Valhi, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Valhi is a holding company whose principal businesses are Kronos Worldwide (titanium dioxide), CompX (security and marine components), and BMI/LandWell (Henderson, Nevada utilities and real estate). Contran owned approximately 92% of Valhi at year-end.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $2,296.4 million | $1,849.7 million |
| Operating income | $318.6 million | $186.1 million |
| Income from continuing operations before tax | $257.8 million | $100.6 million |
| Income tax expense | $60.1 million | $15.9 million |
| Net income attributable to Valhi stockholders | $127.2 million; $4.46 per share | $50.9 million from continuing operations; $1.79 per share |
| Cash provided by operating activities | $459.7 million | $152.2 million |
| Capital expenditures | $64.1 million | $65.5 million |
| Consolidated debt | $653.0 million | $788.6 million |
At December 31, 2021, total assets were $3,005.2 million and total equity was $1,158.4 million. Cash, cash equivalents and restricted cash totaled $792.9 million; including marketable securities, total restricted and unrestricted cash, cash equivalents and marketable securities were $798.8 million. The filing reports approximately $265 million of available credit, including $213 million under Kronos’s revolver and $52 million under Valhi’s Contran facility, the latter subject to Contran’s discretion. Valhi paid $9.0 million in common dividends during 2021.
Segment results
| Segment | 2021 net sales | 2020 net sales | 2021 operating income | 2020 operating income |
|---|---|---|---|---|
| Chemicals | $1,939.4 million | $1,638.8 million | $200.8 million | $126.5 million |
| Component Products | $140.8 million | $114.5 million | $20.5 million | $11.8 million |
| Real Estate Management and Development | $216.2 million | $96.4 million | $97.3 million | $47.8 million |
Kronos’s 2021 TiO₂ sales volumes rose 6% and average selling prices rose 8%; production was at full practical capacity. Land sales drove the real estate segment’s growth: land-sale revenue increased to $207.8 million from $87.0 million. The segment also recognized $15.3 million of tax-increment infrastructure reimbursement income, compared with $19.7 million in 2020.
Material changes versus 2020
- Net sales increased about 24%, while operating income rose about 71%; Valhi-attributable continuing-operations earnings increased to $127.2 million from $50.9 million.
- Higher TiO₂ prices, volumes and currency translation supported Chemicals results as demand recovered from pandemic-related weakness. Chemicals operating income increased $74.3 million.
- Component Products sales and operating income recovered as demand improved, including stronger marine-component sales. Higher materials, shipping and labor costs partly offset the improvement.
- Real estate results benefited from increased land sales, selling prices and infrastructure development activity. Two 2021 sales of excess land outside operations produced a separate $16.0 million gain.
- Operating cash flow increased substantially, aided by operating income and a $180.4 million net cash contribution from changes in receivables, inventories, payables and accrued liabilities, versus $33.5 million of net cash use in 2020.
- Debt declined by $135.6 million, principally as Valhi repaid $97.8 million on its Contran facility and Kronos reduced its Senior Notes balance.
Outlook, risks and unusual items
- 2022 outlook: Management expects higher consolidated operating income than in 2021. It anticipates higher Chemicals operating income as expected TiO₂ price increases more than offset higher manufacturing costs, but expects lower real estate operating income due to lower land-sale revenue. Higher corporate expenses and the nonrecurrence of the $16.0 million 2021 excess-land gain are expected offsets.
- Chemicals: Management expects strong demand and full-capacity production, but forecast sales volumes are lower than 2021 based on current inventory levels. It expects selling prices to continue rising, alongside higher feedstock, energy, shipping and other production costs. Supply-chain and logistics disruptions remain a concern. Kronos expects approximately $95 million of 2022 capital expenditures, including approximately $32 million for environmental compliance, protection and improvement.
- Component Products: Management expects higher 2022 sales and operating income on continued strong demand, while warning that raw-material, labor and shipping inflation, staffing constraints and supply-chain disruption may pressure margins. Price increases and surcharges may not fully offset costs.
- Real estate obligations: At year-end, LandWell had $200.6 million of deferred revenue related to closed land sales. Management estimates development obligations of $185 million, to be completed over three to five years, and expects approximately $71 million of 2022 land-development spending. Revenue recognition depends partly on estimated completion costs; actual costs above estimates could reduce reported profits and liquidity. Escrowed land sales may be delayed or cancelled under contract terms.
- Debt and funding commitments: Total debt was $653.0 million, including Valhi’s $172.9 million Contran facility and Kronos’s euro-denominated Senior Notes, due in 2025. Approximately 26% of debt was variable-rate. The filing estimates about $680 million of 2022 debt, lease and other contractual payments, including supply and service commitments. Kronos’s minimum feedstock purchase commitments aggregate approximately $800 million for periods beginning in 2022, including approximately $500 million committed for 2022.
- Legal and environmental exposure: NL accrued approximately $93 million for remediation and related matters at 32 sites; the upper end of the estimable range is approximately $118 million, and costs for five other sites cannot currently be estimated. Total accrued environmental liabilities were $97.6 million. NL’s Santa Clara lead-pigment settlement is being paid in installments; other lead-pigment cases remain unresolved, and any future liability could be material. Insurance recoveries for litigation defense costs are uncertain.
- Other risks and items: TiO₂ demand and pricing are cyclical; input costs, foreign exchange, energy prices, COVID-19 effects and geopolitical or supply disruptions could affect results. The EU’s dry-TiO₂ hazard classification took effect in October 2021; Kronos states its dry products do not meet the criteria requiring classification labels. Kronos also expects additional capital spending following a Norwegian authority’s elevation of a mine dam’s classification. Lake Mead water levels may affect BMI’s water system.
- Results included a $16.0 million gain on sales of land outside operations and $15.3 million of infrastructure reimbursement income in 2021. The 2021 tax expense rose to $60.1 million, mainly due to higher earnings and their jurisdictional mix.
Important facts for investors to verify
- Review the assumptions and remaining costs behind LandWell’s $185 million development-obligation estimate, the timing of its deferred-revenue recognition, and the collectability and timing of tax-increment reimbursements.
- Monitor TiO₂ selling-price realization against feedstock, energy, freight and currency costs, and test management’s 2022 production, volume and margin expectations against subsequent results.
- Assess the scope and timing of NL’s environmental remediation exposure, unestimable sites, lead-pigment litigation and potential insurance recoveries.
- Confirm debt maturities, covenant compliance, the availability of revolving credit and Contran financing, and the ability of subsidiaries to distribute cash to Valhi.
- Evaluate the effect of large minimum purchase commitments, 2022 capital and development spending, and the concentration of real estate revenue in a small number of buyers.
- Consider related-party governance and financial arrangements, including Contran’s controlling ownership, the Contran credit facility and shared services arrangements.