Business combinations, dispositions and related transactions

12 Months Ended

Dec. 31, 2024

Business combinations, dispositions and related transactions

Business combinations, dispositions and related transactions

Note 3 – Business combinations, dispositions and related transactions:

Kronos Worldwide, Inc.

Acquisition of Remaining Joint Venture Interest in LPC –

Effective July 16, 2024 (“Acquisition Date”), Kronos acquired the 50% joint venture interest in LPC previously held by Venator Investments, Ltd. (“Venator”). Prior to the acquisition, Kronos held a 50% joint venture interest in LPC and LPC was operated as a manufacturing joint venture between Kronos and Venator. Kronos acquired the 50% joint venture interest in LPC for consideration of $185 million less a working capital adjustment. An additional earn-out payment of up to $15 million may be required if Kronos’ aggregate consolidated net income before interest expense, income taxes and depreciation and amortization expense, or EBITDA, during a two-year period comprising calendar years 2025 and 2026 exceed certain thresholds as described below. Kronos accounted for the acquisition of the interest in LPC as a business combination and, as a result of obtaining full control, LPC became a wholly-owned subsidiary of Kronos. Obtaining control of LPC and its estimated additional 78,000 metric tons annually of TiO₂ production volume allows Kronos to better serve the North American TiO₂ marketplace. The acquisition was financed through a borrowing of $132.1 million under Kronos’ Global Revolver and the remainder paid with cash on hand.

For financial reporting purposes, the assets acquired and liabilities assumed of LPC have been included in our Consolidated Balance Sheet as of December 31, 2024, and the results of operations and cash flows of LPC have been included in our Consolidated Statement of Operations and Cash flows beginning as of the Acquisition Date. Kronos incurred $2.2 million of transaction costs in connection with the acquisition. These costs were primarily associated with legal and professional services and were expensed in accordance with ASC 805 and are included in selling, general and administrative expense in our Consolidated Statement of Operations.

The potential earn-out payment of up to $15 million is based on aggregate Kronos consolidated EBITDA tiers for 2025 and 2026 of $650 million and $730 million, with $5 million of the earn-out payable if Kronos achieves $650 million in aggregate consolidated EBITDA, and a maximum of $15 million payable if aggregate EBITDA is $730 million or greater for the period. If Kronos achieves aggregated consolidated EBITDA between $650 million and $730 million, the payment of the additional $10 million is prorated between the two targets. The earn-out is payable at the earliest in April 2027. The estimated fair value of the earn-out at the Acquisition Date was $4.2 million and was determined using a weighted probability of potential outcomes based on estimated future EBITDA and volatility factors, among other variables and estimates. The earn-out liability is included in other noncurrent liabilities on the Consolidated Balance Sheet and is part of the line item captioned earn-out liability in Note 10. The fair value measurement is based on significant inputs not observable in the market and therefore represents a Level 3 measurement as defined in ASC 820. The earn-out liability will be re-measured at fair value on a recurring basis and the change to the liability, if any, would be recorded as a component of cost and other expense (income) in our Consolidated Statements of Operations. See Note 19 to our Consolidated Financial Statements.  

Kronos remeasured its existing ownership interest in LPC to its estimated fair value at the Acquisition Date in accordance with ASC 805-10-25, for a business combination achieved in stages (because Kronos previously had an

ownership interest in LPC). As a result of such remeasurement, we recognized a pre-tax gain of approximately $64.5 million in the third quarter of 2024, representing the difference between the $178.2 million estimated fair value of the existing ownership interest in LPC at the Acquisition Date and its aggregate $113.7 million carrying value at the Acquisition Date. Such pre-tax gain is disclosed as gain on remeasurement of investment in TiO₂ manufacturing joint venture and is included in cost and other expense (income) in our Consolidated Statement of Operations.

The following table summarizes the aggregate fair value of the consideration transferred to gain control of LPC, the current estimate for the fair value of Kronos’ existing ownership interest in LPC and the amounts assigned to the identifiable assets acquired and liabilities assumed at the Acquisition Date. The estimated purchase price allocation is based upon management’s estimate of the fair value of the acquired assets and assumed liabilities using independent third-party appraiser valuation techniques including income, cost, and market approaches. The total consideration was allocated to the assets acquired and liabilities assumed, with the excess of the consideration over the estimated fair value of the net assets acquired recorded as goodwill. Subject to final determination, which is expected to occur within 12 months of the Acquisition Date, the provisional fair values of the assets acquired and liabilities assumed in the acquisition are as follows:

	Amount
	(In millions)
Consideration:
Cash consideration	$	185.0
Working capital adjustment		(11.0)
Earn-out liability		4.2
Total fair value of consideration		178.2
Fair value of investment in TiO2 manufacturing joint venture		178.2
Total	$	356.4
Allocation of purchase price to identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	21.3
Restricted cash		1.3
Accounts and other receivables, net		.2
Inventories, net		82.0
Prepaid expenses and other		.6
Other assets		10.7
Property and equipment		268.5
Accounts payable and accrued liabilities		(21.7)
Other noncurrent liabilities		(6.4)
Deferred tax liability		(2.7)
Total net identifiable assets acquired		353.8
Goodwill		2.6
Total	$	356.4

Property and equipment will be depreciated over useful lives of 5 years to 20 years. Goodwill is related to the benefits expected as a result of the acquisition, and of the $2.6 million recorded as goodwill, $.1 million is expected to be deductible for tax purposes.

Prior to the Acquisition Date, Kronos and Venator were both required to purchase one-half of the TiO₂ produced by LPC, unless Kronos and Venator agreed otherwise. Because Kronos operated LPC on a break-even basis, it reported no equity in earnings of LPC. Each owner’s acquisition transfer price for its share of the TiO₂ produced was equal to its share of the joint venture’s production costs and interest expense, if any. Kronos’ share of net cost was reported as cost of sales as the related TiO₂ acquired from LPC was sold. Kronos reported distributions it received from LPC, which generally related to excess cash generated by LPC from its non-cash production costs, and contributions Kronos made to LPC, which generally related to cash required by LPC when it built working capital, as part of its cash flows from operating activities in our Consolidated Statements of Cash Flows. The components of our net cash distributions from (contributions to) LPC

are shown in the table below.

	Years ended December 31,
	2022		2023		2024 (1)
	(In millions)
Distributions from LPC	$	58.3	$	52.8	$	31.2
Contributions to LPC		(68.8)		(49.7)		(33.9)
Net distributions (contributions)	$	(10.5)	$	3.1	$	(2.7)

(1)Reflects distributions and contributions from/to LPC prior to the Acquisition Date.

The summary balance sheet for LPC for the annual period prior to the Acquisition Date is shown below:

	December 31, 2023
	(In millions)
ASSETS
Current assets	$	118.5
Property and equipment, net		148.4
Total assets	$	266.9
LIABILITIES AND PARTNERS' EQUITY
Other liabilities, primarily current	$	42.1
Partners' equity		224.8
Total liabilities and partners' equity	$	266.9

Summary income statements for LPC for the annual periods prior to the Acquisition Date are shown below:

		Years ended December 31,
	2022		2023
	(In millions)
Revenues and other income:
Kronos	$	225.6	$	231.7
Venator		225.9		231.7
Total		451.5		463.4
Cost and expenses:
Cost of sales		451.1		463.0
General and administrative		.4		.4
Total		451.5		463.4
Net income	$	—	$	—

Prior to the acquisition, Kronos had certain related party transactions with LPC, as more fully described in Note 17.

The pro forma impact of combining LPC’s results of operations assuming the LPC transaction had occurred as of January 1, 2023 would result in no net increase to earnings. The additional interest expense and depreciation expense that would have occurred during the comparable period is not material. The pro forma impact is not necessarily indicative of either future results of operations or results of operations that might have been achieved had the acquisition occurred as of January 1, 2023. The incremental finished goods offtake produced resulting from Kronos’ additional 50% interest acquired in LPC has not materially impacted revenue and earnings from Acquisition Date through the end of the year.

Other –

Kronos

Kronos’ board of directors has 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. The stock repurchase program does not include specific price targets or timetables and may be suspended at any time. Depending on market conditions, Kronos may terminate the program prior to its completion. Kronos uses cash on hand or other sources of liquidity to acquire the shares. Repurchased shares are added to Kronos’ treasury shares and subsequently cancelled upon approval of the Kronos board of directors. In 2022, Kronos acquired 217,778 shares of its common stock in market transactions for an aggregate purchase price of $2.5 million. In 2023, Kronos acquired 313,814 shares of its common stock in market transactions for an aggregate purchase price of $2.8 million. Kronos made no treasury purchases in 2024. At December 31, 2024, 1,017,518 shares are available for repurchase under this stock repurchase program.

CompX

CompX’s board of directors has previously authorized various repurchases 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. CompX may repurchase its common stock from time to time as market conditions permit. The stock repurchase program does not include specific price targets or timetables and may be suspended at any time. Depending on market conditions, CompX may terminate the program prior to its completion. CompX would generally use cash on hand to acquire the shares. Repurchased shares will be added to CompX’s treasury and cancelled. During 2022, CompX acquired 78,900 shares of its Class A common stock for an aggregate amount of $1.7 million under prior repurchase authorizations. Of the shares repurchased, 70,000 shares were purchased in a market transaction, and 8,900 shares were purchased from two affiliates in two separate private transactions that were also approved in advance by CompX’s independent directors. CompX made no treasury purchases during 2023 and 2024. At December 31, 2024, 523,647 shares were available for purchase under these authorizations.

NL

During 2022, NL purchased 2,000 shares of its common stock from Kronos for a nominal amount in a private transaction that was approved in advance by NL’s independent directors and subsequently cancelled all such shares.

BMI

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. 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 and consequently ceased operations at its water intake facility. 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 wholly-owned subsidiary (collectively, “Debtors”) voluntarily filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District 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.

On November 8, 2023, the Bankruptcy Court for the District of Nevada (“Court”) entered an order approving Debtors’ plan of reorganization, which provided for the sale of substantially all Debtors’ assets and the transfer of substantially all of their operating and other agreements to one of their industrial customers. The transaction closed on November 17, 2023 at which time Debtors discontinued their water delivery operations. The proceeds of the sale were used to repay creditors of the Debtors. On July 10, 2024, the Court approved the closure of the Debtors’ bankruptcy case. BWC and its wholly-owned subsidiary BWC SPE I, LLC were subsequently dissolved, with the remaining cash at BWC of $2.6 million distributed to BMI.

On December 1, 2023, BMI sold its subsidiary BPC, which provided 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 provided transition services to the purchaser of the businesses for a limited time. With the sale of BPC and the completion of the bankruptcy, 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.