0001564590-15-003777.txt : 20150508 0001564590-15-003777.hdr.sgml : 20150508 20150508171855 ACCESSION NUMBER: 0001564590-15-003777 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20150331 FILED AS OF DATE: 20150508 DATE AS OF CHANGE: 20150508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALHI INC /DE/ CENTRAL INDEX KEY: 0000059255 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 870110150 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-48391 FILM NUMBER: 15847925 BUSINESS ADDRESS: STREET 1: 5430 LBJ FRWY STREET 2: STE 1700 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9722331700 MAIL ADDRESS: STREET 1: THREE LINCOLN CENTER STREET 2: 5430 LBJ FREEWAY SUITE 1700 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: LLC CORP DATE OF NAME CHANGE: 19870329 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY LOAN CORP DATE OF NAME CHANGE: 19800414 10-Q 1 vhi-10q_20150331.htm 10-Q

 

 

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 quarter ended March 31, 2015

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

 

75240-2697

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (972) 233-1700

 

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  x    No  ¨

Whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act).

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨     No  x.

Number of shares of the Registrant’s common stock outstanding on May 1, 2015: 339,132,449

 

 

 

 

 


 

VALHI, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

 

 

 

Page number

 

 

 

 

 

 

 

 

Part I.

 

FINANCIAL INFORMATION

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 1.

  

Financial Statements

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets – December 31, 2014 and March 31, 2015 (unaudited)

  

 

3

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statements of Income (unaudited) – Three   months ended March 31, 2014 and 2015

  

 

5

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) – Three  months ended March 31, 2014 and 2015

  

 

6

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows (unaudited) – Three months ended March 31, 2014 and 2015

  

 

7

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statement of Equity (unaudited) – Three months ended March 31, 2015

  

 

8

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements (unaudited)

  

 

9

  

 

 

 

 

 

 

 

 

 

 

 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

  

 

25

 

 

 

 

 

 

 

 

 

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

 

41

 

 

 

 

 

 

 

 

 

 

 

 

Item 4.

  

Controls and Procedures

  

 

41

 

 

 

 

 

 

 

 

 

 

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.

 

 

 

- 2 -


 

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

 

 

December 31,
2014

 

 

March 31,
2015

 

 

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

255.8

 

 

$

199.5

 

Restricted cash equivalents

 

10.6

 

 

 

9.4

 

Marketable securities

 

2.7

 

 

 

.9

 

Accounts and other receivables, net

 

303.9

 

 

 

322.6

 

Inventories, net

 

443.0

 

 

 

413.8

 

Land held for development

 

15.0

 

 

 

10.6

 

Other current assets

 

17.6

 

 

 

14.4

 

Deferred income taxes

 

13.4

 

 

 

13.4

 

Total current assets

 

1,062.0

 

 

 

984.6

 

 

Other assets:

 

 

 

 

 

 

 

Marketable securities

 

255.6

 

 

 

255.6

 

Investment in affiliates

 

89.0

 

 

 

77.8

 

Goodwill

 

379.7

 

 

 

379.7

 

Deferred income taxes

 

164.4

 

 

 

159.2

 

Other noncurrent assets

 

282.9

 

 

 

282.5

 

Total other assets

 

1,171.6

 

 

 

1,154.8

 

Property and equipment:

 

 

 

 

 

 

 

Land

 

49.1

 

 

 

45.9

 

Buildings

 

263.1

 

 

 

240.1

 

Treatment, storage and disposal facility

 

159.9

 

 

 

159.9

 

Equipment

 

1,139.9

 

 

 

1,051.2

 

Mining properties

 

52.0

 

 

 

41.7

 

Construction in progress

 

26.2

 

 

 

25.9

 

 

 

1,690.2

 

 

 

1,564.7

 

Less accumulated depreciation

 

956.6

 

 

 

887.8

 

 

Net property and equipment

 

733.6

 

 

 

676.9

 

Total assets

$

2,967.2

 

 

$

2,816.3

 

 

 

 

 

 

 

 

- 3 -


 

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)

 

 

December 31,
2014

 

 

March 31,
2015

 

 

 

 

 

(unaudited)

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current maturities of long-term debt

$

9.3

 

 

$

9.2

 

Accounts payable and accrued liabilities

 

310.2

 

 

 

253.0

 

Income taxes

 

7.8

 

 

 

8.4

 

Deferred income taxes

 

3.9

 

 

 

3.5

 

Total current liabilities

 

331.2

 

 

 

274.1

 

 

Noncurrent liabilities:

 

 

 

 

 

 

 

Long-term debt

 

924.8

 

 

 

928.9

 

Deferred income taxes

 

412.8

 

 

 

409.0

 

Accrued pension costs

 

249.4

 

 

 

220.5

 

Accrued environmental remediation and related costs

 

108.3

 

 

 

108.0

 

Accrued postretirement benefits costs

 

14.1

 

 

 

13.3

 

Other liabilities

 

112.7

 

 

 

107.3

 

Total noncurrent liabilities

 

1,822.1

 

 

 

1,787.0

 

 

Equity:

 

 

 

 

 

 

 

Valhi stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock

 

667.3

 

 

 

667.3

 

Common stock

 

3.6

 

 

 

3.6

 

Additional paid-in capital

 

 

 

 

 

Retained earnings

 

4.9

 

 

 

10.0

 

Accumulated other comprehensive loss

 

(148.6

)

 

 

(199.1

)

Treasury stock

 

(49.6

)

 

 

(49.6

)

Total Valhi stockholders’ equity

 

477.6

 

 

 

432.2

 

 

 

 

 

 

 

 

 

Noncontrolling interest in subsidiaries

 

336.3

 

 

 

323.0

 

Total equity

 

813.9

 

 

 

755.2

 

Total liabilities and equity

$

2,967.2

 

 

$

2,816.3

 

Commitments and contingencies (Notes 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,

 

 

2014

 

 

2015

 

 

 

(unaudited)

 

Revenues and other income:

 

 

 

 

 

 

 

Net sales

$

462.4

 

 

$

416.1

 

Other income, net

 

5.1

 

 

 

12.1

 

Total revenues and other income

 

467.5

 

 

 

428.2

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of sales

 

376.6

 

 

 

326.8

 

Selling, general and administrative

 

68.8

 

 

 

65.2

 

Interest

 

13.7

 

 

 

14.6

 

Total costs and expenses

 

459.1

 

 

 

406.6

 

 

Income before income taxes

 

8.4

 

 

 

21.6

 

 

Income tax expense

 

3.8

 

 

 

4.3

 

Net income

 

4.6

 

 

 

17.3

 

 

Noncontrolling interest in net income of subsidiaries

 

3.8

 

 

 

5.4

 

Net income attributable to Valhi stockholders

$

.8

 

 

$

11.9

 

 

Amounts attributable to Valhi stockholders:

 

 

 

 

 

 

 

Basic and diluted net income per share

$

 

 

$

.04

 

 

Cash dividends per share

$

.05

 

 

$

.02

 

 

Basic and diluted weighted average shares outstanding

 

342.0

 

 

 

342.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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
March 31,

 

 

2014

 

 

2015

 

 

(unaudited)

Net income

$

4.6

 

 

$

17.3

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Currency translation

 

(2.7

)

 

 

(67.6

)

Marketable securities

 

(17.1

)

 

 

(.6

)

Defined benefit pension plans

 

2.1

 

 

 

2.8

 

Other postretirement benefit plans

 

(.4

)

 

 

(.3

)

Total other comprehensive loss, net

 

(18.1

)

 

 

(65.7

)

Comprehensive loss

 

(13.5

)

 

 

(48.4

)

Comprehensive loss attributable to noncontrolling interest

 

(12.7

)

 

 

(9.8

)

Comprehensive loss attributable to Valhi stockholders

$

(.8

)

 

$

(38.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

- 6 -


 

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

 

Three months ended
March 31,

 

 

2014

 

 

2015

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

4.6

  

 

$

17.3

 

Depreciation and amortization

 

19.5

  

 

 

18.3

 

Benefit plan expense less than cash funding

 

(2.3

 

 

(.8

)

Deferred income taxes

 

(3.4

)  

 

 

(1.0

)

Distributions from Ti02 manufacturing joint venture, net

 

4.5

 

 

 

11.2

 

Other, net

 

1.6

  

 

 

3.3

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts and other receivables, net

 

(61.6

 

 

(50.5

)

Inventories, net

 

6.6

 

 

 

(8.8

)

Land held for development, net

 

(1.8

 

 

2.0

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

11.4

  

 

 

(30.8

)

Accounts with affiliates

 

11.8

  

 

 

13.5

 

Income taxes

 

1.1

 

 

 

(1.8

)

Other, net

 

2.2

  

 

 

(2.1

)

Net cash used in operating activities

 

(5.8

)

 

 

(30.2

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(19.9

 

 

(13.3

)

Capitalized permit costs

 

(.2

 

 

(.1

)

Purchases of marketable securities

 

(4.2

 

 

(5.2

)

Disposal of marketable securities

 

1.7

  

 

 

7.2

 

Change in restricted cash equivalents, net

 

(2.1

 

 

(.2

)

Other, net

 

(.3

)  

 

 

 

Net cash used in investing activities

 

(25.0

 

 

(11.6

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Indebtedness:

 

 

 

 

 

 

 

Borrowings

 

457.6

 

 

 

19.2

 

Principal payments

 

(281.8

)

 

 

(14.9

)

Deferred financing costs paid

 

(6.0

)

 

 

 

Valhi cash dividends paid

 

(17.0

)

 

 

(6.8

)

Distributions to noncontrolling interest in subsidiaries

 

(8.5

)

 

 

(3.8

)

Net cash provided by (used in) financing activities

 

144.3

 

 

 

(6.3

)

Cash and cash equivalents – net change from:

 

 

 

 

 

 

 

Operating, investing and financing activities

 

113.5

 

 

 

(48.1

)

Effect of exchange rate on cash

 

(.1

)

 

 

(8.2

)

Cash and cash equivalents at beginning of period

 

142.8

 

 

 

255.8

 

Cash and cash equivalents at end of period

$

256.2

 

 

$

199.5

 

Supplemental disclosures:

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest, net of capitalized interest

$

12.7

 

 

$

14.2

 

Income taxes, net

 

5.7

 

 

 

9.1

 

Noncash investing activities:

 

 

 

 

 

 

 

Change in accruals for capital expenditures

 

4.5

 

 

 

1.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

- 7 -


 

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

Three months ended March 31, 2015

(In millions)

(unaudited)

 

 

Valhi Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred
stock

 

  

Common
stock

 

  

Additional
paid-in
capital

 

  

Retained earnings

 

 

Accumulated
other
comprehensive
loss

 

 

Treasury
stock

 

 

Non-
controlling
interest

 

 

Total
equity

 

Balance at December 31, 2014

$

667.3

  

  

$

3.6

  

  

$

  

  

$

4.9

  

 

$

(148.6

 

$

(49.6

 

$

336.3

  

 

$

813.9

  

Net income

 

  

  

 

  

  

 

  

  

 

11.9

 

 

 

  

 

 

  

 

 

5.4

 

 

 

17.3

 

Other comprehensive loss, net

 

  

  

 

  

  

 

  

  

 

  

 

 

(50.5

 

 

  

 

 

(15.2

)  

 

 

(65.7

Dividends

 

  

  

 

  

  

 

 

  

 

(6.8

)

 

 

  

 

 

  

 

 

(3.5

)

 

 

(10.3

)

Balance at March 31, 2015

$

667.3

  

  

$

3.6

  

  

$

  

  

$

10.0

 

 

$

(199.1

)

 

$

(49.6

)

 

$

323.0

  

 

$

755.2

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

- 8 -


 

VALHI, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(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 93% of our outstanding common stock at March 31, 2015. Substantially all of Contran’s outstanding voting stock is held by family trusts established for the benefit of Lisa K. Simmons and Serena Simmons Connelly, daughters of Harold C. Simmons, and their children (for which Ms. Lisa Simmons and Ms. Connelly are co-trustees) or is held directly by Ms. Lisa Simmons and Ms. Connelly or persons or entities related to them, including their step-mother Annette C. Simmons, the widow of Mr. Simmons.  Prior to his death in December 2013, Mr. Simmons served as sole trustee of the family trusts.  Under a voting agreement entered into by all of the voting stockholders of Contran, effective in February 2014 and as amended, the size of the board of directors of Contran was fixed at five members, Ms. Lisa Simmons, Ms. Connelly and Ms. Annette Simmons (and in the event of their death, their heirs) each has the right to designate one of the five members of the Contran board and the remaining two members of the Contran board must consist of members of Contran management.  Ms. Lisa Simmons, Ms. Connelly, and Ms. Annette Simmons each serve as members of the Contran board.  The voting agreement expires in February 2017 (unless Ms. Lisa Simmons, Ms. Connelly and Ms. Annette Simmons otherwise mutually agree), and the ability of Ms. Lisa Simmons, Ms. Connelly, and Ms. Annette Simmons to each designate one member of the Contran board is dependent upon each of their continued beneficial ownership of at least 5% of the combined voting stock of Contran.  Consequently, Ms. Lisa Simmons, Ms. Connelly and Ms. Annette Simmons may be deemed to control Contran and us.

Basis of Presentation—Consolidated in this Quarterly Report are the results of our majority-owned and wholly-owned subsidiaries, including NL Industries, Inc., Kronos Worldwide, Inc., CompX International Inc., Waste Control Specialists LLC (“WCS”), Tremont LLC, Basic Management, Inc. (“BMI”) and The LandWell Company (“LandWell”).  Kronos (NYSE: KRO), NL (NYSE: NL), and CompX (NYSE MKT: 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, 2014 that we filed with the SEC on March 13, 2015 (the “2014 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, 2014 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, 2014) 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, 2015 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 2014 Consolidated Financial Statements contained in our 2014 Annual Report.

In May 2014, after considering our results of operations, financial conditions, cash requirements for our businesses and our current expectations regarding reduced aggregate dividend distributions to be received from our subsidiaries; our Board of Directors reduced our regular quarterly dividend to $.02 per share effective with the second quarter 2014 dividend payment.  The declaration and payment of future dividends, and the amount thereof, is discretionary and is dependent upon these and other factors deemed relevant by our Board of Directors.

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:

 

Business segment

  

Entity

  

% controlled at
March 31, 2015

 

Chemicals

  

Kronos

  

 80

Component products

  

CompX

  

 87

Waste management

  

WCS

  

 100

Real estate management and development

 

BMI and LandWell

 

63% - 77

%

- 9 -


 

Our control of Kronos includes 50% we hold directly and 30% 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.  

 

 

Three months ended
March 31,

 

 

 

2014

 

 

 

2015

 

 

(unaudited)

 

Net sales:

 

 

 

 

 

 

 

Chemicals

$

420.1

 

 

$

365.1

 

Component products

 

25.8

 

 

 

27.9

 

Waste management

 

7.0

 

 

 

15.0

 

Real estate management and development

 

9.5

 

 

 

8.1

 

Total net sales

$

462.4

 

 

$

416.1

 

Cost of sales:

 

 

 

 

 

 

 

Chemicals

$

340.2

 

 

$

288.2

 

Component products

 

18.0

 

 

 

19.3

 

Waste management

 

10.7

 

 

 

12.1

 

Real estate management and development

 

7.7

 

 

 

7.2

 

Total cost of sales

$

376.6

 

 

$

326.8

 

Gross margin:

 

 

 

 

 

 

 

Chemicals

$

79.9

 

 

$

76.9

 

Component products

 

7.8

 

 

 

8.6

 

Waste management

 

(3.7

)

 

 

2.9

 

Real estate management and development

 

1.8

 

 

 

.9

 

Total gross margin

$

85.8

 

 

$

89.3

 

Operating income (loss):

 

 

 

 

 

 

 

Chemicals

$

27.6

 

 

$

34.0

 

Component products

 

3.3

 

 

 

3.7

 

Waste management

 

(8.5

)

 

 

(2.9

)

Real estate management and development

 

.4

 

 

 

(.2

)

Total operating income

 

22.8

 

 

 

34.6

 

General corporate items:

 

 

 

 

 

 

 

Securities earnings

 

6.8

 

 

 

6.7

 

Insurance recoveries

 

.8

 

 

 

3.1

 

General expenses, net

 

(8.3

)

 

 

(8.2

)

Interest expense

 

(13.7

)

 

 

(14.6

)

Income before income taxes

$

8.4

 

 

$

21.6

 

 

 

 

 

 

 

 

 

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 the way we define operating income. Intersegment sales are not material.  

 

- 10 -


 

Note 3—Marketable securities:

 

 

Market
value

 

 

Cost
basis

 

 

Unrealized
losses, net

 

 

(In millions)

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

Current assets

$

2.7

 

 

$

2.7

 

 

$

—  

 

Noncurrent assets:

 

 

 

 

 

 

 

 

 

 

 

The Amalgamated Sugar Company LLC

$

250.0

 

 

$

250.0

 

 

$

—  

 

Other

 

5.6

 

 

 

5.8

 

 

 

(.2

)

Total

$

255.6

 

 

$

255.8

 

 

$

(.2

)

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

Current assets

$

.9

 

 

$

.9

 

 

$

 

Noncurrent assets:

 

 

 

 

 

 

 

 

 

 

 

The Amalgamated Sugar Company LLC

$

250.0

 

 

$

250.0

 

 

$

 

Other

 

5.6

 

 

 

5.7

 

 

 

(.1

)

Total

$

255.6

 

 

$

255.7

 

 

$

(.1

)

 

All of our marketable securities are accounted for as available-for-sale, which are carried at fair value, with any unrealized gains or losses recognized through accumulated other comprehensive income. Our marketable securities are carried at fair value using quoted market prices, primarily Level 1 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures, except for our investment in The Amalgamated Sugar Company LLC (“Amalgamated”). Our current marketable securities are included with “other current assets” on our Condensed Consolidated Balance Sheets. Our investment in Amalgamated is measured using significant unobservable inputs, which are Level 3 inputs. Please refer to Note 4 in our 2014 Annual Report for a complete description of the valuation methodology for our investment in Amalgamated. There have been no changes to the carrying value of this investment during the periods presented. See Note 16.

 

Note 4—Accounts and other receivables, net:

 

 

December 31,
2014

 

 

March 31,
2015

 

 

(In millions)

 

Trade accounts receivable:

 

 

 

 

 

 

 

Kronos

$

230.9

 

 

$

256.5

 

CompX

 

8.8

 

 

 

12.3

 

WCS

 

7.7

 

 

 

10.9

 

BMI and LandWell

 

1.4

 

 

 

.9

 

VAT and other receivables

 

24.3

 

 

 

23.0

 

Refundable income taxes

 

8.7

 

 

 

11.1

 

Receivable from affiliates:  

 

 

 

 

 

 

 

    LPC – trade items

 

13.0

 

 

 

 

    Contran – trade items

 

.2

 

 

 

.2

 

    Contran – income taxes

 

9.2

 

 

 

6.8

 

   Other

 

1.5

 

 

 

2.1

 

Allowance for doubtful accounts

 

(1.8

)

 

 

(1.2

)

Total

$

303.9

 

 

$

322.6

 

 

- 11 -


 

Note 5—Inventories, net:

 

 

December 31,
2014

 

 

March 31,
2015

 

 

(In millions)

 

Raw materials:

 

 

 

 

 

 

 

Chemicals

$

76.0

 

 

$

76.7

 

Component products

 

3.4

 

 

 

3.3

 

Total raw materials

 

79.4

 

 

 

80.0

 

Work in process:

 

 

 

 

 

 

 

Chemicals

 

32.9

 

 

 

33.0

 

Component products

 

10.3

 

 

 

10.7

 

Total in-process products

 

43.2

 

 

 

43.7

 

Finished products:

 

 

 

 

 

 

 

Chemicals

 

253.2

 

 

 

228.9

 

Component products

 

3.2

 

 

 

2.8

 

Total finished products

 

256.4

 

 

 

231.7

 

Supplies (primarily chemicals)

 

64.0

 

 

 

58.4

 

Total

$

443.0

 

 

$

413.8

 

 

Note 6—Investment in affiliate and other assets:

 

 

December 31,
2014

 

 

March 31,
2015

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Investment in TiO2 manufacturing joint venture, Louisiana Pigment Company, L.P. (“LPC”)

$

89.0

 

 

$

77.8

 

Other assets:

 

 

 

 

 

 

 

Land held for development

$

165.1

 

 

$

164.6

 

Waste disposal site operating permits, net

 

53.2

 

 

 

51.7

 

Restricted cash

 

13.9

 

 

 

15.2

 

Deferred financing costs

 

6.9

 

 

 

6.4

 

IBNR receivables

 

6.8

 

 

 

6.9

 

Capital lease deposit

 

6.2

 

 

 

6.2

 

Intangible assets

 

5.1

 

 

 

5.1

 

Other

 

25.7

 

 

 

26.4

 

Total

$

282.9

 

 

$

282.5

 

 

- 12 -


 

Note 7—Accounts payable and accrued liabilities:

 

 

December 31,
2014

 

 

March 31,
2015

 

 

(In millions)

 

Accounts payable:

 

 

 

 

 

 

 

Kronos

$

121.4

 

 

$

97.2

 

CompX

 

3.9

 

 

 

3.6

 

WCS

 

1.4

 

 

 

1.0

 

BMI and LandWell

 

7.0

 

 

 

3.4

 

Other

 

2.5

 

 

 

1.9

 

Payable to affiliates:

 

 

 

 

 

 

 

Contran – trade items

 

26.1

 

 

 

26.2

 

LPC – trade items

 

19.9

 

 

 

11.6

 

Employee benefits

 

34.6

 

 

 

27.2

 

Deferred income

 

19.8

 

 

 

16.6

 

Accrued sales discounts and rebates

 

23.0

 

 

 

13.6

 

Environmental remediation and related costs

 

10.2

 

 

 

10.1

 

Other

 

40.4

 

 

 

40.6

 

Total

$

310.2

 

 

$

253.0

 

 

 

 

 

 

 

 

 

 

Note 8—Other noncurrent liabilities:

 

 

December 31,
2014

 

 

March 31,
2015

 

 

(In millions)

 

Reserve for uncertain tax positions

$

34.1

 

 

$

29.1

 

Asset retirement obligations

 

27.2

 

 

 

27.6

 

Deferred income

 

18.9

 

 

 

19.2

 

Employee benefits

 

8.1

 

 

 

7.1

 

Insurance claims and expenses

 

9.5

 

 

 

9.6

 

Deferred payment obligation

 

8.5

 

 

 

8.6

 

Other

 

6.4

 

 

 

6.1

 

Total

$

112.7

 

 

$

107.3

 

 

- 13 -


 

 

Note 9—Long-term debt:

 

 

December 31,
2014

 

 

March 31,
2015

 

 

(In millions)

 

Valhi:

 

 

 

 

 

 

 

Snake River Sugar Company

$

250.0

 

 

$

250.0

 

Contran credit facility

 

223.7

 

 

 

229.2

 

Total Valhi debt

 

473.7

 

 

 

479.2

 

Subsidiary debt:

 

 

 

 

 

 

 

Kronos:

 

 

 

 

 

 

 

Term loan

 

345.9

 

 

 

345.1

 

WCS:

 

 

 

 

 

 

 

Financing capital lease

 

67.1

 

 

 

66.8

 

Tremont:

 

 

 

 

 

 

 

Promissory note payable

 

17.4

 

 

 

17.3

 

BMI:

 

 

 

 

 

 

 

Bank note payable

 

10.3

 

 

 

10.1

 

LandWell:

 

 

 

 

 

 

 

Note payable to the City of Henderson

 

3.1

 

 

 

3.1

 

Other

 

16.6

 

 

 

16.5

 

Total subsidiary debt

 

460.4

 

 

 

458.9

 

Total debt

 

934.1

 

 

 

938.1

 

Less current maturities

 

9.3

 

 

 

9.2

 

Total long-term debt

$

924.8

 

 

$

928.9

 

Valhi Contran credit facility – During the first three months of 2015, we had net borrowings of $5.5 million under our Contran credit facility. The average interest rate on the existing balance as of and for the three months ended March 31, 2015 was 4.25%. At March 31, 2015, the equivalent of $45.8 million was available for borrowing under this facility.

Kronos – Term loan – During the first three months of 2015, Kronos made its required quarterly principal payment of $.9 million.  The average interest rate on the term loan borrowings as of and the quarter ended March 31, 2015 was 4.75%.  The carrying value of the term loan at March 31, 2015 includes unamortized original issue discount of $1.4 million.

Revolving credit facilities – Kronos’ European revolving credit facility requires the maintenance of certain financial ratios, and one of such requirements is based on the ratio of net debt to last twelve months earnings before income tax, interest, depreciation and amortization expense (EBITDA) of the borrowers.  Based upon the borrowers’ last twelve months EBITDA as of March 31, 2015 and the net debt to EBITDA financial test, Kronos’ borrowing availability at March 31, 2015 is 59% of the credit facility, or €71 million ($77 million). In addition, at March 31, 2015 Kronos had approximately $94.8 million available for borrowing under its North American revolving facility.

Tremont – Promissory note payable – In February 2015, and following Tremont’s receipt of dividend distributions from BMI and LandWell, Tremont prepaid (without penalty) $.1 million principal amount on the note as required under the terms of the note agreement.

Restrictions and other Certain of the credit facilities with unrelated, third-party lenders described above require the respective borrowers to maintain minimum levels of equity, require the maintenance of certain financial ratios, limit dividends and additional indebtedness and contain other provisions and restrictive covenants customary in lending transactions of this type. We are in compliance with all of our debt covenants at March 31, 2015.

 

 

- 14 -


 

Note 10—Employee benefit plans:

Defined benefit plans – The components of our net periodic defined benefit pension cost are presented in the table below.

 

 

Three months ended
March 31,

 

 

2014

 

 

2015

 

 

(In millions)

 

Service cost

$

2.6

 

 

$

2.9

  

Interest cost

 

6.3

 

 

 

4.6

  

Expected return on plan assets

 

(6.2

 

 

(5.4

)

Amortization of unrecognized prior service cost

 

.2

  

 

 

.2

  

Recognized actuarial losses

 

2.8

  

 

 

3.8

  

Total

$

5.7

  

 

$

6.1

  

Other postretirement benefits – The components of our net periodic other postretirement benefit cost are presented in the table below.

 

 

Three months ended
March 31,

 

 

2014

 

 

2015

 

 

(In millions)

 

Interest cost

$

.2

  

 

$

.2

 

Amortization of prior service credit

 

(.5

 

 

(.5

)

Total

$

(.3

 

$

(.3

)

Contributions – We expect to contribute the equivalent of $19.6 million and $1.3 million, respectively, to all of our defined benefit pension plans and other postretirement benefit plans during 2015.

 

Note 11—Other income, net:

 

 

Three months ended
March 31,

 

 

2014

 

 

2015

 

 

(In millions)

 

Securities earnings:

 

 

 

 

 

 

 

Dividends and interest

$

6.7

 

 

$

6.6

 

Securities transactions, net

 

.1

 

 

 

.1

 

Total

 

6.8

 

 

 

6.7

 

Foreign currency transactions, net

 

(2.7

)

 

 

1.6

 

Insurance recoveries

 

.8

 

 

 

3.1

 

Other, net

 

.2

 

 

 

.7

 

Total

$

5.1

 

 

$

12.1

 

Insurance recoveries reflect, in part, amounts NL received from certain of its former insurance carriers and relate to the recovery of prior lead pigment and asbestos litigation defense costs incurred by NL.

 

 

- 15 -


 

Note 12—Income taxes:

 

 

 

Three months ended
March 31,

 

 

2014

 

 

2015

 

 

(In millions)

Expected tax expense, at U.S. federal statutory income tax rate of 35%

$

2.9

 

 

$

7.6

 

Incremental tax (benefit) on earnings of non-U.S. and non-tax group companies

 

(.1

)

 

 

.5

 

Non-U.S. tax rates

 

(.7

)

 

 

(1.1

)

Adjustment to the reserve for uncertain tax positions, net

 

.3

 

 

 

(2.7

)

Nondeductible expenses

 

.4

 

 

 

.5

 

Domestic manufacturing credit

 

(.1

)

 

 

(.8

)

U.S. state income taxes and other, net

 

1.1

 

 

 

.3

 

Income tax expense

$

3.8

 

 

$

4.3

 

Comprehensive provision for income taxes allocable to:

 

 

Net income

$

3.8

 

 

$

4.3

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Marketable securities

 

(8.8

)

 

 

(.2

)

Currency translation

 

(.7

)

 

 

(16.2

)

Pension plans

 

1.0

 

 

 

1.3

 

OPEB plans

 

(.2

)

 

 

(.2

)

Total

$

(4.9

)

 

$

(11.0

)

Tax authorities are examining certain of our U.S. and non-U.S. tax returns and have or may propose tax deficiencies, including penalties and interest.  Because of the inherent uncertainties involved in settlement initiatives and court and tax proceedings, we cannot guarantee that these matters will be resolved in our favor, and therefore our potential exposure, if any, is also uncertain.  We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations.  We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, results of operations or liquidity.  

In the first quarter of 2015, we recognized a non-cash income tax benefit of $2.7 million primarily related to the release of a portion of our reserve for uncertain tax positions due to the expiration of the applicable statute of limitations. We currently estimate that our unrecognized tax benefits will not further change materially during the next twelve months.

 

 

Note 13—Noncontrolling interest in subsidiaries:

 

 

December 31,
2014

 

 

March 31,
2015

 

 

(In millions)

 

Noncontrolling interest in net assets:

 

 

 

 

 

 

 

Kronos

$

211.0

 

 

$

198.3

 

NL

 

54.4

 

 

 

53.7

 

CompX

 

14.4

 

 

 

14.7

 

BMI

 

31.7

 

 

 

31.8

 

LandWell

 

24.8

 

 

 

24.5

 

Total

$

336.3

 

 

$

323.0

 

 

 

 

Three months ended March 31,

 

 

2014

 

 

2015

 

 

(In millions)

 

Noncontrolling interest in net income (loss) of subsidiaries:

 

 

 

 

 

 

 

Kronos

$

2.7

 

 

$

3.6

 

NL

 

.6

 

 

 

1.7

 

CompX

 

.3

 

 

 

.3

 

BMI

 

.1

 

 

 

 

LandWell

 

.1

 

 

 

(.2

)

Total

$

3.8

 

 

$

5.4

 

- 16 -


 

 

Note 14—Accumulated other comprehensive income (loss):

Changes in accumulated other comprehensive income (loss) attributable to Valhi stockholders for the three ended March 31, 2014 and 2015 are presented in the table below.

 

 

Three months ended
March 31,

 

 

 

2014

 

 

 

2015

 

 

(In millions)

Accumulated other comprehensive income (loss), net of tax

  and noncontrolling interest:

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

Balance at beginning of period

$

2.8

 

 

$

1.6

 

Other comprehensive loss – unrealized losses arising during the period

 

(.8

)

 

 

(.2

)

Balance at end of period

$

2.0

 

 

$

1.4

 

Currency translation adjustment:

 

 

 

 

 

 

 

Balance at beginning of period

$

59.2

 

 

$

(22.6

)

Other comprehensive loss

 

(2.1

)

 

 

(52.2

)

Balance at end of period

$

57.1

 

 

$

(74.8

)

Defined benefit pension plans:

 

 

 

 

 

 

 

Balance at beginning of period

$

(76.5

)

 

$

(132.0

)

Other comprehensive income— amortization of prior service cost and net losses included in net periodic pension cost

 

1.6

 

 

 

2.2

 

Balance at end of period

$

(74.9

)

 

$

(129.8

)

OPEB plans:

 

 

 

 

 

 

 

Balance at beginning of period

$

6.5

 

 

$

4.4

 

Other comprehensive loss – amortization of prior service credit

 

(.3

)

 

 

(.3

)

Balance at end of period

$

6.2

 

 

$

4.1

 

Total accumulated other comprehensive loss:

 

 

 

 

 

 

 

Balance at beginning of period

$

(8.0

)

 

$

(148.6

)

Other comprehensive loss

 

(1.6

)

 

 

(50.5

)

Balance at end of period

$

(9.6

)

 

$

(199.1

)

See Note 10 for amounts related to our defined benefit pension plans and OPEB plans.

 

Note 15—Commitments and contingencies:

Lead pigment litigation—NL

NL’s former operations included the manufacture of lead pigments for use in paint and lead-based paint.  NL, other former manufacturers of lead pigments for use in paint and lead-based paint (together, the “former pigment manufacturers”), and the Lead Industries Association (“LIA”), which discontinued business operations in 2002, have been named as defendants in various legal proceedings seeking damages for personal injury, property damage and governmental expenditures allegedly caused by the use of lead-based paints. Certain of these actions have been filed by or on behalf of states, counties, cities or their public housing authorities and school districts, and certain others have been asserted as class actions. These lawsuits seek recovery under a variety of theories, including public and private nuisance, negligent product design, negligent failure to warn, strict liability, breach of warranty, conspiracy/concert of action, aiding and abetting, enterprise liability, market share or risk contribution liability, intentional tort, fraud and misrepresentation, violations of state consumer protection statutes, supplier negligence and similar claims.

The plaintiffs in these actions generally seek to impose on the defendants responsibility for lead paint abatement and health concerns associated with the use of lead-based paints, including damages for personal injury, contribution and/or indemnification for medical expenses, medical monitoring expenses and costs for educational programs. To the extent the plaintiffs seek compensatory or punitive damages in these actions, such damages are generally unspecified. In some cases, the damages are unspecified pursuant to the requirements of applicable state law. A number of cases are inactive or have been dismissed or withdrawn. Most of the remaining cases are in various pre-trial stages. Some are on appeal following dismissal or summary judgment rulings or a trial verdict in favor of either the defendants or the plaintiffs.

- 17 -


 

NL believes that these actions are without merit, and NL intends to continue to deny all allegations of wrongdoing and liability and to defend against all actions vigorously. NL does not believe it is probable that it has incurred any liability with respect to all of the lead pigment litigation cases to which NL is a party, and liability to us that may result, if any, in this regard cannot be reasonably estimated, because:

·

NL has never settled any of the market share, intentional tort, fraud, nuisance, supplier negligence, breach of warranty, conspiracy, misrepresentation, aiding and abetting, enterprise liability, or statutory cases,

·

no final, non-appealable adverse verdicts have ever been entered against NL, and

·

NL has never ultimately been found liable with respect to any such litigation matters, including over 100 cases over a twenty-year period for which NL was previously a party and for which NL has been dismissed without any finding of liability.

Accordingly, neither we nor NL have accrued any amounts for any of the pending lead pigment and lead-based paint litigation cases filed by or on behalf of states, counties, cities or their public housing authorities and school districts, or those asserted as class actions. In addition, we have determined that liability to us which may result, if any, cannot be reasonably estimated because there is no prior history of a loss of this nature on which an estimate could be made and there is no substantive information available upon which an estimate could be based.

In one of these lead pigment cases, in April 2000 NL was served with a complaint (County of Santa Clara v. Atlantic Richfield Company, et al, Superior Court of the State of California, County of Santa Clara, Case No. 1-00-CV-788657) brought by a number of California government entities against the former pigment manufacturers, the LIA and certain paint manufacturers. The County of Santa Clara sought to recover compensatory damages for funds the plaintiffs have expended or will in the future expend for medical treatment, educational expenses, abatement or other costs due to exposure to, or potential exposure to, lead paint, disgorgement of profit, and punitive damages. In July 2003, the trial judge granted defendants’ motion to dismiss all remaining claims. Plaintiffs appealed and the intermediate appellate court reinstated public nuisance, negligence, strict liability, and fraud claims in March 2006.  A fourth amended complaint was filed in March 2011 on behalf of The People of California by the County Attorneys of Alameda, Ventura, Solano, San Mateo, Los Angeles and Santa Clara, and the City Attorneys of San Francisco, San Diego and Oakland. That complaint alleged that the presence of lead paint created a public nuisance in each of the prosecuting jurisdictions and seeks its abatement. In July and August 2013, the case was tried. In January 2014, the Judge issued a judgment finding NL, The Sherwin Williams Company and ConAgra Grocery Products Company jointly and severally liable for the abatement of lead paint in pre-1980 homes, and ordered the defendants to pay an aggregate $1.15 billion to the people of the State of California to fund such abatement. In February 2014, NL filed a motion for a new trial, and in March 2014 the court denied the motion. Subsequently in March 2014, NL filed a notice of appeal with the Sixth District Court of Appeal for the State of California and the appeal is proceeding with the appellate court. NL believes that this judgment is inconsistent with California law and is unsupported by the evidence, and NL will defend vigorously against all claims.

The Santa Clara case is unusual in that this is the second time that an adverse verdict in the lead pigment litigation has been entered against NL (the first adverse verdict against NL was ultimately overturned on appeal). We have concluded that the likelihood of a loss in this case has not reached a standard of “probable” as contemplated by ASC 450, given (i) the substantive, substantial and meritorious grounds on which the adverse verdict in the Santa Clara case will be appealed, (ii) the uniqueness of the Santa Clara verdict (i.e. no final, non-appealable verdicts have ever been rendered against NL, or any of the other former lead pigment manufacturers, based on the public nuisance theory of liability or otherwise), and (iii) the rejection of the public nuisance theory of liability as it relates to lead pigment matters in many other jurisdictions (no jurisdiction in which a plaintiff has asserted a public nuisance theory of liability has ever successfully been upheld). In addition, liability that may result, if any, cannot be reasonably estimated, as NL continues to have no basis on which an estimate of liability could be made, as discussed above. However, as with any legal proceeding, there is no assurance that any appeal would be successful, and it is reasonably possible, based on the outcome of the appeals process, that NL may in the future incur some liability resulting in the recognition of a loss contingency accrual that could have a material adverse impact on our results of operations, financial position and liquidity.

New cases may continue to be filed against NL. We cannot assure you that we will not incur liability in the future in respect of any of the pending or possible litigation in view of the inherent uncertainties involved in court and jury rulings. In the future, if new information regarding such matters becomes available to us (such as a final, non-appealable adverse verdict against us or otherwise ultimately being found liable with respect to such matters), at that time we would consider such information in evaluating any remaining cases then-pending against us as to whether it might then have become probable we have incurred liability with respect to these matters, and whether such liability, if any, could have become reasonably estimable. The resolution of any of these cases could result in the recognition of a loss contingency accrual that could have a material adverse impact on our net income for the interim or annual period during which such liability is recognized and a material adverse impact on our consolidated financial condition and liquidity.

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Environmental matters and litigation

Our operations are governed by various environmental laws and regulations. Certain of our businesses are and have been engaged in the handling, manufacture or use of substances or compounds that may be considered toxic or hazardous within the meaning of applicable environmental laws and regulations. As with other companies engaged in similar businesses, certain of our past and current operations and products have the potential to cause environmental or other damage. We have implemented and continue to implement various policies and programs in an effort to minimize these risks. Our policy is to maintain compliance with applicable environmental laws and regulations at all of our plants and to strive to improve environmental performance. From time to time, we may be subject to environmental regulatory enforcement under U.S. and non-U.S. statutes, the resolution of which typically involves the establishment of compliance programs. It is possible that future developments, such as stricter requirements of environmental laws and enforcement policies, could adversely affect our production, handling, use, storage, transportation, sale or disposal of such substances. We believe that all of our facilities are in substantial compliance with applicable environmental laws.

Certain properties and facilities used in NL’s former operations, including divested primary and secondary lead smelters and former mining locations, are the subject of civil litigation, administrative proceedings or investigations arising under federal and state environmental laws and common law. Additionally, in connection with past operating practices, we are currently involved as a defendant, potentially responsible party (“PRP”) or both, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (“CERCLA”), and similar state laws in various governmental and private actions associated with waste disposal sites, mining locations, and facilities that we or our predecessors, our subsidiaries or their predecessors currently or previously owned, operated or used, certain of which are on the United States Environmental Protection Agency’s (“EPA”) Superfund National Priorities List or similar state lists. These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to natural resources. Certain of these proceedings involve claims for substantial amounts. Although we may be jointly and severally liable for these costs, in most cases we are only one of a number of PRPs who may also be jointly and severally liable, and among whom costs may be shared or allocated. In addition, we are occasionally named as a party to a number of personal injury lawsuits filed in various jurisdictions alleging claims related to environmental conditions alleged to have resulted from our operations.

Obligations associated with environmental remediation and related matters are difficult to assess and estimate for numerous reasons including the:

·

complexity and differing interpretations of governmental regulations,

·

number of PRPs and their ability or willingness to fund such allocation of costs,

·

financial capabilities of the PRPs and the allocation of costs among them,

·

solvency of other PRPs,

·

multiplicity of possible solutions,

·

number of years of investigatory, remedial and monitoring activity required,

·

uncertainty over the extent, if any, to which our former operations might have contributed to the conditions allegedly giving rise to such personal injury, property damage, natural resource and related claims, and

·

number of years between former operations and notice of claims and lack of information and documents about the former operations.

In addition, the imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes regarding site cleanup costs or the allocation of costs among PRPs, solvency of other PRPs, the results of future testing and analysis undertaken with respect to certain sites or a determination that we are potentially responsible for the release of hazardous substances at other sites, could cause our expenditures to exceed our current estimates. We cannot assure you that actual costs will not exceed accrued amounts or the upper end of the range for sites for which estimates have been made, and we cannot assure you that costs will not be incurred for sites where no estimates presently can be made. Further, additional environmental and related matters may arise in the future. If we were to incur any future liability, this could have a material adverse effect on our consolidated financial statements, results of operations and liquidity.

We record liabilities related to environmental remediation and related matters (including costs associated with damages for personal injury or property damage and/or damages for injury to natural resources) when estimated future expenditures are probable and reasonably estimable. We adjust such accruals as further information becomes available to us or as circumstances change. Unless the amounts and timing of such estimated future expenditures are fixed and reasonably determinable, we generally do not discount estimated future expenditures to their present value due to the uncertainty of the timing of the payout. We recognize recoveries of costs from other parties, if any, as assets when their receipt is deemed probable. At December 31, 2014 and March 31, 2015, receivables for recoveries were not significant.

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We do not know and cannot estimate the exact time frame over which we will make payments for our accrued environmental and related costs. The timing of payments depends upon a number of factors, including but not limited to the timing of the actual remediation process; which in turn depends on factors outside of our control. At each balance sheet date, we estimate the amount of our accrued environmental and related costs which we expect to pay within the next twelve months, and we classify this estimate as a current liability. We classify the remaining accrued environmental costs as a noncurrent liability.

Changes in the accrued environmental remediation and related costs during the first three months of 2015 are presented in the table below.

 

 

Amount

 

 

(In millions)

 

Balance at the beginning of the year

$

118.5

  

Additions charged to expense, net

 

.1

  

Payments, net

 

(.5

)

Balance at the end of period

$

118.1

  

 

Amounts recognized in our Condensed Consolidated Balance Sheet at the end of the period:

 

 

 

Current liabilities

$

10.1

  

Noncurrent liabilities

 

108.0

  

Total

$

118.1

  

NL – On a quarterly basis, NL evaluates the potential range of its liability for environmental remediation and related costs at sites where it has been named as a PRP or defendant. At March 31, 2015, NL had accrued approximately $110 million related to approximately 47 sites associated with remediation and related matters that it believes are at the present time and/or in their current phase reasonably estimable. The upper end of the range of reasonably possible costs to NL for remediation and related matters for which we believe it is possible to estimate costs is approximately $149 million, including the amount currently accrued.

NL believes that it is not reasonably possible to estimate the range of costs for certain sites. At March 31, 2015, there were approximately 5 sites for which NL is not currently able to reasonably estimate a range of costs. For these sites, generally the investigation is in the early stages, and NL is unable to determine whether or not NL actually had any association with the site, the nature of its responsibility, if any, for the contamination at the site and the extent of contamination at and cost to remediate the site. The timing and availability of information on these sites is dependent on events outside of our control, such as when the party alleging liability provides information to us. At certain of these previously inactive sites, NL has received general and special notices of liability from the EPA and/or state agencies alleging that NL, sometimes with other PRPs, are liable for past and future costs of remediating environmental contamination allegedly caused by former operations. These notifications may assert that NL, along with any other alleged PRPs, are liable for past and/or future clean-up costs. As further information becomes available to us for any of these sites which would allow us to estimate a range of costs, we would at that time adjust our accruals. Any such adjustment could result in the recognition of an accrual that would have a material effect on our consolidated financial statements, results of operations and liquidity.

OtherWe have also accrued approximately $8.3 million at March 31, 2015 for other environmental cleanup matters. This accrual is near the upper end of the range of our estimate of reasonably possible costs for such matters.

Insurance coverage claims

We are involved in certain legal proceedings with a number of our former insurance carriers regarding the nature and extent of the carriers’ obligations to us under insurance policies with respect to certain lead pigment and asbestos lawsuits. The issue of whether insurance coverage for defense costs or indemnity or both will be found to exist for our lead pigment and asbestos litigation depends upon a variety of factors and we cannot assure you that such insurance coverage will be available.

We have agreements with certain of our former insurance carriers pursuant to which the carriers reimburse us for a portion of our future lead pigment litigation defense costs, and one such carrier reimburses us for a portion of our future asbestos litigation defense costs. We are not able to determine how much we will ultimately recover from these carriers for defense costs incurred by us because of certain issues that arise regarding which defense costs qualify for reimbursement. While we continue to seek additional insurance recoveries, we do not know if we will be successful in obtaining reimbursement for either defense costs or indemnity. Accordingly, we recognize insurance recoveries in income only when receipt of the recovery is probable and we are able to reasonably estimate the amount of the recovery.

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For additional discussion of certain litigation involving NL and certain of its former insurance carriers, please refer to our 2014 Annual Report.

Other litigation

NL — NL has been named as a defendant in various lawsuits in several jurisdictions, alleging personal injuries as a result of occupational exposure primarily to products manufactured by our former operations containing asbestos, silica and/or mixed dust. In addition, some plaintiffs allege exposure to asbestos from working in various facilities previously owned and/or operated by NL. There are 166 of these types of cases pending, involving a total of approximately 712 plaintiffs. In addition, the claims of approximately 8,692 plaintiffs have been administratively dismissed or placed on the inactive docket in Ohio, Indiana and Texas state courts. We do not expect these claims will be re-opened unless the plaintiffs meet the courts’ medical criteria for asbestos-related claims. We have not accrued any amounts for this litigation because of the uncertainty of liability and inability to reasonably estimate the liability, if any. To date, we have not been adjudicated liable in any of these matters. Based on information available to us, including:

·

facts concerning historical operations,

·

the rate of new claims,

·

the number of claims from which we have been dismissed, and

·

our prior experience in the defense of these matters,

We believe that the range of reasonably possible outcomes of these matters will be consistent with our historical costs (which are not material). Furthermore, we do not expect any reasonably possible outcome would involve amounts material to our consolidated financial position, results of operations or liquidity. We have sought and will continue to vigorously seek, dismissal and/or a finding of no liability from each claim. In addition, from time to time, we have received notices regarding asbestos or silica claims purporting to be brought against former subsidiaries, including notices provided to insurers with which we have entered into settlements extinguishing certain insurance policies. These insurers may seek indemnification from us.

WCS — Previously, the Lone Star Chapter of the Sierra Club filed various lawsuits in Texas District Court against the Texas Commission on Environmental Quality (“TCEQ”). WCS has intervened in these lawsuits. These lawsuits challenge WCS’ by-product and low-level radioactive waste disposal licenses. Subsequently, the District Court upheld the TCEQ’s determination that the Sierra Club lacked standing to pursue a challenge to the by-product disposal license. The Sierra Club appealed. WCS’ by-product disposal license remains in effect pending resolution of the appeal. On April 4, 2014, the Third District of the Texas Court of Appeals in Austin upheld the District Court’s ruling in favor of the TCEQ and WCS. On December 30, 2014 the Third District of the Texas Court of Appeals issued a new opinion again upholding the District Court’s ruling in favor of the TCEQ and WCS.  On February 13, 2015, the Third District of the Texas Court of Appeals denied the Sierra Club’s motion for rehearing en banc.  Sierra Club petitioned for discretionary relief from the Texas Supreme Court on March 30, 2015.  Sierra Club’s petition remains pending.

In May 2012, the same District Court subsequently held that TCEQ erred in denying the Sierra Club’s request for an administrative contested case hearing regarding the low-level radioactive waste disposal license, and ordered the TCEQ to undertake a contested case hearing in which the Sierra Club could participate. Shortly thereafter, both the TCEQ and WCS appealed the District Court’s order with respect to the low-level radioactive waste disposal license. Because of the appeal, the District Court’s order was suspended. WCS’ low-level radioactive waste disposal license remains in effect pending resolution of the appeal. On April 18, 2014, the Third District of the Texas Court of Appeals in Austin reversed the District Court’s ruling and rendered judgment in favor of TCEQ and WCS. On December 30, 2014, the Third District of the Texas Court of Appeals issued a new opinion, again reversing the District Court’s ruling and rendering judgment in favor of the TCEQ and WCS.  On February 17, 2015, the Third District of the Texas Court of Appeals denied the Sierra Club’s motion for rehearing en banc.  Sierra Club petitioned for discretionary relief from the Texas Supreme Court on April 3, 2015.  Sierra Club’s petition remains pending.

WCS believes the actions by the Sierra Club are without merit and that the Sierra Club has no proper standing to challenge any of its licenses and permits. This position has been validated by the recent decisions of the Third District of the Texas Court of Appeals, relying on two recent Texas Supreme Court rulings narrowing the basis for a challenge to environmental permits. WCS intends to continue to defend against any and all such actions vigorously, and to continue to operate its West Texas facilities in accordance with the terms of its licenses and permits.

 

On February 10, 2015, WCS competitor EnergySolutions LLC (“EnergySolutions”) threatened to bring a civil action against WCS related to WCS’s decision to not enter into a contract with EnergySolutions to dispose of LLRW and other matters.  On February 18, 2015, WCS filed suit against EnergySolutions in the 109th District Court of Andrews County, Texas (Cause No. 19,785), seeking a declaratory judgment that WCS has no obligation to contract with EnergySolutions and that WCS has the right to inform its current and potential customers that it will not enter into that contract.  On March 13, 2015, EnergySolutions removed the WCS action

- 21 -


 

to federal court and asserted a counterclaim against WCS under Section 2 of the Sherman Antitrust Act alleging anticompetitive conduct in the LLRW disposal market.  This case is captioned Waste Control Specialists LLC v. EnergySolutions, LLC (United States District Court for the Western District of Texas, Civil Action No. 7:15-CV-00034).  WCS has moved to remand the WCS declaratory judgment action to state court because EnergySolutions improperly removed it, and WCS moved to dismiss EnergySolutions’ counterclaim because it fails to state a claim upon which relief can be granted. 

 

Other – For a discussion of other legal proceedings to which we are a party, please refer to our 2014 Annual Report.

In addition to the litigation described above, we and certain of our affiliates are also involved in various other environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our present and former businesses. In certain cases, we have insurance coverage for these items, although we do not expect any additional material insurance coverage for our environmental claims.

We currently believe that the disposition of all of these various other claims and disputes, individually or in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or liquidity beyond the accruals already provided.

 

 

Note 16—Fair value measurements and financial instruments:

The following table summarizes the valuation of our marketable securities, financial instruments and other items recorded on a fair value basis as of:

 

 

Fair Value Measurements

 

 

Total

 

 

Quoted
Prices in
Active
Markets
(Level  1)

 

 

Significant
Other
Observable
Inputs
(Level  2)

 

 

Significant
Unobservable
Inputs
(Level  3)

 

 

(In millions)

 

Asset (liability)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

$

2.7

 

 

$

1.7

 

 

$

1.0

 

 

$

 

Noncurrent

 

255.6

 

 

 

2.5

 

 

 

3.1

 

 

 

250.0

 

Currency forward contracts

 

(4.2

)

 

 

(4.2

)

 

 

 

 

 

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

$

.9

 

 

$

 

 

$

.9

 

 

$

 

Noncurrent

 

255.6

 

 

 

2.3

 

 

 

3.3

 

 

 

250.0

 

Currency forward contracts

 

(4.5

)

 

 

(4.5

)

 

 

 

 

 

 

See Note 3 for information on how we determine fair value of our noncurrent marketable securities.

Certain of our Chemicals Segment’s sales generated by its non-U.S. operations are denominated in U.S. dollars. Our Chemicals Segment periodically uses currency forward contracts to manage a very nominal portion of currency exchange rate risk associated with trade receivables denominated in a currency other than the holder’s functional currency or similar exchange rate risk associated with future sales.  We have not entered into these contracts for trading or speculative purposes in the past, nor do we currently anticipate entering into such contracts for trading or speculative purposes in the future. Derivatives used to hedge forecasted transactions and specific cash flows associated with financial assets and liabilities denominated in currencies other than the U.S. dollar and which meet the criteria for hedge accounting are designated as cash flow hedges. Consequently, the effective portion of gains and losses is deferred as a component of accumulated other comprehensive income (loss) and is recognized in earnings at the time the hedged item affects earnings. Contracts that do not meet the criteria for hedge accounting are marked-to-market at each balance sheet date with any resulting gain or loss recognized in income currently as part of net foreign currency transaction gains and losses.  The fair value of the currency forward contracts is determined using Level 1 inputs based on the currency spot forward rates quoted by banks or currency dealers.

At March 31, 2015, our Chemicals Segment had currency forward contracts to exchange:  

·

an aggregate $16.2 million for an equivalent value of Norwegian kroner at exchange rates ranging from kroner 6.75 to kroner 7.11 per U.S. dollar; these contracts with DnB Nor Bank ASA mature at a rate of $2.7 million to $5.0 million per month in certain months from May 2015 through December 2015; and

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·

an aggregate €15.0 million for an equivalent value of Norwegian kroner at exchange rates ranging from kroner 8.53 to kroner 8.56 per euro; these contracts with DnB Nor Bank ASA mature at a rate ranging of €5.0 million per quarter from June 2015 through December 2015.

The estimated aggregate fair value of our currency forward contracts at March 31, 2015 was a $4.5 million net liability which is recognized as part of accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets. We have also recognized a corresponding $4.5 million currency transaction loss in our Condensed Consolidated Statement of Income. Our Chemicals Segment is not currently using hedge accounting for our outstanding currency forward contracts at March 31, 2015, and we did not use hedge accounting for any of such contracts we previously held in 2014.   Accordingly, changes in the aggregate fair value of currency forward contracts we hold are recognized as a foreign currency transaction gain or loss.

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure:

 

 

December 31, 2014

 

 

March 31, 2015

 

 

Carrying
amount

 

 

Fair
value

 

 

Carrying
amount

 

 

Fair
value

 

 

(In millions)

 

Cash, cash equivalents and restricted cash equivalents

$

280.3

 

 

$

280.3

 

 

$

224.1

 

 

$

224.1

 

Deferred payment obligation

 

8.5