Business and geographic segments

12 Months Ended

Dec. 31, 2012

Business and geographic segments

Note 2—Business and geographic segments:

Business segment	Entity	% controlled at December 31, 2012
Chemicals	Kronos		80	%
Component products	CompX		87	%
Waste management	WCS		100	%

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. See Note 3.

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

We have the following three consolidated reportable operating segments.

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

• Component Products—We operate in the component products industry through our majority control of CompX. CompX is a leading manufacturer of engineered components utilized in a variety of applications and industries. CompX manufactures engineered components that are sold to a variety of industries including recreational transportation (including boats), office and institutional furniture, cabinetry, tool storage and healthcare. All of CompX production facilities are in the United States. Prior to December, 2012 CompX also manufactured slides, pulls and ergonomic supports. See Note 3.

• Waste Management—WCS is our subsidiary which operates a West Texas facility for the processing, treatment, storage and disposal of a broad range of low-level radioactive, hazardous, toxic and other wastes. WCS obtained a byproduct disposal license in 2008 and began disposal operations at this facility in October 2009. WCS received a low-level radioactive waste (“LLRW”) disposal license in September 2009. The Compact LLRW disposal facility was fully certified and operational in April 2012, and the Federal LLRW site was fully certified and operational in September 2012.

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

Interest income included in the calculation of segment operating income is not material in 2010, 2011 or 2012. Capital expenditures include additions to property and equipment but exclude amounts we paid for business units acquired in business combinations. Depreciation and amortization related to each reportable operating segment includes amortization of any intangible assets attributable to the segment. Amortization of deferred financing costs and any premium or discount associated with the issuance of indebtedness is included in interest expense.

Segment assets are comprised of all assets attributable to each reportable operating segment, including goodwill and other intangible assets. Our investment in the TiO₂ manufacturing joint venture (see Note 7) is included in the Chemicals Segment assets. Corporate assets are not attributable to any operating segment and consist principally of cash and cash equivalents, restricted cash equivalents, marketable securities and loans to third parties. At December 31, 2012, approximately 15% of corporate assets were held by NL (in 2011 the percentage was 22%), with substantially all of the remainder held directly by Valhi.

	Years ended December 31,
	2010			2011			2012
	(In millions)
Net sales:
Chemicals	$	1,449.7		$	1,943.3		$	1,976.3
Component products		76.1			79.8			83.2
Waste management		7.7			2.0			27.8
Total net sales	$	1,533.5		$	2,025.1		$	2,087.3
Cost of sales:
Chemicals	$	1,106.7		$	1,197.5		$	1,418.2
Component products		53.7			55.6			58.9
Waste management		23.9			25.3			35.0
Total cost of sales	$	1,184.3		$	1,278.4		$	1,512.1
Gross margin:
Chemicals	$	343.0		$	745.8		$	558.1
Component products		22.4			24.2			24.3
Waste management		(16.2	)		(23.3	)		(7.2	)
Total gross margin	$	349.2		$	746.7		$	575.2
Operating income (loss):
Chemicals	$	183.2		$	553.0		$	366.8
Component products		5.9			6.4			5.4
Waste management		(30.8	)		(38.0	)		(26.8	)
Total operating income		158.3			521.4			345.4
Equity in earnings of joint venture General corporate items:		(.4	)		(.5	)		(.2	)
Securities earnings		26.3			28.6			50.2
Insurance recoveries		18.8			16.9			3.3
Litigation settlement gains		6.3			—			14.7
Gain on sale of excess property		—			—			3.2
Litigation settlement expense		(32.2	)		—			—
Goodwill impairment		—			—			(6.4	)
General expenses, net		(29.9	)		(40.7	)		(45.3	)
Loss on prepayment of debt, net		—			(3.1	)		(7.2	)
Interest expense		(68.4	)		(61.8	)		(56.3	)
Income from continuing operations before income taxes	$	78.8		$	460.8		$	301.4
Depreciation and amortization:
Chemicals	$	47.4		$	50.2		$	50.4
Component products*		7.7			6.8			5.8
Waste management		7.0			6.8			13.2
Total	$	62.1		$	63.8		$	69.4
Capital expenditures:
Chemicals	$	37.7		$	68.6		$	74.9
Component products*		2.1			3.2			4.3
Waste management		4.9			74.3			19.6
Corporate		—			.1			—
Total	$	44.7		$	146.2		$	98.8
	December 31,
	2010			2011			2012
	(In millions)
Total assets:
Operating segments:
Chemicals	$	2,101.4		$	2,189.7		$	2,401.1
Component products**		141.5			141.4			82.3
Waste management		166.4			223.4			265.0
Joint venture accounted for by the equity method		17.0			16.5			16.2
Corporate and eliminations		288.0			267.0			405.9
Total	$	2,714.3		$	2,838.0		$	3,170.5

* Includes discontinued operations for 2010, 2011 and 2012, see Note 3.

** Includes discontinued operations for 2010 and 2011, see Note 3.

Geographic information. We attribute net sales to the place of manufacture (point-of-origin) and the location of the customer (point-of-destination); we attribute property and equipment to their physical location. At December 31, 2012 the net assets of our non-U.S. subsidiaries included in consolidated net assets approximated $775 million (in 2011 the total was $726 million including $26 million related to discontinued operations).

	Years ended December 31,
	2010			2011			2012
	(In millions)
Net sales—point of origin:
United States	$	648.5		$	831.4		$	1,153.8
Germany		714.2			1,039.7			977.7
Canada		245.4			301.7			339.1
Norway		188.3			245.1			284.0
Belgium		209.1			301.8			272.9
Eliminations		(472.0	)		(694.6	)		(940.2	)
Total	$	1,533.5		$	2,025.1		$	2,087.3
Net sales—point of destination:
North America	$	499.4		$	578.2		$	760.7
Europe		822.2			1,141.3			1,011.4
Asia and other		211.9			305.6			315.2
Total	$	1,533.5		$	2,025.1		$	2,087.3
	December 31,
	2010			2011			2012
	(In millions)
Net property and equipment:
United States**	$	120.1		$	189.0		$	211.9
Germany		267.8			259.6			271.2
Canada**		80.4			80.0			73.0
Norway		100.5			101.5			109.5
Belgium		69.4			86.0			97.5
Taiwan**		7.9			7.7			—
Total	$	646.1		$	723.8		$	763.1

** Includes discontinued operations for 2010 and 2011, see Note 3.