Valhi : 2024 Annual Report

About this update from Valhi, Inc.

VALHI 202 4 ANNUAL REPORT VALHI, INC. CORPORATE AND OTHER INFORMATION Board of Directors Loretta J. Feehan Chair of Board (non-executive) Financial Consultant Michael S. Simmons Vice Chairman, President and Chief Executive Officer Thomas E. Barry (a) (b) Emeritus Professor of Marketing at Southern Methodist University Terri L. Herrington (a) (b) Private Investor W. Hayden Mcllroy (a) (b) Private Investor Gina A. Norris (a) Senior Vice President, Partner Relations Matthews Southwest Mary A. Tidlund (a) Private Investor Board Committees Audit Committee Management Development and Compensation Committee Stock Exchanges Valhiʼs common shares are listed on the New York Stock Exchange under the symbol "VHI." Kronosʼ common shares are listed on the New York Stock Exchange under the symbol "KRO." NLʼs common shares are listed on the New York Stock Exchange under the symbol "NL." CompXʼs Class A common shares are listed on the NYSE American under the symbol "CIX." Corporate Officers Michael S. Simmons Vice Chairman, President and Chief Executive Officer Kristin B. McCoy Executive Vice President, Tax Andrew B. Nace Executive Vice President and General Counsel Courtney J. Riley Executive Vice President Amy A. Samford Executive Vice President and Chief Financial Officer John A. Sunny Executive Vice President and Chief Information Officer Bryan A. Hanley Senior Vice President and Treasurer Patty S. Brinda Vice President and Controller Jane R. Grimm Vice President, Secretary and Associate General Counsel Bart W. Reichert Vice President, Internal Audit Darci B. Scott Vice President, Tax Annual Meeting The 2025 Annual Meeting of Stockholders will be held at the Conference Center at Three Lincoln Centre, 5430 LBJ Freeway, Suite 350, Dallas, Texas 75240-2620, on the date and time as set forth in the notice of the meeting, proxy statement and form of proxy that will be furnished to stock holders in advance of the meeting Form 10-K Report The Companyʼs Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission, is printed as part of this Annual Report. Additional copies are available without charge upon written request to: Bryan A. Hanley Investor Relations Valhi, Inc. Three Lincoln Centre 5430 LBJ Freeway, Suite 1700 Dallas, Texas 75240-2620 Management of Subsidiaries Kronos Worldwide Inc. James M. Buch Director, President and Chief Executive Officer NL Industries, Inc. Courtney J. Riley Director, President and Chief Executive Officer CompX International Inc. Scott C. James Director, President and Chief Executive Officer Basic Management, Inc. and The LandWell Company Lee Farris President and Chief Executive Officer Transfer Agent Computershare acts as transfer agent, registrar and dividend paying agent for the Companyʼs common stock. Communications regarding stockholder accounts, dividends and change of address should be directed to: Computershare Trust Company, N.A. P.O. Box 43006 Providence, Rhode Island 02940-3006 373-6374 http://www.computershare.com/investor Visit us on the Web http://www.valhi.net UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2024 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-5467 VALHI, INC. (Exact name of Registrant as specified in its charter) Delaware 87-0110150 (State or other jurisdiction of (IRS Employer Incorporation or organization) Identification No.) 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2620 (Address of principal executive offices) Registrant's telephone number, including area code: (972) 233-1700 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock VHI NYSE No securities registered pursuant to Section 12(g) of the Act: Indicate by check mark: No ☒ If the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ If the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer," smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☒ Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ . The aggregate market value of the 2.4 million shares of voting common stock held by nonaffiliates of Valhi, Inc. as of June 30, 2024 (the last business day of the Registrant's most recently-completed second fiscal quarter) approximated $43.4 million. Number of shares of the registrant's common stock, $.01 par value per share, outstanding on March 3, 2025: 28,294,793. Documents incorporated by reference The information required by Part III is incorporated by reference from the Registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. PART I ITEM 1. BUSINESS Valhi, Inc. (NYSE: VHI) is primarily a holding company. We operate through our wholly-owned and majority- owned subsidiaries, including NL Industries, Inc., Kronos Worldwide, Inc., CompX International Inc., Basic Management, Inc. and The LandWell Company. Kronos (NYSE: KRO), NL (NYSE: NL) and CompX (NYSE American: CIX) each file periodic reports with the U.S. Securities and Exchange Commission (SEC). Our principal executive offices are located at Three Lincoln Center 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2620. Our telephone number is (972) 233-1700. We maintain a website at www.valhi.net. Brief History LLC Corporation, our legal predecessor, was incorporated in Delaware in 1932. We are the successor company of the 1987 merger of LLC Corporation and another entity controlled by Contran Corporation. One of Contran's wholly- owned subsidiaries held approximately 91% of Valhi's outstanding common stock at December 31, 2024. As discussed in Note 1 to our Consolidated Financial Statements, Lisa K. Simmons and a trust established for the benefit of Ms. Simmons and her late sister and their children (the "Family Trust") may be deemed to control Contran and us. Key events in our history include: 1979 - Contran acquires control of LLC; 1981 - Contran acquires control of our other predecessor company; 1982 - Contran acquires control of Keystone Consolidated Industries, Inc., a predecessor to CompX; 1984 - Keystone spins-off an entity that includes what is to become CompX; this entity subsequently merges with LLC; 1986 - Contran acquires control of NL, which at the time owns 100% of Kronos; 1987 - LLC and another Contran controlled company merge to form Valhi, our current corporate structure; 2003 - NL completes the spin-off of Kronos through the pro-rata distribution of Kronos shares to its shareholders including us; 2004 through 2005 - NL distributes Kronos shares to its shareholders, including us, through quarterly dividends; 2010 - Kronos completes a secondary offering of its common stock lowering our ownership of Kronos to 80%; 2012 - In December CompX completes the sale of its furniture components business; 2013 - In December we purchased an additional ownership interest in and became the majority owner of Basic Management, Inc. ("BMI") and The LandWell Company ("LandWell"); 2015 - The first homes in our Cadence planned community were completed by third-party builders and sold to the public; 2020 - In December LandWell completed the first bulk sale of land within the Cadence planned community; 2022 - In July Basic Water Company (BWC) ceased water delivery due to a decline in water levels at Lake Mead in Nevada and in September BWC filed for bankruptcy protection; 2023 - In November, upon the Bankruptcy Court's approval of BWC's plan of reorganization, BWC sold substantially all of its assets. In December BMI sold Basic Power Company; and -1- 2024 - In July, Kronos acquired the remaining 50% joint venture interest in Louisiana Pigment Company, L.P. previously held by Venator Investments, Ltd. Unless otherwise indicated, references in this report to "we", "us" or "our" refer to Valhi, Inc. and its subsidiaries, taken as a whole. Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Annual Report that are not historical facts are forward-looking in nature and represent management's beliefs and assumptions based on currently available information. In some cases, you can identify forward-looking statements by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expects" or comparable terminology, or by discussions of strategies or trends. Although we believe the expectations reflected in such forward-looking statements are reasonable, we do not know if these expectations will be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. The factors that could cause actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Annual Report and those described from time to time in our other filings with the SEC and include, but are not limited to, the following: Future supply and demand for our products; Our ability to realize expected cost savings from strategic and operational initiatives; Our ability to integrate acquisitions, including Louisiana Pigment Company, L.P., into Kronos' operations and realize expected synergies and innovations; The extent of the dependence of certain of our businesses on certain market sectors; The cyclicality of certain of our businesses (such as Kronos' titanium dioxide ("TiO 2 ") operations); Customer and producer inventory levels; Unexpected or earlier-than-expected industry capacity expansion (such as the TiO 2 industry); Changes in raw material and other operating costs (such as ore, zinc, brass, aluminum, steel and energy costs) or the implementation of tariffs on imported raw materials; Changes in the availability of raw materials (such as ore); General global economic and political conditions that harm the worldwide economy, disrupt our supply chain, increase material and energy costs, reduce demand or perceived demand for TiO 2, component products and land held for development or impair our ability to operate our facilities (including changes in the level of gross domestic product in various regions of the world, tariffs, natural disasters, terrorist acts, global conflicts and public health crises); Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, certain regional and world events or economic conditions and public health crises); Technology related disruptions (including, but not limited to, cyber-attacks; software implementation, upgrades or improvements; technology processing failures; or other events) related to our technology infrastructure that could impact our ability to continue operations, or at key vendors which could impact our supply chain, or at key customers which could impact their operations and cause them to curtail or pause orders; Competitive products and substitute products; -2- Competition from Chinese suppliers with less stringent regulatory and environmental compliance requirements; Customer and competitor strategies; Potential difficulties in upgrading or implementing accounting and manufacturing software systems; Potential consolidation of our competitors; Potential consolidation of our customers; The impact of pricing and production decisions; Competitive technology positions; Our ability to protect or defend intellectual property rights; The introduction of new, or changes in existing, tariffs, trade barriers or trade disputes (including tariffs imposed by the U.S. federal government on imports from Canada, where Kronos has a manufacturing facility); The ability of our subsidiaries to pay us dividends; Uncertainties associated with new product development and the development of new product features; Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian krone and the Canadian dollar and between the euro and the Norwegian krone) or possible disruptions to our business resulting from uncertainties associated with the euro or other currencies; Decisions to sell operating assets other than in the ordinary course of business; The timing and amounts of insurance recoveries; Our ability to renew or refinance credit facilities or other debt instruments in the future; Changes in interest rates; Our ability to maintain sufficient liquidity; The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform; Our ability to utilize income tax attributes, the benefits of which may or may not have been recognized under the more-likely-than-not recognition criteria; Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities, or new developments regarding environmental remediation or decommissioning obligations 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 former manufacturers of lead pigment and lead-based paint, including NL, with respect to asserted health concerns associated with the use of such products) including new environmental, sustainability, health and safety or other regulations (such as those seeking to limit or classify TiO 2 or its use); The ultimate resolution of pending litigation (such as NL's lead pigment and environmental matters); Our ability to comply with covenants contained in our revolving bank credit facilities; Our ability to complete and comply with the conditions of our licenses and permits; Changes in real estate values and construction costs in Henderson, Nevada; and -3- Pending or possible future litigation (such as litigation related to CompX's use of certain permitted chemicals in its productions process) or other actions. Should one or more of these risks materialize (or the consequences of such development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise. Segments We currently have three consolidated reportable operating segments at December 31, 2024: Chemicals Our Chemicals Segment is operated through our majority Kronos Worldwide, Inc. control of Kronos. Kronos is a leading global producer and marketer of value-added titanium dioxide pigments. TiO 2 is used to impart whiteness, brightness, opacity and durability to a wide variety of products, including paints, plastics, paper, fibers and ceramics. Additionally, TiO 2 is a critical component of everyday applications, such as coatings, plastics and paper, as well as many specialty products such as inks, cosmetics and pharmaceuticals. Component Products We operate in the component products industry through our CompX International Inc. majority control of CompX. CompX is a leading manufacturer of security products used in the postal, recreational transportation, office and institutional furniture, cabinetry, tool storage, healthcare applications and a variety of other industries. CompX is also a leading manufacturer of wake enhancement systems, stainless steel exhaust systems, gauges, throttle controls, trim tabs and related hardware and accessories for the recreational marine industry. Real Estate Management and Development We operate in real estate management and development Basic Management, Inc. and The LandWell Company through our majority control of BMI and LandWell. BMI and LandWell own real property in Henderson, Nevada. LandWell is engaged in efforts to develop certain land holdings for commercial, industrial and residential purposes in Henderson, Nevada. BMI previously, through wholly- owned subsidiaries, also was responsible for the delivery of water to the City of Henderson and various other users through September 2022, and provided utility services to certain industrial customers prior to December 2023. For additional information about our segments and equity investments see "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 2, 3 and 12 to our Consolidated Financial Statements. CHEMICALS SEGMENT - KRONOS WORLDWIDE, INC. Business Overview Our majority-controlled subsidiary, Kronos, is a leading global producer and marketer of value-added titanium dioxide pigments, or TiO 2 , a base industrial product used in a wide range of applications. Kronos, along with its distributors -4- and agents, sells and provides technical services for its products to approximately 3,000 customers in 100 countries with the majority of sales in Europe, North America and the Asia Pacific region. We believe Kronos has developed considerable expertise and efficiency in the manufacture, sale, shipment and service of its products in domestic and international markets. Effective July 16, 2024 ("Acquisition Date"), Kronos acquired the 50% joint venture interest in Louisiana Pigment Company, L.P. ("LPC") held by Venator Investments, Ltd. ("Venator") for consideration of $185 million less a working capital adjustment. Prior to the acquisition, Kronos held a 50% joint venture interest in LPC through a wholly- owned subsidiary. LPC was operated as a manufacturing joint venture between Kronos and Venator. Following the acquisition, LPC became a wholly-owned subsidiary of Kronos. See Note 3 to our Consolidated Financial Statements. TiO 2 is a white inorganic pigment used in a wide range of products for its exceptional durability and its ability to impart whiteness, brightness and opacity. TiO 2 is a critical component of everyday applications, such as coatings, plastics and paper, as well as many specialty products such as inks, cosmetics and pharmaceuticals. TiO 2 is widely considered to be superior to alternative white pigments in large part due to its hiding power (or opacity), which is the ability to cover or mask other materials effectively and efficiently. TiO 2 is designed, marketed and sold based on specific end-use applications. TiO 2 is the largest commercially used whitening pigment because it has a high refractive rating, giving it more hiding power than any other commercially produced white pigment. In addition, TiO 2 has excellent resistance to interaction with other chemicals, good thermal stability and resistance to ultraviolet degradation. Although there are other white pigments on the market, we believe there are no effective substitutes for TiO 2 because no other white pigment has the physical properties for achieving comparable opacity and brightness or can be incorporated in as cost-effective a manner. Pigment extenders such as kaolin clays, calcium carbonate and polymeric opacifiers are used together with TiO 2 in a number of end-use markets. However, these products are not able to duplicate the opacity performance characteristics of TiO 2 and we believe these products are unlikely to have a significant impact on the use of TiO 2 . TiO 2 is considered a "quality-of-life" product. Demand for TiO 2 has generally been driven by worldwide gross domestic product and has generally increased with rising standards of living in various regions of the world. According to industry estimates, TiO 2 consumption has grown at a compound annual growth rate of approximately 3% since 2000. Per capita consumption of TiO 2 in Western Europe and North America far exceeds that in other areas of the world, and these regions are expected to continue to be the largest consumers of TiO 2 on a per capita basis for the foreseeable future. We believe Western Europe and North America each account for approximately 15% of global TiO 2 consumption, respectively. Markets for TiO 2 are generally increasing in China, the Asia Pacific region, South America and Eastern Europe and we believe these are significant markets which will continue to grow as economies in these regions develop and quality-of-life products, including TiO 2 , experience greater demand. Products and end-use markets Including its predecessors, Kronos has produced and marketed TiO 2 in North America and Europe, its primary markets, for over 100 years. We believe Kronos is the largest chloride process TiO 2 producer in Europe with 44% of its 2024 sales volumes attributable to markets in Europe. The table below shows Kronos' estimated market share for its significant markets, Europe and North America, for the last three years. Europe 2022 % 2023 % 2024 % 14 12 14 North America 17 % 16 % 17 % We believe Kronos is the leading seller of TiO 2 in several countries, including Germany. Overall, Kronos is one of the top five producers of TiO 2 in the world. Kronos offers its customers a broad portfolio of products that include over 50 different TiO 2 pigment grades under the KRONOS ® trademark, which provide a variety of performance properties to meet customers' specific requirements. Kronos' major customers include domestic and international paint, plastics, decorative laminate and paper manufacturers. Kronos ships TiO 2 to its customers in either a dry or slurry form via rail, truck and/or ocean carrier. Sales of Kronos' core -5- TiO 2 pigments represented approximately 90% of our Chemicals Segment's net sales in 2024. Kronos and its agents and distributors primarily sell its products in three major end-use markets: coatings, plastics and paper. The following tables show Kronos' approximate TiO 2 sales volume by geographic region and end-use for the year ended December 31, 2024: Sales volume percentages Sales volume percentages by geographic region by end-use Europe 44% Coatings 60% North America 40% Plastics 27% Asia Pacific 9% Paper 9% Rest of World 7% Other 4% Some of the principal applications for Kronos' products include the following: TiO 2 for coatings - Kronos' TiO 2 is used to provide opacity, durability, tinting strength and brightness in industrial coatings, as well as coatings for commercial and residential interiors and exteriors, automobiles, aircraft, machines, appliances, traffic paint and other special purpose coatings. The amount of TiO 2 used in coatings varies widely depending on the opacity, color and quality desired. In general, the higher the opacity requirement of the coating, the greater the TiO 2 content. TiO 2 for plastics - Kronos produces TiO 2 pigments that improve the optical and physical properties of plastics, including whiteness and opacity. TiO 2 is used to provide opacity to items such as containers and packaging materials, and vinyl products such as windows, door profiles and siding. TiO 2 also generally provides hiding power, neutral undertone, brightness and surface durability for housewares, appliances, toys, computer cases and food packages. TiO 2 's high brightness along with its opacity, is used in some engineering plastics to help mask their undesirable natural color. TiO 2 is also used in masterbatch, which is a concentrate of TiO 2 and other additives and is one of the largest uses for TiO 2 in the plastics end-use market. In masterbatch, the TiO 2 is dispersed at high concentrations into a plastic resin and is then used by manufacturers of plastic containers, bottles, packaging and agricultural films. TiO 2 for paper - Kronos' TiO 2 is used in the production of several types of paper, including laminate (decorative) paper, filled paper and coated paper to provide whiteness, brightness, opacity and color stability. Although Kronos sells its TiO 2 to all segments of the paper end-use market, its primary focus is on the TiO 2 grades used in coated board and paper laminates, where several layers of paper are laminated together using melamine resin under high temperature and pressure. The top layer of paper contains TiO 2 and plastic resin and is the layer that is printed with decorative patterns. Paper laminates are used to replace materials such as wood and tile for such applications as counter tops, furniture and wallboard. TiO 2 is beneficial in these applications because it assists in preventing the material from fading or changing color after prolonged exposure to sunlight and other weathering agents. TiO 2 for other applications - Kronos produces TiO 2 to improve the opacity and hiding power of printing inks. TiO 2 allows inks to achieve very high print quality while not interfering with the technical requirements of printing machinery, including low abrasion, high printing speed and high temperatures. Kronos' TiO 2 is also used in textile applications where TiO 2 functions as an opacifying and delustering agent. In man-made fibers such as rayon and polyester, TiO 2 corrects an otherwise undesirable glossy and translucent appearance. Without the presence of TiO 2 , these materials would be unsuitable for use in many textile applications. Kronos produces high purity sulfate process anatase TiO 2 used to provide opacity, whiteness and brightness in a variety of cosmetic and personal care products, such as skin cream, lipstick, eye shadow and toothpaste. In pharmaceuticals, Kronos' TiO 2 is used commonly as a colorant in tablet and capsule coatings as well as in liquid medicines to provide uniformity of color and appearance. KRONOS ® purified anatase grades meet the applicable requirements of the CTFA (Cosmetics, Toiletries and Fragrances Association), USP (United States Pharmacopoeia), BP (British Pharmacopoeia) and the FDA (United States Food and Drug Administration). -6-

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