VALHI INC /DE/ [VHI] Filings

10-Q 1 vhl-20220331x10q.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 March 31, 2022

☐ 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 April 29, 2022: 28,277,093

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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, 2021 and March 31, 2022 (unaudited)	3

			Condensed Consolidated Statements of Income (unaudited) – Three months ended March 31, 2021 and 2022	5

			Condensed Consolidated Statements of Comprehensive Income (unaudited) – Three months ended March 31, 2021 and 2022	6

			Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – Three months ended March 31, 2021 and 2022	7

			Condensed Consolidated Statements of Cash Flows (unaudited) – Three months ended March 31, 2021 and 2022	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	39

	Item 4.		Controls and Procedures	39

Part II.		OTHER INFORMATION

		Item 1.	Legal Proceedings	40

		Item 1A.	Risk Factors	40

		Item 6.	Exhibits	41

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)


	December 31,		March 31,
	2021		2022
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	698.4	$	640.0
Restricted cash equivalents		52.6		55.9
Marketable securities		2.6		2.2
Accounts and other receivables, net		403.7		443.3
Inventories, net		458.7		493.1
Prepaid expenses and other		57.2		69.7
Total current assets		1,673.2		1,704.2

Other assets:
Investment in TiO₂ manufacturing joint venture		101.9		105.7
Goodwill		379.7		379.7
Deferred income taxes		86.8		79.1
Other assets		200.0		190.7
Total other assets		768.4		755.2

Property and equipment:
Land		50.3		50.6
Buildings		252.6		250.0
Equipment		1,194.6		1,192.6
Mining properties		26.3		23.2
Construction in progress		82.9		90.3
		1,606.7		1,606.7
Less accumulated depreciation and amortization		1,043.1		1,042.8
Net property and equipment		563.6		563.9
Total assets	$	3,005.2	$	3,023.3

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)


	December 31,		March 31,
	2021		2022
			(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	3.1	$	3.1
Accounts payable and accrued liabilities		448.1		428.9
Income taxes		12.3		19.0
Total current liabilities		463.5		451.0

Noncurrent liabilities:
Long-term debt		649.9		638.2
Deferred income taxes		46.2		44.9
Payable to affiliate - income taxes		44.5		44.5
Accrued pension costs		291.1		285.9
Accrued environmental remediation and related costs		94.1		94.1
Other liabilities		257.5		243.7
Total noncurrent liabilities		1,383.3		1,351.3

Equity:
Preferred stock		—		—
Common stock		.3		.3
Additional paid-in capital		669.0		670.4
Retained earnings		401.1		444.3
Accumulated other comprehensive loss		(191.3)		(185.4)
Treasury stock, at cost		(49.6)		(49.6)
Total Valhi stockholders' equity		829.5		880.0
Noncontrolling interest in subsidiaries		328.9		341.0
Total equity		1,158.4		1,221.0
Total liabilities and equity	$	3,005.2	$	3,023.3

Commitments and contingencies (Notes 6, 12 and 15)

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)


	Three months ended
	March 31,
	2021		2022

	(unaudited)
Revenues and other income:
Net sales	$	509.0	$	629.0
Other income, net		7.0		—
Total revenues and other income		516.0		629.0
Cost and expenses:
Cost of sales		399.7		458.3
Selling, general and administrative		70.9		77.2
Other components of net periodic pension and OPEB expense		4.3		3.3
Interest		8.6		6.9
Total costs and expenses		483.5		545.7
Income before income taxes		32.5		83.3
Income tax expense		8.0		19.9
Net income		24.5		63.4
Noncontrolling interest in net income of subsidiaries		9.7		18.0
Net income attributable to Valhi stockholders	$	14.8	$	45.4

Amounts attributable to Valhi stockholders:
Basic and diluted net income per share	$	.52	$	1.59

Basic and diluted weighted average shares outstanding		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

(In millions)


	Three months ended
	March 31,
	2021		2022

	(unaudited)
Net income	$	24.5	$	63.4
Other comprehensive income (loss), net of tax:
Currency translation		1.7		5.8
Defined benefit pension plans		3.4		2.4
Other		(.2)		(.2)
Total other comprehensive income, net		4.9		8.0
Comprehensive income		29.4		71.4
Comprehensive income attributable to noncontrolling interest		11.0		20.1
Comprehensive income attributable to Valhi stockholders	$	18.4	$	51.3

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 March 31, 2021 and 2022 (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, 2020	$	—	$	.3	$	668.3	$	282.9	$	(219.4)	$	(49.6)	$	324.4	$	1,006.9
Net income		—		—		—		14.8		—		—		9.7		24.5
Other comprehensive income, net		—		—		—		—		3.6		—		1.3		4.9
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(4.8)		(4.8)
Cash dividends - $.08 per share		—		—		—		(2.2)		—		—		—		(2.2)
Equity transactions with noncontrolling interest, net and other		—		—		.9		—		—		—		(1.6)		(.7)

Balance at March 31, 2021	$	—	$	.3	$	669.2	$	295.5	$	(215.8)	$	(49.6)	$	329.0	$	1,028.6

Balance at December 31, 2021	$	—	$	.3	$	669.0	$	401.1	$	(191.3)	$	(49.6)	$	328.9	$	1,158.4
Net income		—		—		—		45.4		—		—		18.0		63.4
Other comprehensive income, net		—		—		—		—		5.9		—		2.1		8.0
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(5.2)		(5.2)
Cash dividends - $.08 per share		—		—		—		(2.2)		—		—		—		(2.2)
Equity transactions with noncontrolling interest, net and other		—		—		1.4		—		—		—		(2.8)		(1.4)

Balance at March 31, 2022	$	—	$	.3	$	670.4	$	444.3	$	(185.4)	$	(49.6)	$	341.0	$	1,221.0

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Three months ended
	March 31,
	2021		2022

	(unaudited)
Cash flows from operating activities:
Net income	$	24.5	$	63.4
Depreciation and amortization		14.7		14.8
Benefit plan expense greater than cash funding		3.5		1.8
Deferred income taxes		1.3		3.1
Contributions to TiO₂ manufacturing joint venture, net		(3.4)		(3.8)
Other, net		.9		2.7
Change in assets and liabilities:
Accounts and other receivables, net		(29.7)		(43.9)
Land held for development, net		(4.9)		7.1
Inventories, net		35.7		(35.3)
Accounts payable and accrued liabilities		(2.0)		(37.7)
Income taxes		1.9		7.1
Accounts with affiliates		4.5		8.1
Other, net		9.6		(10.2)
Net cash provided by (used in) operating activities		56.6		(22.8)
Cash flows from investing activities:
Capital expenditures		(11.5)		(16.2)
Purchases of marketable securities		(.9)		(.1)
Proceeds from disposal of marketable securities		3.0		.8
Other, net		2.1		—
Net cash used in investing activities		(7.3)		(15.5)
Cash flows from financing activities:
Principal payments on indebtedness		(3.9)		(5.9)
Valhi cash dividends paid		(2.2)		(2.2)
Distributions to noncontrolling interest in subsidiaries		(4.8)		(5.2)
Subsidiary treasury stock acquired		(.8)		(1.1)
Net cash used in financing activities		(11.7)		(14.4)
Cash, cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		37.6		(52.7)
Effect of exchange rates on cash		(7.0)		(.4)
Balance at beginning of period		570.3		792.9
Balance at end of period	$	600.9	$	739.8
Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized	$	12.0	$	10.2
Income taxes, net		3.9		6.2
Noncash investing activities:
Change in accruals for capital expenditures		2.4		3.8

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(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 92% of our outstanding common stock at March 31, 2022. 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 March 31, 2022, 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, 2021 that we filed with the SEC on March 10, 2022 (the “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, 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, 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 period ended 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 2021 Consolidated Financial Statements contained in our 2021 Annual Report.

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	March 31, 2022
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
	March 31,
	2021		2022

	(In millions)
Net sales:
Chemicals	$	465.0	$	562.9
Component products		35.9		42.1
Real estate management and development		8.1		24.0
Total net sales	$	509.0	$	629.0
Cost of sales:
Chemicals	$	369.7	$	413.9
Component products		24.9		30.0
Real estate management and development		5.1		14.4
Total cost of sales	$	399.7	$	458.3
Gross margin:
Chemicals	$	95.3	$	149.0
Component products		11.0		12.1
Real estate management and development		3.0		9.6
Total gross margin	$	109.3	$	170.7
Operating income:
Chemicals	$	37.7	$	86.4
Component products		5.8		6.3
Real estate management and development		7.8		8.0
Total operating income		51.3		100.7
General corporate items:
Interest income and other		.9		.9
Other components of net periodic pension and OPEB expense		(4.3)		(3.3)
Changes in market value of Valhi common stock held by subsidiaries		1.3		.1
General expenses, net		(8.1)		(8.2)
Interest expense		(8.6)		(6.9)
Income before income taxes	$	32.5	$	83.3

Segment results we report may differ from amounts separately reported by our various subsidiaries due to purchase accounting adjustments and related amortization or differences in the way we define operating income. Intersegment sales are not material. Infrastructure reimbursement is included in the determination of Real Estate Management and Development operating income. See Note 11.

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Note 3 – Accounts and other receivables, net:


	December 31,		March 31,
	2021		2022

	(In millions)
Trade accounts receivable:
Kronos	$	326.3	$	374.1
CompX		15.6		17.8
BMI/LandWell		2.8		2.0
VAT and other receivables		38.0		30.3
Refundable income taxes		4.5		4.0
Receivables from affiliates:
Louisiana Pigment Company, L.P. ("LPC")		15.8		15.2
Contran - trade items		.1		.3
Other - trade items		2.6		2.8
Allowance for doubtful accounts		(2.0)		(3.2)
Total	$	403.7	$	443.3

Note 4 – Inventories, net:


	December 31,		March 31,
	2021		2022

	(In millions)
Raw materials:
Chemicals	$	76.3	$	97.1
Component products		5.0		6.1
Total raw materials		81.3		103.2
Work in process:
Chemicals		30.4		35.6
Component products		16.8		17.7
Total in-process products		47.2		53.3
Finished products:
Chemicals		246.4		249.8
Component products		3.8		4.3
Total finished products		250.2		254.1
Supplies (chemicals)		80.0		82.5
Total	$	458.7	$	493.1

Note 5 – Other assets:


	December 31,		March 31,
	2021		2022

	(In millions)
Other noncurrent assets:
Restricted cash and cash equivalents	$	41.9	$	43.9
Note receivables - OPA		38.7		36.0
Land held for development		36.0		31.0
IBNR receivables		34.4		29.9
Operating lease right-of-use assets		19.9		21.5
Pension asset		9.0		9.5
Marketable securities		3.3		2.9
Other		16.8		16.0
Total	$	200.0	$	190.7

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Note 6 – Long-term debt:


	December 31,		March 31,
	2021		2022

	(In millions)
Valhi:
Contran credit facility	$	172.9	$	167.2
Subsidiary debt:
Kronos:
Senior Secured Notes		448.8		442.9
BMI:
Bank loan Western Alliance Bank		15.4		15.4
LandWell:
Note payable to Western Alliance Business Trust		13.5		13.5
Other		2.4		2.3
Total subsidiary debt		480.1		474.1
Total debt		653.0		641.3
Less current maturities		(3.1)		(3.1)
Total long-term debt	$	649.9	$	638.2

Valhi – Contran credit facility – During the first three months of 2022, we had no borrowings and repaid $5.7 million under this facility. The average interest rate on the existing balance for the three months ended March 31, 2022 was 4.29%. At March 31, 2022, the interest rate was 4.5% and $57.8 million was available for borrowing under this facility.

Kronos – Senior Notes – At March 31, 2022, the carrying value of Kronos’ 3.75% Senior Secured Notes due September 15, 2025 (€400 million aggregate principal amount outstanding) is stated net of unamortized debt issuance costs of $3.2 million.

Revolving credit facility – During the first three months of 2022, Kronos had no borrowings or repayments under its $225 million global revolving credit facility (“Global Revolver”) and at March 31, 2022, the full $225 million was available for borrowing under the Global Revolver.

Other – We are in compliance with all of our debt covenants at March 31, 2022.

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Note 7 – Accounts payable and accrued liabilities:


	December 31,		March 31,
	2021		2022

	(In millions)
Accounts payable:
Kronos	$	143.6	$	132.5
CompX		3.4		5.1
BMI and LandWell		5.3		10.3
Other		.4		.4
Total		152.7		148.3
Payables to affiliates:
Contran - income taxes		1.5		4.4
LPC		17.3		20.8
Accrued litigation settlement		11.8		11.9
Deferred income		125.8		120.5
Employee benefits		39.9		37.0
Accrued sales discounts and rebates		28.7		11.1
Interest		5.3		1.4
Operating lease liabilities		3.7		3.9
Environmental remediation and related costs		3.5		3.5
Other		57.9		66.1
Total	$	448.1	$	428.9

The accrued litigation settlement is discussed in Note 15.

Note 8 – Other noncurrent liabilities:


	December 31,		March 31,
	2021		2022

	(In millions)
Deferred income	$	81.6	$	73.8
Accrued development costs		55.4		54.1
Accrued litigation settlement		38.5		38.7
Insurance claims and expenses		36.4		32.0
Operating lease liabilities		15.8		17.2
Other postretirement benefits		10.2		10.2
Employee benefits		6.1		5.9
Reserve for uncertain tax positions		3.5		4.8
Other		10.0		7.0
Total	$	257.5	$	243.7

The accrued litigation settlement is discussed in Note 15.

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Note 9 – Revenue – disaggregation of sales:

The following table disaggregates the net sales of our Chemicals Segment by place of manufacture (point of origin) and to the location of the customer (point of destination), 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
	March 31,
	2021		2022

	(In millions)
Net sales - point of origin:
United States	$	253.9	$	326.4
Germany		231.2		276.5
Canada		97.2		96.4
Belgium		66.5		92.8
Norway		71.0		78.4
Eliminations		(254.8)		(307.6)
Total	$	465.0	$	562.9

Net sales - point of destination:
Europe	$	227.3	$	269.5
North America		145.3		179.9
Other		92.4		113.5
Total	$	465.0	$	562.9

The following table disaggr