Business and Geographic Segments

12 Months Ended

Dec. 31, 2019

Note 2—Business and geographic segments:

Business segment	Entity	% controlled at December 31 2019
Chemicals	Kronos	80	%
Component products	CompX	86	%
Real estate management and development	BMI and LandWell	63% - 77	%

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. 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, TiO₂is 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 security products used in the recreational transportation, postal, office and institutional furniture, tool storage, healthcare and a variety of other industries. CompX is also a leading manufacturer of stainless steel exhaust systems, gauges, throttle controls, wake enhancement systems and trim tabs for the recreational marine industry. All of CompX production facilities are in the United States.

•

Real Estate Management and Development—We operate in real estate management and development through our majority control of BMI and LandWell. BMI provides utility services to certain industrial and municipal customers and owns real property in Henderson, Nevada. LandWell is engaged in efforts to develop certain land holdings for commercial, industrial and residential purposes in Henderson, Nevada.

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 2017, 2018 or 2019. 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’s assets. Corporate assets are not attributable to any operating segment and consist principally of cash and cash equivalents, restricted cash and restricted cash equivalents and marketable securities.

	Years ended December 31,
	2017			2018			2019
	(In millions)
Net sales:
Chemicals	$	1,729.0		$	1,661.9		$	1,731.2
Component products		112.0			118.2			124.2
Real estate management and development		38.4			40.0			42.1
Total net sales	$	1,879.4		$	1,820.1		$	1,897.5
Cost of sales:
Chemicals	$	1,161.2		$	1,101.7		$	1,346.8
Component products		77.2			79.9			85.3
Real estate management and development		28.1			29.3			30.8
Total cost of sales	$	1,266.5		$	1,210.9		$	1,462.9
Gross margin:
Chemicals	$	567.8		$	560.2		$	384.4
Component products		34.8			38.3			38.9
Real estate management and development		10.3			10.7			11.3
Total gross margin	$	612.9		$	609.2		$	434.6
Operating income:
Chemicals	$	358.5		$	342.9		$	160.1
Component products		15.2			17.8			17.8
Real estate management and development		6.6			10.0			14.8
Total operating income		380.3			370.7			192.7
General corporate items:
Securities earnings		29.5			38.5			11.2
Insurance recoveries		.4			1.3			7.7
Gain on land sales		-			12.5			4.4
Gain on sale of business		-			-			3.0
Other components of net periodic pension expense		(17.7	)		(14.5	)		(16.5	)
Litigation settlement expense, net		-			(62.0	)		(19.3	)
Changes in market value of Valhi common stock held by subsidiaries		-			(12.2	)		(.2	)
General expenses, net		(34.7	)		(42.4	)		(37.5	)
Loss on prepayment of debt		(7.1	)		-			-
Interest expense		(58.9	)		(55.7	)		(40.8	)
Income from continuing operations before income taxes	$	291.8		$	236.2		$	104.7

	Years ended December 31,
	2017		2018		2019
	(In millions)
Depreciation and amortization:
Chemicals	$	43.4	$	52.0	$	50.2
Component products		3.7		3.5		3.7
Waste management⁽¹⁾		8.9		-		-
Real estate management and development		3.0		2.9		2.9
Total	$	59.0	$	58.4	$	56.8
Capital expenditures:
Chemicals	$	64.3	$	56.3	$	55.1
Component products		2.8		3.1		3.2
Waste management⁽¹⁾		.9		.1		-
Real estate management and development		3.3		1.9		1.6
Total	$	71.3	$	61.4	$	59.9

	December 31,
	2017		2018		2019
	(In millions)
Total assets:
Operating segments:
Chemicals	$	2,190.5	$	2,266.6	$	2,331.8
Component products		104.9		120.4		132.5
Waste management⁽¹⁾		52.0		-		-
Real estate management and development		206.9		218.5		191.6
Corporate and eliminations		353.2		104.1		138.5
Total	$	2,907.5	$	2,709.6	$	2,794.4

⁽¹⁾Denotes discontinued operations

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, 2019 the net assets of our non-U.S. subsidiaries included in consolidated net assets approximated $563 million (in 2018 the total was $614 million).

	Years ended December 31,
	2017			2018			2019
	(In millions)
Net sales - point of origin:
United States	$	992.3		$	997.6		$	1,164.8
Germany		918.6			886.1			883.6
Canada		309.2			307.2			328.7
Belgium		279.9			272.2			270.7
Norway		216.4			209.6			192.2
Eliminations		(837.0	)		(852.6	)		(942.5	)
Total	$	1,879.4		$	1,820.1		$	1,897.5
Net sales - point of destination:
North America	$	668.3		$	698.7		$	740.1
Europe		899.2			817.6			824.2
Asia and other		311.9			303.8			333.2
Total	$	1,879.4		$	1,820.1		$	1,897.5

	December 31,
	2017		2018		2019
	(In millions)
Net property and equipment:
United States	$	80.8	$	74.5	$	72.0
Germany		259.2		245.8		233.6
Canada		69.0		66.1		73.1
Norway		81.7		81.0		87.9
Belgium		98.0		96.1		96.4
Total	$	588.7	$	563.5	$	563.0