VALHI INC /DE/

Previous wording

We reported net income attributable to Valhi stockholders of $57.5 million or $2.01 per diluted share in the third quarter of 2024 compared to a net loss attributable to Valhi stockholders of $5.8 million or $.21 per diluted share in the third quarter of 2023. As discussed more fully below, our net income attributable to Valhi stockholders increased from 2023 to 2024 primarily due to the net effects of:

Current wording

We reported net income attributable to Valhi stockholders of $16.9 million or $.59 per diluted share in the first quarter of 2025 compared to net income attributable to Valhi stockholders of $7.8 million or $.27 per diluted share in the first quarter of 2024. As discussed more fully below, our net income attributable to Valhi stockholders increased from 2024 to 2025 primarily due to higher operating income from our Chemicals Segment of $41.2 million in 2025 compared to operating income of $22.8 million in 2024.

Previous wording

As previously reported, effective July 16, 2024 (“Acquisition Date”), Kronos acquired the 50% joint venture interest in Louisiana Pigment Company, L.P. (“LPC”) previously held by Venator Investments, Ltd. (“Venator”). Prior to the acquisition, LPC was operated as a manufacturing joint venture between Kronos and Venator, and through a wholly-owned subsidiary, Kronos held a 50% joint venture interest in LPC. Following the acquisition, LPC became a wholly-owned subsidiary of Kronos. Kronos acquired the 50% joint venture interest that it did not already own for consideration of $185 million less a working capital adjustment of $11.0 million. An additional earn-out payment of up to $15 million based on Kronos’ aggregate consolidated net income before interest expense, income taxes and depreciation and amortization expense, or EBITDA, during a two-year period comprising calendar years 2025 and 2026 may be required. The acquisition was financed through borrowings of $132.1 million under Kronos’ global revolving credit facility (the “Global Revolver”) and the remainder paid with cash on hand. Kronos accounted for the acquisition of LPC’s interest as a business combination. For financial reporting purposes, the assets acquired and liabilities assumed of LPC are included in our Condensed Consolidated Balance Sheet as of September 30, 2024, and the results of operations and cash flows of LPC are included in our Condensed Consolidated Statement of Operations and Cash Flows beginning as of the Acquisition Date. See Note 19 to our Condensed Consolidated Financial Statements.

Current wording

As previously reported, effective July 16, 2024 (“Acquisition Date”), Kronos acquired the 50% joint venture interest in Louisiana Pigment Company, L.P. (“LPC”) previously held by Venator Investments, Ltd. (“Venator”). Prior to the acquisition, Kronos held a 50% joint venture interest in LPC. Following the acquisition, LPC became a wholly-owned subsidiary of Kronos. Kronos accounted for the acquisition as a business combination. The results of operations of LPC have been included in our results of operations beginning as of the Acquisition Date. See Note 18 to our Condensed Consolidated Financial Statements.

Previous wording

Current Industry Conditions– Our Chemicals Segment and the TiO 2 industry experienced an extended period of significantly reduced demand across all major markets which was reflected in its sales volumes throughout 2023. While demand has improved in 2024 resulting in increased sales volumes across all major markets compared to the prior year, overall demand remains below average historical levels and during the third quarter of 2024, demand moderated as compared to the first half of the year. Our Chemicals Segment started 2024 with average TiO 2 selling prices 13% lower than at the beginning of 2023 and its average TiO 2 selling prices increased 4% during the first nine months of 2024. Our Chemicals Segment’s average TiO 2 selling prices in the first nine months of 2024 were 7% lower than average prices during the first nine months of 2023.

Current wording

Current Industry Conditions– Our Chemicals Segment started 2025 with average TiO 2 selling prices 2% higher than at the beginning of 2024 but average TiO 2 selling prices declined 3% during the first quarter of 2025 due to market pressure in certain regions and a less favorable product sales mix. Our Chemicals Segment’s average TiO 2 selling prices in the first three months of 2025 were 2% higher than the average prices during the first three months of 2024. Our Chemicals Segment had higher overall sales volumes in its North American and European markets somewhat offset by lower sales volumes in export markets in the first three months of 2025 as compared to the same period of 2024.

Previous wording

Our Chemicals Segment operated its production facilities at 71% of practical capacity utilization in the first nine months of 2023 in response to decreased demand and higher production costs. As a result of increased demand experienced in the fourth quarter of 2023 and first nine months of 2024, along with more favorable production costs, our Chemicals Segment began increasing its production rates during the first quarter of 2024 and it operated at near practical capacity in the second and third quarters of 2024 resulting in 93% of practical capacity utilization in the first nine months of 2024.

Current wording

Our Chemicals Segment operated its production facilities at 93% of practical capacity utilization in the first quarter of 2025 compared to 87% in the first quarter of 2024 in response to increased customer demand.

Previous wording

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 nine months of 2024 was significantly lower as compared to the comparable period in 2023 primarily due to significant decreases in per metric ton production costs (primarily feedstock and energy).

Current wording

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 three months of 2025 was lower as compared to the comparable period in 2024 due to decreases in per metric ton production costs (primarily raw materials, utilities and unabsorbed fixed costs due to improved operating rates in 2025).

Previous wording

Net Sales– Our Chemicals Segment’s net sales in the third quarter of 2024 increased 22%, or $87.8 million, compared to the third quarter of 2023 primarily due to the effects of a 21% increase in sales volumes (which increased net sales by approximately $83 million) partially offset by a 1% decrease in average TiO 2 selling prices (which decreased net sales by approximately $4 million). The effects of changes in currency exchange rates in the third quarter of 2024 were comparable to the third quarter of 2023. TiO 2 selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs.

Current wording

Net Sales– Our Chemicals Segment’s net sales in the first quarter of 2025 increased 2%, or $11.0 million, compared to the first quarter of 2024 primarily due to the net effects of a 5% increase in sales volumes (which increased net sales by approximately $24 million), a 2% increase in average TiO 2 selling prices (which increased net sales by approximately $10 million) and changes in product mix (which decreased net sales by approximately $10 million). In addition, our Chemicals Segment estimates that changes in currency exchange rates (primarily the euro) decreased its net sales by approximately $11 million in the first quarter of 2025 as compared to the first quarter of 2024. TiO 2 selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs.

Previous wording

Cost of Sales and Gross Margin– Our Chemicals Segment’s cost of sales increased by $21.6 million, or 6%, in the third quarter of 2024 compared to the third quarter of 2023 due to the net effects of a 21% increase in sales volumes, higher production rates and lower production costs of approximately $24 million (primarily energy and raw materials). Cost of sales in the third quarter of 2024 also

Current wording

Cost of Sales and Gross Margin– Our Chemicals Segment’s cost of sales decreased by $24.5 million, or 6%, in the first quarter of 2025 compared to the first quarter of 2024 due to the net effects of lower production costs, including lower raw materials, utilities and unabsorbed fixed costs due to improved operating rates, and a 5% increase in TiO 2 sales volumes.

Previous wording

Our Chemicals Segment’s cost of sales as a percentage of net sales improved to 79% in the third quarter of 2024 compared to 91% in the same period of 2023 primarily due to the favorable effects of lower production costs and higher production volumes resulting in increased coverage of fixed production costs.

Current wording

Our Chemicals Segment’s cost of sales as a percentage of net sales improved to 78% in the first quarter of 2025 compared to 85% in the same period of 2024 primarily due to the favorable effects of lower production costs (primarily raw materials and utilities) and higher production volumes resulting in increased coverage of fixed production costs.

Previous wording

Our Chemicals Segment’s gross margin as a percentage of net sales increased to 21% in the third quarter of 2024 compared to 9% in the third quarter of 2023. As discussed and quantified above, our Chemicals Segment’s gross margin as a percentage of net sales increased primarily due to higher sales and production volumes and lower production costs, which were partially offset by lower average TiO 2 selling prices.

Current wording

Our Chemicals Segment’s gross margin as a percentage of net sales increased to 22% in the first quarter of 2025 compared to 15% in the first quarter of 2024. As discussed and quantified above, our Chemicals Segment’s gross margin as a percentage of net sales increased primarily due to higher sales and production volumes, higher average TiO 2 selling prices, lower overall production costs (primarily raw materials and utilities) and improved fixed cost absorption.

Previous wording

Operating Income (Loss)– Our Chemicals Segment had operating income of $42.6 million in the third quarter of 2024 compared to an operating loss of $21.8 million in the third quarter of 2023 as a result of the factors impacting gross margin discussed above. We estimate changes in currency exchange rates increased our Chemicals Segment’s operating income by approximately $13 million in the third quarter of 2024 as compared to the same period in 2023, as discussed in the effects of currency exchange rates section below.

Current wording

Operating Income– Our Chemicals Segment had operating income of $41.2 million in the first quarter of 2025 compared to operating income of $22.8 million in the first quarter of 2024 as a result of the factors impacting gross margin discussed above. We estimate changes in currency exchange rates decreased our Chemicals Segment’s operating income by approximately $5 million in the first quarter of 2025 as compared to the same period in 2024, as discussed in the effects of currency exchange rates section below.

Previous wording

Our Chemicals Segment’s operating income (loss) is net of amortization of purchase accounting adjustments made in conjunction with our acquisitions of interests in NL and Kronos. As a result, we recognize additional depreciation expense above the amounts Kronos reports separately, substantially all of which is included within cost of sales. We recognized additional depreciation expense of $2.0 million and $1.0 million in the first nine months of 2024 and 2023, respectively, which reduced our reported Chemicals Segment’s operating income as compared to amounts reported by Kronos.

Current wording

Our Chemicals Segment’s operating income is net of amortization of purchase accounting adjustments made in conjunction with our acquisitions of interests in NL and Kronos. As a result, we recognize additional depreciation expense above the amounts Kronos reports separately, substantially all of which is included within cost of sales. We recognized additional depreciation expense of $.5 million and $.6 million in the first three months of 2025 and 2024, respectively, which reduced our reported Chemicals Segment’s operating income as compared to amounts reported by Kronos.

Previous wording

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, and (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).

Current wording

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 gain or losses we would recognize from the first two items described above.

Previous wording

Overall, we estimate that fluctuations in currency exchange rates had the following effects on the reported amounts of our Chemicals Segment’s sales and operating income (loss) for the periods indicated.

Current wording

Fluctuations in currency exchange rates had the following effects on our Chemicals Segment’s sales and operating income for the periods indicated.

Previous wording

The $1 million decrease in our Chemicals Segment’s net sales (translation losses) was caused primarily by a strengthening of the U.S. dollar relative to the euro, as its euro-denominated sales were translated into fewer U.S. dollars in 2024 as compared to 2023. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2024 did not have a significant effect on the reported amount of our Chemicals Segment’s net sales, as a substantial portion of the sales generated by our Chemicals Segment’s Canadian and Norwegian operations is denominated in the U.S. dollar.

Current wording

The $11 million decrease in our Chemicals Segment’s net sales (translation losses) was caused primarily by a strengthening of the U.S. dollar relative to the euro, as its euro-denominated sales were translated into fewer U.S. dollars in 2025 as compared to 2024. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2025 did not have a significant effect on our Chemicals Segment’s net sales, as a substantial portion of the sales generated by our Chemicals Segment’s Canadian and Norwegian operations is denominated in the U.S. dollar.

Previous wording

The $13 million increase in our Chemicals Segment’s operating income was comprised of the following:

Current wording

The $5 million decrease in our Chemicals Segment’s operating income was comprised of the following:

Previous wording

As noted above, our Chemicals Segment acquired full control of LPC in July 2024. Our Chemicals Segment believes this acquisition is a unique opportunity to immediately add value to its customers and better serve the North American marketplace by allowing our Chemicals Segment to expand its product offerings and increase sales to new and existing customers while recognizing significant synergies, including commercial, overhead and supply chain optimization. Our Chemicals Segment is in the process of fully integrating the additional LPC production capacity and it expects the acquisition will have a positive impact on its earnings, although the potential positive impact in 2024 will be limited by competitive pressures, demand moderation in North America and by the additional debt service costs associated with the increase in borrowings to complete the transaction. With the increased borrowing availability under our Chemicals Segment’s revolving credit facility, as well as cash on hand, it is well positioned to finance the required working capital build needed to fully integrate the acquired LPC production capacity, which it expects to be complete by the end of the year. Beginning in the third quarter, our Chemicals Segment reduced its quarterly dividend rate from $.19 per share to $.05 per share to provide the flexibility to absorb increased debt service costs, working capital needs and capital improvements from the LPC acquisition.

Current wording

As noted above, our Chemicals Segment acquired full control of LPC in July 2024. Our Chemicals Segment believes this acquisition presents a unique opportunity to add immediate value for its customers and better serve the North American marketplace by expanding its product offerings and increasing sales to new and existing customers while realizing significant synergies, including commercial, overhead, and supply chain optimization. Our Chemicals Segment is in the process of fully integrating the additional LPC production capacity and it expects the acquisition to positively impact its earnings in 2025, although soft demand, competitive pressures and additional debt service costs associated with increased borrowings to complete the transaction may limit this impact.

Previous wording

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 has experienced global market disruptions, including high energy costs, and future impacts on its operations will depend on, among other things, future energy costs and the impact economic conditions and geopolitical events have on our Chemicals Segment’s operations or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

Current wording

Our expectations for the TiO 2 industry and our Chemicals Segment’s operations are based on 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 effects of newly enacted tariffs on jurisdictions where our Chemicals Segment 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 those of its customers and suppliers, all of which remain uncertain and cannot be predicted.

Previous wording

Our Component Products Segment’s operating income in the third quarter of 2024 was $3.3 million compared to $6.6 million in the third quarter of 2023. The decrease in operating income in the third quarter of 2024 compared to 2023 is due to lower sales and gross margin at both security products and marine components reporting units. Operating income for the first nine months of 2024 was $12.1 million compared to $18.0 million in the first nine months of 2023. The decrease in operating income in the first nine months of 2024 compared to 2023 is primarily due to lower marine components sales and gross margin.

Current wording

Our Component Products Segment’s operating income in the first quarter of 2025 was $5.9 million compared to $3.7 million in the first quarter of 2024. The increase in operating income in the first quarter of 2025 compared to 2024 is primarily due to higher marine components sales and gross margin.

Previous wording

Cost of Sales and Gross Margin– Our Component Products Segment’s cost of sales as a percentage of net sales increased 3% in the third quarter of 2024 compared to the same period in 2023. As a result, gross margin as a percentage of sales decreased over the same period. Gross margin percentage decreased in the third quarter of 2024 compared to the same period in 2023 primarily due to lower gross margin percentages at both security products and marine components reporting units. Security products gross margin as a percentage of net sales decreased for the third quarter of 2024 compared to the same period in 2023 primarily due to lower sales, higher materials costs (primarily brass and electronics), higher labor costs and decreased coverage of fixed costs as a result of lower sales. Marine components gross margin as a percentage of net sales decreased in the third quarter of 2024 compared to the same period in 2023 primarily due to lower sales and decreased coverage of fixed costs as a result of lower sales, partially offset by a more favorable customer and product mix as well as lower employee salaries and benefits of approximately $.5 million related to headcount reductions.

Current wording

Cost of Sales and Gross Margin– Our Component Products Segment’s cost of sales as a percentage of net sales decreased 5% in the first quarter of 2025 compared to the same period in 2024. As a result, gross margin as a percentage of sales increased over the same period. Gross margin percentage increased in the first quarter of 2025 compared to the same period in 2024 primarily due to higher gross margin percentage at the marine components reporting unit as a result of lower cost inventory produced during the fourth quarter of 2024 and sold in the first quarter of 2025 as well as increased coverage of fixed costs on higher sales. Gross margin as a percentage of net sales at the security products reporting unit in the first quarter of 2025 was comparable to the same period in 2024.

Previous wording

Operating Income– As a percentage of net sales, our Component Products Segment’s operating income for the third quarter and the first nine months of 2024 compared to the same periods of 2023 was primarily impacted by the factors affecting sales, cost of sales and gross margin discussed above.

Current wording

Operating Income– As a percentage of net sales, our Component Products Segment’s operating income for the first quarter of 2025 increased compared to the same period of 2024 and was primarily impacted by the factors affecting sales, cost of sales and gross margin discussed above.

Previous wording

Our Component Products Segment’s expectations for its operations and the markets it serves are based on a number of factors outside its control. Our Component Products Segment has experienced global and domestic supply chain challenges, and any future impacts on its operations will depend on, among other things, any future disruption in its operations or its suppliers’ operations, the impact of economic conditions and geopolitical events on demand for its products or our Component Products Segment’s customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

Current wording

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 in the past experienced global and domestic supply chain challenges, and any future impacts on its operations will depend on, among other things, any future disruption in its operations or its suppliers’ operations, the effect of tariffs and the impact of economic conditions, consumer confidence and geopolitical events on demand for our Component Products Segment’s products or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

Previous wording

*General –*Our Real Estate Management and Development Segment consists of BMI and LandWell. BMI and LandWell own real property in Henderson, Nevada. LandWell is actively engaged in developing certain real estate in Henderson, Nevada including approximately 2,100 acres zoned for residential/planned community purposes. Additionally, BMI provided certain utility services to an industrial park located in Henderson, Nevada prior to the sale of Basic Power Company (“BPC”), a wholly-owned subsidiary of BMI, on December 1, 2023. Following the sale of BPC, BMI no longer provides services to the industrial park which allows us to focus on land sales and development activity for the residential/planned community.

Current wording

*General –*Our Real Estate Management and Development Segment consists of BMI and LandWell. BMI and LandWell own real property in Henderson, Nevada. LandWell is actively engaged in developing certain real estate in Henderson, Nevada including approximately 2,100 acres zoned for residential/planned community purposes.

Previous wording

LandWell began marketing land for sale in the residential/planned community in December 2013 and at September 30, 2024 approximately 20 saleable acres remain. In addition, outside of the community LandWell has been actively marketing and selling land zoned for commercial and light industrial use and at September 30, 2024 approximately 15 saleable acres remain. Contracts for land sales are negotiated on an individual basis, and sales terms and prices will vary based on such factors as location (including location within a planned community), expected development work and individual buyer needs. Although land may be under contract or land sales may be completed, we do not recognize revenue until we have satisfied the criteria for revenue recognition. In most instances buyers can cancel an escrow agreement with no financial penalties until shortly before the closing date. 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. Substantially all of the land in the residential/planned community has been sold; however, we expect the development work to take three to four years to complete.

Current wording

LandWell began marketing land for sale in the residential/planned community in December 2013 and at March 31, 2025 approximately 20 saleable acres remain. In addition, outside of the community LandWell has been actively marketing and selling land zoned for commercial and light industrial use and at March 31, 2025 approximately 15 saleable acres remain. Contracts for land sales are negotiated on an individual basis, and sales terms and prices will vary based on such factors as location (including location within a planned community), expected development work and individual buyer needs. Although land may be under contract or land sales may be completed, we do not recognize revenue until we have satisfied the criteria for revenue recognition. In most instances buyers can cancel an escrow agreement with no financial penalties until shortly before the closing date. 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. Substantially all of the land in the residential/planned community has been sold; however, we expect the development work to take two to three years to complete.

Previous wording

Net Sales and Operating Income – Substantially all of the net sales from our Real Estate Management and Development Segment in the third quarter and first nine months of 2024 and 2023 were from land sales. We recognized $15.3 million in revenues on land sales during the third quarter of 2024 compared to $31.3 million in the third quarter of 2023 and $52.2 million in the first nine months of 2024 compared to $83.2 million in the same prior year period. Substantially all of the land sales revenues recognized in 2024 are related to land sold in prior years. As noted above, we recognize revenue in our residential/planned community over time using cost-based input methods, and substantially all of the land sales revenue we recognized in 2024 and 2023 was under this method of revenue recognition. Land sales revenue in the third quarter and first nine months of 2024 decreased compared to the same prior year periods due to the decreased pace of development activity for previously sold parcels within the residential/planned community, primarily due to delays in receiving city permits and delays in environmental related approvals. 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, and labor and materials availability. Cost of sales related to land sales revenues was $8.8 million and $29.6 million in the third quarter and first nine months of 2024, respectively, compared to $17.7 million and $47.4 million in the third quarter and first nine months of 2023, respectively. In addition we recognized income of $4.8 million and $14.2 million in the third quarters of 2023 and 2024, respectively, for infrastructure reimbursement.

Current wording

Net Sales and Operating Income – Substantially all of the net sales from our Real Estate Management and Development Segment in the first quarter of 2025 and 2024 were from land sales. We recognized $8.5 million in revenues on land sales during the first quarter of 2025 compared to $13.7 million in the first quarter of 2024. All of the land sales revenues recognized in 2025 and 2024 are related to land sold in prior years. As noted above, we recognize revenue in our residential/planned community over time using cost-based input methods, and all of the land sales revenue we recognized in 2025 and 2024 was under this method of revenue recognition. Land sales revenue in the first quarter of 2025 decreased compared to the same prior year period due to the decreased pace of development activity for previously sold parcels within the residential/planned community, primarily due to delays in receiving city permits and delays in environmental related approvals. 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, and labor and materials availability. Cost of sales related to land sales revenues was $4.6 million in the first quarter of 2025 compared to $8.0 million in the first quarter of 2024.

Previous wording

take three to four years to complete our post-closing obligations. Any delays or curtailments in infrastructure development related to post-closing obligation activities will delay the amount of revenue we recognize on 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 infrastructure projects. LandWell began construction on several of these community-wide large projects in late 2021 with the construction expected to continue for the next three to four years. We expect these land development costs in 2024 to be comparable to 2023 due to the timing of certain infrastructure projects. Because these large projects relate to the entirety of the residential/planned community, the costs associated with these large projects 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 expected to be eligible for tax increment reimbursement under our Owner Participation Agreement (“OPA”) with the City of Henderson, and delays or curtailments in eligible infrastructure development activities will also delay LandWell’s ability to submit completed costs to the City for approval of additional OPA note receivables. We expect to collect the maximum reimbursement amount of $209 million under the OPA over the next 7 to 10 years, including $32.7 million collected to date.

Current wording

*Outlook –*LandWell is focused on developing the land it manages for the residential/planned community in Henderson with sales primarily to residential builders. At March 31, 2025, substantially all of the land in the residential/planned community had been sold with approximately 20 saleable acres remaining. A contract for the remaining 20 acres is currently in escrow with a home builder, and the sale is scheduled to close by mid-2025. There are also 15 saleable acres zoned for light industrial and commercial use adjacent to the 2,100 acre residential/planned community which are also currently in escrow and scheduled to close in the third and fourth quarters of 2025. At March 31, 2025 we have deferred revenue of $27.6 million related to post-closing obligations on land sales closed prior to 2024. Because we recognize revenue over time using cost-based inputs, we will continue to recognize revenue on land previously sold over the development period, although we have already received substantially all the cash proceeds related to these sales. We currently expect to take one to two years to complete our post-closing obligations. Any delays or curtailments in infrastructure development related to post-closing obligation activities will delay the amount of revenue we recognize on 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 infrastructure projects. LandWell began construction on several of these community-wide large projects in late 2021 with the construction expected to continue for the next two to three years. We expect these land development costs in 2025 to be comparable to 2024 due to the timing of planned infrastructure projects and the availability of certain construction materials. Because these large projects relate to the entirety of the residential/planned community, the costs associated with these large projects are not part of the cost-based inputs used to recognize revenue, and therefore, this spending will not correlate to revenue

Previous wording

Changes in the Market Value of Valhi Common Stock held by Subsidiaries– Our subsidiaries, Kronos and NL, hold shares of our common stock. As discussed in the 2023 Annual Report, we account for our proportional interest in these shares of our common stock as treasury stock at Kronos’ and NL’s historical cost basis. The remaining portion of these shares of our common stock, which are attributable to the noncontrolling interest of Kronos and NL, are reflected in our Condensed Consolidated Balance Sheet at fair value. Kronos and NL recognize unrealized gains or losses on these shares of our common stock in the determination of each of their respective net income or losses. Under the principles of consolidation we eliminate any gains or losses associated with our common stock to the extent of our proportional ownership interest in each subsidiary. We recognized a gain of $3.7 million in the third quarter of 2024 compared to a gain of $.1 million in the third quarter of 2023 and a gain of $4.3 million in the first nine months of 2024 compared to a loss of $2.1 million in the first nine months of 2023 in our Condensed Consolidated Statements of Operations, which represents the unrealized gain (loss) in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL.

Current wording

Changes in the Market Value of Valhi Common Stock held by Subsidiaries– Our subsidiaries, Kronos and NL, hold shares of our common stock. As discussed in the 2024 Annual Report, we account for our proportional interest in these shares of our common stock as treasury stock at Kronos’ and NL’s historical cost basis. The remaining portion of these shares of our common stock, which are attributable to the noncontrolling interest of Kronos and NL, are reflected in our Condensed Consolidated Balance Sheet at fair value. Kronos and NL recognize unrealized gains or losses on these shares of our common stock in the determination of each of their respective net income or losses. Under the principles of consolidation we eliminate any gains or losses associated with our common stock to the extent of our proportional ownership interest in each subsidiary. We recognized a loss of $1.7 million in the first quarter of 2025 compared to a gain of $.5 million in the first quarter of 2024 in our Condensed Consolidated Statements of Income, which represents the unrealized gain (loss) in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL.

Previous wording

Interest Income and Other– Interest income and other increased $.5 million in the third quarter and $2.1 million in the first nine months of 2024 compared to the same periods of 2023 primarily due to higher average interest rates. See Note 12 to our Condensed Consolidated Financial Statements.

Current wording

Interest Income and Other– Interest income and other decreased $1.4 million in the first quarter of 2025 compared to the same period of 2024 primarily due to lower average interest rates and decreased cash balances. See Note 12 to our Condensed Consolidated Financial Statements.

Previous wording

Other General Corporate Items– Corporate expenses in the third quarter and first nine months of 2024 are comparable to the same periods in 2023. Included in corporate expense are:

Current wording

Other General Corporate Items– Corporate expenses in the first quarter of 2025 were comparable to the same period in 2024. Included in corporate expense are:

Previous wording

Overall, we currently expect that our general corporate expenses in 2024 will be higher than in 2023 primarily due to higher expected environmental remediation and related costs.

Current wording

Overall, we currently expect that our general corporate expenses in 2025 will be higher than in 2024 primarily due to income recognized in 2024 related to the settlement of a liability for an environmental remediation site in the fourth quarter of 2024. See Note 16 to our Condensed Consolidated Financial Statements.

Previous wording

in which we cannot currently estimate the liability. If these events occur in 2024, 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.

Current wording

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 2025, 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.

Previous wording

We expect interest expense will be higher in 2024 as compared to 2023 primarily due to the higher debt balances as a result of the third quarter acquisition of LPC and higher interest rates on Kronos’ new debt issued in February and July of 2024.

Current wording

We expect interest expense will be higher in 2025 as compared to 2024 primarily due to the higher debt balances as a result of the third quarter acquisition of LPC and higher interest rates on Kronos’ new debt issued in 2024.

Previous wording

Income Tax Expense (Benefit)* *– We recognized income tax expense of $34.3 million in the third quarter of 2024 compared to an income tax benefit of $7.8 million in the third quarter of 2023 and income tax expense of $46.6 million in the first nine months of 2024 compared to an income tax benefit of $19.8 million in the first nine months of 2023. The increase in the third quarter and the first nine months of 2024 is primarily due to higher earnings in 2024 and the jurisdictional mix of such earnings. 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).

Current wording

Income Tax Expense* *– We recognized income tax expense of $8.0 million in the first quarter of 2025 compared to income tax expense of $4.4 million in the first quarter of 2024. The increase in the first quarter of 2025 is primarily due to higher earnings in 2025 and the jurisdictional mix of such earnings. 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).

Previous wording

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, 2023, we recognized a deferred income tax liability with respect to our direct investment in Kronos of $47.4 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 nine months of 2024, we recognized a non-cash deferred income tax expense with respect to our direct investment in Kronos of $5.4 million for the increase in the deferred income taxes required to be recognized with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock, this increase related to our equity in Kronos’ net income during the period. We recognized a similar deferred income tax benefit of $5.9 million in the first nine months of 2023. 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.

Current wording

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, 2024, we recognized a deferred income tax liability with respect to our direct investment in Kronos of $49.6 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 three months of 2025, we recognized a non-cash deferred income tax benefit with respect to our direct investment in Kronos of $.5 million for the decrease in the deferred income taxes required to be recognized with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock, this decrease related to our equity in Kronos’ net income during the period. We recognized a similar deferred income tax expense of $.1 million in the first three months of 2024. 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.

Previous wording

Noncontrolling Interest in Net Income of Subsidiaries– Noncontrolling interest in operations of subsidiaries increased in 2024 compared to 2023 primarily due to increased operating income at Kronos. See Note 14 to our Condensed Consolidated Financial Statements.

Current wording

Noncontrolling Interest in Net Income of Subsidiaries– Noncontrolling interest in operations of subsidiaries in the first quarter of 2025 was comparable to the same period in 2024. See Note 14 to our Condensed Consolidated Financial Statements.

Previous wording

Cash used in operating activities was $1.8 million in the first nine months of 2024 compared to cash used in operating activities of $61.2 million in the first nine months of 2023. This $59.4 million decrease in cash used in operating activities in the first nine months of 2024 includes:

Current wording

Cash used in operating activities was $155.9 million in the first three months of 2025 compared to cash used in operating activities of $48.8 million in the first three months of 2024. This $107.1 million increase in cash used in operating activities in the first three months of 2025 includes:

Previous wording

As noted in our discussion of our Real Estate Management and Development segment above, we have sold the majority 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 three to four 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.

Current wording

As noted in our discussion of our Real Estate Management and Development segment above, we have sold the majority 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 to three 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.

Previous wording

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 nine months of 2024 are comprised of CompX dividends paid to shareholders other than NL, Kronos dividends paid to shareholders other than us and NL, and LandWell dividends paid to partners other than us and BMI.

Current wording

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 three months of 2025 are comprised of CompX dividends paid to shareholders other than NL, Kronos dividends paid to shareholders other than us and NL, and LandWell dividends paid to partners other than us and BMI.

Previous wording

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 its Global Revolver contain a number of covenants and restrictions which, among other things, restrict its ability to incur or guarantee additional debt, incur liens, pay dividends or make other restricted payments, or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of these types. Kronos’ credit agreements contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons other than defaults for failure to comply with typical financial or payment covenants. 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 in our 2023 Annual Report. We are in compliance with all of our debt covenants at September 30, 2024. We believe we will be able to continue to comply with the financial covenants contained in our debt obligations through their maturity.

Current wording

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 in our 2024 Annual Report. We are in compliance with all of our debt covenants at March 31, 2025. 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.

Previous wording

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.

Current wording

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.

Previous wording

Based upon our expectations of our operating performance, and the anticipated demands on our cash resources, we expect to have sufficient liquidity to meet our short-term (defined as the twelve-month period ending September 30, 2025) and long-term obligations (defined as the five-year period ending September 30, 2029). If actual developments differ from our expectations, our liquidity could be adversely affected.

Current wording

Based upon our expectations of our operating performance, and the anticipated demands on our cash resources, we expect to have sufficient liquidity to meet our short-term (defined as the twelve-month period ending March 31, 2026) and long-term obligations (defined as the five-year period ending March 31, 2030). With respect to the repayment of Kronos’ €75 million due in September 2025, we intend to satisfy this obligation through cash generated from operations or to the extent that is not sufficient, a combination of cash generated from operations and borrowings on the Global Revolver. If actual developments differ from our expectations, our liquidity could be adversely affected.