Valhi(VHI) - 2019 Q4 - Annual Report

TiO2 Production and Consumption - Kronos produced 546,000 metric tons of TiO2 in 2019, an increase from 536,000 metric tons in 2018[38]. - TiO2 consumption has grown at a compound annual growth rate of approximately 3% since 1990, with Western Europe and North America each accounting for approximately 17% of global consumption[27]. - Sales of core TiO2 pigments represented approximately 94% of the Chemicals Segment's net sales in 2019[30]. - The Chemicals Segment's production capacity has increased by approximately 5% over the past ten years, with expectations to operate at near full practical capacity levels in 2020[42]. - The average production capacity utilization rates were at full practical capacity in 2017, 95% in 2018, and 98% in 2019[40]. - Kronos is the largest producer of TiO2 in Europe, with 46% of its 2019 sales volumes attributable to European markets[28]. - The primary end-use markets for TiO2 include coatings (57%), plastics (28%), and paper (5%)[31]. - The chloride process production facilities represented approximately 45% of industry capacity in 2019[37]. - Kronos operates the only sulfate process plant in North America and four TiO2 plants in Europe[41]. - In 2019, Kronos procured 523,000 metric tons of purchased slag or rutile ore for chloride process plants and mined 300,000 metric tons of ilmenite ore for sulfate process plants[52]. - Kronos held an estimated 9% share of worldwide TiO2 sales volume in 2019, competing primarily on price, product quality, and technical service[58]. - The top five TiO2 producers, including Kronos, account for approximately 52% of the world's production capacity[59]. Marketing and Customer Relations - The Chemicals Segment's marketing strategy focuses on building strong relationships with customers, with only one customer (Behr Process Corporation) representing 10% or more of net sales in 2019[56]. - Since 2015, Kronos has added ten new grades for pigments and other applications to meet customer needs[67]. Research and Development - Research and development expenditures for the Chemicals Segment were approximately $17 million in 2019, with a similar budget expected for 2020[66]. Environmental Compliance and Regulations - The Chemicals Segment's capital expenditures for environmental compliance and improvement programs were $20.0 million in 2019 and are expected to be approximately $25 million in 2020[81]. - The Chemicals Segment is in substantial compliance with environmental laws, and penalties related to regulatory enforcement have not materially affected financial position or operations[77]. - The classification of TiO2 as a suspected carcinogen by the European Union may impact marketability and demand, increasing regulatory and compliance costs[78]. - The Chemicals Segment has contracts for recycling spent sulfuric acid, which may be terminated with three to four years' notice[76]. Labor and Employment - As of December 31, 2019, Kronos employed 2,200 people, with approximately 86% organized under collective bargaining agreements[71][72]. - The Real Estate Management and Development Segment had 28 employees as of December 31, 2019, with good labor relations reported[105]. Financial Performance and Strategy - The company completed the sale of the Waste Management Segment on January 26, 2018, resulting in a pre-tax gain of approximately $58 million due to the assumption of liabilities exceeding the carrying value of assets sold[109]. - The estimated contribution required for defined benefit pension plans in 2020 is approximately $19 million[343]. - The company routinely evaluates acquisitions of undervalued companies and may consider issuing additional equity securities or increasing indebtedness in connection with such activities[111]. - The company expects to continue restructuring ownership interests among subsidiaries and related companies to enhance liquidity and reduce indebtedness[110]. - The company may seek to raise additional capital or refinance indebtedness based on future cash flow estimates from subsidiaries and affiliates[110]. Raw Material Costs - The Component Products Segment's total material costs, including purchased components, represented approximately 45% of its cost of sales in 2019[88]. - The Component Products Segment's primary raw materials accounted for approximately 13% of total cost of sales in 2019, with zinc and brass being key materials for locking mechanisms[90]. - The company has obligations related to raw material supply arrangements that stabilize purchase prices based on specified volume levels[341]. Real Estate Development - LandWell has closed or entered into escrow on approximately 645 acres of residential/planned community and 65 acres zoned for commercial and light industrial use as of December 31, 2019[101]. - The Real Estate Management and Development Segment's sales in 2019 included significant contributions from Richmond Homes of Nevada (38%), Grey Stone Nevada, LLC (22%), and Woodside Homes of Nevada, LLC (10%) related to land sales[102]. - LandWell's development work on the remaining land is expected to continue for 7 to 10 years, focusing on residential/planned community development[101].