VALHI INC /DE/ [VHI] Filings

10-Q 1 vhl-20230630x10q.htm 10-Q

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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 June 30, 2023

☐ 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 1-5467

VALHI, INC.

(Exact name of Registrant as specified in its charter)

Delaware

87-0110150

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

5430 LBJ Freeway, Suite 1700

Dallas, Texas 75240-2620

(Address of principal executive office)

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	VHI	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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 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, $.01 par value per share, outstanding on July 28, 2023: 28,288,493

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VALHI, INC. AND SUBSIDIARIES

INDEX

				Page number


Part I.	FINANCIAL INFORMATION

	Item 1.		Financial Statements

			Condensed Consolidated Balance Sheets – December 31, 2022 and June 30, 2023 (unaudited)	3

			Condensed Consolidated Statements of Operations (unaudited) – Three and six months ended June 30, 2022 and 2023	5

			Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) – Three and six months ended June 30, 2022 and 2023	6

			Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – Three and six months ended June 30, 2022 and 2023	7

			Condensed Consolidated Statements of Cash Flows (unaudited) – Six months ended June 30, 2022 and 2023	8

			Notes to Condensed Consolidated Financial Statements (unaudited)	9

	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

	Item 3.		Quantitative and Qualitative Disclosures About Market Risk	42

	Item 4.		Controls and Procedures	42

Part II.		OTHER INFORMATION

		Item 1.	Legal Proceedings	43

		Item 1A.	Risk Factors	43

		Item 6.	Exhibits	44

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

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)


ASSETS	December 31,		June 30,
	2022		2023
			(unaudited)
Current assets:
Cash and cash equivalents	$	478.5	$	297.5
Restricted cash equivalents		46.3		43.9
Marketable securities		75.1		99.0
Accounts and other receivables, net		281.9		333.5
Inventories, net		640.8		575.3
Prepaid expenses and other		66.9		52.1
Total current assets		1,589.5		1,401.3

Other assets:
Marketable securities		1.2		3.3
Investment in TiO₂ manufacturing joint venture		112.9		121.2
Goodwill		379.7		379.7
Deferred income taxes		40.5		56.2
Other assets		188.1		162.7
Total other assets		722.4		723.1

Property and equipment:
Land		42.5		42.5
Buildings		249.2		255.7
Equipment		1,106.5		1,121.4
Mining properties		78.6		74.8
Construction in progress		77.2		85.9
		1,554.0		1,580.3
Less accumulated depreciation and amortization		1,030.2		1,054.1
Net property and equipment		523.8		526.2
Total assets	$	2,835.7	$	2,650.6

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)


LIABILITIES AND STOCKHOLDERS' EQUITY	December 31,		June 30,
	2022		2023
			(unaudited)
Current liabilities:
Current maturities of long-term debt	$	1.8	$	1.4
Accounts payable and accrued liabilities		477.7		385.5
Income taxes		13.3		6.9
Total current liabilities		492.8		393.8

Noncurrent liabilities:
Long-term debt		557.7		549.8
Deferred income taxes		63.5		54.1
Payable to affiliate - income taxes		33.4		18.5
Accrued pension costs		131.6		129.6
Accrued environmental remediation and related costs		93.5		93.4
Other liabilities		156.4		135.0
Total noncurrent liabilities		1,036.1		980.4

Equity:
Preferred stock		—		—
Common stock		.3		.3
Additional paid-in capital		669.5		669.5
Retained earnings		482.3		467.8
Accumulated other comprehensive loss		(143.9)		(147.2)
Treasury stock, at cost		(49.6)		(49.6)
Total Valhi stockholders' equity		958.6		940.8
Noncontrolling interest in subsidiaries		348.2		335.6
Total equity		1,306.8		1,276.4
Total liabilities and equity	$	2,835.7	$	2,650.6

Commitments and contingencies (Notes 13 and 16)

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2023		2022		2023

	(unaudited)
Revenues and other income:
Net sales	$	634.6	$	507.1	$	1,263.6	$	999.8
Other income, net		15.0		10.5		15.0		23.6
Total revenues and other income		649.6		517.6		1,278.6		1,023.4
Cost and expenses:
Cost of sales		487.9		441.6		946.2		880.2
Selling, general and administrative		79.0		68.4		156.2		137.2
Fixed asset impairment		16.0		—		16.0		—
Other components of net periodic pension and OPEB expense		3.3		7.5		6.6		8.7
Interest		7.0		7.2		13.9		14.2
Total costs and expenses		593.2		524.7		1,138.9		1,040.3
Income (loss) before income taxes		56.4		(7.1)		139.7		(16.9)
Income tax expense (benefit)		14.0		(4.9)		33.9		(11.0)
Net income (loss)		42.4		(2.2)		105.8		(5.9)
Noncontrolling interest in net income of subsidiaries		14.4		2.9		32.4		4.1
Net income (loss) attributable to Valhi stockholders	$	28.0	$	(5.1)	$	73.4	$	(10.0)

Amounts attributable to Valhi stockholders:
Basic and diluted net income (loss) per share	$	.98	$	(.18)	$	2.57	$	(.35)

Basic and diluted weighted average shares outstanding		28.5		28.5		28.5		28.5

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2023		2022		2023

	(unaudited)
Net income (loss)	$	42.4	$	(2.2)	$	105.8	$	(5.9)
Other comprehensive income (loss), net of tax:
Currency translation		(32.6)		(4.9)		(26.8)		(11.0)
Defined benefit pension plans		2.3		5.6		4.7		6.3
Other		(.1)		(.2)		(.3)		(.4)
Total other comprehensive income (loss), net		(30.4)		.5		(22.4)		(5.1)
Comprehensive income (loss)		12.0		(1.7)		83.4		(11.0)
Comprehensive income attributable to noncontrolling interest		6.4		2.6		26.5		2.3
Comprehensive income (loss) attributable to Valhi stockholders	$	5.6	$	(4.3)	$	56.9	$	(13.3)

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)


	Three months ended June 30, 2022 and 2023 (unaudited)
									Accumulated
					Additional				other				Non-
	Preferred		Common		paid-in		Retained		comprehensive		Treasury		controlling
	stock		stock		capital		earnings		loss		stock		interest		Total
Balance at March 31, 2022	$	—	$	.3	$	670.4	$	444.3	$	(185.4)	$	(49.6)	$	341.0	$	1,221.0
Net income		—		—		—		28.0		—		—		14.4		42.4
Other comprehensive loss, net		—		—		—		—		(22.4)		—		(8.0)		(30.4)
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(11.5)		(11.5)
Cash dividends - $.08 per share		—		—		—		(2.3)		—		—		—		(2.3)
Equity transactions with noncontrolling interest, net and other		—		—		(.6)		—		—		—		(.7)		(1.3)

Balance at June 30, 2022	$	—	$	.3	$	669.8	$	470.0	$	(207.8)	$	(49.6)	$	335.2	$	1,217.9

Balance at March 31, 2023	$	—	$	.3	$	668.6	$	475.1	$	(148.0)	$	(49.6)	$	342.4	$	1,288.8
Net income (loss)		—		—		—		(5.1)		—		—		2.9		(2.2)
Other comprehensive income (loss), net		—		—		—		—		.8		—		(.3)		.5
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(7.5)		(7.5)
Cash dividends - $.08 per share		—		—		—		(2.2)		—		—		—		(2.2)
Equity transactions with noncontrolling interest, net and other		—		—		.9		—		—		—		(1.9)		(1.0)

Balance at June 30, 2023	$	—	$	.3	$	669.5	$	467.8	$	(147.2)	$	(49.6)	$	335.6	$	1,276.4


	Six months ended June 30, 2022 and 2023 (unaudited)
									Accumulated
					Additional				other				Non-
	Preferred		Common		paid-in		Retained		comprehensive		Treasury		controlling
	stock		stock		capital		earnings		loss		stock		interest		Total
Balance at December 31, 2021	$	—	$	.3	$	669.0	$	401.1	$	(191.3)	$	(49.6)	$	328.9	$	1,158.4
Net income		—		—		—		73.4		—		—		32.4		105.8
Other comprehensive loss, net		—		—		—		—		(16.5)		—		(5.9)		(22.4)
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(16.7)		(16.7)
Cash dividends - $.16 per share		—		—		—		(4.5)		—		—		—		(4.5)
Equity transactions with noncontrolling interest, net and other		—		—		.8		—		—		—		(3.5)		(2.7)

Balance at June 30, 2022	$	—	$	.3	$	669.8	$	470.0	$	(207.8)	$	(49.6)	$	335.2	$	1,217.9

Balance at December 31, 2022	$	—	$	.3	$	669.5	$	482.3	$	(143.9)	$	(49.6)	$	348.2	$	1,306.8
Net income (loss)		—		—		—		(10.0)		—		—		4.1		(5.9)
Other comprehensive loss, net		—		—		—		—		(3.3)		—		(1.8)		(5.1)
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(12.7)		(12.7)
Cash dividends - $.16 per share		—		—		—		(4.5)		—		—		—		(4.5)
Equity transactions with noncontrolling interest, net and other		—		—		—		—		—		—		(2.2)		(2.2)

Balance at June 30, 2023	$	—	$	.3	$	669.5	$	467.8	$	(147.2)	$	(49.6)	$	335.6	$	1,276.4

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Six months ended
	June 30,
	2022		2023

	(unaudited)
Cash flows from operating activities:
Net income (loss)	$	105.8	$	(5.9)
Depreciation and amortization		29.9		27.3
Gain from sale of land		—		(1.5)
Loss on pension plan termination		—		6.2
Benefit plan expense greater (less) than cash funding		4.0		(4.2)
Deferred income taxes		3.0		(23.6)
Contributions to TiO₂ manufacturing joint venture, net		(4.1)		(8.3)
Fixed asset impairment		16.0		—
Other, net		2.3		4.3
Change in assets and liabilities:
Accounts and other receivables, net		(60.5)		(58.1)
Inventories, net		(38.0)		68.6
Land held for development, net		5.8		(8.6)
Accounts payable and accrued liabilities		(34.6)		(84.0)
Income taxes		1.4		.5
Accounts with affiliates		11.7		(15.2)
Other, net		(14.9)		7.4
Net cash provided by (used in) operating activities		27.8		(95.1)
Cash flows from investing activities:
Capital expenditures		(33.2)		(34.4)
Proceeds from land sales		—		1.8
Purchases of marketable securities		(2.2)		(51.5)
Proceeds from disposal of marketable securities		1.9		27.4
Other, net		.1		—
Net cash used in investing activities		(33.4)		(56.7)
Cash flows from financing activities:
Principal payments on indebtedness		(21.4)		(16.6)
Valhi cash dividends paid		(4.5)		(4.5)
Distributions to noncontrolling interest in subsidiaries		(16.7)		(12.7)
Subsidiary treasury stock acquired		(2.8)		(2.9)
Net cash used in financing activities		(45.4)		(36.7)
Cash, cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		(51.0)		(188.5)
Effect of exchange rates on cash		(8.7)		(.9)
Balance at beginning of period		792.9		562.0
Balance at end of period	$	733.2	$	372.6
Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized	$	13.0	$	13.3
Income taxes, net		29.9		22.7
Noncash investing activities:
Change in accruals for capital expenditures		2.6		2.4

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

Note 1 – Organization and basis of presentation:

Organization – We are majority owned by a wholly-owned subsidiary of Contran Corporation (“Contran”), which owns approximately 91% of our outstanding common stock at June 30, 2023. A majority of Contran’s outstanding voting stock is held directly by Lisa K. Simmons and various family trusts established for the benefit of Ms. Simmons, Thomas C. Connelly (the husband of Ms. Simmons’ late sister) and their children and for which Ms. Simmons or Mr. Connelly, as applicable, serve as trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly serves as trustee, he is required to vote the shares of Contran voting stock held in such trusts in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. Simmons. The remainder of Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and her late sister and their children and for which a third-party financial institution serves as trustee. Consequently, at June 30, 2023, Ms. Simmons and the Family Trust may be deemed to control Contran and us.

Basis of Presentation – Consolidated in this Quarterly Report are the results of our wholly-owned and majority-owned subsidiaries, including NL Industries, Inc., Kronos Worldwide, Inc., CompX International Inc., Tremont LLC, Basic Management, Inc. (“BMI”) and The LandWell Company (“LandWell”). Kronos (NYSE: KRO), NL (NYSE: NL) and CompX (NYSE American: CIX) 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 included in our Annual Report on Form 10-K for the year ended December 31, 2022 that we filed with the SEC on March 9, 2023 (the “2022 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, 2022 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, 2022) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim periods ended June 30, 2023 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 2022 Consolidated Financial Statements contained in our 2022 Annual Report.

During the preparation of our second quarter 2023 interim financial statements, we identified a prior period misclassification related to the presentation of the gross value of the classes of property and equipment and accumulated depreciation and amortization. This misclassification had no impact to net property and equipment; however, total gross property and equipment increased $19.1 million (a decrease of $5.3 million and $45.8 million in land and equipment, respectively, and an increase of $5.1 million and $65.1 million in buildings and mining properties, respectively) and accumulated depreciation and amortization increased by the same amount. Property and equipment presented on the December 31, 2022 Condensed Consolidated Balance Sheet has been revised to reflect these changes. We have evaluated the misclassifications and determined the related changes are not material to any previously issued annual or interim financial statements.

Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Valhi, Inc. and its subsidiaries (NYSE: VHI), taken as a whole.

Note 2 – Business segment information:


		% controlled at
Business segment	Entity	June 30, 2023
Chemicals	Kronos	81%
Component products	CompX	87%
Real estate management and development	BMI and LandWell	63% - 77%

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Our control of Kronos includes approximately 50% we hold directly and approximately 31% held directly by NL. We own approximately 83% of NL. Our control of CompX is through NL. We own approximately 63% of BMI. Our control of LandWell includes the approximately 27% we hold directly and 50% held by BMI.

Three months ended

Six months ended

June 30,

2022

2023

2022

2023

(In millions)

Net sales:

Chemicals

565.3

443.2

1,128.2

869.5

Component products

41.6

36.6

83.7