Valhi : Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

About this update from Valhi, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Business Overview We are primarily a holding company. We operate through our wholly-owned and majority-owned subsidiaries, including NLI Holdings, Inc. (formerly NL Industries, Inc.), Kronos Worldwide, Inc., CompX International Inc., Tremont LLC, Basic Management, Inc. ("BMI") and The LandWell Company ("LandWell"). Kronos (NYSE: KRO), NLI (NYSE: NL) and CompX (NYSE American: CIX) each file periodic reports with the SEC. We have three consolidated reportable operating segments: ● Chemicals - Our Chemicals Segment is operated through our majority control of Kronos. Kronos is a leading global producer and marketer of value-added titanium dioxide pigments ("TiO 2 "). 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 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, custom metal fabricated parts, gauges, throttle controls, trim tabs and related hardware and accessories primarily for the recreational marine and other industries. ● Real Estate Management and Development - We operate in real estate management and development 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. General This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly 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 that 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 Quarterly 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 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' 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 (including manufacturing and accounting systems) 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; ● Competition from Chinese suppliers with less stringent regulatory and environmental compliance requirements; ● Customer and competitor strategies; ● Potential consolidation of our competitors; ● Potential consolidation of our customers; ● Our ability to retain key 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; ● 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 NLI, 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 NLI'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 construction costs in Henderson, Nevada; and ● Pending or possible future litigation (such as litigation related to CompX's use of certain permitted chemicals in its production 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. Operations Overview Quarter Ended June 30, 2026 Compared to the Quarter Ended June 30, 2025 - We reported net income attributable to Valhi stockholders of $22.3 million, or $.78 per diluted share, in the second quarter of 2026 compared to net income attributable to Valhi stockholders of $.9 million, or $.03 per diluted share, in the second quarter of 2025. Our net income attributable to Valhi stockholders increased from 2025 to 2026 primarily due to higher operating income from our Chemicals Segment of $40.4 million in 2026 compared to operating income of $10.3 million in 2025. Our diluted net income per share in the second quarter of 2026 includes: ● income of $.21 per share related to tax increment infrastructure reimbursement; and ● income of $.10 per share related to the gain on the sale of an office building within our Real Estate Management and Development Segment. Our diluted net income per share in the second quarter of 2025 includes income of $.31 per share related to tax increment infrastructure reimbursement. Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025 - We reported net income attributable to Valhi stockholders of $24.3 million, or $.85 per diluted share, in the first six months of 2026 compared to net income attributable to Valhi stockholders of $17.8 million, or $.62 per diluted share, in the first six months of 2025. Our net income attributable to Valhi stockholders increased from 2025 to 2026 primarily due to the effects of: ● higher operating income from our Real Estate Management and Development Segment of $29.7 million in 2026 compared to operating income of $21.9 million in 2025; ● higher operating income from our Component Products Segment of $16.0 million in 2026 compared to operating income of $12.2 million in 2025; and ● higher operating income from our Chemicals Segment of $54.9 million in 2026 compared to operating income of $51.5 million in 2025. Our diluted net income per share in the first six months of 2026 includes: ● income of $.30 per share related to tax increment infrastructure reimbursement; ● income of $.10 per share related to the gain on the sale of an office building within our Real Estate Management and Development Segment; and ● a loss of $.04 per share due to recognition at our Chemicals Segment of an uncertain tax position related to a German tax audit. Our diluted net income per share in the first six months of 2025 includes income of $.31 per share related to tax increment infrastructure reimbursement. ‌ Current Forecast for 2026 - We currently expect consolidated operating income for 2026 to be higher as compared to 2025 primarily due to the net effects of: ● higher operating income from our Chemicals Segment in 2026 primarily due to the positive impacts of higher sales volumes and lower operating costs; and ● lower operating income from our Real Estate Management and Development Segment in 2026 due to the wind down of development activities. ​ Segment Operating Results - 2026 Compared to 2025 - Chemicals - We consider TiO 2 to be a "quality of life" product, with demand affected by gross domestic product, or GDP, and overall economic conditions in our markets located in various regions of the world. Over the long-term, we expect demand for TiO 2 will grow by 2% to 3% per year, consistent with our expectations for the long-term growth in GDP. However, even if our Chemicals Segment and its competitors maintain consistent shares of the worldwide market, demand for TiO 2 in any interim or annual period may not change in the same proportion as the change in GDP, in part due to relative changes in the TiO 2 inventory levels of our Chemicals Segment's customers. We believe our Chemicals Segment's customers' inventory levels are influenced in part by their expectations for future changes in 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. The factors having the most impact on our Chemicals Segment's reported operating results are: ● TiO 2 selling prices, ● our Chemicals Segment's TiO 2 sales and production volumes, ● manufacturing costs, particularly raw materials such as third-party feedstock, maintenance and energy-related expenses, and ● currency exchange rates (particularly the exchange rates for the U.S. dollar relative to the euro, the Norwegian krone and the Canadian dollar and the euro relative to the Norwegian krone). Key performance indicators are our Chemicals Segment's TiO 2 average selling prices, the level of TiO 2 sales and production volumes, and the cost of our Chemicals Segment's titanium-containing feedstock purchased from third parties. TiO 2 selling prices generally follow industry trends, and selling prices will increase or decrease generally as a result of competitive market pressures. ‌ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, ​ ​ Six months ended June 30, ​ ​ ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ ​ % Change ​ ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ ​ % Change ​ ​ ​ (Dollars in millions) ​ ​ ​ ​ (Dollars in millions) ​ ​ ​ Net sales ​ $ 494.4 ​ $ 558.1 ​ 13 % ​ $ 984.2 ​ $ 1,067.9 ​ 9 % Cost of sales ​ 432.1 ​ 455.8 ​ 5 ​ ​ 815.5 ​ 882.8 ​ 8 ​ Gross margin ​ $ 62.3 ​ $ 102.3 ​ 64 ​ ​ $ 168.7 ​ $ 185.1 ​ 10 ​ Operating income ​ $ 10.3 ​ $ 40.4 ​ 292 ​ ​ $ 51.5 ​ $ 54.9 ​ 7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percent of net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales ​ 87 % 82 % ​ ​ ​ 83 % 83 % ​ ​ Gross margin ​ 13 ​ 18 ​ ​ ​ 17 ​ 17 ​ ​ Operating income ​ 2 ​ 7 ​ ​ ​ 5 ​ 5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TiO 2 operating statistics: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales volumes* ​ 132 ​ 153 ​ 16 % ​ 268 ​ 295 ​ 10 % Production volumes* ​ 125 ​ 135 ​ 8 ​ ​ 268 ​ 263 ​ (2) ​ Percent change in TiO 2 net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TiO 2 sales volumes ​ ​ ​ ​ ​ ​ ​ 16 % ​ ​ ​ ​ ​ ​ ​ 10 % TiO 2 product pricing ​ ​ ​ ​ ​ ​ ​ (3) ​ ​ ​ ​ ​ ​ ​ ​ (4) ​ TiO 2 product mix/other ​ ​ ​ ​ ​ ​ ​ (2) ​ ​ ​ ​ ​ ​ ​ (1) Changes in currency exchange rates ​ ​ ​ ​ ​ ​ ​ 2 ​ ​ ​ ​ ​ ​ ​ 4 Total ​ ​ ​ ​ ​ ​ ​ 13 % ​ ​ ​ ​ ​ ​ ​ 9 % * Thousands of metric tons Current Industry Conditions - Our Chemicals Segment started 2026 with average TiO 2 selling prices lower than at the beginning of 2025; however, its average TiO 2 selling prices increased 4% during the first six months of 2026. During the second quarter of 2026, our Chemicals Segment announced and implemented various price increases and surcharges in response to higher operating costs. Our Chemicals Segment's average TiO 2 selling prices in the first six months of 2026 were 4% lower than its average TiO 2 selling prices for the first six months of 2025. Overall, our Chemicals Segment's sales volumes increased in the first six months of 2026 compared to the same period in 2025 primarily due to market share gains across all markets resulting from changing competitive and supply conditions and the continued effect of anti-dumping duties which remain in effect in certain markets. During the fourth quarter of 2025, our Chemicals Segment implemented cost reduction initiatives, including workforce reductions and other measures, to permanently improve its cost structure and enable more efficient operation of its facilities at lower production rates for extended periods. As a result, our Chemicals Segment adjusted its normal production capacity range in 2026 to reflect its production capabilities under this new cost structure. Excluding the effect of changes in currency exchange rates, our Chemicals Segment's cost of sales per metric ton of TiO 2 sold in the first half of 2026 was lower than the comparable period of 2025 due to decreases in per metric ton production costs driven primarily by the cost reduction initiatives discussed above, as well as lower raw material costs (primarily feedstock costs) and lower unabsorbed fixed costs. Net Sales - Our Chemicals Segment's net sales in the second quarter of 2026 increased 13%, or $63.7 million, compared to the second quarter of 2025 primarily due to the effects of a 16% increase in sales volumes (which increased net sales by approximately $79 million) and the favorable impact of changes in currency exchange rates (primarily the euro) which our Chemicals Segment estimates increased its net sales by approximately $10 million. These increases were partially offset by a 3% decrease in average TiO 2 selling prices (which decreased net sales by approximately $15 million) and by changes in product mix, primarily due to lower average selling prices and lower sales volumes in its complementary businesses. TiO 2 selling prices will increase or decrease generally as a result of competitive market pressures, change in the relative level of supply and demand as well as change in raw material and other manufacturing costs. Our Chemicals Segment's sales volumes increased 16% in the second quarter of 2026 as compared to the second quarter of 2025 primarily due to market share gains in all major markets resulting from changing competitive and supply conditions and anti-dumping duties that remain in effect in certain markets. ‌ Our Chemicals Segment's net sales in the first six months of 2026 increased 9%, or $83.7 million, compared to the first six months of 2025 primarily due to the effects of a 10% increase in sales volumes (which increased net sales by approximately $98 million) and the favorable impact of changes in currency exchange rates (primarily the euro), which our Chemicals Segment estimates increased its net sales by approximately $41 million. These increases were partially offset by a 4% decrease in average TiO 2 selling prices (which decreased net sales by approximately $39 million) and by changes in product mix, primarily due to lower average selling prices and lower sales volumes in its complementary businesses. Our Chemicals Segment's sales volumes increased 10% in the first six months of 2026 as compared to the same period in 2025 primarily due to market share gains in all major markets resulting from changing competitive and supply conditions and anti-dumping duties that remain in effect in certain markets. Cost of Sales and Gross Margin - Our Chemicals Segment's c ost of sales increased by $23.7 million, or 5%, in the second quarter of 2026 compared to the second quarter of 2025 due to a 16% increase in sales volumes and the unfavorable impact from changes in currency exchange rates. These increases were partially offset by lower production costs resulting primarily from the cost reduction initiatives implemented in the fourth quarter of 2025, lower raw material costs (primarily feedstock) and lower unabsorbed fixed costs. Unabsorbed fixed costs were not material in the second quarter of 2026 compared to approximately $20 million in the second quarter of 2025. Our Chemicals Segment's cost of sales as a percentage of net sales improved to 82% in the second quarter of 2026 compared to 87% in the same period of 2025, primarily due to the favorable effects of higher sales volumes and lower production costs, discussed above. These favorable impacts were partially offset by lower average TiO 2 selling prices and the unfavorable impact of lower average selling prices and sales volumes within our Chemicals Segment's complementary businesses. Our Chemicals Segment's gross margin as a percentage of net sales increased to 18% in the second quarter of 2026 compared to 13% in the second quarter of 2025. Our Chemicals Segment's gross margin as a percentage of net sales increased primarily due to the net effects of higher sales volumes, lower average TiO 2 selling prices, lower production costs as discussed above, and the unfavorable impact from changes in currency exchange rates. Our Chemicals Segment's c ost of sales increased by $67.3 million, or 8%, in the first six months of 2026 compared to the first six months of 2025 due to a 10% increase in sales volumes and the unfavorable impact from changes in currency exchange rates. These increases were partially offset by lower production costs resulting primarily from the cost reduction initiatives implemented in the fourth quarter of 2025, lower raw material costs (primarily feedstock), and lower unabsorbed fixed costs. Unabsorbed fixed costs were not material in the first six months of 2026 compared to $30 million in the first six months of 2025. ​ Our Chemicals Segment's cost of sales as a percentage of net sales was comparable at 83% in the first six months of 2026 and 2025 as the favorable effects of higher sales volumes and lower cost of inventory sold were offset by lower average TiO 2 selling prices, the unfavorable impact of changes in currency exchange rates, and lower average selling prices and sales volumes within our Chemicals Segment's complementary businesses. ​ Our Chemicals Segment's gross margin as a percentage of net sales was comparable at 17% in the first six months of 2026 and 2025 based on the factors affecting net sales and cost of sales, discussed above. Operating Income - Our Chemicals Segment's operating income increased by $30.1 million to $40.4 million in the second quarter of 2026 compared to $10.3 million in the second quarter of 2025, primarily as a result of the factors impacting gross margin discussed above. We estimate that changes in currency exchange rates decreased our Chemicals Segment's operating income by approximately $12 million in the second quarter of 2026 compared to the same period in 2025, as discussed in the effects of currency exchange rates section below. Our Chemicals Segment's operating income increased by $3.4 million to $54.9 million in the first six months of 2026 compared to $51.5 million in the first six months of 2025, primarily as a result of the factors impacting gross margin discussed above. We estimate that changes in currency exchange rates decreased our Chemicals Segment's operating income by approximately $18 million in the first six months of 2026 compared to the same period in 2025, as discussed in the effects of currency exchange rates section below. Our Chemicals Segment's operating income is net of amortization of purchase accounting adjustments made in conjunction with our acquisitions of interests in NLI 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 $1.2 million and $1.0 million in the first six months of 2026 and 2025, respectively, 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. dollar, principally the euro, other major European currencies and the Canadian dollar. A portion of our Chemicals Segment's sales generated from its non-U.S. operations is denominated in the U.S. dollar (and consequently our Chemicals Segment's non-U.S. operations will generally hold U.S. dollars from time to time). Certain raw materials used in all our Chemicals Segment's production facilities, primarily titanium-containing feedstocks, are purchased primarily in U.S. dollars, while labor and other production and administrative costs are incurred primarily in local currencies. Consequently, the translated U.S. dollar value of our Chemicals Segment's non-U.S. sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of period-to-period operating results. In addition to the impact of the translation of sales and expenses over time, our Chemicals Segment's non-U.S. operations also generate currency transaction gains and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarily U.S. dollar denominated) are initially accrued and when such amounts are settled with the non-local currency, (ii) changes in currency exchange rates during time periods when our Chemicals Segment's non-U.S. operations are holding non-local currency (primarily U.S. dollars), and (iii) relative changes in the aggregate fair value of currency forward contracts held from time to time. We periodically use currency forward contracts to manage a portion of our currency exchange risk, and relative changes in the aggregate fair value of any currency forward contracts we hold from time to time serves in part to mitigate the currency transaction gains or losses we would recognize from the first two items described above. Fluctuations in currency exchange rates had the following effects on our Chemicals Segment's sales and operating income for the periods indicated. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impact of changes in currency exchange rates Three months ended June 30, 2026 vs June 30, 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Translation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ gains/(losses) ​ Total currency ​ ​ Transaction gains (losses) recognized ​ impact of ​ impact ​ ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ ​ Change ​ ​ ​ rate changes ​ ​ ​ 2026 vs 2025 ​ ​ (In millions) Impact on: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ - ​ $ - ​ $ - ​ $ 10 ​ $ 10 Operating income ​ 9 ​ (1) ​ (10) ​ (2) ​ (12) The $10 million increase in our Chemicals Segment net sales (translation gains) was caused primarily by a weakening of the U.S. dollar relative to the euro, as its euro-denominated sales were translated into more U.S. dollars in 2026 as compared to 2025. The weakening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2026 did not have a significant effect on our Chemicals Segment's net sales, as a substantial portion of the sales generated by its Canadian and Norwegian operations is denominated in the U.S. dollar. The $12 million decrease in our Chemicals Segment's operating income was comprised of the following: ● Higher net currency transaction losses of approximately $10 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S. dollar and the euro, Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which causes increases or decreases, as applicable, in U.S. dollar-denominated receivables and payables and U.S. dollar currency held by our Chemicals Segment's non-U.S. operations, and in Norwegian krone denominated receivables and payables held by our Chemicals Segment's non-U.S. operations. In the first quarter of 2025, our Chemicals Segment entered into a currency forward contract to purchase €25 million at an exchange rate of €1.05 per U.S. dollar. Our Chemicals Segment recognized a $2.3 million currency transaction gain which was included in our Condensed Consolidated Statement of Income for the three months ended June 30, 2025, and ● Approximately $2 million from net currency translation losses primarily caused by a weakening of the U.S. dollar relative to the Canadian dollar, Norwegian krone and euro, as our Chemicals Segment's local currency-denominated operating costs were translated into more U.S. dollars in 2026 as compared to 2025. The net translation gains from the favorable effects of the weaker U.S. dollar on euro-denominated sales more than offset the negative effects on euro-denominated operating costs being translated into more U.S. dollars in 2026 as compared to 2025. ​ ​ ‌ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impact of changes in currency exchange rates Six months ended June 30, 2026 vs June 30, 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Translation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ gains/(losses) ​ Total currency ​ ​ Transaction gains (losses) recognized ​ impact of ​ impact ​ ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ ​ Change ​ ​ ​ rate changes ​ ​ ​ 2026 vs 2025 ​ ​ (In millions) Impact on: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ - ​ $ - ​ $ - ​ $ 41 ​ $ 41 Operating income ​ 5 ​ (6) ​ (11) ​ (7) ​ (18) ​ The $41 million increase in our Chemicals Segment's net sales (translation gains) was caused primarily by a weakening of the U.S. dollar relative to the euro, as its euro-denominated sales were translated into more U.S. dollars in 2026 as compared to 2025. The weakening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2026 did not have a significant effect on our Chemicals Segment's net sales, as a substantial portion of the sales generated by its Canadian and Norwegian operations is denominated in the U.S. dollar. The $18 million decrease in our Chemicals Segment's operating income was comprised of the following: ● Higher net currency transaction losses of approximately $11 million primarily caused by relative changes in currency exchange rates at each applicable balance sheet date between the U.S. dollar and the euro, Canadian dollar and the Norwegian krone, and between the euro and the Norwegian krone, which causes increases or decreases, as applicable, in U.S. dollar-denominated receivables and payables and U.S. dollar currency held by our Chemicals Segment's non-U.S. operations, and in Norwegian krone denominated receivables and payables held by our Chemicals Segment's non-U.S. operations. In the first quarter of 2025, our Chemicals Segment entered into a currency forward contract to purchase €25 million at an exchange rate of €1.05 per U.S. dollar. Our Chemicals Segment recognized a $3.2 million currency transaction gain which was included in our Condensed Consolidated Statement of Income for the six months ended June 30, 2025, and ● Approximately $7 million from net currency translation losses primarily caused by a weakening of the U.S. dollar relative to the Canadian dollar, Norwegian krone and euro, as local currency-denominated operating costs were translated into more U.S. dollars in 2026 as compared to 2025. The net translation gains from the favorable effects of the weaker U.S. dollar on euro-denominated sales more than offset the negative effects on euro-denominated operating costs being translated into more U.S. dollars in 2026 as compared to 2025. ​ Outlook - During the second quarter of 2026, our Chemicals Segment continued the positive momentum from the first quarter, with sales volumes improving compared to the same period in 2025. Volume growth was driven by higher sales across all major markets as a result of market share gains, particularly in Europe, reflecting changing competitive and supply conditions that created opportunities to expand its customer base. While demand has improved compared to 2025, overall demand remains below historical levels, particularly in North America, where demand continues to be affected by broader economic uncertainty, prolonged elevated interest rates and subdued consumer spending. Our Chemicals Segment believes industry-wide TiO 2 inventories remain constrained and customer order levels have improved in response to geopolitical instability and recent supply and shipping disruptions in certain regions. As a result, customer order lead times have lengthened. Our Chemicals Segment's order backlog entering the third quarter is favorable compared to prior year, providing greater flexibility in its near- and intermediate-term production planning. ​ Based on our Chemicals Segment's performance during the first six months of 2026, our Chemicals Segment currently expects full-year net sales to exceed 2025 levels and it expects gross margin and operating income margins to improve compared to 2025. Our Chemicals Segment implemented additional price increases and surcharges during the second quarter of 2026 in response to higher production, energy and logistic costs, and it expects the overall pricing environment to remain favorable through the remainder of the year. While our Chemicals Segment's overall selling prices remain below prior year levels, industry supply conditions and ongoing pricing initiatives are expected to support further price increases during the second half of 2026. However, additional pricing actions may be required to further improve profit margins toward historical levels. ​ The cost reduction initiatives implemented by our Chemicals Segment during the fourth quarter of 2025, including workforce reductions and other measures, designed to align its cost structure with current demand levels, continue to benefit its operating results in 2026. During the second quarter of 2026, our Chemicals Segment realized improved gross margins, and it expects margins to continue to benefit from lower cost inventory produced during 2026 and more favorable selling prices. Our Chemicals Segment's operational restructuring allows it to run its facilities more efficiently at lower production rates for extended periods while maintaining flexibility to respond to changing market conditions. Our Chemicals Segment operated its facilities within its normal capacity range during the first ‌ six months of 2026, and our Chemicals Segment currently expects to continue operating within its normal capacity range for the remainder of the year. ​ Our Chemicals Segment remains focused on improving profitability through pricing actions, disciplined cost management, and continued execution of its operating cost structural realignment initiatives. Our Chemicals Segment also continues to pursue sales growth opportunities in regions affected by changing competitive and supply conditions, logistical challenges and trade measures that have reduced the competitiveness of certain imports. ​ Liquidity and capital resources remain sufficient to support our Chemicals Segment's operations and planned capital investments. While our Chemicals Segment typically experiences significant seasonal cash usage in the first half of the year, it expects cash on hand to improve over the remainder of the year. Our Chemicals Segment will continue to actively manage working capital, including inventories and receivables, to bolster operating cash flows and maintain financial flexibility. Our Chemicals Segment believes its revolving credit facility availability, combined with the absence of near-term debt maturities and improved operating cash flows, will provide adequate liquidity for expected working capital needs and capital allocation requirements. ​ Our expectations for the TiO 2 industry and our Chemicals Segment's operations are based on a number of factors outside our control. Our Chemicals Segment's operations are affected by global and regional economic, political and regulatory factors, and it has experienced global market disruptions. Future impacts on our Chemicals Segment's operations will depend on, among other things, future energy costs, the effect of newly enacted tariffs in jurisdictions where it or its customers and suppliers operate, its success in implementing mitigation strategies, and the impact of economic conditions, consumer confidence, and geopolitical events on its operations or its customers' and suppliers' operations, all of which remain uncertain and cannot be predicted. Component Products - Our Component Products Segment's product offerings consist of a significantly large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on its ability to quantify the impact of changes in individual product sales quantities and selling prices on the segment's net sales, cost of sales and gross margin. In addition, small variations in period-to-period net sales, cost of sales and gross margin can result from changes in the relative mix of our Component Products Segment's products sold. The key performance indicator for our Component Products Segment is operating income . Our Component Products Segment's operating income in the second quarter of 2026 was $8.9 million compared to $6.3 million in the second quarter of 2025. Operating income for the first six months of 2026 was $16.0 million compared to $12.2 million for the comparable prior year period. Our Component Products Segment's operating income increased in the second quarter and for the first six months of 2026 due to higher sales and gross margins, predominantly at the security products reporting unit, and to a lesser extent, at the marine components reporting unit. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, ​ ​ Six months ended June 30, ​ ​ ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ ​ % Change ​ ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ ​ % Change ​ ​ ​ (Dollars in millions) ​ ​ ​ ​ (Dollars in millions) ​ ​ ​ Net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Security products ​ $ 30.7 ​ $ 33.3 ​ 8 % ​ $ 60.9 ​ $ 63.2 ​ 4 % Marine components ​ 9.6 ​ 10.3 ​ 7 ​ ​ 19.7 ​ 21.0 ​ 7 ​ Total net sales ​ 40.3 ​ 43.6 ​ 8 ​ ​ 80.6 ​ 84.2 ​ 4 ​ Cost of sales ​ 27.4 ​ 28.1 ​ 3 ​ ​ 55.5 ​ 55.4 ​ - ​ Gross margin ​ $ 12.9 ​ $ 15.5 ​ 20 ​ ​ $ 25.1 ​ $ 28.8 ​ 15 ​ Operating income ​ $ 6.3 ​ $ 8.9 ​ 41 ​ ​ $ 12.2 ​ $ 16.0 ​ 31 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percent of net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales ​ 68 % 64 % ​ ​ ​ 69 % 66 % ​ Gross margin ​ 32 ​ 36 ​ ​ ​ ​ 31 ​ 34 ​ ​ Operating income ​ 16 ​ 20 ​ ​ ​ ​ 15 ​ 19 ​ ​ Net Sales - Our Component Products Segment's net sales increased $3.3 million and $3.6 million in the second quarter and for the first six months of 2026, respectively, compared to the same periods in 2025 due to higher security products sales across a variety of markets and higher marine components sales to the industrial market. The increase in second quarter security products sales was primarily due to $.9 million higher sales to the healthcare market, $.7 million higher sales to the transportation market, $.5 million higher sales to distributors and $.4 million higher sales to the tool storage market. The increase in security products sales for the first six months of 2026 was primarily due to $.8 million higher sales to the transportation market, $.7 million higher sales to the tool storage market, ‌ $.6 million higher sales to the healthcare market and $.4 million higher sales to distributors. Sales to the government security market in the second quarter and in the first six months of 2026 were comparable to the same periods in 2025. The increase in second quarter marine components sales was primarily due to $1.6 million higher sales to the industrial market, partially offset by $1.0 million lower sales to the government market. The increase in marine components sales for the first six months of 2026 was primarily due to $3.5 million higher sales to the industrial market, partially offset by $1.5 million lower sales to the towboat market and $1.0 million lower sales to the government market. Towboat market sales in the first quarter of 2025 benefited from a one-time customer stocking event that did not repeat in 2026. Cost of Sales and Gross Margin - Our Component Products Segment's cost of sales as a percentage of net sales improved by 4% and 3% in the second quarter and first six months of 2026, respectively, compared to the same periods in 2025. As a result, gross margin as a percentage of net sales increased over the same periods. The improvement in gross margin percentage for the second quarter and first six months of 2026 was primarily due to a higher gross margin percentage at security products. In addition, improved gross margin performance at marine components contributed favorably to the increase in the second-quarter comparative period. Marine components' gross margin as a percentage of net sales increased in the second quarter of 2026 compared to the same period in 2025 primarily due to a more favorable customer and product mix, partially offset by higher cost of sales, including increased maintenance and supply costs. Marine components' gross margin as a percentage of net sales for the first six months of 2026 was comparable to the same period in 2025 as a more favorable customer and product mix and increased coverage of fixed costs on higher sales were largely offset by higher cost of sales, including sales of higher-cost inventory and increased maintenance and supply costs. Security products' gross margin as a percentage of net sales increased in the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to a more favorable customer and product mix and lower cost of sales driven by lower employer-related medical expenses and the recovery of one-time prior-period import costs recognized during the second quarter of 2026. Operating Income - As a percentage of net sales, our Component Products Segment's operating income for the second quarter and the first six months of 2026 increased compared to the same periods of 2025 and was primarily impacted by the factors affecting sales, cost of sales and gross margin discussed above. ​ Outlook - Our Component Products Segment's results for the first six months of 2026 reflected higher sales and favorable customer and product mix for both the security products and marine components reporting units. Our Component Products Segment expects these trends to continue through the remainder of 2026, and it currently expects net sales for the full year of 2026 to exceed 2025 levels. Within the security products reporting unit, it expects demand from several end markets, including healthcare, transportation and tool storage, to remain strong in the second half of 2026. Within the marine components reporting unit, it expects increased demand will continue to be driven by industrial market demand, particularly aeroderivative demand, while recreational marine and towboat-related demand is expected to remain relatively consistent with 2025 levels (excluding the impact of the one-time stocking event noted above). Based on our Component Products Segment's first-half operating performance, it currently expects full-year gross margin and operating income margins to exceed 2025 levels, although margins during the second half of 2026 may be challenged by the factors discussed below. Future operating results will continue to be influenced by product and customer mix, raw material costs and overall demand levels in the markets it serves. Our Component Products Segment manufactures substantially all its products in the U.S. and sources a substantial majority of its raw materials from U.S. suppliers. Our Component Products Segment also sources certain components, primarily electronic components, from suppliers in Asia, including China. Beginning in the second quarter of 2025 and continuing through the second quarter of 2026, our Component Products Segment experienced cost increases for certain imported raw materials, primarily electronic components, including increases in tariffs and shipping costs. In addition, inflationary pressures have increased costs for certain domestically-sourced raw materials. Where possible, our Component Products Segment increases selling prices to recover these higher raw material costs, although the extent to which our Component Products Segment can fully recover such costs will depend on a variety of factors including the ultimate tariff rate, duration of tariffs, and our Component Products Segment's customers' ability to substitute alternative products. Accordingly, our Component Products Segment will continue to closely monitor raw material costs, including zinc, brass, aluminum, steel and energy, as well as current and anticipated customer demand levels, to ensure its production capacity and inventory levels remain aligned with market conditions. Our Component Products Segment's expectations for its operations and the markets it serves are based on a number of factors outside its control. Currently, our Component Products Segment's supply chains are stable and transportation and logistical delays are minimal. Our Component Products Segment has experienced global and domestic supply chain challenges in the past. Any future impacts on its operations will depend on, among other things, disruption to its operations or its suppliers' operations, the effect of tariffs, and the impact of broader economic conditions, consumer confidence, and geopolitical events affecting demand for its products or its customers' and suppliers' operations, all of which remain uncertain and cannot be predicted. ​ ‌ Real Estate Management and Development - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Six months ended ​ ​ June 30, ​ June 30, ​ ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ (In millions) Net sales ​ $ 5.7 ​ $ 4.4 ​ $ 14.2 ​ $ 14.1 Cost of sales ​ 2.8 ​ 2.1 ​ 7.4 ​ 4.9 Gross margin ​ $ 2.9 ​ $ 2.3 ​ $ 6.8 ​ $ 9.2 Operating income ​ $ 18.9 ​ $ 18.4 ​ $ 21.9 ​ $ 29.7 General - Our Real Estate Management and Development Segment consists of BMI and LandWell. BMI and LandWell owned and developed real property in Henderson, Nevada. LandWell is actively engaged in developing a residential/planned community in Henderson. LandWell began marketing land for sale in the residential/planned community in December 2013 and sold the last remaining parcel during 2025. In addition, adjacent to the residential/planned community, LandWell has been actively marketing and selling land zoned for commercial and light industrial use and sold the last of those remaining parcels during the first quarter of 2026. Although land sales may be completed, we do not recognize revenue until we have satisfied the criteria for revenue recognition. In some instances, LandWell will receive cash proceeds at the time the contract closes and record deferred revenue for some or all of the cash amount received, with such deferred revenue being recognized in subsequent periods. Although all of the land in the residential/planned community has been sold, we continue to complete our development obligations. We expect the development work to be completed by the end of 2027. Net Sales and Operating Income - Substantially all of the net sales from our Real Estate Management and Development Segment in the second quarter and the first six months of 2026 and 2025 were from land sales. We recognized $4.4 million in revenues on land sales during the second quarter of 2026 compared to $5.7 million in revenues in the second quarter of 2025 and $14.1 million in the first six months of 2026 compared to $14.2 million in the same prior year period. Net sales decreased $1.3 million in the second quarter of 2026 compared to the same period in 2025 primarily because of a slower pace of development activity for previously sold parcels within the residential/planned community as our Real Estate Management and Development Segment nears completion of its development work. Net sales for the first six months of 2026 slightly decreased compared to the first six months of 2025 due to the effect of a significantly slower pace of development activity for previously sold parcels within the residential/planned community, which was offset by the sale of the final commercial parcel for $7.3 million in the first quarter of 2026, which had no further development obligations and was therefore immediately recognized as revenue. As noted above, we recognize revenue in our residential/planned community over time using cost-based input methods. All of the revenue we recognized in 2025 and 2026 for our residential/planned community was under this method of revenue recognition. The pace of development activities is dictated by a number of factors such as city permit and design approval, approval from the Nevada Department of Environmental Protection, labor and materials availability, and the amount of remaining development obligations. Cost of sales were $2.1 million and $4.9 million in the second quarter and the first six months of 2026, respectively, compared to $2.8 million and $7.4 million in the second quarter and first six months of 2025, respectively. We recognized income of $11.3 million and $16.7 million in the second quarter and first six months of 2026, respectively, related to tax increment infrastructure reimbursement compared to $17.2 million in the second quarter and first six months of 2025. Additionally, in the second quarter of 2026, LandWell sold the office building used in operations and recognized a gain on the sale of approximately $5.8 million. Outlook - LandWell is focused on completing development of the land it manages for the residential/planned community in Henderson. At June 30, 2026, all of the land in the residential/planned community had been sold as well as all saleable acreage zoned for light industrial and commercial use, including the office building LandWell used for its operations. As a result, we no longer own saleable land in Henderson. At June 30, 2026, we have deferred revenue of $24.0 million related to post-closing obligations on land sales in the residential/planned community closed prior to 2026. Because we recognize revenue over time using cost-based inputs, we will continue to recognize revenue on land previously sold over the development period, even though we have already received all the cash proceeds related to these sales. We currently expect to recognize substantially all remaining deferred revenue during 2026. Any delays or curtailments in infrastructure development related to post-closing obligation activities would delay the timing of revenue recognized on these previously closed land sales. Under LandWell's development agreement with the City of Henderson, the issuance of a specified number of housing permits requires LandWell to complete certain large community-wide infrastructure projects. Construction on several of these large projects began in late 2021 and is expected to be completed in late 2027. We expect 2026 land development costs to be lower than those in 2025 due to the timing of planned infrastructure projects and the availability of certain construction materials. Because these large ‌ infrastructure projects relate to the entirety of the residential/planned community, the associated costs are not part of the cost-based inputs used to recognize revenue, and therefore, this spending will not correlate to revenue recognition. However, this spending is eligible for tax increment reimbursement under our Owner Participation Agreement ("OPA") with the City of Henderson. During the second quarter of 2026, LandWell received approval for the remaining $11 million of tax increment reimbursement, bringing the total approved reimbursement under the OPA to the maximum amount of $170 million. We expect to receive cash payments on the related notes receivables over the next 5 to 7 years. General Corporate and Other Items - 2026 Compared to 2025 Changes in the Market Value of Valhi Common Stock held by Subsidiaries - Our subsidiaries, Kronos and NLI, hold shares of our common stock. As discussed in the 2025 Annual Report, we account for our proportional interest in these shares of our common stock as treasury stock at Kronos' and NLI's historical cost basis. The remaining portion of these shares of our common stock, which are attributable to the noncontrolling interest of Kronos and NLI, are reflected in our Condensed Consolidated Balance Sheet at fair value. Kronos and NLI recognize unrealized gains or losses on these shares of our common stock in the determination of each of their respective net income or loss. 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 $.1 million gain in the second quarter of 2026 compared to no gain or loss in the second quarter of 2025 and a gain of $.6 million in the first six months of 2026 compared to a loss of $1.7 million in the first six months of 2025, each of which was recognized in our Condensed Consolidated Statements of Income and represent the unrealized gain (loss) in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NLI. Interest Income and Other - Interest income and other increased $.3 million in the second quarter of 2026 primarily due to increased interest income received on the Real Estate Management and Development OPA note receivable offset by decreased average investment balances and lower average interest rates. Interest income and other decreased $.5 million in the first six months of 2026 compared to the same period of 2025 primarily due to decreased average investment balances and lower average interest rates partially offset by increased interest income received on the Real Estate Management and Development OPA note receivable. See Note 12 to our Condensed Consolidated Financial Statements. Other General Corporate Items - Corporate expenses were 2% lower in the second quarter of 2026 and 5% lower in the first six months of 2026 compared to the same respective periods in 2025 primarily due to lower environmental remediation and related costs. Included in corporate expense are: ● litigation fees and related costs at NLI of $.6 million in the second quarter of 2026 compared to $.7 million in the second quarter of 2025 and $1.2 million in each of the first six months of 2026 and 2025; and ● environmental remediation and related costs of $.3 million in the second quarter of 2026 compared to $1.2 million in the second quarter of 2025 and $1.0 million in the first six months of 2026 compared to $2.2 million in the first six months of 2025. Overall, we currently expect that our net general corporate expenses in 2026 will be higher than in 2025 primarily due to expected increases in litigation fees and related costs, predominantly in the second half of the year. See Note 16 to our Condensed Consolidated Financial Statements. The level of our litigation fees and related expenses varies from period to period depending upon, among other things, the number of cases in which we are currently involved, the nature of such cases and the current stage of such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable). See Note 16 to our Condensed Consolidated Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved during 2026, or the nature of such cases were to change, our corporate expenses could be higher than we currently estimate. Obligations for environmental remediation and related costs are difficult to assess and estimate and it is possible that actual costs for environmental remediation and related costs will exceed accrued amounts or that costs will be incurred in the future for sites in which we cannot currently estimate the liability. If these events occur in 2026, our corporate expense could be higher than we currently estimate. In addition, we adjust our accruals for environmental remediation and related costs as further information becomes available to us or as circumstances change. Such further information or changed circumstances could result in an increase or reduction in our accrued environmental remediation and related costs. See Note 16 to our Condensed Consolidated Financial Statements. ‌ Interest Expense - Interest expense increased $.9 million and $2.4 million in the second quarter and first six months of 2026, respectively, compared to the same periods in 2025 primarily due to higher overall debt levels and higher average interest rates. See Note 7 to our Condensed Consolidated Financial Statements. We expect interest expense will be higher in 2026 as compared to 2025 primarily due to higher average debt balances and higher interest rates on Kronos' debt issued in the third quarter of 2025. Income Tax Expense - We recognized income tax expense of $11.8 million in the second quarter of 2026 compared to income tax expense of $8.0 million in the second quarter of 2025 and income tax expense of $18.1 million in the first six months of 2026 compared to $16.0 million in the first six months of 2025. The increase in the second quarter and first six months of 2026 is primarily due to higher earnings in 2026, the jurisdictional mix of such earnings, and a net uncertain tax position of $2.0 million recognized in the first quarter of 2026. During interim periods, our effective tax rate may not necessarily correspond to the current period income (loss) before taxes due to the application of accounting for income taxes in interim periods which requires us to base our effective rate on full year projections of pre-tax income (loss). We recognize deferred income taxes with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock because the exemption under GAAP to avoid such recognition of deferred income taxes is not available to us. At December 31, 2025, we recognized a deferred income tax liability with respect to our direct investment in Kronos of $49.7 million. There is a maximum amount (or cap) of such deferred income taxes we are required to recognize with respect to our direct investment in Kronos. The maximum amount of the cap is $153.6 million. During the first six months of 2026, we recognized a $2.8 million non-cash deferred income tax benefit with respect to our direct investment in Kronos. This benefit reflects a decrease in the deferred income taxes required to be recognized on the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock and was related to our equity in Kronos' net income during the period. We recognized a similar deferred income tax benefit of $2.2 million in the first six months of 2025. 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. At December 31, 2025, our Chemicals Segment had German corporate and trade net operating loss ("NOL") carryforwards of $510.8 million (deferred tax asset ("DTA") of $57.2 million) and $46.3 million (DTA of $5.0 million), respectively. We have previously concluded no valuation allowance is required to be recognized with respect to such carryforwards principally because (i) such carryforwards have an indefinite carryforward period, (ii) we have utilized a portion of such carryforwards during the most recent three-year period and (iii) we currently expect to utilize the remainder of such carryforwards over the long term. At June 30, 2026, we continue to conclude no valuation allowance is required to be recognized for our German DTAs. However, prior to the complete utilization of such carryforwards, if we were to generate additional losses in our German operations for an extended period of time, or if applicable laws were to change such that the carryforward periods were more limited, it is possible that we might conclude the benefit of such carryforwards would no longer meet the more-likely-than-not recognition criteria, at which point we would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards. See Note 13 to our Condensed Consolidated Financial Statements for a tabular reconciliation of our statutory income tax provision to our actual tax provision. Noncontrolling Interest in Net Income of Subsidiaries - Noncontrolling interest in operations of subsidiaries in the first six months of 2026 was higher compared to the same period in 2025 primarily due to increased operating income at our Real Estate Management and Development Segment and improved results of NLI. See Note 14 to our Condensed Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES Consolidated Cash Flows Operating Activities - Trends in cash flows from operating activities (excluding the impact of significant asset dispositions and relative changes in assets and liabilities) are generally similar to trends in our operating income. In addition to the impact of the operating, investing and financing cash flows discussed below, changes in the amount of cash, cash equivalents and restricted cash we report from period to period can be impacted by changes in currency exchange rates, since a portion of our cash, cash equivalents and restricted cash is held by our non-U.S. subsidiaries. ‌ Cash provided by operating activities was $13.0 million in the first six months of 2026 compared to cash used in operating activities of $134.2 million in the first six months of 2025. This $147.2 million increase in cash provided by operating activities in the first six months of 2026 includes: ● consolidated operating income of $100.6 million in the first six months of 2026, an increase of $15.0 million compared to operating income of $85.6 million in the first six months of 2025; ● lower cash paid for environmental remediation and related costs of $56.9 million primarily due to the payment of a settlement for an environmental site in 2025; ● lower amount of net cash used in 2026 of $44.9 million associated with relative changes in our receivables, inventories, land held for development, accounts with affiliates, payables and accrued liabilities; ● lower cash paid for taxes in 2026 of $31.7 million primarily due to our Chemicals Segment's final repatriation tax installment payment under the 2017 Tax Act in 2025 of $18.6 million and the relative timing of payments; and ● higher cash paid for interest in 2026 of $4.8 million primarily due to increased debt levels and higher average interest rates relative to the comparable period in 2025 and the timing of interest payments. As noted in our discussion of our Real Estate Management and Development segment above, we have sold all of the land in our residential/planned community, and in accordance with our development agreement with the City of Henderson and our contractual obligations with builders, we expect to complete our land development obligations over the next two years. Because we have largely received cash proceeds from land sales, we expect LandWell to generate negative operating cash flows as it completes its required land development work. Changes in working capital were affected by accounts receivable and inventory changes as shown below: ● Kronos' average days sales outstanding ("DSO") increased from December 31, 2025 to June 30, 2026 primarily due to the relative changes in the timing of sales and collections. ● Kronos' average days sales in inventory ("DSI") decreased from December 31, 2025 to June 30, 2026 primarily due to lower inventory volumes attributable to sales volumes exceeding production volumes in the first six months of 2026. ● CompX's average DSO increased from December 31, 2025 to June 30, 2026 primarily due to the relative changes in the timing of sales and collections. ● CompX's average DSI decreased from December 31, 2025 to June 30, 2026 primarily due to a reduction in days in inventory at the security products reporting unit, driven by higher sales volumes in the second quarter of 2026 compared to the fourth quarter of 2025. This improvement was partially offset by an increase in days in inventory at the marine components reporting unit, primarily due to higher work-in-process inventory balances resulting from delays in certain raw material shipments, as well as the timing of customer order fulfillment. ​ ‌ For comparative purposes, we have also provided comparable prior period numbers below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ June 30, ​ ​ ​ December 31, ​ ​ ​ June 30, ​ ​ 2024 ​ 2025 ​ 2025 ​ 2026 Kronos: ​ ​ ​ ​ ​ ​ ​ ​ Days sales outstanding 62 days 62 days 61 days 62 days Days sales in inventory 82 days 75 days 57 days 35 days CompX: ​ ​ ​ ​ Days sales outstanding 33 days 38 days 33 days 41 days Days sales in inventory 94 days 109 days 108 days 103 days We do not have complete access to the cash flows of our majority-owned subsidiaries, due in part to limitations contained in certain credit agreements of our subsidiaries and because we do not own 100% of these subsidiaries. A detail of our consolidated cash flows from operating activities is presented in the table below. Intercompany dividends have been eliminated. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended ​ ​ June 30, ​ ​ ​ ​ 2025 ​ ​ ​ 2026 ​ ​ (In millions) Cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ Kronos ​ $ (81.7) ​ $ 2.0 Valhi exclusive of subsidiaries ​ 16.5 ​ 22.2 CompX ​ 4.6 ​ 6.0 NLI exclusive of subsidiaries ​ (38.5) ​ 7.6 Tremont exclusive of subsidiaries ​ 4.6 ​ (1.4) BMI ​ 2.7 ​ .1 LandWell ​ (1.0) ​ 13.4 Eliminations and other ​ (41.4) ​ (36.9) Total ​ $ (134.2) ​ $ 13.0 Investing Activities - During the six months ended June 30, 2026: ● We spent $27.8 million in capital expenditures including $26.3 million in our Chemicals Segment and $1.5 million in our Component Products Segment; ● LandWell received proceeds of $6.8 million on a building sale (see Note 12 to our Condensed Consolidated Financial Statements); and ● had net purchases of $.2 million of marketable securities. Financing Activities - During the six months ended June 30, 2026: ● Kronos had net borrowings of $28.4 million on its revolving credit facility; ● we repaid $16.0 million under the Contran credit facility; and ● we paid aggregate quarterly dividends to Valhi stockholders of $.16 per share ($4.5 million). The declaration and payment of future dividends, and the amount thereof, is discretionary and is dependent upon a number of factors including our current and future expected results of operations, financial condition, cash requirements for our businesses, contractual and other requirements and restrictions and other factors deemed relevant by our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which might be paid. 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 2026 are comprised of CompX dividends paid to shareholders other than NLI, Kronos dividends paid to shareholders other than us and NLI, and LandWell dividends paid to partners other than us and BMI. ​ ‌ Outstanding Debt Obligations At June 30, 2026, our consolidated indebtedness was comprised of: ● Valhi's $7.6 million outstanding on its $125 million credit facility with Contran which is due no earlier than December 31, 2027; ● €426.174 million aggregate outstanding on Kronos' 9.50% Senior Secured Notes due March 2029 ($487.7 million carrying amount, net of unamortized premium and unamortized debt issuance costs); ● $53.7 million outstanding on Kronos' subordinated, unsecured term loan from Contran with an interest rate of 9.54% due September 2029 (the "Contran Term Loan"); ● $28.2 million outstanding on Kronos' revolving credit facility (the "Global Revolver"); and ● $10.3 million on LandWell's bank loan due April 2036. Availability under Kronos' Global Revolver is subject to a borrowing base calculation, as defined in the agreement. The borrowing base calculated for the period ended June 30, 2026 was approximately $261 million. The Contran Term loan is subordinated in right of payment to Kronos' Senior Secured Notes and its Global Revolver. Kronos' Senior Secured Notes, the Contran Term Loan and Kronos' 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. Our credit agreements contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons other than defaults for failure to comply with typical financial or payment covenants. For example, the credit agreements allow the lender to accelerate the maturity of the indebtedness upon a change of control (as defined in the agreement) of the borrower. 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 are discussed in Note 9 to our Consolidated Financial Statements included in our 2025 Annual Report. We are in compliance with all of our debt covenants at June 30, 2026. We believe we will be able to continue to comply with the financial covenants contained in our debt obligations through their maturity; however, if future operating results differ materially from our expectations we may be unable to maintain compliance. Our assets consist primarily of investments in operating subsidiaries, and our ability to service our obligations, including Kronos' Senior Secured Notes and the Contran Term Loan, depends in part upon the distribution of earnings of our subsidiaries, whether in the form of dividends, advances or payments on account of intercompany obligations or otherwise. Kronos' Senior Secured Notes are collateralized by, among other things, a first priority lien on (i) 100% of the common stock or other ownership interests of each existing and future direct domestic subsidiary of KII and the guarantors, and (ii) 65% of the voting common stock or other ownership interests and 100% of the non-voting common stock or other ownership interests of each non-U.S. subsidiary that is directly owned by KII or any guarantor. Kronos' Global Revolver is collateralized by, among other things, a first priority lien on the borrower's trade receivables and inventories. See Note 7 to our Condensed Consolidated Financial Statements. Future Cash Requirements Liquidity - Our primary source of liquidity on an ongoing basis is our cash flows from operating activities and borrowings under various lines of credit and notes. We generally use these amounts to (i) fund capital expenditures, (ii) repay short-term indebtedness incurred primarily for working capital purposes and (iii) provide for the payment of dividends (including dividends paid to us by our subsidiaries) or treasury stock purchases. From time-to-time we will incur indebtedness, generally to (i) fund short-term working capital needs, (ii) refinance existing indebtedness, (iii) make investments in marketable and other securities (including the acquisition of securities issued by our subsidiaries and affiliates) or (iv) fund major capital expenditures or the acquisition of other assets outside the ordinary course of business. Occasionally we sell assets outside the ordinary course of business, and we generally use the proceeds to (i) repay existing indebtedness (including indebtedness which may have been collateralized by the assets sold), (ii) make investments in marketable and other securities, (iii) fund major capital expenditures or the acquisition of other assets outside the ordinary course of business or (iv) pay dividends. We routinely compare our liquidity requirements and alternative uses of capital against the estimated future cash flows we expect to receive from our subsidiaries, and the estimated sales value of those units. As a result of this process, we have in the past ‌ sought, and may in the future seek, to raise additional capital, refinance or restructure indebtedness, repurchase indebtedness in the market or otherwise, modify our dividend policies, consider the sale of our interests in our subsidiaries, affiliates, business units, marketable securities or other assets, or take a combination of these and other steps, to increase liquidity, reduce indebtedness and fund future activities. Such activities have in the past and may in the future involve related companies. We may also from time to time engage in preliminary discussions with existing or potential investors regarding the timing or terms of any such refinancing or other potential transaction. From time to time, we and our subsidiaries may enter into intercompany loans as a cash management tool. Such notes are structured as revolving demand notes and pay and receive interest on terms we believe are generally more favorable than current debt and investment market rates. The companies that borrow under these notes have sufficient liquidity to repay the notes. All of these notes and related interest expense and income are eliminated in our Condensed Consolidated Financial Statements. We periodically evaluate acquisitions of interests in or combinations with companies (including our affiliates) that may or may not be engaged in businesses related to our current businesses. We intend to consider such acquisition activities in the future and, in connection with this activity, may consider issuing additional equity securities and increasing indebtedness. From time to time, we also evaluate the restructuring of ownership interests among our respective subsidiaries and related companies. 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, 2027) and long-term obligations (defined as the five-year period ending June 30, 2031). Kronos' Global Revolver matures in July 2029, and at June 30, 2026 Kronos had total availability for borrowing of approximately $261 million less any amounts outstanding. The borrowing base is calculated at least quarterly, and the amount available for borrowing may change based on applicable period end balances. See Note 7 to our Condensed Consolidated Financial Statements. If actual developments differ from our expectations, our liquidity could be adversely affected. At June 30, 2026, we had an aggregate of $231.6 million of restricted and unrestricted cash, cash equivalents and marketable securities, including $27.8 million held by our non-U.S. subsidiaries. A detail by entity is presented in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ Held outside ​ ​ amount ​ ​ ​ U.S. ​ ​ (In millions) Kronos ​ $ 34.5 ​ $ 27.8 CompX ​ 52.4 ​ - NLI exclusive of its subsidiaries ​ 58.0 ​ - BMI ​ 10.0 ​ - Tremont exclusive of its subsidiaries ​ 11.9 ​ - LandWell ​ 64.8 ​ - Valhi exclusive of its subsidiaries ​ - ​ - Total cash and cash equivalents, restricted cash and marketable securities ​ $ 231.6 ​ $ 27.8 Capital Expenditures and Other - We currently expect our aggregate capital expenditures for 2026 will be approximately $66 million as follows: ● $60 million by our Chemicals Segment; and ● $6 million by our Component Products Segment. In addition, LandWell expects to spend approximately $20 million on land development costs during 2026. Capital spending for 2026 is expected to be funded through cash generated from operations or borrowing under our existing credit facilities. Planned capital expenditures for the remainder of 2026 at Kronos and CompX will primarily be to maintain and improve our existing facilities and, as it relates to CompX, to meet expected customer demand and maintain technology infrastructure. It is possible we will delay planned capital projects based on market conditions including but not limited to expected demand and the general availability of materials, equipment and supplies necessary to complete such projects. Repurchases of Common Stock - We, Kronos and CompX have programs to repurchase common stock from time to time as market conditions permit. These stock repurchase programs do not include specific price targets or timetables and may be suspended at any time. Depending on market ‌ conditions, these programs may be terminated prior to completion. Cash on hand will be used to acquire the shares, and repurchased shares will be added to treasury shares and cancelled. At June 30, 2026, Valhi had approximately .3 million shares available to repurchase under authorizations made by our board of directors. Kronos' board of directors previously 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, 2026, approximately 1.0 million shares were available for repurchase under these authorizations. CompX's board of directors previously 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. At June 30, 2026, approximately .5 million shares were available for repurchase under these authorizations. Dividends - Because our operations are conducted primarily through subsidiaries and affiliates, our long-term ability to meet parent company level corporate obligations is largely dependent on the receipt of dividends or other distributions from our subsidiaries and affiliates. Kronos paid a regular dividend of $.05 per share in each quarter of 2025 for which we received $11.6 million. In February 2026 the Kronos board of directors approved a quarterly dividend of $.05 per share. If Kronos were to pay its $.05 per share dividend in each quarter of 2026 based on the 58.0 million shares we held of Kronos common stock at June 30, 2026, during 2026 we would receive aggregate regular dividends from Kronos of $11.6 million. NLI paid a quarterly dividend of $.09 per share in 2025 for which we received $14.5 million. In August 2025 the NLI board of directors declared a special dividend of $.21 per share on its common stock. We received $8.5 million from this dividend, which is not expected to be recurring. In February 2026 the NLI board of directors approved a quarterly dividend of $.10 per share. If NLI were to pay its $.10 per share dividend in each quarter of 2026 based on the 40.4 million shares we held of NLI common stock at June 30, 2026, during 2026 we would receive aggregate quarterly dividends from NLI of $16.2 million. 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 $19.5 million in 2025 and $1.7 million thus far in 2026. All of our ownership interest in CompX is held through our ownership in NLI; as such we do not receive any dividends from CompX. Instead any dividend paid by CompX is paid to NLI. Our subsidiaries have various credit agreements with unrelated third-party lenders which contain customary limitations on the payment of dividends; however, these restrictions in the past have not significantly impacted their ability to pay dividends. Investment in our Subsidiaries and Affiliates and Other Acquisitions - We have in the past, and may in the future, purchase the securities of our subsidiaries and affiliates or third parties in market or privately-negotiated transactions. We base our purchase decisions on a variety of factors, including an analysis of the optimal use of our capital, taking into account the market value of the securities and the relative value of expected returns on alternative investments. In connection with these activities, we may consider issuing additional equity securities or increasing our indebtedness. We may also evaluate the restructuring of ownership interests of our businesses among our subsidiaries and related companies. We generally do not guarantee any indebtedness or other obligations of our subsidiaries or affiliates. Our subsidiaries are not required to pay us dividends. If one or more of our subsidiaries were unable to maintain its current level of dividends, either due to restrictions contained in a credit agreement or to satisfy its liabilities or otherwise, our ability to service our liabilities or to pay dividends on our common stock could be adversely impacted. If this were to occur, we might consider reducing or eliminating our dividends or selling interests in subsidiaries or other assets. If we were required to liquidate assets to generate funds to satisfy our liabilities, we might be required to sell at less than what we believe is the long-term value of such assets. We have a $50 million revolving credit facility with a subsidiary of NLI secured with approximately 35.2 million shares of the common stock of Kronos held by NLI's subsidiary as collateral. Outstanding borrowings under the credit facility, as amended, bear interest at the prime rate plus 1.875% per annum, payable quarterly, with all amounts due on December 31, 2030. The maximum principal amount which may be outstanding from time-to-time under the credit facility is limited to 50% of the value of the Kronos stock using the most recent closing price. The credit facility contains a number of covenants and restrictions which, among other things, restrict NLI's subsidiary's ability to incur additional debt, incur liens, and merge or consolidate with, or sell or transfer substantially all of NLI's subsidiary's assets to, another entity, and require NLI's subsidiary to maintain a minimum specified level of consolidated net worth. Upon an event of default (as defined in the credit facility), Valhi will be entitled to terminate its commitment to make further ‌ loans to NLI's subsidiary, declare the outstanding loans (with interest) immediately due and payable, and exercise its rights with respect to the collateral under the loan documents. Such collateral rights include, upon certain insolvency events with respect to NLI's subsidiary or NLI, the right to purchase all of the Kronos common stock at a purchase price equal to the aggregate market value, less amounts owing to Valhi under the loan documents, and up to 50% of such purchase price may be paid by Valhi in the form of an unsecured promissory note bearing interest at the prime rate plus 2.75% per annum, payable quarterly, with all amounts due no later than five years from the date of purchase, with the remainder of such purchase price payable in cash at the date of purchase. We also eliminate any such intercompany borrowings in our Condensed Consolidated Financial Statements. There is $.5 million outstanding under this facility at June 30, 2026. We also have an unsecured revolving demand promissory note with CompX which, as amended, provides for borrowings from CompX of up to $25 million. We eliminate these intercompany borrowings in our Condensed Consolidated Financial Statements. The facility, as amended, is due on demand, but in any event no earlier than December 31, 2027. We had gross borrowings of $7.6 million and gross repayments of $8.8 million during the first six months of 2026, and $6.8 million was outstanding at June 30, 2026. We could borrow $18.2 million under our current intercompany facility with CompX at June 30, 2026. CompX's obligation to loan us money under this note is at CompX's discretion. Commitments and Contingencies There have been no material changes in our contractual obligations since we filed our 2025 Annual Report and we refer you to that report for a complete description of these commitments. We are subject to certain commitments and contingencies, as more fully described in our 2025 Annual Report, or in Notes 13 and 16 to our Condensed Consolidated Financial Statements and in Part II, Item 1 of this Quarterly Report, including: ● certain income tax contingencies in various U.S. and non-U.S. jurisdictions; ● certain environmental remediation matters involving NLI and BMI; ● certain litigation related to NLI's former involvement in the manufacture of lead pigment and lead-based paint; and ● certain other litigation to which we are a party. In addition to such legal proceedings, various legislation and administrative regulations have, from time to time, been proposed that seek to (i) impose various obligations on present and former manufacturers of lead pigment and lead-based paint (including NLI) with respect to asserted health concerns associated with the use of such products and (ii) effectively overturn court decisions in which NLI and other pigment manufacturers have been successful. Examples of such proposed legislation include bills which would permit civil liability for damages on the basis of market share, rather than requiring plaintiffs to prove that the defendant's product caused the alleged damage, and bills which would revive actions barred by the statute of limitations. While no legislation or regulations have been enacted to date that are expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity, enactment of such legislation could have such an effect. Recent Accounting Pronouncements See Note 19 to our Condensed Consolidated Financial Statements. Critical Accounting Policies and Estimates For a discussion of our critical accounting policies and estimates, refer to Part I, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2025 Annual Report. There have been no changes in our critical accounting policies or estimates during the first six months of 2026.

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