Business and Geographic Segments

12 Months Ended

Dec. 31, 2022

Segment Reporting [Abstract]

Business Segment Information

Note 2 – Business and geographic segments:

		% controlled at
Business segment	Entity	December 31, 2022
Chemicals	Kronos	81%
Component products	CompX	87%
Real estate management and development	BMI and LandWell	63% - 77%

Our control of Kronos includes 50% we hold directly and 31% held directly by NL. We own 83% of NL. Our control of CompX is through NL. We own 63% of BMI. Our control of LandWell includes the 27% we hold directly and 50% held by BMI.

We are organized based upon our operating subsidiaries. Our operating segments are defined as components of our consolidated operations about which separate financial information is available that is regularly evaluated by our chief operating decision maker in determining how to allocate resources and in assessing performance. Each operating segment is separately managed and each operating segment represents a strategic business unit offering different products.

We have the following three consolidated reportable operating segments.

● Chemicals – Our Chemicals Segment is operated through our majority control of Kronos. Kronos is a leading global producer and marketer of value-added titanium dioxide pigments (“TiO₂”). TiO₂ is used to impart whiteness, brightness, opacity and durability to a wide variety of products, including paints, plastics, paper, fibers and ceramics. Additionally, TiO₂ is a critical component of everyday applications, such as coatings, plastics and paper, as well as many specialty products such as inks, cosmetics and pharmaceuticals. See Note 7.

● Component Products – We operate in the component products industry through our majority control of CompX. CompX is a leading manufacturer of security products used in the postal, recreational transportation,  office and institutional furniture, cabinetry, tool storage, healthcare and a variety of other industries. CompX is also a leading manufacturer of wake enhancement systems, stainless steel exhaust systems, gauges, throttle controls, trim tabs and related hardware and accessories for the recreational marine industry.  All CompX production facilities are in the United States.

● Real Estate Management and Development – We operate in real estate management and development through our majority control of BMI and LandWell. BMI owns real property in Henderson, Nevada and through its wholly-owned subsidiaries provides utility services to certain industrial and municipal customers. LandWell is engaged in efforts to develop certain land holdings for commercial, industrial and residential purposes in Henderson, Nevada.

We evaluate segment performance based on segment operating income, which we define as income before income taxes and interest expense, exclusive of certain non-recurring items (such as gains or losses on disposition of business units and other long-lived assets outside the ordinary course of business and certain legal settlements) and certain general corporate income and expense items (including securities transactions gains and losses and interest and dividend income), which are not attributable to the operations of the reportable operating segments. The accounting policies of our reportable operating segments are the same as those described in Note 1. Segment results we report may differ from amounts separately reported by our various subsidiaries and affiliates due to purchase accounting adjustments and related amortization or differences in how we define operating income. Intersegment sales are not material.

Interest income included in the calculation of segment operating income is not material in 2020, 2021 or 2022. Capital expenditures include additions to property and equipment. Depreciation and amortization related to each reportable operating segment includes amortization of any intangible assets attributable to the segment. Amortization of deferred financing costs and any premium or discount associated with the issuance of indebtedness is included in interest expense.

Segment assets are comprised of all assets attributable to each reportable operating segment, including goodwill and other intangible assets. Our investment in the TiO₂ manufacturing joint venture (see Note 7) is included in the Chemicals Segment’s assets. Corporate assets are not attributable to any operating segment and consist principally of cash and cash equivalents, restricted cash and restricted cash equivalents and marketable securities.

	Years ended December 31,
	2020		2021		2022
	(In millions)
Net sales:
Chemicals	$	1,638.8	$	1,939.4	$	1,930.2
Component products		114.5		140.8		166.6
Real estate management and development		96.4		216.2		125.7
Total net sales	$	1,849.7	$	2,296.4	$	2,222.5
Cost of sales:
Chemicals	$	1,291.0	$	1,494.5	$	1,540.2
Component products		81.7		98.1		117.8
Real estate management and development		64.9		123.6		74.1
Total cost of sales	$	1,437.6	$	1,716.2	$	1,732.1
Gross margin:
Chemicals	$	347.8	$	444.9	$	390.0
Component products		32.8		42.7		48.8
Real estate management and development		31.5		92.6		51.6
Total gross margin	$	412.1	$	580.2	$	490.4
Operating income:
Chemicals	$	126.5	$	200.8	$	174.6
Component products		11.8		20.5		25.4
Real estate management and development		47.8		97.3		39.4
Total operating income		186.1		318.6		239.4
General corporate items:
Interest income and other		4.7		4.0		10.4
Insurance recoveries		1.6		.1		.1
Gain on land sales		.5		16.0		—
Other components of net periodic pension and OPEB expense		(20.1)		(17.0)		(13.9)
Changes in market value of Valhi common stock held by subsidiaries		(1.7)		3.3		(1.6)
General expenses, net		(34.3)		(34.7)		(36.6)
Interest expense		(36.2)		(32.5)		(27.9)
Income from continuing operations before income taxes	$	100.6	$	257.8	$	169.9

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 13.  Infrastructure reimbursements and land related income is included in the determination of Real Estate Management and Development operating income. See Notes 7 and 13.

BMI provides certain utility services, among other things, to an industrial park located in Henderson, Nevada and prior to BWC’s bankruptcy filing on September 10, 2022 was 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.  BWC’s water delivery system operated 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 was 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 exceeded 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 2022.

	Years ended December 31,
	2020		2021		2022
	(In millions)
Depreciation and amortization:
Chemicals	$	61.9	$	52.8	$	53.1
Component products		3.8		3.8		4.0
Real estate management and development		2.8		2.7		1.4
Total	$	68.5	$	59.3	$	58.5
Capital expenditures:
Chemicals	$	62.8	$	58.6	$	63.2
Component products		1.7		4.1		3.7
Real estate management and development		1.0		1.4		.7
Total	$	65.5	$	64.1	$	67.6

	December 31,
	2020		2021		2022
	(In millions)
Total assets:
Operating segments:
Chemicals	$	2,400.7	$	2,373.1	$	2,293.5
Component products		138.0		146.4		131.3
Real estate management and development		171.3		259.3		219.2
Corporate and eliminations		179.3		226.4		191.7
Total	$	2,889.3	$	3,005.2	$	2,835.7

Geographic information. We attribute net sales to the place of manufacture (point-of-origin) and the location of the customer (point-of-destination); we attribute property and equipment to their physical location. At December 31, 2022 the net assets of our non-U.S. subsidiaries included in consolidated net assets approximated $699 million (in 2021 the total approximated $575 million).

	Years ended December 31,
	2020		2021		2022
	(In millions)
Net sales - point of origin:
United States	$	1,189.8	$	1,409.1	$	1,518.9
Germany		836.0		971.7		895.4
Canada		319.5		371.9		389.4
Belgium		249.5		295.7		306.5
Norway		211.8		257.2		273.5
Eliminations		(956.9)		(1,009.2)		(1,161.2)
Total	$	1,849.7	$	2,296.4	$	2,222.5
Net sales - point of destination:
North America	$	778.2	$	999.7	$	985.4
Europe		783.8		945.7		879.0
Asia and other		287.7		351.0		358.1
Total	$	1,849.7	$	2,296.4	$	2,222.5

	December 31,
	2020		2021		2022
	(In millions)
Net property and equipment:
United States	$	67.8	$	63.6	$	45.8
Germany		237.5		214.8		204.7
Canada		88.6		91.1		88.3
Belgium		108.4		107.7		101.4
Norway		88.1		86.4		83.6
Total	$	590.4	$	563.6	$	523.8