What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 168 added, 160 removed, 404 unchanged (45% of the section changed)

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Operations Overview

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:

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

We reported net income attributable to Valhi stockholders of $39.0 million or $1.36 per diluted share in the third quarter of 2021 compared to net income of $15.4 million or $.54 per diluted share in the third quarter 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 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.

increase in income tax expense of $28.3 million in 2021;

recognition of a gain on the sale of land not used in our operations of $10.4 million in 2021;

recognition of a gain of $4.0 million in 2020 from proceeds received related to a prior land sale.

Our diluted net income per share in the third quarter of 2021 includes a gain of $.28 per share related to the sale of land not used in our operations.

Our diluted net income per share in the third quarter of 2020 includes a gain of $.07 per share related to the proceeds received associated with a prior land sale.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020 –

We reported net income attributable to Valhi stockholders of $75.2 million or $2.64 per diluted share in the first nine months of 2021 compared to $30.7 million or $1.08 per diluted share in the first nine 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;

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 from infrastructure reimbursement of $6.2 million in 2021 compared to $19.6 million in 2020;

increase in income tax expense of $14.0 million in 2021;

recognition of a gain on the sale of land not used in our operations of $16.0 million in the first nine months of 2021;

recognition of a gain of $4.0 million in the third quarter of 2020 from proceeds received related to a prior land sale.

Our diluted net income per share in the first nine 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:

a gain of $.43 per share related to the sale of land not used in our operations.

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

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

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.

Current Forecast for 2021 –

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 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 currently expect to report higher consolidated operating income for 2021 as compared to 2020 primarily due to higher operating income from all of our segments.

Beginning in the second half of 2020 and continuing through the first nine 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 services.

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 s .

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

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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 June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(Dollars in millions)

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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.

Average TiO 2 selling prices were 11% higher in the third quarter of 2021 as compared to the third quarter of 2020 and 4% higher in the first nine months of 2021 as compared to the first nine months of 2020.

Average TiO 2 selling prices at the end of the third quarter of 2021 were 10% higher than the end of 2020.

Our Chemicals Segment experienced higher sales volumes in all major markets in the first nine months of 2021 as compared to the same period of 2020 primarily due to the COVID-19 related demand contraction in 2020 which impacted the second and third quarters and 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 nine months of 2021 compared to 92% in the first nine months of 2020.

Our Chemicals Segment’s TiO 2 production volumes were higher in the first nine months of 2021 as compared to the first nine months of 2020 due to higher customer demand in 2021.

Our Chemicals Segment decreased production levels in 2020 (primarily in the third quarter) to correspond to the temporary decline in demand resulting from the COVID-19 pandemic.

The table below lists our Chemicals Segment’s comparative quarterly production capacity utilization rates.

Production Capacity Utilization Rates

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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.

Third quarter

Net Sales – Our Chemicals Segment’s net sales in the third quarter of 2021 increased 20%, or $82.9 million, compared to the third quarter of 2020 primarily due to an 11% increase in average TiO 2 selling prices (which increased net sales by approximately $46 million) and a 6% increase in sales volumes (which increased net sales by approximately $25 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 $5 million in the third quarter of 2021 as compared to the third 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 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 sales volumes increased 6% in the third quarter of 2021 as compared to the third quarter of 2020 due to higher demand primarily in its European and North American markets from continuing improvements in global economic activity in the third quarter of 2021 compared to the same period in 2020, which was negatively impacted by the COVID-19 pandemic.

Our Chemicals Segment’s net sales in the first nine months of 2021 increased 18%, or $219.5 million, compared to the first nine months of 2020 primarily due to an 8% increase in sales volumes (which increased net sales by approximately $98 million) and a 4% increase in average TiO 2 selling prices (which increased net sales by approximately $49 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 $47 million in the first nine months of 2021 as compared to the first nine months of 2020.

Our Chemicals Segment’s sales volumes increased 8% in the first nine months of 2021 as compared to the first nine months of 2020 primarily due to higher sales volumes in all major markets, with a significant portion of the increase occurring in the second and third quarters as a result of the impact of COVID-19 on the comparable periods in 2020, as discussed above.

Cost of Sales and Gross Margin – Our Chemicals Segment’s cost of sales increased 12% in the third quarter of 2021 compared to the third quarter of 2020 due to a 6% increase in sales volumes and higher production costs of approximately $16 million (including higher costs for raw materials and energy).

Our Chemicals Segment’s cost of sales as a percentage of net sales decreased to 75% in the third quarter of 2021 compared to 81% in the same period of 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 discussed above.

Our Chemicals Segment’s gross margin as a percentage of net sales increased to 25% in the third quarter of 2021 compared to 19% in the third quarter of 2020.

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

Our Chemicals Segment’s cost of sales increased 16% in the first nine months of 2021 compared to the first nine months of 2020 due to an 8% increase in sales volumes and higher production costs of approximately $17 million (including higher costs for raw materials and energy) and the effects of currency fluctuations (primarily the Canadian dollar).

Our Chemicals Segment’s cost of sales as a percentage of net sales decreased slightly to 77% in the first nine months of 2021 compared to 79% in the same period of 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 as well as the effects of fluctuations in currency exchange rates, as discussed below.

Our Chemicals Segment’s gross margin as a percentage of net sales increased to 23% in the first nine months of 2021 compared to 21% in the first nine months of 2020.

As discussed and quantified above, our Chemicals Segment’s gross margin as a percentage of net sales increased primarily due to the net effects of higher average TiO 2 selling prices, higher production and sales volumes, higher raw material and other production costs and fluctuations in currency exchange rates.

Operating Income – Our Chemicals Segment’s operating income increased by $38.7 million, or 179%, in the third quarter of 2021 compared to the third quarter of 2020.

Operating income as a percentage of net sales increased to 12% in the third quarter of 2021 from 5% in the same period of 2020 as a result of the factors impacting gross margin discussed above.

We estimate changes in currency exchange rates increased our Chemicals Segment’s operating income by approximately $2 million in the third 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 $ 41.1 million, or 39 % , in the first nine months of 2021 compared to the first nine months of 2020 .

O perating income as a percentage of net sales in creased to 10 % in the first nine months of 2021 from 9 % in the same period of 2020.

This in crease was driven by the higher gross margin discussed above .

We estimate that changes in currency exchange rates decreased our Chemicals Segment’s operating income by approximately $ 15 million in the first nine 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 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.

We recognized additional depreciation expense of $1.1 million in the first nine months of 2021 and $2.7 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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Impact of changes in currency exchange rates

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

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

gains (losses)-

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The $5 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.

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

dollars in 2021 as compared to 2020.

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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 is 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 losses of approximately $7 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S.

The $2 million increase in our Chemicals Segment’s operating income was comprised of the following:

Higher net currency transaction gains of approximately $4 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 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 in Norwegian krone denominated receivables and payables held by our Chemicals Segment’s non-U.S.

operations, and

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Impact of changes in currency exchange rates

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

Nine months ended September 30, 2021 vs September 30, 2020

gains (losses) -

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The $47 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.

dollar relative to the euro, as 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 $15 million decrease in our Chemicals Segment’s operating income was comprised of the following:

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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 in Norwegian krone denominated receivables and payables held by our Chemicals Segment’s non-U.S.

operations, and

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

Approximately $13 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.

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dollars in 2021 as compared to 2020.

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.

Outlook – 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 therefore we expect our Chemicals Segment’s sales and production volumes will be higher in 2021 as compared to 2020.

As global economic activity continues to recover, our Chemicals Segment is experiencing 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;

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

As a result of rising costs and continued strong customer demand, we expect selling prices for TiO 2 will continue to rise through the remainder of 2021, mitigating increases in distribution, raw material, energy and other production costs.

As such, we expect our Chemical Segment’s 2021 sales and operating income will be higher than in 2020;

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

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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.

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’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 some of which are in varying stages of recovery while others are experiencing a resurgence of outbreaks related to COVID-19 variants.

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.

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, or related possible shipping delays, 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.

Component Products –

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

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,

In the third quarter of 2021 our Component Products Segment’s operating income increased to $5.1 million compared to $2.1 million in the third quarter of 2020.

Operating income for the first nine months of 2021 was $16.7 million compared to $9.5 million in the first nine months of 2020.

The increase in our Component Products Segment’s operating income in the third quarter and first nine months of 2021 compared to the same periods in 2020 primarily resulted from higher sales volumes at both its security products and marine components reporting units.

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

Our Component Products Segment sustained the greatest negative sales impact from COVID-19 in the second quarter of 2020.

Beginning in the third quarter of 2020 and continuing through the third quarter of 2021, m arine c omponents sales exceeded pre-pandemic levels.

Security p roducts sales generally improved 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 September 30,

Nine months ended September 30,

(Dollars in millions)

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Operating income

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 – 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.

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.

Net Sales – Our Component Products Segment’s net sales increased $6.1 million in the third quarter of 2021 compared to the same period in 2020 primarily due to higher security products sales across a variety of markets and to a lesser extent higher marine components sales primarily to the towboat market.

Net sales increased $22.2 million for the first nine months of 2021 compared to the same period in 2020 primarily due to higher sales volumes for both security products and marine components, 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.

Relative to prior year, third quarter security products sales were $2.1 million higher to the government security market, $1.3 million higher to the transportation market, and $.6 million higher to distribution customers, and sales for the first nine months of 2021 were $5.6 million higher to the government security market, $4.5 million higher to the transportation market, and $2.0 million higher to distribution customers.

Marine sales to the towboat market were $1.4 million higher for the third quarter and $6.5 million higher for the first nine months of 2021 compared to the same periods in 2020.

Costs of Sales and Gross Margin – Our Component Products Segment’s cost of sales as a percentage of net sales for the third quarter and for the first nine months of 2021 was lower than the same periods in 2020.

As a result, gross margin as a percentage of net sales increased over the same periods.

The increase in gross margin percentage in the third quarter and for the first nine months of 2021 is primarily due to the increase in the security products gross margin percentage related to increased coverage of fixed costs from higher production, 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.

O perating Income – As a percentage of net sales, our Component Products Segment’s operating income for the third quarter and first nine months of 2021 increased compared to the same periods of 2020 due to increased coverage of selling, general and administrative expenses on higher sales and 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.

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

During the second and third quarters of 2021, its security products reporting unit has seen improved demand from distributors and the office furniture market that had been slower to recover.

In the first nine months 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 has experienced and continues to have 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 supply chains remain intact, although the current global and domestic supply chain disruptions continue to present challenges in sourcing certain raw materials due to increased lead times, availability shortages and transportation and logistics delays.

Thus far our Component Products Segment 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, shipping, and increasing costs of many of the raw materials it uses.

In response, our Component Products Segment implemented price increases and surcharges in the second and third quarters of 2021;

however, the extent to which the price increases and surcharges will mitigate the rising costs is uncertain and it expects increasing production costs will negatively impact gross margins in the fourth quarter as higher cost inventories are sold.

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’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.

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 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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(In millions)

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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 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.

Beginning in December 2013 and through the first nine 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 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 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 .

Net Sales and Operating Income – A substantial portion of the net sales from our Real Estate Management and Development Segment in the third quarter and first nine 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 20 20 and 20 2 1 was under this method of revenue recognition.

The contracts on these sales (both within the planned community and otherwise) include approximately 1, 2 00 acres of the residential planned community and certain other acreage which closed in December 2013 and through the third quarter of 20 2 1 .

Land sales revenues were higher in the third quarter and first nine months of 202 1 as compared to the same periods in 20 20 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 and third quarter s of 2021 compared to the same period s of 2020.

During the second and third quarter s 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 $ 32.0 million in the first nine months of 202 1 compared to $ 12 .

8 million in the first nine 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.

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

1 million in the first nine 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.

In addition during the third quarter of 2020 we recognized a gain of $4.0 million from proceeds from a prior land sale.

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 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.

Beginning in the second half of 2020 and continuing through the first nine 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, approximately 150 acres are under escrow agreements at September 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.

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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.

Gain on Land Sales – In the first nine months of 2021 we sold excess property not used in our operations for net proceeds of approximately $23.4 million and recognized a pre-tax gain of $16.0 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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Kronos and NL recognize unrealized gains or losses on these shares of our common stock in the determination of each of their respective net income or losses.

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 $.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 .

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 loss of $ .2 million in the third quarter of 202 1 compared to a gain of $ .

7 million in the same period of 20 20 and a gain of $ 2.

0 million in the first nine months of 2021 compared to a loss of $2.

2 million in the first nine months 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 third quarter and first nine months of 2021 were comparable to the same periods of 2020.

Included in corporate expense are:

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.

litigation and related costs at NL of $.6 million in the third quarter of 2021 compared to $.3 million in the third quarter of 2020 and $1.4 million in each of the first nine months of 2021 and 2020;

environmental remediation and related costs of $.4 million in the third quarter of 2021 compared to $.1 million in the third quarter of 2020 and $1.3 million in the first nine months of 2021 compared to $.5 million in the first nine 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 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.

Interest Expense – Interest expense of $7.9 million in the third quarter of 2021 and $25.2 million in the first nine months of 2021 decreased $1.0 million and $2.2 million, respectively, compared to the same prior year periods 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.

Provision for Income Taxes – We recognized income tax expense of $16.9 million in the third quarter of 2021 compared to income tax benefit of $11.4 million in the third quarter of 2020 and income tax expense of $35.2 million in the first nine months of 2021 compared to $21.2 million in the first nine months of 2020.

The increase in both periods is primarily due to higher earnings in 2021, the jurisdictional mix of our earnings and, in 2020, a reduction in the expected annual effective income tax rate recognized in the third quarter.

Income tax expense for the first nine months of 2021 includes lower amounts recognized for global intangible low-tax income (GILTI) due to limitations in 2020 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.

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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 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.

During the first nine months of 2021, we recognized a non-cash deferred income tax expense with respect to our direct investment in Kronos of $.7 million for the increase 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 benefit of $1.8 million in the first nine 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.

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subsidiaries.

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.

Cash provided by operating activities was $189.2 million in the first nine months of 2021 compared to cash provided by operating activities of $45.2 million in the first nine months of 2020.

This $144.0 million increase in cash provided was primarily due to the net effect of the following items:

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.

a $72.1 million decrease in the amount of net cash used in relative changes in receivables, inventories, payables and accrued liabilities in the first nine months of 2021;

consolidated operating income of $188.1 million in the first nine months of 2021, an increase of $48.9 million compared to operating income of $139.2 million in the first nine months of 2020;

higher net cash paid for income taxes in 2021 of $30.0 million due to increased earnings in 2021 and the timing of tax payments.

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 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.

Kronos’ average days sales outstanding (“DSO”) decreased from December 31, 2020 to September 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 September 30, 2021 primarily due to lower inventory volumes attributable to sales volumes exceeding production volumes in the first nine months of 2021 compared to 2020.

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

CompX’s average DSI increased from December 31, 2020 to September 30, 2021 due to increased raw material and production costs as well as increased purchases of certain components and raw materials that have longer lead times or for which CompX has experienced availability issues.

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

September 30,

Days sales outstanding

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Intercompany dividends have been eliminated.

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September 30,

(In millions)

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Investing Activities –

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

We spent $39.2 million in capital expenditures during the first nine months of 2021 including:

$35.9 million in our Chemicals Segment;

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$1.0 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.

We had net proceeds from the sale of land not used in our operations of $23.4 million in the first nine months of 2021.

Financing Activities –

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

During the nine months ended September 30, 2021, we:

repaid $66.2 million under the Contran credit facility and repaid $1.5 million under Tremont’s deferred payment obligation;

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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 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.

Distributions to noncontrolling interest in subsidiaries in the first nine 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 June 30, 2021, our consolidated indebtedness was comprised of:

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

Valhi’s $204.5 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 has no outstanding borrowings on the new Global Revolver at June 30, 2021 and the full $225 million was available for borrowings thereunder.

Kronos has no outstanding borrowings on the new Global Revolver at September 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 .

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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 June 30, 2021 are discussed in Note 9 to our 2020 Annual Report.

The terms of all of our debt instruments outstanding at September 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 June 30, 2021 .

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

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

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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 June 30, 2022) and long-term obligations (defined as the five-year period ending June 30, 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 September 30, 2022) and long-term obligations (defined as the five-year period ending September 30, 2026).

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

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

At September 30, 2021, we had $115.5 million available for borrowing under our credit facility with Contran.

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

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See Note 6 to our Condensed Consolidated Financial Statements.

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.

At September 30, 2021, we had an aggregate of $621.3 million of restricted and unrestricted cash, cash equivalents and marketable securities, including $111.2 million held by our non-U.S.

subsidiaries.

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

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

At September 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 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.

During the first nine 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 September 30, 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

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 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.

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 September 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 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 .

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

0 million in 20 20 and $ 41 .

8 million during the first nine months of 2021 .

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

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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 June 30, 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 September 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 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.

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

We could borrow $40.0 million under our current intercompany facility with Kronos at September 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 $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.

We had gross borrowings of $25.4 million and gross repayments of $33.1 million during the first nine months of 2021, and $21.8 million was outstanding at September 30, 2021.

We could borrow $18.2 million under our current intercompany facility with CompX at September 30, 2021.

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

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Critical Accounting Policies

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.

There have been no changes in the first nine 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