10-Q 1 vhi-10q_20160930.htm 10-Q vhi-10q_20160930.htm

 

 

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 September 30, 2016

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      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      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

 

 

 

 

 

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  .

Number of shares of the Registrant’s common stock outstanding on November 4, 2016: 339,158,949

 

 

 

 

 


 

VALHI, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

 

 

 

Page
number

 

 

 

 

 

 

 

 

Part I.

 

FINANCIAL INFORMATION

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 1.

  

Financial Statements

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets – December 31, 2015 and September 30, 2016 (unaudited)

  

 

3

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations (unaudited) – Three  months and nine months ended September 30, 2015 and 2016

  

 

5

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) – Three  months and nine months ended September 30, 2015 and 2016

  

 

6

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows (unaudited) –Nine months ended September 30, 2015 and 2016

  

 

7

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statement of Equity (unaudited) – Nine months ended September 30, 2016

  

 

8

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements (unaudited)

  

 

9

  

 

 

 

 

 

 

 

 

 

 

 

Item 2.

  

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

  

 

27

 

 

 

 

 

 

 

 

 

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

 

47

 

 

 

 

 

 

 

 

 

 

 

 

Item 4.

  

Controls and Procedures

  

 

47

 

 

 

 

 

 

 

 

 

 

Part II.

 

OTHER INFORMATION

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 1.

  

Legal Proceedings

  

 

49

 

 

 

 

 

 

 

 

 

 

 

 

Item 1A.

  

Risk Factors

  

 

49

 

 

 

 

 

 

 

 

 

 

 

 

Item 6.

  

Exhibits

  

 

50

 

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,
2015

 

 

September 30,
2016

 

 

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

202.3

 

 

$

205.0

 

Restricted cash equivalents

 

7.2

 

 

 

7.3

 

Marketable securities

 

2.0

 

 

 

.7

 

Accounts and other receivables, net

 

246.6

 

 

 

302.1

 

Inventories, net

 

405.2

 

 

 

334.1

 

Land held for development

 

9.9

 

 

 

16.1

 

Other current assets

 

23.0

 

 

 

27.1

 

Total current assets

 

896.2

 

 

 

892.4

 

 

Other assets:

 

 

 

 

 

 

 

Marketable securities

 

254.9

 

 

 

256.2

 

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

 

82.9

 

 

 

79.8

 

Goodwill

 

379.7

 

 

 

379.7

 

Deferred income taxes

 

1.3

 

 

 

1.3

 

Other noncurrent assets

 

256.7

 

 

 

248.4

 

Total other assets

 

975.5

 

 

 

965.4

 

Property and equipment:

 

 

 

 

 

 

 

Land

 

45.4

 

 

 

46.9

 

Buildings

 

239.7

 

 

 

246.5

 

Treatment, storage and disposal facility

 

159.5

 

 

 

159.5

 

Equipment

 

1,061.6

 

 

 

1,094.0

 

Mining properties

 

35.5

 

 

 

40.6

 

Construction in progress

 

33.1

 

 

 

52.0

 

 

 

1,574.8

 

 

 

1,639.5

 

Less accumulated depreciation

 

909.1

 

 

 

967.3

 

 

Net property and equipment

 

665.7

 

 

 

672.2

 

Total assets

$

2,537.4

 

 

$

2,530.0

 

 

 

 

 

 

 

 

- 3 -


 

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)

 

 

December 31,
2015

 

 

September 30,
2016

 

 

 

 

 

(unaudited)

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current maturities of long-term debt

$

9.5

 

 

$

26.9

 

Accounts payable and accrued liabilities

 

271.4

 

 

 

274.0

 

Income taxes

 

5.7

 

 

 

5.4

 

Total current liabilities

 

286.6

 

 

 

306.3

 

 

Noncurrent liabilities:

 

 

 

 

 

 

 

Long-term debt

 

951.0

 

 

 

971.1

 

Deferred income taxes

 

321.0

 

 

 

310.5

 

Accrued pension costs

 

216.8

 

 

 

216.9

 

Accrued environmental remediation and related costs

 

108.7

 

 

 

107.6

 

Accrued postretirement benefits costs

 

11.8

 

 

 

11.8

 

Other liabilities

 

114.6

 

 

 

108.6

 

Total noncurrent liabilities

 

1,723.9

 

 

 

1,726.5

 

 

Equity:

 

 

 

 

 

 

 

Valhi stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock

 

667.3

 

 

 

667.3

 

Common stock

 

3.6

 

 

 

3.6

 

Additional paid-in capital

 

 

 

 

 

Retained deficit

 

(155.6

)

 

 

(200.8

)

Accumulated other comprehensive loss

 

(197.0

)

 

 

(182.7

)

Treasury stock

 

(49.6

)

 

 

(49.6

)

Total Valhi stockholders’ equity

 

268.7

 

 

 

237.8

 

 

 

 

 

 

 

 

 

Noncontrolling interest in subsidiaries

 

258.2

 

 

 

259.4

 

Total equity

 

526.9

 

 

 

497.2

 

Total liabilities and equity

$

2,537.4

 

 

$

2,530.0

 

 

Commitments and contingencies (Notes 13 and 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

- 4 -


 

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

 

 

Three months ended
September 30,

 

 

Nine months ended
September 30,

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

 

(unaudited)

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

383.2

 

 

$

406.8

 

 

$

1,208.1

 

 

$

1,158.9

 

Other income, net

 

5.9

 

 

 

6.2

 

 

 

25.4

 

 

 

28.3

 

Total revenues and other income

 

389.1

 

 

 

413.0

 

 

 

1,233.5

 

 

 

1,187.2

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

333.4

 

 

 

321.5

 

 

 

1,012.7

 

 

 

969.4

 

Selling, general and administrative

 

64.1

 

 

 

64.0

 

 

 

207.3

 

 

 

191.8

 

Contract related intangible asset impairment

 

 

 

 

 

 

 

 

 

 

5.1

 

Interest

 

14.4

 

 

 

15.9

 

 

 

43.5

 

 

 

47.4

 

Total costs and expenses

 

411.9

 

 

 

401.4

 

 

 

1,263.5

 

 

 

1,213.7

 

 

Income (loss) before income taxes

 

(22.8

)

 

 

11.6

 

 

 

(30.0

)

 

 

(26.5

)

 

Income tax expense (benefit)

 

(9.5

)

 

 

2.6

 

 

 

105.4

 

 

 

(5.8

)

Net income (loss)

 

(13.3

)

 

 

9.0

 

 

 

(135.4

)

 

 

(20.7

)

 

Noncontrolling interest in net income (loss) of subsidiaries

 

(1.6

)

 

 

6.0

 

 

 

(31.7

)

 

 

4.3

 

Net income (loss) attributable to Valhi stockholders

$

(11.7

)

 

$

3.0

 

 

$

(103.7

)

 

$

(25.0

)

 

Amounts attributable to Valhi stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per share

$

(.03

)

 

$

.01

 

 

$

(.30

)

 

$

(.07

)

 

Cash dividends per share

$

.02

 

 

$

.02

 

 

$

.06

 

 

$

.06

 

 

Basic and diluted weighted average shares outstanding

 

342.0

 

 

 

342.0

 

 

 

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 September 30,

 

 

Nine months
ended September 30,

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

(unaudited)

 

Net income (loss)

$

(13.3

)

 

$

9.0

 

 

$

(135.4

)

 

$

(20.7

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation

 

(13.5

)

 

 

7.5

 

 

 

(66.4

)

 

 

15.3

 

Marketable securities

 

(5.4

)

 

 

1.4

 

 

 

(6.8

)

 

 

1.9

 

Interest rate swap

 

(3.1

)

 

 

.6

 

 

 

(3.1

)

 

 

(2.4

)

Defined benefit pension plans

 

2.9

 

 

 

2.6

 

 

 

9.4

 

 

 

7.8

 

Other postretirement benefit plans

 

(.3

)

 

 

(.3

)

 

 

(.9

)

 

 

(.9

)

Total other comprehensive income (loss), net

 

(19.4

)

 

 

11.8

 

 

 

(67.8

)

 

 

21.7

 

Comprehensive income (loss)

 

(32.7

)

 

 

20.8

 

 

 

(203.2

)

 

 

1.0

 

Comprehensive income (loss) attributable to noncontrolling interest

 

(11.0

)

 

 

10.3

 

 

 

(54.8

)

 

 

11.7

 

Comprehensive income (loss) attributable to Valhi stockholders

$

(21.7

)

 

$

10.5

 

 

$

(148.4

)

 

$

(10.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

- 6 -


 

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

 

Nine months ended
September 30,

 

 

2015

 

 

2016

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(135.4

)

 

$

(20.7

)

Depreciation and amortization

 

53.2

 

 

 

51.0

 

Benefit plan expense greater than cash funding

 

2.5

 

 

 

3.2

 

Deferred income taxes

 

90.2

 

 

 

(15.5

)

Distributions from Ti02 manufacturing joint venture, net

 

7.6

 

 

 

3.1

 

Contract related intangible asset impairment

 

 

 

 

5.1

 

Other, net

 

9.4

 

 

 

.2

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts and other receivables, net

 

(2.9

)

 

 

(46.3

)

Inventories, net

 

2.5

 

 

 

81.9

 

Land held for development, net

 

6.3

 

 

 

1.1

 

Accounts payable and accrued liabilities

 

.4

 

 

 

(1.8

)

Accounts with affiliates

 

17.1

 

 

 

(11.9

)

Income taxes

 

(.2

)

 

 

(.1

)

Other, net

 

(17.6

)

 

 

(9.6

)

Net cash provided by operating activities

 

33.1

 

 

 

39.7

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(36.4

)

 

 

(38.7

)

Capitalized permit costs

 

(.9

)

 

 

(1.0

)

Purchases of marketable securities

 

(10.6

)

 

 

(6.0

)

Disposals of marketable securities

 

10.9

 

 

 

6.3

 

Change in restricted cash equivalents, net

 

(1.2

)

 

 

(3.2

)

Other, net

 

.2

 

 

 

(.6

)

Net cash used in investing activities

 

(38.0

)

 

 

(43.2

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Indebtedness:

 

 

 

 

 

 

 

Borrowings

 

58.6

 

 

 

255.9

 

Principal payments

 

(39.7

)

 

 

(219.9

)

Valhi cash dividends paid

 

(20.4

)

 

 

(20.4

)

Distributions to noncontrolling interest in subsidiaries

 

(10.8

)

 

 

(10.4

)

Other

 

.1

 

 

 

 

Net cash provided by (used in) financing activities

 

(12.2

)

 

 

5.2

 

Cash and cash equivalents – net change from:

 

 

 

 

 

 

 

Operating, investing and financing activities

 

(17.1

)

 

 

1.7

 

Effect of exchange rate on cash

 

(6.3

)

 

 

1.0

 

Cash and cash equivalents at beginning of period

 

255.8

 

 

 

202.3

 

Cash and cash equivalents at end of period

$

232.4

 

 

$

205.0

 

Supplemental disclosures:

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest, net of capitalized interest

$

41.5

 

 

$

45.2

 

Income taxes, net

 

11.7

 

 

 

6.9

 

Noncash investing activities:

 

 

 

 

 

 

 

Change in accruals for capital expenditures

 

3.1

 

 

 

4.8

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

- 7 -


 

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

Nine months ended September 30, 2016

(In millions)

(unaudited)

 

 

Valhi Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred
stock

 

  

Common
stock

 

  

Additional
paid-in
capital

 

  

Retained deficit

 

 

Accumulated
other
comprehensive
income (loss)

 

 

Treasury
stock

 

 

Non-
controlling
interest

 

 

Total
equity

 

Balance at December 31, 2015

$

667.3

  

  

$

3.6

  

  

$

  

  

$

(155.6

)  

 

$

(197.0

 

$

(49.6

 

$

258.2

  

 

$

526.9

  

Net income (loss)

 

  

  

 

  

  

 

  

  

 

(25.0

)

 

 

  

 

 

  

 

 

4.3

 

 

 

(20.7

)

Other comprehensive income, net

 

  

  

 

  

  

 

  

  

 

  

 

 

14.3

 

 

 

  

 

 

7.4

  

 

 

21.7

 

Dividends

 

  

  

 

  

  

 

(.2

)

  

 

(20.2

)

 

 

  

 

 

  

 

 

(10.4

)

 

 

(30.8

)

Other, net

 

  

  

 

  

  

 

.2

 

  

 

 

 

 

  

 

 

  

 

 

(.1

)

 

 

.1

 

Balance at September 30, 2016

$

667.3

  

  

$

3.6

  

  

$

  

  

$

(200.8

)

 

$

(182.7

)

 

$

(49.6

)

 

$

259.4

  

 

$

497.2

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

- 8 -


 

VALHI, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

(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 September 30, 2016. All of Contran's outstanding voting stock is held by a family trust established for the benefit of Lisa K. Simmons and Serena Simmons Connelly and their children, for which Ms. Simmons and Ms. Connelly are co-trustees, or is held directly by Ms. Simmons and Ms. Connelly or entities related to them.  Consequently, Ms. Simmons and Ms. Connelly 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, 2015 that we filed with the SEC on March 11, 2016 (the “2015 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, 2015 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, 2015) 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, 2016 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 2015 Consolidated Financial Statements contained in our 2015 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:

 

Business segment

  

Entity

  

% controlled at
September 30, 2016

 

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
September 30,

 

 

Nine months ended
September 30,

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

(unaudited)

 

 

(In millions)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals

$

336.5

 

 

$

356.1

 

 

$

1,061.8

 

 

$

1,030.6

 

Component products

 

26.5

 

 

 

28.4

 

 

 

83.3

 

 

 

82.6

 

Waste management

 

9.9

 

 

 

13.6

 

 

 

34.9

 

 

 

29.9

 

Real estate management and development

 

10.3

 

 

 

8.7

 

 

 

28.1

 

 

 

15.8

 

Total net sales

$

383.2

 

 

$

406.8

 

 

$

1,208.1

 

 

$

1,158.9

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals

$

293.7

 

 

$

281.1

 

 

$

896.1

 

 

$

860.6

 

Component products

 

18.4

 

 

 

19.0

 

 

 

57.5

 

 

 

56.5

 

Waste management

 

13.3

 

 

 

14.1

 

 

 

37.8

 

 

 

39.4

 

Real estate management and development

 

8.0

 

 

 

7.3

 

 

 

21.3

 

 

 

12.9

 

Total cost of sales

$

333.4

 

 

$

321.5

 

 

$

1,012.7

 

 

$

969.4

 

Gross margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals

$

42.8

 

 

$

75.0

 

 

$

165.7

 

 

$

170.0

 

Component products

 

8.1

 

 

 

9.4

 

 

 

25.8

 

 

 

26.1

 

Waste management

 

(3.4

)

 

 

(.5

)

 

 

(2.9

)

 

 

(9.5

)

Real estate management and development

 

2.3

 

 

 

1.4

 

 

 

6.8

 

 

 

2.9

 

Total gross margin

$

49.8

 

 

$

85.3

 

 

$

195.4

 

 

$

189.5

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals

$

(1.3

)

 

$

30.1

 

 

$

24.8

 

 

$

45.8

 

Component products

 

3.4

 

 

 

4.4

 

 

 

11.4

 

 

 

11.5

 

Waste management

 

(8.3

)

 

 

(5.1

)

 

 

(19.3

)

 

 

(23.0

)

Real estate management and development

 

1.2

 

 

 

.3

 

 

 

2.6

 

 

 

(5.1

)

Total operating income (loss)

 

(5.0

)

 

 

29.7

 

 

 

19.5

 

 

 

29.2

 

General corporate items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities earnings

 

6.5

 

 

 

6.8

 

 

 

19.9

 

 

 

20.5

 

Insurance recoveries

 

.1

 

 

 

.1

 

 

 

3.5

 

 

 

.4

 

General expenses, net

 

(10.0

)

 

 

(9.1

)

 

 

(29.4

)

 

 

(29.2

)

Interest expense

 

(14.4

)

 

 

(15.9

)

 

 

(43.5

)

 

 

(47.4

)

Income (loss) before income taxes

$

(22.8

)

 

$

11.6

 

 

$

(30.0

)

 

$

(26.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.  Our Real Estate Management and Development Segment’s operating loss in the first nine months of 2016 includes a first quarter $5.1 million contract related intangible asset impairment which is included in the determination of its operating income, see Note 7.  Our Chemicals Segment’s operating income in the first nine months of 2016 includes  $3.4 million in business interruption insurance proceeds which is included in the determination of its operating income, see Note 12.

 

 

- 10 -


 

Note 3—Business disposition —  Waste Control Specialists LLC:

On November 18, 2015, we entered into an agreement with Rockwell Holdco, Inc. ("Rockwell"), for the sale of WCS to Rockwell for $270 million in cash, $20 million face amount in Series A Preferred Stock of Rockwell plus the assumption of all of WCS’ third-party indebtedness incurred prior to the date of the agreement.  Additionally, Rockwell and its affiliates will assume all financial assurance obligations related to the WCS business.  Rockwell is the parent company of EnergySolutions, Inc.   Completion of the sale is subject to certain customary closing conditions, including the receipt of U.S. anti-trust approval.  Assuming all closing conditions are satisfied, the sale is expected to close in the first half of 2017.  There can be no assurance, however, that all closing conditions will be satisfied, or that any such sale of WCS would be completed.  Due to, among other things, the size of our WCS business relative to our other businesses in terms of both net sales and asset size, the disposal of WCS would not constitute a strategic shift that would have a major effect on our consolidated operations and financial results under the guidance in ACS 205-20.  Accordingly, assuming the sale of WCS is completed, WCS would not be presented as discontinued operations in our Condensed Consolidated Financial Statements.   See Note 2 for additional information regarding the operations of the Waste Management Segment.  Significant items included in our Condensed Consolidated Balance Sheets related to WCS at December 31, 2015 and September 30, 2016 included:

 

 

  

December 31,
2015

 

  

September 30,
2016

 

 

  

(In millions)

 

ASSETS

  

 

 

 

  

 

 

 

Current assets

  

$

10.1

  

  

$

13.9

  

Operating permits

  

 

48.1

  

  

 

44.2

  

Restricted cash

 

 

16.2

 

 

 

20.3

 

Property and equipment, net

 

 

150.0

 

 

 

141.5

 

LIABILITIES

  

 

 

 

  

 

 

 

Current portion of long-term debt

  

$

4.9

  

  

$

4.0

  

Payable to Contran

 

 

26.1

 

 

 

30.0

 

Long-term debt

 

 

71.4

 

 

 

68.9

 

Accrued noncurrent closure and post closure costs

 

 

27.4

 

 

 

29.0

 

 

 

Note 4—Marketable securities:

 

 

Market
value

 

 

Cost
basis

 

 

Unrealized
losses, net

 

 

(In millions)

 

December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

Current assets

$

2.0

 

 

$

2.0

 

 

$

—  

 

Noncurrent assets:

 

 

 

 

 

 

 

 

 

 

 

The Amalgamated Sugar Company LLC

$

250.0

 

 

$

250.0

 

 

$

—  

 

Other

 

4.9

 

 

 

5.1

 

 

 

(.2

)

Total

$

254.9

 

 

$

255.1

 

 

$

(.2

)

September 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

Current assets

$

.7

 

 

$

.7

 

 

$

 

Noncurrent assets:

 

 

 

 

 

 

 

 

 

 

 

The Amalgamated Sugar Company LLC

$

250.0

 

 

$

250.0

 

 

$

 

Other

 

6.2

 

 

 

6.3

 

 

 

(.1

)

Total

$

256.2

 

 

$

256.3

 

 

$

(.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 investment in Amalgamated is measured using significant unobservable inputs, which are Level 3 inputs. Please refer to Note 4 in our 2015 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 17.

 

 

- 11 -


 

Note 5—Accounts and other receivables, net:

 

 

December 31,
2015

 

 

September 30,
2016

 

 

(In millions)

 

Trade accounts receivable:

 

 

 

 

 

 

 

Kronos

$

194.8

 

 

$

238.8

 

CompX

 

8.8

 

 

 

13.1

 

WCS

 

5.2

 

 

 

10.9

 

BMI and LandWell

 

1.2

 

 

 

1.3

 

VAT and other receivables

 

20.1

 

 

 

16.5

 

Refundable income taxes

 

7.4

 

 

 

4.9

 

Receivable from affiliates:  

 

 

 

 

 

 

 

    Contran – trade items

 

.2

 

 

 

.3

 

    Contran – income taxes

 

7.6

 

 

 

5.9

 

    Other – trade items

 

2.5

 

 

 

11.7

 

Allowance for doubtful accounts

 

(1.2

)

 

 

(1.3

)

Total

$

246.6

 

 

$

302.1

 

 

 

Note 6—Inventories, net:

 

 

December 31,
2015

 

 

September 30,
2016

 

 

(In millions)

 

Raw materials:

 

 

 

 

 

 

 

Chemicals

$

75.9

 

 

$

60.1

 

Component products

 

2.8

 

 

 

2.7

 

Total raw materials

 

78.7

 

 

 

62.8

 

Work in process:

 

 

 

 

 

 

 

Chemicals

 

21.1

 

 

 

25.4

 

Component products

 

9.3

 

 

 

9.1

 

Total in-process products

 

30.4

 

 

 

34.5

 

Finished products:

 

 

 

 

 

 

 

Chemicals

 

233.1

 

 

 

171.3

 

Component products

 

3.0

 

 

 

2.8

 

Total finished products

 

236.1

 

 

 

174.1

 

Supplies (primarily chemicals)

 

60.0

 

 

 

62.7

 

Total

$

405.2

 

 

$

334.1

 

 

Note 7—Other noncurrent assets:

 

 

December 31,
2015

 

 

September 30,
2016

 

 

(In millions)

 

Other noncurrent assets:

 

 

 

 

 

 

 

Land held for development

$

157.2

 

 

$

150.8

 

Waste disposal site operating permits, net

 

48.1

 

 

 

44.2

 

Restricted cash

 

19.6

 

 

 

22.9

 

IBNR receivables

 

7.0

 

 

 

7.2

 

Capital lease deposit

 

6.2

 

 

 

6.2

 

Intangible assets

 

5.1

 

 

 

 

Pension asset

 

1.7

 

 

 

1.9

 

Other

 

11.8

 

 

 

15.2

 

Total

$

256.7

 

 

$

248.4

 

 

Upon acquiring a controlling interest in our Real Estate Management and Development Segment in December 2013, we recognized an indefinite-lived customer relationship intangible asset of $5.1 million for long-term contracts related to water delivery services to the City of Henderson, Nevada and various other users through a water system owned by BMI.  Aggregate revenues associated with water delivered under the City of Henderson contract have historically represented approximately 70% of the

- 12 -


 

Segment’s aggregate water delivery revenues.  These contracts generally span many years and feature automatic renewing provisions.  The initial City of Henderson water delivery contract extended for a period of 25 years, and contained an automatic renewal provision.  In January 2016, the water delivery contract with the City of Henderson was amended.  As part of such amendment, required minimum volumes were reduced, pricing was lowered, the automatic renewal provision of the contract was eliminated, and the contract term now runs through June 2040.  The amendment to the City of Henderson water delivery contract represents an event or circumstance which triggered the need to perform a quantitative impairment analysis with respect to the intangible asset in the first quarter of 2016, in accordance with the guidance in ASC 350-30-35.  Accordingly, as a result of a quantitative impairment analysis performed in the first quarter of 2016 we have concluded that the $5.1 million contract related intangible asset primarily related to the City of Henderson water delivery contract has been fully impaired as a result of the amended contract (with its reduced minimum volumes and lower pricing), and we recognized an aggregate $5.1 million contract related intangible impairment loss in the first quarter of 2016.  

 

 

Note 8—Accounts payable and accrued liabilities:

 

 

December 31,
2015

 

 

September 30,
2016

 

 

(In millions)

 

Accounts payable:

 

 

 

 

 

 

 

Kronos

$

96.1

 

 

$

81.2

 

CompX

 

2.7

 

 

 

3.5

 

WCS

 

1.3

 

 

 

1.0

 

BMI and LandWell

 

2.1

 

 

 

3.6

 

Other

 

2.6

 

 

 

2.4

 

Payable to affiliates:

 

 

 

 

 

 

 

Contran – trade items

 

26.1

 

 

 

30.0

 

LPC – trade items

 

19.4

 

 

 

12.7

 

Accrued liabilities:

 

 

 

 

 

 

 

Employee benefits

 

24.7

 

 

 

31.1

 

Deferred income

 

21.8

 

 

 

23.2

 

Sales discounts and rebates

 

23.9

 

 

 

22.4

 

Environmental remediation and related costs

 

11.7

 

 

 

16.5

 

Reserve for uncertain tax positions

 

 

 

 

3.3

 

Workforce reduction costs

 

5.3

 

 

 

3.0

 

Interest rate swap

 

3.3

 

 

 

3.3

 

Other

 

30.4

 

 

 

36.8

 

Total

$

271.4

 

 

$

274.0

 

 

 

 

 

 

 

 

 

 

During the first nine months of 2016, Kronos made an aggregate of $2.4 million in payments with respect to workforce reduction costs accrued as of December 31, 2015.    See Note 17 for a discussion of the interest rate swap contract.

 

 

Note 9—Other noncurrent liabilities:

 

 

December 31,
2015

 

 

September 30,
2016

 

 

(In millions)

 

Reserve for uncertain tax positions

$

32.9

 

 

$

29.2

 

Asset retirement obligations

 

28.8

 

 

 

30.3

 

Deferred income

 

20.2

 

 

 

11.7

 

Employee benefits

 

7.1

 

 

 

7.1

 

Insurance claims and expenses

 

9.6

 

 

 

9.7

 

Deferred payment obligation

 

8.8

 

 

 

9.0

 

Interest rate swap

 

.2

 

 

 

4.8

 

Other

 

7.0

 

 

 

6.8

 

Total

$

114.6

 

 

$

108.6

 

 

 

- 13 -


 

Note 10—Long-term debt:

 

 

December 31,
2015

 

 

September 30,
2016

 

 

(In millions)

 

Valhi:

 

 

 

 

 

 

 

Snake River Sugar Company

$

250.0

 

 

$

250.0

 

Contran credit facility

 

263.8

 

 

 

288.3

 

Total Valhi debt

 

513.8

 

 

 

538.3

 

Subsidiary debt:

 

 

 

 

 

 

 

Kronos:

 

 

 

 

 

 

 

Term loan

 

338.0 

 

 

 

336.4

 

Revolving North American credit facility

 

 

 

 

18.5

 

WCS:

 

 

 

 

 

 

 

Financing capital lease

 

65.6

 

 

 

64.4

 

Tremont:

 

 

 

 

 

 

 

Promissory note payable

 

17.1

 

 

 

17.1

 

BMI:

 

 

 

 

 

 

 

Bank note payable

 

9.3

 

 

 

8.6

 

LandWell:

 

 

 

 

 

 

 

Note payable to the City of Henderson

 

3.1

 

 

 

3.1

 

Other

 

13.6

 

 

 

11.6

 

Total subsidiary debt

 

446.7

 

 

 

459.7

 

Total debt

 

960.5

 

 

 

998.0

 

Less current maturities

 

9.5

 

 

 

26.9

 

Total long-term debt

$

951.0

 

 

$

971.1

 

Valhi Contran credit facility – During the first nine months of 2016, we had net borrowings of $24.5 million under our Contran credit facility. The average interest rate on the existing balance as of and for the nine months ended September 30, 2016 was 4.5%. At September 30, 2016, the equivalent of $36.7 million was available for borrowing under this facility, subject to Contran’s discretion.

Kronos – Term loan – During the first nine months of 2016, Kronos made its required quarterly term loan principal payments aggregating $2.6 million.  The average interest rate on the term loan borrowings as of and for the nine months ended September 30, 2016 was 4.0%.  The carrying value of the term loan at September 30, 2016 is stated net of unamortized original issue discount of $1.0 million and debt issuance costs of $3.8 million.  See Note 17 for a discussion of the interest rate swap Kronos entered into in 2015 pursuant to its interest rate risk strategy.

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 September 30, 2016 and the net debt to EBITDA financial test, Kronos’ borrowing availability at September 30, 2016 is approximately 22% of the credit facility, €26.4 million ($29.6 million).  During the first nine months of 2016, Kronos borrowed a net $18.5 million under its North American revolving credit facility.  The average interest rate on outstanding borrowings as of and for the nine months ended September 30, 2016 was 4.25% and 4.13%, respectively. In addition, at September 30, 2016 Kronos had approximately $57.4 million available for borrowing under its North American revolving facility.

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 September 30, 2016.

 

 

- 14 -


 

Note 11—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
September 30,

 

 

Nine months ended
September 30,

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

(In millions)

 

Service cost

$

2.8

  

 

$

2.5

  

 

$

8.4

 

 

$

7.5

 

Interest cost

 

4.4

  

 

 

4.5

  

 

 

13.4

 

 

 

13.4

 

Expected return on plan assets

 

(5.2

)

 

 

(4.6

)

 

 

(15.9

)

 

 

(13.8

)

Amortization of unrecognized prior service cost

 

.2

 

 

 

.1

  

 

 

.6

 

 

 

.2

 

Recognized actuarial losses

 

3.7

  

 

 

3.3

  

 

 

11.3

 

 

 

10.2

 

Total

$

5.9

  

 

$

5.8

  

 

$

17.8

 

 

$

17.5

 

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

 

 

Three months ended
September 30,

 

 

Nine months ended
September 30,

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

(In millions)

 

Service cost

$

 

 

$

.1

 

 

$

.1

 

 

$

.1

 

Interest cost

 

.2

 

 

 

.2

 

 

 

.4

 

 

 

.4

 

Amortization of prior service credit

 

(.5

)

 

 

(.5

)

 

 

(1.4

)

 

 

(1.4

)

Recognized actuarial gains

 

 

 

 

(.1

)

 

 

(.1

)

 

 

(.1

)

Total

$

(.3

)

 

$

(.3

)

 

$

(1.0

)

 

$

(1.0

)

Contributions – We expect to contribute the equivalent of $15.8 million and $1.1 million, respectively, to all of our defined benefit pension plans and other postretirement benefit plans during 2016.

 

 

Note 12—Other income, net:

 

 

Nine months ended
September 30,

 

 

2015

 

 

2016

 

 

(In millions)

 

Securities earnings:

 

 

 

 

 

 

 

Dividends and interest

$

19.8

 

 

$

20.3

 

Securities transactions, net

 

.1

 

 

 

.2

 

Total

 

19.9

 

 

 

20.5

 

Currency transactions, net

 

.6

 

 

 

3.2

 

Insurance recoveries

 

3.5

 

 

 

.4

 

Business interruption insurance proceeds

 

 

 

 

3.4

 

Other, net

 

1.4

 

 

 

.8

 

Total

$

25.4

 

 

$

28.3

 

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.

We recognized $3.4 million in income related to cash Kronos received in the first nine months of 2016  from settlement of a business interruption insurance claim arising in 2014.  No additional material amounts are expected to be received with respect to such insurance claim. 

 

 

- 15 -


 

Note 13—Income taxes:

 

 

 

Three months ended
September 30,

 

 

Nine months ended
September 30,

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

(In millions)

 

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

$

(8.0

)

 

$

4.0

 

 

$

(10.5

 

)

 

$

(9.3

)

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

 

(4.6

)

 

 

4.9

 

 

 

(32.7

)

 

 

7.6

 

Non-U.S. tax rates

 

 

 

 

(1.0

)

 

 

(.6

)

 

 

(1.4

)

Valuation allowance

 

2.3

 

 

 

(.8

)

 

 

152.6

 

 

 

2.1

 

Adjustment to the reserve for uncertain tax positions, net

 

.5

 

 

 

.5

 

 

 

(2.4

)

 

 

1.1

 

Nondeductible expenses

 

1.3

 

 

 

.7

 

 

 

1.2

 

 

 

1.3

 

U.S.- Canada APA

 

 

 

 

(5.5

)

 

 

 

 

 

(5.5

)

Domestic production activities deduction

 

 

 

 

.2

 

 

 

(1.0

)

 

 

(.6

)

U.S. state income taxes and other, net

 

(1.0

)

 

 

(.4

)

 

 

(1.2

)

 

 

(1.1

)

Income tax expense (benefit)

$

(9.5

)

 

$

2.6

 

 

$

105.4

 

 

$

(5.8

)