SEC Filing | Valhi

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Table of Contents

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 September 30, 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 October 31, 2022: 28,279,493

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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, 2021 and September 30, 2022 (unaudited)	3

			Condensed Consolidated Statements of Income (unaudited) – Three and nine months ended September 30, 2021 and 2022	5

			Condensed Consolidated Statements of Comprehensive Income (unaudited) – Three and nine months ended September 30, 2021 and 2022	6

			Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – Three and nine months ended September 30, 2021 and 2022	7

			Condensed Consolidated Statements of Cash Flows (unaudited) – Nine months ended September 30, 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	41

	Item 4.		Controls and Procedures	42

Part II.		OTHER INFORMATION

		Item 1.	Legal Proceedings	43

		Item 1A.	Risk Factors	43

		Item 6.	Exhibits	43

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,		September 30,
	2021		2022
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	698.4	$	578.8
Restricted cash equivalents		52.6		47.8
Marketable securities		2.6		2.9
Accounts and other receivables, net		403.7		386.4
Inventories, net		458.7		545.8
Prepaid expenses and other		57.2		67.3
Total current assets		1,673.2		1,629.0

Other assets:
Investment in TiO₂ manufacturing joint venture		101.9		110.4
Goodwill		379.7		379.7
Deferred income taxes		86.8		66.0
Other assets		200.0		175.1
Total other assets		768.4		731.2

Property and equipment:
Land		50.3		44.9
Buildings		252.6		230.8
Equipment		1,194.6		1,080.3
Mining properties		26.3		5.6
Construction in progress		82.9		67.3
		1,606.7		1,428.9
Less accumulated depreciation and amortization		1,043.1		944.9
Net property and equipment		563.6		484.0
Total assets	$	3,005.2	$	2,844.2

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)


	December 31,		September 30,
	2021		2022
			(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	3.1	$	2.0
Accounts payable and accrued liabilities		448.1		479.2
Income taxes		12.3		6.3
Total current liabilities		463.5		487.5

Noncurrent liabilities:
Long-term debt		649.9		538.2
Deferred income taxes		46.2		34.9
Payable to affiliate - income taxes		44.5		33.4
Accrued pension costs		291.1		247.9
Accrued environmental remediation and related costs		94.1		93.6
Other liabilities		257.5		184.2
Total noncurrent liabilities		1,383.3		1,132.2

Equity:
Preferred stock		—		—
Common stock		.3		.3
Additional paid-in capital		669.0		669.8
Retained earnings		401.1		494.0
Accumulated other comprehensive loss		(191.3)		(223.5)
Treasury stock, at cost		(49.6)		(49.6)
Total Valhi stockholders' equity		829.5		891.0
Noncontrolling interest in subsidiaries		328.9		333.5
Total equity		1,158.4		1,224.5
Total liabilities and equity	$	3,005.2	$	2,844.2

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				Nine months ended
	September 30,				September 30,
	2021		2022		2021		2022

	(unaudited)
Revenues and other income:
Net sales	$	578.9	$	556.3	$	1,613.2	$	1,819.9
Other income, net		13.1		23.1		27.9		38.1
Total revenues and other income		592.0		579.4		1,641.1		1,858.0
Cost and expenses:
Cost of sales		426.2		435.9		1,226.6		1,382.1
Selling, general and administrative		82.2		81.9		231.6		238.1
Fixed asset impairment		—		.4		—		16.4
Loss on deconsolidation of Basic Water Company ("BWC")		—		2.0		—		2.0
Other components of net periodic pension and OPEB expense		4.3		3.2		13.2		9.8
Interest		7.9		7.0		25.2		20.9
Total costs and expenses		520.6		530.4		1,496.6		1,669.3
Income before income taxes		71.4		49.0		144.5		188.7
Income tax expense		16.9		8.2		35.2		42.1
Net income		54.5		40.8		109.3		146.6
Noncontrolling interest in net income of subsidiaries		15.5		14.6		34.1		47.0
Net income attributable to Valhi stockholders	$	39.0	$	26.2	$	75.2	$	99.6

Amounts attributable to Valhi stockholders:
Basic and diluted net income per share	$	1.36	$	.92	$	2.64	$	3.49

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

(In millions)


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2022		2021		2022

	(unaudited)
Net income	$	54.5	$	40.8	$	109.3	$	146.6
Other comprehensive income (loss), net of tax:
Currency translation		(7.1)		(23.3)		(3.8)		(50.1)
Defined benefit pension plans		3.4		2.3		10.2		7.0
Other		(.2)		(.2)		(.5)		(.5)
Total other comprehensive income (loss), net		(3.9)		(21.2)		5.9		(43.6)
Comprehensive income		50.6		19.6		115.2		103.0
Comprehensive income attributable to noncontrolling interest		14.5		9.1		35.6		35.6
Comprehensive income attributable to Valhi stockholders	$	36.1	$	10.5	$	79.6	$	67.4

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 September 30, 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 June 30, 2021	$	—	$	.3	$	669.5	$	314.6	$	(212.1)	$	(49.6)	$	322.7	$	1,045.4
Net income		—		—		—		39.0		—		—		15.5		54.5
Other comprehensive loss, net		—		—		—		—		(2.9)		—		(1.0)		(3.9)
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(24.0)		(24.0)
Cash dividends - $.08 per share		—		—		—		(2.3)		—		—		—		(2.3)

Balance at September 30, 2021	$	—	$	.3	$	669.5	$	351.3	$	(215.0)	$	(49.6)	$	313.2	$	1,069.7

Balance at June 30, 2022	$	—	$	.3	$	669.8	$	470.0	$	(207.8)	$	(49.6)	$	335.2	$	1,217.9
Net income		—		—		—		26.2		—		—		14.6		40.8
Other comprehensive loss, net		—		—		—		—		(15.7)		—		(5.5)		(21.2)
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(10.8)		(10.8)
Cash dividends - $.08 per share		—		—		—		(2.2)		—		—		—		(2.2)

Balance at September 30, 2022	$	—	$	.3	$	669.8	$	494.0	$	(223.5)	$	(49.6)	$	333.5	$	1,224.5


	Nine months ended September 30, 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		—		—		—		75.2		—		—		34.1		109.3
Other comprehensive income, net		—		—		—		—		4.4		—		1.5		5.9
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(45.3)		(45.3)
Cash dividends - $.24 per share		—		—		—		(6.8)		—		—		—		(6.8)
Equity transactions with noncontrolling interest, net and other		—		—		1.2		—		—		—		(1.5)		(.3)

Balance at September 30, 2021	$	—	$	.3	$	669.5	$	351.3	$	(215.0)	$	(49.6)	$	313.2	$	1,069.7

Balance at December 31, 2021	$	—	$	.3	$	669.0	$	401.1	$	(191.3)	$	(49.6)	$	328.9	$	1,158.4
Net income		—		—		—		99.6		—		—		47.0		146.6
Other comprehensive loss, net		—		—		—		—		(32.2)		—		(11.4)		(43.6)
Dividends paid to noncontrolling interest		—		—		—		—		—		—		(27.5)		(27.5)
Cash dividends - $.24 per share		—		—		—		(6.7)		—		—		—		(6.7)
Equity transactions with noncontrolling interest, net and other		—		—		.8		—		—		—		(3.5)		(2.7)

Balance at September 30, 2022	$	—	$	.3	$	669.8	$	494.0	$	(223.5)	$	(49.6)	$	333.5	$	1,224.5

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Nine months ended
	September 30,
	2021		2022

	(unaudited)
Cash flows from operating activities:
Net income	$	109.3	$	146.6
Depreciation and amortization		44.2		44.3
Gain from sale of land		(16.0)		—
Benefit plan expense greater than cash funding		8.5		4.5
Deferred income taxes		2.7		5.1
Contributions to TiO₂ manufacturing joint venture, net		(2.2)		(8.5)
Fixed asset impairment		—		16.4
Loss on deconsolidation of BWC		—		2.0
Other, net		4.1		10.2
Change in assets and liabilities:
Accounts and other receivables, net		(67.1)		(23.6)
Inventories, net		75.6		(142.0)
Land held for development, net		6.3		17.8
Accounts payable and accrued liabilities		25.6		20.1
Income taxes		(4.8)		(2.5)
Accounts with affiliates		(19.4)		5.0
Other, net		22.4		(67.5)
Net cash provided by operating activities		189.2		27.9
Cash flows from investing activities:
Capital expenditures		(39.2)		(48.0)
Cash, cash equivalents and restricted cash of BWC		—		(8.6)
Proceeds from land sales		23.4		—
Purchases of marketable securities		(3.1)		(3.5)
Proceeds from disposal of marketable securities		4.4		2.4
Other, net		2.1		.1
Net cash used in investing activities		(12.4)		(57.6)
Cash flows from financing activities:
Principal payments on indebtedness		(69.5)		(47.5)
Deferred financing fees		(1.8)		—
Valhi cash dividends paid		(6.8)		(6.7)
Distributions to noncontrolling interest in subsidiaries		(45.3)		(27.5)
Subsidiary treasury stock acquired		(.8)		(2.8)
Net cash used in financing activities		(124.2)		(84.5)
Cash, cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		52.6		(114.2)
Effect of exchange rates on cash		(7.7)		(15.6)
Balance at beginning of period		570.3		792.9
Balance at end of period	$	615.2	$	663.1
Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized	$	26.7	$	22.9
Income taxes, net		45.9		37.3
Noncash investing activities:
Change in accruals for capital expenditures		4.3		2.0

See accompanying Notes to Condensed Consolidated Financial Statements.

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VALHI, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 September 30, 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 September 30, 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 periods ended September 30, 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	September 30, 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				Nine months ended
	September 30,				September 30,
	2021		2022		2021		2022

	(In millions)
Net sales:
Chemicals	$	499.8	$	459.6	$	1,443.4	$	1,587.8
Component products		34.5		42.9		106.7		126.6
Real estate management and development		44.6		53.8		63.1		105.5
Total net sales	$	578.9	$	556.3	$	1,613.2	$	1,819.9
Cost of sales:
Chemicals	$	377.1	$	376.0	$	1,116.7	$	1,235.0
Component products		23.6		30.9		73.4		88.9
Real estate management and development		25.5		29.0		36.5		58.2
Total cost of sales	$	426.2	$	435.9	$	1,226.6	$	1,382.1
Gross margin: