Valhi, Inc. — FY 2023 Form 10-K
Business context and reporting period. Valhi is a holding company reporting three consolidated segments: Chemicals (majority-owned Kronos, primarily titanium dioxide or TiO₂), Component Products (CompX security and marine products), and Real Estate Management and Development (Henderson, Nevada land development). This filing covers the year ended December 31, 2023; the supplied filing text primarily provides full-year comparisons, not a clear standalone fourth-quarter income statement. Valhi is approximately 91% owned by a Contran subsidiary.
Key financial results
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Net sales | $1,921.7 million | $2,222.5 million |
| Gross margin | $245.2 million | $490.4 million |
| Operating income | $34.2 million | $239.4 million |
| Income (loss) before tax | $(19.5) million | $169.9 million |
| Income tax benefit (expense) | $22.4 million benefit | $(33.8) million expense |
| Net income attributable to Valhi stockholders | $(12.1) million; $(0.42) per diluted share | $90.2 million; $3.16 per diluted share |
| Cash from operating activities | $3.9 million | $34.9 million |
| Capital expenditures | $48.5 million | $67.6 million |
| Consolidated debt at year-end | $546.5 million | $559.5 million |
At December 31, 2023, cash, cash equivalents and restricted cash totaled $429.6 million; marketable securities totaled $60.9 million. Together, these were $490.5 million on the balance sheet, while management’s liquidity presentation of cash, restricted cash and marketable securities attributable to operations totaled $522.9 million. Current assets were $1,475.4 million versus current liabilities of $507.1 million. The company reported $282 million of available credit facilities, including $225 million under Kronos’ revolver; $57 million under Valhi’s Contran facility was discretionary.
Material changes versus prior year
- Net sales fell 14% and operating income declined from $239.4 million to $34.2 million. Valhi moved from attributable net income of $90.2 million to an attributable net loss of $12.1 million.
- Chemicals: sales declined 14% to $1,666.5 million; segment operating income swung from $174.6 million to a $41.1 million loss. TiO₂ sales volume fell 13%, average selling prices declined 4%, and production volume fell 19%. Utilization decreased to 72% from 89%; reduced production generated approximately $96 million of unabsorbed fixed costs.
- Component Products: sales declined 3% to $161.3 million, while operating income remained $25.4 million. Marine sales fell 23%, partly offset by 6% growth in security products, including a government customer pilot project.
- Real Estate: sales declined to $93.9 million from $125.7 million, primarily due to slower community development. Segment operating income increased to $49.9 million from $39.4 million, including $25.2 million of tax-increment infrastructure reimbursement income versus $15.2 million in 2022.
- Operating cash flow fell sharply to $3.9 million. Cash, cash equivalents and restricted cash decreased by $100.0 million during the year, including the effects of investing and financing activity.
Outlook, management commentary and risks
- Management expects consolidated operating income to be higher in 2024 than in 2023. It anticipates improved TiO₂ demand, higher Chemicals volumes and lower manufacturing costs, and higher real-estate infrastructure reimbursements. It expects Component Products operating income to be lower as security and marine sales decline.
- Kronos reported improving demand late in 2023 and into early 2024, historically low customer inventories and expectations for lower energy and input costs. Pricing remains uncertain, including pressure from lower-cost Chinese imports. Its 2024 R&D spending forecast is approximately $14 million.
- CompX expects weaker security demand and no known follow-on orders for the 2023 pilot project. Towboat demand and marine sales are expected to weaken further; marine inventory alignment was expected by mid-2024.
- LandWell expects to spend approximately $55 million on development in 2024 and estimates $107 million of remaining development obligations, expected to take three to four years. It had $88.0 million of deferred revenue tied to post-closing development obligations; much of the related sale cash has already been received.
- On February 12, 2024, Kronos exchanged €325 million principal of 3.75% notes due 2025 for €276.174 million of 9.50% secured notes due 2029 and paid €50 million cash, financed with a $53.7 million, 11.5% subordinated Contran loan. €75 million principal of the old notes remained outstanding. Management expects 2024 interest expense to increase by approximately $16 million as a result.
- Unusual 2023 items included $5.8 million of Chemicals workforce-reduction charges, a $3.8 million project-termination impairment, a $6.2 million noncash U.K. pension-plan termination loss, and a $2.6 million loss on the BPC sale. The workforce reductions affected about 100 employees. BWC sold substantially all its assets in November 2023 following bankruptcy; BMI sold BPC in December.
- Significant risks include cyclical TiO₂ demand and pricing, raw-material and energy costs, currency and interest-rate movements, reliance on subsidiary distributions, and the impact of debt and refinancing costs. NL faces lead-pigment litigation and environmental claims. Valhi accrued $96.9 million for environmental remediation and related matters; NL’s accrued amount was approximately $91 million for 33 sites, with an estimated possible range up to $118 million for sites where costs could be estimated. Costs for about five sites could not be reasonably estimated. Pending lead-pigment litigation has not been accrued because management says loss is not probable or reasonably estimable.
- Management states it expects sufficient liquidity for short- and long-term obligations and expects covenant compliance, but cautions that actual results and cash flows may differ from forecasts. The filing reports a prior-period classification correction for gross property-and-equipment categories; it had no effect on net property and equipment and was deemed not material to previously issued statements.
Important facts for investors to verify
- Whether the expected 2024 TiO₂ demand recovery, pricing improvement and lower costs translate into positive Chemicals operating income and stronger operating cash flow.
- The final economics and debt-service impact of Kronos’ February 2024 refinancing, including cash requirements, the new 9.50% notes and the Contran loan.
- Cash accessibility at subsidiaries, restrictions on subsidiary distributions, and the reliability of management’s stated liquidity outlook; reported liquidity includes restricted funds and securities.
- LandWell’s remaining development costs, timing of infrastructure reimbursements, and conversion of deferred revenue into recognized revenue and cash obligations.
- CompX’s dependence on the government pilot project and customer concentration, alongside the expected marine-market downturn.
- Changes in environmental remediation estimates, unresolved lead-related and other litigation, insurance recoveries, and future payments under the Santa Clara settlement.
- Tax-asset realization and the effect of geographic earnings mix, including the company’s substantial foreign tax-loss carryforwards.