What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 224 added, 164 removed, 340 unchanged (53% of the section changed)

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Component Products – We operate in the component products industry through our majority control of CompX.

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

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

CompX also manufactures stainless steel exhaust systems, gauges, throttle controls, wake enhancement systems, trim tabs and related hardware and accessories for the recreational marine and other industries.

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Operations Overview

Quarter Ended March 31, 2021 Compared to the Quarter Ended March 31, 2020 —

We reported net income attributable to Valhi stockholders of $14.8 million or $.52 per diluted share in the first quarter of 2021 compared to net income of $24.4 million or $.86 per diluted share in the first quarter of 2020.

As discussed more fully below, our net income attributable to Valhi stockholders decreased from 2020 to 2021 primarily due to:

lower operating income from our Chemicals Segment in 2021 compared to 2020, slightly offset by higher operating income from our Component Products Segment;

Quarter Ended June 30, 2021 Compared to the Quarter Ended June 30, 2020 –

We reported net income attributable to Valhi stockholders of $21.4 million or $.75 per diluted share in the second quarter of 2021 compared to a net loss of $9.1 million or $.32 per diluted share in the second quarter of 2020.

As discussed more fully below, our net income attributable to Valhi stockholders increased from 2020 to 2021 primarily due to:

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

decrease in income tax expense of $10.9 million in 2021;

the recognition of a gain on the sale of land not used in our operations of $5.6 million in 2021.

Our diluted net income per share in the second quarter of 2021 includes a gain of $.15 per share related to the sale of land.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020 –

We reported net income attributable to Valhi stockholders of $36.2 million or $1.27 per diluted share in the first six months of 2021 compared to $15.3 million or $.54 per diluted share in the first six months of 2020.

As discussed more fully below, our net income attributable to Valhi stockholders increased from 2020 to 2021 primarily due to the net effects of:

higher operating income from our Chemicals and Component Products segments in 2021 compared to 2020;

lower operating income from our Real Estate Management and Development segment including income from tax increment infrastructure reimbursement of $6.2 million in 2021 compared to $19.1 million in 2020;

Our diluted net income per share in the first quarter of 2021 includes income of $.11 per share related to the tax infrastructure reimbursement.

Our diluted net income per share in the first quarter of 2020 includes:

decrease in income tax expense of $14.3 million in 2021;

the recognition of a gain on the sale of land not used in our operations of $5.6 million in the second quarter of 2021.

Our diluted net income per share in the first six months of 2021 includes:

income of $.11 per share related to the tax increment infrastructure reimbursement;

a gain of $.15 per share related to the sale of land.

Our diluted net income per share in the first six months of 2020 includes:

income of $.35 per share related to the tax increment infrastructure reimbursement;

a gain of $.03 per share related to an insurance recovery for a property damage claim at our Chemicals Segment.

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We currently expect to report higher consolidated operating income for 2021 as compared to 2020 primarily due to higher operating income from our Chemicals Segment and our Component Products Segment.

Beginning in the second half of 2020 and continuing through the first quarter of 2021, sales at each of our operating segments have improved from reduced levels experienced in the first half of 2020 resulting from the COVID-19 pandemic.

Beginning in the second half of 2020 and continuing through the first six months of 2021, sales at each of our operating segments have improved from reduced levels experienced in the first half of 2020 resulting from the COVID-19 pandemic.

We expect the improved demand experienced since late 2020 to continue for the remainder of 2021 and we expect our operating results to reflect the elevated demand.

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We believe that our Chemicals Segment’s customers’ inventory levels are influenced in part by their expectations for future changes in market TiO 2 selling prices as well as their expectations for future availability of product.

Although certain of our Chemicals Segment’s TiO 2 grades are considered specialty pigments, the majority of its grades and substantially all of its production are considered commodity pigment products with price and availability being the most significant competitive factors along with product quality and customer and technical support service.

The factors having the most impact on our Chemicals Segment’s reported operating results are:

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manufacturing costs, particularly raw materials such as third-party feedstock, maintenance and energy-related expenses, and

currency exchange rates (particularly the exchange rate for the U.S.

currency exchange rates (particularly the exchange rates for the U.S.

dollar relative to the euro, the Norwegian krone and the Canadian dollar and the euro relative to the Norwegian krone).

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TiO 2 selling prices generally follow industry trends and prices will increase or decrease generally as a result of competitive market pressures.

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(Dollars in millions)

Cost of sales

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Operating income

Ti0 2 operating statistics:

TiO 2 operating statistics:

Sales volumes*

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Percent change in net sales:

Ti0 2 sales volumes

Ti0 2 product pricing

Ti0 2 product mix/other

TiO 2 sales volumes

TiO 2 product pricing

TiO 2 product mix/other

Changes in currency exchange rates

Thousands of metric tons

Current Industry Conditions — Our Chemicals Segment started 2021 with average TiO 2 selling prices 3% lower than at the beginning of 2020 and our Chemicals Segment’s average TiO 2 selling prices at the end of the first quarter of 2021 were 1% higher than the end of 2020.

Our Chemicals Segment experienced higher sales volumes in its North American and Latin American markets, partially offset by lower sales volumes in its European market in the first three months of 2021 as compared to the same period of 2020.

Our Chemicals Segment operated its production facilities at overall average capacity utilization rates of 97% in the first quarter of 2021 compared to 95% in the first quarter of 2020.

Due to the phase-out of sulfate production at one of its facilities in the fourth quarter of 2020, our Chemicals Segment’s production volumes were 1% lower in the first quarter of 2021 as compared to the first quarter of 2020.

Net Sales — Our Chemicals Segment’s net sales in the first quarter of 2021 increased 10%, or $44.0 million, compared to the first quarter of 2020 primarily due to a 3% increase in sales volumes (which increased net sales by approximately $13 million), partially offset by a 1% decrease in average TiO 2 selling prices (which decreased net sales by approximately $4 million).

In addition to the net impact of higher sales volumes and lower average selling prices, we estimate that changes in currency exchange rates (primarily the euro) increased our Chemicals Segment’s net sales by approximately $20 million in the first quarter of 2021 as compared to the first quarter of 2020.

Current Industry Conditions – Our Chemicals Segment started 2021 with average TiO 2 selling prices 3% lower than at the beginning of 2020.

Average TiO 2 selling prices were 3% higher in the second quarter of 2021 as compared to the second quarter of 2020 and 1% higher in the first six months of 2021 as compared to the first six months of 2020.

Average TiO 2 selling prices at the end of the second quarter of 2021 were 4% higher than the end of 2020.

Our Chemicals Segment experienced higher sales volumes in all major markets in the first six months of 2021 as compared to the same period of 2020 primarily due to the COVID-19 related demand contraction in 2020 which was most acute in the second quarter of 2020.

Our Chemicals Segment operated its production facilities at overall average capacity utilization rates of 99% in the first six months of 2021 compared to 95% in the first six months of 2020.

Our Chemicals Segment’s TiO 2 production volumes were higher in the first six months of 2021 as compared to the first six months of 2020 due to higher anticipated demand and corresponding adjustments to planned production levels in 2020 as a result of the COVID-19 pandemic.

Production Capacity Utilization Rates

First quarter

Second quarter

Net Sales – Our Chemicals Segment’s net sales in the second quarter of 2021 increased 24%, or $92.6 million, compared to the second quarter of 2020 primarily due to a 16% increase in sales volumes (which increased net sales by approximately $62 million), and a 3% increase in average TiO 2 selling prices (which increased net sales by approximately $12 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 $2 2 million in the second quarter of 2021 as compared to the second quarter of 2020.

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 increased 3% in the first quarter of 2021 as compared to the first quarter of 2020 primarily due to higher demand in its North American and Latin American markets, partially offset by lower demand in its European market.

Cost of Sales and Gross Margin — Our Chemicals Segment’s cost of sales increased $36.4 million, or 11%, in the first quarter of 2021 compared to the first quarter of 2020 due to a 3% increase in sales volumes partially offset by lower production costs of approximately $13 million.

Our Chemicals Segment’s cost of sales as a percentage of net sales in the first quarter of 2021 was comparable to its cost of sales as a percentage of net sales in the first quarter of 2020.

Our Chemicals Segment’s gross margin as a percentage of net sales was 21% in each of the first quarters of 2021 and 2020.

Gross margin as a percentage of net sales increases or decreases primarily due to the net effect of fluctuations in sales volumes, average TiO 2 selling prices and raw materials and other production costs.

Operating Income — Our Chemicals Segment’s operating income decreased by $9.1 million, or 19%, in the first quarter of 2021 compared to the first quarter of 2020.

Operating income as a percentage of net sales decreased to 8% in the first quarter of 2021 from 11% in the same period of 2020.

We estimate that changes in currency exchange rates decreased income from operations by approximately $16 million in the first quarter of 2021 as compared to the same period in 2020, as discussed below.

Our Chemicals Segment’s sales volumes increased 16% in the second quarter of 2021 as compared to the second quarter of 2020 due to higher demand in all its major markets resulting from overall improvements in global economic activity in 2021 compared to the same period in 2020 when negative economic effects from the COVID-19 pandemic had the most significant impact.

Our Chemicals Segment’s net sales in the first six months of 2021 increased 17%, or $136.6 million, compared to the first six months of 2020 primarily due to a 9% increase in sales volumes (which increased net sales by approximately $73 million) and a 1% increase in average TiO 2 selling prices (which increased net sales by approximately $8 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 $42 million in the first six months of 2021 as compared to the first six months of 2020.

Our Chemicals Segment’s sales volumes increased 9% in the first six months of 2021 as compared to the first six months of 2020 primarily due to higher sales volumes in all major markets, with a significant portion of the increase occurring in the second quarter as a result of the impact of COVID-19 on the comparable period in 2020, as discussed above.

Cost of Sales and Gross Margin – Our Chemicals Segment’s cost of sales increased 27% in the second quarter of 2021 compared to the second quarter of 2020 due to a 16% increase in sales volumes and higher production costs of approximately $15 million (including higher costs for raw materials and energy).

Our Chemicals Segment’s cost of sales as a percentage of net sales increased to 77% in the second quarter of 2021 compared to 75% in the same period of 2020 primarily due to the unfavorable effects of higher raw materials and other production costs, as discussed above.

Our Chemicals Segment’s gross margin as a percentage of net sales decreased to 23% in the second quarter of 2021 compared to 25% in the second quarter of 2020.

As discussed and quantified above, our Chemicals Segment’s gross margin as a percentage of net sales decreased primarily due to the net effects of higher raw materials and other production costs partially offset by higher sales volumes and higher average TiO 2 selling prices.

Our Chemicals Segment’s cost of sales increased 18% in the first six months of 2021 compared to the first six months of 2020 due to a 9% increase in sales volumes and higher production costs (including higher costs for raw materials and energy) and the effects of currency fluctuations (primarily the euro).

Our Chemicals Segment’s cost of sales as a percentage of net sales increased to 78% in the first six months of 2021 compared to 77% in the same period of 2020 primarily due to the unfavorable effects of currency fluctuations, as discussed below.

Our Chemicals Segment’s gross margin as a percentage of net sales decreased to 22% in the first six months of 2021 compared to 23% in the first six months of 2020.

As discussed and quantified above, our Chemicals Segment’s gross margin as a percentage of net sales decreased primarily due to the net effects of higher sales volumes, higher raw materials and other production costs and fluctuations in currency exchange rates.

Operating Income – Our Chemicals Segment’s operating income increased by $11.5 million, or 32%, in the second quarter of 2021 compared to the second quarter of 2020.

Operating income as a percentage of net sales increased to 10% in the second quarter of 2021 from 9% in the same period of 2020.

Changes in currency exchange rates had a nominal effect on operating income in the second quarter of 2021 as compared to the same period in 2020, as discussed in the Currency Exchange Rates section below.

Our Chemicals Segment’s operating income increased by $2.4 million, or 3% in the first six months of 2021 compared to the first six months of 2020.

Operating income as a percentage of net sales decreased to 9% in the first six months of 2021 from 10% in the same period of 2020.

This decrease was driven by the lower gross margin discussed above.

We estimate that changes in currency exchange rates decreased our Chemicals Segment’s operating income by approximately $17 million in the first six months of 2021 as compared to the same period in 2020.

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.

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 additio nal depreciation expense of $ .

4 million in the first three months of 202 1 and $ .

5 million in the same period of 20 20 , which reduced our reported Chemicals Segment’s operating income as compared to amounts reported by Kronos.

We recognized additional depreciation expense of $.7 million in the first six months of 2021 and $1.5 million in the same period of 2020, 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).

The majority of our Chemicals Segment’s sales from non-U.S.

operations are denominated in currencies other than the U.S.

operations are

denominated in currencies other than the U.S.

dollar, principally the euro, other major European currencies and the Canadian dollar.

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operations is denominated in the U.S.

dollar (and consequently our Chemicals Segment’s non-U.S.

dollar (and consequently our non-U.S.

operations will generally hold U.S.

dollars from time to time).

Certain raw materials used worldwide, primarily titanium-containing feedstocks, are purchased primarily in U.S.

dollars, while labor and other production costs are purchased primarily in local currencies.

Certain raw materials used in all our Chemicals Segment’s production facilities , primarily titanium-containing feedstocks, are purchased primarily in U.S.

dollars, while labor and other production and administrative costs are incurred primarily in local currencies.

Consequently, the translated U.S.

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operations also generate currency transaction gains and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarily U.S.

dollar denominated) are initially accrued and when such amounts are settled with the non-local currency, and (ii) changes in currency exchange rates during time periods when our Chemicals Segment’s non-U.S.

dollar denominated) are initially accrued and when such amounts are settled with the non-local currency, and (ii) changes in currency exchange rates during time periods when our non-U.S.

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

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Impact of changes in currency exchange rates

Three months ended March 31, 2021 vs March 31, 2020

Three months ended June 30, 2021 vs June 30, 2020

gains (losses)-

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The $22 million increase in our Chemicals Segment’s net sales (translation gain) was caused primarily by a weakening of the U.S.

dollar relative to the euro, as our Chemicals Segment’s euro-denominated sales were translated into more U.S.

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

dollars in 2021 as compared to 2020.

The weakening of the U.S.

dollar relative to the Canadian dollar and the Norwegian krone in 2021 did not have a significant effect on the reported amount of our Chemicals Segment’s 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 $1 million decrease in our Chemicals Segment’s operating income was comprised of the following:

Lower net currency transaction gains of approximately $13 million 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, which causes increases or decreases, as applicable, in U.S.

Lower net currency transaction losses of approximately $7 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-denominated receivables and payables and U.S.

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operations, and

Approximately $8 million from net currency translation losses primarily caused by a weakening of the U.S.

dollar relative to the Canadian dollar and the 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.

dollars in 2021 as compared to 2020.

Impact of changes in currency exchange rates

Six months ended June 30, 2021 vs June 30, 2020

gains (losses) -

Transaction gains recognized

(In millions)

Operating income

The $42 million increase in our Chemicals Segment’s net sales (translation gain) was caused primarily by a weakening of the U.S.

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

dollars in 2021 as compared to 2020.

The weakening of the U.S.

dollar relative to the Canadian dollar and the Norwegian krone in 2021 did not have a significant effect on the

reported amount of our Chemicals Segment’s 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 $17 million decrease in our Chemicals Segment’s operating income was comprised of the following:

Lower net currency transaction gains of approximately $6 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-denominated receivables and payables and U.S.

dollar currency held by our Chemicals Segment’s non-U.S.

operations, and in Norwegian krone denominated receivables and payables held by our non-U.S.

operations, and

Approximately $11 million from net currency translation losses primarily caused by the weakening of the U.S.

dollar relative to the Canadian dollar, as its local currency-denominated operating costs were translated into more 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 our Chemicals Segment’s euro-denominated sales more than offset the unfavorable effects of euro-denominated operating costs being translated into more U.S.

dollars in 2021 as compared to 2020.

Such translations, as it related to the U.S.

dollar relative to the euro and Norwegian krone, had a nominal effect on our Chemicals Segment’s operating income in 2021 as compared to 2020.

Outlook— Beginning in the second half of 2020 and continuing through the first quarter of 2021, our Chemicals Segment’s sales volumes have increased from reduced levels experienced in the first half of 2020 resulting from the COVID-19 pandemic.

Our Chemicals Segment increased production volumes in late 2020 to correspond to increasing demand and has maintained production at those increased levels through the first quarter of 2021.

At the beginning of 2021, our Chemicals Segment’s average TiO 2 selling prices were 3% lower than at the beginning of 2020 and average selling prices increased 1% during the first quarter of 2021, although still below corresponding 2020 levels.

Despite continued challenges and uncertainties related to the pandemic in certain regions and industries, we expect global demand for consumer products, including those of our Chemicals Segment’s customers, to remain strong throughout 2021 and we expect that our Chemicals Segment’s sales and production volumes will reflect the elevated demand.

As global economic activity has begun to

recover, our Chemicals Segment ha s experienced certain disruptions in global supply chains along with increasing production costs, including higher third-party feedstock prices and related shipping costs, which are likely to continue for much of 2021.

Due to increas ed customer demand, we expect sales prices for TiO 2 to continue to rise throughout 2021, mitigating increases in distribution and production costs.

As such, we expect our Chemicals Segment’s 2021 sales and operating income will be higher than in 2020, principally due to higher TiO 2 sales prices and higher sales volumes.

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

Outlook – Beginning in the second half of 2020 and continuing through the first six months of 2021, our Chemicals Segment’s sales volumes have increased from reduced levels experienced in the first half of 2020 resulting from the COVID-19 pandemic.

Our Chemicals Segment increased production volumes in late 2020 to correspond to increasing demand and has continued to maintain these increased production volumes through the first six months of 2021.

At the beginning of 2021, our Chemicals Segment’s average TiO 2 selling prices were 3% lower than at the beginning of 2020 but average selling prices increased 4% during the first six months of 2021.

Based on current market conditions, we expect global demand for consumer products, including those of our Chemicals Segment’s customers, to remain strong throughout the remainder of 2021 and we expect that our Chemicals Segment’s sales and production volumes will reflect the elevated demand.

As global economic activity continues to recover, our Chemicals Segment has experienced certain disruptions in global supply chains including availability of third-party feedstock and other raw materials along with transportation and logistics delays.

Thus far the Chemicals Segment’s operations team has been able to manage through these disruptions with minimal impact on its operations;

however, our Chemicals Segment expects these challenges to continue for the foreseeable future.

In addition, our Chemicals Segment is experiencing increasing production costs, including higher raw material costs and related shipping costs and higher energy costs which are likely to continue through the end of the year.

Driven by increased customer demand and rising costs, we expect sales prices for TiO 2 will continue to rise throughout 2021, mitigating increases in distribution, raw materials and other production costs.

As such, we expect our Chemical Segment’s 2021 sales and income from operations will be higher than in 2020, principally due to higher TiO 2 sales prices and higher sales volumes;

however, our Chemicals Segment expects increasing costs to continue to challenge margins.

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

Our expectations for the TiO 2 industry and our Chemicals Segment’s operations are based on a number of factors outside our control, including the ongoing economic effects of the COVID-19 pandemic.

Future impacts of COVID-19 on our Chemicals Segment’s operations will depend on, among other things, demand for its products, any future disruption in its operations or its suppliers’ operations and the timing and effectiveness of the global measures deployed to fight COVID-19, all of which remain uncertain and cannot be predicted.

Our Chemicals Segment’s manufacturing and administrative facilities are generally located in densely populated regions of Europe and North America which have experienced substantial outbreaks of COVID-19 and are in varying stages of recovery.

Our Chemicals Segment continues to employ a variety of methods to protect the health and well-being of its workforce and its customers, and is encouraging its employees to be vaccinated.

As noted above, our Chemicals Segment has experienced global supply chain disruptions, including disruptions related to COVID-19, and future impacts of COVID-19 on its operations will depend on, among other things, any future disruption in its operations or its suppliers’ operations and the timing and effectiveness of the global measures deployed to fight COVID-19 and its variants, all of which remain uncertain and cannot be predicted.

Our Chemicals Segment continues to employ a variety of methods to protect the health and well-being of its workforce and its customers and has encouraged its employees to be vaccinated.

To-date, our Chemicals Segment has had limited cases of COVID-19 among its workforce and all of its facilities have remained open and operational.

Component Products –

Our Component Products Segment’s product offerings consist of a significantly 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 the segment’s net sales, cost of sales and gross margin.

Our Component Products Segment’s product offerings consist of a significantly 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 the segment’s net sales, cost of sales and gross margin.

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

In the first quarter of 2021 our Component Products Segment’s operating income increased to $5.8 million compared to $5.0 million in the first quarter of 2020, before its sales volumes and operations had been significantly affected by the COVID-19 pandemic.

The increase in operating income in the first quarter of 2021 compared to 2020 primarily resulted from higher marine components sales to the towboat market.

Our Component Products Segment sustained the greatest negative operating impact from COVID-19 in the second quarter of 2020 to both of its reporting units.

Beginning in the third quarter of 2020 and continuing through the first quarter of 2021, marine components experienced a significant recovery in sales, while security products sales generally improved sequentially, though not to pre-pandemic levels.

Three months ended March 31,

In the second quarter of 2021 our Component Products Segment’s operating income increased to $5.8 million compared to $2.4 million in the second quarter of 2020.

Operating income for the first six months of 2021 was $11.6 million compared to $7.4 million in the first six months of 2020.

The increase in our Component Products Segment’s operating income in the second quarter and first six months of 2021 compared to the same periods in 2020 primarily resulted from higher sales for both its security products and

marine components reporting units .

Our Component Products Segment sustained the greatest negative operating impact from COVID-19 in the second quarter of 2020 which significantly impacts operating income comparisons across both periods.

Beginning in the third quarter of 2020 and continuing through the second quarter of 2021, m arine c omponents experienced significant sales growth beyond its pre-pandemic levels.

Security p roducts sales generally improved sequentially since the 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.

Three months ended June 30,

Six months ended June 30,

(Dollars in millions)

Security products

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Operating income

Net Sales — Our Component Products Segment’s net sales increased $3.6 million in the first quarter of 2021 compared to the same period in 2020 primarily due to higher marine components sales and to a lesser extent higher security products sales.

Marine components net sales increased 47% in the first quarter of 2021 compared to the same period last year primarily due to increased sales of $2.7 million to the towboat market, primarily wake enhancements systems and surf pipes to original equipment boat manufacturers.

Marine components sales continues to benefit from an overall increase in demand in the recreational marine market which began in late spring 2020.

Security products net sales increased 2% in the first quarter of 2021 compared to the same period last year primarily due to $.7 million of higher sales to the transportation market and $.5 million of higher sales to the government security market, partially offset by lower sales to markets that continue to be slower to recover from the effects of the COVID-19 pandemic, including $.4 million of lower sales to distribution customers and $.3 million of lower sales to the office furniture market.

Net Sales – Our Component Products Segment’s net sales increased $12.5 million and $16.1 million in the second quarter and for the first six months of 2021, respectively, compared to the same periods in 2020.

The significant increase in sales is primarily due to higher sales volumes for both security products and marine components 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.

Relative to prior year, security products experienced $3.0 million higher sales to the government security market, $2.5 million higher sales to the transportation market, and $1.7 million higher sales to distribution customers during the quarter.

Marine sales to the towboat market were $2.4 million higher for the second quarter and $5.1 million higher for the first six months of 2021 compared to the same periods in 2020.

Relative changes in selling prices did not have a material impact on net sales comparisons.

Costs of Sales and Gross Margin — Cost of sales as a percentage of sales in creased 1 % in the first quarter of 202 1 compared to the same period in 20 20.

Costs of Sales and Gross Margin – Our Component Products Segment’s cost of sales and gross margin as a percentage of sales for the second quarter of 2021 were comparable to the same period in 2020.

Cost of sales as a percentage of net sales for the first six months of 2021 was higher than the same period in 2020.

As a result, gross margin as a percentage of sales decreased over the same period.

Marine components gross margin and operating income as a percentage of sales increased in the first quarter of 2021 compared to the same period last year due to a favorable customer and product mix and increased coverage of fixed costs on higher sales as well as decreased employer paid medical costs.

Security products g ross margin and operating income margin for the first quarter of 2021 declined as compared to 2020 primarily due to higher cost inventory produced during the fourth quarter of 2020 and sold in the first quarter of 2021.

Security p roducts inventory produced during the fourth quarter of 2020 had a higher carrying value compared to the same period in 20 19 due to higher cost per unit of production as a result of lower production volumes during the fourth quarter of 2020 .

This negatively impacted security products’ gross margin and operating income margin as this higher cost inventory was sold during the first quarter of 2021 .

Additionally, security products’ gross margin and operating income margin were favorably impacted by lower employer paid medical costs of $ .7 million during the first quarter of 2021 compared to 2020.

O perating Income — Our Component Products Segment’s operating income for the first quarter of 2021 increased compared to the same period of 2020 and was primarily impacted by the factors impacting cost of sales and gross margin discussed above.

Outlook— Our Component Products Segment first began to feel the effects of the COVID-19 pandemic in late March 2020 when it began receiving requests from certain customers of both its security products and marine components reporting units to postpone shipments, in some cases because customers’ production facilities were temporarily closed.

The second quarter of 2020 sustained the greatest impact from COVID-19, but its effects continued to be felt through most of the remainder of the year.

In the second half of 2020, our Component Products Segment’s sales began to recover from the historically low levels experienced during the second quarter of 2020, with sales steadily improving for the remainder of the year and through the first quarter of 2021.

In the first quarter of 2021, our Component Products Segment’s manufacturing operations maintained normal production rates in-line with improved demand, although security products still has some markets which continue to be slower to recover, particularly distributors and office furniture.

Our Component Products Segment’s supply chains remain intact although it has been moderately impacted by recent global and domestic supply chain disruptions.

Thus far our Component Products Segment’s operations team has been able to manage through these disruptions with minimal impact on operations.

Most of the markets our Component Products Segment serves continue to recover, and it communicates closely with all its customers to monitor order levels.

Marine components sales outpaced prior year as demand for recreational boats increased as people sought socially distanced, outdoor activities.

Our Component Products Segment expects this trend to continue during the remainder of 2021.

Considerable effort continues at all of our Component Products Segment’s locations to manage COVID-19 conditions including enhanced health and safety protocols and cleaning and disinfecting efforts.

Throughout the course of the COVID-19 pandemic, our Component Products Segment has focused its efforts on maintaining efficient operations while closely managing its expenses.

The advance of the COVID-19 pandemic and the global efforts to mitigate its spread are expected to continue to challenge workers, businesses and governments during 2021.

The success and timing of mitigating actions depends in part on continued deployment of effective tools to fight COVID-19, including effective treatments and vaccine distribution before economies are likely to return to normal.

In this regard, as part of our health and safety protocols, our Component Products Segment is encouraging its employees to receive a COVID-19 vaccine and has offered paid time off to hourly employees to facilitate participation.

Based on current conditions, our Component Products Segment expects to report increased revenue and operating income in 2021 compared to 2020, despite some security products markets that have not fully recovered to pre-pandemic levels.

As a result, our Component Products Segment expects to continue to experience higher fixed costs per unit of production during 2021 which will continue to challenge security products gross margins.

The impact of COVID-19 on 2021 will depend on customer demand for our Component Products Segment’s products, including the timing and extent to which its customers’ operations may be impacted, on its customers’ perception as to consumer demand for their products and on any future disruptions in our Component Products Segment’s operations or its suppliers’ operations, all of which are difficult to predict.

As noted above, there are global supply chain disruptions and certain of our Component Products Segment’s customers have experienced temporary pauses in their operations as a result of these disruptions.

Thus far these pauses have not had a material negative effect on our Component Products Segment’s sales.

The decrease in gross margin percentage in the first six months of 2021 is primarily due to higher production costs including increased labor and shipping costs which more than offset the favorable impact of increased coverage of fixed costs from higher production and sales volumes.

O perating Income – As a percentage of net sales, our Component Products Segment’s operating income for the second quarter and first six months of 2021 increased compared to the same periods of 2020 due to increased coverage of selling, general and administrative expenses on higher sales, partially offset by the factors impacting cost of sales and gross margin discussed above.

Outlook – Beginning in the second half of 2020, our Component Products Segment’s sales began to recover from the historically low levels it experienced during the second quarter of 2020, with sales steadily improving for the remainder of last year.

Throughout the first half of 2021, our Component Products Segment has experienced strong demand, particularly for marine components.

During the second quarter of 2021, its security products reporting unit began to see improved demand from distributors and the office furniture market that had been slower to recover.

In the first half of 2021, our Component Products Segment’s manufacturing facilities operated at elevated production rates in-line with improved demand, although labor markets are tight in each of the regions in which it operates and, as a result, our Component Products Segment is facing challenges maintaining staffing levels aligned with current and forecasted demand, particularly at its marine components reporting unit.

Based on current market conditions, our Component Products Segment expects demand levels to remain strong for the remainder of 2021 and it expects to report increased sales and operating income in 2021 compared to 2020.

Our Component Products Segment’s supply chains remain intact, although the current global and domestic supply chain disruptions have resulted in challenges in sourcing certain raw materials due to increased lead times along with availability shortages and transportation and logistics delays.

Thus far our Component Products Segment’s operations team has been able to manage through these disruptions with minimal impact on its operations.

In addition, our Component Products Segment is experiencing increased production costs including higher labor and shipping costs and increasing costs on many of the raw materials it use s .

In response, our Component Products Segment began implementing price increases in the second quarter of 2021;

however, the extent to which the price increases will mitigate the rising costs is uncertain and it expect s increasing production costs will continue to challenge gross margins for the remainder of the year.

Our Component Products Segment’s operations teams meet frequently to ensure they are taking appropriate actions to maintain a safe working environment for all its employees, minimize material or supply related operational disruptions, manage inventory levels and improve operating margins.

Our Component Products Segment is constantly evaluating staffing levels and believes current staffing levels are aligned with its sales and production forecasts.

Our Component Products Segment’s expectations for its operations and the markets it serves are based on a number of factors outside its control, including the ongoing economic effects of the COVID-19 pandemic.

As noted above, there are global and domestic supply chain challenges and any future impacts of COVID-19 on our Component Products Segment’s operations will depend on, among other things, any future disruption in its operations or its suppliers’ operations, demand for its products and the timing and effectiveness of the global measures deployed to fight COVID-19, all of which remain uncertain and cannot be predicted.

The success and timing of these mitigating actions depends in part on continued deployment of effective tools to fight COVID-19, including effective treatments and vaccine distribution.

In this regard, our Component Products Segment encouraged its employees to receive a COVID-19 vaccine and offered paid time off to hourly employees to facilitate participation.

Real Estate Management and Development –

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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.

Beginning in December 2013 and through the first quarter of 2021, LandWell has closed or entered into escrow on approximately 1,100 acres of the residential/planned community and approximately 70 acres zoned for commercial and light industrial use.

Beginning in December 2013 and through the first six months of 2021, LandWell has closed or entered into escrow on approximately 1,300 acres of the residential/planned community and approximately 70 acres zoned for commercial and light industrial use.

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.

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We expect our development work on the residential/planned community to continue for 4 to 7 years although we may have sold or transferred ownership of all of the land within the community prior to development work completion.

Net Sales and Operating Income— A substantial portion of the net sales from our Real Estate Management and Development Segment in the first quarter of 2020 and 2021 consisted of revenues from land sales.

Net Sales and Operating Income – A substantial portion of the net sales from our Real Estate Management and Development Segment in the second quarter and first six months of 2020 and 2021 consisted of revenues from land sales.

As noted above, we recognize revenue in our residential/planned community over time using cost based input methods (previously known as percentage completion method) and substantially all of the revenue we recognized in 2020 and 2021 was under this method of revenue recognition.

The contracts on these sales (both within the planned community and otherwise) include approximately 985 acres of the residential planned community and certain other acreage which closed in December 2013 and through the first quarter of 2021.

Land sales revenues were higher in the first quarter of 2021 as compared to the first quarter of 2020 primarily due to an increase in the amount of acreage sold in 2021 compared to 2020.

Cost of sales related to land sales revenues was $3.7 million in the first quarter of 2021 compared to $2.7 million in the first quarter of 2020.

Operating income includes $6.2 million in the first quarter of 2021 and $19.1 million in the first quarter of 2020 of income related to the recognition of tax increment reimbursement note receivables, as discussed in Note 11 to our Condensed Consolidated Financial Statements.

The contracts on these sales (both within the planned community and otherwise) include approximately 1,000 acres of the residential planned community and certain other acreage which closed in December 2013 and through the second quarter of 2021.

Land sales revenues were higher in the second quarter and first six months of 2021 as compared to the same periods in 2020 primarily due to an increase in the

amount of acreage sold in 202 1 compared to 20 20 and increased development activity in the second quarter of 2021 compared to the same period of 2020.

During the second quarter of 2020 we slowed infrastructure spending within the residential planned community due to the uncertainty associated with the COVID-19 pandemic.

Cost of sales related to land sales revenues was $ 8.

0 million in the first six months of 202 1 compared to $ 4.0 million in the first six months of 20 20 .

Operating income includes $ 6 .

2 million in the first six months of 20 2 1 (all in the first quarter) and $ 19 .

1 million in the first six months of 2020 (all in the first quarter) of income related to the recognition of tax increment reimbursement note receivables, as discussed in Note 1 1 to our Condensed Consolidated Financial Statements.

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

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Outlook – As a result of the COVID-19 pandemic, LandWell experienced a decline in land sales activity during the second quarter of 2020 and, as a result, LandWell reduced development spending where possible to align with expected residential builder output.

Beginning in the second half of 2020 and continuing through the first quarter of 2021, land sales activities increased, including increases in both the number of acres sold and new escrow agreements.

LandWell returned to more normalized infrastructure development spending in late 2020 in line with increased land sales.

Beginning in the second half of 2020 and continuing through the first six months of 2021, land sales activities increased, including increases in both the number of acres sold and the selling price per acre sold.

In addition, almost 300 acres are under escrow agreements at June 30, 2021.

In order to support increased sales activity, LandWell returned to more normalized infrastructure development spending in late 2020, and thus far in 2021 infrastructure activity has continued at a heavy pace to support the increase in acreage sold or entering escrow.

Throughout the COVID-19 pandemic, LandWell has continued to actively develop and market land it manages, primarily to residential builders, for the residential/planned community in Henderson and BMI has continued to provide utility and water delivery services to its customers without interruption.

Our Real Estate Management and Development management team remains focused on protecting the health and safety of our employees and contractors including implementation of enhanced health and safety protocols.

Our Real Estate Management and Development management team remains focused on protecting the health and safety of its employees and contractors including implementation of enhanced health and safety protocols.

Based on current land sales activities, including current land sales in escrow, we expect the level of land sales in the near term to continue to be strong.

As noted above, we cannot guarantee land held in escrow will close as currently scheduled because builders can generally cancel without financial penalty until shortly before scheduled closing.

In addition, several COVID-19 mitigation procedures put into effect by the City of Henderson and utility providers are, in some cases, adding time to the typical permitting and mapping process required to be completed before the necessary approvals can be obtained to close a land sale.

In addition, 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.

We expect LandWell to be required to begin several of these large projects in 2021 and, as a result, we expect land development costs to increase during 2021 as compared to 2020.

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

This spending is expected to be eligible for tax increment reimbursement.

In addition, there are still several COVID-19 mitigation procedures in effect from the City of Henderson and utility providers that, in some cases, add time to the typical permitting and mapping process required to be completed before the necessary approvals can be obtained to close a land sale.

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 has been required to begin several of these large projects in 2021 and, as a result, we expect land development costs to increase during 2021 as compared to 2020.

General Corporate Items, Interest Expense, Income Taxes and Noncontrolling Interest – 2021 Compared to 2020

Gain on Land Sale – In the second quarter of 2021 we sold excess property not used in our operations for net proceeds of approximately $8.4 million and recognized a pre-tax gain of $5.6 million.

Insurance Recoveries – NL has agreements with certain insurance carriers pursuant to which the carriers reimburse NL for a portion of its past lead pigment and asbestos litigation defense costs.

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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.

We recognized a gain of $1.3 million in the first quarter of 2021 compared to a loss of $2.4 million in the same period of 2020 in our Condensed Consolidated Statements of Income which represents the unrealized gain or loss in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL.

Other General Corporate Items — Corporate expenses in the first quarter of 2021 were comparable to the same period of 2020.

We recognized a gain of $.9 million in the second quarter of 2021 compared to a loss of $.5 million in the same period of 2020 and a gain of $2.2 million in the first six months of 2021 compared to a loss of $2.9 million in the first six months of 2020 in our Condensed Consolidated Statements of Operations which represents the unrealized gain or loss in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL.

Other General Corporate Items – Corporate expenses in the second quarter and first six months of 2021 were comparable to

the same period s of 20 20 .

Included in corporate expense are:

litigation and related costs at NL of $.3 million in the first quarter of 2021 compared to $.6 million in the first quarter of 2020;

environmental remediation and related costs of nil in the first quarter of 2021 compared to $.1 million in the first quarter of 2020.

litigation and related costs at NL of $.5 million in each of the second quarters of 2021 and 2020 and $.8 million in the first six months of 2021 compared to $1.1 million in the first six months of 2020;

environmental remediation and related costs of $.9 million in the second quarter of 2021 compared to nil in the second quarter of 2020 and $.9 million in the first six months of 2021 compared to nil in the first six months of 2020.

Overall, we currently expect that our net general corporate expenses in 2021 will be higher than 2020 primarily due to higher expected litigation and related costs and higher environmental remediation and related costs.

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See Note 15 to our Condensed Consolidated Financial Statements.

Interest Expense —Interest expense decreased to $8.6 million in the first quarter of 2021 from $9.7 million in the first quarter of 2020 primarily due to lower average interest rates and lower average balances on variable-rate indebtedness in 2021.

We expect interest expense will continue to be lower in the remainder of 2021 as compared to 2020 due to lower average rates and average balances.

Provision for Income Taxes — We recognized an income tax expense of $ 8 .

0 million in the first quarter of 20 2 1 compared to $ 11 .

4 million in the first quarter of 20 20 .

The decrease is primarily due to lower income from operations in the first quarter 202 1 .

Interest Expense – Interest expense of $8.7 million in the second quarter of 2021 was comparable to interest expense of $8.8 million in the second quarter of 2020 and decreased to $17.3 million in the first six months of 2021 from $18.5 million in the first six months of 2020 primarily due to lower average interest rates and lower average balances on variable-rate indebtedness in 2021.

We expect interest expense will continue to be lower in the remainder of 2021 as compared to 2020 due to lower average balances.

Provision for Income Taxes – We recognized income tax expense of $10.3 million in the second quarter of 2021 compared to income tax expense of $21.2 million in the second quarter of 2020 and $18.3 million in the first six months of 2021 compared to $32.6 million in the first six months of 2020.

The decrease in both periods is primarily due to higher amounts recognized for global intangible low-tax income (GILTI) in 2020 due to limitations on related deductions and tax credits and an increase in the valuation allowance in 2020 for the nondeductible amount of business interest expense carryforward not expected to be fully utilized under the more-likely-than-not recognition criteria.

For interim financial reporting purposes, we apply an estimated annual effective tax rate in determining our provision for income taxes and in 2020 our estimated annual effective tax rate was significantly impacted due to the effects of GILTI and the increase to the valuation allowance relative to our earnings.

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

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The maximum amount of such deferred income tax liability we would be required to have recognized (the cap) is $155.4 million.

During the first quarter of 2021, we recognized a non-cash deferred income tax benefit with respect to our direct investment in Kronos of $.1 million for the decrease in the deferred income taxes required to be recognized with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock, to the extent such reduction related to our equity in Kronos’ net income during such period.

We recognized a similar deferred income tax expense of $.2 million in the first quarter of 2020.

During the first six months of 2021, we recognized a non-cash deferred income tax benefit with respect to our direct investment in Kronos of $.1 million for the decrease in the deferred income taxes required to be recognized with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock, to the extent such reduction related to our equity in Kronos’ net income during such period.

We recognized a similar deferred income tax expense of $4.4 million in the first six months of 2020.

A portion of the net change with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock during such periods related to our equity in Kronos’ other comprehensive income (loss) items, and the amounts allocated to other comprehensive income (loss) items includes amounts related to our equity in Kronos’ other comprehensive income (loss) items.

See Note 12 to our Condensed Consolidated Financial Statements for a tabular reconciliation of our statutory income tax provision to our actual tax provision.

Noncontrolling Interest in Net Income (Loss) of Subsidiaries —Noncontrolling interest in operations of subsidiaries decreased in 2021 compared to 2020 primarily due to decreased operating income at Kronos and LandWell.

Noncontrolling Interest in Net Income of Subsidiaries – Noncontrolling interest in operations of subsidiaries increased in 2021 compared to 2020 primarily due to increased operating income at Kronos and CompX.

See Note 13 to our Condensed Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

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subsidiaries.

Cash provided by operating activities was $56.6 million in the first quarter of 2021 compared to cash used in operating activities of $18.2 million in the first quarter of 2020.

Cash provided by operating activities was $76.7 million in the first six months of 2021 compared to cash provided by operating activities of $6.0 million in the first six months of 2020.

This $70.7 million increase in cash provided was primarily due to the net effect of the following items:

a $78.6 million decrease in the amount of net cash used in relative changes in receivables, inventories, payables and accrued liabilities in the first quarter of 2021;

consolidated operating income of $51.3 million in the first quarter of 2021, a decrease of $19.7 million compared to operating income of $71.0 million in the first quarter of 2020;

higher net cash paid for income taxes in 2021 of $4.6 million.

a $85.8 million decrease in the amount of net cash used in relative changes in receivables, inventories, payables and accrued liabilities in the first six months of 2021;

higher net cash paid for income taxes in 2021 of $33.0 million due to the relative timing of payments (to provide COVID-19 related tax relief in 2020, certain tax payment deadlines were extended until the second half of 2020 in the U.S.

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, 2020 to March 31, 2021 primarily due to relative changes in the timing of collections.

Kronos’ average days sales in inventory (“DSI”) decreased from December 31, 2020 to March 31, 2021 primarily due to lower inventory volumes attributable to higher sales volumes in the first quarter of 2021 compared to the fourth quarter of 2020 while production volumes were comparable.

CompX’s average DSO at March 31, 2021 increased from December 31, 2020 primarily due to relative changes in the timing of collections.

CompX’s average DSI at March 31, 2021 decreased as compared to December 31, 2020 primarily due to marine components as a result of rapid sales growth in the first quarter of 2021.

Kronos’ average days sales outstanding (“DSO”) decreased from December 31, 2020 to June 30, 2021 primarily due to relative changes in the timing of collections.

Kronos’ average days sales in inventory (“DSI”) decreased from December 31, 2020 to June 30, 2021 primarily due to lower inventory volumes attributable to higher sales volumes and timing of raw material shipments in the first six months of 2021 compared to 2020 while production volumes were comparable.

CompX’s average DSO at June 30, 2021 increased from December 31, 2020 primarily as a result of relative changes in the timing of collections but is consistent with prior year.

CompX’s average DSI at June 30, 2021 is not comparable to prior year due to the record high inventory balances at June 30, 2020 resulting from a temporary pandemic related inventory build but is in-line with December 31, 2020.

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

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Intercompany dividends have been eliminated.

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Investing Activities –

We spent $11.5 million in capital expenditures during the first three months of 2021 including:

We spent $23.5 million in capital expenditures during the first six months of 2021 including:

$21.2 million in our Chemicals Segment;

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$.7 million in our Real Estate Management and Development Segment.

We had net proceeds from the sale of land not used in our operations of $8.4 million in the second quarter of 2021.

Financing Activities –

During the three months ended March 31, 2021, we:

During the six months ended June 30, 2021, we:

repaid $28.0 million under the Contran credit facility and repaid $1.5 million under Tremont’s deferred payment obligation;

paid a quarterly dividend to Valhi stockholders of $.08 per share ($2.2 million);

paid aggregate quarterly dividends to Valhi stockholders of $.16 per share ($4.5 million);

CompX acquired shares of its Class A common stock for a purchase price of $.8 million.

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There are currently no contractual restrictions on the amount of dividends which we may pay.

Distributions to noncontrolling interest in subsidiaries in the first three months of 2021 are comprised of CompX dividends paid to shareholders other than NL and Kronos dividends paid to shareholders other than us and NL.

Distributions to noncontrolling interest in subsidiaries in the first six months of 2021 are comprised of CompX dividends paid to shareholders other than NL and Kronos dividends paid to shareholders other than us and NL.

Outstanding Debt Obligations

At March 31, 2021, our consolidated indebtedness was comprised of:

At June 30, 2021, our consolidated indebtedness was comprised of:

Valhi’s $242.7 million outstanding on its $320 million credit facility with Contran which is due no earlier than December 31, 2022;

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On April 20, 2021, Kronos entered into a new $225 million global revolving credit facility (“Global Revolver”) which matures in April 2026.

Kronos had no outstanding borrowings on its previously existing North American and European revolving facilities at March 31, 2021 through the date of their termination.

Kronos currently has no outstanding borrowings on the new Global Revolver and the full $225 million was available for borrowing thereunder.

Kronos’ credit facilities 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 has no outstanding borrowings on the new Global Revolver at June 30, 2021 and the full $225 million was available for borrowings thereunder.

Kronos’ Senior Secured Notes and its new 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’ credit agreements contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons other than defaults for failure to comply with typical financial or payment covenants.

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In addition, the 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.

The terms of all of our debt instruments outstanding at March 31, 2021 are discussed in Note 9 to our 2020 Annual Report.

The terms of all of our debt instruments outstanding at June 30, 2021 are discussed in Note 9 to our 2020 Annual Report.

See Note 6 to our Condensed Consolidated Financial Statements for discussion of the terms of Kronos’ new Global Revolver.

We were in compliance with all of our debt covenants at March 31 , 2021.

We believe we will be able to continue to comply with the financial covenants contained in our credit facilities through their maturity.

We were in compliance with all of our debt covenants at June 30, 2021 .

We believe we will be able to maintain compliance with the financial covenants contained in our credit facilities through their maturity.

Future Cash Requirements

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however, if future operating results differ materially from our expectations we may be unable to maintain compliance.

Based upon our expectations of our operating performance, and the anticipated demands on our cash resources, we expect to have sufficient liquidity to meet our short-term (defined as the twelve-month period ending March 31, 2022) and long-term obligations (defined as the five-year period ending March 31, 2026).

Based upon our expectations of our operating performance, and the anticipated demands on our cash resources, we expect to have sufficient liquidity to meet our short-term (defined as the twelve-month period ending June 30, 2022) and long-term obligations (defined as the five-year period ending June 30, 2026).

If actual developments differ from our expectations, our liquidity could be adversely affected.

At March 31, 2021, we had $51.6 million available for borrowing under our credit facility with Contran.

At June 30, 2021, we had $77.3 million available for borrowing under our credit facility with Contran.

Amounts available under this facility are at Contran’s discretion.

Kronos’ new $225 million Global Revolver entered into in April 2021, which replaced Kronos’ North American and European facilities, matures in April 2026 and at inception, the full $225 million was available for borrowing under this facility and Kronos could borrow all available amounts without violating its existing debt covenants.

Kronos’ new $225 million Global Revolver entered into in April 2021, which replaced Kronos’ North American and European facilities, matures in April 2026 and currently, the full $225 million is available for borrowing under this facility and Kronos could borrow all available amounts without violating its existing debt covenants.

See Note 6 to our Condensed Consolidated Financial Statements.

At March 31, 2021, we had an aggregate of $606.1 million of restricted and unrestricted cash, cash equivalents and marketable securities, including $204.7 million held by our non-U.S.

At June 30, 2021, we had an aggregate of $576.8 million of restricted and unrestricted cash, cash equivalents and marketable securities, including $122.2 million held by our non-U.S.

subsidiaries.

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Planned capital expenditures in 2021 at Kronos and CompX will primarily be to maintain and improve the cost-effectiveness of our facilities.

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.

It is possible we will delay planned capital projects based on market conditions.

Repurchases of Common Stock –

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Cash on hand will be used to acquire the shares, and repurchased shares will be added to treasury shares and cancelled.

At March 31, 2021, Valhi had approximately .3 million shares available to repurchase under authorizations made by our board of directors.

At June 30, 2021, Valhi had approximately .3 million shares available to repurchase under authorizations made by our board of directors.

Kronos’ board of directors authorized the repurchase of up to 2.0 million shares of its common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time.

Kronos may repurchase its common stock from time to time as market conditions permit.

At March 31, 2021, approximately 1.56 million shares are available for repurchase.

At June 30, 2021, approximately 1.6 million shares are available for repurchase.

CompX’s board of directors authorized the repurchase of its Class A common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time.

During the first three months of 2021, CompX acquired 50,000 shares of its Class A common stock in an open market purchase under such repurchase program for $.8 million.

At March 31, 2021, approximately .6 million shares were available for purchase under these authorizations.

Because our operations are conducted primarily through subsidiaries and affiliates, our long-term ability to meet parent company level corporate obligations is largely dependent on the receipt of dividends or other distributions from our subsidiaries and affiliates.

During the first six months of 2021, CompX acquired 50,000 shares of its Class A common stock in an open market purchase under such repurchase program for $.8 million.

At June 30, 2021, approximately .6 million shares were available for purchase under these authorizations.

Kronos paid a regular dividend of $.1 8 per share in each quarter of 20 20 .

If Kronos were to pay its $.18 per share in each quarter of 2021 based on the 58.0 million shares we held of Kronos common stock at March 31, 2021, we would receive aggregate annual regular dividends from Kronos of $41.8 million.

If Kronos were to pay its $.18 per share in each quarter of 20 2 1 based on the 58.0 million shares we held of Kronos common stock at June 30, 2021 , we would receive aggregate annual regular dividends f rom Kronos of $41.8 million.

NL paid a regular quarterly dividend of $.04 per share in 2020 for which we received $6.5 million.

In February 2021 the NL board of directors approved a quarterly dividend of $.06 per share.

If NL were to pay its $.06 per share dividend in each quarter of 2021 based on the 40.4 million shares we hold of NL common stock at March 31, 2021, we would receive aggregate annual dividends from NL of $9.7 million.

In February 202 1 the NL b oard of d irectors approved a quarterly dividend of $.0 6 per share .

If NL were to pay its $.0 6 per share dividend in each quarter of 202 1 based on the 40.4 million shares we hold of NL common stock at June 30, 2021 , we would receive aggregate annual dividends from NL of $ 9 .

BMI and LandWell pay cash dividends from time to time, but the timing and amount of such dividends are uncertain.

In this regard, we received aggregate dividends from BMI and LandWell of $43.0 million in 2020, none during the first three months of 2021 and $8.4 million in April 2021.

We do not know if we will receive additional dividends from BMI and LandWell during 2021.

In this regard, we received aggregate dividends from BMI and LandWell of $ 43 .

0 million in 20 20 and $ 15.9 million during the first six months of 2021 .

We do not know if we will receive additional di vidends from BMI and LandWell during 20 2 1 .

All of our ownership interest in CompX is held through our ownership in NL;

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

Prior to 2020 NL’s subsidiary borrowed $.5 million under this facility, no additional amounts have been borrowed since then, and $.5 million is outstanding under this facility at March 31, 2021.

Prior to 2020 NL’s subsidiary borrowed $.5 million under this facility, no additional amounts have been borrowed since then, and $.5 million is outstanding under this facility at June 30, 2021.

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

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The facility, as amended, is due on demand, but in any event no earlier than December 31, 2022.

We had no borrowings from Kronos under this facility during the first three months of 2021, and there was no outstanding balance at March 31, 2021.

We could borrow $40.0 million under our current intercompany facility with Kronos at March 31, 2021.

We had no borrowings from Kronos under this facility during the first six months of 2021, and there was no outstanding balance at June 30, 2021.

We could borrow $40.0 million under our current intercompany facility with Kronos at June 30, 2021.

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

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The facility, as amended, is due on demand, but in any event no earlier than December 31, 2022.

We had gross borrowings of $11.6 million and gross repayments of $11.9 million during the first three months of 2021, and $29.2 million was outstanding at

March 31, 2021 .

We could borrow $ 10 .

8 million under our current intercompany facility with CompX at March 31, 2021 .

We had gross borrowings of $18.7 million and gross repayments of $22.2 million during the first six months of 2021, and $26.0 million was outstanding at June 30, 2021.

We could borrow $14.0 million under our current intercompany facility with CompX at June 30, 2021.

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

15 unchanged sentences

Critical Accounting Policies

There have been no changes in the first three months of 2021 with respect to our critical accounting policies presented in Management’s Discussion and Analysis of Financial Condition and Results of Operation in our 2020 Annual Report.

There have been no changes in the first six months of 2021 with respect to our critical accounting policies presented in Management’s Discussion and Analysis of Financial Condition and Results of Operation in our 2020 Annual Report.

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-Q

Item 2. Management’s Discussion and Analysis