Business Segment Information

9 Months Ended

Sep. 30, 2022

Segment Reporting [Abstract]

Business Segment Information

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%

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:
Chemicals	$	122.7	$	83.6	$	326.7	$	352.8
Component products		10.9		12.0		33.3		37.7
Real estate management and development		19.1		24.8		26.6		47.3
Total gross margin	$	152.7	$	120.4	$	386.6	$	437.8
Operating income:
Chemicals	$	60.3	$	34.3	$	145.4	$	189.9
Component products		5.1		6.0		16.7		20.0
Real estate management and development		15.8		29.1		26.0		32.1
Total operating income		81.2		69.4		188.1		242.0
General corporate items:
Interest income and other		.9		3.3		2.9		5.6
Gain on land sales		10.4		—		16.0		—
Changes in market value of Valhi common stock held by subsidiaries		(.2)		(4.9)		2.0		(.9)
Other components of net periodic pension and OPEB expense		(4.3)		(3.2)		(13.2)		(9.8)
General expenses, net		(8.7)		(8.6)		(26.1)		(27.3)
Interest expense		(7.9)		(7.0)		(25.2)		(20.9)
Income before income taxes	$	71.4	$	49.0	$	144.5	$	188.7

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. Included in the determination of Chemicals operating income is a business interruption insurance settlement gain of $2.7 million recognized in the third quarter of 2022 (see Note 11).  Infrastructure reimbursements and land related income is included in the determination of Real Estate Management and Development operating income (see Note 11).

BMI provides utility services, among other things, to an industrial park located in Henderson, Nevada and is responsible for the delivery of water to the City of Henderson and various other users under long-term contracts through a water delivery system owned and operated by BWC, a wholly-owned subsidiary of BMI.  BWC’s water delivery system operates on Lake Mead in Nevada.  Due to the Western drought, water levels in Lake Mead have been declining for much of the last twenty years. As a result of water release curtailments upstream of Lake Mead which began late in the second quarter, Lake Mead water levels have dropped precipitously to historically low levels. On June 30, 2022 BWC was no longer able to pump water without the risk of damaging the system and consequently ceased operations at its water intake facility to best preserve the system.  Current estimates of Lake Mead water levels do not indicate lake levels will be sufficient to enable BWC to resume pumping water for the foreseeable future.  We considered BWC’s inability to pump water from Lake Mead to be a triggering event under the ASC 360 Property, Plant, and Equipment, which caused us to evaluate the water system fixed assets for impairment.  Because BWC is unable to deliver water under its current contracts and therefore unable to generate revenue, we determined the water system’s assets were fully impaired except to the extent certain equipment had alternative use outside of BWC’s operations, in which case those assets were written down to estimated salvage value.  The $16.4 million impairment charge primarily recognized in the second quarter of 2022 represents the write down of the book value to the estimated salvage value of the assets.  Without the ability to pump and deliver water to its customers, BWC’s operating expenses exceed

its revenues, and on September 10, 2022 BWC and its subsidiaries voluntarily filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Nevada.  Because BWC has filed for bankruptcy protection, we and BMI can no longer affirmatively assert we control BWC and, as such, in accordance with ASC 810, Consolidation, we deconsolidated BWC as of the date of the bankruptcy filing and recognized a loss of $2.0 million in the third quarter of 2022 on the deconsolidation. In addition, BMI had an outstanding intercompany accounts receivable balance with BWC on the date of the bankruptcy filing, and we recognized $1.3 million of bad debt expense to fully reserve this balance during the third quarter of 2022.  All of these charges are included in the determination of the Real Estate Management and Development’s operating income in the third quarter and first nine months of 2022.