# VALHI INC /DE/ (VHI) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from VALHI INC /DE/'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/59255/000155837024002728/vhl-20231231x10k.htm Accession: 0001558370-24-002728 Filing date: 2024-03-07 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/VHI/ All MD&A years: /company/VHI/mda/ Previous year: /company/VHI/mda/fy2022/ (FY 2022) Next year: /company/VHI/mda/fy2024/ (FY 2024) ITEM 7. 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 NL Industries, Inc., Kronos Worldwide, Inc., CompX International, Inc., Tremont LLC, Basic Management, Inc. (BMI) and the LandWell Company (LandWell).  Kronos (NYSE: KRO), NL (NYSE: NL) and CompX (NYSE American: CIX) each file periodic reports with the SEC. We have three consolidated reportable operating segments: [[GREPCENT_TABLE]] [["","\u25cf","Chemicals \u2013 Our Chemicals Segment is operated through our majority control of Kronos. Kronos is a leading global producer and marketer of value-added TiO2. TiO2 is used to impart whiteness, brightness, opacity and durability to a wide variety of products, including paints, plastics, paper, fibers and ceramics. Additionally, TiO2 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."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Component Products \u2013 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 and a variety of other industries. CompX is also a leading manufacturer of wake enhancements systems, stainless steel exhaust systems, gauges, throttle controls, trim tabs and related hardware and accessories for the recreational marine industry."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Real Estate Management and Development \u2013 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. BMI previously, through wholly-owned subsidiaries, also was responsible for the delivery of water to the City of Henderson and various other users through September 2022, and provided utility services to certain industrial customers prior to December 2023."]] [[/GREPCENT_TABLE]] ​ -38- ‌​ Operations Overview Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 – We reported a net loss attributable to Valhi stockholders of $12.1 million or $.42 per diluted share in 2023 compared to net income of $90.2 million or $3.16 per diluted share in 2022. Our net income attributable to Valhi stockholders decreased from 2022 to 2023 primarily due to the net effects of: [[GREPCENT_TABLE]] [["","\u25cf","lower operating income from our Chemicals Segment in 2023 compared to 2022 including 2023 charges of $5.8 million related to workforce reductions and $3.8 million related to the write-off of certain costs resulting from a capital project termination;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","aggregate charges of $19.7 million in our Real Estate Management and Development Segment in 2022 related to the impairment of certain fixed assets and the bankruptcy filing of BWC;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","income from tax increment infrastructure reimbursement of $25.2 million in 2023 compared to $15.2 million in 2022;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a non-cash loss on the termination of our U.K. pension plan of $6.2 million in 2023;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a loss of $2.6 million related to the sale of BPC in 2023; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the recognition of a gain on the sale of land not used in our operations of $1.5 million in 2023."]] [[/GREPCENT_TABLE]] Our diluted net loss per share in 2023 includes: [[GREPCENT_TABLE]] [["","\u25cf","income of $.46 per share related to tax increment infrastructure reimbursements recognized in the third and fourth quarters;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a loss of $.13 per share due to the termination of our U.K. pension plan recognized in the second quarter;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a loss of $.10 per share related to workforce reductions by our Chemicals Segment recognized in the fourth quarter;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a loss of $.06 per share related to the write-off of certain costs resulting from a capital project termination recognized in the fourth quarter;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a gain of $.05 per share related to a business interruption insurance claim arising from Hurricane Laura in 2020 at our Chemicals Segment recognized in the first, second and third quarters;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a loss of $.04 per share due to the sale of BPC recognized in the fourth quarter; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a gain of $.04 per share related to the sale of land not used in our operations recognized in the second quarter."]] [[/GREPCENT_TABLE]] Our diluted net income per share in 2022 includes: [[GREPCENT_TABLE]] [["","\u25cf","aggregate charges of $.35 per share related to the bankruptcy filing of BWC, including $.29 per share related to the impairment of the water delivery system fixed assets, primarily recognized in the second quarter, and $.04 per share loss on the deconsolidation of BWC and $.02 per share of bad debt expense related to an intercompany receivable with BWC, both recognized in the third quarter;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","income of $.28 per share related to tax increment infrastructure reimbursements recognized in the third and fourth quarters;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a gain of $.05 per share related to a business interruption insurance claim arising from Hurricane Laura in 2020 at our Chemicals Segment recognized in the third quarter; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","income of $.02 per share related to an energy utility infrastructure reimbursement recognized in the second quarter."]] [[/GREPCENT_TABLE]] -39- ‌​ Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 – We reported net income attributable to Valhi stockholders of $90.2 million or $3.16 per diluted share in 2022 compared to $127.2 million or $4.46 per diluted share in 2021. Our net income attributable to Valhi stockholders decreased from 2021 to 2022 primarily due to the net effects of: [[GREPCENT_TABLE]] [["","\u25cf","lower operating income from our Chemicals Segment in 2022 compared to 2021;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","lower operating income from our Real Estate Management and Development Segment in 2022 compared to 2021 including aggregate charges of $19.7 million in our Real Estate Management and Development Segment in 2022 related to the impairment of certain fixed assets and the bankruptcy filing of BWC in 2022; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","recognition of a gain on sales of land not used in our operations of $16.0 million in 2021."]] [[/GREPCENT_TABLE]] Our diluted net income per share in 2022 includes: [[GREPCENT_TABLE]] [["","\u25cf","aggregate charges of $.35 per share related to the bankruptcy filing of BWC, including $.29 per share related to the impairment of the water delivery system fixed assets, primarily recognized in the second quarter, and $.04 per share loss on the deconsolidation of BWC and $.02 per share of bad debt expense related to an intercompany receivable with BWC, both recognized in the third quarter;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","income of $.28 per share related to tax increment infrastructure reimbursements recognized in the third and fourth quarters;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","a gain of $.05 per share related to a business interruption insurance claim arising from Hurricane Laura in 2020 at our Chemicals Segment recognized in the third quarter; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","income of $.02 per share related to an energy utility infrastructure reimbursement recognized in the second quarter."]] [[/GREPCENT_TABLE]] Our diluted net income per share in 2021 includes: [[GREPCENT_TABLE]] [["","\u25cf","a gain of $.43 per share related to sales of land not used in our operations recognized in the second and third quarters; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","income of $.28 per share related to tax increment infrastructure reimbursements recognized in the first and fourth quarters."]] [[/GREPCENT_TABLE]] We discuss these amounts more fully below. Current Forecast for 2024 – We currently expect consolidated operating income for 2024 to be higher as compared to 2023 primarily due to the net effects of: [[GREPCENT_TABLE]] [["","\u25cf","higher operating income from our Chemicals Segment in 2024 primarily due to the positive impacts of improved demand and lower manufacturing costs;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","higher operating income from our Real Estate Management and Development Segment in 2024 due to higher expected infrastructure reimbursements; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","lower operating income from our Component Products Segment in 2024 as security products and marine sales are expected to decline further in 2024."]] [[/GREPCENT_TABLE]] Our expectations for our future operating results are based upon a number of factors beyond our control, including worldwide growth of gross domestic product, competition in the marketplace, continued operation of competitors, -40- ‌​ technological advances, worldwide production capacity and public health crises. If actual developments differ from our expectations, our results of operations could be unfavorably affected. ​ Segment Operating Results – 2023 Compared to 2022 and 2022 Compared to 2021 Chemicals – We consider TiO2 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 TiO2 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 TiO2 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 TiO2 inventory levels of our Chemicals Segment’s customers. We believe our Chemicals Segments’ customers’ inventory levels are influenced in part by their expectation for future changes in TiO2 selling prices as well as their expectation for future availability of product. Although certain of our Chemicals Segment’s TiO2 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: [[GREPCENT_TABLE]] [["","\u25cf","TiO2 selling prices,"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","TiO2 sales and production volumes,"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Manufacturing costs, particularly raw materials such as third-party feedstock, maintenance and energy-related expenses, and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Currency exchange rates (particularly the exchange rate for the U.S. dollar relative to the euro, the Norwegian krone and the Canadian dollar and the euro relative to the Norwegian krone)."]] [[/GREPCENT_TABLE]] Our Chemicals Segment’s key performance indicators are its TiO2 average selling prices, its TiO2 sales and production volumes and the cost of titanium-containing feedstock purchased from third parties. TiO2 selling prices generally follow industry trends and selling prices will increase or decrease generally as a result of competitive market pressures. ​ -41- ‌​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years ended December 31,","\u200b","% Change"],["\u200b","","2021","","2022","","2023","","2021-22","","2022-23"],["\u200b","\u200b","(Dollars in millions)","\u200b","\u200b","\u200b","\u200b"],["Net sales","\u200b","$","1,939.4","\u200b","$","1,930.2","\u200b","$","1,666.5","","\u2014","%","(14)","%"],["Cost of sales","\u200b","","1,494.5","\u200b","","1,540.2","\u200b","","1,502.7","","3","\u200b","(2)","\u200b"],["Gross margin","\u200b","$","444.9","\u200b","$","390.0","\u200b","$","163.8","","(12)","\u200b","(58)","\u200b"],["Operating income (loss)","\u200b","$","200.8","\u200b","$","174.6","\u200b","$","(41.1)","","(13)","\u200b","(124)","\u200b"],["Percent of net sales:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Cost of sales","\u200b","","77","%","","80","%","","90","%","\u200b","\u200b","\u200b","\u200b"],["Gross margin","\u200b","","23","\u200b","","20","\u200b","","10","\u200b","","","","\u200b"],["Operating income (loss)","\u200b","","10","\u200b","","9","\u200b","","(2)","\u200b","","","","\u200b"],["TiO2 operating statistics:","\u200b","","","\u200b","","","\u200b","","","","","","","\u200b"],["Sales volumes*","\u200b","","563","\u200b","","481","\u200b","","419","","(15)","%","(13)","%"],["Production volumes*","\u200b","","545","\u200b","","492","\u200b","","401","","(10)","%","(19)","%"],["\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","","","\u200b"],["Percent change in TiO2 net sales:","\u200b","","","\u200b","","","\u200b","","","","","","","\u200b"],["TiO2 sales volumes","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","","","(15)","%","(13)","%"],["TiO2 product pricing","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","","","21","\u200b","(4)","\u200b"],["TiO2 product mix/other","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","","","(1)","","2","\u200b"],["Changes in currency exchange rates","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","","","(5)","","1","\u200b"],["Total","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","","","\u2014","%","(14)","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Thousands of metric tons"]] [[/GREPCENT_TABLE]] Industry Conditions and 2023 Overview – Our Chemicals Segment and the TiO2 industry are experiencing an extended period of significantly reduced demand across all major markets, which is reflected in our Chemicals Segment’s sales volumes in 2023. Demand first began to decrease in the third quarter of 2022, and although there has been some stabilization at this reduced level, overall demand remained below average historical levels during 2023. While our Chemicals Segment started 2023 with average TiO2 selling prices 16% higher than at the beginning of 2022, this extended period of reduced demand has put downward pressure on average TiO2 selling prices and, as a result, prices declined 13% in 2023. Overall sales volumes declined in 2023 compared to 2022 primarily due to lower demand in all major markets. Our Chemicals Segment began curtailing production in the fourth quarter of 2022 at certain of its European facilities due to decreased demand and increased production costs. During 2023, our Chemicals Segment continued operating its production facilities at reduced rates to align production with expected customer demand. As a result, our Chemicals Segment operated its production facilities at 72% of practical capacity utilization in 2023 compared to 89% of practical capacity utilization in 2022. The following table shows our Chemicals Segment’s capacity utilization rates during 2022 and 2023. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Production Capacity Utilization Rates"],["\u200b","","2022","","2023"],["First quarter","","100%","\u200b","76%"],["Second quarter","","95%","\u200b","64%"],["Third quarter","","93%","\u200b","73%"],["Fourth quarter","","65%","\u200b","75%"],["Overall","","89%","\u200b","72%"]] [[/GREPCENT_TABLE]] Due to significant increases in per metric ton production costs (primarily feedstock and unabsorbed fixed costs due to reduced operating rates), our Chemicals Segment’s cost of sales per metric ton of TiO2 sold in 2023 was significantly higher than in 2022 (excluding the effect of changes in currency exchange rates). In response to the extended period of reduced demand, our Chemicals Segment has taken measures to reduce its operating costs and improve its long-term cost structure. As part of overall cost saving measures, in the third quarter of -42- ‌​ 2023 our Chemicals Segment began implementing certain voluntary and involuntary workforce reductions. A substantial portion of its workforce reductions were accomplished through voluntary programs, for which eligible workforce reduction costs are recognized at the time both the employee and employer are irrevocably committed to the terms of the separation. These workforce reductions impacted approximately 100 individuals and are substantially completed. Our Chemicals Segment recognized a total of approximately $6 million in charges primarily in the fourth quarter of 2023 related to workforce reductions it implemented during the second half of the year, which is classified in selling, general and administrative expense. The majority of cash payments are expected to be completed by the first quarter of 2024. Net Sales – Our Chemicals Segment’s net sales in 2023 decreased 14%, or $263.7 million, compared to 2022 primarily due to a 13% decrease in sales volumes (which decreased net sales by approximately $251 million) and a 4% decrease in average TiO2 selling prices (which decreased net sales by approximately $77 million). Changes in product mix positively contributed to net sales, primarily due to higher average selling prices and sales volumes in our Chemicals Segment’s complementary businesses which somewhat offset declines in TiO2 sales volumes. In addition to the impact of sales volumes and average TiO2 selling prices, we estimate that changes in currency exchange rates (primarily the euro) increased our Chemicals Segment’s net sales by approximately $10 million in 2023 as compared to 2022. TiO2 selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs. Our Chemicals Segment’s sales volumes decreased 13% in 2023 as compared to 2022 due to lower overall demand across all major markets noted above. The lower overall demand our Chemicals Segment began experiencing in the second half of 2022 continued throughout most of 2023. However, our Chemicals Segment’s sales volumes were 29% higher in the fourth quarter of 2023 as compared to the fourth quarter of 2022 due to strengthening demand for TiO2 in its primary markets of Europe and North America. Our Chemicals Segment’s net sales in 2022 were consistent with net sales in 2021 primarily due to the net effects of a 21% increase in average TiO2 selling prices (which increased net sales by approximately $407 million) and a 15% decrease in sales volumes (which decreased net sales by approximately $291 million). We estimate that changes in currency exchange rates (primarily the euro) decreased our Chemicals Segment’s net sales by approximately $106 million, or 5% in 2022 as compared to 2021. Our Chemicals Segment’s sales volumes decreased 15% in 2022 as compared to 2021 primarily due to lower demand in its European and export markets which our Chemicals Segment began experiencing towards the end of the second quarter and which accelerated during the third and fourth quarters of 2022. Sales volumes were 40% lower in the fourth quarter of 2022 as compared to the fourth quarter of 2021. Our Chemicals Segment also experienced lower sales volumes in its North American market in the second half of 2022, although to a lesser extent than the declines in its European and export markets. Cost of Sales and Gross Margin – Cost of sales decreased $37.5 million, or 2%, in 2023 compared to 2022 due to the net effects of a 13% decrease in sales volumes, a 19% decrease in production volumes at certain of our Chemicals Segment’s manufacturing facilities to align inventory levels to anticipated near-term customer demand (which resulted in  $96 million of unabsorbed fixed production costs) and higher production costs of approximately $65 million (primarily raw materials). Our Chemicals Segment’s cost of sales as a percentage of net sales increased to 90% in 2023 compared to 80% in 2022 primarily due to the unfavorable effects of higher production costs (primarily raw materials) and unabsorbed fixed production costs due to lower production volumes. Gross margin as a percentage of net sales decreased to 10% in 2023 compared to 20% in 2022. As discussed and quantified above, our Chemicals Segment’s gross margin as a percentage of net sales decreased primarily due to lower production and sales volumes, lower average TiO2 selling prices, higher production costs and changes in currency exchange rates. Cost of sales increased $45.7 million, or 3%, in 2022 compared to 2021 primarily due to the net effects of higher production costs of approximately $285 million (including higher costs for raw materials and energy), a 15% decrease in sales volumes and changes in currency exchange rates. Our Chemicals Segment’s cost of sales as a percentage of net sales increased to 80% in 2022 compared to 77% in 2021 due to the impact of higher production costs, including higher raw -43- ‌​ material and energy costs partially offset by the favorable effects of higher average TiO2 selling prices. In addition, our Chemicals Segment’s cost of sales in 2022 includes approximately $26 million of unabsorbed fixed production and other manufacturing costs associated with production curtailments at certain of its European facilities throughout the fourth quarter. Gross margin as a percentage of net sales decreased to 20% in 2022 compared to 23% in 2021. Our Chemicals Segment’s gross margin as a percentage of net sales in 2022 decreased primarily due to the net effect of higher average TiO2 selling prices, lower production and sales volumes, higher production costs and fluctuations in currency exchange rates. Operating Income (Loss) – Our Chemicals Segment had an operating loss of $41.1 million in 2023 compared to operating income of $174.6 million in 2022 as a result of the factors impacting gross margin discussed above. Our Chemicals Segment recognized a gain of $2.5 million in 2023 and a gain of $2.7 million in 2022 related to cash received from the settlement of a business interruption insurance claim related to Hurricane Laura. We estimate changes in currency exchange rates decreased our Chemicals Segment’s operating loss by approximately $16 million in 2023 as compared to 2022, as discussed in the Currency Exchange Rates section below. Our Chemicals Segment’s operating income decreased by $26.2 million, from $200.8 million in 2021 to $174.6 million in 2022. Operating income as a percentage of net sales was 9% in 2022 compared to 10% in 2021. This decrease was driven by the lower gross margin discussed above for the comparable periods. Our Chemicals Segment experienced an operating loss of $15.3 million in the fourth quarter of 2022 compared to operating income of $55.4 million in the fourth quarter of 2021. Our Chemicals Segment also recognized a gain of $2.7 million in 2022 related to cash received from the settlement of a business interruption insurance claim related to Hurricane Laura. We estimate that changes in currency exchange rates increased our Chemicals Segment’s operating income by approximately $23 million in 2022 as compared to 2021 as discussed in the Currency Exchange Rates section below. 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 $1.5 million in 2021 and $1.3 million in each of 2022 and 2023, 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 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). ​ -44- ‌​ Overall, we estimate that fluctuations in currency exchange rates had the following effects on our Chemicals Segment’s sales and operating income (loss) for the periods indicated. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Impact of changes in currency exchange rates - 2023 vs 2022"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Translation","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","gains","\u200b","Total currency"],["\u200b","\u200b","Transaction gains recognized","\u200b","impact of","\u200b","impact"],["\u200b","","2022","","2023","","Change","","rate changes","","2023 vs 2022"],["\u200b","\u200b","(In millions)"],["Impact on:","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Net sales","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","10","\u200b","$","10"],["Operating income (loss)","\u200b","","12","\u200b","","1","\u200b","","(11)","\u200b","","27","\u200b","","16"]] [[/GREPCENT_TABLE]] ​ The $10 million increase in net sales (translation gains) was caused primarily by a weakening of the U.S. dollar relative to the euro, as euro-denominated sales were translated into more U.S. dollars in 2023 as compared to 2022. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2023 did not have a significant effect on the reported amount of net sales, as a substantial portion of the sales generated by our Chemicals Segment’s Canadian and Norwegian operations are denominated in the U.S. dollar. The $16 million decrease in operating loss was comprised of the following: [[GREPCENT_TABLE]] [["","\u25cf","Lower net currency transaction gains 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\u2019s non-U.S. operations, and in Norwegian krone denominated receivables and payables held by our Chemicals Segment\u2019s non-U.S. operations, and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Approximately $27 million from net currency translation gains primarily caused by a strengthening of the U.S. dollar relative to the Canadian dollar and Norwegian krone, as local currency-denominated operating costs were translated into fewer U.S. dollars in 2023 as compared to 2022. The effect of the weakening of the U.S. dollar relative to the euro was nominal in 2023 as compared to 2022."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Impact of changes in currency exchange rates - 2022 vs. 2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","Translation","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","gains/(losses)","\u200b","Total currency"],["\u200b","\u200b","Transaction gains recognized","\u200b","impact of","\u200b","impact"],["\u200b","","2021","","2022","","Change","","rate changes","","2022 vs. 2021"],["\u200b","\u200b","(In millions)"],["Impact on:","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Net sales","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","(106)","\u200b","$","(106)"],["Operating income","\u200b","","2","\u200b","","12","\u200b","","10","\u200b","","13","\u200b","","23"]] [[/GREPCENT_TABLE]] ​ The $106 million decrease in net sales (translation losses) was caused primarily by a strengthening of the U.S. dollar relative to the euro, as euro-denominated sales were translated into fewer U.S. dollars in 2022 as compared to 2021. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2022 did not have a significant effect on the reported amount of net sales, as a substantial portion of the sales generated by our Chemicals Segment’s Canadian and Norwegian operations are denominated in the U.S. dollar. The $23 million increase in operating income was comprised of the following: [[GREPCENT_TABLE]] [["","\u25cf","Higher net currency transaction gains 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"]] [[/GREPCENT_TABLE]] -45- ‌​ [[GREPCENT_TABLE]] [["","","decreases, as applicable, in U.S. dollar-denominated receivables and payables and U.S. dollar currency held by our Chemicals Segment\u2019s non-U.S. operations, and in Norwegian krone denominated receivables and payables held by our Chemicals Segment\u2019s non-U.S. operations, and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Approximately $13 million from net currency translation gains primarily caused by a strengthening of the U.S. dollar relative to the Canadian dollar and Norwegian krone, as local currency-denominated operating costs were translated into fewer U.S. dollars in 2022 as compared to 2021, partially offset by net currency translation losses primarily caused by a strengthening of the U.S. dollar relative to the euro as the negative effects of the stronger U.S. dollar on euro-denominated sales more than offset the favorable effects of euro-denominated operating costs being translated into fewer U.S. dollars in 2022 as compared to 2021."]] [[/GREPCENT_TABLE]] Outlook – Our Chemicals Segment’s customer demand stabilized during the fourth quarter of 2023, particularly in the North American and export markets, while demand in Europe improved but remained below historical levels. Our Chemicals Segment expects consumer demand to improve in 2024, and it believes customer destocking of TiO2 is largely complete and customer inventories are historically low. As a result, our Chemicals Segment expects sales volumes in 2024 to exceed 2023 sales volumes. In this regard, our Chemicals Segment is experiencing improved demand thus far in the first quarter of 2024 in all major markets. Our Chemicals Segment has increased production rates in line with current and expected near-term improved demand and believes its production volumes in 2024 will be higher than 2023, although below estimated full practical capacity. During 2023, our Chemicals Segment’s selling prices came under increasing pressure, primarily due to low-cost imports from China impacting European and export pricing. Our Chemicals Segment expects these pricing pressures to be somewhat mitigated in 2024 and believes there is potential industry pricing upside in 2024 as a result of improved demand. Throughout 2023 our Chemicals Segment implemented cost reduction initiatives designed to improve its long-term cost structure, including targeted workforce reductions and the implementation of certain ongoing technology innovations and process improvement initiatives. Energy costs in Europe have generally stabilized after a period of market disruptions, although in early 2023, in order to provide cost certainty, our Chemicals Segment entered into forward contracts for a portion of its energy needs in 2023 which in many cases were priced above subsequent market rates. As a result of contracts expiring in late 2023, our Chemicals Segment expects its energy costs will be further reduced in 2024. Our Chemicals Segment expects raw material and other input costs, which began to decline in 2023, will continue to moderate in 2024. This, along with lower expected energy costs and the cost reduction initiatives discussed above, will result in improved margins in 2024 as compared to 2023. Overall, due to the expected improved demand and lower production costs, including lower unabsorbed fixed costs, our Chemicals Segment expects to report higher operating results for the full year of 2024 as compared to 2023.   Throughout 2023 our Chemicals Segment took necessary actions to align its production and inventories to then current demand levels including production curtailments. As demand improves, our Chemicals Segment will continue to monitor current and anticipated near-term customer demand levels and will align its production and inventories accordingly. Our Chemicals Segment believes the steps it took during 2023 to preserve its liquidity while maintaining global market share have positioned its business to capitalize on its expectations for improved demand in 2024. Our expectations for the TiO2 industry and our Chemicals Segment 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 its operations or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted. Component Products – Our Component Products Segment reported operating income of $25.4 million in each of 2023 and 2022 and $20.5 million in 2021. Operating income in 2023 was comparable to 2022 as lower marine components sales were offset by higher security products sales and higher gross margin percentages across both reporting units. The increase in operating income in 2022 over 2021 is primarily due to higher marine components sales and to a lesser extent higher security products sales. -46- ‌​ Our Component Products Segment’s product offerings consist of a large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on its ability to quantify the impact of changes in individual product sales quantities and selling prices on our Component Products Segment’s net sales, cost of sales and gross margin. In addition, small variations in period-to-period net sales, cost of sales and gross margin can result from changes in the relative mix of our Components Products Segment’s products sold. The key performance indicator for our Component Products Segment is operating income margins. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years ended December 31,","\u200b","% Change"],["\u200b","","2021","","2022","","2023","","2021-22","","2022-23"],["\u200b","\u200b","(Dollars in millions)","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net sales:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Security products","\u200b","$","105.1","\u200b","$","114.5","\u200b","$","121.2","","9","%","\u200b","6","%"],["Marine components","\u200b","","35.7","\u200b","","52.1","\u200b","","40.1","","46","\u200b","\u200b","(23)","\u200b"],["Total net sales","\u200b","","140.8","\u200b","","166.6","\u200b","","161.3","","18","\u200b","\u200b","(3)","\u200b"],["Cost of sales","\u200b","","98.1","\u200b","","117.8","\u200b","","112.1","","20","\u200b","\u200b","(5)","\u200b"],["Gross margin","\u200b","$","42.7","\u200b","$","48.8","\u200b","$","49.2","","14","\u200b","\u200b","1","\u200b"],["Operating income","\u200b","$","20.5","\u200b","$","25.4","\u200b","$","25.4","","24","\u200b","\u200b","-","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Percent of net sales:","\u200b","","","\u200b","","","\u200b","","","","","","","","\u200b"],["Cost of sales","\u200b","","70","%","","71","%","","70","%","","","","","\u200b"],["Gross margin","\u200b","","30","\u200b","","29","\u200b","","31","\u200b","","","","","\u200b"],["Operating income","\u200b","","15","\u200b","","15","\u200b","","16","\u200b","","","","","\u200b"]] [[/GREPCENT_TABLE]] Net Sales – Our Component Products Segment’s net sales decreased $5.3 million in 2023 compared to 2022 due to lower marine components sales primarily to the towboat market, partially offset by higher security products sales largely in the fourth quarter of 2023. Marine components net sales decreased $12.0 million, or 23%, in 2023 as compared to 2022. Relative to prior year, marine components sales were $12.8 million lower to the towboat market (primarily to original equipment boat manufacturers) and $2.0 million lower to the engine builder market, partially offset by $1.2 million higher industrial sales and $.8 million higher sales to the center console boat market. Security products net sales increased $6.7 million, or 6%, in 2023 as compared to 2022 primarily due to higher sales related to a pilot project for a government security customer. Relative to prior year, security products sales were $8.3 million higher to the government security market and $1.5 million higher to distributors, partially offset by $1.7 million lower sales to the office furniture market and $.7 million lower sales to the gas station security market. Our Component Products Segment’s net sales increased $25.8 million in 2022 compared to 2021 due to higher marine components sales primarily to the towboat market and, to a lesser extent, higher security products sales across a variety of markets. Marine components net sales increased $16.4 million, or 46%, in 2022 as compared to 2021. Relative to prior year, marine components sales were $11.5 million higher to the towboat market (primarily to original equipment boat manufacturers), $2.1 million higher to the engine builder market and $2.0 million higher to the industrial market. Security products net sales increased $9.4 million, or 9%, in 2022 as compared to 2021. Relative to prior year, security products sales were $3.8 million higher to the government security market, $1.8 million higher to the office furniture market, $1.5 million higher to distributors, $1.0 million higher to the tool storage market and $.9 million higher to the gas station security market. Cost of Sales and Gross Margin – Our Component Products Segment’s cost of sales decreased in 2023 compared to 2022 primarily due to the effects of lower production costs at both security products and marine components reporting units as well as lower marine components sales. Our Component Products Segment’s gross margin as a percentage of net sales increased over the same period primarily due to the factors affecting cost of sales. Security products gross margin as a percentage of net sales for 2023 increased as compared to 2022 primarily due to lower production costs (including lower material, overtime and shipping costs) and increased coverage of fixed costs on higher sales, primarily in the fourth quarter. Marine components gross margin as a percentage of net sales increased in 2023 compared to 2022 primarily due to lower raw material costs (primarily stainless steel and aluminum), lower supplies costs driven by lower volume, lower shipping costs and lower labor costs from reduced employee overtime due to lower sales volumes, partially offset by decreased coverage of fixed costs as a result of lower sales. -47- ‌​ Our Component Products Segment’s cost of sales increased in 2022 compared to 2021 primarily due to the effects of higher sales, as well as increased production costs at both security products and marine components. Our Component Products Segment’s gross margin as a percentage of net sales decreased over the same period primarily due to the decrease in the security products gross margin percentage. Security products gross margin as a percentage of net sales for 2022 decreased as compared to 2021 primarily due to higher cost of sales, most significantly in the third and fourth quarters of 2022, as price increases and surcharges did not fully offset higher cost inventory sold in the latter half of the year. Marine components gross margin as a percentage of net sales increased slightly in 2022 compared to 2021 with increased sales due to price increases and surcharges more than offsetting higher production costs, as well as increased coverage of cost of sales from higher sales. Operating Income – As a percentage of net sales, our Component Products Segment’s operating income increased in 2023 compared to 2022. The operating margin percentage increased in 2023 compared to 2022 primarily due to the factors impacting net sales, cost of sales and gross margin discussed above. Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities, as well as gains and losses on sales of property and equipment. Operating costs and expenses increased in 2023 compared to 2022 predominantly due to higher salary and benefit costs at the security products reporting unit which increased by $.6 million. Our Component Products Segment operating income increased in 2022 compared to 2021. Operating margin increased in 2022 compared to 2021 primarily due to the factors impacting net sales, cost of sales and gross margin discussed above. Operating costs and expenses increased $1.2 million in 2022 compared to 2021 predominantly due to higher salary and employment related costs. General – Our Component Products Segment’s profitability primarily depends on its ability to utilize its production capacity effectively, which is affected by, among other things, the demand for its products and its ability to control manufacturing costs, primarily comprised of labor costs and materials. The materials used in our Component Products Segment’s products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets such as zinc, brass, aluminum and stainless steel. Total material costs represented approximately 48% of our Component Products Segment’s cost of sales in 2023, with commodity-related raw materials representing approximately 13% of our Component Products Segment’s cost of sales. After increasing in 2021 and the first half of 2022, prices for the primary commodity-related raw materials used in the manufacture of our Component Products Segment’s locking mechanisms, primarily zinc and brass, generally began to stabilize in the latter half of 2022 and into 2023 and generally began to soften in the latter half of 2023. Prices for aluminum and stainless steel, the primary raw material used for the manufacture of marine exhaust headers and pipes, wake enhancement systems, throttles and trim tabs experienced significant volatility during 2021 and 2022 but were more stable in 2023. Although raw commodity costs declined during 2023 from elevated levels experienced in 2021 and 2022, in most cases materials our Component Products Segment purchases also include processing and conversion costs such as alloying, extrusion and rolling, which continue to be elevated due to costs of labor, transportation and energy. Based on current economic conditions, our Component Products Segment expects the prices for zinc, brass, aluminum, stainless steel and other manufacturing materials in 2024 to be relatively stable. Our Component Products Segment occasionally enters into short-term commodity-related raw material supply arrangements to mitigate the impact of future increases in commodity related raw material costs. See Item 1 – “Business – Component Products Segment – CompX International, Inc. – Raw Materials.” Outlook – In 2023, the security products reporting unit achieved record sales as a result of increased sales to the government security market, including a pilot project to a government security customer. Absent this project, security products sales would have declined compared to the prior year due to sluggish demand in many of the other markets it serves. At the marine components reporting unit, the strong demand experienced in 2021 and 2022 carried into the first quarter of 2023 when the towboat market began experiencing softening demand that accelerated as the year progressed. Labor markets have become favorable in each of the regions our Component Products Segment operates, and material prices have either stabilized or, in the case of certain commodity raw materials, started to decline slightly. Our Component Products Segment’s supply chains are stable and transportation and logistical delays are minimal. Our Component Products -48- ‌​ Segment has adjusted its labor force and production rates at its facilities to reflect the stability of its raw material supplies and near-term demand levels. Our Component Products Segment expects security products sales in 2024 will be lower than 2023 as the sluggishness it observed across a variety of the markets security products served during 2023 will continue with customers expressing uncertainty regarding sustained consumer demand. Our Component Products Segment does not currently have additional orders with regard to the 2023 pilot project, and it has no knowledge of any future orders. After implementing aggressive price increases over the last several years to maintain operating margins, our Component Products Segment believes its customers will accept only modest price increases in the current environment. Overall, our Component Products Segment expects the security products reporting unit’s gross margin will be comparable in 2024, although it expects operating income as a percentage of sales to decline due to its limited pricing power along with reduced coverage of selling, general and administrative costs as a result of lower expected sales. Our Component Products Segment expects marine components net sales in 2024 to also be lower as compared to 2023 because it believes demand in the towboat market will further decline, and expected increases in sales to the industrial and center console boat markets will not fully offset reduced towboat demand. The recreational marine industry faces strong headwinds due to higher interest rates and broader market weakness. Several original equipment boat manufacturers, including certain of our Component Products Segment’s customers, have publicly announced reductions to production schedules for 2024. Overall, our Component Products Segment expects the marine components reporting unit’s gross margin as a percentage of net sales for 2024 to be lower than 2023 due to lower coverage of fixed overhead as a result of lower expected sales, and operating income as a percentage of net sales will similarly be lower as a result of reduced coverage of selling, general and administrative expenses due to lower expected sales. Our Component Products Segment ended the year with elevated inventory balances at its marine components reporting unit as a result of increased orders of certain raw materials due to previously long lead times coupled with the rapidly changing towboat demand which created a misalignment of its raw materials with near term demand. Our Component Products Segment expects inventory balances to be in alignment with current demand by mid-year 2024.   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 operations will depend on, among other things, any future disruption in our Component Products Segment’s operations or its suppliers’ operations, the impact of economic conditions and geopolitical events on demand for its products or its customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted. ​ Real Estate Management and Development – [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years ended December 31,"],["\u200b","","2021","","2022","","2023"],["\u200b","\u200b","(In millions)"],["Net sales:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Land sales","\u200b","$","207.8","\u200b","$","120.9","\u200b","$","92.6"],["Utility and other","\u200b","","1.6","\u200b","","1.2","\u200b","","1.3"],["Water delivery sales","\u200b","","6.8","\u200b","","3.6","\u200b","","\u2014"],["Total net sales","\u200b","","216.2","\u200b","","125.7","\u200b","","93.9"],["Cost of sales","\u200b","","123.6","\u200b","","74.1","\u200b","","61.7"],["Gross margin","\u200b","$","92.6","\u200b","$","51.6","\u200b","$","32.2"],["Operating income","\u200b","$","97.3","\u200b","$","39.4","\u200b","$","49.9"]] [[/GREPCENT_TABLE]] ​ 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 efforts to develop certain real estate in Henderson, Nevada including approximately 2,100 acres zoned for residential/planned community purposes. BMI also was responsible for the delivery of water to the City of Henderson and various other users through a water distribution system owned and operated by BWC prior to BWC’s bankruptcy filing and deconsolidation on September 10, 2022. BMI also provided certain utility services to an industrial park located in Henderson, Nevada prior to the sale of BPC on December 1, 2023. With the approval of BWC’s plan of reorganization by the bankruptcy court, substantially all of BWC’s -49- ‌​ assets were sold in November 2023. Following the sale of the BWC assets and 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. LandWell began marketing land for sale in the residential/planned community in December 2013 and at December 31, 2023 approximately 20 saleable acres remain. LandWell has been actively marketing and selling the land zoned for commercial and light industrial use and at December 31, 2023 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 set forth in ASC Topic 606. In some instances, we 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 the land in the residential/planned community has been sold; however, we expect the development work to take three to four years to complete. Net Sales and Operating Income – Substantially all the net sales from our Real Estate Management and Development segment in 2023 and 2022 consisted of revenues from land sales. We recognized $92.6 million in revenues on land sales during 2023 compared to $120.9 million in 2022. As noted above, we recognize revenue in our residential/planned community over time using cost-based input methods, and substantially all the land sales revenue we recognized in 2023 and 2022 was under this method of revenue recognition. Land sales revenue in 2023 decreased compared to 2022 due to the decreased pace of development activity within the residential/planned community. The pace of development activities is dictated by a number of factors such as city permit and design approval and labor and materials availability. Cost of sales related to land sales revenues was $60.8 million in 2023 compared to $69.7 million in 2022. Included in operating income was income related to the tax increment reimbursement note receivables of $25.2 million and $15.2 million in 2023 and 2022, respectively. See Note 7 to our Consolidated Financial Statements. Substantially all the net sales from our Real Estate Management and Development segment in 2022 and 2021 consisted of revenues from land sales. We recognized $120.9 million in revenues on land sales during 2022 compared to $207.8 million in 2021. Cost of sales related to land sales revenues was $69.7 million in 2022 compared to $117.0 million in 2021. Land sales revenue decreased substantially in 2022 primarily due to two land parcels with no post-closing obligations that closed during the fourth quarter of 2021 for $70 million, which were immediately recognized as revenue.  Excluding these two parcels that closed in 2021, land sales declined 12% in 2022 primarily due to a decrease in acreage sold and the relative timing of development spending. Substantially all the land sales revenue we recognized in 2022 was under the cost-based inputs method of revenue recognition for acreage sold in prior years and to a lesser extent current year land sales. In 2021 land sales were heavily weighted towards the end of the year. Land sales revenue in the fourth quarter of 2022 was $20.0 million compared to $150.8 million in the fourth quarter of 2021, including approximately $70 million noted above. Included in operating income was income related to the tax increment reimbursement note receivables of $15.2 million and $15.3 million in 2022 and 2021, respectively. The remainder of net sales and cost of sales related to this segment primarily relates to water delivery fees and expenses. Prior to BWC’s bankruptcy filing on September 10, 2022, BMI was responsible for the delivery of water to the City of Henderson and various other users under long-term contracts through a water delivery system owned and operated by BWC. BWC’s water delivery system operated on Lake Mead in Nevada. Due to the Western drought, water levels in Lake Mead have been declining for much of the last twenty years. As a result of water release curtailments upstream of Lake Mead which began late in the second quarter of 2022, Lake Mead water levels dropped precipitously to historically low levels. On June 30, 2022 BWC was no longer able to pump water without the risk of damaging the system and consequently ceased operations at its water intake facility to best preserve the system. We considered BWC’s inability to pump water from Lake Mead to be a triggering event under ASC 360 Property, Plant, and Equipment, which caused us to evaluate the water system fixed assets for impairment. Because BWC was unable to deliver water under its current contracts and therefore unable to generate revenue, we determined the water system’s assets were fully impaired except to the extent certain equipment had alternative use outside of BWC’s operations, in which case those assets were written down to estimated salvage value. The $16.4 million impairment charge primarily recognized in the second quarter of 2022 represented the write down of the book value to the estimated salvage value of the assets. Without the ability to pump and deliver water to its customers, BWC’s operating expenses exceeded its revenues, and on September 10, 2022 BWC and its subsidiaries voluntarily filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District -50- ‌​ of Nevada. Because BWC filed for bankruptcy protection, we and BMI could no longer affirmatively assert we control BWC and, as such, in accordance with ASC 810, Consolidation, we deconsolidated BWC as of the date of the bankruptcy filing and recognized a loss of $2.0 million in the third quarter of 2022 on the deconsolidation. In addition, BMI had an outstanding intercompany accounts receivable balance with BWC on the date of the bankruptcy filing, and we recognized $1.3 million of bad debt expense to fully reserve this balance during the third quarter of 2022. All of these charges are included in the determination of the Real Estate Management and Development’s operating income in 2022. Operating income comparisons between 2023, 2022 and 2021 are also affected by BWC’s water delivery sales and related cost of sales. See Note 2 to our Consolidated Financial Statements. As noted above, BWC filed for Chapter 11 bankruptcy protection on September 10, 2022. We recognized an aggregate $19.7 million of charges in 2022, discussed above, related to BWC which will not recur. On November 8, 2023, the Bankruptcy Court for the District of Nevada entered an order approving BWC’s plan of reorganization, which provided for the sale of substantially all BWC’s assets and the transfer of substantially all of its operating and other agreements to one of its industrial customers.  The transaction closed on November 17, 2023, at which time BWC discontinued its water delivery operations. As part of the transaction, BWC is providing transition services to the purchaser for a limited time. The proceeds of the sale will be used to repay creditors of BWC and its wholly-owned subsidiary. BWC’s assets may not be sufficient to fully repay its creditors, and the timing of the resolution of the bankruptcy proceedings remains uncertain. On December 1, 2023, BMI sold its subsidiary BPC, which provides electricity to four customers located in the industrial park, and its sewer system assets to another of its industrial customers. The sale was for minimal cash consideration and the assumption of liabilities, and upon the closing of the sale we recognized a loss of $2.6 million. BMI is providing transition services to the purchaser of the businesses for a limited time. With the sale of BPC, we no longer provide services to the industrial park which allows us to focus on land sales and development activity for the residential/planned community. ​ Outlook – LandWell is focused on developing the land it manages, primarily to residential builders, for the residential/planned community in Henderson. At December 31, 2023, substantially all of the land in the residential/planned community had been sold with approximately 20 saleable acres remaining. With the strong new home market in the Las Vegas area, we expect to sell our remaining residential zoned land within the next year. Demand for the 15 saleable acres zoned for light industrial and commercial use is more modest and we expect it will take more time to sell these remaining acres. At December 31, 2023 we have deferred revenue of $88.0 million related to post-closing obligations on land sales closed in 2023 and prior years. 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 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 and delays or curtailments in eligible infrastructure development activities will also delay LandWell’s ability to submit completed costs to the City of Henderson for approval of additional tax increment reimbursement note receivables. General Corporate Items, Interest Expense, Income Taxes, Noncontrolling Interest and Related Party Transactions Insurance Recoveries – NL has agreements with certain insurance carriers pursuant to which the carriers reimburse NL for a portion of its past lead pigment and asbestos litigation defense costs. Insurance recoveries include amounts NL received from these insurance carriers. NL received $.5 million in insurance recoveries during 2023. See Note 13 to our Consolidated Financial Statements. -51- ‌​ The agreements with certain of NL’s insurance carriers also include reimbursement for a portion of its future litigation defense costs. We are not able to determine how much we will ultimately recover from these carriers for defense costs incurred by NL because of certain issues that arise regarding which defense costs qualify for reimbursement. Accordingly, these insurance recoveries are recognized when the receipt is probable and the amount is determinable. See Note 18 to our Consolidated Financial Statements. Gain on Land Sales – In 2021, we sold two parcels of land (including one parcel in the second quarter and one parcel in the third quarter) not used in our operating activities for net proceeds of approximately $23.4 million and recognized an aggregate pre-tax gain of $16.0 million. In the second quarter of 2023 we sold excess property not used in our operations for net proceeds of approximately $1.8 million and recognized a pre-tax gain of $1.5 million. See Note 13 to our Consolidated Financial Statements. Other Components of Net Periodic Pension and OPEB Expense – We recognized other components of net periodic pension and OPEB expense of $11.8 million in 2023, $13.9 million in 2022 and $17.0 million in 2021. The decrease in 2023 compared to 2022 is primarily due to the net effects of higher discount rates impacting interest cost, previously unrecognized actuarial losses and $6.2 million in settlement costs related to the termination and buy-out of our pension plan in the United Kingdom during the second quarter of 2023. The decrease in expense in 2022 compared to 2021 is primarily due to pension costs as a result of actuarial amortizations and expected returns on plan assets. See Note 11 to our Consolidated Financial Statements. 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 Note 16 to our Consolidated Financial Statements, 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 Consolidated Balance Sheets at fair value. Any unrealized gains or losses on the shares of our common stock attributable to the noncontrolling interest of Kronos and NL are recognized in the determination of each of Kronos and NL’s 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. The $1.7 million loss in 2023, the $1.6 million loss in 2022 and the $3.3 million gain in 2021 recognized in our Consolidated Financial Statements represent the unrealized gain (loss) in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL. Interest Income and Other – Interest income and other increased $10.9 million in 2023 compared to 2022 primarily due to higher average interest rates and increased investment balances. Interest income and other increased $6.4 million in 2022 compared to 2021 primarily due to higher average interest rates and increased investment balances. See Note 13 to our Consolidated Financial Statements. Other General Corporate Items – Corporate expenses were 5% lower at $34.7 million in 2023 compared to $36.5 million in 2022 due primarily to lower administrative expenses. Included in corporate expense are: [[GREPCENT_TABLE]] [["","\u25cf","litigation and related costs at NL of $4.4 million in 2023 and $4.2 million in 2022; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","environmental remediation and related costs of $2.5 million in 2023 compared to $1.7 million in 2022."]] [[/GREPCENT_TABLE]] Corporate expenses were 5% higher at $36.5 million in 2022 compared to $34.6 million in 2021 due primarily to higher litigation and related costs in 2022. Included in corporate expense are: [[GREPCENT_TABLE]] [["","\u25cf","litigation and related costs at NL of $4.2 million in 2022 and $1.9 million in 2021; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","environmental remediation and related costs of $1.7 million in 2022 compared to $1.6 million in 2021."]] [[/GREPCENT_TABLE]] Overall, we currently expect that our net general corporate expenses in 2024 will be higher than 2023 primarily due to higher expected litigation fees and related costs. -52- ‌​ The level of our litigation 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 18 to our Consolidated Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved during 2024, 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 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 18 to our Consolidated Financial Statements. Interest Expense – Interest expense of $28.3 million in 2023 was comparable to $27.9 million in 2022. Interest expense decreased to $27.9 million in 2022 from $32.5 million in 2021 primarily due to lower average debt levels and the effects of changes in currency exchange rates somewhat offset by higher interest rates on variable-rate indebtedness in 2022. We expect interest expense will be higher in 2024 as compared to 2023 primarily due to the higher interest rate on the new KII 9.50% Senior Secured Notes due 2029. See Note 9 to our Consolidated Financial Statements.   Income Tax Expense (Benefit) – We recognized an income tax benefit of $22.4 million in 2023 compared to income tax expense of $33.8 million in 2022. The decrease is primarily due to lower earnings in 2023 and the jurisdictional mix of such earnings. We recognized income tax expense of $33.8 million in 2022 compared to $60.1 million in 2021. The decrease is primarily due to lower earnings in 2022 and the jurisdictional mix of such earnings. Our earnings are subject to income tax in various U.S. and non-U.S. jurisdictions. Generally, our consolidated effective income tax rate is higher than the U.S. federal statutory tax rate of 21% primarily because the income tax rates applicable to the pre-tax earnings (losses) of our non-U.S. operations are generally higher than the income tax rates applicable to our U.S. operations.  However, in 2022 our consolidated effective income tax rate is lower than the U.S. federal statutory rate of 21% due to the effect of a tax benefit relating to the partial release of our valuation allowance associated with the 2022 utilization of a portion of our business interest expense carryforwards. Our consolidated effective income tax rate in 2024 is expected to be higher than the U.S. federal statutory rate of 21% because the income tax rates applicable to the earnings (losses) of our non-U.S. operations will be higher than the income tax rates applicable to our U.S. operations due to the expected mix of earnings. See Note 14 to our Consolidated Financial Statements for more information about our 2023 income tax items, including a tabular reconciliation of our statutory tax expense to our actual tax expense. Noncontrolling Interest in Net Income of Subsidiaries – Noncontrolling interest in operations of subsidiaries decreased from 2022 to 2023 primarily due to lower operating income at Kronos. Noncontrolling interest in operations of subsidiaries decreased from 2021 to 2022 primarily due to lower operating income at BMI and LandWell. Related Party Transactions – We are a party to certain transactions with related parties. See Note 17 to our Consolidated Financial Statements. Foreign Operations We have substantial operations located outside the United States, principally our Chemicals Segment’s operations in Europe and Canada. The functional currency of these operations is the local currency. As a result, the reported amount of our assets and liabilities related to these foreign operations will fluctuate based upon changes in currency exchange rates. At December 31, 2023, we had substantial net assets denominated in the euro, Canadian dollar and Norwegian krone. -53- ‌​ Critical accounting policies and estimates Our significant accounting policies are more fully described in Note 1 to our Consolidated Financial Statements. Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. On an ongoing basis we evaluate our estimates, including those related to the recoverability of long-lived assets, pension and other postretirement benefit obligations and the underlying actuarial assumptions related thereto, the realization of deferred income tax assets and accruals for litigation, income tax and other contingencies. We base our estimates on historical experience and on various other assumptions which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ significantly from previously-estimated amounts under different assumptions or conditions. We believe the most critical accounting policies and estimates involving significant judgment primarily relate to goodwill, long-lived assets, revenue recognized over time using cost-based inputs, defined benefit pension plans, income taxes and litigation and environmental liabilities. We have discussed the development, selection and disclosure of our critical accounting estimates with the audit committee of our board of directors. Goodwill – Our net goodwill totaled $379.7 million at December 31, 2023 primarily resulting from our various step acquisitions of Kronos and NL (which occurred before the implementation of the current accounting standards related to noncontrolling interest) and to a lesser extent CompX’s purchase of various businesses. In accordance with the applicable accounting standards for goodwill, we do not amortize goodwill. We perform a goodwill impairment test annually in the third quarter of each year. Goodwill is also evaluated for impairment at other times whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. An entity may first assess qualitative factors to determine whether it is necessary to complete the quantitative impairment test using a more-likely-than-not criteria. If an entity believes it is more-likely-than-not the fair value of a reporting unit is greater than its carrying value, including goodwill, the quantitative impairment test can be bypassed. Alternatively, an entity has an unconditional option to bypass the qualitative assessment and proceed directly to performing the quantitative impairment test. When performing a qualitative assessment considerable management judgment is necessary to evaluate the qualitative impact of events and circumstances on the fair value of a reporting unit. Events and circumstances considered in our impairment evaluations, such as historical profits and stability of the markets served, are consistent with factors utilized with our internal projections and operating plan. However, future events and circumstances could result in materially different findings which could result in the recognition of a material goodwill impairment. Evaluations of possible impairment utilizing the quantitative impairment test require us to estimate, among other factors: forecasts of future operating results, revenue growth, operating margin, tax rates, capital expenditures, depreciation, working capital, weighted average cost of capital, long-term growth rates, risk premiums, terminal values, and fair values of our reporting units and assets. The goodwill impairment test is subject to uncertainties arising from such events as changes in competitive conditions, the current general economic environment, material changes in growth rate assumptions that could positively or negatively impact anticipated future operating conditions and cash flows, changes in the discount rate, and the impact of strategic decisions. If any of these factors were to materially change such change may require revaluation of our goodwill. Changes in estimates or the application of alternative assumptions could produce significantly different results. A reporting unit can be a segment or an operating division based on the operations of the segment. For example, our Chemicals Segment produces a globally coordinated homogeneous product whereas our Component Products Segment operates as two distinct reporting units. If the fair value of the reporting unit is less than its book value, the goodwill is written down to estimated fair value. -54- ‌​ For our Chemicals Segment, we use Level 1 inputs of publicly traded market prices to compare the book value to assess impairment. We also consider control premiums when assessing fair value. When we performed our annual goodwill impairment test in the third quarter of 2023 for our Chemicals Segment goodwill, we concluded there was no impairment of such goodwill. However, future events and circumstances could change (i.e. a significant decline in quoted market prices) and result in a materially different finding which could result in the recognition of a material impairment with respect to such goodwill. Substantially all of the goodwill for our Component Products Segment relates to its security products reporting unit. In 2023, we used the qualitative assessment for our annual impairment test and determined it was not necessary to perform the quantitative goodwill impairment test, as we concluded it is more-likely-than-not that the fair value of the security products reporting unit exceeded its carrying amount. Long-lived assets – The net book value of our property and equipment totaled $517.3 million at December 31, 2023. We assess property and equipment for impairment only when circumstances indicate an impairment may exist. Our determination is based upon, among other things, our estimates of the amount of future net cash flows to be generated by the long-lived asset (Level 3 inputs) and our estimates of the current fair value of the asset. Significant judgment is required in estimating such cash flows. Adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset, thereby possibly requiring an impairment charge to be recognized in the future. We do not assess our property and equipment for impairment unless certain impairment indicators are present. During the fourth quarter of 2023, our Chemicals Segment recorded a fixed asset impairment of $3.8 million related to the write-off of certain costs resulting from a capital project termination. Excluding this project, we did not evaluate any other long-lived assets for impairment during 2023 because no such impairment indicators were present. Revenue recognized over time using cost-based inputs – Certain real estate land sales by our Real Estate Management and Development Segment (generally land sales associated with our residential/planned community) require us to complete property development and improvements after title passes to the buyer and we have received all or a substantial portion of the selling price. Generally, all the land sales associated with the residential/planned community have been recognized over time using cost-based inputs of accounting in accordance with ASC 606. Under such method, revenues and profits are recognized in the same proportion of our progress towards completion of our contractual obligations, with our progress measured by costs incurred as a percentage of total costs estimated to be incurred. Such costs incurred and total estimated costs include amounts specifically identifiable with the parcels sold as well as certain development costs for the entire residential/planned community which are allocated to the parcels sold under applicable GAAP. Estimates of total costs expected to be incurred require significant management judgment, and the amount of revenue and profits that have been recognized to date are subject to revisions throughout the development period. The impact on the amount of revenue recognized resulting from any future change in the estimate of total costs estimated to be incurred would be accounted for prospectively in accordance with GAAP. Defined benefit pension plans – We maintain various defined benefit pension plans in the U.S., Europe and Canada. See Note 11 to our Consolidated Financial Statements. We recognized consolidated defined benefit pension plan expense of $32.1 million in 2021, $25.4 million in 2022 and $18.4 million in 2023. The amount of funding requirements for these defined benefit pension plans is generally based upon applicable regulations (such as ERISA in the U.S.) and will generally differ from pension expense for financial reporting purposes. We made contributions to all of our defined benefit pension plans of $20.3 million in 2021, $16.6 million in 2022 and $16.3 million in 2023. Under defined benefit pension plan accounting, defined benefit pension plan expense, pension assets and accrued pension costs are each recognized based on certain actuarial assumptions. These assumptions are principally the discount rate, the assumed long-term rate of return on plan assets, the fair value of plan assets and the assumed increase in future compensation levels. We recognize the funded status of our defined benefit pension plans as either an asset (for overfunded plans) or a liability (for underfunded plans) in our Consolidated Balance Sheets. The discount rates we use for determining defined benefit pension expense and the related pension obligations are based on current interest rates earned on long-term bonds that receive one of the two highest ratings given by recognized -55- ‌​ rating agencies in the applicable country where the defined benefit pension benefits are being paid. In addition, we receive third-party advice about appropriate discount rates and these advisors may in some cases use their own market indices. We adjust these discount rates as of each December 31 valuation date to reflect then-current interest rates on such long-term bonds. We use these discount rates to determine the actuarial present value of the pension obligations as of December 31 of that year. We also use these discount rates to determine the interest component of defined benefit pension expense for the following year. At December 31, 2023, approximately 68%, 14%, 7% and 7% of the projected benefit obligations related to our plans in Germany, Canada, Norway and the U.S., respectively. We use several different discount rate assumptions in determining our consolidated defined benefit pension plan obligation and expense. This is because we maintain defined benefit pension plans in several different countries in Europe and North America and the interest rate environment differs from country to country. We used the following discount rates for our defined benefit pension plans: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Discount rates used for:"],["\u200b","","Obligations","","Obligations","","Obligations"],["\u200b","\u200b","at December 31, 2021","\u200b","at December 31, 2022","\u200b","at December 31, 2023"],["\u200b","\u200b","and expense in 2022","\u200b","and expense in 2023","\u200b","and expense in 2024"],["Kronos and NL Plans:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Germany","","1.2%","\u200b","3.7%","\u200b","3.2%","\u200b"],["Canada","","2.9%","\u200b","5.1%","\u200b","4.6%","\u200b"],["Norway","","1.9%","\u200b","3.6%","\u200b","3.6%","\u200b"],["U.S.","","2.6%","\u200b","5.3%","\u200b","5.0%","\u200b"]] [[/GREPCENT_TABLE]] The assumed long-term rate of return on plan assets represents the estimated average rate of earnings expected to be earned on the funds invested or to be invested in the plans’ assets provided to fund the benefit payments inherent in the projected benefit obligations. Unlike the discount rate, which is adjusted each year based on changes in current long-term interest rates, the assumed long-term rate of return on plan assets will not necessarily change based upon the actual short-term performance of the plan assets in any given year. Defined benefit pension expense each year is based upon the assumed long-term rate of return on plan assets for each plan, the actual fair value of the plan assets as of the beginning of the year and an estimate of the amount of contributions to and distributions from the plan during the year. Differences between the expected return on plan assets for a given year and the actual return are deferred and amortized over future periods based either upon the expected average remaining service life of the active plan participants (for plans for which benefits are still being earned by active employees) or the average remaining life expectancy of the inactive participants (for plans for which benefits are not still being earned by active employees). At December 31, 2023, the fair value of plan assets for all defined benefit plans comprised $40.3 million related to U.S. plans and $422.6 million related to non-U.S. plans. Substantially all of plan assets attributable to non-U.S. plans related to plans maintained by Kronos, and approximately 70% and 30% of the plan assets attributable to U.S. plans related to plans maintained by NL and Kronos, respectively. At December 31, 2023, approximately 58%, 19%, 10% and 9% of the plan assets related to our plans in Germany, Canada, Norway and the U.S, respectively. We use several different long-term rates of return on plan asset assumptions in determining our consolidated defined benefit pension plan expense. This is because the plan assets in different countries are invested in a different mix of investments and the long-term rates of return for different investments differ from country to country. In determining the expected long-term rate of return on plan asset assumptions, we consider the long-term asset mix (e.g. equity vs. fixed income) for the assets for each of our plans and the expected long-term rates of return for such asset components. In addition, we receive third-party advice about appropriate long-term rates of return. We regularly review our actual asset allocation for each of our U.S. and non-U.S. plans and will periodically rebalance the investments in each plan to more accurately reflect the targeted allocation when considered appropriate. -56- ‌​ The assumed long-term rates of return on plan assets used for purposes of determining net period pension cost for 2021, 2022 and 2023 were as follows: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2021","","2022","","2023"],["Kronos and NL plans:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Germany","","2.0%","\u200b","2.0%","\u200b","4.8%","\u200b"],["Canada","","3.1%","\u200b","3.8%","\u200b","4.4%","\u200b"],["Norway","","2.8%","\u200b","3.0%","\u200b","4.8%","\u200b"],["U.S.","","4.0%","\u200b","4.0%","\u200b","5.0%","\u200b"]] [[/GREPCENT_TABLE]] ​ Our long-term rate of return on plan asset assumptions in 2024 used for purposes of determining our 2024 defined benefit pension plan expense for Germany, Canada, Norway and the U.S. are 5.0%, 4.9%, 4.8% and 5.0%, respectively. We follow ASC Topic 820, Fair Value Measurements and Disclosures, in determining the fair value of plan assets within our defined benefit pension plans. While we believe the valuation methods used to determine the fair value of plan assets are appropriate, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. To the extent that a plan’s particular pension benefit formula calculates the pension benefit in whole or in part based upon future compensation levels, the projected benefit obligations and the pension expense will be based in part upon expected increases in future compensation levels. For all of our plans for which the benefit formula is so calculated, we generally base the assumed expected increase in future compensation levels upon average long-term inflation rates for the applicable country. In addition to the actuarial assumptions discussed above, the amount of recognized defined benefit pension expense and the amount of net pension asset and net pension liability will vary based upon relative changes in currency exchange rates. See Note 11 to our Consolidated Financial Statements for additional discussion of actuarial assumptions used in determining defined benefit pension assets, liabilities and expenses. Based on the actuarial assumptions described above and our current expectation for what actual average currency exchange rates will be during 2024, we expect our defined benefit pension expense will approximate $9 million in 2024. In comparison, we expect to be required to contribute approximately $18 million to such plans during 2024. As noted above, defined benefit pension expense and the amounts recognized as accrued pension costs are based upon the actuarial assumptions discussed above. We believe all of the actuarial assumptions used are reasonable and appropriate. However, if we had lowered the assumed discount rate by 25 basis points for all plans as of December 31, 2023, our aggregate projected benefit obligations would have increased by approximately $21 million at that date and our defined benefit pension expense would be expected to increase by a nominal amount during 2024. Similarly, if we lowered the assumed long-term rate of return on plan assets by 25 basis points for all of our plans, our defined benefit pension expense would be expected to increase by approximately $1 million during 2024. Income taxes – We operate globally through our Chemicals Segment and the calculation of our provision for income taxes and our deferred tax assets and liabilities involves the interpretation and application of complex tax laws and regulations in a multitude of jurisdictions across our Chemicals Segment’s global operations. Our effective tax rate is highly dependent upon the geographic distribution of our earnings or losses and the effects of tax laws and regulations in each tax-paying jurisdiction in which we operate. Significant judgments and estimates are required in determining our consolidated provision for income taxes due to the global nature of our Chemicals Segment’s operations. Our provision (benefit) for income taxes and deferred tax assets and liabilities reflect our best assessment of estimated current and future taxes to be paid, including the recognition and measurement of deferred tax assets and liabilities. We recognize deferred taxes for future tax effects of temporary differences between financial and income tax reporting. Deferred income tax assets and liabilities for each tax-paying jurisdiction in which we operate are netted and presented as either a noncurrent deferred income tax asset or liability, as applicable. We record a valuation allowance to reduce our deferred income tax assets to the amount that is believed to be realized under the more-likely-than-not -57- ‌​ recognition criteria. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, it is possible that we may change our estimate of the amount of the deferred income tax assets that would more-likely-than-not be realized in the future, resulting in an adjustment to the deferred income tax asset valuation allowance that would either increase or decrease, as applicable, reported net income in the period such change in estimate was made. We periodically review our deferred tax assets (DTAs) to determine if a valuation allowance is required. For example, at December 31, 2023, our Chemicals Segment has significant German corporate and trade net operating loss (NOL) carryforwards of $478.7 million (DTA of $75.8 million) and $54.5 million (DTA of $5.9 million), respectively; and Belgian corporate NOL carryforwards of $47.0 million (DTA of $11.8 million). At December 31, 2023, we have concluded that no deferred income tax asset 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. However, prior to the complete utilization of such carryforwards, if we were to generate additional losses in our German or Belgian operations for an extended period of time, or if applicable law were to change such that the carryforward period was no longer indefinite, 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. The Organization for Economic Cooperation and Development (the “OECD”), the European Union and other countries have committed to enacting the OECD’s Pillar Two initiative that would provide a global minimum level of taxation for multinational companies to be applied on a country-by-country basis. Currently, many countries are drafting or have enacted legislation to implement the Pillar Two rules effective for years beginning on or after December 31, 2023. We are continuing to follow the Pillar Two legislative developments in order to evaluate the potential future impact it could have on our results of operations. Contingencies – We are involved in numerous legal and environmental actions in part due to NL’s former involvement in the manufacture of lead-based products. We record accruals for these environmental, legal and other contingencies and commitments when such contingencies become probable, and amounts can be reasonably estimated. However, new information may become available to us, or circumstances (such as applicable laws and regulations) may change, thereby resulting in an increase or decrease in the amount we are required to accrue for such matters (and therefore a decrease or increase in our reported net income in the period of such change). At December 31, 2023 we have recorded total accrued environmental liabilities of $96.9 million. Obligations for environmental remediation and related costs are difficult to assess, 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 2024, our corporate expense could be higher than we currently estimate. In addition, we adjust our accruals for environmental remediation and related costs (and potential range of our liabilities) as further information becomes available to us or as circumstances change which involves our judgment regarding current facts and circumstances for each site and is subject to various assumptions and estimates. Such further information or changed circumstances could result in an increase in our accrued environmental remediation and related costs. See Note 18 to our Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES Consolidated Cash Flows Operating Activities – Trends in cash flows as a result of our operating income (excluding the impact of significant asset dispositions and relative changes in assets and liabilities) are generally similar to trends in our earnings. 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 year to year can be impacted by changes in currency exchange rates, since a portion of our -58- ‌​ cash, cash equivalents and restricted cash is held by our Chemicals Segment’s non-U.S. subsidiaries. For example, during 2023, relative changes in currency exchange rates resulted in a $1.0 million increase in the reported amount of our cash, cash equivalents and restricted cash compared to a $5.1 million decrease in 2022 and a $10.6 million decrease in 2021. Cash flows from operating activities decreased to $3.9 million in 2023 from $34.9 million in 2022. This $31.0 million decrease in cash provided by operations in 2023 includes: [[GREPCENT_TABLE]] [["","\u25cf","consolidated operating income of $34.2 million in 2023, a decrease of $205.2 million compared to operating income of $239.4 million in 2022;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","lower amount of net cash used of $84.6 million associated with relative changes in our receivables, inventories, land held for development, payables and accruals in 2023;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","lower net cash paid for income taxes in 2023 of $16.3 million primarily due to decreased earnings; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","lower net contributions to our TiO2 manufacturing joint venture in 2023 of $13.6 million."]] [[/GREPCENT_TABLE]] Cash flows from operating activities decreased to $34.9 million in 2022 from $459.7 million in 2021. This $424.8 million decrease in cash provided by operations in 2022 includes: [[GREPCENT_TABLE]] [["","\u25cf","consolidated operating income of $239.4 million in 2022, a decrease of $79.2 million compared to operating income of $318.6 million in 2021;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","higher amount of net cash used of $273.1 million associated with the relative changes in our receivables, inventories, land held for development, payables and accruals in 2022;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","lower net cash paid for income taxes in 2022 of $22.2 million primarily due to decreased earnings; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","higher net distributions from our TiO2 manufacturing joint venture in 2022 of $14.3 million."]] [[/GREPCENT_TABLE]] 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. Changes in working capital were affected by accounts receivable and inventory changes, as shown below: [[GREPCENT_TABLE]] [["","\u25cf","Kronos\u2019 average days sales outstanding (DSO) increased from December 31, 2022 to December 31, 2023, primarily due to the relative changes in the timing of collections."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Kronos\u2019 average days sales in inventory (DSI) decreased from December 31, 2022 to December 31, 2023 primarily due to lower inventory volumes attributable to sales volumes exceeding production volumes in 2023 compared to 2022 where production volumes exceeded sales volumes."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","CompX\u2019s average DSO decreased from December 31, 2022 to December 31, 2023 and is primarily impacted by the timing of sales and collections in the last month of the year."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","CompX\u2019s average DSI decreased from December 31, 2022 to December 31, 2023, primarily due to a decrease at its security products reporting unit due to the fulfillment and shipping of a significant order during the fourth quarter of 2023, partially offset by an increase at its marine components reporting unit due to lower sales and increased inventory balances as a result of prior orders of certain raw materials with longer lead times."]] [[/GREPCENT_TABLE]] ​ -59- ‌​ For comparative purposes, we have also provided comparable prior year numbers below. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31,","","December 31,","","December 31,"],["\u200b","\u200b","2021","\u200b","2022","\u200b","2023"],["Kronos:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Days sales outstanding","","65 days","","64 days","","66 days"],["Days sales in inventory","","59 days","","103 days","","65 days"],["CompX:"],["Days sales outstanding","","42 days","","41 days","","36 days"],["Days sales in inventory","","96 days","","99 days","","95 days"]] [[/GREPCENT_TABLE]] 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. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years ended December 31,"],["\u200b","","2021","","2022","","2023"],["\u200b","\u200b","(In millions)"],["Cash provided by (used in) operating activities:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Kronos","\u200b","$","206.5","\u200b","$","81.7","\u200b","$","5.5"],["Valhi exclusive of subsidiaries","\u200b","","122.1","\u200b","","68.8","\u200b","","40.7"],["CompX","\u200b","","10.5","\u200b","","16.9","\u200b","","25.8"],["NL exclusive of subsidiaries","\u200b","","15.3","\u200b","","39.2","\u200b","","21.6"],["Tremont exclusive of subsidiaries","\u200b","","58.8","\u200b","","12.7","\u200b","","11.2"],["BMI","\u200b","","59.7","\u200b","","12.1","\u200b","","13.2"],["LandWell","\u200b","","302.1","\u200b","","(22.0)","\u200b","","17.5"],["Eliminations and other","\u200b","","(315.3)","\u200b","","(174.5)","\u200b","","(131.6)"],["Total","\u200b","$","459.7","\u200b","$","34.9","\u200b","$","3.9"]] [[/GREPCENT_TABLE]] ​ Investing Activities – We disclose capital expenditures by our business segments in Note 2 to our Consolidated Financial Statements. During 2023: [[GREPCENT_TABLE]] [["","\u25cf","we had net proceeds of $19.3 million of marketable securities;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","we had net proceeds from the sale of land not used in our operations of $1.8 million; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","$1.7 million of BPC\u2019s cash and cash equivalents was removed as part of its sale in the fourth quarter (see Note 3 to our Consolidated Financial Statements)."]] [[/GREPCENT_TABLE]] During 2022: [[GREPCENT_TABLE]] [["","\u25cf","we had net purchases of $70.7 million of marketable securities; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","$8.6 million of BWC\u2019s cash, cash equivalents and restricted cash was removed as part of its deconsolidation in the third quarter (see Note 2 to our Consolidated Financial Statements)."]] [[/GREPCENT_TABLE]] During 2021 we: [[GREPCENT_TABLE]] [["","\u25cf","had net proceeds from the sale of land not used in our operations of $23.4 million (including $8.4 million in the second quarter and $15.0 million in the third quarter); and"]] [[/GREPCENT_TABLE]] -60- ‌​ [[GREPCENT_TABLE]] [["","\u25cf","had net proceeds of $1.2 million of marketable securities."]] [[/GREPCENT_TABLE]] ​ Financing Activities – During 2023: [[GREPCENT_TABLE]] [["","\u25cf","we repaid $28.0 million on Valhi\u2019s credit facility with Contran; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Kronos acquired 313,814 shares of its common stock for an aggregate purchase price of $2.8 million."]] [[/GREPCENT_TABLE]] During 2022: [[GREPCENT_TABLE]] [["","\u25cf","we borrowed $.1 million and repaid $51.6 million on Valhi\u2019s credit facility with Contran;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","we repaid $8.4 million on BWC\u2019s loan from Western Alliance Bank;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Kronos acquired 217,778 shares of its common stock for an aggregate purchase price of $2.3 million; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","CompX acquired 78,900 shares of its Class A common stock for an aggregate purchase price of $ 1.7 million."]] [[/GREPCENT_TABLE]] During 2021: [[GREPCENT_TABLE]] [["","\u25cf","we repaid $97.8 million on Valhi\u2019s credit facility with Contran and repaid $1.5 million under Tremont\u2019s deferred payment obligation;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","CompX acquired 75,000 shares of its Class A common stock in market transactions for an aggregate purchase price of $1.3 million; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Kronos acquired 14,409 shares of its common stock in market transactions for an aggregate purchase price of $.2 million."]] [[/GREPCENT_TABLE]] We paid aggregate cash dividends on our common stock of $9.0 million in each of 2021 and 2022 and $9.1 million in 2023. Distributions to noncontrolling interest in 2021, 2022 and 2023 are primarily comprised of: CompX dividends paid to shareholders other than NL; Kronos dividends paid to shareholders other than us and NL, and BMI and LandWell dividends paid to shareholders other than us. Outstanding Debt Obligations At December 31, 2023, our consolidated indebtedness was comprised of: [[GREPCENT_TABLE]] [["","\u25cf","Valhi\u2019s $93.4 million outstanding on its $150 million amended credit facility with Contran which is due no earlier than December 31, 2025;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","\u20ac400 million aggregate outstanding on Kronos\u2019 wholly-owned subsidiary Kronos International, Inc. (KII) 3.75% Senior Secured Notes due in September 2025 (the \u201cOld Notes\u201d), which had a $440.9 million carrying amount, net of unamortized debt issuance costs; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","$12.2 million on LandWell\u2019s bank loan due April 2036."]] [[/GREPCENT_TABLE]] On February 12, 2024, for certain eligible holders of the Old Notes, KII executed an exchange of €325 million principal amount of the Old Notes for newly issued €276.174 million aggregate outstanding KII 9.50% Senior Secured Notes due March 2029 (the “New Notes” and together with the Old Notes, the “Senior Secured Notes”) plus additional cash consideration of €50 million ($53.7 million). Kronos financed the €50 million cash consideration with a new unsecured term loan from Contran Corporation due in September 2029. The Contran term loan is subordinated in right of payment to Kronos’ Senior Secured Notes and Kronos’ $225 million global revolving credit facility (Global Revolver). In accordance with Kronos’ related party transaction policy, the audit committee of Kronos’ board of directors, comprised of the independent directors, approved the terms and conditions of the new term loan from Contran. -61- ‌​ Holders of the Old Notes received for each €1,000 principal amount of Old Notes exchanged, €850 in principal amount of New Notes plus a cash payment in an amount equal to €150. Following the exchange, Old Notes totaling €75 million principal amount that were not exchanged continue to remain outstanding. In connection with the exchange, the indenture governing the Old Notes was amended to conform to the restrictive covenants in the indenture governing the New Notes and to make other conforming changes. KII did not receive any cash proceeds from the issuance and delivery of the New Notes in connection with the exchange. Kronos expects to recognize a non-cash pre-tax interest charge of approximately $1.6 million in the first quarter of 2024 related to the write-off the deferred financing costs associated with the Old Notes. We expect interest expense in 2024 to increase by approximately $16 million as a result of the refinancing. Certain of our credit facilities require the respective borrowers to maintain a number of covenants and restrictions which, among other things, restrict our ability to incur additional debt, incur liens, pay dividends or merge or consolidate with, or sell or transfer substantially all of our assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of this type. Certain of 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, certain 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, certain 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. Kronos had no outstanding borrowings at December 31, 2023 on its Global Revolver. Availability under the Global Revolver is subject to a borrowing base calculation, as defined in the agreement, and at December 31, 2023 the full $225 million was available for borrowings. Kronos’ Senior Secured Notes, its Global Revolver and the Contran term loan 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. The terms of all of our debt instruments are discussed in Note 9 to our Consolidated Financial Statements. We are in compliance with all of our debt covenants at December 31, 2023. We believe that we will be able to continue to comply with the financial covenants contained in our credit facilities through their maturity; however, if future operating results differ materially from our expectations we may be unable to maintain compliance. ​ 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. 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 -62- ‌​ are more favorable than current debt and investment market rates. The companies that borrow under these notes have sufficient borrowing capacity to repay the notes at any time upon demand. All of these notes and related interest expense and income are eliminated in our 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. We believe we will be able to comply with the financial covenants contained in our credit facilities through their maturities; however, if future operating results differ materially from our expectations we may be unable to maintain compliance. Based upon our expectations of our operating performance, and the anticipated demands on our cash resources, we expect to have sufficient liquidity to meet our short-term (defined as the twelve-month period ending December 31, 2024) and long-term obligations (defined as the five-year period ending December 31, 2028). In this regard, see the discussion above in “Outstanding Debt Obligations.” If actual developments differ from our expectations, our liquidity could be adversely affected. At December 31, 2023, we had credit available under existing facilities of approximately $282 million, which was comprised of: [[GREPCENT_TABLE]] [["","\u25cf","$225 million under Kronos\u2019 global revolving credit facility; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","$57(1) million under Valhi\u2019s Contran credit facility."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Amounts available under this facility are at the sole discretion of Contran."]] [[/GREPCENT_TABLE]] At December 31, 2023, we had an aggregate of $522.9 million of restricted and unrestricted cash, cash equivalents and marketable securities attributable to operations. A detail by entity is presented in the table below. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Total","\u200b","Held outside"],["\u200b","\u200b","amount","","U.S."],["\u200b","\u200b","(In millions)"],["Kronos","\u200b","$","202.1","\u200b","$","115.1"],["CompX","","\u200b","76.7","","\u200b","\u2014"],["NL exclusive of its subsidiaries","","\u200b","117.8","","\u200b","\u2014"],["BMI","","\u200b","10.4","","\u200b","\u2014"],["Tremont exclusive of its subsidiaries","","\u200b","24.3","","\u200b","\u2014"],["LandWell","","\u200b","91.5","","\u200b","\u2014"],["Valhi exclusive of its subsidiaries","","\u200b",".1","","\u200b","\u2014"],["Total cash and cash equivalents, restricted cash and marketable securities","\u200b","$","522.9","\u200b","$","115.1"]] [[/GREPCENT_TABLE]] ​ Following the implementation of a territorial tax system under the 2017 Tax Act, repatriation of any cash and cash equivalents held by our non-U.S. subsidiaries would not be expected to result in any material income tax liability as a result of such repatriation. Capital Expenditures and Other Investments – We currently expect our aggregate capital expenditures for 2024 will be approximately $58 million (including approximately $4 million contractually committed at December 31, 2023) as follows: [[GREPCENT_TABLE]] [["","\u25cf","$55 million by our Chemicals Segment, including approximately $28 million in the area of environmental compliance, protection and improvement; and"]] [[/GREPCENT_TABLE]] -63- ‌​ [[GREPCENT_TABLE]] [["","\u25cf","$3 million by our Component Products Segment."]] [[/GREPCENT_TABLE]] In addition, LandWell expects to spend approximately $55 million on land development costs during 2024, including approximately $40 million contractually committed at December 31, 2023. Land development costs are included in the determination of cash provided by operating activities. Capital spending for 2024 is expected to be funded through cash generated from operations or borrowing under our existing credit facilities. Planned capital expenditures in 2024 at Kronos and CompX will primarily be to maintain and improve existing facilities and, as it relates to CompX, to meet expected customer demand and maintain technology infrastructure. In addition, Kronos’ capital expenditures in the area of environmental compliance, protection and improvement include expenditures which are primarily focused on increased operating efficiency but also result in improved environmental protection, such as lower emissions from our manufacturing plants. Repurchases of our Common Stock and Common Stock of our Subsidiaries – We have in the past, and may in the future, make repurchases of our common stock in market or privately-negotiated transactions. At December 31, 2023, we had approximately .3 million shares of our common stock available for repurchase under the authorizations described in Note 16 to our Consolidated Financial Statements. At December 31, 2023, Kronos had approximately 1.0 million shares of its common stock available for repurchase under the authorization described in Note 3 to our Consolidated Financial Statements. At December 31, 2023, CompX had approximately .5 million shares of its Class A common stock available for repurchase under the authorization described in Note 3 to our Consolidated Financial Statements. 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 $.19 per share in each quarter of 2023 for which we received $44.1 million. In February 2024 the Kronos board of directors approved a regular quarterly dividend of $.19 per share. If Kronos were to pay its $.19 per share dividend in each quarter of 2024 based on the 58.0 million shares we held of Kronos common stock at December 31, 2023, during 2024 we would receive aggregate regular dividends from Kronos of $44.1 million. NL paid a quarterly dividend of $.07 per share in 2024 for which we received $11.3 million. In February 2024 the NL board of directors approved a quarterly dividend of $.08 per share. If NL were to pay its $.08 per share dividend in each quarter of 2024 based on the 40.4 million shares we held of NL common stock at December 31, 2023, during 2024 we would receive aggregate quarterly dividends from NL of $12.9 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 $74.8 million in 2021, $16.6 million in 2022 and $17.6 million in 2023. We do not know if we will receive distributions from BMI and LandWell during 2024. All of our ownership interest in CompX is held through our ownership in NL, as such we do not receive any dividends from CompX. Instead any dividend paid by CompX is paid to NL. Our subsidiaries have various credit agreements with unrelated third-party lenders which contain customary limitations on the payment of dividends, typically a percentage of net income or cash flow; 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 decision 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 -64- ‌​ 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. See Note 17 to our Consolidated Financial Statements. 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 may be required to sell our subsidiaries’ securities for 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 NL secured with approximately 35.2 million shares of the common stock of Kronos Worldwide, Inc. held by NL’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 amount of the most recent closing price of the Kronos stock. The credit facility contains a number of covenants and restrictions which, among other things, restrict NL’s subsidiary’s ability to incur additional debt, incur liens, and merge or consolidate with, or sell or transfer substantially all of NL’s subsidiary’s assets to, another entity, and require NL’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 NL’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 NL’s subsidiary or NL, 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 Consolidated Financial Statements. There is $.5 million outstanding under this facility at December 31, 2023. ​ We had an unsecured revolving demand promissory note with Kronos which, as amended, provided for borrowings from Kronos of up to $25 million. We eliminate any such intercompany borrowings in our Consolidated Financial Statements. The facility, as amended, was due on demand, but in any event no earlier than December 31, 2024. There was no outstanding balance at December 31, 2023. We had no borrowings with Kronos in 2021, 2022 and 2023. Kronos’ obligation to loan us money under this note was at Kronos’ discretion. In February 2024, this note was cancelled by mutual agreement  between us and Kronos. We 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 Consolidated Financial Statements. The facility, as amended, is due on demand, but in any event no earlier than December 31, 2025. We had gross borrowings of $29.8 million and gross repayments of $40.6 million with CompX for a total outstanding balance of $18.7 million at December 31, 2021. We had gross borrowings of $24.3 million and gross repayments of $29.8 million with CompX for a total outstanding balance of $13.2 million at December 31, 2022. We had gross borrowings of $27.9 million and gross repayments of $30.5 million with CompX for a total outstanding balance of $10.6 million at December 31, 2023. We could borrow an additional $14.4 million under our current intercompany facility with CompX at December 31, 2023. CompX’s obligation to loan us money under this note is at CompX’s discretion. Commitments and Contingencies We are subject to certain commitments and contingencies, as more fully described in the Notes to our Consolidated Financial Statements and in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, including: [[GREPCENT_TABLE]] [["","\u25cf","certain income contingencies in various U.S. and non-U.S. jurisdictions;"]] [[/GREPCENT_TABLE]] -65- ‌​ [[GREPCENT_TABLE]] [["","\u25cf","certain environmental remediation matters involving NL and BMI;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","certain litigation related to NL\u2019s former involvement in the manufacture of lead pigment and lead-based paint; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","certain other litigation to which we are a party."]] [[/GREPCENT_TABLE]] In addition to those legal proceedings described in Note 18 to our Consolidated Financial Statements, 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 NL) with respect to asserted health concerns associated with the use of such products and (ii) effectively overturn court decisions in which NL 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. As described in the Notes 7, 9 and 18 to our Consolidated Financial Statements, we are a party to various debt, lease and other agreements which contractually and unconditionally commit us to pay certain amounts in the future. Our obligations related to the long-term supply contracts for the purchase of TiO2 feedstock are more fully described in Note 18 to our Consolidated Financial Statements and above in “Business – Chemicals Segment – Kronos Worldwide, Inc. – Raw Materials.” CompX has purchase obligations of $18.3 million ($17.5 million payable in 2024 and $.8 million payable in 2025/2026) which consist of open purchase orders and contractual obligations, primarily commitments to purchase raw materials and for capital projects in process at December 31, 2023. The timing and amount for purchase obligations are based on the contractual payment amount and the contractual payment date for those commitments. Recent Accounting Pronouncements See Note 21 to our Consolidated Financial Statements.