Business Segment Information

6 Months Ended

Jun. 30, 2023

Segment Reporting [Abstract]

Business Segment Information

Note 2 – Business segment information:

		% controlled at
Business segment	Entity	June 30, 2023
Chemicals	Kronos	81%
Component products	CompX	87%
Real estate management and development	BMI and LandWell	63% - 77%

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

	Three months ended				Six months ended
	June 30,				June 30,
	2022		2023		2022		2023
	(In millions)
Net sales:
Chemicals	$	565.3	$	443.2	$	1,128.2	$	869.5
Component products		41.6		36.6		83.7		77.8
Real estate management and development		27.7		27.3		51.7		52.5
Total net sales	$	634.6	$	507.1	$	1,263.6	$	999.8
Cost of sales:
Chemicals	$	445.1	$	399.4	$	859.0	$	795.2
Component products		28.0		26.3		58.0		54.8
Real estate management and development		14.8		15.9		29.2		30.2
Total cost of sales	$	487.9	$	441.6	$	946.2	$	880.2
Gross margin:
Chemicals	$	120.2	$	43.8	$	269.2	$	74.3
Component products		13.6		10.3		25.7		23.0
Real estate management and development		12.9		11.4		22.5		22.3
Total gross margin	$	146.7	$	65.5	$	317.4	$	119.6
Operating income (loss):
Chemicals	$	69.2	$	(2.6)	$	155.6	$	(17.7)
Component products		7.7		4.4		14.0		11.4
Real estate management and development		(5.0)		10.2		3.0		20.8
Total operating income		71.9		12.0		172.6		14.5
General corporate items:
Interest income and other		1.4		4.7		2.3		9.6
Gain on land sales		—		1.5		—		1.5
Other components of net periodic pension and OPEB expense		(3.3)		(7.5)		(6.6)		(8.7)
Changes in market value of Valhi common stock held by subsidiaries		3.9		(1.1)		4.0		(2.2)
General expenses, net		(10.5)		(9.5)		(18.7)		(17.4)
Interest expense		(7.0)		(7.2)		(13.9)		(14.2)
Income (loss) before income taxes	$	56.4	$	(7.1)	$	139.7	$	(16.9)

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. Included in the determination of Chemicals operating loss is a business interruption insurance settlement gain of $.5 million and $2.2 million recognized in the second quarter and first six months of 2023, respectively (see Note 12). The fixed asset impairment of $16.0 million recognized during the second quarter of 2022 discussed below is included in the determination of the Real Estate Management and Development operating income.

BMI provides certain utility services, among other things, to an industrial park located in Henderson, Nevada and prior to the bankruptcy filing on September 10, 2022 of Basic Water Company (“BWC”), a wholly-owned subsidiary of BMI, was responsible for the delivery of water to the City of Henderson and various other users under long-term contracts through a water delivery system owned and operated by BWC.  BWC’s water delivery system operated on Lake Mead in Nevada.  Due to the Western drought, water levels in Lake Mead have been declining for much of the last twenty years. As a result of water release curtailments upstream of Lake Mead which began late in the second quarter of 2022, Lake Mead water levels have dropped precipitously to historically low levels. On June 30, 2022 BWC was no longer able to pump water without the risk of damaging the system and consequently ceased operations at its water intake facility to best preserve the system. We considered BWC’s inability to pump water from Lake Mead to be a triggering event under ASC 360, Property, Plant, and Equipment, which caused us to evaluate the water system fixed assets for impairment.  Because BWC was unable to deliver water under its current contracts and therefore unable to generate revenue, we determined the water system’s assets were fully impaired except to the extent certain equipment had alternative use outside of BWC’s operations, in which case those assets were written down to estimated salvage value. The $16.0 million impairment charge recognized in the second quarter of 2022 represents the write down of the book value to the estimated salvage value of the assets. Without the ability to pump and deliver

water to its customers, BWC’s operating expenses exceeded its revenues, and on September 10, 2022 BWC and its subsidiaries voluntarily filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Nevada.  Because BWC has filed for bankruptcy protection, we and BMI can no longer affirmatively assert we control BWC and, as such, in accordance with ASC 810, Consolidation, we deconsolidated BWC as of the date of the bankruptcy filing.