We are primarily a holding company. We operate in the component products industry through our majority-owned subsidiary, CompX International Inc. We also own a noncontrolling interest in Kronos Worldwide, Inc. Both CompX (NYSE American: CIX) and Kronos (NYSE: KRO) file periodic reports with the SEC.
As more fully described below, the increase in our earnings per share attributable to NL stockholders from 2020 to 2021 is primarily due to the effects of:
? equity in earnings from Kronos in 2021 of $34.3 million compared to $19.4
? favorable relative changes in the value of marketable equity securities of
? higher income from operations attributable to CompX of $8.7 million in 2021.
As more fully described below, the decrease in our earnings per share attributable to NL stockholders from 2019 to 2020 is primarily due to the net effects of:
? a pre-tax litigation settlement expense of $19.3 million in 2019 (mostly
recognized in the second quarter)
? equity in earnings from Kronos in 2020 of $19.4 million compared to $26.5
? unfavorable relative changes in the value of marketable equity securities of
? lower income from operations attributable to CompX of $5.9 million in 2020,
lower insurance recoveries in 2020 of $5.0 million related primarily to a
? single insurance recovery settlement of $4.5 million in 2019 for certain past
and future litigation defense costs,
? a gain of $4.4 million in 2019 related to a sale of excess property, recognized
? a gain of $3.0 million in 2019 related to the sale of our insurance and risk
management business, recognized in the fourth quarter, and
? lower litigation fees and related costs of $2.1 million in 2020.
Our 2019 net income per share attributable to NL stockholders includes:
? a loss of $.31 per share, net of income tax benefit, related to the litigation
settlement expense, recognized mainly in the second quarter,
? income of $.08 per share, net of income tax expense, related to insurance
recoveries, recognized mainly in the second quarter,
? income of $.07 per share, net of income tax expense, related to a gain from a
sale of excess property, recognized in the third quarter,
income of $.05 per share, net of income tax expense, related to a gain from the
? sale of our insurance and risk management business, recognized in the fourth
a loss of $.03 per share related to Kronos' fourth quarter recognition of a
? non-cash deferred income tax expense primarily related to the revaluation of
Kronos' net deferred income tax asset in Germany as a result of a decrease in
the German trade tax rate,
income of $.01 per share related to Kronos' fourth quarter recognition of an
? income tax benefit related to the favorable settlement of a prior year tax
? income of $.01 per share related to Kronos' insurance settlement gain
recognized in the fourth quarter.
The following table shows the components of our income before income taxes exclusive of our income (loss) from operations.
Net sales decreased approximately $9.7 million in 2020 compared to 2019 primarily due to lower Security Products sales across a variety of markets due to reduced demand resulting from the COVID-19 pandemic, offset slightly by higher Marine Component sales to the towboat market.
benefit costs which increased by $.9 million. As a percentage of sales, operating costs and expenses decreased in 2021 compared to 2020 primarily due to the effect of higher sales.
Income from operations - As a percentage of net sales, operating income increased in 2021 compared to 2020 and decreased in 2020 compared to 2019.
Operating margins were primarily impacted by the factors impacting net sales, cost of sales, gross margin and operating costs discussed above.
The key performance indicator for CompX's reporting units is the level of their income from operations (see discussion below).
General corporate items, interest and dividend income, interest expense, provision for income taxes, noncontrolling interest and related party transactions
? litigation fees and related costs of $1.9 million in each of 2021 and 2020, and
? environmental remediation and related costs of $.8 million in 2021 compared to
? litigation fees and related costs of $1.9 million in 2020 compared to $4.0
? environmental remediation and related costs of $.1 million in 2020 compared to
a benefit of $.6 million in 2019.
Marketable equity securities - Unrealized gains or losses on our marketable equity securities are recognized in Marketable equity securities on our Consolidated Statements of Income. See Note 5 to our Consolidated Financial Statements.
Income tax expense (benefit) - We recognized an income tax expense of $.6 million in 2019, an income tax benefit of $2.5 million in 2020 and an income tax expense of $7.5 million in 2021.
Equity in earnings of Kronos Worldwide, Inc.
estimates that changes in currency exchange rates decreased income from operations by approximately $13 million in 2021 as compared to 2020 as discussed in the Effects of currency exchange rates section below.
the U.S. federal statutory rate of 21% due to the effect of lower earnings and tax benefits associated with losses incurred in certain high tax jurisdictions.
Effects of currency exchange rates
The $13 million decrease in income from operations was comprised of the following:
Higher net currency transaction gains of approximately $6 million primarily
caused by relative changes in currency exchange rates at each applicable
balance sheet date between the U.S. dollar and the euro, Canadian dollar and
? the Norwegian krone, and between the euro and the Norwegian krone, which causes
increases or decreases, as applicable, in U.S. dollar-denominated receivables
and payables and U.S. dollar currency held by Kronos' non-U.S. operations, and
in Norwegian krone denominated receivables and payables held by its non-U.S.
Approximately $19 million from net currency translation losses primarily caused
by a weakening of the U.S. dollar relative to the Canadian dollar and Norwegian
? krone, as local currency-denominated operating costs were translated into more
U.S. dollars in 2021 as compared to 2020, partially offset by net currency
translation gains primarily caused by a weakening of the U.S. dollar relative
unfavorable effects of euro-denominated operating costs being translated into
more U.S. dollars in 2021 as compared to 2020.
The $6 million increase in income from operations was comprised of the following:
Lower net currency transaction gains of approximately $6 million primarily
caused by relative changes in currency exchange rates at each applicable
balance sheet date between the U.S. dollar and the euro, Canadian dollar and
? the Norwegian krone, and between the euro and the Norwegian krone, which causes
increases or decreases, as applicable, in U.S. dollar-denominated receivables
and payables and U.S. dollar currency held by Kronos' non-U.S. operations, and
in Norwegian krone denominated receivables and payables held by its non-U.S.
Approximately $12 million from net currency translation gains primarily caused
by a strengthening of the U.S. dollar relative to the Canadian dollar and
? Norwegian krone, as local currency-denominated operating costs were translated
into fewer U.S. dollars in 2020 as compared to 2019, and such translation, as
it related to the U.S. dollar relative to the euro, had a nominal effect on
income from operations in 2020 as compared to 2019.
shipping delays, and the timing and effectiveness of the global measures deployed to fight COVID-19 and its variants, all of which remain uncertain and cannot be predicted.
Operations outside the United States
Critical accounting policies and estimates
Contingencies - We record accruals for environmental, legal and other
contingencies and commitments when estimated future expenditures associated
with such contingencies become probable, and the amounts can be reasonably
? estimated. However, new information may become available, or circumstances
(such as applicable laws and regulations) may change, thereby resulting in an
increase or decrease in the amount required to be accrued for such matters (and
therefore a decrease or increase in reported net income in the period of such
Long-lived assets - The net book value of our property and equipment totaled
$29.2 million at December 31, 2021, all of which relates to CompX. We assess
property and equipment for impairment only when circumstances indicate an
? impairment may exist. Our determination is based upon, among other things, our
estimates of the amount of future net cash flows to be generated by the
long-lived asset (Level 3 inputs) and our estimates of the current fair value
Goodwill - Our net goodwill totaled $27.2 million at December 31, 2021, all
related to CompX's Security Products reporting unit. Goodwill is required to be
? tested annually or at other times whenever an event occurs or circumstances
change that would more-likely-than-not reduce the fair value of a reporting
carrying value. CompX performs its annual goodwill impairment test in the third
quarter of each year or at other times whenever an event occurs or circumstances
change that would more-likely-than-not reduce the fair value of a reporting unit
below its carrying value. Such events or circumstances may include: adverse
industry or economic trends, lower projections of profitability, or a sustained
decline in CompX's market capitalization. These events or circumstances, among
other items, may be indications of potential impairment issues which are
triggering events requiring the testing of an asset's carrying value for
recoverability. An entity may first assess qualitative factors to determine
whether it is necessary to complete a quantitative impairment test using a
more-likely-than-not criteria. If an entity believes it is more-likely-than-not
the fair value of a reporting unit is greater than its carrying value, including
goodwill, the quantitative impairment test can be bypassed. Alternatively, an
entity has an unconditional option to bypass the qualitative assessment and
proceed directly to performing the quantitative impairment test.
Defined benefit pension plans - We maintain a defined benefit pension plan in
the U.S. and a plan in the United Kingdom (U.K.) See Note 11 to our
Consolidated Financial Statements. We recognized consolidated defined benefit
pension plan expense of $1.6 million in 2019, $1.0 million in 2020 and $.9
? million in 2021. The funding requirements for these defined benefit pension
plans are generally based upon applicable regulations (such as ERISA in the
U.S.) and will generally differ from pension expense recognized under GAAP for
financial reporting purposes. We made contributions to our plans of
approximately $3.2 million in 2019, $1.8 million in 2020 and $1.2 million in
we are in the process of annuitizing our U.K. pension plan and, as a result, during 2021 and into 2022 all of the assets of the U.K. plan were invested primarily in insurance contracts.
In addition to the actuarial assumptions discussed above, because we maintain a defined benefit pension plan in the U.K., the amount of recognized defined benefit pension expense and the amount of net pension asset and net pension liability will vary based upon relative changes in currency exchange rates.
? higher net cash used for relative changes in receivables, inventories, prepaid
expenses, payables and accrued liabilities in 2021 of $8.2 million;
? higher income from operations from CompX in 2021 of $8.7 million; and
? a $1.3 million decrease in interest received in 2021 due to lower average
affiliate receivable balance and the relative timing of interest received.
Net cash provided by operating activities was $19.0 million in 2020 compared to $27.4 million in 2019. The $8.4 million net decrease in cash provided by operating activities includes the net effects of:
first annual installment payment of $12.0 million in 2020 compared to the
? initial cash payment of $25.0 million in 2019 related to the litigation
settlement discussed in Note 17 to our Consolidated Financial Statements;
higher net cash used for relative changes in receivables, inventories, prepaid
? expenses, payables and accrued liabilities in 2020 of $14.8 primarily due to
the reclassification of $15.0 million from accrued insurance recovery
receivable to noncurrent restricted cash in 2019;
? lower income from operations from CompX in 2020 of $5.9 million;
? lower cash received for insurance recoveries in 2020 of $5.3 million;
? lower cash paid for environmental remediation and related costs in 2020 of $2.0
a $2.8 million decrease in interest received in 2020 due to lower average
? interest rates and to a lesser extent a lower average affiliate receivable
balance, partially offset by the relative timing of interest received.
Cash flows from financing activities include CompX dividends paid to its stockholders other than us aggregating $.5 million in 2019, $.7 million in 2020 and $1.3 million in 2021.
In addition, during 2021, CompX acquired 75,000 shares of its Class A common stock in market transactions for an aggregate purchase price of $1.3 million.
NL Parent and wholly-owned subsidiaries 98.7 Total
Investments in our subsidiaries and affiliates and other acquisitions
adverse effect on our consolidated financial position, results of operations or liquidity, enactment of such legislation could have such an effect.
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