What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-07 compared with 2023-03-09 · 308 added, 263 removed, 492 unchanged (54% of the section changed)

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CompX is a leading manufacturer of security products used in the postal, recreational transportation, office and institutional furniture, cabinetry, tool storage, healthcare and a variety of other industries.

CompX is also a leading manufacturer of wake enhancements systems, stainless steel exhaust systems, gauges, throttle controls, trim tabs and related hardware and accessories for the recreational marine.

● Real Estate Management and Development – We operate in real estate management and development through our majority control of BMI and LandWell.

BMI owns real property in Henderson, Nevada and through its wholly-owned subsidiaries provides utility services to certain industrial and municipal customers.

BMI and LandWell own real property in Henderson, Nevada.

LandWell is engaged in efforts to develop certain land holdings for commercial, industrial and residential purposes in Henderson, Nevada.

Income from Continuing Operations Overview

BMI previously, through wholly-owned subsidiaries, also was responsible for the delivery of water to the City of Henderson and various other users through September 2022, and provided utility services to certain industrial customers prior to December 2023.

Operations Overview

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 –

We reported net income from continuing operations attributable to Valhi stockholders of $90.2 million or $3.16 per diluted share in 2022 compared to $127.2 million or $4.46 per diluted share in 2021.

Our net income from continuing operations attributable to Valhi stockholders decreased from 2021 to 2022 primarily due to the net effects of:

We reported a net loss attributable to Valhi stockholders of $12.1 million or $.42 per diluted share in 2023 compared to net income of $90.2 million or $3.16 per diluted share in 2022.

Our net income attributable to Valhi stockholders decreased from 2022 to 2023 primarily due to the net effects of:

● lower operating income from our Chemicals Segment in 2023 compared to 2022 including 2023 charges of $5.8 million related to workforce reductions and $3.8 million related to the write-off of certain costs resulting from a capital project termination;

● aggregate charges of $19.7 million in our Real Estate Management and Development Segment in 2022 related to the impairment of certain fixed assets and the bankruptcy filing of BWC;

● income from tax increment infrastructure reimbursement of $25.2 million in 2023 compared to $15.2 million in 2022;

● a non-cash loss on the termination of our U.K.

pension plan of $6.2 million in 2023;

● a loss of $2.6 million related to the sale of BPC in 2023;

● the recognition of a gain on the sale of land not used in our operations of $1.5 million in 2023.

Our diluted net loss per share in 2023 includes:

● income of $.46 per share related to tax increment infrastructure reimbursements recognized in the third and fourth quarters;

● a loss of $.13 per share due to the termination of our U.K.

pension plan recognized in the second quarter;

● a loss of $.10 per share related to workforce reductions by our Chemicals Segment recognized in the fourth quarter;

● a loss of $.06 per share related to the write-off of certain costs resulting from a capital project termination recognized in the fourth quarter;

● a gain of $.05 per share related to a business interruption insurance claim arising from Hurricane Laura in 2020 at our Chemicals Segment recognized in the first, second and third quarters;

● a loss of $.04 per share due to the sale of BPC recognized in the fourth quarter;

● a gain of $.04 per share related to the sale of land not used in our operations recognized in the second quarter.

Our diluted net income per share in 2022 includes:

● aggregate charges of $.35 per share related to the bankruptcy filing of BWC, including $.29 per share related to the impairment of the water delivery system fixed assets, primarily recognized in the second quarter, and $.04 per share loss on the deconsolidation of BWC and $.02 per share of bad debt expense related to an intercompany receivable with BWC, both recognized in the third quarter;

● income of $.28 per share related to tax increment infrastructure reimbursements recognized in the third and fourth quarters;

● a gain of $.05 per share related to a business interruption insurance claim arising from Hurricane Laura in 2020 at our Chemicals Segment recognized in the third quarter;

● income of $.02 per share related to an energy utility infrastructure reimbursement recognized in the second quarter.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 –

We reported net income attributable to Valhi stockholders of $90.2 million or $3.16 per diluted share in 2022 compared to $127.2 million or $4.46 per diluted share in 2021.

Our net income attributable to Valhi stockholders decreased from 2021 to 2022 primarily due to the net effects of:

● lower operating income from our Chemicals Segment in 2022 compared to 2021;

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● recognition of a gain on sales of land not used in our operations of $16.0 million in 2021.

Our diluted income from continuing operations per share in 2022 includes:

Our diluted net income per share in 2022 includes:

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● income of $.02 per share related to an energy utility infrastructure reimbursement recognized in the second quarter.

Our diluted income from continuing operations per share in 2021 includes:

● a gain of $.43 per share related to sales of land not used in our operations recognized in the second and third quarters;

● income of $.28 per share related to tax increment infrastructure reimbursements recognized in the first and fourth quarters.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 –

We reported net income from continuing operations attributable to Valhi stockholders of $127.2 million or $4.46 per diluted share in 2021 compared to $50.9 million or $1.79 per diluted share in 2020.

Our net income from continuing operations attributable to Valhi stockholders increased from 2020 to 2021 primarily due to the net effects of:

● higher operating income from all of our segments in 2021 compared to 2020;

● recognition of a gain on sales of land not used in our operations of $16.0 million in 2021;

● income from infrastructure reimbursement of $15.3 million in 2021 compared to $19.7 million in 2020.

Our diluted income from continuing operations per share in 2021 includes:

Our diluted net income per share in 2021 includes:

● a gain of $.43 per share related to sales of land not used in our operations recognized in the second and third quarters;

● income of $.28 per share related to tax increment infrastructure reimbursements recognized in the first and fourth quarters.

Our diluted income from continuing operations per share in 2020 includes:

● income of $.35 per share related to the tax increment infrastructure reimbursement recognized in the first quarter;

● a gain of $.07 per share from the proceeds received in the third quarter related to a prior land sale;

● a gain of $.03 per share related to an insurance recovery for a property damage claim at our Chemicals Segment recognized in the first quarter.

We discuss these amounts more fully below.

Current Forecast for 2024 –

We currently expect consolidated operating income for 2023 to be consistent as compared to 2022 primarily due to the net effects of:

● higher operating income from our Real Estate Management and Development Segment in 2023 due to the aggregate $19.7 million of charges recognized in 2022 related to BWC noted above which will not recur and higher expected infrastructure reimbursements;

● lower operating income from our Chemicals Segment in 2023 as the favorable impact of higher expected average TiO 2 selling prices is not expected to offset the negative impact of higher manufacturing costs;

● lower operating income from our Component Products Segment in 2023 as marine sales are expected to normalize below 2022 record levels.

Our expectations for our future operating results are based upon a number of factors beyond our control, including worldwide growth of gross domestic product, competition in the marketplace, continued operation of competitors, technological advances, worldwide production capacity and the consequences arising directly or indirectly out of the COVID-19 pandemic.

We currently expect consolidated operating income for 2024 to be higher as compared to 2023 primarily due to the net effects of:

● higher operating income from our Chemicals Segment in 2024 primarily due to the positive impacts of improved demand and lower manufacturing costs;

● higher operating income from our Real Estate Management and Development Segment in 2024 due to higher expected infrastructure reimbursements;

● lower operating income from our Component Products Segment in 2024 as security products and marine sales are expected to decline further in 2024.

technological advances, worldwide production capacity and public health crises.

If actual developments differ from our expectations, our results of operations could be unfavorably affected.

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Cost of sales

Operating income

Operating income (loss)

Percent of net sales:

Cost of sales

Operating income

Operating income (loss)

TiO 2 operating statistics:

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Percent change in TiO 2 net sales:

TiO 2 product pricing

TiO 2 sales volumes

TiO 2 product pricing

TiO 2 product mix/other

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Thousands of metric tons

Industry Conditions and 2022 Overview – Our Chemicals Segment started 2022 with average TiO 2 selling prices 16% higher than at the beginning of 2021and average TiO 2 selling prices increased 16% throughout 2022 in response to our Chemicals Segment rising production costs.

Overall, our Chemicals Segment sales volumes declined in 2022 compared to 2021 primarily due to demand contraction in its European and export markets, particularly in the third and fourth quarters.

Industry Conditions and 2023 Overview – Our Chemicals Segment and the TiO 2 industry are experiencing an extended period of significantly reduced demand across all major markets, which is reflected in o ur Chemicals Segment’s sales volumes in 2023.

Demand first began to decrease in the third quarter of 2022, and although there has been some stabilization at this reduced level, overall demand remained below average historical levels during 2023.

While o ur Chemicals Segment started 2023 with average TiO 2 selling prices 16% higher than at the beginning of 2022, this extended period of reduced demand has put downward pressure on average TiO 2 selling prices and, as a result, prices declined 13% in 2023.

Overall sales volumes declined in 2023 compared to 2022 primarily due to lower demand in all major markets.

Our Chemicals Segment began curtailing production in the fourth quarter of 2022 at certain of its European facilities due to decreased demand and increased production costs.

During 2023, our Chemicals Segment continued operating its production facilities at reduced rates to align production with expected customer demand.

As a result, our Chemicals Segment operated its production facilities at 72% of practical capacity utilization in 2023 compared to 89% of practical capacity utilization in 2022.

The following table shows our Chemicals Segment’s capacity utilization rates during 2022 and 2023.

Throughout most of 2021 and continuing into the first quarter of 2022, our Chemicals Segment’s production facilities operated at full practical capacity.

Due to the decreased demand in its European and export markets along with increased production costs, particularly energy costs in Europe, our Chemicals Segment curtailed production in the third and fourth quarters of 2022 at certain of its European facilities to align its production and inventory levels to anticipated near-term customer demand.

Production Capacity Utilization Rates

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Fourth quarter

Net Sales – Chemicals Segment’s net sales in 2022 were consistent with net sales in 2021 primarily due to the net effects of a 21% increase in average TiO 2 selling prices (which increased net sales by approximately $407 million) and a 15% decrease in sales volumes (which decreased net sales by approximately $291 million).

We estimate that changes in currency exchange rates (primarily the euro) decreased our Chemicals Segment’s net sales by approximately $106 million, or 5% in 2022 as compared to 2021.

Due to significant increases in per metric ton production costs (primarily feedstock and unabsorbed fixed costs due to reduced operating rates), our Chemicals Segment’s cost of sales per metric ton of TiO 2 sold in 2023 was significantly higher than in 2022 (excluding the effect of changes in currency exchange rates).

In response to the extended period of reduced demand, our Chemicals Segment has taken measures to reduce its operating costs and improve its long-term cost structure.

As part of overall cost saving measures, in the third quarter of

2023 our Chemicals Segment began implementing certain voluntary and involuntary workforce reductions.

A substantial portion of its workforce reductions were accomplished through voluntary programs, for which eligible workforce reduction costs are recognized at the time both the employee and employer are irrevocably committed to the terms of the separation.

These workforce reductions impacted approximately 100 individuals and are substantially completed.

Our Chemicals Segment recognized a total of approximately $6 million in charges primarily in the fourth quarter of 2023 related to workforce reductions it implemented during the second half of the year, which is classified in selling, general and administrative expense.

The majority of cash payments are expected to be completed by the first quarter of 2024.

Net Sales – Our Chemicals Segment’s net sales in 2023 decreased 14%, or $263.7 million, compared to 2022 primarily due to a 13% decrease in sales volumes (which decreased net sales by approximately $251 million) and a 4% decrease in average TiO 2 selling prices (which decreased net sales by approximately $77 million).

Changes in product mix positively contributed to net sales, primarily due to higher average selling prices and sales volumes in our Chemicals Segment’s complementary businesses which somewhat offset declines in TiO 2 sales volumes.

In addition to the impact of sales volumes and average TiO 2 selling prices, w e estimate that changes in currency exchange rates (primarily the euro) increased our Chemicals Segment’s net sales by approximately $10 million in 2023 as compared to 2022.

TiO 2 selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs.

Our Chemicals Segment’s sales volumes decreased 13% in 2023 as compared to 2022 due to lower overall demand across all major markets noted above.

The lower overall demand our Chemicals Segment began experiencing in the second half of 2022 continued throughout most of 2023.

However, o ur Chemicals Segment’s sales volumes were 29% higher in the fourth quarter of 2023 as compared to the fourth quarter of 2022 due to strengthening demand for TiO 2 in its primary markets of Europe and North America.

Our Chemicals Segment’s net sales in 2022 were consistent with net sales in 2021 primarily due to the net effects of a 21% increase in average TiO 2 selling prices (which increased net sales by approximately $407 million) and a 15% decrease in sales volumes (which decreased net sales by approximately $291 million).

We estimate that changes in currency exchange rates (primarily the euro) decreased our Chemicals Segment’s net sales by approximately $106 million, or 5% in 2022 as compared to 2021.

Our Chemicals Segment’s sales volumes decreased 15% in 2022 as compared to 2021 primarily due to lower demand in its European and export markets which our Chemicals Segment began experiencing towards the end of the second quarter and which accelerated during the third and fourth quarters of 2022.

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Our Chemicals Segment also experienced lower sales volumes in its North American market in the second half of 2022, although to a lesser extent than the declines in its European and export markets .

Our Chemicals Segment’s net sales increased $300.6 million, or 18%, in 2021 compared to 2020, primarily due to an 8% increase in average TiO 2 selling prices (which increased net sales by approximately $131 million) and a 6% increase in sales volumes (which increased net sales by approximately $98 million).

In addition to the impact of higher sales volumes and higher average selling prices, we estimate that changes in currency exchange rates (primarily the euro) increased our Chemicals Segment’s net sales by approximately $43 million, or 3%, as compared to 2020.

Our Chemicals Segment’s sales volumes increased 6% in 2021 as compared to 2020 due to higher demand in its European, North American and Latin American markets, with a significant portion of the increase occurring in the second and third quarters as a result of the impact of the COVID-19 pandemic on the comparable periods in 2020.

Cost of Sales and Gross Margin – Cost of sales increased $45.7 million, or 3%, in 2022 compared to 2021 primarily due to the net effects of higher production costs of approximately $285 million (including higher costs for raw materials and energy), a 15% decrease in sales volumes and changes in currency exchange rates.

Our Chemicals Segment’s cost of sales as a percentage of net sales increased to 80% in 2022 compared to 77% in 2021 due to the impact of higher production costs, including higher raw material and energy costs partially offset by the favorable effects of higher average TiO 2 selling prices.

Cost of Sales and Gross Margin – Cost of sales decreased $37.5 million, or 2%, in 2023 compared to 2022 due to the net effects of a 13% decrease in sales volumes, a 19% decrease in production volumes at certain of our Chemicals Segment’s manufacturing facilities to align inventory levels to anticipated near-term customer demand (which resulted in $96 million of unabsorbed fixed production costs) and higher production costs of approximately $65 million (primarily raw materials).

Our Chemicals Segment’s cost of sales as a percentage of net sales increased to 90% in 2023 compared to 80% in 2022 primarily due to the unfavorable effects of higher production costs (primarily raw materials) and unabsorbed fixed production costs due to lower production volumes.

Gross margin as a percentage of net sales decreased to 10% in 2023 compared to 20% in 2022.

As discussed and quantified above, our Chemicals Segment’s gross margin as a percentage of net sales decreased primarily due to lower production and sales volumes, lower average TiO 2 selling prices, higher production costs and changes in currency exchange rates.

Cost of sales increased $45.7 million, or 3%, in 2022 compared to 2021 primarily due to the net effects of higher production costs of approximately $285 million (including higher costs for raw materials and energy), a 15% decrease in sales volumes and changes in currency exchange rates.

Our Chemicals Segment’s cost of sales as a percentage of net sales increased to 80% in 2022 compared to 77% in 2021 due to the impact of higher production costs, including higher raw

material and energy costs partially offset by the favorable effects of higher average TiO 2 selling prices.

In addition, our Chemicals Segment’s cost of sales in 2022 includes approximately $26 million of unabsorbed fixed production and other manufacturing costs associated with production curtailments at certain of its European facilities throughout the fourth quarter.

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Our Chemicals Segment’s gross margin as a percentage of net sales in 2022 decreased primarily due to the net effect of higher average TiO 2 selling prices, lower production and sales volumes, higher production costs and fluctuations in currency exchange rates.

Cost of sales increased $203.5 million, or 16%, in 2021 compared to 2020 due to a 6% increase in sales volumes and higher production costs of approximately $69 million (including higher cost for raw materials and energy) and the effects of currency exchange rate fluctuations (primarily the Canadian dollar).

Our Chemicals Segment’s cost of sales as a percentage of net sales decreased to 77% in 2021 compared to 79% in 2020 primarily due to the favorable effects of higher average TiO 2 selling prices and increased coverage of fixed costs from higher production, partially offset by higher production costs (including higher raw material and energy costs) as well as the effects of fluctuations in currency exchange rates, as discussed below.

Gross margin as a percentage of net sales increased to 23% in 2021 compared to 21% in 2020.

Our Chemicals Segment’s gross margin as a percentage of net sales in 2021 increased primarily due to the net effect of higher average TiO 2 selling prices, higher production and sales volumes, higher production costs and fluctuations in currency exchange rates.

Operating Income – Our Chemicals Segment’s operating income decreased by $26.2 million, from $200.8 million in 2021 to $174.6 million in 2022.

Operating Income (Loss) – Our Chemicals Segment had an operating loss of $41.1 million in 2023 compared to operating income of $174.6 million in 2022 as a result of the factors impacting gross margin discussed above .

Our Chemicals Segment recognized a gain of $2.5 million in 2023 and a gain of $2.7 million in 2022 related to cash received from the settlement of a business interruption insurance claim related to Hurricane Laura.

We estimate changes in currency exchange rates decreased our Chemicals Segment’s operating loss by approximately $16 million in 2023 as compared to 2022, as discussed in the Currency Exchange Rates section below.

Our Chemicals Segment’s operating income decreased by $26.2 million, from $200.8 million in 2021 to $174.6 million in 2022.

Operating income as a percentage of net sales was 9% in 2022 compared to 10% in 2021.

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Our Chemicals Segment also recognized a gain of $2.7 million in 2022 related to cash received from the settlement of a business interruption insurance claim related to Hurricane Laura.

See Note 13 to our Consolidated Financial Statements.

We estimate that changes in currency exchange rates increased our Chemicals Segment’s operating income by approximately $23 million in 2022 as compared to 2021 as discussed in the Currency Exchange Rates section below.

Our Chemicals Segment’s operating income increased by $74.3 million, from $126.5 million in 2020 to $200.8 million in 2021.

Operating income as a percentage of net sales was 10% in 2021 compared to 8% in 2020.

This increase was driven by the higher gross margin discussed above for the comparable periods.

We estimate that changes in currency exchange rates decreased our Chemicals Segment’s operating income by approximately $13 million in 2021 as compared to 2020 as discussed in the Currency Exchange Rates section below.

Our Chemicals Segment’s operating income in 2020 was minimally impacted by the effects of Hurricane Laura which temporarily halted production at LPC on August 24, 2020 with resumption of operations on September 25, 2020.

LPC believes insurance (subject to applicable deductibles) will cover a majority of its losses, including those related to property damage and the disruption of its operations.

Our Chemicals Segment believes insurance (subject to applicable deductibles) will cover a majority of its losses from the hurricane, including property damage, business interruption losses related to its share of LPC’s lost production and other costs resulting from the disruption of operations.

As of December 31, 2021, our Chemicals Segment had not yet recognized any insurance recoveries because the ultimate disposition of its portion of the business interruption claim was not yet determinable;

however, as of December 31, 2021 LPC had received a portion of the proceeds related to its property damage claim.

On October 9, 2020 Hurricane Delta caused an additional temporary halt to production at the LPC facility.

Damages resulting from Hurricane Delta were not as severe and production activities were resumed within five days from the time of initial shutdown prior to landfall of the hurricane.

Similar to Hurricane Laura, losses determined to be incurred by LPC and our Chemicals Segment as a result of Hurricane Delta are expected to be recoverable from insurance (subject to applicable deductibles).

Our Chemicals Segment’s operating income is net of amortization of purchase accounting adjustments made in conjunction with our acquisitions of interests in NL and Kronos.

Our Chemicals Segment’s operating income (loss) is net of amortization of purchase accounting adjustments made in conjunction with our acquisitions of interests in NL and Kronos.

As a result, we recognize additional depreciation expense above the amounts Kronos reports separately, substantially all of which is included within cost of sales.

We recognized additional depreciation expense of $3.8 million in 2020, $1.5 million in 2021 and $1.3 million in 2022, which reduced our reported Chemicals Segment’s operating income as compared to amounts reported by Kronos.

We recognized additional depreciation expense of $1.5 million in 2021 and $1.3 million in each of 2022 and 2023, which reduced our reported Chemicals Segment’s operating income as compared to amounts reported by Kronos.

Currency Exchange Rates – Our Chemicals Segment has substantial operations and assets located outside the United States (primarily in Germany, Belgium, Norway and Canada).

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operations are holding non-local currency (primarily U.S.

Overall, we estimate that fluctuations in currency exchange rates had the following effects on our Chemicals Segment’s sales and operating income for the periods indicated.

Impact of changes in currency exchange rates

Year ended December 31, 2022 vs December 31, 2021

gains/(losses)

Overall, we estimate that fluctuations in currency exchange rates had the following effects on our Chemicals Segment’s sales and operating income (loss) for the periods indicated.

Impact of changes in currency exchange rates - 2023 vs 2022

Total currency

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(In millions)

Operating income

The $106 million decrease in net sales (translation losses) was caused primarily by a strengthening of the U.S.

dollar relative to the euro, as euro-denominated sales were translated into fewer U.S.

Operating income (loss)

The $10 million increase in net sales (translation gains) was caused primarily by a weakening of the U.S.

dollar relative to the euro, as euro-denominated sales were translated into more U.S.

dollars in 2023 as compared to 2022.

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dollar relative to the Canadian dollar and the Norwegian krone in 2023 did not have a significant effect on the reported amount of net sales, as a substantial portion of the sales generated by our Chemicals Segment’s Canadian and Norwegian operations are denominated in the U.S.

The $23 million increase in operating income was comprised of the following:

● Higher net currency transaction gains of approximately $10 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S.

The $16 million decrease in operating loss was comprised of the following:

● Lower net currency transaction gains of approximately $11 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S.

dollar and the euro, Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which causes increases or decreases, as applicable, in U.S.

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dollar relative to the Canadian dollar and Norwegian krone, as local currency-denominated operating costs were translated into fewer U.S.

dollars in 2022 as compared to 2021, partially offset by net currency translation losses primarily caused by a strengthening of the U.S.

dollar relative to the euro as the negative effects of the stronger U.S.

dollar on euro-denominated sales more than offset the favorable effects of euro-denominated operating costs being translated into fewer U.S.

dollars in 2023 as compared to 2022.

The effect of the weakening of the U.S.

dollar relative to the euro was nominal in 2023 as compared to 2022.

Impact of changes in currency exchange rates - 2022 vs.

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Total currency

Transaction gains/(losses) recognized

Transaction gains recognized

(In millions)

Operating income

The $43 million increase in net sales (translation gain) was caused primarily by a weakening of the U.S.

dollar relative to the euro, as euro-denominated sales were translated into more U.S.

The $106 million decrease in net sales (translation losses) was caused primarily by a strengthening of the U.S.

dollar relative to the euro, as euro-denominated sales were translated into fewer U.S.

dollars in 2022 as compared to 2021.

The weakening of the U.S.

The strengthening of the U.S.

dollar relative to the Canadian dollar and the Norwegian krone in 2022 did not have a significant effect on the reported amount of net sales, as a substantial portion of the sales generated by our Chemicals Segment’s Canadian and Norwegian operations are denominated in the U.S.

The $13 million decrease in operating income was comprised of the following:

The $23 million increase in operating income was comprised of the following:

● Higher net currency transaction gains of approximately $10 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S.

dollar and the euro, Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which causes increases or decreases, as applicable, in U.S.

dollar and the euro, Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which causes increases or

decreases, as applicable, in U.S.

dollar-denominated receivables and payables and U.S.

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operations, and

● Approximately $19 million from net currency translation losses primarily caused by a weakening of the U.S.

dollar relative to the Canadian dollar and Norwegian krone, as local currency-denominated operating costs were translated into more U.S.

dollars in 2021 as compared to 2020, partially offset by net currency translation gains primarily caused by a weakening of the U.S.

dollar relative to the euro as the positive effects of the weaker U.S.

dollar on euro-denominated sales more than offset the unfavorable effects of euro-denominated operating costs being translated into more U.S.

● Approximately $13 million from net currency translation gains primarily caused by a strengthening of the U.S.

dollar relative to the Canadian dollar and Norwegian krone, as local currency-denominated operating costs were translated into fewer U.S.

dollars in 2022 as compared to 2021, partially offset by net currency translation losses primarily caused by a strengthening of the U.S.

dollar relative to the euro as the negative effects of the stronger U.S.

dollar on euro-denominated sales more than offset the favorable effects of euro-denominated operating costs being translated into fewer U.S.

dollars in 2022 as compared to 2021.

Outlook – As previously reported, late in the third quarter of 2022, demand in Europe and the export markets began to rapidly deteriorate as many of our Chemicals Segment’s customers in those regions reduced their production rates in response to economic conditions and geopolitical uncertainties.

This weakness continued through the fourth quarter.

In addition, in the second half of 2022 our Chemicals Segment experienced rapidly rising costs particularly in Europe, led by natural gas, electricity and certain key raw materials.

In response to this decline in demand coupled with increased production costs, our Chemicals Segment implemented production curtailments at certain of its European facilities throughout the fourth quarter to manage inventory levels.

Our Chemicals Segment also experienced declining demand in North America in the late second half of 2022, but to a lesser extent than its European and export markets.

At the beginning of 2023 our Chemicals Segment began to see pockets of improving demand in Europe and certain export markets bolstered by customer inventory replenishment after significant destocking in the fourth quarter of 2022.

Our Chemicals Segment is experiencing continued weak demand in North America in the first quarter of 2023.

Our Chemicals Segment expects customer demand to gradually return during the first half of the year particularly in Europe and export markets.

Accordingly, at the beginning of 2023, our Chemicals Segment began a measured ramp up of production with the expectation of operating its facilities at full practical capacity by the end of the second quarter of 2023.

Our Chemicals Segment’s selling prices have remained stable at the beginning of 2023;

however, our Chemicals Segment expects selling prices to rise throughout the last three quarters of 2023 in response to higher production costs.

Based on the net effects of these factors, our Chemicals Segment expects to report lower operating results for the full year of 2023 as compared to 2022.

Our Chemicals Segment will continue to monitor current and anticipated near-term customer demand levels and will align its production and inventories accordingly.

The long-term outlook for the TiO 2 industry remains very positive,

and the steps we are taking in the near term are intended to preserve our Chemicals Segment global market share and position its business to profitably grow in the future.

Outlook – Our Chemicals Segment’s customer demand stabilized during the fourth quarter of 2023, particularly in the North American and export markets, while demand in Europe improved but remained below historical levels.

Our Chemicals Segment expects consumer demand to improve in 2024, and it believes customer destocking of TiO 2 is largely complete and customer inventories are historically low.

As a result, our Chemicals Segment expects sales volumes in 2024 to exceed 2023 sales volumes.

In this regard, our Chemicals Segment is experiencing improved demand thus far in the first quarter of 2024 in all major markets.

Our Chemicals Segment has increased production rates in line with current and expected near-term improved demand and believes its production volumes in 2024 will be higher than 2023, although below estimated full practical capacity.

During 2023, our Chemicals Segment’s selling prices came under increasing pressure, primarily due to low-cost imports from China impacting European and export pricing.

Our Chemicals Segment expects these pricing pressures to be somewhat mitigated in 2024 and believes there is potential industry pricing upside in 2024 as a result of improved demand.

Throughout 2023 our Chemicals Segment implemented cost reduction initiatives designed to improve its long-term cost structure, including targeted workforce reductions and the implementation of certain ongoing technology innovations and process improvement initiatives.

Energy costs in Europe have generally stabilized after a period of market disruptions, although in early 2023, in order to provide cost certainty, our Chemicals Segment entered into forward contracts for a portion of its energy needs in 2023 which in many cases were priced above subsequent market rates.

As a result of contracts expiring in late 2023, our Chemicals Segment expects its energy costs will be further reduced in 2024.

Our Chemicals Segment expects raw material and other input costs, which began to decline in 2023, will continue to moderate in 2024.

This, along with lower expected energy costs and the cost reduction initiatives discussed above, will result in improved margins in 2024 as compared to 2023.

Overall, due to the expected improved demand and lower production costs, including lower unabsorbed fixed costs, our Chemicals Segment expects to report higher operating results for the full year of 2024 as compared to 2023.

Throughout 2023 our Chemicals Segment took necessary actions to align its production and inventories to then current demand levels including production curtailments.

As demand improves, our Chemicals Segment will continue to monitor current and anticipated near-term customer demand levels and will align its production and inventories accordingly.

Our Chemicals Segment believes the steps it took during 2023 to preserve its liquidity while maintaining global market share have positioned its business to capitalize on its expectations for improved demand in 2024.

Our expectations for the TiO 2 industry and our Chemicals Segment operations are based on a number of factors outside our control.

As noted above, our Chemicals Segment has experienced global market disruptions including high energy costs and availability concerns and future impacts on its operations will depend on, among other things, future energy costs and availability and the impact economic conditions and geopolitical events have on its operations or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

Our Chemicals Segment has experienced global market disruptions including high energy costs and future impacts on its operations will depend on, among other things, future energy costs and the impact economic conditions and geopolitical events have on its operations or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

Component Products –

Our Component Products Segment reported operating income of $25.4 million in 2022 compared to operating income of $20.5 million in 2021 and $11.8 million in 2020.

Our Component Products Segment reported operating income of $25.4 million in each of 2023 and 2022 and $20.5 million in 2021.

Operating income in 2023 was comparable to 2022 as lower marine components sales were offset by higher security products sales and higher gross margin percentages across both reporting units.

The increase in operating income in 2022 over 2021 is primarily due to higher marine components sales and to a lesser extent higher security products sales.

Our Components Products Segment’s operating income was negatively impacted by the COVID-19 pandemic in 2020, primarily in the second and third quarters, which significantly impacts operating income comparisons for the comparative periods.

Beginning in the third quarter of 2020 and continuing through 2021, our Component Products Segment’s sales volumes generally improved at both security products and marine components reporting units and the increase in operating income in 2021 over 2020 primarily resulted from the higher sales volumes.

Our Component Products Segment’s product offerings consist of a large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on our ability to quantify the impact of changes in individual product sales quantities and selling prices on our net sales, cost of sales and gross margin.

In addition, small variations in period-to-period net sales, cost of sales and gross margin can result from changes in the relative mix of our products sold.

Our Component Products Segment’s product offerings consist of a large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on its ability to quantify the impact of changes in individual product sales quantities and selling prices on our Component Products Segment’s net sales, cost of sales and gross margin.

In addition, small variations in period-to-period net sales, cost of sales and gross margin can result from changes in the relative mix of our Components Products Segment’s products sold.

The key performance indicator for our Component Products Segment is operating income margins.

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Operating income

Net Sales – Our Component Products Segment’s net sales increased $25.8 million in 2022 compared to 2021 due to higher marine component sales primarily to the towboat market and, to a lesser extent, higher security products sales across a variety of markets.

Net Sales – Our Component Products Segment’s net sales decreased $5.3 million in 2023 compared to 2022 due to lower marine components sales primarily to the towboat market, partially offset by higher security products sales largely in the fourth quarter of 2023.

Marine components net sales decreased $12.0 million, or 23%, in 2023 as compared to 2022.

Relative to prior year, marine components sales were $12.8 million lower to the towboat market (primarily to original equipment boat manufacturers) and $2.0 million lower to the engine builder market, partially offset by $1.2 million higher industrial sales and $.8 million higher sales to the center console boat market.

Security products net sales increased $6.7 million, or 6%, in 2023 as compared to 2022 primarily due to higher sales related to a pilot project for a government security customer.

Relative to prior year, security products sales were $8.3 million higher to the government security market and $1.5 million higher to distributors, partially offset by $1.7 million lower sales to the office furniture market and $.7 million lower sales to the gas station security market.

Our Component Products Segment’s net sales increased $25.8 million in 2022 compared to 2021 due to higher marine components sales primarily to the towboat market and, to a lesser extent, higher security products sales across a variety of markets.

Marine components net sales increased $16.4 million, or 46%, in 2022 as compared to 2021.

Relative to prior year, marine component sales were $11.5 million higher to the towboat market (primarily to original equipment boat manufacturers), $2.1 million higher to the engine builder market and $2.0 million higher to the industrial market.

Relative to prior year, marine components sales were $11.5 million higher to the towboat market (primarily to original equipment boat manufacturers), $2.1 million higher to the engine builder market and $2.0 million higher to the industrial market.

Security products net sales increased $9.4 million, or 9%, in 2022 as compared to 2021.

Relative to prior year, security products sales were $3.8 million higher to the government security market, $1.8 million higher to the office furniture market, $1.5 million higher to distributors, $1.0 million higher to the tool storage market and $.9 million higher to the gas station security market.

Our Component Products Segment’s net sales increased $26.3 million in 2021 compared to 2020 primarily due to higher sales at both the security products and marine components reporting units, particularly in the second quarter of 2021, as many of our Component Products Segment’s customers were temporarily closed or reduced production during the second quarter of 2020 due to government ordered closures or reduced demand resulting from the COVID-19 pandemic.

Beginning in the third quarter of 2020 and continuing through 2021, marine components sales exceeded pre-pandemic levels.

Marine components net sales increased $9.1 million, or 34%, in 2021 as compared to 2020 primarily due to increased sales of $7.2 million to several original equipment boat manufacturers in the towboat market.

Security products sales generally improved since third quarter of 2020 but did not recover to pre-pandemic levels until the second quarter of 2021 when sales improved in markets that had been slower to recover from the COVID-19 pandemic, particularly sales to distributors and the office furniture market.

Relative to prior year, sales increased $17.2 million, or 20%, primarily due to $7.2 million higher sales to the government security market, $4.9 million higher sales to the transportation market and $2.0 million higher sales to distribution customers.

Cost of Sales and Gross Margin – Our Component Products Segment’s cost of sales increased in 2022 compared to 2021 primarily due to the effects of higher sales, as well as increased production costs at both security products and marine components.

Cost of Sales and Gross Margin – Our Component Products Segment’s cost of sales decreased in 2023 compared to 2022 primarily due to the effects of lower production costs at both security products and marine components reporting units as well as lower marine components sales.

Our Component Products Segment’s gross margin as a percentage of net sales increased over the same period primarily due to the factors affecting cost of sales.

Security products gross margin as a percentage of net sales for 2023 increased as compared to 2022 primarily due to lower production costs (including lower material, overtime and shipping costs) and increased coverage of fixed costs on higher sales, primarily in the fourth quarter.

Marine components gross margin as a percentage of net sales increased in 2023 compared to 2022 primarily due to lower raw material costs (primarily stainless steel and aluminum), lower supplies costs driven by lower volume, lower shipping costs and lower labor costs from reduced employee overtime due to lower sales volumes, partially offset by decreased coverage of fixed costs as a result of lower sales.

Our Component Products Segment’s cost of sales increased in 2022 compared to 2021 primarily due to the effects of higher sales, as well as increased production costs at both security products and marine components.

Our Component Products Segment’s gross margin as a percentage of net sales decreased over the same period primarily due to the decrease in the security products gross margin percentage.

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Marine components gross margin as a percentage of net sales increased slightly in 2022 compared to 2021 with increased sales due to price increases and surcharges more than offsetting higher production costs, as well as increased coverage of cost of sales from higher sales.

Our Component Products Segment’s cost of sales increased in 2021 compared to 2020 primarily due to the effects of higher sales, as well as increased production costs at both security products and marine components.

Our Component Products Segment’s gross margin as a percentage of net sales increased over the same period due to the increase in the security products gross margin percentage partially offset by the decrease in the marine components gross margin percentage.

Security products gross margin as a percentage of net sales for 2021 increased as compared to 2020 due to increased coverage of fixed costs from higher sales, partially offset by higher production costs including increased raw materials costs across a variety of commodities and component inputs, higher shipping costs, and increased labor costs primarily due to higher overtime costs and increased headcount.

Marine components gross margin as a percentage of net sales decreased in 2021 compared to 2020 as increased coverage of fixed costs from higher sales were more than offset by higher production costs including raw materials costs (primarily stainless steel), higher shipping costs and increased labor costs resulting from higher overtime costs and increased headcount.

Operating Income – Our Component Products Segment operating income increased in 2022 compared to 2021.

Operating margin increased in 2022 compared to 2021 primarily due to the factors impacting net sales, cost of sales and gross margin discussed above.

Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities, as well as gains and losses on disposal of property and equipment.

Operating costs and expenses increased $1.2 million in 2022 compared to 2021 predominantly due to higher salary and employment related costs.

Operating Income – As a percentage of net sales, our Component Products Segment’s operating income increased in 2023 compared to 2022.

The operating margin percentage increased in 2023 compared to 2022 primarily due to the factors impacting net sales, cost of sales and gross margin discussed above.

Operating costs and expenses increased in 2023 compared to 2022 predominantly due to higher salary and benefit costs at the security products reporting unit which increased by $.6 million.

Our Component Products Segment operating income increased in 2022 compared to 2021.

Operating margin increased in 2022 compared to 2021 primarily due to the factors impacting net sales, cost of sales and gross margin discussed above.

Operating costs and expenses increased $1.2 million in 2021 compared to 2020 primarily due to higher salary and benefits costs.

Operating costs and expenses increased $1.2 million in 2022 compared to 2021 predominantly due to higher salary and employment related costs.

General – Our Component Products Segment’s profitability primarily depends on its ability to utilize its production capacity effectively, which is affected by, among other things, the demand for its products and its ability to control manufacturing costs, primarily comprised of labor costs and materials.

The materials used in our Component Products Segment’s products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets such as zinc, brass and stainless steel.

Total material costs represented approximately 47% of our Component Products Segment’s cost of sales in 2022, with commodity-related raw materials representing

approximately 17% of our Component Products Segment’s cost of sales.

Prices for the primary commodity-related raw materials used in the manufacture of its locking mechanisms, primarily zinc and brass, generally increased throughout 2021 and the first half of 2022.

Prices began to stabilize in the latter half of 2022, although at elevated levels.

The prices for stainless steel, the primary raw material used for the manufacture of marine exhaust headers and pipes and wake enhancement systems, experienced significant volatility during 2021 and 2022.

Based on current economic conditions, we expect the prices for our Component Products Segment’s primary commodity-related raw materials including zinc, brass, stainless steel and other manufacturing materials in 2023 to be relatively stable, although at the elevated levels our Component Products Segment experienced in the second half of 2022.

Total material costs represented approximately 48% of our Component Products Segment’s cost of sales in 2023, with commodity-related raw materials representing approximately 13% of our Component Products Segment’s cost of sales.

After increasing in 2021 and the first half of 2022, prices for the primary commodity-related raw materials used in the manufacture of our Component Products Segment’s locking mechanisms, primarily zinc and brass, generally began to stabilize in the latter half of 2022 and into 2023 and generally began to soften in the latter half of 2023.

Prices for aluminum and stainless steel, the primary raw material used for the manufacture of marine exhaust headers and pipes, wake enhancement systems, throttles and trim tabs experienced significant volatility during 2021 and 2022 but were more stable in 2023.

Although raw commodity costs declined during 2023 from elevated levels experienced in 2021 and 2022, in most cases materials our Component Products Segment purchases also include processing and conversion costs such as alloying, extrusion and rolling, which continue to be elevated due to costs of labor, transportation and energy.

Based on current economic conditions, our Component Products Segment expects the prices for zinc, brass, aluminum, stainless steel and other manufacturing materials in 2024 to be relatively stable.

Our Component Products Segment occasionally enters into short-term commodity-related raw material supply arrangements to mitigate the impact of future increases in commodity related raw material costs.

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– Raw Materials.”

Outlook – While our Component Products Segment continued to experience strong demand at both its reporting units during the fourth quarter of 2022, the order rate and backlog at both reporting units began to soften late in the fourth quarter.

Our Component Products Segment operated its manufacturing facilities at elevated production rates throughout 2022 in line with the strong demand and it continues to monitor demand levels and will adjust production rates accordingly.

While labor markets continue to be competitive in each of the regions in which our Component Products Segment operates and labor costs continue to rise, our Component Products Segment has been able to achieve and maintain more balanced staffing levels aligned with current and forecasted demand, particularly at its marine components reporting unit.

Our Component Products Segment continues to face shortages related to certain electronic components;

however, its supply chains are generally stable and recently transportation and logistical delays have been minimal.

Our Component Products Segment expects gross margins at its security products reporting unit will continue to be challenged during 2023 as higher cost inventory continues to work its way through cost of sales and anticipated reduced demand may limit its ability to implement further price increases.

While our Component Products Segment expects its marine components net sales to remain strong during the first quarter, it expects net sales will decline as compared to 2022 as marine market demand is being challenged by higher interest rates and several original equipment boat manufacturers, including certain of its customers, have publicly announced reduced production schedules in 2023 compared to 2022.

Our Component Products Segment currently expects its marine components reporting unit gross margins as a percentage of net sales in 2023 to be comparable to 2022.

Based on the softening demand and general economic conditions in North America, our Component Products Segment currently expects to report lower net sales and operating income at both reporting units during 2023 compared to 2022.

Our Component Products Segment is focused on managing inventory levels to support anticipated lower demand in 2023.

With raw materials and other components more readily available, our Component Products Segment believes it will be able to achieve additional operating efficiencies during the year although the extent and impact of such efficiencies is not yet known.

Outlook – In 2023, the security products reporting unit achieved record sales as a result of increased sales to the government security market, including a pilot project to a government security customer.

Absent this project, security products sales would have declined compared to the prior year due to sluggish demand in many of the other markets it serves.

At the marine components reporting unit, the strong demand experienced in 2021 and 2022 carried into the first quarter of 2023 when the towboat market began experiencing softening demand that accelerated as the year progressed.

Labor markets have become favorable in each of the regions our Component Products Segment operates, and material prices have either stabilized or, in the case of certain commodity raw materials, started to decline slightly.

Our Component Products Segment’s supply chains are stable and transportation and logistical delays are minimal.

Our Component Products

Segment has adjusted its labor force and production rates at its facilities to reflect the stability of its raw material supplies and near-term demand levels.

Our Component Products Segment expects security products sales in 2024 will be lower than 2023 as the sluggishness it observed across a variety of the markets security products served during 2023 will continue with customers expressing uncertainty regarding sustained consumer demand.

Our Component Products Segment does not currently have additional orders with regard to the 2023 pilot project, and it has no knowledge of any future orders.

After implementing aggressive price increases over the last several years to maintain operating margins, our Component Products Segment believes its customers will accept only modest price increases in the current environment.

Overall, our Component Products Segment expects the security products reporting unit’s gross margin will be comparable in 2024, although it expects operating income as a percentage of sales to decline due to its limited pricing power along with reduced coverage of selling, general and administrative costs as a result of lower expected sales.

Our Component Products Segment expects marine components net sales in 2024 to also be lower as compared to 2023 because it believes demand in the towboat market will further decline, and expected increases in sales to the industrial and center console boat markets will not fully offset reduced towboat demand.

The recreational marine industry faces strong headwinds due to higher interest rates and broader market weakness.

Several original equipment boat manufacturers, including certain of our Component Products Segment’s customers, have publicly announced reductions to production schedules for 2024.

Overall, our Component Products Segment expects the marine components reporting unit’s gross margin as a percentage of net sales for 2024 to be lower than 2023 due to lower coverage of fixed overhead as a result of lower expected sales, and operating income as a percentage of net sales will similarly be lower as a result of reduced coverage of selling, general and administrative expenses due to lower expected sales.

Our Component Products Segment ended the year with elevated inventory balances at its marine components reporting unit as a result of increased orders of certain raw materials due to previously long lead times coupled with the rapidly changing towboat demand which created a misalignment of its raw materials with near term demand.

Our Component Products Segment expects inventory balances to be in alignment with current demand by mid-year 2024.

Our Component Products Segment’s expectations for its operations and the markets it serves are based on a number of factors outside its control.

As noted above, there continue to be some global and domestic supply chain challenges and any future impacts on operations will depend on, among other things, any future disruption in our Component Products Segment’s operations or its suppliers’ operations, the impact of economic conditions and geopolitical events on demand for its products or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

Our Component Products Segment has experienced global and domestic supply chain challenges, and any future impacts on operations will depend on, among other things, any future disruption in our Component Products Segment’s operations or its suppliers’ operations, the impact of economic conditions and geopolitical events on demand for its products or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

Real Estate Management and Development –

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(In millions)

Water delivery sales

Utility and other

Water delivery sales

Total net sales

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General – Our Real Estate Management and Development Segment consists of BMI and LandWell.

BMI provides certain utility services, among other things, to an industrial park located in Henderson, Nevada, and prior to BWC’s bankruptcy filing on September 10, 2022 was responsible for the delivery of water to the City of Henderson and various other users through a water delivery system owned and operated by BWC.

LandWell is actively engaged in efforts to develop certain real estate in Henderson, Nevada including approximately 2,100 acres zoned for residential/planned community purposes and approximately 400 acres zoned for commercial and light industrial use.

BMI and LandWell own real property in Henderson, Nevada.

LandWell is actively engaged in efforts to develop certain real estate in Henderson, Nevada including approximately 2,100 acres zoned for residential/planned community purposes.

BMI also was responsible for the delivery of water to the City of Henderson and various other users through a water distribution system owned and operated by BWC prior to BWC’s bankruptcy filing and deconsolidation on September 10, 2022.

BMI also provided certain utility services to an industrial park located in Henderson, Nevada prior to the sale of BPC on December 1, 2023.

With the approval of BWC’s plan of reorganization by the bankruptcy court, substantially all of BWC’s

assets were sold in November 2023.

Following the sale of the BWC assets and BPC, BMI no longer provides services to the industrial park which allows us to focus on land sales and development activity for the residential/planned community.

LandWell began marketing land for sale in the residential/planned community in December 2013 and at December 31, 2023 approximately 20 saleable acres remain.

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Contracts for land sales are negotiated on an individual basis, and sales terms and prices will vary based on such factors as location (including location within a planned community), expected development work, and individual buyer needs.

Although land may be under contract, we do not recognize revenue until we have satisfied the criteria for revenue recognition set forth in ASC Topic 606.

Although land may be under contract or land sales may be completed, we do not recognize revenue until we have satisfied the criteria for revenue recognition set forth in ASC Topic 606.

In some instances, we will receive cash proceeds at the time the contract closes and record deferred revenue for some or all of the cash amount received, with such deferred revenue being recognized in subsequent periods.

Substantially all of the land in the residential/planned community has been sold;

however, we expect the development work to take three to five years to complete.

Net Sales and Operating Income – Substantially all of the net sales from our Real Estate Management and Development segment in 2022 consisted of revenues from land sales.

Substantially all the land in the residential/planned community has been sold;

however, we expect the development work to take three to four years to complete.

Net Sales and Operating Income – Substantially all the net sales from our Real Estate Management and Development segment in 2023 and 2022 consisted of revenues from land sales.

We recognized $92.6 million in revenues on land sales during 2023 compared to $120.9 million in 2022.

As noted above, we recognize revenue in our residential/planned community over time using cost-based input methods, and substantially all the land sales revenue we recognized in 2023 and 2022 was under this method of revenue recognition.

Land sales revenue in 2023 decreased compared to 2022 due to the decreased pace of development activity within the residential/planned community.

The pace of development activities is dictated by a number of factors such as city permit and design approval and labor and materials availability.

Cost of sales related to land sales revenues was $60.8 million in 2023 compared to $69.7 million in 2022.

Included in operating income was income related to the tax increment reimbursement note receivables of $25.2 million and $15.2 million in 2023 and 2022, respectively.

See Note 7 to our Consolidated Financial Statements.

Substantially all the net sales from our Real Estate Management and Development segment in 2022 and 2021 consisted of revenues from land sales.

We recognized $120.9 million in revenues on land sales during 2022 compared to $207.8 million in 2021.

Cost of sales related to land sales revenues was $69.7 million in 2022 compared to $117.0 million in 2021.

Land sales revenue decreased substantially in 2022 primarily due to two land parcels with no post-closing obligations that closed during the fourth quarter of 2021 for $70 million, which were immediately recognized as revenue.

Excluding these two parcels that closed in 2021, land sales declined 12% in 2022 primarily due to a decrease in acreage sold and the relative timing of development spending.

Substantially all of the land sales revenue we recognized in 2022 was under the cost-based inputs method of revenue recognition for acreage sold in prior years and to a lesser extent current year land sales.

Substantially all the land sales revenue we recognized in 2022 was under the cost-based inputs method of revenue recognition for acreage sold in prior years and to a lesser extent current year land sales.

In 2021 land sales were heavily weighted towards the end of the year.

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Included in operating income was income related to the tax increment reimbursement note receivables of $15.2 million and $15.3 million in 2022 and 2021, respectively.

See Note 7 to our Consolidated Financial Statements.

We recognized $207.8 million in revenues on land sales during 2021 compared to $87.0 million in 2020.

Cost of sales related to land sales revenues was $117.0 million in 2021 compared to $57.9 million in 2020.

Land sales revenue increased in 2021 as compared to 2020 primarily due to an increase in the amount of acreage sold, increased selling price per acre sold and an increase in infrastructure development spending.

As noted above, land sales are generally recognized over time using cost-based inputs and in the second quarter of 2020, in an effort to conserve resources in response to the pandemic, we reduced infrastructure development spending to only those expenditures necessary to fulfill our contractual obligations.

We returned to more normalized infrastructure development spending late in 2020 and continued to increase infrastructure development spending throughout 2021.

Typically land sales have been heavily weighted towards the end

In the fourth quarter of 2021, land sales revenue was $150.8 million including approximately $70 million related to two parcels as compared to land sales revenue of $70.2 million in the fourth quarter of 2020, including approximately $55 million related to a single parcel.

The contracts for these parcels contained no post-closing obligations therefore we recognized the full $70 million and $55 million in revenue in the fourth quarters of 2021 and 2020, respectively.

Operating income in 2021 also includes $15.3 million of income related to the recognition of tax increment reimbursement note receivables compared to $19.1 million of such income in 2020, as discussed in Note 7 to our Consolidated Financial Statements.

The remainder of net sales and cost of sales related to this segment primarily relates to water delivery fees and expenses.

BMI provides certain utility services, among other things, to an industrial park located in Henderson, Nevada and prior to BWC’s bankruptcy filing on September 10, 2022 was responsible for the delivery of water to the City of Henderson and various other users under long-term contracts through a water delivery system owned and operated by BWC.

Prior to BWC’s bankruptcy filing on September 10, 2022, BMI was responsible for the delivery of water to the City of Henderson and various other users under long-term contracts through a water delivery system owned and operated by BWC.

BWC’s water delivery system operated on Lake Mead in Nevada.

Due to the Western drought, water levels in Lake Mead have been declining for much of the last twenty years.

As a result of water release curtailments upstream of Lake Mead which began late in the second quarter, Lake Mead water levels have dropped precipitously to historically low levels.

As a result of water release curtailments upstream of Lake Mead which began late in the second quarter of 2022, Lake Mead water levels dropped precipitously to historically low levels.

On June 30, 2022 BWC was no longer able to pump water without the risk of damaging the system and consequently ceased operations at its water intake facility to best preserve the system.

Current estimates of Lake Mead water levels do not indicate lake levels will be sufficient to enable BWC to resume pumping water for the foreseeable future.

We considered BWC’s inability to pump water from Lake Mead to be a triggering event under the ASC 360 Property, Plant, and Equipment , which caused us to evaluate the water system fixed assets for impairment.

We considered BWC’s inability to pump water from Lake Mead to be a triggering event under ASC 360 Property, Plant, and Equipment , which caused us to evaluate the water system fixed assets for impairment.

Because BWC was unable to deliver water under its current contracts and therefore unable to generate revenue, we determined the water system’s assets were fully impaired except to the extent certain equipment had alternative use outside of BWC’s operations, in which case those assets were written down to estimated salvage value.

The $16.4 million impairment charge primarily recognized in the second quarter of 2022 represents the write down of the book value to the estimated salvage value of the assets.

Without the ability to pump and deliver water to its customers, BWC’s operating expenses exceeded its revenues, and on September 10, 2022 BWC and its subsidiaries voluntarily filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Nevada.

Because BWC has filed for bankruptcy protection, we and BMI can no longer affirmatively assert we control BWC and, as such, in accordance with ASC 810, Consolidation, we deconsolidated BWC as of the date of the bankruptcy filing and recognized a loss of $2.0 million in the third quarter of 2022 on the deconsolidation.

The $16.4 million impairment charge primarily recognized in the second quarter of 2022 represented the write down of the book value to the estimated salvage value of the assets.

Because BWC filed for bankruptcy protection, we and BMI could no longer affirmatively assert we control BWC and, as such, in accordance with ASC 810, Consolidation, we deconsolidated BWC as of the date of the bankruptcy filing and recognized a loss of $2.0 million in the third quarter of 2022 on the deconsolidation.

In addition, BMI had an outstanding intercompany accounts receivable balance with BWC on the date of the bankruptcy filing, and we recognized $1.3 million of bad debt expense to fully reserve this balance during the third quarter of 2022.

Operating income comparisons between 2022 and 2021 are affected by the aggregate $19.7 million in charges related to BWC recognized in 2022.

See Notes 2 and 9 to our Consolidated Financial Statements.

All of these charges are included in the determination of the Real Estate Management and Development’s operating income in 2022.

Operating income comparisons between 2023, 2022 and 2021 are also affected by BWC’s water delivery sales and related cost of sales.

See Note 2 to our Consolidated Financial Statements.

As noted above, BWC filed for Chapter 11 bankruptcy protection on September 10, 2022.

We recognized an aggregate $19.7 million of charges in 2022, discussed above, related to BWC which will not recur.

On November 8, 2023, the Bankruptcy Court for the District of Nevada entered an order approving BWC’s plan of reorganization, which provided for the sale of substantially all BWC’s assets and the transfer of substantially all of its operating and other agreements to one of its industrial customers.

The transaction closed on November 17, 2023, at which time BWC discontinued its water delivery operations.

As part of the transaction, BWC is providing transition services to the purchaser for a limited time.

The proceeds of the sale will be used to repay creditors of BWC and its wholly-owned subsidiary.

BWC’s assets may not be sufficient to fully repay its creditors, and the timing of the resolution of the bankruptcy proceedings remains uncertain.

On December 1, 2023, BMI sold its subsidiary BPC, which provides electricity to four customers located in the industrial park, and its sewer system assets to another of its industrial customers.

The sale was for minimal cash consideration and the assumption of liabilities, and upon the closing of the sale we recognized a loss of $2.6 million.

BMI is providing transition services to the purchaser of the businesses for a limited time.

With the sale of BPC, we no longer provide services to the industrial park which allows us to focus on land sales and development activity for the residential/planned community.

Outlook – LandWell is focused on developing the land it manages, primarily to residential builders, for the residential/planned community in Henderson.

At December 31, 2023, substantially all of the land in the residential/planned community had been sold with approximately 20 saleable acres remaining.

While we expect to sell the remaining acres over the next one to three years, due to the current economic conditions, we are unsure of the timing of any sales that may occur.

At December 31, 2022 we have deferred revenue of $123.0 million related to land sales closed in 2022 and prior years.

With the strong new home market in the Las Vegas area, we expect to sell our remaining residential zoned land within the next year.

Demand for the 15 saleable acres zoned for light industrial and commercial use is more modest and we expect it will take more time to sell these remaining acres.

At December 31, 2023 we have deferred revenue of $88.0 million related to post-closing obligations on land sales closed in 2023 and prior years.

Because we recognize revenue over time using cost-based inputs, we will continue to recognize revenue on land previously sold over the development period, although we have already received substantially all the cash proceeds related to these sales.

We currently expect to take three to five years to complete our post-closing obligations.

Any delays or curtailments in infrastructure development related to post-closing obligation activities will lower the amount of revenue we recognize on previously closed land sales.

We currently expect to take three to four years to complete our post-closing obligations.

Any delays or curtailments in infrastructure development related to post-closing obligation activities will delay the amount of revenue we recognize on previously closed land sales.

Under LandWell’s development agreement with the City of Henderson, the issuance of a specified number of housing permits requires LandWell to complete certain large infrastructure projects.

LandWell began construction on several of these community-wide large projects in late 2021 with the construction expected to continue for the next three to five years.

We expect these land development costs in 2023 to be consistent with 2022.

LandWell began construction on several of these community-wide large projects in late 2021 with the construction expected to continue for the next three to four years.

We expect these land development costs in 2024 to be comparable to 2023 due to the timing of certain infrastructure projects.

Because these large projects relate to the entirety of the residential/planned community, the costs associated with these large projects are not part of the cost-based inputs used to recognize revenue and therefore this spending will not correlate to revenue recognition.

However, this spending is expected to be eligible for tax increment reimbursement and delays or curtailments in eligible infrastructure development activities will also delay LandWell’s ability to submit completed costs to the City of Henderson for approval of additional tax increment reimbursement note receivables.

As noted above, BWC filed for Chapter 11 bankruptcy protection on September 10, 2022.

BWC is operating under court protection, and a portion of BWC’s water delivery system is still operating with water provided by the regional water authority in order to continue to provide water to its industrial customers for an interim period.

We cannot predict the timing or the outcome of the bankruptcy reorganization, and we may incur additional costs before the bankruptcy proceedings are concluded.

General Corporate Items, Interest Expense, Income Taxes, Noncontrolling Interest and Related Party Transactions

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Insurance recoveries include amounts NL received from these insurance carriers.

In addition, Kronos recognized $1.5 million of insurance recoveries in 2020 related to a property damage claim.

NL received $.5 million in insurance recoveries during 2023.

See Note 13 to our Consolidated Financial Statements.

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See Note 18 to our Consolidated Financial Statements.

Gain on Land Sales – In 2021, we sold two parcels of land (including one parcel in the second quarter and one parcel in the third quarter) not used in our operating activities.

Gain on Land Sales – In 2021, we sold two parcels of land (including one parcel in the second quarter and one parcel in the third quarter) not used in our operating activities for net proceeds of approximately $23.4 million and recognized an aggregate pre-tax gain of $16.0 million.

In the second quarter of 2023 we sold excess property not used in our operations for net proceeds of approximately $1.8 million and recognized a pre-tax gain of $1.5 million.

See Note 13 to our Consolidated Financial Statements.

Other Components of Net Periodic Pension and OPEB Expense – We recognized other components of net periodic pension and OPEB expense of $11.8 million in 2023, $13.9 million in 2022 and $17.0 million in 2021.

The change in expense is primarily due to pension costs as a result of actuarial amortizations and expected returns on plan assets.

The decrease in 2023 compared to 2022 is primarily due to the net effects of higher discount rates impacting interest cost, previously unrecognized actuarial losses and $6.2 million in settlement costs related to the termination and buy-out of our pension plan in the United Kingdom during the second quarter of 2023.

The decrease in expense in 2022 compared to 2021 is primarily due to pension costs as a result of actuarial amortizations and expected returns on plan assets.

See Note 11 to our Consolidated Financial Statements.

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Under the principles of consolidation, we eliminate any gains or losses associated with our common stock to the extent of our proportional ownership interest in each subsidiary.

The $1.6 million loss in 2022, the $3.3 million gain in 2021 and the $1.7 million loss in 2020 recognized in our Consolidated Financial Statements represent the unrealized gain (loss) in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL.

Other General Corporate Items – Corporate expenses were 5% higher at $36.6 million in 2022 compared to $34.7 million in 2021 due primarily to higher litigation and related costs in 2022.

The $1.7 million loss in 2023, the $1.6 million loss in 2022 and the $3.3 million gain in 2021 recognized in our Consolidated Financial Statements represent the unrealized gain (loss) in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL.

Interest Income and Other – Interest income and other increased $10.9 million in 2023 compared to 2022 primarily due to higher average interest rates and increased investment balances.

Interest income and other increased $6.4 million in 2022 compared to 2021 primarily due to higher average interest rates and increased investment balances.

See Note 13 to our Consolidated Financial Statements.

Other General Corporate Items – Corporate expenses were 5% lower at $34.7 million in 2023 compared to $36.5 million in 2022 due primarily to lower administrative expenses.

Included in corporate expense are:

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● environmental remediation and related costs of $2.5 million in 2023 compared to $1.7 million in 2022.

Corporate expenses of $34.7 million in 2021 were comparable to $34.3 million in 2020.

Corporate expenses were 5% higher at $36.5 million in 2022 compared to $34.6 million in 2021 due primarily to higher litigation and related costs in 2022.

Included in corporate expense are:

● litigation and related costs at NL of $1.9 million in each of 2021 and 2020;

● litigation and related costs at NL of $4.2 million in 2022 and $1.9 million in 2021;

● environmental remediation and related costs of $1.7 million in 2022 compared to $1.6 million in 2021.

Overall, we currently expect that our net general corporate expenses in 2023 will be higher than 2022 primarily due to higher expected litigation fees and related costs and higher environmental remediation and related costs.

Overall, we currently expect that our net general corporate expenses in 2024 will be higher than 2023 primarily due to higher expected litigation fees and related costs.

The level of our litigation and related expenses varies from period to period depending upon, among other things, the number of cases in which we are currently involved, the nature of such cases and the current stage of such cases (e.g.

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See Note 18 to our Consolidated Financial Statements.

Interest Expense – Interest expense decreased to $27.9 million in 2022 from $32.5 million in 2021 primarily due to lower average debt levels and the effects of changes in currency exchange rates somewhat offset by higher interest rates on variable-rate indebtedness in 2022.

Interest expense decreased to $32.5 million in 2021 from $36.2 million in 2020 primarily due to lower average debt levels in 2021.

We expect interest expense will be higher in 2023 as compared to 2022 primarily as lower average debt balances will be more than offset by higher average interest rates on variable–rate indebtedness.

Provision for Income Taxes – We recognized income tax expense of $33.8 million in 2022 compared to $60.1 million in 2021.

Interest Expense – Interest expense of $28.3 million in 2023 was comparable to $27.9 million in 2022 .

Interest expense decreased to $27.9 million in 2022 from $32.5 million in 2021 primarily due to lower average debt levels and the effects of changes in currency exchange rates somewhat offset by higher interest rates on variable-rate indebtedness in 2022.

We expect interest expense will be higher in 2024 as compared to 2023 primarily due to the higher interest rate on the new KII 9.50% Senior Secured Notes due 2029.

See Note 9 to our Consolidated Financial Statements.

Income Tax Expense (Benefit) – We recognized an income tax benefit of $22.4 million in 2023 compared to income tax expense of $33.8 million in 2022.

The decrease is primarily due to lower earnings in 2023 and the jurisdictional mix of such earnings.

We recognized income tax expense of $33.8 million in 2022 compared to $60.1 million in 2021.

The increase is primarily due to higher earnings in 2021 and the jurisdictional mix of such earnings.

The decrease is primarily due to lower earnings in 2022 and the jurisdictional mix of such earnings.

Our earnings are subject to income tax in various U.S.

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However, in 2022 our consolidated effective income tax rate is lower than the U.S.

federal statutory rate of 21% due to the effect of a tax benefit relating to the release of a portion of our valuation allowance associated with the 2022 utilization of a portion of our business interest expense carryforwards.

Also, in 2020 our consolidated effective income tax rate is lower than the U.S.

federal statutory rate of 21% due to the effect of lower earnings and tax benefits associated with losses incurred in certain high tax jurisdictions.

federal statutory rate of 21% due to the effect of a tax benefit relating to the partial release of our valuation allowance associated with the 2022 utilization of a portion of our business interest expense carryforwards.

Our consolidated effective income tax rate in 2024 is expected to be higher than the U.S.

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See Note 14 to our Consolidated Financial Statements for more information about our 2023 income tax items, including a tabular reconciliation of our statutory tax expense to our actual tax expense.

Discontinued Operations – On January 26, 2018, we completed the sale of our former Waste Management Segment to JFL-WCS Partners, LLC, an entity sponsored by certain investment affiliates of J.F.

Lehman & Company, for consideration consisting of the assumption of all of the Waste Management Segment’s third-party indebtedness and other liabilities.

We recognized a pre-tax gain of approximately $4.9 million in the fourth quarter of 2020 related to proceeds received from JFL Partners in final settlement of an earn-out provision in the sale agreement.

Amounts related to our former Waste Management Segment are classified as part of discontinued operations.

See Note 3 to our Consolidated Financial Statements.

Noncontrolling Interest in Net Income of Subsidiaries – Noncontrolling interest in operations of subsidiaries decreased from 2021 to 2022 primarily due to lower operating income at BMI and LandWell.

Noncontrolling interest in operations of subsidiaries increased from 2020 to 2021 primarily due to higher operating income from all of our segments.

Noncontrolling Interest in Net Income of Subsidiaries – Noncontrolling interest in operations of subsidiaries decreased from 2022 to 2023 primarily due to lower operating income at Kronos.

Noncontrolling interest in operations of subsidiaries decreased from 2021 to 2022 primarily due to lower operating income at BMI and LandWell.

Related Party Transactions – We are a party to certain transactions with related parties.

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Our significant accounting policies are more fully described in Note 1 to our Consolidated Financial Statements.

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, which requires management to make estimates, judgments and assumptions that we believe are reasonable based on our historical experience, observance of known trends in our Company and industry as a whole and information available from outside sources.

Our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period.

Actual results may differ significantly from those initial estimates.

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period.

On an ongoing basis we evaluate our estimates, including those related to the recoverability of long-lived assets, pension and other postretirement benefit obligations and the underlying actuarial assumptions related thereto, the realization of deferred income tax assets and accruals for litigation, income tax and other contingencies.

We base our estimates on historical experience and on various other assumptions which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported amounts of assets, liabilities, revenues and expenses.

Actual results may differ significantly from previously-estimated amounts under different assumptions or conditions.

We believe the most critical accounting policies and estimates involving significant judgment primarily relate to goodwill, long-lived assets, revenue recognized over time using cost-based inputs, defined benefit pension plans, income taxes and litigation and environmental liabilities.

We have discussed the development, selection and disclosure of our critical accounting estimates with the audit committee of our board of directors.

Goodwill – Our net goodwill totaled $379.7 million at December 31, 2023 primarily resulting from our various step acquisitions of Kronos and NL (which occurred before the implementation of the current accounting standards related to noncontrolling interest) and to a lesser extent CompX’s purchase of various businesses.

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We do not assess our property and equipment for impairment unless certain impairment indicators are present.

Due to the Western drought, water levels in Lake Mead have been declining for much of the last twenty years.

As a result of water release curtailments upstream of Lake Mead which began late in the second quarter, Lake Mead water levels have dropped precipitously to historically low levels.

On June 30, 2022 BWC was no longer able to pump water without the risk of damaging the system and consequently ceased operations at its water intake facility to best preserve the system.

Current estimates of Lake Mead water levels do not indicate lake levels will be sufficient to enable BWC to resume pumping water for the foreseeable future.

The $16.4 million impairment charge primarily recognized in the second quarter of 2022 represents the write down of the book value to the estimated salvage value of the assets.

See Note 2 to our Consolidated Financial Statements.

Other than the $16.4 million fixed asset impairment discussed above, we did not evaluate any other long-lived assets for impairment during 2022 because no such impairment indicators were present.

During the fourth quarter of 2023, our Chemicals Segment recorded a fixed asset impairment of $3.8 million related to the write-off of certain costs resulting from a capital project termination.

Excluding this project, we did not evaluate any other long-lived assets for impairment during 2023 because no such impairment indicators were present.

Revenue recognized over time using cost-based inputs – Certain real estate land sales by our Real Estate Management and Development Segment (generally land sales associated with our residential/planned community) require us to complete property development and improvements after title passes to the buyer and we have received all or a substantial portion of the selling price.

Generally, all of the land sales associated with the residential/planned community have been recognized over time using cost-based inputs of accounting in accordance with ASC 606.

Generally, all the land sales associated with the residential/planned community have been recognized over time using cost-based inputs of accounting in accordance with ASC 606.

Under such method, revenues and profits are recognized in the same proportion of our progress towards completion of our contractual obligations, with our progress measured by costs incurred as a percentage of total costs estimated to be incurred.

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Estimates of total costs expected to be incurred require significant management judgment, and the amount of revenue and profits that have been recognized to date are subject to revisions throughout the development period.

impact on the amount of revenue recognized resulting from any future change in the estimate of total costs estimated to be incurred would be accounted for prospectively in accordance with GAAP.

The impact on the amount of revenue recognized resulting from any future change in the estimate of total costs estimated to be incurred would be accounted for prospectively in accordance with GAAP.

Defined benefit pension plans – We maintain various defined benefit pension plans in the U.S., Europe and Canada.

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We recognize the funded status of our defined benefit pension plans as either an asset (for overfunded plans) or a liability (for underfunded plans) in our Consolidated Balance Sheets.

The discount rates we use for determining defined benefit pension expense and the related pension obligations are based on current interest rates earned on long-term bonds that receive one of the two highest ratings given by recognized rating agencies in the applicable country where the defined benefit pension benefits are being paid.

rating agencies in the applicable country where the defined benefit pension benefits are being paid.

In addition, we receive third-party advice about appropriate discount rates and these advisors may in some cases use their own market indices.

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We believe all of the actuarial assumptions used are reasonable and appropriate.

However, if we had lowered the assumed discount rate by 25 basis points for all plans as of December 31, 2022, our aggregate projected benefit obligations would have increased by approximately $19 million at that date and our defined benefit pension expense would be expected to increase by approximately $.1 million during 2023.

Similarly, if we

lowered the assumed long-term rate of return on plan assets by 25 basis points for all of our plans, our defined benefit pension expense would be expected to increase by approximately $1 million during 2023.

However, if we had lowered the assumed discount rate by 25 basis points for all plans as of December 31, 2023, our aggregate projected benefit obligations would have increased by approximately $21 million at that date and our defined benefit pension expense would be expected to increase by a nominal amount during 2024.

Similarly, if we lowered the assumed long-term rate of return on plan assets by 25 basis points for all of our plans, our defined benefit pension expense would be expected to increase by approximately $1 million during 2024.

Income taxes – We operate globally through our Chemicals Segment and the calculation of our provision for income taxes and our deferred tax assets and liabilities involves the interpretation and application of complex tax laws and regulations in a multitude of jurisdictions across our Chemicals Segment’s global operations.

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Significant judgments and estimates are required in determining our consolidated provision for income taxes due to the global nature of our Chemicals Segment’s operations.

Our provision for income taxes and deferred tax assets and liabilities reflect our best assessment of estimated current and future taxes to be paid, including the recognition and measurement of deferred tax assets and liabilities.

Our provision (benefit) for income taxes and deferred tax assets and liabilities reflect our best assessment of estimated current and future taxes to be paid, including the recognition and measurement of deferred tax assets and liabilities.

We recognize deferred taxes for future tax effects of temporary differences between financial and income tax reporting.

Deferred income tax assets and liabilities for each tax-paying jurisdiction in which we operate are netted and presented as either a noncurrent deferred income tax asset or liability, as applicable.

We record a valuation allowance to reduce our deferred income tax assets to the amount that is believed to be realized under the more-likely-than-not recognition criteria.

We record a valuation allowance to reduce our deferred income tax assets to the amount that is believed to be realized under the more-likely-than-not

recognition criteria.

While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, it is possible that we may change our estimate of the amount of the deferred income tax assets that would more-likely-than-not be realized in the future, resulting in an adjustment to the deferred income tax asset valuation allowance that would either increase or decrease, as applicable, reported net income in the period such change in estimate was made.

For example, at December 31, 2022 our Chemicals Segment has substantial net operating loss (NOL) carryforwards in Germany (the equivalent of $414 million for German corporate tax purposes) and in Belgium (the equivalent of $13 million for Belgian corporate tax purposes).

We periodically review our deferred tax assets (DTAs) to determine if a valuation allowance is required.

For example, at December 31, 2023, our Chemicals Segment has significant German corporate and trade net operating loss (NOL) carryforwards of $478.7 million (DTA of $75.8 million) and $54.5 million (DTA of $5.9 million), respectively;

and Belgian corporate NOL carryforwards of $47.0 million (DTA of $11.8 million).

At December 31, 2023, we have concluded that no deferred income tax asset valuation allowance is required to be recognized with respect to such carryforwards, principally because (i) such carryforwards have an indefinite carryforward period, (ii) we have utilized a portion of such carryforwards during the most recent three-year period and (iii) we currently expect to utilize the remainder of such carryforwards over the long term.

However, prior to the complete utilization of such carryforwards, if we were to generate additional losses in our German or Belgian operations for an extended period of time, or if applicable law were to change such that the carryforward period was no longer indefinite, it is possible that we might conclude the benefit of such carryforwards would no longer meet the more-likely-than-not recognition criteria, at which point we would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards.

The Organization for Economic Cooperation and Development (the “OECD”), the European Union and other countries have committed to enacting the OECD’s Pillar Two initiative that would provide a global minimum level of taxation for multinational companies to be applied on a country-by-country basis.

Currently, many countries are drafting or have enacted legislation to implement the Pillar Two rules effective for years beginning on or after December 31, 2023.

We are continuing to follow the Pillar Two legislative developments in order to evaluate the potential future impact it could have on our results of operations.

Contingencies – We are involved in numerous legal and environmental actions in part due to NL’s former involvement in the manufacture of lead-based products.

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Trends in cash flows as a result of our operating income (excluding the impact of significant asset dispositions and relative changes in assets and liabilities) are generally similar to trends in our earnings.

In addition to the impact of the operating, investing and financing cash flows discussed below, changes in the amount of cash, cash equivalents and restricted cash we report from year to year can be impacted by changes in currency exchange rates, since a portion of our cash, cash equivalents and restricted cash is held by our Chemicals Segment’s non-U.S.

cash, cash equivalents and restricted cash is held by our Chemicals Segment’s non-U.S.

subsidiaries.

For example, during 2022, relative changes in currency exchange rates resulted in a $5.1 million decrease in the reported amount of our cash, cash equivalents and restricted cash compared to a $10.6 million decrease in 2021 and a $13.8 million increase in 2020.

For example, during 2023, relative changes in currency exchange rates resulted in a $1.0 million increase in the reported amount of our cash, cash equivalents and restricted cash compared to a $5.1 million decrease in 2022 and a $10.6 million decrease in 2021.

Cash flows from operating activities decreased to $3.9 million in 2023 from $34.9 million in 2022.

This $424.8 million decrease in cash provided by operations was primarily due to the net effect of the following items:

This $31.0 million decrease in cash provided by operations in 2023 includes:

● consolidated operating income of $34.2 million in 2023, a decrease of $205.2 million compared to operating income of $239.4 million in 2022;

● changes in receivables, inventories, payables and accrued liabilities in 2022 used $92.7 million in net cash compared to $180.4 million in net cash provided in 2021, an increase in the amount of cash used of $273.1 million compared to 2021, primarily due to the relative changes in our inventories, receivables, prepaids, land held for development, payables and accruals;

● lower amount of net cash used of $84.6 million associated with relative changes in our receivables, inventories, land held for development, payables and accruals in 2023;

● lower net cash paid for income taxes in 2023 of $16.3 million primarily due to decreased earnings;

● higher net contributions to our TiO 2 manufacturing joint venture in 2022 of $14.3 million.

Cash flows from operating activities increased to $459.7 million in 2021 from $152.2 million in 2020.

This $307.5 million increase in cash provided by operations was primarily due to the net effect of the following items:

● consolidated operating income of $318.6 million in 2021, an increase of $132.5 million compared to operating income of $186.1 million in 2020;

● changes in receivables, inventories, payables and accrued liabilities in 2021 provided $180.4 million in net cash compared to $33.5 million in net cash used in 2020, a decrease in the amount of cash used of $213.9 million compared to 2020, primarily due to the relative changes in our inventories, receivables, prepaids, land held for development, payables and accruals;

● higher net cash paid for income taxes in 2021 of $41.8 million due to increased earnings;

● lower net contributions to our TiO 2 manufacturing joint venture in 2023 of $13.6 million.

Cash flows from operating activities decreased to $34.9 million in 2022 from $459.7 million in 2021.

This $424.8 million decrease in cash provided by operations in 2022 includes:

● consolidated operating income of $239.4 million in 2022, a decrease of $79.2 million compared to operating income of $318.6 million in 2021;

● higher amount of net cash used of $273.1 million associated with the relative changes in our receivables, inventories, land held for development, payables and accruals in 2022;

● lower net cash paid for income taxes in 2022 of $22.2 million primarily due to decreased earnings;

● higher net distributions from our TiO 2 manufacturing joint venture in 2022 of $14.3 million.

As noted in our discussion of our Real Estate Management and Development segment above, we have sold the majority of the land in our residential/planned community, and in accordance with our development agreement with the City of Henderson and our contractual obligations with builders, we expect to complete our land development obligations over the next three to four years.

Because we have largely received cash proceeds from land sales, we expect LandWell to generate negative operating cash flows as it completes its required land development work.

Changes in working capital were affected by accounts receivable and inventory changes, as shown below:

● Kronos’ average days sales outstanding (“DSO”) decreased from December 31, 2021 to December 31, 2022, primarily due to the relative changes in the timing of collections.

● Kronos’ average days sales in inventory (“DSI”) increased from December 31, 2021 to December 31, 2022 primarily due to higher inventory volumes attributable to production volumes exceeding sales volumes in 2022 compared to 2021 and due to supply disruptions and other transportation delays impacting the timing of raw material shipments at the end of 2021.

● CompX’s average DSO was generally consistent from December 31, 2021 to December 31, 2022 and is primarily impacted by the timing of sales and collections in the last month of the year.

● CompX’s average DSI increased from December 31, 2021 to December 31, 2022 due to increased inventories of certain components and raw materials that had longer lead times or for which CompX has experienced availability issues and from the timing of sales relative to the end of the fourth quarter, primarily at CompX’s security products reporting unit.

● Kronos’ average days sales outstanding (DSO) increased from December 31, 2022 to December 31, 2023, primarily due to the relative changes in the timing of collections.

● Kronos’ average days sales in inventory (DSI) decreased from December 31, 2022 to December 31, 2023 primarily due to lower inventory volumes attributable to sales volumes exceeding production volumes in 2023 compared to 2022 where production volumes exceeded sales volumes.

● CompX’s average DSO decreased from December 31, 2022 to December 31, 2023 and is primarily impacted by the timing of sales and collections in the last month of the year.

● CompX’s average DSI decreased from December 31, 2022 to December 31, 2023, primarily due to a decrease at its security products reporting unit due to the fulfillment and shipping of a significant order during the fourth quarter of 2023, partially offset by an increase at its marine components reporting unit due to lower sales and increased inventory balances as a result of prior orders of certain raw materials with longer lead times.

For comparative purposes, we have also provided comparable prior year numbers below.

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We disclose capital expenditures by our business segments in Note 2 to our Consolidated Financial Statements.

● we had net proceeds of $19.3 million of marketable securities;

● we had net proceeds from the sale of land not used in our operations of $1.8 million;

● $1.7 million of BPC’s cash and cash equivalents was removed as part of its sale in the fourth quarter (see Note 3 to our Consolidated Financial Statements).

● we had net purchases of $70.7 million of marketable securities;

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● had net proceeds of $1.2 million of marketable securities.

During 2020 we:

● had proceeds from the settlement of an earn-out provision related to the 2018 sale of our Waste Management Segment of $4.9 million;

● had net proceeds of $.9 million of marketable securities.

Financing Activities –

● we repaid $28.0 million on Valhi’s credit facility with Contran;

● Kronos acquired 313,814 shares of its common stock for an aggregate purchase price of $2.8 million.

● we borrowed $.1 million and repaid $51.6 million on Valhi’s credit facility with Contran;

● we repaid $8.4 million on BWC’s loan from Western Alliance Bank (see Note 9 to our Consolidated Financial Statements);

● we repaid $8.4 million on BWC’s loan from Western Alliance Bank;

● Kronos acquired 217,778 shares of its common stock for an aggregate purchase price of $2.3 million;

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● Kronos acquired 14,409 shares of its common stock in market transactions for an aggregate purchase price of $.2 million.

● we repaid $42.3 million on Valhi’s credit facility with Contran;

● Kronos acquired 122,489 shares of its common stock in market transactions for an aggregate purchase price of $1.0 million;

● we repaid $11.6 million under Tremont’s promissory note payable and deferred payment obligation.

We paid aggregate cash dividends on our common stock of $13.6 million in 2020 and $9.0 million in each of 2021 and 2022.

We paid aggregate cash dividends on our common stock of $9.0 million in each of 2021 and 2022 and $9.1 million in 2023.

Distributions to noncontrolling interest in 2021, 2022 and 2023 are primarily comprised of:

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● Valhi’s $93.4 million outstanding on its $150 million amended credit facility with Contran which is due no earlier than December 31, 2025;

● €400 million aggregate outstanding on Kronos’ 3.75% Senior Secured Notes due in September 2025 (Senior Secured Notes), which had a $424.1 million carrying amount, net of unamortized debt issuance costs;

● €400 million aggregate outstanding on Kronos’ wholly-owned subsidiary Kronos International, Inc.

(KII) 3.75% Senior Secured Notes due in September 2025 (the “Old Notes”), which had a $440.9 million carrying amount, net of unamortized debt issuance costs;

● $12.2 million on LandWell’s bank loan due April 2036.

● approximately $1.1 million of other indebtedness.

On February 12, 2024, for certain eligible holders of the Old Notes, KII executed an exchange of €325 million principal amount of the Old Notes for newly issued €276.174 million aggregate outstanding KII 9.50% Senior Secured Notes due March 2029 (the “New Notes” and together with the Old Notes, the “Senior Secured Notes”) plus additional cash consideration of €50 million ($53.7 million).

Kronos financed the €50 million cash consideration with a new unsecured term loan from Contran Corporation due in September 2029.

The Contran term loan is subordinated in right of payment to Kronos’ Senior Secured Notes and Kronos’ $225 million global revolving credit facility (Global Revolver).

In accordance with Kronos’ related party transaction policy, the audit committee of Kronos’ board of directors, comprised of the independent directors, approved the terms and conditions of the new term loan from Contran.

Holders of the Old Notes received for each €1,000 principal amount of Old Notes exchanged, €850 in principal amount of New Notes plus a cash payment in an amount equal to €150.

Following the exchange, Old Notes totaling €75 million principal amount that were not exchanged continue to remain outstanding.

In connection with the exchange, the indenture governing the Old Notes was amended to conform to the restrictive covenants in the indenture governing the New Notes and to make other conforming changes.

KII did not receive any cash proceeds from the issuance and delivery of the New Notes in connection with the exchange.

Kronos expects to recognize a non-cash pre-tax interest charge of approximately $1.6 million in the first quarter of 2024 related to the write-off the deferred financing costs associated with the Old Notes.

We expect interest expense in 2024 to increase by approximately $16 million as a result of the refinancing.

Certain of our credit facilities require the respective borrowers to maintain a number of covenants and restrictions which, among other things, restrict our ability to incur additional debt, incur liens, pay dividends or merge or consolidate with, or sell or transfer substantially all of our assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of this type.

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In addition, certain credit agreements could result in the acceleration of all or a portion of the indebtedness following a sale of assets outside the ordinary course of business.

Kronos had no outstanding borrowings on its $225 million global revolving credit facility (“Global Revolver”) at December 31, 2022 and approximately $211 million was available for borrowings thereunder.

Kronos’ Senior Secured Notes and its Global Revolver contain a number of covenants and restrictions which, among other things, restrict its ability to incur or guarantee additional debt, incur liens, pay dividends or make other restricted payments, or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of these types.

Kronos had no outstanding borrowings at December 31, 2023 on its Global Revolver.

Availability under the Global Revolver is subject to a borrowing base calculation, as defined in the agreement, and at December 31, 2023 the full $225 million was available for borrowings.

Kronos’ Senior Secured Notes, its Global Revolver and the Contran term loan contain a number of covenants and restrictions which, among other things, restrict its ability to incur or guarantee additional debt, incur liens, pay dividends or make other restricted payments, or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of these types.

The terms of all of our debt instruments are discussed in Note 9 to our Consolidated Financial Statements.

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From time to time we and our subsidiaries may enter into intercompany loans as a cash management tool.

Such notes are structured as revolving demand notes and pay and receive interest on terms we believe are more favorable than current debt and investment market rates.

Such notes are structured as revolving demand notes and pay and receive interest on terms we believe

are more favorable than current debt and investment market rates.

The companies that borrow under these notes have sufficient borrowing capacity to repay the notes at any time upon demand.

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(1) Amounts available under this facility are at the sole discretion of Contran.

At December 31, 2022, we had an aggregate of $638.3 million of restricted and unrestricted cash, cash equivalents and marketable securities attributable to continuing operations.

At December 31, 2023, we had an aggregate of $522.9 million of restricted and unrestricted cash, cash equivalents and marketable securities attributable to operations.

A detail by entity is presented in the table below.

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● $3 million by our Component Products Segment.

In addition, LandWell expects to spend approximately $63 million on land development costs during 2023, including $53 million contractually committed at December 31, 2022.

In addition, LandWell expects to spend approximately $55 million on land development costs during 2024, including approximately $40 million contractually committed at December 31, 2023.

Land development costs are included in the determination of cash provided by operating activities.

Capital spending for 2024 is expected to be funded through cash generated from operations or borrowing under our existing credit facilities.

Planned capital expenditures in 2023 at Kronos and CompX will primarily be to maintain and improve our existing facilities and, as it relates to CompX, to address capability needs.

In addition, Kronos’ capital expenditures in the area of environmental compliance, protection and improvement include expenditures which are

primarily focused on increased operating efficiency but also result in improved environmental protection, such as lower emissions from our manufacturing plants.

Planned capital expenditures in 2024 at Kronos and CompX will primarily be to maintain and improve existing facilities and, as it relates to CompX, to meet expected customer demand and maintain technology infrastructure.

In addition, Kronos’ capital expenditures in the area of environmental compliance, protection and improvement include expenditures which are primarily focused on increased operating efficiency but also result in improved environmental protection, such as lower emissions from our manufacturing plants.

Repurchases of our Common Stock and Common Stock of our Subsidiaries –

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NL paid a quarterly dividend of $.07 per share in 2024 for which we received $11.3 million.

NL declared a special dividend of $.35 per share in August 2022 for which we received $14.1 million.

In February 2024 the NL board of directors approved a quarterly dividend of $.08 per share.

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We base our purchase decision on a variety of factors, including an analysis of the optimal use of our capital, taking into account the market value of the securities and the relative value of expected returns on alternative investments.

In connection with these activities, we may consider issuing additional equity securities or increasing our indebtedness.

In connection with these activities, we may consider issuing additional equity securities

or increasing our indebtedness.

We may also evaluate the restructuring of ownership interests of our businesses among our subsidiaries and related companies.

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held by NL’s subsidiary as collateral.

Outstanding borrowings under the credit facility bear interest at the prime rate plus 1.875% per annum, payable quarterly, with all amounts due on the maturity date.

In November 2022, Valhi and the subsidiary of NL entered into a first amendment to the revolving credit facility to extend the latest maturity date (and consequently the latest borrowing date) from December 31, 2023 to December 31, 2030.

The related collateral arrangements remained unchanged by this amendment.

Outstanding borrowings under the credit facility, as amended, bear interest at the prime rate plus 1.875% per annum, payable quarterly, with all amounts due on December 31, 2030.

The maximum principal amount which may be outstanding from time-to-time under the credit facility is limited to 50% of the amount of the most recent closing price of the Kronos stock.

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There is $.5 million outstanding under this facility at December 31, 2023.

We have an unsecured revolving demand promissory note with Kronos which, as amended, provides for borrowings from Kronos of up to $25 million.

We had an unsecured revolving demand promissory note with Kronos which, as amended, provided for borrowings from Kronos of up to $25 million.

We eliminate any such intercompany borrowings in our Consolidated Financial Statements.

The facility, as amended, is due on demand, but in any event no earlier than December 31, 2024.

The facility, as amended, was due on demand, but in any event no earlier than December 31, 2024.

There was no outstanding balance at December 31, 2023.

We had no borrowings with Kronos in 2020, 2021 and 2022 and we could borrow the full $25.0 million under our current intercompany facility with Kronos at December 31, 2022.

Kronos’ obligation to loan us money under this note is at Kronos’ discretion.

We had no borrowings with Kronos in 2021, 2022 and 2023.

Kronos’ obligation to loan us money under this note was at Kronos’ discretion.

In February 2024, this note was cancelled by mutual agreement between us and Kronos.

We have an unsecured revolving demand promissory note with CompX which, as amended, provides for borrowings from CompX of up to $25 million.

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● certain other litigation to which we are a party.

on present and former manufacturers of lead pigment and lead-based paint (including NL) with respect to asserted health concerns associated with the use of such products and (ii) effectively overturn court decisions in which NL and other pigment manufacturers have been successful.

In addition to those legal proceedings described in Note 18 to our Consolidated Financial Statements, various legislation and administrative regulations have, from time to time, been proposed that seek to (i) impose various obligations on present and former manufacturers of lead pigment and lead-based paint (including NL) with respect to asserted health concerns associated with the use of such products and (ii) effectively overturn court decisions in which NL and other pigment manufacturers have been successful.

Examples of such proposed legislation include bills which would permit civil liability for damages on the basis of market share, rather than requiring plaintiffs to prove that the defendant’s product caused the alleged damage, and bills which would revive actions barred by the statute of limitations.

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Recent Accounting Pronouncements

Not applicable.

See Note 21 to our Consolidated Financial Statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis