Investment in Kronos Worldwide, Inc.

9 Months Ended

Sep. 30, 2024

Investment in Kronos Worldwide, Inc.

Investment in Kronos Worldwide, Inc.

Note 5 – Investment in Kronos Worldwide, Inc.:

At December 31, 2023 and September 30, 2024, we owned approximately 35.2 million shares of Kronos common stock. At September 30, 2024, the quoted market price of Kronos’ common stock was $12.45 per share, or an aggregate market value of $438.5 million. At December 31, 2023, the quoted market price was $9.94 per share, or an aggregate market value of $350.1 million.

The change in the carrying value of our investment in Kronos during the first nine months of 2024 is summarized below.

	Amount
	(In millions)
Balance at the beginning of the period	$	247.6
Equity in earnings of Kronos		30.4
Dividends received from Kronos		(15.1)
Equity in Kronos' other comprehensive income (loss):
Currency translation		(3.7)
Defined benefit pension plans		.4
Balance at the end of the period	$	259.6

Selected financial information of Kronos is summarized below:

	December 31,		September 30,
	2023		2024
	(In millions)
Current assets	$	1,117.4	$	1,067.8
Property and equipment, net		482.9		720.9
Investment in TiO2 joint venture		111.0		—
Other noncurrent assets		126.7		132.9
Total assets	$	1,838.0	$	1,921.6
Current liabilities	$	370.8	$	398.3
Long-term debt		440.9		470.4
Accrued pension costs		150.0		144.2
Other noncurrent liabilities		68.0		61.3
Stockholders’ equity		808.3		847.4
Total liabilities and stockholders’ equity	$	1,838.0	$	1,921.6

	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2024		2023		2024
	(In millions)
Net sales	$	396.9	$	484.7	$	1,266.4	$	1,464.0
Cost of sales		362.5		383.5		1,157.1		1,191.1
Income (loss) from operations		(25.3)		38.9		(50.3)		94.3
Income tax expense (benefit)		(8.7)		22.7		(19.7)		34.7
Net income (loss)		(20.4)		71.8		(43.8)		99.4

Effective July 16, 2024 (“Acquisition Date”), Kronos acquired the 50% joint venture interest in  Louisiana Pigment Company (“LPC”) previously held by Venator Investments, Ltd (“Venator”). Prior to the acquisition, LPC was operated as a joint venture between Kronos and Venator, and through a wholly-owned subsidiary, Kronos held a 50% joint venture interest in LPC. Following the acquisition, 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. Kronos acquired the 50% joint venture interest that it did not already own for consideration of $185 million less a working capital adjustment of $11.0 million. An additional earn-out payment of up to $15 million based on Kronos’ aggregate consolidated net income before interest expense, income taxes and depreciation and amortization expense, or EBITDA, during a two-year period comprising calendar years 2025 and 2026 may be required. The aggregate EBITDA tiers for the two-year earn-out period are $650 million and $730 million, with $5 million of the earnout payable if Kronos achieves $650 million in aggregate consolidated EBITDA, and a maximum of $15 million payable if aggregate consolidated EBITDA is $730 million or greater for the period. If Kronos achieves aggregate consolidated EBITDA between $650 million and $730 million, the payment of the additional $10 million is pro-rated 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 is $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 acquisition was financed through borrowings of $132.1 million under Kronos’ revolving credit facility and the remainder paid with cash on hand. Kronos recognized a non-cash gain of $64.5 million ($50.9 million,

net of income tax expense) in the third quarter of 2024 associated with the remeasurement of its investment in LPC as a result of the acquisition.