Valhi(VHI) - 2024 Q2 - Quarterly Report

Part I. Financial Information Financial Statements The company's financial statements show a shift to profitability in H1 2024 and include revisions to prior periods - Prior period financial statements from 2018 through December 31, 2023, have been revised due to a change in the valuation of a deferred tax asset related to interest expense carryforwards[20] - As a result of the revision, deferred income tax liabilities decreased by $14.7 million with a corresponding increase in retained earnings as of December 31, 2023[21] Condensed Consolidated Balance Sheets Total assets and liabilities decreased as of June 30, 2024, driven by lower inventories and accounts payable Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2023 | Jun 30, 2024 (unaudited) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $407.0 | $373.1 | | Inventories, net | $596.1 | $475.4 | | Total current assets | $1,475.4 | $1,323.8 | | Total assets | $2,737.0 | $2,533.4 | | Liabilities & Equity | | | | Accounts payable and accrued liabilities | $490.7 | $367.7 | | Long-term debt | $545.8 | $497.4 | | Total liabilities | $1,460.8 | $1,246.4 | | Total equity | $1,276.2 | $1,287.0 | Condensed Consolidated Statements of Operations The company reported a significant turnaround to net income in Q2 and H1 2024, driven by higher net sales Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2023 | Q2 2024 | YTD 2023 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $507.1 | $559.7 | $999.8 | $1,090.3 | | Cost of sales | $441.6 | $438.4 | $880.2 | $882.7 | | Gross Margin | $65.5 | $121.3 | $119.6 | $207.6 | | Income (loss) before income taxes | $(7.1) | $37.6 | $(16.9) | $55.6 | | Net income (loss) attributable to Valhi | $(3.2) | $19.9 | $(9.0) | $27.7 | | Basic and diluted EPS | $(.11) | $.70 | $(.31) | $.97 | Condensed Consolidated Statements of Cash Flows Net cash used in operations improved significantly in H1 2024, while investing activities provided cash Cash Flow Summary - Six Months Ended June 30 (in millions) | Activity | 2023 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(95.1) | $(15.3) | | Net cash provided by (used in) investing activities | $(56.7) | $34.0 | | Net cash used in financing activities | $(36.7) | $(53.2) | | Net change in cash | $(188.5) | $(34.5) | Notes to Condensed Consolidated Financial Statements Notes detail the company's segment performance, debt refinancing, legal issues, and a key post-quarter acquisition - Valhi is majority-owned (approx. 91%) by a subsidiary of Contran Corporation, which is controlled by Lisa K. Simmons and the Family Trust[16] - In February 2024, subsidiary Kronos refinanced a significant portion of its debt, exchanging €325 million of its 3.75% notes for €276.2 million of new 9.50% notes due 2029, plus a cash payment[30][34] - Effective July 16, 2024, Kronos acquired the remaining 50% interest in its Louisiana Pigment Company (LPC) joint venture from Venator for an upfront cash payment of $185 million[80] Segment Operating Income (Loss) - Six Months Ended June 30 (in millions) | Segment | 2023 | 2024 | | :--- | :--- | :--- | | Chemicals | $(17.7) | $63.3 | | Component products | $11.4 | $8.8 | | Real estate management and development | $20.8 | $14.2 | | Total operating income | $14.5 | $86.3 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes improved H1 2024 results to the Chemicals segment and expects higher full-year income - The increase in net income for Q2 and H1 2024 is primarily due to higher operating income from the Chemicals Segment, partially offset by higher interest expense[88][89] - The company forecasts higher consolidated operating income for the full year 2024 compared to 2023, driven by the Chemicals and Real Estate segments[90] - The company believes it has sufficient liquidity for short-term and long-term obligations based on expected performance and available credit[160] Segment Operating Results – 2024 Compared to 2023 The Chemicals segment's income rebounded strongly, offsetting declines in Component Products and Real Estate - The Chemicals segment's capacity utilization rate increased significantly from 70% in H1 2023 to 93% in H1 2024, reflecting improved demand[96] - The Component Products segment experienced a 36% decline in marine components sales in H1 2024, partially offset by a 10% increase in security products sales[123] - The Real Estate segment's land sales revenue decreased in H1 2024 due to a slower pace of development activity for parcels sold in prior years[132] Chemicals Segment TiO2 Operating Statistics (YTD) | Metric | 2023 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Sales volumes (k metric tons) | 206 | 264 | 28% | | Production volumes (k metric tons) | 194 | 258 | 33% | Liquidity and Capital Resources Liquidity is supported by cash, credit facilities, and recent debt activities to fund acquisitions and operations - At June 30, 2024, the company had consolidated cash, cash equivalents, and marketable securities of $446.4 million[161] - Expected aggregate capital expenditures for 2024 are approximately $52 million, with an additional $55 million for land development[162] - Post-quarter end, Kronos amended its Global Revolver, increasing the maximum borrowing amount from $225 million to $300 million and extending the maturity to July 2029[156] - In July 2024, Kronos issued an additional €75 million of its 9.50% Senior Secured Notes, using the proceeds to pay down its Global Revolver[156] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposures since its 2023 Annual Report - There have been no material changes in market risks since the 2023 Annual Report[174] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[175] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[179] Part II. Other Information Legal Proceedings The company provides updates on new and ongoing litigation involving subsidiaries NL Industries and CompX - In May 2024, NL Industries was sued in New York regarding alleged radioactive material from a former facility causing wrongful death and property damage[180] - In June 2024, CompX was sued in South Carolina by a municipal water agency alleging costs to remove PFAS from its water supply[181] Risk Factors The company refers to its 2023 Annual Report for a full discussion of risk factors, noting no material changes - For a discussion of risk factors, the report refers to the Part I, Item 1A, "Risk Factors," in the company's 2023 Annual Report[182] Other Information An affiliate promissory note's interest rate was amended and reduced subsequent to the quarter's end - On August 7, 2024, the interest rate on the $53.7 million term note from Contran to Kronos was amended, reducing the annual rate from 11.50% to 9.54%[183] Exhibits This section lists key agreements and required certifications filed as exhibits with the Form 10-Q - Key exhibits filed include the Purchase and Sale Agreement for the LPC acquisition, the Second Amendment to Kronos' Credit Agreement, and the First Amendment to the Unsecured Subordinated Term Promissory Note with Contran[184] - Standard certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[184]