UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-640

NL INDUSTRIES, INC.

(Exact name of Registrant as specified in its charter)

New Jersey

13-5267260

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

5430 LBJ Freeway, Suite 1700

Dallas, Texas75240-2620

(Address of principal executive offices)

Registrant’s telephone number, including area code: (972)233-1700

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	NL	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Number of shares of the registrant’s common stock, $.125 par value per share, outstanding on ~~October~~April 28, ~~2021: 48,802,734.~~2022 48,802,734.

Table of Contents

NL INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

		Page number
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets - December 31, ~~2020; September 30, 2021~~2021; March 31, 2022 (unaudited)	3

	Condensed Consolidated Statements of Income (unaudited) - Three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2021~~2022	5

	Condensed Consolidated Statements of Comprehensive Income (unaudited) - Three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2021~~2022	6

	Condensed Consolidated Statements of Equity (unaudited) - Three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2021~~2022	7

	Condensed Consolidated Statements of Cash Flows (unaudited) - ~~Nine~~Three months ended ~~September 30, 2020~~March 31, 2021 and ~~2021~~2022	8

	Notes to Condensed Consolidated Financial Statements ~~(unaudited~~)(unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	3531

Item 4.	Controls and Procedures	3531

Part II.	OTHER INFORMATION	33
~~Part II.~~	~~OTHER INFORMATION~~

Item 1.	Legal Proceedings	3733

Item 1A.	Risk Factors	3733

Item 6.	Exhibits	3733

Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

2

Table of Contents

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

December 31,

September 30,

2020

2021

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents
$
137,039

$
142,196

Restricted cash and cash equivalents

2,695

2,734

Accounts and other receivables, net

11,142

15,157

Receivables from affiliates

313

-

Inventories, net

18,337

23,536

Prepaid expenses and other

1,638

3,093

Total current assets

171,164

186,716

Other assets:

Restricted cash and cash equivalents

25,538

25,503

Note receivable from affiliate

29,500

21,800

Marketable securities

18,206

27,943

Investment in Kronos Worldwide, Inc.

242,374

250,123

Goodwill

27,156

27,156

Other assets, net

5,262

5,259

Total other assets

348,036

357,784

Property and equipment:

Land

4,940

5,070

Buildings

23,146

23,161

Equipment

68,227

69,974

Construction in progress

1,010

1,240

��

97,323

99,445

Less accumulated depreciation

68,373

70,902

Net property and equipment

28,950

28,543

Total assets
$
548,150

$
573,043


	December 31,		March 31,
	2021		2022
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	147,002	$	145,058
Restricted cash and cash equivalents		2,765		2,765
Accounts and other receivables, net		15,609		17,777
Inventories, net		25,642		28,082
Prepaid expenses and other		2,630		3,667

Total current assets		193,648		197,349

Other assets:
Restricted cash and cash equivalents		25,475		25,475
Note receivable from affiliate		18,700		18,100
Marketable securities		34,435		35,106
Investment in Kronos Worldwide, Inc.		264,803		278,892
Goodwill		27,156		27,156
Other assets, net		2,753		2,746

Total other assets		373,322		387,475

Property and equipment:
Land		5,071		5,071
Buildings		23,161		23,161
Equipment		70,664		72,649
Construction in progress		2,028		1,713
		100,924		102,594
Less accumulated depreciation		71,742		72,697

Net property and equipment		29,182		29,897

Total assets	$	596,152	$	614,721

Table of Contents

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)


	December 31,		March 31,
	2021		2022
			(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,408	$	5,126
Accrued litigation settlement		11,830		11,887
Accrued and other current liabilities		12,017		7,182
Accrued environmental remediation and related costs		2,643		2,605
Payables to affiliates		691		698
Income taxes		8		8

Total current liabilities		30,597		27,506

Noncurrent liabilities:
Long-term debt from affiliate		500		500
Accrued environmental remediation and related costs		90,297		90,299
Long-term litigation settlement		38,519		38,702
Deferred income taxes		44,056		47,493
Accrued pension costs		3,722		3,620
Other		3,490		3,423

Total noncurrent liabilities		180,584		184,037

Equity:
NL stockholders' equity:
Common stock		6,100		6,100
Additional paid-in capital		299,775		300,210
Retained earnings		297,351		312,492
Accumulated other comprehensive loss		(240,756)		(238,371)

Total NL stockholders' equity		362,470		380,431

Noncontrolling interest in subsidiary		22,501		22,747

Total equity		384,971		403,178

Total liabilities and equity	$	596,152	$	614,721

December 31,

September 30,

2020

2021

(unaudited)

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable
$
2,647

$
4,501

Accrued litigation settlement

11,830

11,774

Accrued and other current liabilities

10,253

10,532

Accrued environmental remediation and related costs

2,027

2,583

Payables to affiliates

725

738

Income taxes

25

-

Total current liabilities

27,507

30,128

Noncurrent liabilities:

Long-term debt from affiliate

500

500

Accrued environmental remediation and related costs

91,389

90,407

Long-term litigation settlement

49,403

38,337

Deferred income taxes

33,830

41,375

Accrued pension costs

6,392

4,788

Other

3,780

2,124

Total noncurrent liabilities

185,294

177,531

Equity:

NL stockholders' equity:

Common stock

6,098

6,100

Additional paid-in capital

299,093

300,309

Retained earnings

257,875

285,359

Accumulated other comprehensive loss

(251,189
)

(248,873
)

Total NL stockholders' equity

311,877

342,895

Noncontrolling interest in subsidiary

23,472

22,489

Total equity

335,349

365,384

Total liabilities and equity
$
548,150

$
573,043

Commitments and contingencies (Notes 12 and 14)

See accompanying notes to Condensed Consolidated Financial Statements.

4

Table of Contents

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)


	Three months ended
	March 31,
	2021		2022

	(unaudited)
Net sales	$	35,924	$	42,050
Cost of sales		24,889		29,970

Gross margin		11,035		12,080

Selling, general and administrative expense		5,218		5,774
Corporate expense		1,845		2,436

Income from operations		3,972		3,870

Equity in earnings of Kronos Worldwide, Inc.		5,968		17,533

Other income (expense):
Interest and dividend income		440		309
Marketable equity securities		6,360		671
Other components of net periodic pension and OPEB cost		(71)		(223)
Interest expense		(298)		(246)

Income before income taxes		16,371		21,914

Income tax expense		2,505		2,705

Net income		13,866		19,209
Noncontrolling interest in net income of subsidiary		609		652

Net income attributable to NL stockholders	$	13,257	$	18,557

Amounts attributable to NL stockholders:
Basic and diluted net income per share	$	.27	$	.38

Weighted average shares used in the calculation of net income per share		48,789		48,803

Three months ended

Nine months ended

September 30,

September 30,

2020

2021

2020

2021

(unaudited)

Net sales

$
28,426

$
34,556

$
84,537

$
106,733

Cost of sales

21,098

23,634

59,412

73,470

Gross margin

7,328

10,922

25,125

33,263

Selling, general and administrative expense

5,246

5,791

15,654

16,557

Other operating income (expense):

Insurance recoveries

-

24

108

56

Corporate expense

(2,390
)

(2,871
)

(7,339
)

(7,619
)

Income (loss) from operations

(308
)

2,284

2,240

9,143

Equity in earnings of Kronos Worldwide, Inc.

2,475

10,934

16,333

24,718

Other income (expense):

Interest and dividend income

470

387

2,102

1,250

Marketable equity securities

3,210

(1,198
)

(11,115
)

9,737

Other components of net periodic pension and OPEB cost

(208
)

(196
)

(624
)

(463
)

Interest expense

(352
)

(299
)

(1,054
)

(896
)

Income before income taxes

5,287

11,912

7,882

43,489

Income tax expense (benefit)

1,163

1,054

(3,616
)

5,460

Net income

4,124

10,858

11,498

38,029

Noncontrolling interest in net income of subsidiary

252

545

1,127

1,762

Net income attributable to NL stockholders

$
3,872

$
10,313

$
10,371

$
36,267

Amounts attributable to NL stockholders:

Basic and diluted net income per share

$
.08

$
.21

$
.21

$
.74

Weighted average shares used in the calculation
of net income per share

48,789

48,803

48,772

48,795

Table of Contents

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Three months ended

Nine months ended

September 30,

September 30,

2020

2021

2020

2021

(unaudited)

Net income
$
4,124

$
10,858

$
11,498

$
38,029

Other comprehensive income (loss), net of tax:

Currency translation

2,426

(1,859
)

(3,328
)

(912
)
Defined benefit pension plans

1,075

1,133

3,149

3,428

Other postretirement benefit plans

(70
)

(65
)

(221
)

(200
)

Total other comprehensive income (loss), net

3,431

(791
)

(400
)

2,316

Comprehensive income

7,555

10,067

11,098

40,345

Comprehensive income attributable to noncontrolling interest

252

545

1,127

1,762

Comprehensive income attributable to NL stockholders
$
7,303

$
9,522

$
9,971

$
38,583


	Three months ended
	March 31,
	2021		2022

	(unaudited)
Net income	$	13,866	$	19,209

Other comprehensive income (loss), net of tax:
Currency translation		545		1,580
Defined benefit pension plans		1,151		873
Other postretirement benefit plans		(71)		(68)

Total other comprehensive income, net		1,625		2,385

Comprehensive income		15,491		21,594
Comprehensive income attributable to noncontrolling interest		609		652

Comprehensive income attributable to NL stockholders	$	14,882	$	20,942

Table of Contents

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)


	Three months ended March 31, 2021 and 2022 (unaudited)
							Accumulated
			Additional				other		Noncontrolling
	Common		paid-in		Retained		comprehensive		interest in		Total
	stock		capital		earnings		loss		subsidiary		equity

Balance at December 31, 2020	$	6,098	$	299,093	$	257,875	$	(251,189)	$	23,472	$	335,349
Net income		—		—		13,257		—		609		13,866
Other comprehensive income, net of tax		—		—		—		1,625		—		1,625
Dividends paid - $.06 per share		—		—		(2,927)		—		—		(2,927)
Dividends paid to noncontrolling interest		—		—		—		—		(339)		(339)
Equity transactions with noncontrolling interest, net and other		—		1,004		—		—		(1,759)		(755)

Balance at March 31, 2021	$	6,098	$	300,097	$	268,205	$	(249,564)	$	21,983	$	346,819

Balance at December 31, 2021	$	6,100	$	299,775	$	297,351	$	(240,756)	$	22,501	$	384,971
Net income		—		—		18,557		—		652		19,209
Other comprehensive income, net of tax		—		—		—		2,385		—		2,385
Dividends paid - $.07 per share		—		—		(3,416)		—		—		(3,416)
Dividends paid to noncontrolling interest		—		—		—		—		(406)		(406)
Other, net		—		435		—		—		—		435

Balance at March 31, 2022	$	6,100	$	300,210	$	312,492	$	(238,371)	$	22,747	$	403,178

Three months ended September 30, 2020 and 2021 (unaudited)

Accumulated

Additional

other

Noncontrolling

Common

paid-in

Retained

comprehensive

interest in

Total

stock

capital

earnings

loss

subsidiary

equity

Balance at June 30, 2020
$
6,098

$
299,093

$
253,597

$
(255,521
)

$
23,262

$
326,529

Net income

-

-

3,872

-

252

4,124

Other comprehensive income, net of tax

-

-

-

3,431

-

3,431

Dividends paid - $.04 per share

-

-

(1,951
)

-

-

(1,951
)
Dividends paid to noncontrolling interest

-

-

-

-

(169
)

(169
)

Balance at September 30, 2020
$
6,098

$
299,093

$
255,518

$
(252,090
)

$
23,345

$
331,964

Balance at June 30, 2021
$
6,100

$
300,309

$
277,974

$
(248,082
)

$
22,274

$
358,575

Net income

-

-

10,313

-

545

10,858

Other comprehensive loss, net of tax

-

-

-

(791
)

-

(791
)
Dividends paid - $.06 per share

-

-

(2,928
)

-

-

(2,928
)
Dividends paid to noncontrolling interest

-

-

-

-

(330
)

(330
)

Balance at September 30, 2021
$
6,100

$
300,309

$
285,359

$
(248,873
)

$
22,489

$
365,384

Nine months ended September 30, 2020 and 2021 (unaudited)

Accumulated

Additional

other

Noncontrolling

Common

paid-in

Retained

comprehensive

interest in

Total

stock

capital

earnings

loss

subsidiary

equity

Balance at December 31, 2019
$
6,094

$
299,102

$
251,000

$
(251,690
)

$
22,707

$
327,213

Net income

-

-

10,371

-

1,127

11,498

Other comprehensive loss, net of tax

-

-

-

(400
)

-

(400
)
Issuance of NL common stock

4

96

-

-

-

100

Dividends paid - $.12 per share

-

-

(5,853
)

-

-

(5,853
)
Dividends paid to noncontrolling interest

-

-

-

-

(507
)

(507
)
Other, net

-

(105
)

-

-

18

(87
)

Balance at September 30, 2020
$
6,098

$
299,093

$
255,518

$
(252,090
)

$
23,345

$
331,964

Balance at December 31, 2020
$
6,098

$
299,093

$
257,875

$
(251,189
)

$
23,472

$
335,349

Net income

-

-

36,267

-

1,762

38,029

Other comprehensive income, net of tax

-

-

-

2,316

-

2,316

Issuance of NL common stock

2

99

-

-

-

101

Dividends paid - $.18 per share

-

-

(8,783
)

-

-

(8,783
)
Dividends paid to noncontrolling interest

-

-

-

-

(999
)

(999
)
Other, net

-

1,117

-

-

(1,746
)

(629
)

Balance at September 30, 2021
$
6,100

$
300,309

$
285,359

$
(248,873
)

$
22,489

$
365,384

See accompanying notes to Condensed Consolidated Financial Statements.

7

Table of Contents

NL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Three months ended
	March 31,
	2021		2022

	(unaudited)
Cash flows from operating activities:
Net income	$	13,866	$	19,209
Depreciation and amortization		949		961
Deferred income taxes		2,498		2,688
Equity in earnings of Kronos Worldwide, Inc.		(5,968)		(17,533)
Dividends received from Kronos Worldwide, Inc.		6,339		6,692
Marketable equity securities		(6,360)		(671)
Noncash interest expense		291		239
Benefit plan expense greater (less) than cash funding		(111)		306
Other, net		(101)		(73)
Change in assets and liabilities:
Accounts and other receivables, net		(6,096)		(2,172)
Inventories, net		151		(2,490)
Prepaid expenses and other		(584)		(1,037)
Accounts payable and accrued liabilities		(2,586)		(2,966)
Income taxes		37		—
Accounts with affiliates		284		7
Accrued environmental remediation and related costs		(401)		(35)
Other noncurrent assets and liabilities, net		(130)		(130)

Net cash provided by operating activities		2,078		2,995

Cash flows from investing activities:
Capital expenditures		(568)		(1,717)
Note receivable from affiliate:
Collections		11,900		7,700
Loans		(11,600)		(7,100)

Net cash used in investing activities		(268)		(1,117)

Cash flows from financing activities:
Dividends paid		(2,927)		(3,416)
Subsidiary treasury stock acquired		(755)		—
Dividends paid to noncontrolling interests in subsidiary		(339)		(406)

Net cash used in financing activities		(4,021)		(3,822)

Cash and cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		(2,211)		(1,944)
Balance at beginning of year		165,272		175,242

Balance at end of period	$	163,061	$	173,298

Supplemental disclosures - cash paid for:
Cash paid for (received):
Interest	$	6	$	6
Income taxes, net		(1)		9

Nine months ended

September 30,

2020

2021

(unaudited)

Cash flows from operating activities:

Net income
$
11,498

$
38,029

Depreciation and amortization

2,872

2,861

Deferred income taxes

(3,538
)

5,414

Equity in earnings of Kronos Worldwide, Inc.

(16,333
)

(24,718
)
Dividends received from Kronos Worldwide, Inc.

19,017

19,017

Marketable equity securities

11,115

(9,737
)
Noncash interest expense

1,031

878

Benefit plan expense less than cash funding

(472
)

(435
)
Other, net

32

80

Change in assets and liabilities:

Accounts and other receivables, net

(422
)

(4,044
)
Inventories, net

(937
)

(5,417
)
Prepaid expenses and other

72

(1,445
)
Accounts payable and accrued liabilities

(14,171
)

(10,060
)
Income taxes

(94
)

(5
)
Accounts with affiliates

487

326

Accrued environmental remediation and related costs

(938
)

(426
)
Other noncurrent assets and liabilities, net

(65
)

(54
)

Net cash provided by operating activities

9,154

10,264

Cash flows from investing activities:

Capital expenditures

(1,291
)

(2,266
)
Note receivable from affiliate:

Collections

22,828

33,100

Loans

(25,228
)

(25,400
)

Net cash provided by (used in) investing activities

(3,691
)

5,434

Cash flows from financing activities:

Dividends paid

(5,853
)

(8,783
)
Subsidiary treasury stock acquired

-

(755
)
Distributions to noncontrolling interests in subsidiary

(507
)

(999
)

Net cash used in financing activities

(6,360
)

(10,537
)

Cash and cash equivalents and restricted cash and cash equivalents - net
change from:

Operating, investing and financing activities

(897
)

5,161

Balance at beginning of period

157,870

165,272

Balance at end of period
$
156,973

$
170,433

Supplemental disclosures - cash paid for:

Interest
$
21

$
19

Income taxes, net

48

38

See accompanying notes to Condensed Consolidated Financial Statements.

8

Table of Contents

NL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~March 31, 2022

(unaudited)

Note 1 – Organization and basis of presentation:

Organization – At ~~September 30, 2021,~~March 31, 2022, Valhi, Inc. (NYSE: VHI) held approximately 83% of our outstanding common stock and a wholly-owned subsidiary of Contran Corporation held approximately 92% of Valhi’s outstanding common stock. A majority of ~~Contran's~~Contran’s outstanding voting stock is held directly by Lisa K. Simmons and various family trusts established for the benefit of Ms. Simmons, Thomas C. Connelly (the husband of Ms. Simmons’ late sister) and their children and for which Ms. Simmons or Mr. Connelly, as applicable, serve as trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly serves as trustee, he is required to vote the shares of Contran voting stock held by such trusts in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. ~~Simmons~~.Simmons. The remainder of Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and her late sister and their children and for which a third-party financial institution serves as trustee. Consequently, at ~~September 30, 2021~~March 31, 2022 Ms. Simmons and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi and us.

Basis of presentation – Consolidated in this Quarterly Report are the results of our majority-owned subsidiary, CompX International Inc. We also own approximately ~~30%~~31% of Kronos Worldwide, Inc. (Kronos). CompX (NYSE American: 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, ~~2020~~2021 that we filed with the SEC on March ~~10, 2021~~9, 2022 (the ~~“2020~~“2021 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 at December 31, ~~2020~~2021 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, ~~2020)~~2021) 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~~period ended ~~September 30, 2021~~March 31, 2022 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 ~~2020~~2021 Consolidated Financial Statements contained in our ~~2020~~2021 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.

Note 2 – Accounts and other receivables, net:

December 31,

September 30,

2020

2021

(In thousands)

Trade receivables - CompX
$
10,801

$
15,176

Other receivables

393

17

Accrued insurance recoveries

18

34

Allowance for doubtful accounts

(70
)

(70
)
Total
$
11,142

$
15,157


	December 31,		March 31,
	2021		2022

	(In thousands)
Trade receivables - CompX	$	15,616	$	17,825
Accrued insurance recoveries		43		—
Other receivables		20		22
Allowance for doubtful accounts		(70)		(70)
Total	$	15,609	$	17,777

Note 3 – Inventories, net:

December 31,

September 30,

2020

2021

(In thousands)

Raw materials
$
3,220

$
4,996

Work in process

11,668

15,048

Finished products

3,449

3,492

Total
$
18,337

$
23,536

9

Table of Contents


	December 31,		March 31,
	2021		2022

	(In thousands)
Raw materials	$	5,042	$	6,117
Work in process		16,767		17,661
Finished products		3,833		4,304
Total	$	25,642	$	28,082

Note 4 – Marketable securities:

Our marketable securities consist of investments in the publicly-traded shares of our immediate parent company Valhi, Inc. Our shares of Valhi common stock are accounted for as available-for-sale securities, which are carried at fair value using quoted market prices in active markets and represent a Level 1 input within the fair value hierarchy. Any unrealized gains or losses on the securities are recognized in Marketable equity securities on our Condensed Consolidated Statements of Income.

Fair value
measurement
level

Market
value

Cost basis

Unrealized
gain (loss)

(In thousands)

December 31, 2020

Valhi common stock
1

$
18,206

$
24,347

$
(6,141
)

September 30, 2021

Valhi common stock
1

$
27,943

$
24,347

$
3,596


	Fair value
	measurement		Market		Cost		Unrealized
	level		value		basis		gain

			(In thousands)
December 31, 2021		��
Noncurrent assets
Valhi common stock	1		$	34,435	$	24,347	$	10,088

March 31, 2022
Noncurrent assets
Valhi common stock	1		$	35,106	$	24,347	$	10,759

At December 31, ~~2020~~2021 and ~~September 30, 2021,~~March 31, 2022, we held approximately 1.2 million shares of common stock of our immediate parent company, Valhi, Inc. At December 31, ~~2020~~2021 and ~~September 30, 2021,~~March 31, 2022, the quoted per share market price of Valhi common stock was ~~$15.20~~$28.75 and ~~$23.33,~~$29.31, respectively.

The Valhi common stock we own is subject to restrictions on resale pursuant to certain provisions of the SEC Rule 144. In addition, as a majority-owned subsidiary of Valhi, we cannot vote our shares of Valhi common stock under Delaware General Corporation Law, but we receive dividends from Valhi on these shares, when declared and paid.

Note 5 – Investment in Kronos Worldwide, Inc.:

At December 31, ~~2020~~2021 and ~~September 30, 2021,~~March 31, 2022, we owned approximately 35.2 million shares of Kronos common stock. At ~~September 30, 2021,~~March 31, 2022, the quoted market price of Kronos’ common stock was ~~$12.41~~$15.52 per share, or an aggregate market value of ~~$437.1~~$546.6 million. At December 31, ~~2020,~~2021, the quoted market price was ~~$14.91~~$15.01 per share, or an aggregate market value of ~~$525.1~~$528.6 million.

The change in the carrying value of our investment in Kronos during the first ~~nine~~three months of ~~2021~~2022 is summarized below.


	Amount
	(In millions)
Balance at the beginning of the period	$	264.8
Equity in earnings of Kronos		17.5
Dividends received from Kronos		(6.7)
Equity in Kronos' other comprehensive income:
Currency translation		2.0
Defined benefit pension plans		.7
Other		.6
Balance at the end of the year	$	278.9

Amount

(In millions)

Balance at the beginning of the period
$
242.4

Equity in earnings of Kronos

24.7

Dividends received from Kronos

(19.0
)
Equity in Kronos' other comprehensive income:

Currency translation

(1.1
)
Defined benefit pension plans

3.1

Balance at the end of the period
$
250.1

10

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Selected financial information of Kronos is summarized below:

December 31,

September 30,

2020

2021

(In millions)

Current assets
$
1,218.3

$
1,219.1

Property and equipment, net

524.6

503.0

Investment in TiO₂ joint venture

103.3

105.5

Other noncurrent assets

190.5

176.9

Total assets
$
2,036.7

$
2,004.5

Current liabilities
$
260.2

$
259.7

Long-term debt

486.7

461.1

Accrued pension costs

372.6

349.3

Other noncurrent liabilities

120.7

112.4

Stockholders' equity

796.5

822.0

Total liabilities and stockholders' equity
$
2,036.7

$
2,004.5


	December 31,		March 31,
	2021		2022

	(In millions)
Current assets	$	1,258.0	$	1,279.5
Property and equipment, net		503.4		503.8
Investment in TiO₂ joint venture		101.9		105.7
Other noncurrent assets		149.5		146.3
Total assets	$	2,012.8	$	2,035.3

Current liabilities	$	288.8	$	281.1
Long-term debt		449.8		443.8
Accrued pension costs		287.4		282.3
Other noncurrent liabilities		116.6		114.5
Stockholders’ equity		870.2		913.6
Total liabilities and stockholders’ equity	$	2,012.8	$	2,035.3


	Three months ended
	March 31,
	2021		2022

	(In millions)
Net sales	$	465.0	$	562.9
Cost of sales		369.3		413.6
Income from operations		34.0		83.3
Income tax expense		6.0		18.3
Net income		19.6		57.5

Three months ended

Nine months ended

September 30,

September 30,

2020

2021

2020

2021

(In millions)

Net sales

$
416.9

$
499.8

$
1,223.9

$
1,443.4

Cost of sales

336.3

376.8

959.4

1,115.7

Income from operations

19.3

57.3

95.8

135.1

Income tax expense

1.8

12.1

15.3

27.3

Net income

8.1

36.0

53.7

81.3

Note 6 – Other assets, net:

December 31,

September 30,

2020

2021

(In thousands)

Pension asset
$
3,881

$
3,868

Other

1,381

1,391

Total
$
5,262

$
5,259


	December 31,		March 31,
	2021		2022

	(In thousands)
Pension asset	$	1,356	$	1,327
Other		1,397		1,419
Total	$	2,753	$	2,746

Note 7 – Accrued and other current liabilities:

December 31,

September 30,

2020

2021

(In thousands)

Employee benefits
$
9,000

$
8,713

Other

1,253

1,819

Total
$
10,253

$
10,532


	December 31,		March 31,
	2021		2022

	(In thousands)
Employee benefits	$	10,345	$	5,325
Other		1,672		1,857
Total	$	12,017	$	7,182

Note 8 – Long-term debt:

During the first ~~nine~~three months of ~~2021,~~2022, our wholly-owned subsidiary, NLKW Holding, LLC ~~had0~~had 0 borrowings or repayments under its $50 million secured revolving credit facility with Valhi. At ~~September 30, 2021,~~March 31, 2022, $.5 million was outstanding and $49.5 million was available for future borrowing under this facility. Outstanding borrowings bear interest at the prime rate plus 1.875% per annum, and the average interest rate for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~5.13%~~5.17%. The interest rate under this facility as of ~~September 30, 2021~~March 31, 2022 was ~~5.13%~~5.38%. We are in compliance with all covenants at ~~September 30, 2021.~~March 31, 2022.

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Note 9 – Other noncurrent liabilities:

December 31,

September 30,

2020

2021

(In thousands)

Reserve for uncertain tax positions
$
1,717

$
232

OPEB

985

855

Insurance claims and expenses

653

641

Other

425

396

Total
$
3,780

$
2,124


	December 31,		March 31,
	2021		2022

	(In thousands)
Reserve for uncertain tax positions	$	1,724	$	1,724
OPEB		787		718
Insurance claims and expenses		632		659
Other		347		322
Total	$	3,490	$	3,423

Note 10 – Revenue recognition:

The following table disaggregates our net sales by reporting unit, which are the categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Three months ended

Nine months ended

September 30,

September 30,

2020

2021

2020

2021

(In thousands)

Net sales:

Security Products
$
21,209

$
25,829

$
65,251

$
79,301

Marine Components

7,217

8,727

19,286

27,432

Total
$
28,426

$
34,556

$
84,537

$
106,733


	Three months ended
	March 31,
	2021		2022

	(In thousands)
Net sales:
Security Products	$	25,885	$	29,581
Marine Components		10,039		12,469
Total	$	35,924	$	42,050

Note 11 – Employee benefit plans:

The components of net periodic defined benefit pension cost are presented in the table below.

Three months ended

Nine months ended

September 30,

September 30,

2020

2021

2020

2021

(In thousands)

Interest cost
$
355

$
279

$
1,065

$
711

Expected return on plan assets

(461
)

(398
)

(1,383
)

(1,194
)
Recognized actuarial losses

380

376

1,140

1,128

Total
$
274

$
257

$
822

$
645


	Three months ended
	March 31,
	2021		2022

	(In thousands)
Interest cost	$	153	$	297
Expected return on plan assets		(398)		(392)
Recognized actuarial losses		376		373
Total	$	131	$	278

We currently expect our ~~2021~~2022 contributions to our defined benefit pension plans to be approximately $1.2 million.

12

Table of Contents

Note 12 – Income taxes:

Three months ended

Nine months ended

September 30,

September 30,

2020

2021

2020

2021

(In millions)

Expected tax expense, at U.S. federal statutory income
  tax rate of 21%

$
1.2

$
2.5

$
1.7

$
9.1

Rate differences on equity in earnings of Kronos,
  net of dividends

.1

(1.5
)

(5.3
)

(3.7
)
U.S. state income taxes and other, net

(.1
)

.1

-

.1

Income tax expense (benefit)

$
1.2

$
1.1

$
(3.6
)

$
5.5

Comprehensive provision (benefit) for income taxes
   allocable to:

Net income (loss)

$
1.2

$
1.1

$
(3.6
)

$
5.5

Additional paid-in capital

-

-

(.1
)

-

Other comprehensive income (loss):

Currency translation

.6

(.5
)

(.9
)

(.2
)
Pension plans

.2

.3

.8

.9

Total

$
2.0

$
.9

$
(3.8
)

$
6.2


	Three months ended
	March 31,
	2021		2022

	(In millions)
Expected tax expense, at U.S. federal statutory income tax rate of 21%	$	3.4	$	4.6
Rate differences on equity in earnings of Kronos, net of dividends		(1.0)		(1.9)
Nontaxable income		(.6)		—
Nontaxable expenses		.5		—
U.S. state income taxes and other, net		.2		—
Income tax expense	$	2.5	$	2.7

Comprehensive provision for income taxes allocable to:
Net income	$	2.5	$	2.7
Additional paid-in capital		—		.1
Other comprehensive income:
Currency translation		.1		.4
Pension plans		.3		.2
Total	$	2.9	$	3.4

In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings ~~(losses)~~ of Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we receive from Kronos are nontaxable to us. Accordingly, we do not recognize and we are not required to pay income taxes on dividends from Kronos. We received aggregate dividends from Kronos of ~~$19.0~~$6.3 million in ~~each of~~ the first ~~nine~~three months of ~~2020~~2021 and ~~2021.~~$6.7 million in the first three months of 2022. The amounts shown in the above table of our income tax rate reconciliation for rate differences on equity in earnings of Kronos represent the income tax benefit associated with the nontaxable dividends we received from Kronos compared to the amount of deferred income taxes we recognized on our ~~undistributed equity in earnings (losses) of Kronos. Our~~ equity in earnings of ~~Kronos in 2021 is expected to be higher than our equity in earnings~~Kronos.

13

Table of ~~Kronos in 2020.~~Contents

~~Income tax matters related to Kronos~~

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, includes modifications to the limitation of business interest for tax years beginning in 2019 and 2020 increasing the business interest limitation from 30% of adjusted taxable income to 50% of adjusted taxable income which increased Kronos’ allowable interest expense deduction for 2019 and 2020. Consequently, in the first quarter of 2020 Kronos recognized a cash tax benefit of $.5 million related to the reversal of the valuation allowance recognized in 2019 for the portion of the disallowed interest expense Kronos did not expect to fully utilize at December 31, 2019.

Note 13 –Stockholders’ equity:

Accumulated other comprehensive loss - Changes in accumulated other comprehensive loss attributable to NL stockholders, including amounts resulting from our investment in Kronos Worldwide (see Note 5), are presented in the table below.


	Three months ended
	March 31,
	2021		2022

	(In thousands)
Accumulated other comprehensive loss, net of tax:
Currency translation:
Balance at beginning of period	$	(169,575)	$	(171,235)
Other comprehensive income		545		1,580
Balance at end of period	$	(169,030)	$	(169,655)

Defined benefit pension plans:
Balance at beginning of period	$	(80,704)	$	(68,468)
Other comprehensive income		1,151		873
Balance at end of period	$	(79,553)	$	(67,595)

OPEB plans:
Balance at beginning of period	$	(910)	$	(1,053)
Other comprehensive loss - amortization of net gains included in net periodic OPEB cost		(71)		(68)
Balance at end of period	$	(981)	$	(1,121)

Total accumulated other comprehensive loss:
Balance at beginning of period	$	(251,189)	$	(240,756)
Other comprehensive income		1,625		2,385
Balance at end of period	$	(249,564)	$	(238,371)

Three months ended

Nine months ended

September 30,

September 30,

2020

2021

2020

2021

(In thousands)

Accumulated other comprehensive loss, net of tax:

Currency translation:

Balance at beginning of period
$
(178,597
)

$
(168,628
)

$
(172,843
)

$
(169,575
)
Other comprehensive income (loss)

2,426

(1,859
)

(3,328
)

(912
)
Balance at end of period
$
(176,171
)

$
(170,487
)

$
(176,171
)

$
(170,487
)

Defined benefit pension plans:

Balance at beginning of period
$
(76,183
)

$
(78,409
)

$
(78,257
)

$
(80,704
)
Other comprehensive income - amortization of net
losses included in net periodic pension cost

1,075

1,133

3,149

3,428

Balance at end of period
$
(75,108
)

$
(77,276
)

$
(75,108
)

$
(77,276
)

OPEB plans:

Balance at beginning of period
$
(741
)

$
(1,045
)

$
(590
)

$
(910
)
Other comprehensive loss - amortization of net
gains included in net periodic OPEB cost

(70
)

(65
)

(221
)

(200
)
Balance at end of period
$
(811
)

$
(1,110
)

$
(811
)

$
(1,110
)

Total accumulated other comprehensive loss:

Balance at beginning of period
$
(255,521
)

$
(248,082
)

$
(251,690
)

$
(251,189
)
Other comprehensive income (loss)

3,431

(791
)

(400
)

2,316

Balance at end of period
$
(252,090
)

$
(248,873
)

$
(252,090
)

$
(248,873
)

See Note 11 for amounts related to our defined benefit pension plans.

Other – During the first quarter of 2021, CompX purchased 50,000 shares of its Class A common stock in a market transaction for approximately ~~$755,000.~~$.8 million. At ~~September 30, 2021, 627,547~~March 31, 2022, 602,547 shares were available for purchase under CompX’s prior repurchase authorizations.

Note 14 – Commitments and contingencies:

General

We are involved in various environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our current and former businesses. At least quarterly our management discusses and evaluates the status of any pending litigation or claim to which we are a party or which has been asserted against us. The factors considered in such evaluation include, among other things, the nature of such pending cases and claims, the status of such pending cases and claims, the advice of legal counsel and our experience in similar cases and claims (if any). Based on such evaluation, we make a determination as to whether we believe (i) it is probable a loss has been incurred, and if so if the amount of such loss (or a range of loss) is reasonably estimable, or (ii) it is reasonably possible but not probable a loss has been incurred, and if so, if the amount of such loss (or a range of loss) is reasonably estimable, or (iii) the probability a loss has been incurred is remote.

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

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school districts, and certain others have been asserted as class actions. These lawsuits seek recovery under a variety of theories, including public and private nuisance, negligent product design, negligent failure to warn, strict liability, breach of warranty, conspiracy/concert of action, aiding and abetting, enterprise liability, market share or risk contribution liability, intentional tort, fraud and misrepresentation, violations of state consumer protection statutes, supplier negligence and similar claims.

The plaintiffs in these actions generally seek to impose on the defendants responsibility for lead paint abatement and health concerns associated with the use of lead-based paints, including damages for personal injury, contribution and/or indemnification for medical expenses, medical monitoring expenses and costs for educational programs. To the extent the plaintiffs seek compensatory or punitive damages in these actions, such damages are generally unspecified. In some cases, the damages are unspecified pursuant to the requirements of applicable state law. A number of cases are inactive or have been dismissed or withdrawn. Most of the remaining cases are in various pre-trial stages. Some are on appeal following dismissal or summary judgment rulings or a trial verdict in favor of either the defendants or the plaintiffs.

We believe these actions are without merit, and we intend to continue to deny all allegations of wrongdoing and liability and to defend against all actions vigorously. ~~Other than with respect to the Santa Clara, California public nuisance case discussed below, we~~We do not believe it is probable we have incurred any liability with respect to ~~all of the~~pending lead pigment litigation cases to which we are a party, and with respect to all ~~other~~such lead pigment litigation cases to which we are a party, we believe liability to us that may result, if any, in this regard cannot be reasonably estimated, because:

•

●

we have never settled any of the market share, intentional tort, fraud, nuisance, supplier negligence, breach of warranty, conspiracy, misrepresentation, aiding and abetting, enterprise liability, or statutory cases (other than the Santa Clara case discussed below),

•

●

no final, non-appealable adverse judgments have ever been entered against us, and

•

●

we have never ultimately been found liable with respect to any such litigation matters, including over 100 cases over a thirty-year period for which we were previously a party and for which we have been dismissed without any finding of liability.

Accordingly, ~~other than with respect to the Santa Clara case discussed below,~~ we ~~have~~do not ~~accrued~~have any amounts accrued for any of the pending lead pigment and lead-based paint litigation cases filed by or on behalf of states, counties, cities or their public housing authorities and school districts, or those asserted as class actions. In addition, we have determined that liability to us which may result, if any, cannot be reasonably estimated at this time because there is no prior history of a loss of this nature on which an estimate could be made and there is no substantive information available upon which an estimate could be based.

~~Under~~In the terms of the County of Santa Clara v. Atlantic Richfield Company, et al. (Superior Court of the State of California, County of Santa Clara, Case No. 1-00-CV-788657) global settlement agreement, we ~~made a $12.0 million payment in September 2021. We~~ have four annual installment payments remaining ($12.0 millionfor the next three installments and $16.7 million for the final installment). Our final installment will be made with funds already on deposit at the court, which are included in noncurrent restricted cash on our Condensed Consolidated Balance Sheets, that are committed to the settlement, including all accrued interest at the date of payment, with any remaining balance to be paid by us (and any amounts on deposit in excess of the final payment would be returned to us). See Note 17 to our ~~2020~~2021 Annual Report.

New cases may continue to be filed against us. ~~It is possible~~We cannot assure you that we will not incur liability in the future ~~with~~in respect toof any of the pending or possible litigation in view of the inherent uncertainties involved in court and jury rulings. In the future, if new information regarding such matters becomes available to us (such as a final, non-appealable adverse verdict against us or otherwise ultimately being found liable with respect to such matters), at that time we would consider such information in evaluating any remaining cases then-pending against us as to whether it might then have become probable we have incurred liability with respect to these matters, and whether such liability, if any, could have become reasonably estimable. The resolution of any of these cases could result in the recognition of a loss contingency accrual that could have a material adverse impact on our net income for the interim or annual period

during which such liability is recognized and a material adverse impact on our consolidated financial condition and liquidity.

Environmental matters and litigation

Our operations are governed by various environmental laws and regulations. Certain of our businesses are and have been engaged in the handling, manufacture or use of substances or compounds that may be considered toxic or hazardous within the meaning of applicable environmental laws and regulations. As with other companies engaged in similar businesses, certain of our past and current operations and products have the potential to cause environmental or other damage. We have implemented and continue to implement various policies and programs in an effort to minimize these risks. Our policy is to maintain compliance with applicable environmental laws and regulations at all of our plants and to strive to improve environmental performance. From time to time, we may be subject to environmental regulatory enforcement under U.S. statutes, the resolution of which typically involves the establishment of compliance programs. It is possible that future developments, such as stricter requirements of environmental laws and enforcement policies, could

15

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adversely affect our production, handling, use, storage, transportation, sale or disposal of such substances. We believe all of our facilities are in substantial compliance with applicable environmental laws.

Certain properties and facilities used in our former operations, including divested primary and secondary lead smelters and former mining locations, are the subject of civil litigation, administrative proceedings or investigations arising under federal and state environmental laws and common law. Additionally, in connection with past operating practices, we are currently involved as a defendant, potentially responsible party (PRP) or both, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (CERCLA), and similar state laws in various governmental and private actions associated with waste disposal sites, mining locations, and facilities that we or our predecessors, our subsidiaries or their predecessors currently or previously owned, operated or used, certain of which are on the United States Environmental Protection Agency’s (EPA) Superfund National Priorities List or similar state lists. These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to natural resources. Certain of these proceedings involve claims for substantial amounts. Although we may be jointly and severally liable for these costs, in most cases we are only one of a number of PRPs who may also be jointly and severally liable, and among whom costs may be shared or allocated. In addition, we are occasionally named as a party in a number of personal injury lawsuits filed in various jurisdictions alleging claims related to environmental conditions alleged to have resulted from our operations.

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. ~~It is possible actual~~Actual costs ~~will~~could exceed accrued amounts or the upper end of the range for sites for which estimates have been made, and ~~it is possible~~ costs ~~will~~may be incurred for sites where no estimates presently can be made. Further, additional environmental and related matters may arise in the future. If we were to incur any future liability, this could have a material adverse effect on our consolidated financial statements, results of operations and liquidity.

We record liabilities related to environmental remediation and related matters (including costs associated with

damages for personal injury or property damage and/or damages for injury to natural resources) when estimated future expenditures are probable and reasonably estimable. We adjust such accruals as further information becomes available to us or as circumstances change. Unless the amounts and timing of such estimated future expenditures are fixed and reasonably determinable, we generally do not discount estimated future expenditures to their present value due to the uncertainty of the timing of the payout. We recognize recoveries of costs from other parties, if any, as assets when their receipt is deemed probable.

We do not know and cannot estimate the exact time frame over which we will make payments for our accrued environmental and related costs. The timing of payments depends upon a number of factors, including but not limited to the timing of the actual remediation ~~process,~~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.

16

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Changes in the accrued environmental remediation and related costs during the first ~~nine~~three months of ~~2021~~2022 are as follows:

Amount

(In thousands)

Balance at the beginning of the period
$
93,416

Additions charged to expense, net

569

Payments, net

(995
)
Balance at the end of the period
$
92,990

Amounts recognized in the Condensed Consolidated

Balance Sheet at the end of the period:

Current liability
$
2,583

Noncurrent liability

90,407

Balance at the end of the period
$
92,990


	Amount
	(In thousands)
Balance at the beginning of the period	$	92,940
Additions charged to expense, net		144
Payments, net		(180)
Balance at the end of the period	$	92,904

Amounts recognized in the Condensed Consolidated
Balance Sheet at the end of the period:
Current liability	$	2,605
Noncurrent liability		90,299
Balance at the end of the period	$	92,904

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 ~~September 30, 2021,~~March 31, 2022, we had accrued approximately $93million related to approximately 32 sites associated with remediation and related matters we believe are at the present time and/or in their current phase reasonably estimable. The upper end of the range of reasonably possible costs to us for remediation and related matters for which we believe it is possible to estimate costs is approximately ~~$112~~$118 million, including the amount currently accrued. These accruals have not been discounted to present value.

We believe it is not reasonably possible to estimate the range of costs for certain sites. At ~~September 30, 2021,~~March 31, 2022, 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, if any, and the extent of contamination at and cost to remediate the site. The timing and availability of information on these sites is dependent on events outside of our control, such as when the party alleging liability provides information to us. At certain of these previously inactive sites, we have received general and special notices of liability from the EPA and/or state agencies alleging that we, sometimes with other PRPs, are liable for past and future costs of remediating environmental contamination allegedly caused by former operations. These notifications may assert that we, along with any other alleged PRPs, are liable for past and/or future clean-up costs. As further information becomes available to us for any of these sites, which would allow us to estimate a range of costs, we would at that time adjust our accruals. Any such adjustment could result in the recognition of an accrual that would have a material effect on our consolidated financial statements, results of operations and liquidity.

Insurance coverage claims

We are involved in certain legal proceedings with a number of our former insurance carriers regarding the nature and extent of the carriers’ obligations to us under insurance policies with respect to certain lead pigment and asbestos lawsuits. The issue of whether insurance coverage for defense costs or indemnity or both will be found to

exist for our lead pigment and asbestos litigation depends upon a variety of factors and we cannot assure you that such insurance coverage will be available.

We have agreements with certain of our former insurance carriers pursuant to which the carriers reimburse us for a portion of our future lead pigment litigation defense costs, and one such carrier reimburses us for a portion of our future asbestos litigation defense costs. We are not able to determine how much we will ultimately recover from these carriers for defense costs incurred by us because of certain issues that arise regarding which defense costs qualify for reimbursement. While we continue to seek additional insurance recoveries, we do not know if we will be 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 ~~2020~~2021 Annual Report.

Other litigation

In addition to the litigation described above, we and our affiliates are also involved in various other environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to present and former businesses. In certain cases, we have insurance coverage for these items, although we do not expect additional material insurance coverage for

17

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environmental matters. We currently believe the disposition of all of these various other claims and disputes (including ~~asbestos related~~asbestos-related claims), individually and in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or liquidity beyond the accruals already provided.

Note 15 – Financial instruments and fair value measurements:

See Note 4 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:

December 31, 2020

September 30, 2021

Carrying

Fair

Carrying

Fair

amount

value

amount

value

(In thousands)

Cash, cash equivalents and restricted cash
$
165,272

$
165,272

$
170,433

$
170,433

December 31, 2021

March 31, 2022

Carrying

Fair

Carrying

Fair

amount

value

amount

value

(In thousands)

Cash, cash equivalents and restricted cash

$

175,242

$

175,242

$

173,298

$

173,298

Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value.

18

Table of Contents

ITEM 2.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:

Business overview

We are primarily a holding company. We operate in the component products industry through our majority-owned subsidiary, CompX International Inc. We also own a non-controlling interest in Kronos Worldwide, Inc. Both CompX (NYSE American: 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 operations, CompX manufactures mechanical and electronic cabinet locks and other locking mechanisms used in recreational transportation, postal, office and institutional furniture, cabinetry, tool storage and healthcare applications. CompX also manufactures stainless steel exhaust systems, gauges, throttle controls, wake enhancement systems, trim tabs and related hardware and accessories for the recreational marine and other industries through its Marine Components operations.

We account for our approximate ~~30%~~31% non-controlling interest in Kronos by the equity method. Kronos is a leading global producer and marketer of value-added titanium dioxide pigments (TiO₂). TiO₂ is used for a variety of manufacturing applications including paints, 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, as amended. Statements in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking in nature and represent management’s beliefs and assumptions based on currently available information. Statements in this report including, but not limited to, statements found in Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements that represent our management’s beliefs and assumptions based on currently available information. In some cases you can identify forward-looking statements by the use of words such as “believes,” “intends,” “may,” “should,” “could,” “anticipates,” “expects” or comparable terminology, or by discussions of strategies or trends. Although we believe the expectations reflected in 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 including, but are not limited to, the following:

•

●

Future supply and demand for our products

•

●

The extent of the dependence of certain of our businesses on certain market sectors

•

●

The cyclicality of our businesses (such as Kronos’ TiO₂operations)

•

●

Customer and producer inventory levels

•

●

Unexpected or earlier-than-expected industry capacity expansion (such as the TiO₂industry)

•

●

Changes in raw material and other operating costs (such as energy, ore, zinc, aluminum, steel and brass costs) and our ability to pass those costs on to our customers or offset them with reductions in other operating costs

•

●

Changes in the availability of raw material (such as ore)

•

●

General global economic and political conditions that harm the worldwide economy, disrupt our supply chain, increase material and energy costs or reduce demand or perceived demand for Kronos’ TiO₂ and our products or impair our ability to operate our facilities ~~(including~~(including changes in the level of gross domestic product in various regions of the world, natural disasters, terrorist acts, global conflicts and public health crises such as COVID-19)

•

●

Competitive products and substitute products

•

●

Price and product competition from low-cost manufacturing sources (such as China)

•

●

Customer and competitor strategies

•

●

Potential consolidation of Kronos’ competitors

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Table of Contents

•

●

Potential consolidation of Kronos’ customers

•

●

The impact of pricing and production decisions

•

●

Competitive technology positions

•

●

Our ability to protect or defend intellectual property rights

•

●

Potential difficulties in integrating future acquisitions

•

●

Potential difficulties in upgrading or implementing accounting and manufacturing software systems

•

●

The introduction of trade barriers or trade disputes

•

●

The impact of current or future government regulations (including employee healthcare benefit related regulations)

•

●

Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian krone and the Canadian dollar and between the euro and the Norwegian krone), or possible disruptions to our business resulting from uncertainties associated with the euro or other currencies

•

●

Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, cyber-attacks and public health crises such as COVID-19)

•

●

Decisions to sell operating assets other than in the ordinary course of business

•

●

Kronos’ ability to renew or refinance credit facilities

•

●

Potential increases in interest rates

●

Our ability to maintain sufficient liquidity

•

●

The timing and amounts of insurance recoveries

•

●

The ability of our subsidiaries or affiliates to pay us dividends

•

●

Uncertainties associated with CompX’s development of new products and product features

•

●

The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform

•

●

Our ability to utilize income tax attributes or changes in income tax rates related to such attributes, the benefits of which may or may not have been recognized under the more-likely-than-not recognition criteria

•

●

Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities or new developments regarding environmental remediation at sites related to our former operations)

•

●

Government laws and regulations and possible changes therein ~~(such~~(such as changes in government regulations which might impose various obligations on former manufacturers of lead pigment and lead-based paint, including us, with respect to asserted health concerns associated with the use of such products), including new environmental health and safety regulations such as those seeking to limit or classify TiO₂ or its use

•

●

The ultimate resolution of pending litigation (such as our lead pigment and environmental matters)

•

●

Possible future litigation.

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.

20

Table of Contents

Results of operations

Net income overview

Quarter ended ~~September 30, 2021~~March 31, 2022 compared to the quarter ended ~~September 30, 2020~~March 31, 2021

Our net income attributable to NL stockholders was ~~$10.3~~$18.6 million, or ~~$.21~~$.38 per share, in the ~~third~~first quarter of ~~2021~~2022 compared to net income attributable to NL stockholders of ~~$3.9~~$13.3 million, or ~~$.08~~$.27 per share, in the ~~third~~first quarter of ~~2020.~~2021. As more fully described below, the increase in our earnings per share attributable to NL stockholders from ~~2020~~2021 to ~~2021~~2022 is primarily due to the net effects of:

•●

equity in earnings of Kronos in ~~2021~~2022 of ~~$10.9~~$17.5 million compared to ~~$2.4~~$6.0 million in ~~2020;~~2021;

•

●

~~unfavorable changes~~an unrealized gain in the relative value of marketable equity securities of ~~$4.4 million;~~$.7 million in 2022 compared to $6.4 million in 2021; and

•●

higher income from operations attributable to CompX of ~~$3.0~~$.5 million in ~~2021.~~2022.

~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020~~

We had net income attributable to NL stockholders of $36.3 million, or $.74 per share, in the first nine months of 2021 compared to net income attributable to NL stockholders of $10.4 million, or $.21 per share, in the first nine months of 2020. As more fully described below, the increase in our earnings per share attributable to NL stockholders from 2020 to 2021 is primarily due to the net effects of:

•

~~favorable changes in the relative value of marketable equity securities of $20.8 million;~~

•

~~equity in earnings of Kronos in 2021 of $24.7 million compared to $16.3 million in 2020,~~

•

~~income tax expense of $5.5 million in 2021 compared to a benefit of $3.6 million in 2020; and~~

•

~~higher income from operations attributable to CompX of $7.2 million in 2021.~~

Income from operations

The following table shows the components of our income ~~(loss)~~ from operations.

Three months ended
September 30,

%

Nine months ended
September 30,

%

2020

2021

Change

2020

2021

Change

(In millions)

(In millions)

CompX
$
2.1

$
5.1

146

%

$
9.5

$
16.7

76

%
Insurance recoveries

-

-

n.m.

.1

.1

n.m.

Corporate expense

(2.4
)

(2.9
)

20

(7.4
)

(7.7
)

4

Income from operations
$
(.3
)

$
2.2

842

$
2.2

$
9.1

308

~~n.m. not meaningful~~


	Three months ended March 31,				%
	2021		2022		Change

	(In millions)
CompX	$	5.8	$	6.3	8	%
Corporate expense		(1.8)		(2.4)	32
Income from operations	$	4.0	$	3.9	(3)

Amounts attributable to CompX relate to its component products business, while corporate expense generally relates to NL. Each of these items is further discussed below.

The following table shows the components of our income before income taxes exclusive of our income ~~(loss)~~ from operations.


	Three months ended March 31,				%
	2021		2022		Change

	(In millions)
Equity in earnings of Kronos	$	6.0	$	17.5	194	%
Marketable equity securities unrealized gain		6.4		.7	(89)
Other components of net periodic pension and OPEB cost		(.1)		(.2)	214
Interest and dividend income		.4		.3	(30)
Interest expense		(.3)		(.3)	(17)

Three months ended
September 30,

%

Nine months ended
September 30,

%

2020

2021

Change

2020

2021

Change

(In millions)

(In millions)

Equity in earnings of Kronos
$
2.4

$
10.9

342

%

$
16.3

$
24.7

51

%
Marketable equity securities
unrealized (loss) gain

3.2

(1.2
)

(137
)

(11.1
)

9.7

188

Other components of net periodic
pension and OPEB cost

(.2
)

(.1
)

(6
)

(.6
)

(.4
)

(26
)

Interest and dividend income

.5

.4

(18
)

2.1

1.3

(41
)

Interest expense

(.3
)

(.3
)

(15
)

(1.0
)

(.9
)

(15
)

21

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CompX International Inc.

In the ~~third~~first quarter of ~~2021~~2022 CompX’s operating income increased to ~~$5.1~~$6.3 million compared to ~~$2.1 million in the third quarter of 2020. CompX’s operating income for the first nine months of 2021 was $16.7 million compared to $9.5~~$5.8 million in the first ~~nine months~~quarter of ~~2020.~~2021. The increase in operating income in the ~~third~~first quarter ~~and first nine months~~ of ~~2021~~2022 compared to ~~the same periods in 2020~~2021 is primarily ~~resulted from~~due to higher sales ~~volumes at~~for both ~~of CompX’s reporting units. CompX’s operating income was negatively impacted by~~ the ~~COVID-19 pandemic in the second~~Security Products and third quarters of 2020, which significantly impacts operating income comparisons for the third quarter and nine-month comparative periods. CompX sustained the greatest negative sales impact from COVID-19 in the second quarter of 2020. Beginning in the third quarter of 2020 and continuing through the third quarter of 2021, Marine Components sales exceeded pre-pandemic levels. Security Products sales generally improved since the third quarter of 2020, but did not recover to pre-pandemic levels until the second quarter of 2021 when sales improved in markets that had been slower to recover from the COVID-19 pandemic, particularly sales to distributors and the office furniture market.reporting units somewhat offset by increased production costs.


	Three months ended March 31,						%
	2021			2022			Change

	(In millions)
Net sales	$	35.9		$	42.1		17	%
Cost of sales		24.9			30.0		20
Gross margin		11.0			12.1		9
Operating costs and expenses		5.2			5.8		11
Income from operations	$	5.8		$	6.3		8

Percentage of net sales:
Cost of sales		69	%		71	%
Gross margin		31			29
Operating costs and expenses		15			14
Income from operations		16			15

Three months ended
September 30,

%

Nine months ended
September 30,

%

2020

2021

Change

2020

2021

Change

(In millions)

(In millions)

Net sales
$
28.4

$
34.5

22

%

$
84.5

$
106.7

26

%
Cost of sales

21.1

23.6

12

59.4

73.4

24

Gross margin

7.3

10.9

49

25.1

33.3

32

Operating costs and expenses

5.2

5.8

10

15.6

16.6

6

Income from operations
$
2.1

$
5.1

146

$
9.5

$
16.7

76

Percentage of net sales:

Cost of sales

74

%

68

%

70

%

69

%

Gross margin

26

32

30

31

Operating costs and expenses

19

17

19

16

Income from operations

7

15

11

15

Net sales ––Net sales increased ~~$6.1~~$6.2 million in the ~~third~~first quarter of ~~2021~~2022 compared to the same period in ~~2020 primarily~~2021 due to higher Security Products sales across a variety of markets and, to a lesser extent, higher Marine ~~Components~~Component sales primarily to the towboat market. Net sales increased $22.2 million for the first nine months of 2021 compared to the same period in 2020 primarily due to higher sales volumes at both of CompX’s reporting units, particularly in the second quarter of 2021, as many of its customers were temporarily closed or reduced production during the second quarter of 2020 due to government ordered closures or reduced demand resulting from the COVID-19 pandemic.

Cost of sales and gross margin – Cost of sales as a percentage of sales ~~for the third quarter and for~~increased 2% in the first ~~nine months~~quarter of ~~2021 was lower than~~2022 compared to the same ~~periods~~period in ~~2020.~~2021. As a result, gross margin as a percentage of sales ~~increased~~decreased over the same ~~periods. The increase in gross~~period. Gross margin percentage decreased in the ~~third~~first quarter ~~and for~~of 2022 compared to the ~~first nine~~

~~months of~~same period in 2021 ~~is primarily~~ due to ~~the increase in the~~increased production costs at both Security Products ~~gross margin percentage.~~and Marine Components. See discussion of reporting units below.

Operating costs and expenses ––Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to ~~business unit~~reporting units and corporate management activities, as well as gains and losses on property and equipment. Operating costs and expenses for the ~~third~~first quarter ~~and first nine months~~ of ~~2021~~2022 were higher than the same ~~periods last year. The increase was predominantly~~period in 2021 due to higher salary and benefit costs which increased by ~~$.4~~$.2 million, as well as higher costs for advertising, travel, information technology, and ~~$.9 million for the third quarter and first nine months, respectively, compared to the same prior year periods.~~employee recruiting. Operating costs and expenses as a percentage of net sales decreased in ~~both periods as a result~~2022 due to the effect of higher sales.

Income from operations ––As a percentage of net sales, income from operations for the ~~third~~first quarter ~~and first nine months~~ of ~~2021 increased~~2022 decreased compared to the same ~~periods~~period of ~~2020~~2021 and was primarily impacted by the factors impacting cost of sales, gross margin and operating costs. See discussion of reporting units below.

22

Table of Contents

Results by reporting unit

The key performance indicator for CompX’s reporting units is the level of their income from operations (see discussion below). Reporting unit results exclude CompX corporate expenses.


																			Three months ended March 31,						%
																			2021			2022			Change
	Three months ended September 30,						%			Nine months ended September 30,						%
	2020			2021			Change			2020			2021			Change
	(In millions)									(In millions)
																			(In millions)
Security Products:
Net sales	$	21.2		$	25.8			22	%	$	65.2		$	79.3			22	%	$	25.9		$	29.6		14	%
Cost of sales		15.7			17.0			9			45.3			53.4			18			17.7			20.5		16
Gross margin		5.5			8.8			60			19.9			25.9			30			8.2			9.1		10
Operating costs and expenses		2.7			3.3			20			8.0			9.0			11			2.7			3.1		12
Operating income	$	2.8		$	5.5			98		$	11.9		$	16.9			42		$	5.5		$	6.0		9


Gross margin	26		%		34	%					31	%		33	%					32	%		31	%
Operating income margin	13				21						18			21						21			20

Security Products – ~~Products~~ –Security Products net sales increased 14% in the ~~third~~first quarter of ~~2021 increased 22%~~2022 compared to the same period ~~in 2020 when it experienced reduced demand across a variety of markets attributed to COVID-19.~~last year. Relative to ~~prior year, third~~the first quarter of 2021, sales were ~~$2.1~~$1.4 million higher to the government security market, ~~$1.3~~$.9 million higher to distributors, and $.7 million higher to the transportation market, and $.6 million higher to distribution customers. Security Products net sales increased 22% in the first nine months of 2021 compared to the same period last year primarily due to the higher second and third quarter 2021 sales as compared to second and third quarter 2020 sales. Relative to prior year, sales for the first nine months of 2021 were $5.6 million higher to the government security market, $4.5 million higher to the transportation market, and $2.0 million higher to distribution customers.

office furniture market. Gross margin as a percentage of net sales for the ~~third~~first quarter ~~and first nine months~~ of ~~2021 increased~~2022 declined as compared to ~~the same periods last year due to~~2021 as increased coverage of fixed costs from higher ~~production, partially~~sales were more than offset by higher production costs including increased raw ~~materials~~material costs across a variety of commodities and component inputs, higher shipping costs, and increased labor costs ~~primarily~~ due to higher wages, overtime costs and increased headcount. Operating income as a percentage of net sales ~~for~~decreased in the ~~third~~first quarter ~~and first nine months~~ of ~~2021 increased~~2022 compared to the ~~same periods~~first quarter of ~~2020~~2021 due to the factors impacting gross margin, partially offset by increased coverage of operating costs and expenses onfrom higher ~~sales, partially offset by the factors impacting gross margin.~~sales.


																			Three months ended March 31,						%
																			2021			2022			Change
	Three months ended September 30,						%			Nine months ended September 30,						%
	2020			2021			Change			2020			2021			Change
	(In millions)									(In millions)
																			(In millions)
Marine Components:
Net sales	$	7.2		$	8.7			21	%	$	19.3		$	27.4			42	%	$	10.0		$	12.5		24	%
Cost of sales		5.4			6.6			22			14.1			20.0			42			7.2			9.5		31
Gross margin		1.8			2.1			17			5.2			7.4			43			2.8			3.0		7
Operating costs and expenses		.7			.9			27			2.2			2.6			20			.9			1.0		15
Operating income	$	1.1		$	1.2			11		$	3.0		$	4.8			59		$	1.9		$	2.0		3


Gross margin		25	%		25	%					27	%		27	%					28	%		24	%
Operating income margin		16			14						16			18						19			16

Marine Components– –Marine Components net sales increased 24% in the ~~third~~first quarter ~~and first nine months~~ of ~~2021 increased 21% and 42%, respectively,~~2022 compared to the same ~~periods in 2020~~period last year primarily due to increased sales of $2.0 million to several original equipment boat manufacturers in the towboat market. ~~Sales to the towboat market were $1.4 million higher for the third quarter and $6.5 million higher for the first nine months of 2021 compared to the same periods in 2020. As~~Gross margin as a percentage of ~~net~~ sales ~~gross margin and operating income for~~decreased in the ~~third~~first quarter of ~~2021 decreased~~2022 compared to the same period ~~in 2020 as increased coverage~~last year due to higher cost of ~~fixed costs from higher production were more than offset~~sales driven by higher ~~production costs including increased~~ raw materials ~~costs, primarily~~(primarily stainless steel and aluminum), higher shipping costs, and increased labor costs resulting from higher wages, overtime costs and increased ~~headcount. For the first nine months of 2021, gross margin as a percentage of net sales was comparable to the same period in 2020 as the favorable impact from~~headcount, partially offset by increased coverage of fixed costs ~~due to~~from higher ~~production volumes was offset by increased production costs.~~sales. Operating income as a percentage of net sales ~~for~~decreased in the first ~~nine months~~quarter of ~~2021 increased~~2022 compared to the ~~same period in 2020~~first quarter of 2021 due to the factors impacting gross margin, partially offset by increased coverage of operating costs and expenses from higher ~~sales and~~sales.

Outlook – During the ~~factors impacting gross margin.~~

~~Outlook~~ –~~Beginning in the second half of 2020, CompX’s sales began to recover from the historically low levels it experienced during the second~~first quarter of ~~2020, with sales steadily improving for the remainder of last year. Throughout the first nine months of 2021,~~2022, CompX ~~has~~ experienced strong demand ~~particularly~~ at both its ~~Marine Components~~ reporting unit. During the second and third quarters of 2021, CompX’s Security Products reporting unit has seen improved demand from distributors and the office furniture market that had been slower to recover. In the first nine months of 2021,units. CompX’s manufacturing facilities operated at elevated production rates during the quarter in line with improved demand, although labor markets are tight in each of the regions in which ~~CompX~~it operates and, as a result, CompX has experienced and continues to have challenges maintaining staffing levels aligned with current and forecasted demand, particularly at its Marine Components reporting unit.

23

Table of Contents

Based on current market conditions, CompX expects demand levels to remain strong ~~for the remainder of 2021~~in 2022 and it expects to report increased net sales and operating income in ~~2021~~2022 compared to ~~2020.~~2021. CompX’s supply chains remain intact, although the current global and domestic supply chain disruptions continue to present challenges in sourcing certain raw materials due to increased lead times, availability shortages and transportation and logistics delays. Thus far CompX has been able to manage through these disruptions with minimal impact on its operations. In addition, CompX is experiencing increased production costs including higher labor, shipping, and increasing costs of many of the raw materials it ~~uses.~~uses including zinc, brass, stainless steel and aluminum. In response, CompX implemented price increases and ~~surcharges in the second and third quarters of 2021;~~surcharges; however, the extent to which the price increases and surcharges will mitigate the rising costs is uncertain and CompX expects increasing production costs will ~~negatively impact~~continue to pressure gross margins in 2022 as inventory costs are expected to remain above prior year costs for the ~~fourth quarter as higher cost inventories are sold.~~foreseeable future. CompX’s operations teams meet frequently to ensure they are taking appropriate actions to ~~maintain a safe working environment for all its employees,~~ minimize material or supply related operational disruptions, manage inventory levels, ~~and~~ improve operating ~~margins..~~margins and to maintain a safe working environment for all its employees.

CompX’s expectations for its operations and the markets it serves are based on a number of factors outside its control. As noted above, there ~~are~~continue to be global and domestic supply chain challenges and any future impacts ~~of COVID-19~~ on CompX’s operations will depend on, among other things, any future disruption in its operations or its suppliers’ operations, demand for its products and the timing and effectiveness of the global measures deployed to fight COVID-19, particularly in China, all of which remain uncertain and cannot be predicted.

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.

Corporate expense ––Corporate~~Corporate~~ expenses were ~~$2.9~~$2.4 million in the ~~third~~first quarter of ~~2021, $.5~~2022, $.6 million higher than in the ~~third~~first quarter of ~~2020~~2021 primarily due to higher litigation fees and related costs and higher environmental remediation and related costs ~~and higher litigation fees and related costs~~ in ~~2021. Included~~2022. Included in corporate expense ~~in the third quarter of 2020 and 2021~~ are:

•

●

litigation fees and related costs of $.6 million in ~~2021~~the first quarter of 2022 compared to $.3 million ~~2020,~~in the first quarter of 2021, and

•

●

environmental remediation and related costs of ~~$.4 million in 2021 compared to~~ $.1 million in ~~2020.~~

Corporate expenses were $7.7 million in the first nine months of 2021, $.3 million higher than in the first nine months of 2020 primarily due to higher environmental remediation and related costs partially offset by lower administrative expenses. Included in corporate expense in the first nine months of 2020 and 2021 are:

•

~~litigation fees and related costs~~the first quarter of ~~$1.4 million in each of 2021 and 2020, and~~

•

~~environmental remediation and related costs of $.6 million in 2021~~2022 compared to a benefit of $.1 million in ~~2020.~~the first quarter of 2021.

The level of our litigation fees and related costs varies from period to period depending upon, among other things, the number of cases in which we are currently involved, the nature of such cases and the current stage of such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable). See Note 14 to our Condensed Consolidated Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved during ~~2021~~2022 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 ~~2021,~~2022, our corporate expenses would be higher than we currently estimate. In addition, we adjust our environmental accruals as further information becomes available to us or as circumstances change. Such further information or changed circumstances could result in an increase in our accrued environmental costs. See Note 14 to our Condensed Consolidated Financial Statements.

Overall, we currently expect that our net general corporate expenses in ~~2021~~2022 will be higher than ~~2020~~2021 primarily due to higher expected litigation fees and related costs and higher environmental remediation and related costs.

~~Interest and dividend income~~ –Interest and dividend income ~~in the third quarter of 2021 was comparable the prior year period.~~ –Interest and dividend income ~~decreased $.8 million~~declined slightly in the first ~~nine months~~quarter of ~~2021~~2022 compared to the ~~prior year~~same period of 2021 primarily due to lower ~~dividend income, lower interest income related to lower~~ average ~~interest rates~~balances on ~~invested balances, and lower average outstanding balances, under CompX’s revolving promissory~~the note receivable from ~~Valhi.~~affiliate.

Marketable equity securities –– ~~We recognized a loss of $1.2 million on the change in value of our marketable equity securities in the third quarter of 2021 compared to a gain of $3.2 million in the third quarter of 2020.~~ We recognized a gain of ~~$9.7~~$.7 million on the change in value of our marketable equity securities in the first ~~nine months~~quarter of ~~2021~~2022 compared to a ~~loss~~gain of ~~$11.1~~$6.4 million in the first ~~nine months~~quarter of ~~2020.~~ 2021.

Income tax expense ~~(benefit)~~ ––We recognized income tax expense of ~~$1.1~~$2.7 million in the ~~third~~first quarter of ~~2021~~2022 compared to income tax expense of ~~$1.2 million in the third quarter of 2020 and income tax expense of $5.5~~$2.5 million in the first ~~nine months~~quarter of ~~2021 compared to an income tax benefit of $3.6 million in the first nine months of~~

~~2020.~~ 2021. In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings ~~(losses)~~ of Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we receive from Kronos are nontaxable to us. Accordingly, we do not recognize and we are not required to pay income taxes on dividends from Kronos. Therefore, our full-year effective income tax rate will generally be lower than the U.S. federal statutory income tax rate in years during which we receive dividends from Kronos and recognize equity in earnings of Kronos. Conversely, our effective income tax rate will generally be higher than the U.S. federal statutory income tax rate in years during which we receive dividends from Kronos and

24

Table of Contents

recognize equity in losses of Kronos. During interim periods, our effective income tax rate may not necessarily correspond to the foregoing due to the application of accounting for income taxes in interim periods which requires us to base our effective rate on full year projections. We received dividends from Kronos of ~~$19.0~~$6.3 million in the first ~~nine~~three months of ~~2020~~2021 and ~~2021.~~$6.7 million in the first three months of 2022.

Our effective tax rate attributable to our equity in earnings of Kronos, including the effect of the nontaxable dividends we received from Kronos was ~~a 6.1% income tax~~4.3% and 10.1% expense in the first ~~nine~~three months of 2021 and ~~an 11.5% income tax benefit in the first nine months of 2020.~~2022, respectively. The increase in our effective rate from ~~2020~~2021 to ~~2021~~2022 is primarily attributable to Kronos’ anticipated higher full year earnings in ~~2021~~2022 as compared to ~~2020.~~2021. See Note 12 to our Condensed Consolidated Financial Statements for more information about our ~~2021~~2022 income tax items, including a tabular reconciliation of our statutory tax expense ~~(benefit)~~ to our actual ~~expense (benefit).~~expense.

Noncontrolling interest ––Noncontrolling interest in net income of CompX ~~increased during the third quarter and~~is consistent in the first ~~nine~~three months of 2021 ~~compared to the same prior year periods.~~and 2022. The noncontrolling interest we recognize in each period is directly related to the level of earnings at CompX for the period.

Equity in earnings of Kronos Worldwide, Inc.


	Three months ended March 31,						%
	2021			2022			Change

	(In millions)
Net sales	$	465.0		$	562.9		21	%
Cost of sales		369.3			413.6		12
Gross margin	$	95.7		$	149.3

Income from operations	$	34.0		$	83.3		145	%
Other loss, net		(3.4)			(3.0)		(12)
Interest expense		(5.0)			(4.5)		(10)
Income before income taxes		25.6			75.8
Income tax expense		6.0			18.3
Net income	$	19.6		$	57.5

Percentage of net sales:
Cost of sales		79	%		73	%
Income from operations		7			15

Equity in earnings of Kronos Worldwide, Inc.	$	6.0		$	17.5

TiO₂ operating statistics:
Sales volumes*		141			144		2	%
Production volumes*		130			138		6

Change in TiO₂ net sales:
TiO₂ product pricing							24	%
TiO₂ sales volumes							2
TiO₂ product mix/other							—
Changes in currency exchange rates							(5)
Total							21	%

Three months ended
September 30,

%

Nine months ended
September 30,

%

2020

2021

Change

2020

2021

Change

(In millions)

(In millions)

Net sales
$
416.9

$
499.8

20

%

$
1,223.9

$
1,443.4

18

%
Cost of sales

336.3

376.8

12

959.4

1,115.7

16

Gross margin
$
80.6

$
123.0

$
264.5

$
327.7

Income from operations
$
19.3

$
57.3

197

$
95.8

$
135.1

41

Interest and dividend income

.1

-

1.5

.2

Insurance settlement gain

-

-

1.5

-

Marketable equity securities unrealized
gain (loss)

.4

(.1
)

(1.3
)

1.2

Other components of net periodic pension
and OPEB cost

(5.0
)

(4.3
)

(14.4
)

(12.9
)

Interest expense

(4.9
)

(4.8
)

(14.1
)

(15.0
)

Income before income taxes

9.9

48.1

69.0

108.6

Income tax expense

1.8

12.1

15.3

27.3

Net income
$
8.1

$
36.0

$
53.7

$
81.3

Percentage of net sales:

Cost of sales

81

%

75

%

78

%

77

%

Income from operations

5

11

8

9

Equity in earnings of Kronos Worldwide, Inc.
$
2.4

$
10.9

$
16.3

$
24.7

TiO₂ operating statistics:

Sales volumes*

136

142

6

%

396

427

8

%
Production volumes*

122

137

13

387

404

4

Change in TiO₂ net sales:

TiO₂ sales volumes

6

%

8

%
TiO₂ product pricing

11

4

TiO₂ product mix/other

2

2

Changes in currency exchange rates

1

4

Total

20

%

18

%

* Thousands of metric tons

* Thousands of metric tons

Kronos’ key performance indicators are its TiO₂ average selling prices, its level of TiO₂ sales and production volumes and the cost of its third-party feedstock. TiO₂selling prices generally follow industry trends and prices will increase or decrease generally as a result of competitive market pressures.

25

Table of Contents

Current industry conditions

Kronos started ~~2021~~2022 with average TiO₂ selling prices ~~3% lower~~16% higher than at the beginning of ~~2020. Average~~2021 and Kronos’ average TiO₂ selling prices ~~were 11% higher in the third quarter of 2021 as compared to the third quarter of 2020 and 4% higher~~increased 7% in the first ~~nine months of 2021 as compared to the first nine months of 2020. Kronos’ average TiO~~₂~~selling prices at the end of the third~~ quarter of ~~2021 were 10% higher than the end of 2020.~~2022 in response to customer demand and its rising production costs. Kronos experienced higher sales volumes in ~~all major~~its North American, European and Latin American markets in the first ~~nine~~three months of ~~2021~~2022 as compared to the same period of ~~2020 primarily due to the COVID-19 related demand contraction in 2020 which impacted the second and third quarters and was most acute in the second quarter of 2020.~~2021.

Kronos operated its production facilities at ~~overall average~~full practical capacity ~~utilization rates of 99%~~ in the first ~~nine months~~quarter of ~~2021~~2022 compared to ~~92%~~an average capacity rate of 97% in the first ~~nine months~~quarter of ~~2020. TiO~~₂ ~~production volumes were higher in the first nine months of 2021 as compared to the first nine months of 2020 due to higher customer demand in~~ 2021. Kronos decreased production levels in 2020 (primarily in the third quarter) to correspond to the temporary decline in demand resulting from the COVID-19 pandemic. The table below lists Kronos’ comparative quarterly production

~~capacity utilization rates.~~

Production Capacity Utilization Rates

2020

2021

First quarter
95%

97%

Second quarter
96%

100%

Third quarter
86%

100%

Net sales – Kronos’ net sales in the ~~third~~first quarter of ~~2021~~2022 increased ~~20%~~21%, or ~~$82.9~~$97.9 million, compared to the ~~third~~first quarter of ~~2020~~2021 primarily due to ~~an 11%~~a 24% increase in average TiO₂selling prices (which increased net sales by approximately ~~$46~~$112 million) and a 6%2% increase in sales volumes (which increased net sales by approximately ~~$25~~$9 million). ~~In addition to the impact of higher sales volumes and higher average selling prices,~~ Kronos estimates that changes in currency exchange rates (primarily the euro) ~~increased~~decreased its net sales by approximately $5$22 million in the ~~third~~first quarter of ~~2021~~2022 as compared to the ~~third~~first quarter of ~~2020.~~2021. TiO₂ selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs.

Kronos’ sales volumes increased 6% in the third quarter of 2021 as compared to the third quarter of 2020 due to higher demand primarily in its European and North American markets from continuing improvements in global economic activity in the third quarter of 2021 compared to the same period in 2020, which was negatively impacted by the COVID-19 pandemic.

~~Kronos’net sales~~2% in the first ~~nine months~~quarter of 2021 increased 18%, or $219.5 million, compared to the first nine months of 2020 primarily due to an 8% increase in sales volumes (which increased net sales by approximately $98 million) and a 4% increase in average TiO₂selling prices (which increased net sales by approximately $49 million). In addition to the impact of higher sales volumes and higher average selling prices, Kronos estimates that changes in currency exchange rates (primarily the euro) increased its net sales by approximately $47 million in the first nine months of 20212022 as compared to the first ~~nine months of 2020.~~

~~Kronos’ sales volumes increased 8% in the first nine months~~quarter of 2021 ~~as compared~~due to the ~~first nine months~~effects of ~~2020 primarily due to higher sales volumes~~continuing high demand and improvements in ~~all major markets, with a significant portion of the increase occurring~~its delivery and distribution network in ~~the second and third quarters as a result of the impact of COVID-19 on the comparable periods in 2020, as discussed above.~~ 2022.

Cost of sales and gross margin – Kronos’ cost of sales increased ~~$40.5~~$44.3 million, or 12%, in the ~~third~~first quarter of 2022 compared to the first quarter of 2021 ~~compared~~due to the ~~third quarter~~net effects of ~~2020 due to a 6% increase in sales volumes and~~ higher production costs of approximately ~~$16~~$64 million (including higher costs for raw materials and energy)., a 2% increase in sales volumes and more favorable absorption of fixed costs due to a 6% increase in production volumes. Kronos’ cost of sales as a percentage of net sales ~~decreased~~improved to ~~75%~~73% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~81%~~79% in the same period of ~~2020 primarily due to~~2021 as the favorable effects of higher average TiO₂ selling prices and increased coverage of fixed costs from higher production, ~~partially~~more than offset bythe unfavorable impact of higher production costs including higher raw material and energy costs, as discussed above.

Gross margin as a percentage of net sales increased to 25% in the third quarter of 2021 compared to 19% in the third quarter of 2020. As discussed and quantified above, Kronos’ gross margin as a percentage of net sales increased primarily due to the net effects of higher production and sales volumes and higher average TiO₂~~selling prices, partially offset by higher production costs including higher raw material and energy costs.~~

~~Kronos’ cost of sales increased $156.3 million, or 16%,~~27% in the first ~~nine months~~quarter of ~~2021~~2022 compared to the first nine months of 2020 due to an 8% increase in sales volumes and higher production costs of approximately $17 million (including higher costs for raw materials and energy) and the effects of currency fluctuations (primarily the Canadian dollar). Kronos’ cost of sales as a percentage of net sales decreased slightly to 77%21% in the first ~~nine months~~quarter of ~~2021 compared to 78% in the same period of 2020 primarily due to the favorable effects of higher average TiO~~₂ selling prices and increased coverage of fixed costs from higher production, partially offset by higher production costs as well as the effects of fluctuations in currency exchange rates, as discussed below.

~~Gross margin as a percentage of net sales increased to 23% in the first nine months of 2021 compared to 22% in the first nine months of 2020.~~2021. As discussed and quantified above, Kronos’ gross margin as a percentage of net sales increased primarily due to the net effects of higher average TiO₂ selling prices, higher production and sales volumes, higher ~~raw material and other~~ production costs and ~~fluctuations~~changes in currency exchange rates.

Selling, general and administrative expense – Kronos’ selling, general and administrative expense ~~was comparable in the third quarters of 2021 and 2020 at approximately 13% of net sales. Distribution costs were slightly higher~~ as a percentage of net sales ~~but were offset by lower~~decreased to 11% in the first quarter of 2022 compared to 13% in the first quarter of 2021. Increases in distribution and other general and administrative costs ~~as a percentage~~were more than offset by the effects of higher net sales during the comparative ~~period. Kronos’ selling, general and administrative expense was comparable in the first nine months of 2021 and 2020 at approximately 13% of net sales.~~periods.

Income from operations – Kronos’ income from operations increased by ~~$38.0~~$49.3 million ~~or 197%,~~to $83.3 million in the ~~third~~first quarter of ~~2021~~2022 compared to $34.0 million in the ~~third~~first quarter of ~~2020.~~2021. Income from operations as a percentage of net sales increased to ~~11%~~15% in the ~~third~~first quarter of ~~2021~~2022 from 5%7% in the same period of ~~2020~~2021 as a result of the factors impacting gross margin discussed above. Kronos estimates changes in currency exchange rates ~~increased~~decreased income from operations by approximately $2$5 million in the ~~third~~first quarter of ~~2021~~2022 as compared to the same period in ~~2020,~~2021, as discussed in the Effects of ~~Currency Exchange Rates section below.~~

Kronos’ income from operations increased by $39.3 million, or 41%, in the first nine months of 2021 compared to the first nine months of 2020. Income from operations as a percentage of net sales increased to 9% in the first nine months of 2021 from 8% in the same period of 2020. This increase was driven by the higher gross margin discussed above. Kronos estimates that changes in currency exchange rates ~~decreased income from operations by approximately $15 million in the first nine months of 2021 as compared to the same period in 2020, as further discussed~~section below.

Other non-operating income (expense) - –Kronos recognized a ~~loss~~gain of $.1 million on the change in value of its marketable equity securities in the ~~third~~first quarter of ~~2021~~2022 compared to a gain of ~~$.4~~$.8 million in the ~~third~~first quarter of ~~2020.~~2021. Other components of net periodic pension and OPEB cost in the ~~third~~first quarter of ~~2021~~2022 decreased ~~$.7~~$1.1 million compared to the ~~third~~first quarter of ~~2020~~2021 primarily due to ~~higher expected returns on plan assets offset by~~ the net effects of ~~lower~~higher discount rates impacting interest cost and previously unrecognized actuarial losses. Interest expense in the ~~third~~first quarter of ~~2021 was comparable to the third quarter of 2020.~~

Kronos recognized a gain of $1.2 million on the change in value of its marketable equity securities in the first nine months of 2021 and a loss of $1.3 million in the first nine months of 2020. Other components of net periodic pension and OPEB cost in the first nine months of 20212022 decreased ~~$1.5~~$.5 million compared to the first ~~nine months~~quarter of ~~2020~~2021 primarily due to ~~higher expected returns on plan assets offset by~~ the ~~net effects~~strengthening of ~~lower discount rates impacting interest cost and previously unrecognized actuarial losses. Kronos recognized an insurance settlement gain of $1.5 million~~the U.S. dollar relative to the euro (see discussion in the ~~first nine months~~Effects of 2020 related to a property damage claim. Interest expense in the first nine months of 2021 increased $.9 million compared to the first nine months of 2020 due to the refinancing of Kronos’ revolving credit facility in the second quarter of 2021 and the effects of changes in currency exchange ~~rates.~~ rates section below).

Income tax expense - –Kronos recognized income tax expense of ~~$12.1~~$18.3 million in the ~~third~~first quarter of ~~2021~~2022 compared to income tax expense of ~~$1.8 million in the third quarter of 2020. Kronos recognized income tax expense of $27.3~~$6.0 million in the first ~~nine months~~quarter of ~~2021 compared to income tax expense of $15.3 million in the first nine months of 2020.~~2021. The difference is primarily due to higher earnings in ~~2021~~the first quarter of 2022 and the jurisdictional mix of such earnings. ~~Kronos~~Kronos’ earnings are subject to income tax in various U.S. and non-U.S. jurisdictions, and the income tax rates applicable to the pre-tax earnings (losses) of its non-U.S. operations are generally higher than the income tax rates applicable to its U.S. operations. Kronos would generally expect its overall effective tax rate to be higher than the U.S. federal statutory tax rate of 21% primarily because of its sizeable non-U.S. operations.

26

Table of Contents

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 Kronos’ sales from non-U.S. operations are denominated in currencies other than the U.S. dollar, principally the euro, other major European currencies and the Canadian dollar. A portion of Kronos’ sales generated from its non-U.S. operations is denominated in the U.S. dollar (and consequently its non-U.S. operations will generally hold U.S. dollars from time to time). Certain raw materials used in all Kronos’ production facilities, primarily titanium-containing feedstocks, are purchased primarily in U.S. dollars, while labor and other production and administrative costs are incurred primarily in local currencies. Consequently, the translated U.S. dollar value of Kronos’ non-U.S. sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of period-to-period operating results. In addition to the impact of the translation of sales and expenses over time, Kronos’ non-U.S. operations also generate currency transaction gains and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarily U.S. dollar denominated) are initially accrued and when such amounts are settled with the non-local currency, and (ii) changes in currency exchange rates during time periods when ~~its~~Kronos’ non-U.S. operations are holding non-local currency (primarily U.S. dollars).

Overall, Kronos estimates that fluctuations in currency exchange rates had the following effects on its sales and income from operations for the periods indicated.

Impact of changes in currency exchange rates Three months ended September 30, 2021 vs September 30, 2020


Impact of changes in currency exchange rates													Impact of changes in currency exchange rates
Three months ended March 31, 2022 vs March 31, 2021													Three months ended March 31, 2022 vs March 31, 2021
																				Translation
																				losses -		Total currency
														Transaction losses recognized						impact of		impact
														2021		2022		Change		rate changes		2022 vs 2021
	Transaction gains (losses) recognized							Translation gains (losses) - impact of rate changes			Total currency impact 2021 vs 2020
	2020			2021		Change		Translation gains (losses) - impact of rate changes			Total currency impact 2021 vs 2020
	(In millions)
														(In millions)
Impact on:
Net sales	$	-		$	-	$	-	$	5		$	5		$	—	$	—	$	—	$	(22)	$	(22)
Income from operations		(3	)		1		4		(2	)		2			(1)		(2)		(1)		(4)		(5)

The $5$22 million ~~increase~~decrease in net sales (translation ~~gain)~~losses) was caused primarily by a ~~weakening~~strengthening of the U.S. dollar relative to the euro, as Kronos’ euro-denominated sales were translated into ~~more~~fewer U.S. dollars in ~~2021~~2022 as compared to ~~2020.~~2021. The ~~weakening~~strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in ~~2021~~2022 did not have a significant effect on Kronos’ net sales, as a substantial portion of the sales generated by its Canadian and Norwegian operations is denominated in the U.S. dollar.

The $2$5 million ~~increase~~decrease in income from operations was comprised of the following:

•

●

Higher net currency transaction ~~gains~~losses of approximately $4$1 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S. dollar and the euro, Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which causes increases or decreases, as applicable, in U.S. dollar-denominated receivables and payables and U.S. dollar currency held by ~~Kronos’~~our non-U.S. operations, and in Norwegian krone denominated receivables and payables held by Kronos’ non-U.S. operations, and

•

●

Approximately $2$4 million from net currency translation losses primarily caused by a weakening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone, as local currency-denominated operating costs were translated into more U.S. dollars in 2021 as compared to 2020, partially offset by net currency translation gains primarily caused by a weakeningstrengthening of the U.S. dollar relative to the euro as the ~~positive~~negative effects of the ~~weaker~~stronger U.S. dollar on euro-denominated sales more than offset the ~~unfavorable~~favorable effects of euro-denominated operating costs being translated into ~~more~~fewer U.S. dollars in ~~2021~~2022 as compared to ~~2020.~~2021.

Impact of changes in currency exchange rates
Nine months ended September 30, 2021 vs September 30 2020

Translation
gains (losses)-
impact of
rate changes

Total currency
impact
2021 vs 2020

Transaction gains recognized

2020

2021

Change

(In millions)

Impact on:

Net sales
$
-

$
-

$
-

$
47

$
47

Income from operations

3

1

(2
)

(13
)

(15
)

The $47 million increase in net sales (translation gain) was caused primarily by a weakening of the U.S. dollar relative to the euro, as Kronos’ euro-denominated sales were translated into more U.S. dollars in 2021 as compared to 2020. The weakening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2021 did not have a significant effect on the reported amount of Kronos’ net sales, as a substantial portion of the sales generated by its Canadian and Norwegian operations is denominated in the U.S. dollar.

~~The $15 million decrease in income from operations was comprised of the following:~~

•

Lower net currency transaction gains of approximately $2 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S. dollar and the euro, Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which causes increases or decreases, as applicable, in U.S. dollar-denominated receivables and payables and U.S. dollar currency held by Kronos’ non-U.S. operations, and in Norwegian krone denominated receivables and payables held by Kronos’ non-U.S. operations, and

•

Approximately $13 million from net currency translation losses primarily caused by a weakening of the U.S. dollar relative to the Canadian dollar and Norwegian krone, as local currency-denominated operating costs were translated into more U.S. dollars in 2021 as compared to 2020, partially offset by net currency translation gains primarily caused by a weakening of the U.S. dollar relative to the euro as the positive effects of the weaker U.S. dollar on euro-denominated sales more than offset the unfavorable effects of euro-denominated operating costs being translated into more U.S. dollars in 2021 as compared to 2020.

Outlook

Based on current market conditions, Kronos expects global demand for consumer products, including those of its customers, to remain strong throughout the remainder of ~~2021 and therefore,~~2022. Therefore, Kronos expects ~~its~~to continue to produce at full practical capacity and to match sales ~~and~~volumes with production volumes ~~will be higher~~which would result in ~~2021~~lower sales volumes in 2022 as compared to ~~2020. As global economic activity~~2021 based on current inventory levels. Kronos continues to ~~recover, Kronos is experiencing certain~~experience disruptions in global supply chains including availability of certain third-party feedstock and other raw materials along with certain transportation and logistics delays. Thus far ~~Kronos’ operations team~~Kronos has ~~been able to manage~~managed through these disruptions with minimal impact on its operations; however, Kronos expects these challenges to continue for the foreseeable future. Kronos experienced increases in its feedstock costs in the first quarter of 2022 as compared to the same period in 2021, and Kronos expects its feedstock costs to continue to increase for the remainder of 2022 as compared to its average 2021 costs. In addition to feedstock cost increases, Kronos continues to experience increasing production costs, including higher raw material and related shipping costs and significantly higher energy and utility costs, especially in Europe), all of which are likely to continue ~~through~~throughout 2022. At the ~~end~~

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beginning of 2022, Kronos average TiO₂ selling prices were 16% higher than at the ~~year. As a result~~beginning of ~~rising costs~~2021 and ~~continued strong customer demand,~~average TiO₂ selling prices increased 7% in the first quarter of 2022. Kronos expects strong demand will support increasing selling prices for TiO₂ ~~will continue~~throughout 2022 sufficient to ~~rise through~~mitigate the ~~remainder~~effects of ~~2021, mitigating~~ increases in distribution, raw material, energy and other production costs. ~~As such,~~ Kronos expects its ~~2021~~2022 sales and income from operations will be higher than in ~~2020;~~2021; however, ~~Kronos expects~~ increasing costs towill continue to challenge margins. Kronos continues to monitor current and anticipated near-term customer demand levels and will align its production and inventories accordingly.

Kronos’ expectations for the TiO₂ industry and its operations are based on a number of factors outside its ~~control, including the ongoing economic effects of the COVID-19 pandemic.~~control. As noted above, Kronos has experienced global supply chain ~~disruptions, including disruptions related to COVID-19,~~disruptions; and future impacts ~~of COVID-19~~ on its operations will depend on, among other things, any future disruption in its operations or its suppliers’ operations, or related possible shipping delays, and the timing and effectiveness of the global measures deployed to fight COVID-19 and its variants, all of which remain uncertain and cannot be predicted.

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 ~~$10.3~~$3.0 million in the first ~~nine~~three months of ~~2021~~2022 compared to ~~$9.2~~$2.1 million in the first ~~nine~~three months of ~~2020.~~2021. The increase in cash provided by operating activities includes the net effects of:

•

●

~~higher income from operations from CompX in 2021 of $7.2 million;~~

•

~~higher~~lower net cash used for relative changes in receivables, inventories, payables and accrued liabilities in ~~2021~~2022 of ~~$4.8~~$.5 million; and

•

●

~~a $1.3 million decrease in interest~~higher dividend received ~~in 2021 due to the relative timing~~from Kronos of ~~interest received, lower average interest rates and to a lesser extent a lower average affiliate receivable balance.~~$.4 million

We do not have complete access to CompX’s cash flows in part because we do not own 100% of CompX. A detail of our consolidated cash flows from operating activities is presented in the table below. Intercompany dividends have been eliminated. The reference to NL Parent in the table below is a reference to NL Industries, Inc., as the parent company of CompX and our wholly-owned subsidiaries.


							Three months ended
							March 31,
							2021		2022
	Nine months ended September 30,
	2020			2021
	(In millions)
							(In millions)
Net cash provided by operating activities:
CompX	$	9.2		$	8.1		$	(2.4)	$	(2.2)
NL Parent and wholly-owned subsidiaries		3.2			8.7			6.6		7.9
Eliminations		(3.2	)		(6.5	)		(2.1)		(2.7)
Total	$	9.2		$	10.3		$	2.1	$	3.0

Relative changes in working capital can have a significant effect on cash flows from operating activities. As shown below, average days sales outstanding ~~increased~~decreased from December 31, ~~2020~~2021 to ~~September 30, 2021~~March 31, 2022 primarily as a result of relative changes in the timing of ~~collections but is consistent with prior year.~~collections. Total average number of days in inventory ~~increased~~decreased from December 31, ~~2020~~2021 to ~~September 30, 2021~~March 31, 2022 primarily due to ~~increased raw material~~sales growth at both of CompX’s Security Products and ~~production costs as well as increased purchases~~Marine Components reporting units in the first quarter of ~~certain components and raw materials that have longer lead times or for which CompX has experienced availability issues.~~2022. For comparative purposes, we have provided December 31, ~~2019~~2020 and ~~September 30, 2020~~March 31, 2021 numbers below.

December 31,

September 30,

December 31,

September 30,

2019

2020

2021

December 31,

March 31,

December 31,

March 31,

2020

2021

2022

Days sales outstanding

36 days

39 days

33 days

40 days

33 days

43 days

42 days

38 days

Days in inventory

81 days

83 days

75 days

91 days

75 days

66 days

96 days

85 days

Investing activities

Our capital expenditures, all of which relate to CompX, were ~~$2.3~~$1.7 million in the first ~~nine~~three months of ~~2021~~2022 compared to ~~$1.3~~$.6 million in the first ~~nine~~three months of ~~2020.~~2021. During the first ~~nine~~three months of 2022, Valhi repaid a net $.6 million under the promissory note ($7.1

28

Table of Contents

million of gross borrowings and $7.7 million of gross repayments). During the first three months of 2021, Valhi repaid a net ~~$7.7~~$.3 million under the promissory note ($~~25.4~~11.6 million of gross borrowings and ~~$33.1 million of gross repayments). During the first nine months of 2020, Valhi borrowed a net $2.4 million under the promissory note ($25.2 million of gross borrowings and $22.8~~$11.9 million of gross repayments).

Financing activities

~~During the first nine months of 2020, we paid quarterly dividends of $.04 per share to stockholders aggregating $5.9 million.~~ In February 2021, our board of directors ~~increased our~~declared a regular quarterly dividend toof $.06 per share, and in the first ~~nine~~three months of 2021 we paid dividends aggregating ~~$8.8~~$2.9 million. In February 2022, our board of directors declared a quarterly dividend of $.07 per share, and in the first three months of 2022 we paid $3.4 million. The declaration and

payment of future dividends, and the amount thereof, is discretionary and is dependent upon our financial condition, cash requirements, contractual obligations and restrictions and other factors deemed relevant by our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which might be paid. There are currently no contractual restrictions on the amount of dividends which we may pay.

Cash flows from financing activities in the first ~~nine~~three months of each of ~~2020~~2021 and ~~2021~~2022 also include CompX dividends paid to its stockholders other than us. In addition, during the first quarter of 2021, CompX acquired 50,000 shares of its Class A common stock in a market transaction for $.8 million.

Outstanding debt obligations

At ~~September 30, 2021,~~March 31, 2022, NLKW had outstanding debt obligations of $.5 million under its secured revolving credit facility with Valhi, and CompX did not have any outstanding debt obligations. We are in compliance with all of the covenants contained in our secured revolving credit facility with Valhi at ~~September 30, 2021.~~March 31, 2022. See Note 8 to our Condensed Consolidated Financial Statements.

~~On April 20, 2021,~~ Kronos ~~entered into a new $225 million~~has no outstanding borrowings on its global revolving credit facility (Global Revolver) ~~which matures in April 2026. Kronos has no outstanding borrowings on the new Global Revolver~~ at ~~September 30, 2021~~March 31, 2022 and the full $225 million was available for borrowings thereunder. Kronos’ Senior Secured Notes and its ~~new~~ Global Revolver contain a number of covenants and restrictions which, among other things, restrict Kronos’ ability to incur or guarantee additional debt, incur liens, pay dividends or make other restricted payments, or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of these ~~types~~.types. Kronos’ credit agreements contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons other than defaults for failure to comply with typical financial or payment covenants. For example, the credit agreements allow the lender to accelerate the maturity of the indebtedness upon a change of control (as defined in the agreement) of the borrower. In addition, the credit agreements could result in the acceleration of all or a portion of the indebtedness following a sale of assets outside the ordinary course of business. Kronos was in compliance with all of its debt covenants at ~~September 30, 2021~~.March 31, 2022. Kronos believes it will be able to maintain compliance with the financial covenants contained in its credit facilitiy through its maturity.

Future cash requirements

Liquidity

Our primary source of liquidity on an ongoing basis is our cash flow from operating activities and credit facilities with affiliates as further discussed below. We generally use these amounts to fund capital expenditures (substantially all of which relate to CompX), pay ongoing environmental remediation and litigation costs and provide for the payment of dividends (if declared).

At ~~September 30, 2021,~~March 31, 2022, we had aggregate cash, cash equivalents and restricted cash of ~~$170.4~~$173.3 million, all of which was held in the U.S. A detail by entity is presented in the table below.


	Amount
	(In millions)
CompX	$	70.2
NL Parent and wholly-owned subsidiaries		103.1
Total	$	173.3

Amount

(In millions)

CompX
$
76.0

NL Parent and wholly-owned subsidiaries

94.4

Total
$
170.4

In addition, at ~~September 30, 2021~~March 31, 2022 we owned approximately 1.2 million shares of Valhi common stock with an aggregate market value of ~~$27.9~~$35.1 million. See Note 4 to our Condensed Consolidated Financial Statements. We also owned approximately 35.2 million shares of Kronos common stock at ~~September 30, 2021~~March 31, 2022 with an aggregate market value of ~~$437.1~~$546.6 million. See Note 5 to our Condensed Consolidated Financial Statements.

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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 ~~September 30, 2022)~~March 31, 2023) including any amounts CompX might loan from time to time under the terms of its revolving loan to Valhi (which loans would be solely at CompX’s discretion). If actual developments differ materially from our expectations, our liquidity could be adversely affected. In this regard, Valhi has agreed to loan us up to $50 million on a revolving basis. At ~~September 30, 2021,~~March 31, 2022, we had $.5 million in outstanding borrowings under this facility, and we had $49.5 million available for future borrowing. See Note 8 to our Condensed Consolidated Financial Statements.

Capital expenditures

Firm purchase commitments for capital projects in process at ~~September 30, 2021~~March 31, 2022 totaled ~~$2.1~~$.6 million. CompX’s ~~2021~~2022 capital investments are primarily expenditures to meet its expected customer demand, improve capacity and efficiency and properly maintain its facilities and technology infrastructure.

Repurchases of common stock

~~During the first quarter of 2021, CompX purchased 50,000 shares of its Class A common stock in a market transaction.~~ At ~~September 30, 2021,~~March 31, 2022, CompX has ~~627,547~~602,547 shares available for repurchase under a stock repurchase program authorized by its board of directors.

Dividends

Because our operations are conducted primarily through subsidiaries and affiliates, our long-term ability to meet parent company-level corporate obligations is largely dependent on the receipt of dividends or other distributions from our subsidiaries and affiliates. A detail of annual dividends we expect to receive from our subsidiaries and affiliates in ~~2021,~~2022, based on the number of shares of common stock of these affiliates we own as of ~~September 30, 2021~~March 31, 2022 and their current regular quarterly dividend rate, is presented in the table below. In this regard, in February 2022 Kronos increased its regular quarterly dividend from $.18 to $.19 per share and in March ~~2021~~2022 CompX increased its regular quarterly dividend from ~~$.10~~$.20 per share to ~~$.20~~$.25 per share, beginning in both cases with ~~its dividend~~dividends paid in March ~~2021.~~2022.


	Shares held		Quarterly		Annual expected
	March 31, 2022		dividend rate		dividend
	(In millions)					(In millions)
Kronos		35.2	$	.19	$	26.8
CompX		10.8		.25		10.8
Valhi		1.2		.08		.4
Total expected annual dividends					$	38.0

Shares held

Quarterly
dividend rate

Annual expected
dividend

(In millions)

(In millions)
Kronos

35.2

$
.18

$
25.4

CompX

10.8

.20

8.6

Valhi

1.2

.08

.4

Total expected annual dividends




$
34.4

Investments in our subsidiaries and affiliates and other acquisitions

We have in the past and may in the future, purchase the securities of our subsidiaries and affiliates or third-parties in market or privately-negotiated transactions. We base our purchase decisions on a variety of factors, including an analysis of the optimal use of our capital, taking into account the market value of the securities and the relative value of expected returns on alternative investments. In connection with these activities, we may consider issuing additional equity securities or increasing our indebtedness. We may also evaluate the restructuring of ownership interests of our businesses among our subsidiaries and related companies.

30

~~Off-balance sheet financing arrangements~~Table of Contents

~~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 ~~2020~~2021 Annual Report 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 in our ~~2020~~2021 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 defendant’s product caused the alleged damage and bills which would revive actions barred by the statute of limitations. While no legislation or regulations have been enacted to date that are expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity, enactment of such legislation could have such an effect.

Recent accounting pronouncements

Not applicable

Critical accounting policies and estimates

For a discussion of our critical accounting policies, refer to Part I, — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2020~~2021 Annual Report. There have been no changes in our critical accounting policies during the first ~~nine~~three months of ~~2021.~~2022.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to market risk, including currency exchange rates, interest rates and security prices. There have been no material changes in these market risks since we filed our ~~2020~~2021 Annual Report, and we refer you to Part I, Item 7A. –“Quantitative and Qualitative Disclosure about Market Risk” in our ~~2020~~2021 Annual Report. See also Note 15 to our Condensed Consolidated Financial Statements.

ITEM 4.CONTROLS AND PROCEDURES

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

Evaluation of disclosure controls and procedures ––We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Each of Courtney J. Riley, our President and Chief Executive Officer and Amy Allbach Samford, our Senior Vice President and Chief Financial Officer, have evaluated the design and effectiveness of our disclosure controls and procedures as of ~~September 30, 2021.~~March 31, 2022. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the date of this evaluation.

Internal control over financial reporting ––Our management is responsible for establishing and maintaining adequate internal control over financial reporting which, as defined by Exchange Act Rule 13a-15(f) means a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for

external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

•

●

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of our assets,

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•

●

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with authorizations of our management and directors, and

•

●

Provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or disposition of assets that could have a material effect on our Condensed Consolidated Financial Statements.

Other ––As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal control over financial reporting of equity method investees and (ii) internal control over the preparation of any financial statement schedules which would be required by Article 12 of Regulation S-X. However, our assessment of internal control over financial reporting with respect to equity method investees did include controls over the recording of amounts related to our investment that are recorded in the consolidated financial statements, including controls over the selection of accounting methods for our investments, the recognition of equity method earnings and losses and the determination, valuation and recording of our investment account balances.

Changes in internal control over financial reporting– There have been no changes to our internal control over financial reporting during the quarter ended ~~September 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

In addition to the matter discussed below, refer to Note 14 to our Condensed Consolidated Financial Statements and our ~~2020~~2021 Annual ~~Report and Quarterly Report on Form 10-Q for~~Report.

Certain Underwriters at Lloyds, London, et al v. NL Industries, Inc. In March ~~31, 2021.~~

~~Lewis, et al. v. Lead Industries Association, et al.~~ ~~In October 2021,~~2022, the appellate court entered an order ~~decertifying~~denying the ~~class~~insurer’s interlocutory appeal and ~~entering judgment for~~affirming the trial court’s finding that the arguments raised by the insurers did not bar NL ~~and the other defendants.~~from coverage.

~~Item 1A.~~

Item 1A. Risk Factors

Reference is made to the ~~2020~~2021 Annual Report for a discussion of risk factors related to our businesses.

Item 6.Exhibits

~~Item 6.~~

~~Exhibits~~


31.1	Certification

31.2	Certification

32.1	Certification

101.INS	Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH	Inline XBRL Taxonomy Extension Schema

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase

104	Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NL INDUSTRIES, INC.
	(Registrant)




Date: ~~November~~May 4, ~~2021~~2022	/s/ Amy Allbach Samford
	Amy Allbach Samford
	(Senior Vice President and Chief Financial Officer, Principal Financial Officer)

Date: ~~November~~May 4, ~~2021~~2022	/s/ Amy E. Ruf
	Amy E. Ruf
	(Vice President and Controller,
	Principal Accounting Officer)

38

34

	Three months ended						Nine months ended
	September 30,						September 30,
	2020			2021			2020			2021
	(unaudited)
Net sales	$	28,426		$	34,556		$	84,537		$	106,733
Cost of sales		21,098			23,634			59,412			73,470

Gross margin		7,328			10,922			25,125			33,263

Selling, general and administrative expense		5,246			5,791			15,654			16,557
Other operating income (expense):
Insurance recoveries		-			24			108			56
Corporate expense		(2,390	)		(2,871	)		(7,339	)		(7,619	)

Income (loss) from operations		(308	)		2,284			2,240			9,143

Equity in earnings of Kronos Worldwide, Inc.		2,475			10,934			16,333			24,718

Other income (expense):
Interest and dividend income		470			387			2,102			1,250
Marketable equity securities		3,210			(1,198	)		(11,115	)		9,737
Other components of net periodic pension and OPEB cost		(208	)		(196	)		(624	)		(463	)
Interest expense		(352	)		(299	)		(1,054	)		(896	)

Income before income taxes		5,287			11,912			7,882			43,489

Income tax expense (benefit)		1,163			1,054			(3,616	)		5,460

Net income		4,124			10,858			11,498			38,029
Noncontrolling interest in net income of subsidiary		252			545			1,127			1,762

Net income attributable to NL stockholders	$	3,872		$	10,313		$	10,371		$	36,267

Amounts attributable to NL stockholders:
Basic and diluted net income per share	$	.08		$	.21		$	.21		$	.74

Weighted average shares used in the calculation of net income per share		48,789			48,803			48,772			48,795

	Three months ended September 30, 2020 and 2021 (unaudited)
									Accumulated
			Additional						other			Noncontrolling
	Common		paid-in			Retained			comprehensive			interest in			Total
	stock		capital			earnings			loss			subsidiary			equity

Balance at June 30, 2020	$	6,098	$	299,093		$	253,597		$	(255,521	)	$	23,262		$	326,529
Net income		-		-			3,872			-			252			4,124
Other comprehensive income, net of tax		-		-			-			3,431			-			3,431
Dividends paid - $.04 per share		-		-			(1,951	)		-			-			(1,951	)
Dividends paid to noncontrolling interest		-		-			-			-			(169	)		(169	)

Balance at September 30, 2020	$	6,098	$	299,093		$	255,518		$	(252,090	)	$	23,345		$	331,964

Balance at June 30, 2021	$	6,100	$	300,309		$	277,974		$	(248,082	)	$	22,274		$	358,575
Net income		-		-			10,313			-			545			10,858
Other comprehensive loss, net of tax		-		-			-			(791	)		-			(791	)
Dividends paid - $.06 per share		-		-			(2,928	)		-			-			(2,928	)
Dividends paid to noncontrolling interest		-		-			-			-			(330	)		(330	)

Balance at September 30, 2021	$	6,100	$	300,309		$	285,359		$	(248,873	)	$	22,489		$	365,384

	Nine months ended September 30, 2020 and 2021 (unaudited)
									Accumulated
			Additional						other			Noncontrolling
	Common		paid-in			Retained			comprehensive			interest in			Total
	stock		capital			earnings			loss			subsidiary			equity

Balance at December 31, 2019	$	6,094	$	299,102		$	251,000		$	(251,690	)	$	22,707		$	327,213
Net income		-		-			10,371			-			1,127			11,498
Other comprehensive loss, net of tax		-		-			-			(400	)		-			(400	)
Issuance of NL common stock		4		96			-			-			-			100
Dividends paid - $.12 per share		-		-			(5,853	)		-			-			(5,853	)
Dividends paid to noncontrolling interest		-		-			-			-			(507	)		(507	)
Other, net		-		(105	)		-			-			18			(87	)

Balance at September 30, 2020	$	6,098	$	299,093		$	255,518		$	(252,090	)	$	23,345		$	331,964

Balance at December 31, 2020	$	6,098	$	299,093		$	257,875		$	(251,189	)	$	23,472		$	335,349
Net income		-		-			36,267			-			1,762			38,029
Other comprehensive income, net of tax		-		-			-			2,316			-			2,316
Issuance of NL common stock		2		99			-			-			-			101
Dividends paid - $.18 per share		-		-			(8,783	)		-			-			(8,783	)
Dividends paid to noncontrolling interest		-		-			-			-			(999	)		(999	)
Other, net		-		1,117			-			-			(1,746	)		(629	)

Balance at September 30, 2021	$	6,100	$	300,309		$	285,359		$	(248,873	)	$	22,489		$	365,384

	Fair value measurement level	Market value		Cost basis		Unrealized gain (loss)
		(In thousands)
December 31, 2020
Valhi common stock	1	$	18,206	$	24,347	$	(6,141	)

September 30, 2021
Valhi common stock	1	$	27,943	$	24,347	$	3,596

	Amount
	(In millions)
Balance at the beginning of the period	$	242.4
Equity in earnings of Kronos		24.7
Dividends received from Kronos		(19.0	)
Equity in Kronos' other comprehensive income:
Currency translation		(1.1	)
Defined benefit pension plans		3.1
Balance at the end of the period	$	250.1

	December 31, 2020				September 30, 2021
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
	(In thousands)
Cash, cash equivalents and restricted cash	$	165,272	$	165,272	$	170,433	$	170,433

	Production Capacity Utilization Rates
	2020	2021
First quarter	95%	97%
Second quarter	96%	100%
Third quarter	86%	100%

Impact of changes in currency exchange rates Nine months ended September 30, 2021 vs September 30 2020

								Translation gains (losses)- impact of rate changes			Total currency impact 2021 vs 2020
	Transaction gains recognized
	2020		2021		Change
	(In millions)
Impact on:
Net sales	$	-	$	-	$	-		$	47		$	47
Income from operations		3		1		(2	)		(13	)		(15	)

	Shares held		Quarterly dividend rate		Annual expected dividend
	(In millions)				(In millions)
Kronos		35.2	$	.18	$	25.4
CompX		10.8		.20		8.6
Valhi		1.2		.08		.4
Total expected annual dividends					$	34.4