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

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 1-5467

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: (972233-1700

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

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.

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

3

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.

4

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.

5

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.

6

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.

7

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.

8

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%

9

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.

10

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

11

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.

12

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.

13

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