VALHI, INC. 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 theLandWell Company ("LandWell").Kronos (NYSE: KRO),NL (NYSE:NL ) and CompX (NYSE American: CIX) each file periodic reports with theSEC .
We have three consolidated reportable operating segments:
Chemicals - Our Chemicals Segment is operated through our majority control of
Kronos. Kronos is a leading global producer and marketer of value-added
titanium dioxide pigments ("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.
Component Products - We operate in the component products industry through our
majority control of CompX. CompX is a leading manufacturer of security products
used in the postal, recreational transportation, office and institutional
? furniture, cabinetry, tool storage and healthcare applications. CompX is also a
leading manufacturer of wake enhancement systems, stainless steel exhaust
systems, gauges, throttle controls, trim tabs and related hardware and accessories for the recreational marine and other industries.
and development through our majority control of BMI and LandWell. BMI owns real
? property in
provides utility services to certain industrial and municipal customers.
LandWell is engaged in efforts to develop certain land holdings for commercial,
industrial and residential purposes in
General
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly Report that are not historical facts are forward-looking in nature and represent management's beliefs and assumptions based on currently available information. In some cases, you can identify forward-looking statements by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expects" or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we do not know if these expectations will be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. The factors that could cause actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with theSEC and include, but are not limited to, the following:
? Future supply and demand for our products;
? The extent of the dependence of certain of our businesses on certain market
sectors;
? The cyclicality of certain of our businesses (such as Kronos' TiO2 operations);
? Customer and producer inventory levels;
? Unexpected or earlier-than-expected industry capacity expansion (such as the
TiO2 industry);
? Changes in raw material and other operating costs (such as ore, zinc, brass,
aluminum, steel and energy costs);
? Changes in the availability of raw materials (such as ore);
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General global economic and political conditions that harm the worldwide
economy, disrupt our supply chain, increase material and energy costs, reduce
demand or perceived demand for TiO2, component products and land held for
? development or impair our ability to operate our facilities (including changes
in the level of gross domestic product in various regions of the world, natural
disasters, terrorist acts, global conflicts and public health crises such as
COVID-19);
Operating interruptions (including, but not limited to, labor disputes, leaks,
? natural disasters, fires, explosions, unscheduled or unplanned downtime,
transportation interruptions, cyber-attacks, certain regional and world events
or economic conditions and public health crises such as COVID-19);
? Competitive products and substitute products;
? Customer and competitor strategies;
? Potential difficulties in integrating future acquisitions;
? Potential difficulties in upgrading or implementing accounting and
manufacturing software systems;
? Potential consolidation of our competitors;
? Potential consolidation of our customers;
? The impact of pricing and production decisions;
? Competitive technology positions;
? Our ability to protect or defend intellectual property rights;
? The introduction of trade barriers or trade disputes;
? The ability of our subsidiaries to pay us dividends;
? Uncertainties associated with new product development and the development of
new product features;
Fluctuations in currency exchange rates (such as changes in the exchange rate
between the
? Canadian dollar and between the euro and the Norwegian krone) or possible
disruptions to our business resulting from uncertainties associated with the
euro or other currencies;
? Decisions to sell operating assets other than in the ordinary course of
business;
? The timing and amounts of insurance recoveries;
? Our ability to renew, amend, refinance or establish credit facilities;
? Increases in interest rates;
? Our ability to maintain sufficient liquidity;
? The ultimate outcome of income tax audits, tax settlement initiatives or other
tax matters, including future tax reform;
? Our ability to utilize income tax attributes, the benefits of which may or may
not have been recognized under the more-likely-than-not recognition criteria;
Environmental matters (such as those requiring compliance with emission and
? discharge standards for existing and new facilities, or new developments
regarding environmental remediation or decommissioning obligations at sites
related to our former operations);
Government laws and regulations and possible changes therein (such as changes
in government regulations which might impose various obligations on former
? manufacturers of lead pigment and lead-based paint, including
to asserted health concerns associated with the use of such products) including
new environmental health and safety or other regulations (such as those seeking
to limit or classify TiO2 or its use);
? The ultimate resolution of pending litigation (such as
environmental matters);
? Our ability to comply with covenants contained in our revolving bank credit
facilities;
? Our ability to complete and comply with the conditions of our licenses and
permits;
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? Changes in real estate values and construction costs in
? Possible future litigation.
Should one or more of these risks materialize (or the consequences of such development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.
Operations Overview
Quarter Ended
We reported a net loss attributable toValhi stockholders of$4.9 million or$.17 per diluted share in the first quarter of 2023 compared to net income of$45.4 million or$1.59 per diluted share in the first quarter of 2022. As discussed more fully below, our net income attributable toValhi stockholders decreased from 2022 to 2023 primarily due to lower operating income from our Chemicals Segment in 2023 compared to 2022. Our diluted net loss per share in the first quarter of 2023 includes a gain of$.03 per share related to a business interruption insurance claim arising from Hurricane Laura in 2020 at our Chemicals Segment.
Current Forecast for 2023 -
We currently expect consolidated operating income for 2023 to be lower as compared to 2022 primarily due to the net effects of:
lower operating income from our Chemicals Segment in 2023 as the favorable
? impact of higher expected average TiO2 selling prices is not expected to offset
the negative impact of higher manufacturing costs and weak demand;
? lower operating income from our Component Products Segment in 2023 as marine
components sales are expected to normalize below 2022 record levels; and
higher operating income from our
in 2023 due to the aggregate
? related to
bankruptcy and deconsolidation discussed below, which will not recur and higher
expected infrastructure reimbursements.
Segment Operating Results - 2023 Compared to 2022 -
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 Segment's customers' inventory levels are influenced in part by their expectations for future changes in TiO2 selling prices as well as their expectations 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:
? TiO2 selling prices,
? our Chemicals Segment's TiO2 sales and production volumes,
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? manufacturing costs, particularly raw materials such as third-party feedstock,
maintenance and energy-related expenses, and
currency exchange rates (particularly the exchange rates for the
? relative to the euro, the Norwegian krone and the Canadian dollar and the euro
relative to the Norwegian krone).
Key performance indicators are our Chemicals Segment's TiO2 average selling prices, the level of TiO2 sales and production volumes, and the cost of our Chemicals Segment's 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.
Three months ended March 31,
2022 2023 % Change
(Dollars in millions)
Net sales $ 562.9 $ 426.3 (24) %
Cost of sales 413.9 395.8 (4)
Gross margin $ 149.0 $ 30.5 (80)
Operating income (loss) $ 86.4 $ (15.1) (117)
Percent of net sales:
Cost of sales 74 % 93 %
Gross margin 26 7
Operating income (loss) 15 (4)
TiO2 operating statistics:
Sales volumes* 144 102 (29) %
Production volumes* 138 105 (24) %
Percent change in TiO2 net sales:
TiO2 product pricing 4 %
TiO2 sales volumes (29)
TiO2 product mix/other 3
Changes in currency exchange rates (2)Total (24) % * Thousands of metric tons Current Industry Conditions - Our Chemicals Segment started 2023 with average TiO2 selling prices 16% higher than at the beginning of 2022 and average TiO2 selling prices declined 4% during the first quarter of 2023. Despite this decline, our Chemicals Segment's average TiO2 selling prices in the first quarter of 2023 were 4% higher than the average prices during the first quarter of 2022. Overall our Chemicals Segment's sales volumes declined in the first three months of 2023 compared to the first three months of 2022 due to reduced demand in all major markets. Our Chemicals Segment curtailed production in the third and fourth quarters of 2022 at certain of its European facilities due to decreased demand and increased production costs. During the first quarter of 2023 our Chemicals Segment continued operating its production facilities at reduced rates to align production with customer demand. As a result, our Chemicals Segment operated its production facilities at 76% of practical capacity utilization in the first three months of 2023 compared to full practical capacity utilization in the first three months of 2022. Due to significant increases in production costs (primarily energy and feedstock), our Chemicals Segment's cost of sales per metric ton of TiO2 sold in the first quarter of 2023 was significantly higher as compared to the comparable period in 2022 (excluding the effect of changes in currency exchange rates).Net Sales - Our Chemicals Segment's net sales in the first quarter of 2023 decreased 24%, or$136.6 million , compared to the first quarter of 2022 primarily due to a 29% decrease in sales volumes (which decreased net sales by approximately$163 million ) somewhat offset by a 4% increase in average TiO2 selling prices (which increased net sales by approximately$23 million ). We estimate that changes in currency exchange rates (primarily the euro) decreased our Chemicals Segment's net sales by approximately$11 million in the first quarter of 2023 as compared to the first quarter of 2022. TiO2 selling prices will increase or decrease generally as a result of 26
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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 29% in the first quarter of 2023 as compared to the first quarter of 2022 due to lower demand which impacted all major markets. The lower overall demand our Chemicals Segment began experiencing in the second half of 2022 has continued throughout the first quarter of 2023. Cost of Sales and Gross Margin - Our Chemicals Segment's cost of sales as a percentage of net sales increased to 93% in the first quarter of 2023 compared to 74% in the same period of 2022 primarily due to higher production costs of approximately$81 million (primarily raw material and energy costs) and$22 million of unabsorbed fixed production costs our Chemicals Segment recognized as a result of reducing production volumes at certain of its manufacturing facilities to align inventory levels to anticipated customer demand. Overall production volumes declined 24% over the first quarter of 2023.
Our Chemicals Segment's gross margin as a percentage of net sales decreased to 7% in the first quarter of 2023 compared to 26% in the first quarter of 2022.
As discussed and quantified above, our Chemicals Segment's gross margin as a percentage of net sales decreased primarily due to higher production costs, lower production and sales volumes and changes in currency exchange rates, somewhat offset by higher average TiO2 selling prices.
Operating Income (Loss) - Our Chemicals Segment had a net operating loss of$15.1 million in the first quarter of 2023 compared to operating income of$86.4 million in the first quarter of 2022 as a result of the factors impacting gross margin discussed above. Our Chemicals Segment recognized a gain of$1.7 million in the first quarter of 2023 related to cash received from the settlement of a business interruption insurance claim. See Note 12 to our Condensed Consolidated Financial Statements. We estimate changes in currency exchange rates decreased our Chemicals Segment's operating loss by approximately$19 million in the first quarter of 2023 as compared to the same period in 2022, as discussed in the Effects of currency exchange rates section below. Our Chemicals Segment's operating income is net of amortization of purchase accounting adjustments made in conjunction with our acquisitions of interests inNL and Kronos. As a result, we recognize additional depreciation expense above the amounts Kronos reports separately, substantially all of which is included within cost of sales. We recognized additional depreciation expense of$.3 million in each of the first three months of 2023 and 2022, 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 outsidethe United States (primarily inGermany ,Belgium ,Norway andCanada ). The majority of our Chemicals Segment's sales from non-U.S. operations are denominated in currencies other than theU.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 theU.S. dollar (and consequently our Chemicals Segment's non-U.S. operations will generally holdU.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 inU.S. dollars, while labor and other production and administrative costs are incurred primarily in local currencies. Consequently, the translatedU.S. dollar value of our Chemicals Segment's non-U.S. sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of period-to-period operating results. In addition to the impact of the translation of sales and expenses over time, our Chemicals Segment's non-U.S. operations also generate currency transaction gains and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarilyU.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 (primarilyU.S. dollars). 27 Table of Contents ?
Overall, we estimate that fluctuations in currency exchange rates had the following effects on the reported amounts of our Chemicals Segment's sales and operating income (loss) for the periods indicated.
Impact of changes in currency exchange rates
Three months ended March 31, 2023 vs March 31, 2022
Translation
gains/(losses) - Total currency
Transaction gains (losses) recognized impact of impact
2022 2023 Change rate changes 2023 vs 2022
(In millions)
Impact on:
Net sales $ - $ - $ - $ (11) $ (11)
Operating income (loss) (2) 5 7 12 19
The $11 million decrease in our Chemicals Segment's net sales (translation
losses) was caused primarily by a strengthening of the U.S. dollar relative to
the euro, as its euro-denominated sales were translated into fewer U.S. dollars
in 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 our Chemicals Segment's net sales, as a
substantial portion of the sales generated by our Chemicals Segment's Canadian
and Norwegian operations is denominated in the U.S. dollar.
The
Higher net currency transaction gains of approximately
caused by relative changes in currency exchange rates at each applicable
balance sheet date between the
? the Norwegian krone, and between the euro and the Norwegian krone, which causes
increases or decreases, as applicable, in
and payables and
operations, and in Norwegian krone denominated receivables and payables held by
our Chemicals Segment's non-
Approximately
by a strengthening of the
Norwegian krone, as our Chemicals Segment's local currency-denominated
operating costs were translated into fewer
? 2022, and by net currency translation gains primarily caused by a strengthening
of the
effects of euro-denominated operating costs being translated into fewer
dollars in 2023 as compared to 2022.
Outlook - As previously reported, in the second half of 2022 our Chemicals Segment experienced weakening demand, particularly inEurope and export markets, along with rapidly rising costs for energy and certain key raw materials and, in response, our Chemicals Segment implemented production curtailments at certain of its European facilities throughout the fourth quarter of 2022 to manage inventory levels. Although our Chemicals Segment began to see pockets of improving demand in the first quarter of 2023, overall, our Chemicals Segment continued to experience general economic weakness as customers operated at reduced production rates due to softer than expected sales and inventory right sizing. Our Chemicals Segment expects customer demand will gradually return throughout the year; however, based on current and expected near-term demand, it will continue to operate certain of its facilities at reduced production rates during the second quarter to manage inventory levels. Our Chemicals Segment's selling prices have remained relatively stable during the first quarter of 2023, and it expects selling prices will rise throughout the remainder of 2023, improving margins as demand increases. Because of the sluggish demand recovery and higher production costs resulting from unfavorable fixed cost absorption at lowered production rates, our Chemicals Segment expects to report lower operating results for the full year of 2023 as compared to 2022. Our Chemicals Segment will continue to monitor current and anticipated near-term customer demand levels and align its production and inventories accordingly. Our Chemicals Segment believes the long-term outlook for its industry remains positive, and is taking steps in the near term which are intended to preserve its competitive position and future growth. Our expectations for the TiO2 industry and our Chemical Segment's operations are based on a number of factors outside our control. As noted above, our Chemicals Segment has experienced global market disruptions including high energy costs and availability 28 Table of Contents ? concerns and future impacts on its operations will depend on, among other things, future energy costs and availability and the impact economic conditions and geopolitical events have on our Chemical Segment's operations or its customers' and suppliers' operations, all of which remain uncertain and cannot be predicted. Component Products - Our Component Products Segment's product offerings consist of a significantly large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on its ability to quantify the impact of changes in individual product sales quantities and selling prices on the segment's net sales, cost of sales and gross margin. In addition, small variations in period-to-period net sales, cost of sales and gross margin can result from changes in the relative mix of our Component Products Segment's products sold. The key performance indicator for our Component Products Segment is operating income and margins. In the first quarter of 2023 our Component Products Segment's operating income increased to$7.0 million compared to$6.3 million in the first quarter of 2022. The increase in our Component Products Segment's operating income in the first quarter of 2023 compared to 2022 is due to higher marine components sales and gross margins which more than offset lower security products sales. Three months ended March 31, 2022 2023 % Change (Dollars in millions) Net sales: Security products$ 29.6 $ 27.4 (8) % Marine components 12.5 13.8 11 Total net sales 42.1 41.2 (2) Cost of sales 30.0 28.5 (5) Gross margin$ 12.1 $ 12.7 5 Operating income$ 6.3 $ 7.0 12 Percent of net sales: Cost of sales 71 % 69 % Gross margin 29 31 Operating income 15 17Net Sales - Our Component Products Segment's net sales decreased$.9 million in the first quarter of 2023 compared to the same period in 2022 primarily due to lower security products sales to the government security and healthcare industry markets, partially offset by higher marine components sales predominantly to the industrial market. Relative to the first quarter of 2022 security products sales were$1.8 million lower to the government security market and$.5 million lower to the healthcare industry market. Relative to the first quarter of 2022, marine components sales were$1.2 million higher to the industrial market,$.3 million higher to distributors and$.3 million higher to dealers, partially offset by$.9 million lower sales to the towboat market. Costs of Sales and Gross Margin - Our Component Products Segment's cost of sales as a percentage of net sales decreased 2% in the first quarter of 2023 compared to the same period in 2022. As a result, gross margin as a percentage of net sales increased over the same period. Gross margin percentage increased in the first quarter of 2023 compared to the same period in 2022 primarily due to higher gross margin at the marine components reporting unit related to a more favorable product mix and, to a lesser extent, increased selling prices and surcharges and increased production efficiencies. The security products reporting unit gross margin as a percentage of net sales for the first quarter of 2023 was comparable to the first quarter of 2022.
Operating Income - As a percentage of net sales, our Component Products Segment's operating income increased in the first quarter of 2023 compared to the same period of 2022 and was primarily impacted by the factors impacting sales, cost of sales and gross margin discussed above.
Outlook - The softening demand our Component Products Segment began seeing in
the fourth quarter of 2022 at both reporting units continued during the first
quarter of 2023. As a result, the marine components reporting unit largely
worked through its backlog in the first quarter, primarily related to the
towboat market, and the security products reporting unit continued to experience
declining order rates. Entering into 2023, labor markets have become more
favorable in each of the regions our Component Products Segment operates
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and raw material prices have generally stabilized. Our Component Products Segment's supply chains are stable and transportation and logistical delays are minimal, although it continues to face shortages related to certain electronic components. Our Component Products Segment has adjusted production rates at its facilities to reflect the stability of its raw material supplies and near-term demand levels. Over the remainder of the year, our Component Products Segment expects gross margins at the security products reporting unit will be challenged as higher cost inventory works its way through cost of sales and reduced demand may limit its ability to implement further price increases. Our Component Products Segment is in close contact with its key customers and believes reduced order rates will continue through the second quarter. As expected, marine components net sales were strong during the first quarter but it expects net sales overall will decline as compared to 2022 as marine market demand is challenged by higher interest rates and several original equipment boat manufacturers, including certain marine components' customers, have publicly announced reduced production schedules in 2023 compared to 2022. Overall, our Component Products Segment expects marine components gross margins as a percentage of net sales for the full year of 2023 to be comparable to 2022 as the favorable impact of product mix in the first quarter of 2023 is not expected for the remainder of the year. Based on the softening demand and general economic conditions inNorth America , our Component Products Segment currently expects to report lower net sales and operating income at both reporting units during 2023 compared to 2022. Our Component Products Segment is focused on managing inventory levels to support anticipated lower demand in 2023. With raw materials and other components more readily available, our Component Products Segment believes it will be able to achieve additional operating efficiencies during the year although the extent and impact of such efficiencies is not yet known. Our Component Products Segment's expectations for its operations and the markets it serves are based on a number of factors outside its control. As noted above, there continue to be global and domestic supply chain challenges and any future impacts on our Component Products Segment's operations will depend on, among other things, any future disruption in its operations or its suppliers' operations, the impact of economic conditions and geopolitical events on demand for its products or our Component Products Segment's customers' or suppliers' operations, all of which remain uncertain and cannot be predicted.
Three months ended
March 31,
2022 2023
(In millions)
Net sales:
Land sales $ 22.2 $ 24.9
Utility and other .3 .3
Water delivery sales 1.5 -
Total net sales 24.0 25.2
Cost of sales 14.4 14.3
Gross margin $ 9.6 $ 10.9
Operating income $ 8.0 $ 10.6
General - Our Real Estate Management and Development Segment consists of BMI and
LandWell. BMI provides utility services, among other things, to an industrial
park located in Henderson, Nevada and prior to BWC's bankruptcy filing on
September 10, 2022 was responsible for the delivery of water to the City of
Henderson and various other users through a water delivery system owned and
operated by BWC. 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 and approximately 400 acres zoned for
commercial and light industrial use.
LandWell began marketing land for sale in the residential/planned community in
December 2013 and at March 31, 2023 approximately 90 saleable acres remain.
LandWell has been actively marketing and selling the land zoned for commercial
and light industrial use and at March 31, 2023 approximately 20 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 in escrow, in most instances
buyers can cancel the escrow agreement with no financial penalties until shortly
before the closing date. Land sales may be completed but 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
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deferred revenue being recognized in subsequent periods. Substantially all of the land in the residential/planned community has been sold; however, we expect the development work to take three to five years to complete.Net Sales and Operating Income - A substantial portion of the net sales from ourReal Estate Management and Development Segment in the first quarters of 2022 and 2023 consisted of revenues from land sales. As noted above, we recognize revenue in our residential/planned community over time using cost-based input methods and substantially all of the land sales revenue we recognized in 2022 and 2023 was under this method of revenue recognition. Land sales revenues were higher in the first quarter of 2023 as compared to the same period in 2022 primarily due to an increase in development activity in 2023 compared to 2022. Cost of sales related to land sales revenues was$14.1 million in the first quarter of 2023 compared to$13.0 million in the first quarter of 2022. In the first quarter of 2022, the remainder of net sales and cost of sales related to this segment primarily relates to water delivery fees and expenses. BMI provides certain utility services, among other things, to an industrial park located inHenderson, Nevada and prior to BWC's bankruptcy filing onSeptember 10, 2022 was responsible for the delivery of water to theCity 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 onLake Mead inNevada . Due to the Western drought, water levels inLake Mead have been declining for much of the last twenty years. As a result of water release curtailments upstream ofLake Mead which began late in the second quarter,Lake Mead water levels have dropped precipitously to historically low levels. OnJune 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. Without the ability to pump and deliver water to its customers, BWC's operating expenses exceeded its revenues, and onSeptember 10, 2022 BWC and its subsidiaries voluntarily filed for Chapter 11 bankruptcy protection in theUnited States Bankruptcy Court for the District of Nevada . Because BWC has filed for bankruptcy protection, we and BMI can 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. Operating income comparisons between the first quarters of 2023 and 2022 are affected by BWC's water delivery sales and related cost of sales. See Note 2 to our Condensed Consolidated Financial Statements. Outlook - LandWell is focused on developing the land it manages, primarily to residential builders, for the residential/planned community inHenderson . AtMarch 31, 2023 , substantially all of the land in the residential/planned community had been sold with approximately 90 saleable acres remaining. While we expect to sell the remaining acres over the next one to three years, due to the current economic conditions, we are unsure of the timing of any sales that may occur. AtMarch 31, 2023 we have deferred revenue of$107.8 million related to 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 five 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 theCity 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 five years. We expect these land development costs in 2023 to be consistent with 2022. 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 theCity of Henderson for approval of additional tax increment reimbursement note receivables. As noted above, BWC filed for Chapter 11 bankruptcy protection onSeptember 10, 2022 . BWC is operating under court protection, and a portion of BWC's water delivery system is still operating with water provided by the regional water authority in order to continue to provide water to its industrial customers for an interim period. We recognized an aggregate$19.7 million of charges in 2022 related to BWC which will not recur. We cannot predict the timing or the outcome of the bankruptcy reorganization, and we may incur additional costs before the bankruptcy proceedings are concluded.
General Corporate and Other Items - 2023 Compared to 2022
Changes in the Market Value of Valhi Common Stock held by Subsidiaries - Our subsidiaries, Kronos andNL , hold shares of our common stock. As discussed in the 2022 Annual Report, we account for our proportional interest in these shares of our common stock as treasury stock at Kronos' andNL's historical cost basis. The remaining portion of these shares of our common stock, which are attributable to the noncontrolling interest of Kronos andNL , are reflected in our Condensed Consolidated Balance Sheet at fair value. Kronos andNL recognize unrealized gains or losses on these shares of our common stock in the determination of each of their respective net income or losses. Under the principles of consolidation we eliminate any gains or losses associated with our common stock to the 31 Table of Contents ? extent of our proportional ownership interest in each subsidiary. We recognized a loss of$1.1 million in the first quarter of 2023 compared to a gain of$.1 million in the same period of 2022 in our Condensed Consolidated Statements of Operations, which represents the unrealized gain (loss) in respect of these shares during such periods attributable to the noncontrolling interest of Kronos andNL . Interest income and other - Interest income and other increased$4.0 million in the first quarter of 2023 compared to the same period of 2022 primarily due to higher average interest rates and increased investment balances. See Note 12 to our Condensed Consolidated Financial Statements. Other General Corporate Items - Corporate expenses in the first quarter of 2023 were comparable to the same period of 2022 as higher litigation and related costs were offset by lower environmental remediation and related costs and lower administrative costs. Included in corporate expense are:
? litigation fees and related costs at
2023 compared to
? environmental remediation and related costs of nil in the first quarter of 2023
compared to costs of
Overall, we currently expect that our general corporate expenses in 2023 will be higher than 2022 primarily due to higher expected litigation fees and related costs. The level of our litigation fees and related expenses varies from period to period depending upon, among other things, the number of cases in which we are currently involved, the nature of such cases and the current stage of such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable). See Note 16 to our Condensed Consolidated Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved during 2023, 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 2023, our corporate expense could be higher than we currently estimate. In addition, we adjust our accruals for environmental remediation and related costs as further information becomes available to us or as circumstances change. Such further information or changed circumstances could result in an increase or reduction in our accrued environmental remediation and related costs. See Note 16 to our Condensed Consolidated Financial Statements.
Interest Expense - Interest expense of
We expect interest expense will be higher in 2023 as compared to 2022 primarily as lower average debt balances will be more than offset by higher average rates on variable-rate indebtedness. Provision for Income Taxes - We recognized an income tax benefit of$6.1 million in the first quarter of 2023 compared to income tax expense of$19.9 million in the first quarter of 2022. The decrease in the first quarter of 2023 is primarily due to lower earnings in the first quarter and the jurisdictional mix of such earnings. During interim periods, our effective tax rate may not necessarily correspond to the current period income (loss) before taxes due to the application of accounting for income taxes in interim periods which requires us to base our effective rate on full year projections of pre-tax income (loss). We recognize deferred income taxes with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock because the exemption under GAAP to avoid such recognition of deferred income taxes is not available to us. AtDecember 31, 2022 , we recognized a deferred income tax liability with respect to our direct investment in Kronos of$55.0 million . There is a maximum amount (or cap) of such deferred income taxes we are required to recognize with respect to our direct investment in Kronos. The maximum amount of the cap is$155.4 million . During the first three months of 2023, we recognized a non-cash deferred income tax expense with respect to our direct investment in Kronos of$.7 million for the increase in the deferred income taxes required to be recognized with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock, to the extent such increase related to our equity in Kronos' net income during such period. We recognized a similar deferred income tax benefit of$.3 million in the first three months of 2022. A portion of the net change with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct 32
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investment in Kronos common stock during such periods related to our equity in Kronos' other comprehensive income (loss) items, and the amounts allocated to other comprehensive income (loss) items includes amounts related to our equity in Kronos' other comprehensive income (loss) items.
See Note 13 to our Condensed Consolidated Financial Statements for a tabular reconciliation of our statutory income tax provision to our actual tax provision.
Noncontrolling Interest in Net Income of Subsidiaries - Noncontrolling interest in operations of subsidiaries decreased in 2023 compared to 2022 primarily due to decreased operating income at Kronos. See Note 14 to our Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Cash Flows
Operating Activities -
Trends in cash flows from operating activities (excluding the impact of significant asset dispositions and relative changes in assets and liabilities) are generally similar to trends in our operating income. In addition to the impact of the operating, investing and financing cash flows discussed below, changes in the amount of cash, cash equivalents and restricted cash we report from period to period can be impacted by changes in currency exchange rates, since a portion of our cash, cash equivalents and restricted cash is held by our non-U.S. subsidiaries. Cash used in operating activities was$126.8 million in the first quarter of 2023 compared to cash used in operating activities of$22.8 million in the first quarter of 2022. This$104.0 million increase in cash used in operating activities in the first three months of 2023 includes:
a
? receivables, inventories, payables and accrued liabilities in the first quarter
of 2023;
consolidated operating income of
? decrease of
first quarter of 2022; and
? lower net cash paid for income taxes in 2023 of
earnings and the relative timing of payments.
As noted in our discussion of ourReal Estate Management and Development segment above, we sold the majority of the land in our residential/planned community prior to 2023, and in accordance with our development agreement with theCity of Henderson and our contractual obligations with builders, we expect to complete our land development obligations over the next three to five years. Because we have largely received cash proceeds from land sales, we expect LandWell to generate negative operating cash flows as it completes its required land development work.
Changes in working capital were affected by accounts receivable and inventory changes as shown below:
Kronos' average days sales outstanding ("DSO") decreased from
? to
collections.
Kronos' average days sales in inventory ("DSI") decreased from
? 2022 to
with production volumes in the first quarter of 2023 compared to the fourth
quarter of 2022 where Kronos' production volumes exceeded its sales volumes.
? CompX's average DSO is consistent from
CompX's average DSI decreased from
? sales growth at the marine components reporting unit in the first quarter of
2023 somewhat offset by sales decline at the security products reporting unit
as well as lower inventory balances at both reporting units.
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For comparative purposes, we have also provided comparable prior period numbers
below.
December 31, March 31, December 31, March 31,
2021 2022 2022 2023
Kronos:
Days sales outstanding 65 days 63 days 64 days 60 days
Days sales in inventory 59 days 54 days 103 days 76 days
CompX:
Days sales outstanding 42 days 38 days 41 days 41 days
Days sales in inventory 96 days 85 days 99 days 97 days
We do not have complete access to the cash flows of our majority-owned
subsidiaries, due in part to limitations contained in certain credit agreements
of our subsidiaries and because we do not own 100% of these subsidiaries. A
detail of our consolidated cash flows from operating activities is presented in
the table below. Intercompany dividends have been eliminated.
Three months ended
March 31,
2022 2023
(In millions)
Cash provided by (used in) operating activities:
Kronos $ (18.6) $ (109.8)
Valhi exclusive of subsidiaries 9.2 9.3
CompX (2.2) 3.1
NL exclusive of subsidiaries 7.7 6.8
Tremont exclusive of subsidiaries (.6) (.6)BMI 1.5 2.4 LandWell 3.5 (14.7) Eliminations and other (23.3) (23.3) Total$ (22.8) $ (126.8) Investing Activities -
During the three months ended
? we spent
Chemicals Segment and
? we had net purchases of
Financing Activities -
During the three months ended
? we repaid
? we paid aggregate quarterly dividends to
(
? Kronos acquired 159,796 shares of its common stock for an aggregate purchase
price of
The declaration and payment of future dividends, and the amount thereof, is
discretionary and is dependent upon a number of factors including our current
and future expected results of operations, financial condition, cash
requirements for our businesses, contractual and other requirements and
restrictions and other factors deemed relevant by our board of directors. The
amount and timing of past dividends is not necessarily indicative of the amount
or timing of any future dividends which might be paid. There are currently no
contractual restrictions on the amount of dividends which we may pay.
Distributions to noncontrolling interest in subsidiaries in the
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first three months of 2023 are comprised of CompX dividends paid to shareholders
other than
Outstanding Debt Obligations
At
?
Contran which is due no earlier than
€400 million aggregate outstanding on the KII 3.75% Senior Secured
? Notes (
due in
?
? approximately
Kronos had no outstanding borrowings atMarch 31, 2023 on its$225 million global revolving credit facility ("Global Revolver") and the full$225 million was available for borrowings thereunder. Kronos' Senior Secured Notes and its Global Revolver contain a number of covenants and restrictions which, among other things, restrict its ability to incur or guarantee additional debt, incur liens, pay dividends or make other restricted payments, or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of these types. Kronos' credit agreements contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons other than defaults for failure to comply with typical financial or payment covenants. For example, the credit agreements allow the lender to accelerate the maturity of the indebtedness upon a change of control (as defined in the agreement) of the borrower. In addition, the credit agreements could result in the acceleration of all or a portion of the indebtedness following a sale of assets outside the ordinary course of business. The terms of all of our debt instruments are discussed in Note 9 in our 2022 Annual Report. We were in compliance with all of our debt covenants atMarch 31, 2023 and we believe we will be able to maintain compliance with the financial covenants contained in our debt obligations through their maturity.
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 are
generally more favorable than current debt and investment market rates. The
companies that borrow under these notes have sufficient liquidity to repay the
notes. All of these notes and related interest expense and income are eliminated
in our Condensed Consolidated Financial Statements.
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We periodically evaluate acquisitions of interests in or combinations with companies (including our affiliates) that may or may not be engaged in businesses related to our current businesses. We intend to consider such acquisition activities in the future and, in connection with this activity, may consider issuing additional equity securities and increasing indebtedness. From time to time, we also evaluate the restructuring of ownership interests among our respective subsidiaries and related companies. Based upon our expectations of our operating performance, and the anticipated demands on our cash resources, we expect to have sufficient liquidity to meet our short-term (defined as the twelve-month period endingMarch 31, 2024 ) and long-term obligations (defined as the five-year period endingMarch 31, 2028 ). If actual developments differ from our expectations, our liquidity could be adversely affected. AtMarch 31, 2023 , we had$60.8 million available for borrowing under our credit facility with Contran. Amounts available under this facility are at Contran's discretion. AtMarch 31, 2023 , the full$225 million was available for borrowing under Kronos' Global Revolver and Kronos could borrow all available amounts without violating its existing debt covenants. See Note 7 to our Condensed Consolidated Financial Statements. AtMarch 31, 2023 , we had an aggregate of$478.8 million of restricted and unrestricted cash, cash equivalents and marketable securities, including$81.4 million held by our non-U.S. subsidiaries. A detail by entity is presented
in
the table below.
Total Held outside
amount U.S.
(In millions)
Kronos $ 184.2 $ 81.4
CompX 61.0 -NL exclusive of its subsidiaries 111.6 - BMI 11.2 - Tremont exclusive of its subsidiaries 9.6 - LandWell 101.0 - Valhi exclusive of its subsidiaries .2 - Total cash and cash equivalents, restricted cash and marketable securities$ 478.8 $
81.4
Capital Expenditures and Other -
We currently expect our aggregate capital expenditures for 2023 will be
approximately
?
?
In addition, LandWell expects to spend approximately
Capital spending for 2023 is expected to be funded through cash generated from operations or borrowing under our existing credit facilities. Planned capital expenditures for the remainder of 2023 at Kronos and CompX will primarily be to maintain and improve our existing facilities.
Repurchases of Common Stock -
We, Kronos and CompX have programs to repurchase common stock from time to time as market conditions permit. These stock repurchase programs do not include specific price targets or timetables and may be suspended at any time. Depending on market conditions, these programs may be terminated prior to completion. Cash on hand will be used to acquire the shares, and repurchased shares will be added to treasury shares and cancelled.
At
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Kronos' board of directors previously authorized the repurchase of up to 2.0 million shares of its common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time. Kronos may repurchase its common stock from time to time as market conditions permit. AtMarch 31, 2023 , approximately 1.2 million shares were available for repurchase under these authorizations. CompX's board of directors previously authorized the repurchase of its Class A common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time. AtMarch 31, 2023 , approximately .5 million shares were available for repurchase under these authorizations.
Dividends -
Because our operations are conducted primarily through subsidiaries and affiliates, our long-term ability to meet parent company level corporate obligations is largely dependent on the receipt of dividends or other distributions from our subsidiaries and affiliates. Kronos paid a regular dividend of$.19 per share in each quarter of 2022 for which we received$44.1 million . InFebruary 2023 the Kronos board of directors approved a regular quarterly dividend of$.19 per share. If Kronos were to pay its$.19 per share dividend in each quarter of 2023 based on the 58.0 million shares we held of Kronos common stock atMarch 31, 2023 , during 2023 we would receive aggregate regular dividends from Kronos of$44.1 million .NL paid a quarterly dividend of$.07 per share in 2022 for which we received$11.3 million . InFebruary 2023 theNL board of directors approved a quarterly dividend of$.07 per share. IfNL were to pay its$.07 per share dividend in each quarter of 2023 based on the 40.4 million shares we hold ofNL common stock atMarch 31, 2023 , during 2023 we would receive aggregate quarterly dividends fromNL of$11.3 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$16.6 million in 2022 and$1.3 million inApril 2023 . We do not know if we will receive additional dividends from BMI and LandWell during 2023. All of our ownership interest in CompX is held through our ownership inNL ; as such we do not receive any dividends from CompX. Instead any dividend paid by CompX is paid toNL .
Our subsidiaries have various credit agreements with unrelated third-party lenders which contain customary limitations on the payment of dividends; however, these restrictions in the past have not significantly impacted their ability to pay dividends.
Investment in our Subsidiaries and Affiliates and Other Acquisitions -
We have in the past, and may in the future, purchase the securities of our subsidiaries and affiliates or third parties in market or privately-negotiated transactions. We base our purchase decisions on a variety of factors, including an analysis of the optimal use of our capital, taking into account the market value of the securities and the relative value of expected returns on alternative investments. In connection with these activities, we may consider issuing additional equity securities or increasing our indebtedness. We may also evaluate the restructuring of ownership interests of our businesses among our subsidiaries and related companies. We generally do not guarantee any indebtedness or other obligations of our subsidiaries or affiliates. Our subsidiaries are not required to pay us dividends. If one or more of our subsidiaries were unable to maintain its current level of dividends, either due to restrictions contained in a credit agreement or to satisfy its liabilities or otherwise, our ability to service our liabilities or to pay dividends on our common stock could be adversely impacted. If this were to occur, we might consider reducing or eliminating our dividends or selling interests in subsidiaries or other assets. If we were required to liquidate assets to generate funds to satisfy our liabilities, we might be required to sell at less than what we believe is the long-term value of such assets. We have a$50 million revolving credit facility with a subsidiary ofNL secured with approximately 35.2 million shares of the common stock of Kronos held byNL's subsidiary as collateral. Outstanding borrowings under the credit facility, as amended, bear interest at the prime rate plus 1.875% per annum, payable quarterly, with all amounts due onDecember 31, 2030 . The maximum principal amount which may be outstanding from time-to-time under the credit facility is limited to 50% of the value of the Kronos stock using the most recent closing price. The credit facility contains a number of covenants and restrictions which, among other things, restrictNL's subsidiary's ability to incur additional debt, incur liens, and merge or consolidate with, or sell or transfer substantially all ofNL's subsidiary's assets to, another entity, and requireNL's subsidiary to maintain a minimum specified level of consolidated net worth. Upon an event of default (as defined in the credit facility),Valhi will be entitled to terminate its commitment to make further loans toNL's subsidiary, declare the outstanding loans (with interest) immediately due and payable, and exercise its rights with respect to the collateral under the loan documents. Such collateral rights include, upon certain insolvency events with respect toNL's subsidiary orNL , the right to purchase all of the Kronos common stock at a purchase price equal to the aggregate market value, less amounts owing toValhi under the loan documents, and up to 50% of such purchase price may be paid byValhi in the form of an unsecured promissory note bearing interest at the prime rate plus 2.75% per annum, payable quarterly, with all amounts due no later
than
five years from the
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date of purchase, with the remainder of such purchase price payable in cash at the date of purchase. We also eliminate any such intercompany borrowings in our Condensed Consolidated Financial Statements. There is$.5 million outstanding under this facility atMarch 31, 2023 . We have an unsecured revolving demand promissory note with Kronos which, as amended, provides for borrowings from Kronos of up to$25 million . We eliminate any such intercompany borrowings in our Condensed Consolidated Financial Statements. The facility, as amended, is due on demand, but in any event no earlier thanDecember 31, 2024 . We had no borrowings from Kronos under this facility during the first three months of 2023, and there was no outstanding balance atMarch 31, 2023 . We could borrow the full$25.0 million under our current intercompany facility with Kronos atMarch 31, 2023 . Kronos' obligation to loan us money under this note is at Kronos' discretion. We also have an unsecured revolving demand promissory note with CompX which, as amended, provides for borrowings from CompX of up to$25 million . We eliminate these intercompany borrowings in our Condensed Consolidated Financial Statements. The facility, as amended, is due on demand, but in any event no earlier thanDecember 31, 2024 . We had gross borrowings of$6.8 million and gross repayments of$7.8 million during the first three months of 2023, and$12.2 million was outstanding atMarch 31, 2023 . We could borrow$12.8 million under our current intercompany facility with CompX atMarch 31, 2023 . CompX's obligation to loan us money under this note is at CompX's discretion.
Commitments and Contingencies
There have been no material changes in our contractual obligations since we filed our 2022 Annual Report and we refer you to that report for a complete description of these commitments.
We are subject to certain commitments and contingencies, as more fully described in our 2022 Annual Report, or in Notes 13 and 16 to our Condensed Consolidated Financial Statements and in Part II, Item 1 of this Quarterly Report, including:
? certain income tax contingencies in various
? certain environmental remediation matters involving
? certain litigation related to
lead pigment and lead-based paint; and
? certain other litigation to which we are a party.
In addition to such legal proceedings, various legislation and administrative regulations have, from time to time, been proposed that seek to (i) impose various obligations on present and former manufacturers of lead pigment and lead-based paint (includingNL ) with respect to asserted health concerns associated with the use of such products and (ii) effectively overturn court decisions in whichNL and other pigment manufacturers have been successful. Examples of such proposed legislation include bills which would permit civil liability for damages on the basis of market share, rather than requiring plaintiffs to prove that the defendant's product caused the alleged damage, and bills which would revive actions barred by the statute of limitations. While no legislation or regulations have been enacted to date that are expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity, enactment of such legislation could have such an effect.
Recent Accounting Pronouncements
Not applicable
Critical Accounting Policies
There have been no changes in the first three months of 2023 with respect to our
critical accounting policies presented in Management's Discussion and Analysis
of Financial Condition and Results of Operation in our 2022 Annual Report.
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