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as

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

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 July 28, 2023:  28,288,493

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 202
3

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.

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

3

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.

4

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.

5

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.

6

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.

7

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.

8

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%

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

Six months ended

June 30, 

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