Business Segment Information

9 Months Ended

Sep. 30, 2023

Segment Reporting [Abstract]

Business Segment Information

Note 2 – Business segment information:

		% controlled at
Business segment	Entity	September 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				Nine months ended
	September 30,				September 30,
	2022		2023		2022		2023
	(In millions)
Net sales:
Chemicals	$	459.6	$	396.9	$	1,587.8	$	1,266.4
Component products		42.9		40.3		126.6		118.1
Real estate management and development		53.8		31.7		105.5		84.2
Total net sales	$	556.3	$	468.9	$	1,819.9	$	1,468.7
Cost of sales:
Chemicals	$	376.0	$	362.8	$	1,235.0	$	1,158.0
Component products		30.9		27.7		88.9		82.5
Real estate management and development		29.0		17.8		58.2		48.0
Total cost of sales	$	435.9	$	408.3	$	1,382.1	$	1,288.5
Gross margin:
Chemicals	$	83.6	$	34.1	$	352.8	$	108.4
Component products		12.0		12.6		37.7		35.6
Real estate management and development		24.8		13.9		47.3		36.2
Total gross margin	$	120.4	$	60.6	$	437.8	$	180.2
Operating income (loss):
Chemicals	$	34.3	$	(21.8)	$	189.9	$	(39.5)
Component products		6.0		6.6		20.0		18.0
Real estate management and development		29.1		17.7		32.1		38.5
Total operating income		69.4		2.5		242.0		17.0
General corporate items:
Interest income and other		3.3		4.9		5.6		14.5
Gain on land sales		—		—		—		1.5
Other components of net periodic pension and OPEB expense		(3.2)		(1.3)		(9.8)		(10.0)
Changes in market value of Valhi common stock held by subsidiaries		(4.9)		.1		(.9)		(2.1)
General expenses, net		(8.6)		(8.5)		(27.3)		(25.9)
Interest expense		(7.0)		(7.2)		(20.9)		(21.4)
Income (loss) before income taxes	$	49.0	$	(9.5)	$	188.7	$	(26.4)

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 $2.7 million recognized in the third quarter of 2022 and $2.5 million recognized in the first nine months of 2023 ($.3 million recognized in the third quarter). See Note 12. Infrastructure reimbursements and land related income is included in the determination of Real Estate Management and Development operating income. See Note 12.

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 $16.4 million impairment charge primarily 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, and recognized a loss of $2.0 million in the third quarter of 2022 on the deconsolidation. In addition, BMI had an outstanding intercompany accounts receivable balance with BWC on the date of the bankruptcy filing, and we recognized $1.3 million of bad debt expense to fully reserve this balance during the third quarter of 2022. All of these charges are included in the determination of the Real Estate Management and Development’s operating income in the first nine months of 2022. Operating income comparisons between the third quarters and the first nine months of 2023 and 2022 are also affected by BWC’s water delivery sales and related cost of sales.

As noted above, BWC filed for Chapter 11 bankruptcy protection on September 10, 2022. BWC is operating under court protection, and a portion of BWC’s water delivery system is still operating with water provided by the regional water authority in order to continue to provide water to its industrial customers for an interim period. We recognized an aggregate $19.7 million of charges in 2022, discussed above, related to BWC which will not recur.

On October 10, 2023, the Bankruptcy Court for the District of Nevada approved BWC’s plan of reorganization, which provides for the sale of all BWC’s assets and the transfer of its operating and other agreements to one of its industrial customers. A court order confirming plan approval is expected shortly. Following the closing of the sale, BWC will discontinue its water delivery operations and will provide transition services to the purchaser for a specified time period. The proceeds of the sale will be used to repay creditors of BWC and its wholly owned subsidiary. BWC’s assets may not be sufficient to fully repay its creditors, and the timing and outcome of the bankruptcy proceedings remain uncertain. On October 31, 2023 BMI entered into an agreement with one of its other industrial customers to sell its subsidiary Basic Power Company, which provides electricity to four customers located in the industrial park. The sale is for minimal cash consideration and is contingent on the closing of the sale of BWC’s assets. Upon completion of the sale, which we expect to occur in the fourth quarter of 2023, we will recognize a loss of approximately $2 million.