kronos expects to
implement additional increases in selling prices during the second half of 2013. Industry data indicates that overall
TiO
2
inventory held by producers has been significantly
decreased, Kronos believes most customers hold very low inventories of TiO
2
with many operating on a just-in-time basis. As a result, shortages of certain
TiO
2
grades have begun to occur, and lead times for delivery
are increasing. With the record sales volumes levels experienced in the first half of the year, Kronos continues to see evidence of improvement in demand for its TiO
2
products, which it believes will support implementation of additional selling price increases in the near term. The extent
to which Kronos will be able to achieve these and other possible additional price increases during 2013 will depend on market conditions.
- 39 -
Overall, Kronos expects that income (loss) from operations in 2013 will
be significantly lower as compared to 2012, but it also expects income (loss) from operations in the second half of 2013 will improve from the first half of 2013. Kronos income from operations in the first half of 2012 was positively affected
by the sale of TiO
2
produced with lower-cost feedstock ore
purchased in 2011, while its loss from operations in the first half of 2013 was negatively impacted by the sale of
TiO
2
produced with higher-cost feedstock ore purchased in
2012. The negative effect of such higher-cost feedstock ore on Kronos full year 2013 operating results is expected to more than offset any favorable effect of higher sales and production volumes that would result assuming demand levels
continue to improve, as well as the favorable impact of increases in its selling prices that Kronos may be able to achieve during the remainder of 2013.
Due to the constraints, high capital costs and extended lead time associated with adding significant new TiO
2
production capacity, especially for premium grades of TiO
2
products produced from the chloride process, Kronos believes increased and sustained profit margins will be necessary to
financially justify major expansions of TiO
2
production
capacity required to meet expected future growth in demand. As a result of customer decisions over the last year and the resulting adverse effect on global TiO
2
pricing, industry projects to increase TiO
2
production capacity have been cancelled or deferred indefinitely. Given the lead time required for such production
capacity expansions, Kronos expects a prolonged shortage of
TiO
2
products will occur as economic conditions improve and
global demand levels for TiO
2
continue to increase.
Kronos expectations as to the future of the TiO
2
industry are based upon a number of factors beyond its control,
including worldwide growth of gross domestic product, competition in the marketplace, continued operation of competitors, unexpected or earlier-than-expected capacity additions or reductions and technological advances. If actual developments differ
materially from its expectations, Kronos results of operations could be unfavorably affected.
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 from operations. Net
cash provided by operating activities was $2.6 million in the first six months of 2013 compared to $4.5 million in the first six months of 2012.
The $1.9 million decrease in cash provided by operating activities includes the net effects of:
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the $3.1 million of income from operations in 2012 attributable to CompXs disposed operations,
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higher amount of net cash used for relative changes in receivables, inventories, payables and accrued liabilities in 2013 of $1.8 million,
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lower amounts paid for environmental remediation and related costs in 2013 of $.7 million, and
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lower cash paid for income taxes in 2013 of $1.7 million.
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- 40 -
We expect our operating cash flow comparisons for the remainder of 2013 will continue to be
negatively impacted by the sale of CompXs disposed operations, since the operating cash flows of the disposed operations are included in our total cash flows from operating activities in 2012, through the December 2012 date of sale. See Note 2
to our Condensed Consolidated Financial Statements.
We do not have complete access to CompXs cash flows in part because
we do not own 100% of CompX. A detail of our consolidated cash flows from operating activities is presented in the table below. Intercompany dividends have been eliminated. The reference to NL Parent in the table below is a reference to NL
Industries, Inc., as the parent company of CompX and our wholly-owned subsidiaries.
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Six months ended
June
30,
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2012
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2013
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(In millions)
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Net cash provided by (used in) operating activities:
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CompX
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$
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1.6
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$
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(11.5
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)
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NL Parent and wholly-owned subsidiaries
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5.6
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16.0
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Eliminations
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(2.7
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)
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(1.9
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)
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Total
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$
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4.5
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$
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2.6
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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 was comparable from December 31, 2012 to June 30, 2013. Overall, our June 30, 2013 days sales outstanding and days in inventory compared to December 31, 2012 is
in line with our expectations. For comparative purposes, we have provided December 31, 2011 and June 30, 2012 numbers below.
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December 31,
2011
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June 30,
2012
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December 31,
2012
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June 30,
2013
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Days sales outstanding
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40 days
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40 days
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40 days
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41 days
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Days in inventory
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83 days
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66 days
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74 days
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68 days
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Investing and financing activities
Net cash provided by investing activities totaled $4.1 million in the first six months of 2013. During 2013:
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we paid $1.6 million in capital expenditures, substantially all of which related to CompX,
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we collected $3.0 million in principal payments on a note receivable, and
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we received $1.6 million in net proceeds from the sale of assets held for sale.
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Net cash used in financing activities totaled $13.0 million in the first six months of 2013. During 2013:
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CompX paid $.5 million in principal repayments on long-term debt, and
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we paid $12.2 million, or $.25 per share, in dividends. Distributions to noncontrolling interests consist of CompX dividends paid to shareholders other
than us.
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- 41 -
In July 2013, CompX prepaid the remaining outstanding principal amount of the long-term
debt, plus accrued interest, without penalty. See Note 9 to the Condensed Consolidated Financial Statements.
Provisions
contained in Kronos credit agreements could result in the acceleration of any indebtedness prior to its stated maturity for reasons other than defaults from failure to comply with applicable covenants. For example, certain credit agreements
allow the lender to accelerate the maturity of the indebtedness upon a change of control (as defined in the agreement) of the borrower. In addition, certain credit agreements could result in the acceleration of all or a portion of the indebtedness
following a sale of assets outside of the ordinary course of business.
Kronos is in compliance with all of its respective
debt covenants at June 30, 2013. Kronos ability to borrow funds under its credit facility in the future will, in some instances, depend in part on compliance with specified financial covenants and restrictions contained in the applicable
credit agreements. We believe that Kronos will be able to comply with its financial covenants through the maturity of its facility; however if future operating results differ materially from our predictions Kronos may be unable to maintain
compliance. In such an event, Kronos believes it has alternate sources of liquidity, including cash on hand and borrowings under its North American revolver or additional borrowings from Contran (neither of which contain any financial maintenance
covenants) in order to adequately address any compliance issues which might arise.
In July 2013, Kronos voluntarily prepaid
the remaining $100 million principal amount outstanding under its term loan, using $50 million of cash on hand as well as borrowings of $50 million under its revolving North American credit facility. Kronos expects to recognize a non-cash pre-tax
interest charge of approximately $2.3 million in the third quarter of 2013 consisting of the write-off of the remaining unamortized original issue discount and deferred financing costs associated with such payment.
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 (i) fund capital expenditures
(substantially all of which relate to CompX), (ii) pay ongoing environmental remediation and legal expenses and (iii) provide for the payment of debt service and dividends (if declared).
At June 30, 2013, we had aggregate cash, cash equivalents and restricted cash of $77.8 million, substantially all of which was held
in the U.S. A detail by entity is presented in the table below.
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Amount
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(In millions)
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CompX
|
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$
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52.7
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NL Parent and wholly-owned subsidiaries
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25.1
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Total
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$
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77.8
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- 42 -
In addition, at June 30, 2013 we owned 14.4 million shares of Valhi common stock
with an aggregate market value of $197.5 million. See Note 5 to the Condensed Consolidated Financial Statements. We also owned 35.2 million shares of Kronos common stock at June 30, 2013 with an aggregate market value of $572.0
million. See Note 6 to the Condensed Consolidated Financial Statements.
We routinely compare our liquidity requirements and
alternative uses of capital against the estimated future cash flows we expect to receive from our subsidiaries and affiliates. As a result of this process, we have in the past and may in the future seek to raise additional capital, incur debt,
repurchase indebtedness in the market or otherwise, modify our dividend policies, consider the sale of our interests in our subsidiaries, affiliates, business, marketable securities or other assets, or take a combination of these and other steps, to
increase liquidity, reduce indebtedness and fund future activities. Such activities have in the past and may in the future involve related companies.
We periodically evaluate acquisitions of interests in or combinations with companies (including related companies) perceived by management to be undervalued in the marketplace. These companies may or may
not be engaged in businesses related to our current businesses. We intend to consider such acquisition activities in the future and, in connection with this activity, may consider issuing additional equity securities and increasing indebtedness.
From time to time, we also evaluate the restructuring of ownership interests among our respective subsidiaries and related companies.
Based upon our expectations of our operating performance, and the anticipated demands on our cash resources we expect to have sufficient liquidity to meet our short-term obligations (defined as the
twelve-month period ending June 30, 2014). If actual developments differ materially from our expectations, our liquidity could be adversely affected. In this regard, Valhi has agreed to loan us up to $40 million on a revolving basis. At
June 30, 2013, we had no outstanding borrowings under this facility, and the full $40 million was available for future borrowing. The amount of any such outstanding loan Valhi would make to us is at Valhis discretion. We currently do not
expect to be required to borrow any amounts from Valhi during 2013 under this facility.
Capital Expenditures
Firm purchase commitments for capital projects in process at June 30, 2013 approximated $1.1 million. CompXs 2013 capital
investments are limited to those expenditures required to meet expected customer demand and those required to properly maintain or improve facilities 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 would
expect to receive from our subsidiaries and affiliates in 2013, based on the number of shares of common stock of these affiliates we own as of June 30, 2013 and their current regular quarterly dividend rate, is presented in the table below. In
May 2013, CompXs board of directors reduced its regular quarterly dividend from $.125 per share to $0.05 per share, effective with its second quarter 2013 dividend. The amount shown in the table
- 43 -
below for CompX reflects the $.125 per share and $.05 per share dividends we actually received from CompX in the first and second quarters, respectively, and $.05 per share we would expect to
receive in each of the third and fourth quarters of 2013.
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Shares held at
June 30, 2013
(in millions)
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Current
Quarterly
Dividend Rate
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Annual
Expected
Dividend
|
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(in millions)
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Kronos
|
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35.2
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$
|
.15
|
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$
|
21.1
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CompX
|
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10.8
|
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.05
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3.0
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Valhi
|
|
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14.4
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.05
|
|
|
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2.9
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|
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Total expected annual dividends
|
|
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|
|
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|
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$
|
27.0
|
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Investments in our subsidiaries and affiliates and other acquisitions
We have in the past and may in the future, purchase the securities of our subsidiaries and affiliates or third-parties in market or
privately-negotiated transactions. We base our purchase decisions on a variety of factors, including an analysis of the optimal use of our capital, taking into account the market value of the securities and the relative value of expected returns on
alternative investments. In connection with these activities, we may consider issuing additional equity securities or increasing our indebtedness. We may also evaluate the restructuring of ownership interests of our businesses among our subsidiaries
and related companies.
Off-balance sheet financing arrangements
Other than operating lease commitments discussed in our 2012 Annual Report, we are not party to any material off-balance sheet financing
arrangements.
Commitments and contingencies
There have been no material changes in our contractual obligations since we filed our 2012 Annual Report (other than the prepayment of CompXs outstanding long-term debt in July 2013, as discussed
above), and we refer you to that report for a complete description of these commitments.
We are subject to certain
commitments and contingencies, as more fully described to our 2012 Annual Report, or in Note 14 to our Condensed Consolidated Financial Statements or in Part II, Item 1 of this report, including certain legal proceedings. In addition to such
legal proceedings, 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 defendants 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.
- 44 -
Recent accounting pronouncements
Not applicable
Critical
accounting policies and estimates
For a discussion of our critical accounting policies, refer to Part I,
Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations in our 2012 Annual Report. There have been no changes in our critical accounting policies during the first six months of 2013.