Income taxes

12 Months Ended

Dec. 31, 2023

Income taxes

Income taxes

Note 13 - Income taxes:

The provision for income taxes and the difference between the provision for income taxes and the amount that would be expected using the U.S. federal statutory income tax rate are presented below.

	Years ended December 31,
	2021		2022		2023
	(In thousands)
Expected tax expense (benefit), at U.S. federal statutory   income tax rate of 21%	$	12,776	$	8,241	$	(1,348)
Nontaxable dividends received from Kronos		(5,325)		(5,621)		(5,621)
U.S. state income taxes and other, net		28		165		(32)
Income tax expense (benefit)	$	7,479	$	2,785	$	(7,001)
Components of income tax expense (benefit):
Currently payable	$	26	$	495	$	307
Deferred income tax expense (benefit)		7,453		2,290		(7,308)
Income tax expense (benefit)	$	7,479	$	2,785	$	(7,001)
Comprehensive provision (benefit) for income taxes allocable to:
Net income	$	7,479	$	2,785	$	(7,001)
Other comprehensive income:
Currency translation		(429)		(1,849)		241
Pension plans		3,252		6,542		(291)
OPEB plans		(44)		69		(35)
Total	$	10,258	$	7,547	$	(7,086)

In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings (losses) of Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we receive from Kronos are nontaxable to us. Accordingly, we do not recognize and we are not required to pay income taxes on dividends from Kronos. We received aggregate dividends from Kronos of $25.4 million in 2021, and $26.8 million in each of 2022 and 2023. See Note 6.

The components of the net deferred tax liability at December 31, 2022 and 2023 are summarized in the following table.

	December 31,
	2022				2023
	Assets		Liabilities		Assets		Liabilities
	(In thousands)
Tax effect of temporary differences related to:
Inventories	$	369	$	—	$	373	$	—
Marketable securities		—		(5,290)		—		(3,586)
Property and equipment		—		(2,025)		—		(1,467)
Accrued OPEB costs		168		—		139		—
Accrued pension costs		412		—		124		—
Accrued employee benefits		1,342		—		1,421		—
Accrued environmental liabilities		24,332		—		21,332		—
Goodwill		—		(1,693)		—		(1,693)
Other accrued liabilities and deductible differences		161		—		149		—
Other taxable differences		—		(2,391)		—		(2,392)
Investment in Kronos Worldwide, Inc.		—		(65,504)		—		(56,133)
Adjusted gross deferred tax assets (liabilities)		26,784		(76,903)		23,538		(65,271)
Netting of items by tax jurisdiction		(26,784)		26,784		(23,538)		23,538
Net noncurrent deferred tax liability	$	—	$	(50,119)	$	—	$	(41,733)

At December 31, 2023, we have a deferred tax asset relating to our NOL carryforwards for federal income tax purposes of $3.6 million all of which have an indefinite carryforward period subject to an 80% annual usage limitation. Our deferred tax asset for such NOL carryforward is net of a portion of our uncertain tax positions as discussed below.

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.

At December 31, 2021, 2022, and 2023, the gross amount of our uncertain tax positions (exclusive of the effect of interest and penalties) was $7.3 million, and this amount has not changed during the past three years. Previously, we made certain pro-rata distributions to our stockholders in the form of Kronos common stock and we recognized a taxable gain related to such distributions. Our uncertain tax positions are attributable to such prior period distribution of Kronos common stock. As discussed in Note 1, we are part of the Contran Tax Group and we have not paid this liability because Contran has not paid the liability to the applicable tax authority. This liability would be payable by Contran to the applicable tax authority only if the shares of Kronos common stock were to be sold or otherwise disposed outside of the Contran Tax Group. At December 31, 2023, $3.6 million of our uncertain tax position is classified as a component of our noncurrent deferred tax liability. If our uncertain tax position at December 31, 2023 was recognized, a benefit of $7.3 million would affect our effective income tax rate. We currently estimate that our unrecognized tax benefits will not change materially during the next twelve months.

We and Contran file income tax returns in U.S. federal and various state and local jurisdictions. Our U.S. income tax returns prior to 2020 are generally considered closed to examination by applicable tax authorities.

Income tax matters related to Kronos

Kronos periodically reviews its deferred tax assets (“DTA”) to determine if a valuation allowance is required. At December 31, 2023, Kronos has German corporate and trade net operating loss (“NOL”) carryforwards of $478.7 million (DTA of $75.8 million) and $54.5 million (DTA of $5.9 million), respectively; Belgian corporate NOL carryforwards of $47.0 million (DTA of $11.8 million) and Canadian corporate and provincial NOL carryforwards of $31.5 million (DTA of $4.7 million) and $34.9 million (DTA of $4.0 million), respectively.

Kronos has concluded that no deferred income tax asset valuation allowance is required to be recognized with respect to such carryforwards, principally because (i) such carryforwards have lengthy carryforward periods (the German and Belgian carryforwards may be carried forward indefinitely and the Canadian carryforwards may be carried forward 20 years), (ii) Kronos has utilized a portion of such carryforwards during the most recent three-year period and (iii) Kronos currently expects to utilize the remainder of such carryforwards over the long term. However, prior to the complete utilization of such carryforwards, if Kronos were to generate additional losses in its German, Belgian or Canadian operations for an extended period of time, or if applicable laws were to change such that the carryforward periods were more limited, it is possible that it might conclude the benefit of such carryforwards would no longer meet the more-likely-than-not recognition criteria, at which point Kronos would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards.

The 2017 Tax Act limited Kronos’ business interest expense to the sum of its business interest income and 30% of its adjusted taxable income as defined in the Tax Act. Any business interest expense disallowed as a deduction as a result of the limitation may be carried forward indefinitely. At December 31, 2022 and December 31, 2023, Kronos has recorded deferred tax assets of $.9 million and $3.5 million, respectively, for the carryforwards associated with the nondeductible portion of its interest expense and has concluded it is required to recognize a valuation allowance for such deferred tax asset under the more-likely-than-not recognition criteria. During 2023, Kronos recognized a non-cash deferred income tax expense of $2.6 million with respect to the valuation allowance recorded on additional interest expense carryforwards.

Prior to the enactment of the 2017 Tax Act, the undistributed earnings of Kronos’ European subsidiaries were deemed to be permanently reinvested (Kronos had not made a similar determination with respect to the undistributed earnings of its Canadian subsidiary). Pursuant to the one-time repatriation tax (Transition Tax) provisions of the 2017 Tax Act which imposed a one-time repatriation tax on post-1986 undistributed earnings, Kronos recognized current income tax expense of $74.5 million and elected to pay such tax in annual installments over an eight-year period beginning in 2018. At December 31, 2023 the balance of its unpaid Transition Tax is $33.5 million, with two remaining payments of $14.9 million due in 2024 and $18.6 million due in 2025. The payments are recorded as a current and noncurrent payable to affiliate (income taxes payable to Valhi) on Kronos’ Consolidated Balance Sheet at December 31, 2023.

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