For
the quarter ended March 31,
2008
|
Commission
file number 1-5467
|
VALHI,
INC.
|
(Exact
name of Registrant as specified in its
charter)
|
Delaware
|
87-0110150
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
5430
LBJ Freeway, Suite 1700, Dallas,
Texas 75240-2697
|
(Address
of principal executive offices) (Zip
Code)
|
Page
number
|
|
Part
I. FINANCIAL
INFORMATION
|
|
Item
1. Financial
Statements.
|
|
Condensed Consolidated Balance
Sheets –
December 31, 2007; and
March 31 2008 (unaudited)
|
3
|
Condensed Consolidated
Statements of Operations (unaudited) – Three ended March 31, 2007
and 2008
|
5
|
Condensed Consolidated
Statements of Cash Flows (unaudited)
– Three months ended
March 31, 2007 and 2008
|
6
|
Condensed Consolidated
Statement of Stockholders’ Equity
and Comprehensive
Loss – Three months ended
September 30, 2008
(unaudited)
|
8
|
Notes to Condensed Consolidated
Financial Statements
(unaudited)
|
9
|
Item
2. Management’s
Discussion and Analysis of Financial
Condition and Results of
Operations.
|
25
|
Item
3. Quantitative
and Qualitative Disclosure About
Market
Risk
|
40
|
Item
4. Controls
and Procedures
|
40
|
Part
II. OTHER
INFORMATION
|
|
Item
1. Legal
Proceedings.
|
42
|
Item
1A. Risk
Factors.
|
42
|
Item
2. Unregistered
Sales of Equity Securities and
Use of Proceeds; Share
Repurchases
|
42
|
Item
6. Exhibits.
|
42
|
ASSETS
|
December
31,
2007
|
March
31,
2008
|
||||||
(unaudited)
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 138.3 | $ | 80.9 | ||||
Restricted cash equivalents
|
7.2 | 7.2 | ||||||
Marketable securities
|
7.2 | 6.9 | ||||||
Accounts and other receivables, net
|
253.7 | 295.9 | ||||||
Inventories, net
|
337.9 | 357.9 | ||||||
Prepaid expenses and
other
|
16.2 | 15.7 | ||||||
Deferred income taxes
|
10.4 | 10.5 | ||||||
Total current assets
|
770.9 | 775.0 | ||||||
Other assets:
|
||||||||
Marketable
securities
|
319.8 | 293.1 | ||||||
Investment in affiliates
|
137.9 | 136.1 | ||||||
Pension asset
|
47.6 | 49.6 | ||||||
Goodwill
|
406.8 | 407.0 | ||||||
Other intangible assets
|
2.7 | 2.6 | ||||||
Deferred income taxes
|
168.7 | 180.7 | ||||||
Other assets
|
67.3 | 78.6 | ||||||
Total other assets
|
1,150.8 | 1,147.7 | ||||||
Property and equipment:
|
||||||||
Land
|
48.2 | 51.7 | ||||||
Buildings
|
277.1 | 300.6 | ||||||
Equipment
|
1,051.9 | 1,143.7 | ||||||
Mining properties
|
39.8 | 44.2 | ||||||
Construction in progress
|
48.9 | 44.3 | ||||||
1,465.9 | 1,584.5 | |||||||
Less accumulated depreciation
|
784.6 | 872.5 | ||||||
Net property and equipment
|
681.3 | 712.0 | ||||||
Total assets
|
$ | 2,603.0 | $ | 2,634.7 |
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
December
31,
2007
|
March
31,
2008
|
||||||
(unaudited)
|
||||||||
Current liabilities:
|
||||||||
Current maturities of long-term debt
|
$ | 16.8 | $ | 27.4 | ||||
Accounts payable
and accrued liabilities
|
267.8 | 270.1 | ||||||
Income taxes
|
9.8 | 6.6 | ||||||
Deferred income taxes
|
3.3 | 3.5 | ||||||
Total current liabilities
|
297.7 | 307.6 | ||||||
Noncurrent liabilities:
|
||||||||
Long-term debt
|
889.8 | 932.9 | ||||||
Deferred income taxes
|
415.0 | 409.2 | ||||||
Accrued pension costs
|
140.0 | 145.5 | ||||||
Accrued postretirement
benefits cost
|
33.6 | 33.0 | ||||||
Accrued environmental costs
|
40.3 | 40.3 | ||||||
Other liabilities
|
77.7 | 79.6 | ||||||
Total noncurrent liabilities
|
1,596.4 | 1,640.5 | ||||||
Minority interest
in net assets of subsidiaries
|
90.5 | 91.5 | ||||||
Stockholders' equity:
|
||||||||
Preferred stock
|
667.3 | 667.3 | ||||||
Common stock
|
1.2 | 1.2 | ||||||
Additional paid-in capital
|
10.4 | - | ||||||
Accumulated
deficit
|
(74.1 | ) | (81.0 | ) | ||||
Accumulated other comprehensive income
|
51.5 | 45.5 | ||||||
Treasury stock
|
(37.9 | ) | (37.9 | ) | ||||
Total stockholders' equity
|
618.4 | 595.1 | ||||||
Total liabilities, minority interest and stockholders’ equity
|
$ | 2,603.0 | $ | 2,634.7 | ||||
Three
months ended
|
||||||||
March 31,
|
||||||||
2007
|
2008
|
|||||||
(unaudited)
|
||||||||
Revenues
and other income:
|
||||||||
Net
sales
|
$ | 359.0 | $ | 373.9 | ||||
Other
income, net
|
12.4 | 5.5 | ||||||
Equity
in earnings of:
|
||||||||
Titanium
Metals Corporation ("TIMET")
|
26.9 | - | ||||||
Other
|
(.5 | ) | (.4 | ) | ||||
Total
revenues and other income
|
397.8 | 379.0 | ||||||
Costs
and expenses:
|
||||||||
Cost
of sales
|
278.9 | 310.4 | ||||||
Selling,
general and administrative
|
54.9 | 58.3 | ||||||
Interest
|
15.6 | 17.4 | ||||||
Total
costs and expenses
|
349.4 | 386.1 | ||||||
Income
(loss) before income taxes
|
48.4 | (7.1 | ) | |||||
Provision
for income taxes (benefit)
|
19.8 | (1.3 | ) | |||||
Minority
interest in after-tax earnings
|
2.5 | .1 | ||||||
Net
income (loss)
|
$ | 26.1 | $ | (5.9 | ) | |||
Net
income (loss) per share:
|
||||||||
Basic
|
$ | .23 | $ | (.05 | ) | |||
Diluted
|
$ | .22 | $ | (.05 | ) | |||
Cash
dividends per share
|
$ | .10 | $ | .10 | ||||
Weighted
average shares outstanding:
|
||||||||
Basic
|
114.9 | 114.4 | ||||||
Outstanding
stock options impact
|
.3 | - | ||||||
Diluted
|
115.2 | 114.4 |
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(unaudited)
|
||||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$ | 26.1 | $ | (5.9 | ) | |||
Depreciation and amortization
|
16.1 | 16.7 | ||||||
Benefit plan expense greater
(less)
than cash funding requirements:
|
||||||||
Defined benefit pension expense
|
(3.7 | ) | (3.8 | ) | ||||
Other postretirement benefit expense
|
.1 | - | ||||||
Deferred income taxes
|
9.1 | (3.5 | ) | |||||
Minority interest
|
2.5 | .1 | ||||||
Equity in:
|
||||||||
TIMET
|
(26.9 | ) | - | |||||
Other
|
.5 | .4 | ||||||
Net distributions from Ti02
manufacturing
joint
venture
|
1.0 | 1.4 | ||||||
Other, net
|
1.8 | 1.6 | ||||||
Change in assets and liabilities:
|
||||||||
Accounts and other receivables, net
|
(38.0 | ) | (36.5 | ) | ||||
Inventories, net
|
(18.2 | ) | (4.2 | ) | ||||
Accounts payable and accrued liabilities
|
(.4 | ) | (3.2 | ) | ||||
Accounts with affiliates
|
1.3 | 6.2 | ||||||
Income taxes
|
4.6 | (3.9 | ) | |||||
Other, net
|
.8 | 1.0 | ||||||
Net cash used
in operating activities
|
(23.3 | ) | (33.6 | ) | ||||
Cash flows from investing activities:
|
||||||||
Capital expenditures
|
(6.7 | ) | (18.9 | ) | ||||
Capitalized
permit costs
|
(3.0 | ) | (4.4 | ) | ||||
Purchases of:
|
||||||||
CompX common stock
|
- | (.5 | ) | |||||
TIMET
common stock
|
(.7 | ) | - | |||||
Marketable securities
|
(10.7 | ) | (1.6 | ) | ||||
Proceeds from disposal of marketable
securities
|
13.9 | 2.6 | ||||||
Change in restricted cash equivalents, net
|
3.2 | .2 | ||||||
Other, net
|
.1 | .3 | ||||||
Net cash used in investing activities
|
(3.9 | ) | (22.3 | ) | ||||
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(unaudited)
|
||||||||
Cash
flows from financing activities:
|
||||||||
Indebtedness:
|
||||||||
Borrowings
|
$ | 92.2 | $ | 103.8 | ||||
Principal payments
|
(67.8 | ) | (93.6 | ) | ||||
Valhi
cash dividends paid
|
(11.4 | ) | (11.4 | ) | ||||
Distributions to minority interest
|
(2.2 | ) | (1.9 | ) | ||||
Treasury stock acquired
|
(2.0 | ) | - | |||||
Issuance
of common stock and other
|
1.0 | - | ||||||
Net cash provided
by (used in) financing
activities
|
9.8 | (3.1 | ) | |||||
Cash and cash equivalents - net change from:
|
||||||||
Operating, investing and financing activities
|
(17.4 | ) | (59.0 | ) | ||||
Currency translation
|
.4 | 1.6 | ||||||
Cash and cash
equivalents at beginning of period
|
189.2 | 138.3 | ||||||
Cash and cash
equivalents at end of period
|
$ | 172.2 | $ | 80.9 | ||||
Supplemental disclosures:
|
||||||||
Cash paid for:
|
||||||||
Interest, net of amounts capitalized
|
$ | 6.7 | $ | 7.9 | ||||
Income taxes, net
|
5.3 | - | ||||||
Accrual
for capital expenditures
|
.1 | 4.1 | ||||||
Accrual
for capitalized permit costs
|
1.0 | 2.0 | ||||||
Noncash
financing activities:
|
||||||||
Dividend
of TIMET common stock
|
899.3 | - | ||||||
Issuance
of preferred stock in settlement of
tax
obligation
|
667.3 | - | ||||||
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
other
|
Total
|
||||||||||||||||||||||||||||||
Preferred
stock
|
Common
stock
|
paid-in
capital
|
Accumulated
deficit
|
comprehensive
income (loss)
|
Treasury
stock
|
stockholders’
equity
|
Comprehensive
loss
|
|||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||||||||||
Balance
at December 31, 2007
|
$ | 667.3 | $ | 1.2 | $ | 10.4 | $ | (74.1 | ) | $ | 51.5 | $ | (37.9 | ) | $ | 618.4 | ||||||||||||||||
Net
loss
|
- | - | - | (5.9 | ) | - | - | (5.9 | ) | $ | (5.9 | ) | ||||||||||||||||||||
Cash
dividends
|
- | - | (10.4 | ) | (1.0 | ) | - | - | (11.4 | ) | ||||||||||||||||||||||
Other
comprehensive loss, net
|
- | - | - | - | (6.0 | ) | - | (6.0 | ) | (6.0 | ) | |||||||||||||||||||||
Balance
at March 31, 2008
|
$ | 667.3 | $ | 1.2 | $ | - | $ | (81.0 | ) | $ | 45.5 | $ | (37.9 | ) | $ | 595.1 | ||||||||||||||||
Comprehensive
loss
|
$ | (11.9 | ) | |||||||||||||||||||||||||||||
Business
segment
|
Entity
|
%
owned at
March 31,
2008
|
||
Chemicals
|
Kronos
|
95%
|
||
Component
products
|
CompX
|
87%
|
||
Waste
management
|
WCS
|
100%
|
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Net sales:
|
||||||||
Chemicals
|
$ | 314.0 | $ | 332.5 | ||||
Component products
|
43.5 | 40.5 | ||||||
Waste management
|
1.5 | .9 | ||||||
Total net sales
|
$ | 359.0 | $ | 373.9 | ||||
Cost of sales:
|
||||||||
Chemicals
|
$ | 244.4 | $ | 276.0 | ||||
Component products
|
31.4 | 31.1 | ||||||
Waste management
|
3.1 | 3.3 | ||||||
Total cost of sales
|
$ | 278.9 | $ | 310.4 | ||||
Gross margin:
|
||||||||
Chemicals
|
$ | 69.6 | $ | 56.5 | ||||
Component products
|
12.1 | 9.4 | ||||||
Waste management
|
(1.6 | ) | (2.4 | ) | ||||
Total gross margin
|
$ | 80.1 | $ | 63.5 | ||||
Operating income (loss):
|
||||||||
Chemicals
|
$ | 30.3 | $ | 11.0 | ||||
Component products
|
5.6 | 3.0 | ||||||
Waste management
|
(3.0 | ) | (4.4 | ) | ||||
Total operating income
|
32.9 | 9.6 | ||||||
Equity in
earnings of:
|
||||||||
TIMET
|
26.9 | - | ||||||
Other
|
(.5 | ) | (.4 | ) | ||||
General corporate items:
|
||||||||
Securities
earnings
|
8.2 | 6.6 | ||||||
Insurance recoveries
|
2.5 | .1 | ||||||
General expenses, net
|
(6.0 | ) | (5.6 | ) | ||||
Interest expense
|
(15.6 | ) | (17.4 | ) | ||||
Income (loss)
before income taxes
|
$ | 48.4 | $ | (7.1 | ) |
December
31,
2007
|
March
31,
2008
|
|||||||
(In
millions)
|
||||||||
Accounts
receivable
|
$ | 239.2 | $ | 286.3 | ||||
Notes
receivable
|
4.5 | 4.3 | ||||||
Refundable
income taxes
|
7.7 | 7.7 | ||||||
Receivable
from affiliates:
|
||||||||
Contran
– income taxes, net
|
4.4 | - | ||||||
Other
|
.2 | - | ||||||
Accrued
interest and dividends receivable
|
.1 | .1 | ||||||
Allowance
for doubtful accounts
|
(2.4 | ) | (2.5 | ) | ||||
Total
|
$ | 253.7 | $ | 295.9 |
December
31,
2007
|
March
31,
2008
|
|||||||
(In
millions)
|
||||||||
Raw materials:
|
||||||||
Chemicals
|
$ | 66.2 | $ | 56.3 | ||||
Component products
|
6.3 | 7.6 | ||||||
Total raw materials
|
72.5 | 63.9 | ||||||
Work
in process:
|
||||||||
Chemicals
|
19.9 | 20.4 | ||||||
Component products
|
9.8 | 8.8 | ||||||
Total in-process products
|
29.7 | 29.2 | ||||||
Finished products:
|
||||||||
Chemicals
|
171.6 | 195.8 | ||||||
Component products
|
8.2 | 8.6 | ||||||
Total finished products
|
179.8 | 204.4 | ||||||
Supplies (primarily chemicals)
|
55.9 | 60.4 | ||||||
Total
|
$ | 337.9 | $ | 357.9 |
December
31,
2007
|
March
31,
2008
|
|||||||
(In
millions)
|
||||||||
Available-for-sale
marketable securities:
|
||||||||
The
Amalgamated Sugar Company LLC
|
$ | 250.0 | $ | 250.0 | ||||
TIMET
|
60.2 | 34.2 | ||||||
Other
|
9.6 | 8.9 | ||||||
Total
|
$ | 319.8 | $ | 293.1 | ||||
Investment
in affiliates:
|
||||||||
TiO2 manufacturing joint venture
|
$ | 118.5 | $ | 117.1 | ||||
Other
|
19.4 | 19.0 | ||||||
Total
|
$ | 137.9 | $ | 136.1 | ||||
Other assets:
|
||||||||
Waste disposal site operating permits, net
|
$ | 29.8 | $ | 35.1 | ||||
Deferred financing costs
|
8.2 | 8.3 | ||||||
IBNR
receivables
|
7.8 | 8.0 | ||||||
Loans and other receivables
|
1.8 | 1.8 | ||||||
Other
|
19.7 | 25.4 | ||||||
Total
|
$ | 67.3 | $ | 78.6 |
December
31,
2007
|
March
31,
2008
|
|||||||
(In
millions)
|
||||||||
Current:
|
||||||||
Accounts
payable
|
$ | 115.6 | $ | 101.3 | ||||
Employee benefits
|
37.6 | 34.2 | ||||||
Payable
to affiliates:
|
||||||||
Louisiana
Pigment Company
|
11.4 | 10.3 | ||||||
Contran
– trade items
|
7.1 | 7.6 | ||||||
Contran
– income taxes, net
|
- | 1.6 | ||||||
TIMET
|
.5 | .7 | ||||||
Accrued
sales discounts and rebates
|
15.3 | 15.8 | ||||||
Environmental costs
|
15.4 | 14.3 | ||||||
Deferred income
|
4.0 | 2.6 | ||||||
Interest
|
8.3 | 19.2 | ||||||
Reserve
for uncertain tax positions
|
.3 | .3 | ||||||
Other
|
52.3 | 62.2 | ||||||
Total
|
$ | 267.8 | $ | 270.1 | ||||
Noncurrent:
|
||||||||
Reserve
for uncertain tax positions
|
$ | 47.2 | $ | 47.5 | ||||
Insurance claims and expenses
|
15.2 | 15.9 | ||||||
Employee benefits
|
8.4 | 9.0 | ||||||
Other
|
6.9 | 7.2 | ||||||
Total
|
$ | 77.7 | $ | 79.6 |
December
31,
2007
|
March
31,
2008
|
|||||||
(In
millions)
|
||||||||
Valhi
- Snake River Sugar Company
|
$ | 250.0 | $ | 250.0 | ||||
Subsidiary
debt:
|
||||||||
Kronos International
6.5% Senior Secured Notes
|
585.5 | 628.8 | ||||||
CompX
promissory note payable to TIMET
|
50.0 | 50.0 | ||||||
Kronos U.S. bank credit facility
|
15.4 | 25.8 | ||||||
Other
|
5.7 | 5.7 | ||||||
Total subsidiary debt
|
656.6 | 710.3 | ||||||
Total debt
|
906.6 | 960.3 | ||||||
Less current maturities
|
16.8 | 27.4 | ||||||
Total long-term debt
|
$ | 889.8 | $ | 932.9 |
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Service cost
|
$ | 1.9 | $ | 1.7 | ||||
Interest cost
|
6.4 | 7.4 | ||||||
Expected return on plan assets
|
(7.0 | ) | (8.0 | ) | ||||
Amortization of prior service cost
|
.2 | .2 | ||||||
Amortization of net transition obligations
|
.1 | .1 | ||||||
Recognized actuarial losses
|
1.9 | 1.1 | ||||||
Total
|
$ | 3.5 | $ | 2.5 | ||||
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Service
cost
|
$ | .1 | $ | .1 | ||||
Interest
cost
|
.6 | .5 | ||||||
Amortization
of prior service credit
|
(.1 | ) | (.1 | ) | ||||
Total
|
$ | .6 | $ | .5 |
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Securities
earnings:
|
||||||||
Dividends and interest
|
$ | 7.9 | $ | 7.0 | ||||
Securities transactions, net
|
.3 | (.4 | ) | |||||
Total securities earnings
|
8.2 | 6.6 | ||||||
Currency transactions, net
|
(.1 | ) | (2.5 | ) | ||||
Insurance recoveries
|
2.5 | .1 | ||||||
Other, net
|
1.8 | 1.3 | ||||||
Total
|
$ | 12.4 | $ | 5.5 |
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Expected
tax expense (benefit), at U.S. federal
statutory income
tax rate of 35%
|
$ | 17.0 | $ | (2.4 | ) | |||
Incremental
U.S. tax and rate differences on
equity
in earnings
|
1.9 | .6 | ||||||
Non-U.S.
tax rates
|
(.2 | ) | - | |||||
Nondeductible
expenses
|
.7 | - | ||||||
Change
in reserve for uncertain tax positions
|
- | .2 | ||||||
U.S.
state income taxes, net
|
.5 | .1 | ||||||
Other,
net
|
(.1 | ) | .2 | |||||
Provision
for income taxes (benefit)
|
$ | 19.8 | $ | (1.3 | ) |
December
31,
2007
|
March
31,
2008
|
|||||||
(In
millions)
|
||||||||
Minority
interest in net assets:
|
||||||||
NL Industries
|
$ | 55.6 | $ | 57.1 | ||||
Kronos Worldwide
|
20.5 | 20.4 | ||||||
CompX International
|
14.4 | 14.0 | ||||||
Total
|
$ | 90.5 | $ | 91.5 |
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Minority interest in after-tax
earnings (losses):
|
||||||||
NL Industries
|
$ | 1.0 | $ | (.1 | ) | |||
CompX International
|
.9 | .2 | ||||||
Kronos Worldwide
|
.6 | - | ||||||
Total
|
$ | 2.5 | $ | .1 |
|
·
|
complexity
and differing interpretations of governmental
regulations;
|
|
·
|
number
of PRPs and their ability or willingness to fund such allocation of
costs;
|
|
·
|
financial
capabilities of the PRPs and the allocation of costs among
them;
|
|
·
|
solvency
of other PRPs;
|
|
·
|
multiplicity
of possible solutions; and
|
|
·
|
number
of years of investigatory, remedial and monitoring activity
required.
|
Amount
|
||||
(In
millions)
|
||||
Balance
at the beginning of the period
|
$ | 55.7 | ||
Reductions
credited to income, net
|
(.1 | ) | ||
Payments,
net
|
(1.0 | ) | ||
Balance
at the end of the period
|
$ | 54.6 | ||
Amounts recognized in the Consolidated Balance Sheet at the
end of the period:
|
||||
Current liability
|
$ | 14.3 | ||
Noncurrent liability
|
40.3 | |||
Total
|
$ | 54.6 |
|
·
|
to
recover response and remediation costs incurred at the
site;
|
|
·
|
a
declaration of the parties’ liability for response and remediation costs
incurred at the site;
|
|
·
|
a
declaration of the parties’ liability for response and remediation costs
to be incurred in the future at the site;
and
|
|
·
|
a
declaration regarding the obligation of Tremont to indemnify Halliburton
and DII for costs and expenses attributable to the
site.
|
|
·
|
facts
concerning our historical
operations;
|
|
·
|
the
rate of new claims;
|
|
·
|
the
number of claims from which we have been dismissed;
and
|
|
·
|
our
prior experience in the defense of these
matters,
|
|
·
|
Chemicals – Our
chemicals segment is operated through our majority ownership of
Kronos. Kronos is a leading global producer and marketer of
value-added titanium dioxide pigments (“TiO2”). TiO2 is
used for a variety of manufacturing applications, including plastics,
paints, paper and other industrial
products.
|
|
·
|
Component Products – We
operate in the component products industry through our majority ownership
of CompX. CompX is a leading manufacturer of security products,
precision ball bearing slides and ergonomic computer support systems used
in the office furniture, transportation, tool storage and a variety of
other industries. CompX is also a leading manufacturer of
stainless steel exhaust systems, gauges and throttle controls for the
performance marine industry.
|
|
·
|
Waste Management – WCS
is our wholly-owned subsidiary which owns and operates a West Texas
facility for the processing, treatment and, storage of hazardous, toxic
and low level radioactive waste as well as the disposal of hazardous,
toxic and certain low level radioactive waste. WCS is in the
process of seeking to obtain regulatory authorization to expand its
low-level and mixed low-level radioactive waste disposal
capabilities.
|
|
·
|
Future
supply and demand for our products;
|
|
·
|
The
cyclicality of certain of our businesses (such as Kronos’ TiO2
operations;
|
|
·
|
Customer
inventory levels (such as the extent to which Kronos’ customers may, from
time to time, accelerate purchases of TiO2 in
advance of anticipated price increases or defer purchases of TiO2in
advance of anticipated price
decreases;
|
|
·
|
Changes
in our raw material and other operating costs (such as energy
costs);
|
|
·
|
The
possibility of labor disruptions;
|
|
·
|
General
global economic and political conditions (such as changes in the level of
gross domestic product in various regions of the world and the impact of
such changes on demand for, among other things, TiO2);
|
|
·
|
Competitive
products and substitute products;
|
|
·
|
Possible
disruption of our business or increases in the cost of doing business
resulting from terrorist activities or global
conflicts;
|
|
·
|
Customer
and competitor strategies;
|
|
·
|
The
impact of pricing and production
decisions;
|
|
·
|
Competitive
technology positions;
|
|
·
|
The
introduction of trade barriers;
|
|
·
|
Restructuring
transactions involving us and our
affiliates;
|
|
·
|
Potential
consolidation of our competitors;
|
|
·
|
Demand
for high performance marine
components;
|
|
·
|
The
extent to which our subsidiaries were to become unable to pay us
dividends;
|
|
·
|
Uncertainties
associated with new product
development;
|
|
·
|
Fluctuations
in currency exchange rates (such as changes in the exchange rate between
the U.S. dollar and each of the euro, the Norwegian kroner and the
Canadian dollar);
|
|
·
|
Operating
interruptions (including, but not limited to, labor disputes, leaks,
natural disasters, fires, explosions, unscheduled or unplanned downtime
and transportation interruptions);
|
|
·
|
The
timing and amounts of insurance
recoveries;
|
|
·
|
Our
ability to renew or refinance credit
facilities;
|
|
·
|
The
ultimate outcome of income tax audits, tax settlement initiatives or other
tax matters;
|
|
·
|
The
ultimate ability to utilize income tax attributes or changes in income tax
rates related to such attributes, the benefit of which has been recognized
under the more likely than not recognition criteria (such as Kronos’
ability to utilize its German net operating loss
carryforwards);
|
|
·
|
Environmental
matters (such as those requiring compliance with emission and discharge
standards for existing and new facilities, or new developments regarding
environmental remediation at sites related to our former
operations);
|
|
·
|
Government
laws and regulations and possible changes therein (such as changes in
government regulations which might impose various obligations on present
and former manufacturers of lead pigment and lead-based paint, including
NL, with respect to asserted health concerns associated with the use of
such products);
|
|
·
|
The
ultimate resolution of pending litigation (such as NL's lead pigment
litigation and litigation surrounding environmental matters of NL and
Tremont); and
|
|
·
|
Possible
future litigation.
|
|
·
|
the
elimination of equity in earnings from TIMET due to the distribution of
our TIMET shares in the first quarter of 2007 as a special dividend to our
stockholders; and
|
|
·
|
lower
operating income from each of our Chemicals, Component Products and Waste
Management Segments.
|
|
·
|
lower
income taxes as the effect of a reduction in German income taxes rates was
recognized 2007;
|
|
·
|
no
equity in earnings from TIMET as we ceased to account for our interest in
TIMET by the equity method following our March 2007 special distribution
of TIMET common stock; and
|
|
·
|
lower
expected operating income from our Chemicals Segment due to continued
lower average selling prices and increases in raw material
costs.
|
|
·
|
Our
TiO2
average selling prices;
|
|
·
|
Foreign
currency exchange rates (particularly the exchange rate for the U.S.
dollar relative to the euro and the Canadian
dollar);
|
|
·
|
Our
TiO2
sales and production volumes; and
|
|
·
|
Our manufacturing costs,
particularly maintenance and energy-related expenses.
|
Three months ended March
31,
|
||||||||||||
2007
|
2008
|
% Change
|
||||||||||
(Dollars
in millions)
|
||||||||||||
Net
sales
|
$ | 314.0 | $ | 332.5 | 6 | % | ||||||
Cost
of sales
|
244.4 | 276.0 | 13 | |||||||||
Gross
margin
|
$ | 69.6 | $ | 56.5 | (19 | ) | ||||||
Operating
income
|
$ | 30.3 | $ | 11.0 | (63 | ) | ||||||
Percent
of net sales:
|
||||||||||||
Cost
of sales
|
78 | % | 83 | % | ||||||||
Gross
margin
|
22 | 17 | ||||||||||
Operating
income
|
10 | 3 | ||||||||||
Ti02
operating statistics:
|
||||||||||||
Sales
volumes*
|
125 | 127 | 2 | % | ||||||||
Production
volumes*
|
133 | 132 | (1 | ) | ||||||||
Percent
change in net sales:
|
||||||||||||
Ti02
product pricing
|
(4 | )% | ||||||||||
Ti02
sales volumes
|
2 | |||||||||||
Ti02
product mix
|
1 | |||||||||||
Changes
in foreign currency exchange rates
|
7 | |||||||||||
Total
|
6 | % |
Three
months ended
March 31, 2008 vs.
2007
|
|
Increase (decrease)
in millions
|
|
Impact
on:
|
|
Net
sales
|
$20
|
Operating
income
|
(7)
|
Three months ended March
31,
|
||||||||||||
2007
|
2008
|
% Change
|
||||||||||
(Dollars
in millions)
|
||||||||||||
Net
sales
|
$ | 43.5 | $ | 40.5 | (7 | )% | ||||||
Cost
of sales
|
31.4 | 31.1 | (1 | ) | ||||||||
Gross
margin
|
$ | 12.1 | $ | 9.4 | (22 | ) | ||||||
Operating
income
|
$ | 5.6 | $ | 3.0 | (45 | ) | ||||||
Percent
of net sales:
|
||||||||||||
Cost
of sales
|
72 | % | 77 | % | ||||||||
Gross
margin
|
28 | 23 | ||||||||||
Operating
income
|
13 | 7 |
Three
months ended
March 31, 2008 vs.
2007
|
|
Increase (decrease)
in millions
|
|
Impact
on:
|
|
Net
sales
|
$
.7
|
Operating
income
|
(.6)
|
Three
months ended
|
||||||||
March 31,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Net
sales
|
$ | 1.5 | $ | .9 | ||||
Cost
of sales
|
3.1 | 3.3 | ||||||
Gross
margin
|
$ | (1.6 | ) | $ | (2.4 | ) | ||
Operating
loss
|
$ | (3.0 | ) | $ | (4.4 | ) |
|
·
|
lower
consolidated operating income in 2008 of $23.3 million, due to the lower
earnings at all of our segments;
|
|
·
|
lower
cash paid for income taxes in 2008 of $5.3 million due in part to the 2007
capital gains generated on our March 2007 special dividend of our TIMET
common stock; and
|
|
·
|
higher
net cash used by changes in receivables, inventories, payables and accrued
liabilities in 2008 of $10.0 million, due primarily to relative changes in
Kronos’ inventory levels.
|
Three
months ended
March 31,
|
||||||||
2007
|
2008
|
|||||||
(In
millions)
|
||||||||
Cash
provided by (used in) operating activities:
|
||||||||
Kronos
|
$ | (16.3 | ) | $ | (28.9 | ) | ||
CompX
|
3.8 | 2.4 | ||||||
Waste Control Specialists
|
(2.4 | ) | (2.1 | ) | ||||
NL Parent
|
(3.3 | ) | 1.4 | |||||
Tremont
|
(1.1 | ) | .1 | |||||
Valhi Parent
|
14.2 | 11.6 | ||||||
Other
|
(.2 | ) | (.1 | ) | ||||
Eliminations
|
(18.0 | ) | (18.0 | ) | ||||
Total
|
$ | (23.3 | ) | $ | (33.6 | ) |
|
·
|
$16.8
million in our Chemicals Segment;
|
|
·
|
$1.4
million in our Component Products Segment;
and
|
|
·
|
$.7
million in our Waste Management
Segment
|
|
·
|
other
marketable securities of $1.6 million;
and
|
|
·
|
CompX
common stock for $.5 million.
|
|
·
|
KII’s
euro 400 million aggregate principal amount of its 6.5% Senior Secured
Notes ($628.8 million at March 31, 2008) due in
2013;
|
|
·
|
our $250
million loan from Snake River Sugar Company due in
2027;
|
|
·
|
CompX’s
promissory note payable to TIMET ($50.0 million outstanding at March 31,
2008) which bears interest at LIBOR plus 1% (5.7% at March 31, 2008) and
has quarterly principal repayments of $250,000 commencing in September
2008 due in 2014;
|
|
·
|
Kronos’
U.S. revolving bank credit facility ($25.8 million outstanding) due in
2008; and
|
|
·
|
approximately
$5.7 million of other indebtedness.
|
|
·
|
$159
million under Kronos’ various U.S. and non-U.S. credit
facilities;
|
|
·
|
$99
million under Valhi’s revolving bank credit facility;
and
|
|
·
|
$50
million under CompX’s revolving credit
facility.
|
Amount
|
||||
(In
millions)
|
||||
Valhi Parent
|
$ | 26.0 | ||
Kronos
|
30.9 | |||
NL Parent
|
51.1 | |||
CompX
|
18.1 | |||
Tremont
|
9.4 | |||
Waste Control Specialists
|
2.7 | |||
Total cash, cash equivalents and marketable securities
|
$ | 138.2 |
|
·
|
certain
income tax examinations which are underway in various U.S. and non-U.S.
jurisdictions;
|
|
·
|
certain
environmental remediation matters involving NL, Tremont and
Valhi;
|
|
·
|
certain
litigation related to NL’s former involvement in the manufacture of lead
pigment and lead-based paint; and
|
|
·
|
certain
other litigation to which we are a
party.
|
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect our transactions and dispositions of our
assets,
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that our
receipts and expenditures are made only in accordance with authorizations
of our management and directors,
and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on our Condensed Consolidated Financial
Statements.
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds; Share
Repurchases.
|
Item
No.
|
Exhibit
Index
|
||
31.1
|
Certification
|
||
31.2
|
Certification
|
||
32.1
|
Certification
|
VALHI,
INC.
(Registrant)
|
||
Date
May 7,
2008
|
/s/ Bobby D.
O’Brien
|
|
Bobby
D. O’Brien
(Vice
President and Chief
Financial
Officer)
|
||
Date
May 7, 2008
|
/s/ Gregory M.
Swalwell
|
|
Gregory
M. Swalwell
(Vice
President and Controller,
Principal
Accounting Officer)
|
||