10-Q 1 vhl-20240331x10q.htm 10-Q
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as

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-5467

VALHI, INC.

(Exact name of Registrant as specified in its charter)

Delaware

    

87-0110150

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

5430 LBJ Freeway, Suite 1700

Dallas, Texas 75240-2620

(Address of principal executive office)

Registrant’s telephone number, including area code: (972233-1700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common stock

VHI

NYSE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act.

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes     No  .

Number of shares of the registrant’s common stock, $.01 par value per share, outstanding on May 3, 2024:  28,288,493

VALHI, INC. AND SUBSIDIARIES

INDEX

Page
number

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets –
December 31, 2023 and March 31, 2024 (unaudited)

3

Condensed Consolidated Statements of Operations (unaudited) –
Three months ended March 31, 2023 and 2024

5

Condensed Consolidated Statements of Comprehensive Loss (unaudited) –
Three months ended March 31, 2023 and 2024

6

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) –
Three months ended March 31, 2023 and 2024

7

Condensed Consolidated Statements of Cash Flows (unaudited) –
Three months ended March 31, 2023 and 2024

8

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

Part II.

OTHER INFORMATION

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 6.

Exhibits

42

Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

ASSETS

December 31, 

March 31, 

    

2023

    

2024

(unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

407.0

$

341.0

Restricted cash equivalents

 

22.6

 

26.3

Marketable securities

 

56.1

 

31.7

Accounts and other receivables, net

 

340.4

 

377.8

Inventories, net

 

596.1

 

504.1

Prepaid expenses and other

 

53.2

 

47.6

Total current assets

 

1,475.4

 

1,328.5

Other assets:

 

  

 

  

Marketable securities

 

4.8

 

5.5

Investment in TiO2 manufacturing joint venture

 

111.0

 

108.7

Goodwill

 

379.7

 

379.7

Deferred income taxes

 

67.0

 

66.1

Other assets

 

181.8

 

175.9

Total other assets

 

744.3

 

735.9

Property and equipment:

 

  

 

  

Land

 

45.1

 

43.7

Buildings

 

271.2

 

263.2

Equipment

 

1,179.4

 

1,147.0

Mining properties

 

89.2

 

81.7

Construction in progress

 

23.6

 

22.6

 

1,608.5

 

1,558.2

Less accumulated depreciation and amortization

 

1,091.2

 

1,063.8

Net property and equipment

 

517.3

 

494.4

Total assets

$

2,737.0

$

2,558.8

3

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)

LIABILITIES AND STOCKHOLDERS' EQUITY

December 31, 

March 31, 

    

2023

    

2024

(unaudited)

Current liabilities:

 

  

 

  

Current maturities of long-term debt

$

.7

$

.7

Accounts payable and accrued liabilities

 

490.7

 

366.8

Income taxes

 

15.7

 

17.7

Total current liabilities

 

507.1

 

385.2

Noncurrent liabilities:

 

  

 

  

Long-term debt

 

545.8

 

511.2

Deferred income taxes

 

31.8

 

30.0

Payable to affiliate - income taxes

 

18.5

 

18.5

Accrued pension costs

 

151.6

 

145.1

Accrued environmental remediation and related costs

 

93.2

 

93.1

Other liabilities

 

127.5

 

125.9

Total noncurrent liabilities

 

968.4

 

923.8

Equity:

 

  

 

  

Preferred stock

 

 

Common stock

 

.3

 

.3

Additional paid-in capital

 

669.5

 

669.5

Retained earnings

 

461.1

 

466.6

Accumulated other comprehensive loss

 

(145.5)

 

(158.6)

Treasury stock, at cost

 

(49.6)

 

(49.6)

Total Valhi stockholders' equity

 

935.8

 

928.2

Noncontrolling interest in subsidiaries

 

325.7

 

321.6

Total equity

 

1,261.5

 

1,249.8

Total liabilities and equity

$

2,737.0

$

2,558.8

Commitments and contingencies (Notes 13 and 16)

See accompanying Notes to Condensed Consolidated Financial Statements.

4

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

Three months ended

March 31, 

    

2023

    

2024

(unaudited)

Revenues and other income:

 

  

 

  

Net sales

$

492.7

$

530.6

Other income, net

 

13.1

 

12.2

Total revenues and other income

 

505.8

 

542.8

Cost and expenses:

 

  

 

  

Cost of sales

 

438.6

 

444.3

Selling, general and administrative

 

68.8

 

68.6

Other components of net periodic pension and OPEB expense

 

1.2

 

.6

Interest

 

7.0

 

11.3

Total costs and expenses

 

515.6

 

524.8

Income (loss) before income taxes

 

(9.8)

 

18.0

Income tax expense (benefit)

 

(6.1)

 

4.4

Net income (loss)

 

(3.7)

 

13.6

Noncontrolling interest in net income of subsidiaries

 

1.2

 

5.8

Net income (loss) attributable to Valhi stockholders

$

(4.9)

$

7.8

Amounts attributable to Valhi stockholders:

 

  

 

  

Basic and diluted net income (loss) per share

$

(.17)

$

.27

Basic and diluted weighted average shares outstanding

 

28.5

 

28.5

See accompanying Notes to Condensed Consolidated Financial Statements.

5

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In millions)

Three months ended

March 31, 

    

2023

    

2024

(unaudited)

Net income (loss)

$

(3.7)

$

13.6

Other comprehensive income (loss), net of tax:

 

  

 

  

Currency translation

 

(6.1)

 

(18.3)

Defined benefit pension plans

 

.7

 

.7

Other

 

(.2)

 

(.1)

Total other comprehensive loss, net

 

(5.6)

 

(17.7)

Comprehensive loss

 

(9.3)

 

(4.1)

Comprehensive income (loss) attributable to noncontrolling interest

 

(.3)

 

1.2

Comprehensive loss attributable to Valhi stockholders

$

(9.0)

$

(5.3)

See accompanying Notes to Condensed Consolidated Financial Statements.

6

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

Three months ended March 31, 2023 and 2024 (unaudited)

Accumulated

Additional

other

Non-

Common

paid-in

Retained

comprehensive

Treasury

controlling

stock

capital

earnings

loss

stock

interest

Total

Balance at December 31, 2022

$

.3

$

669.5

$

482.3

$

(143.9)

$

(49.6)

$

348.2

$

1,306.8

Net income (loss)

 

 

 

(4.9)

 

 

 

1.2

 

(3.7)

Other comprehensive loss, net

 

 

 

 

(4.1)

 

 

(1.5)

 

(5.6)

Dividends paid to noncontrolling interest

 

 

 

 

 

 

(5.2)

 

(5.2)

Cash dividends - $.08 per share

 

 

 

(2.3)

 

 

 

 

(2.3)

Equity transactions with noncontrolling
  interest, net and other

 

 

(.9)

 

 

 

 

(.3)

 

(1.2)

Balance at March 31, 2023

$

.3

$

668.6

$

475.1

$

(148.0)

$

(49.6)

$

342.4

$

1,288.8

Balance at December 31, 2023

$

.3

$

669.5

$

461.1

$

(145.5)

$

(49.6)

$

325.7

$

1,261.5

Net income

 

 

 

7.8

 

 

 

5.8

 

13.6

Other comprehensive loss, net

 

 

 

 

(13.1)

 

 

(4.6)

 

(17.7)

Dividends paid to noncontrolling interest

 

 

 

 

 

 

(5.3)

 

(5.3)

Cash dividends - $.08 per share

 

 

 

(2.3)

 

 

 

 

(2.3)

Balance at March 31, 2024

$

.3

$

669.5

$

466.6

$

(158.6)

$

(49.6)

$

321.6

$

1,249.8

See accompanying Notes to Condensed Consolidated Financial Statements.

7

VALHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Three months ended

March 31, 

    

2023

    

2024

(unaudited)

Cash flows from operating activities:

 

  

 

  

Net income (loss)

$

(3.7)

$

13.6

Depreciation and amortization

 

14.3

 

12.5

Benefit plan expense less than cash funding

 

(2.0)

 

(2.5)

Deferred income taxes

 

.3

 

(.1)

Distributions from (contributions to) TiO2 manufacturing joint venture, net

 

(.7)

 

2.3

Other, net

 

1.7

 

2.0

Change in assets and liabilities:

 

  

 

  

Accounts and other receivables, net

 

(39.0)

 

(59.5)

Inventories, net

 

1.5

 

78.7

Land held for development, net

(8.4)

(.7)

Accounts payable and accrued liabilities

 

(82.6)

 

(125.3)

Income taxes

 

(1.3)

 

2.8

Accounts with affiliates

 

(15.4)

 

15.3

Other, net

 

8.5

 

12.1

Net cash used in operating activities

 

(126.8)

 

(48.8)

Cash flows from investing activities:

 

  

 

  

Capital expenditures

(16.7)

(5.0)

Purchases of marketable securities

 

(33.8)

 

(1.0)

Proceeds from disposal of marketable securities

 

8.5

 

25.5

Net cash provided by (used in) investing activities

 

(42.0)

 

19.5

Cash flows from financing activities:

 

  

 

  

Kronos term loan from Contran

53.7

Principal payments on indebtedness

 

(7.4)

 

(73.2)

Deferred financing fees

(4.9)

Valhi cash dividends paid

 

(2.3)

 

(2.3)

Distributions to noncontrolling interest in subsidiaries

 

(5.2)

 

(5.3)

Subsidiary treasury stock acquired

 

(1.4)

 

Net cash used in financing activities

 

(16.3)

 

(32.0)

Cash, cash equivalents and restricted cash and cash equivalents - net change from:

Operating, investing and financing activities

(185.1)

(61.3)

Effect of exchange rates on cash

(.7)

(1.1)

Balance at beginning of period

562.0

462.0

Balance at end of period

$

376.2

$

399.6

Supplemental disclosures:

Cash paid (received) for:

Interest, net of amounts capitalized

$

10.5

$

9.1

Income taxes, net

(2.4)

.8

Noncash investing activities:

Change in accruals for capital expenditures

6.3

.8

See accompanying Notes to Condensed Consolidated Financial Statements.

8

VALHI, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(unaudited)

Note 1 – Organization and basis of presentation:

Organization We are majority owned by a wholly-owned subsidiary of Contran Corporation (Contran), which owns approximately 91% of our outstanding common stock at March 31, 2024. A majority of Contran’s outstanding voting stock is held directly by Lisa K. Simmons, Thomas C. Connelly (the husband of Ms. Simmons’ late sister) and various family trusts established for the benefit of Ms. Simmons, Mr. Connelly and their children and for which Ms. Simmons, Mr. Connelly or Mr. Connelly’s sister, as applicable, serve as trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly or his sister serves as trustee, the trustee is required to vote the shares of Contran voting stock held in such trusts in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. Simmons. The remainder of Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and her late sister and their children and for which a third-party financial institution serves as trustee. Consequently, at March 31, 2024, Ms. Simmons and the Family Trust may be deemed to control Contran and us.

Basis of Presentation – Consolidated in this Quarterly Report are the results of 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 Securities and Exchange Commission (SEC).

The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 that we filed with the SEC on March 7, 2024 (the “2023 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments), in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. We have condensed the Consolidated Balance Sheet at December 31, 2023 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date, and we have omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, 2023) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Our results of operations for the interim period ended March 31, 2024 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our 2023 Consolidated Financial Statements contained in our 2023 Annual Report.

Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Valhi, Inc. and its subsidiaries (NYSE: VHI), taken as a whole.

Note 2 – Business segment information:

    

    

% controlled at

 

Business segment

Entity

March 31, 2024

 

Chemicals

 

Kronos

 

81%

Component products

 

CompX

 

87%

Real estate management and development

 

BMI and LandWell

 

63% - 77%

9

Our control of Kronos includes approximately 50% we hold directly and approximately 31% held directly by NL. We own approximately 83% of NL. Our control of CompX is through NL. We own approximately 63% of BMI. Our control of LandWell includes the approximately 27% we hold directly and 50% held by BMI.

Three months ended

March 31, 

    

2023

    

2024

(In millions)

Net sales:

Chemicals

$

426.3

$

478.8

Component products

 

41.2

 

38.0

Real estate management and development

 

25.2

 

13.8

Total net sales

$

492.7

$

530.6

Cost of sales:

 

  

 

  

Chemicals

$

395.8

$

407.9

Component products

 

28.5

 

28.3

Real estate management and development

 

14.3

 

8.1

Total cost of sales

$

438.6

$

444.3

Gross margin:

 

  

 

  

Chemicals

$

30.5

$

70.9

Component products

 

12.7

 

9.7

Real estate management and development

 

10.9

 

5.7

Total gross margin

$

54.1

$

86.3

Operating income (loss):

 

  

 

  

Chemicals

$

(15.1)

$

22.8

Component products

 

7.0

 

3.7

Real estate management and development

 

10.6

 

5.0

Total operating income

 

2.5

 

31.5

General corporate items:

 

  

 

  

Interest income and other

4.9

5.7

Other components of net periodic pension and OPEB expense

 

(1.2)

 

(.6)

Changes in market value of Valhi common stock held by subsidiaries

 

(1.1)

 

.5

General expenses, net

 

(7.9)

 

(7.8)

Interest expense

 

(7.0)

 

(11.3)

Income (loss) before income taxes

$

(9.8)

$

18.0

Segment results we report may differ from amounts separately reported by our various subsidiaries due to purchase accounting adjustments and related amortization or differences in the way we define operating income. Intersegment sales are not material. Included in the determination of Chemicals operating loss in the first quarter of 2023 is the recognition of a business interruption insurance settlement gain of $1.7 million. See Note 12.

10

Note 3 – Accounts and other receivables, net:

December 31, 

March 31, 

    

2023

    

2024

(In millions)

Trade accounts receivable:

 

  

 

  

Kronos

$

273.6

$

330.8

CompX

 

17.1

 

17.4

BMI/LandWell

 

1.2

 

1.0

VAT and other receivables

 

33.4

 

30.1

Refundable income taxes

1.8

2.1

Receivables from affiliates:

Louisiana Pigment Company, L.P. (LPC)

16.9

Contran - trade items

.2

.1

Other 

.4

.4

Allowance for doubtful accounts

 

(4.2)

 

(4.1)

Total

$

340.4

$

377.8

Note 4 – Inventories, net:

December 31, 

March 31, 

    

2023

    

2024

(In millions)

Raw materials:

 

  

 

  

Chemicals

$

188.3

$

148.3

Component products

 

5.7

 

5.0

Total raw materials

 

194.0

 

153.3

Work in process:

 

  

 

  

Chemicals

 

30.8

 

25.6

Component products

 

19.1

 

17.7

Total in-process products

 

49.9

 

43.3

Finished products:

 

  

 

  

Chemicals

 

250.4

 

209.6

Component products

 

5.9

 

4.8

Total finished products

 

256.3

 

214.4

Supplies (chemicals)

 

95.9

 

93.1

Total

$

596.1

$

504.1

Note 5 – Marketable securities:

Cost or

amortized

Unrealized

Market value

cost

loss, net

(In millions)

December 31, 2023:

 

  

 

  

 

  

Current assets

$

56.1

$

56.1

$

Noncurrent assets

$

4.8

$

5.0

$

(.2)

March 31, 2024:

 

  

 

  

 

  

Current assets

$

31.7

$

31.7

$

Noncurrent assets

$

5.5

$

5.5

$

11

Our marketable securities consist of investments in marketable equity and debt securities. We classify all of our marketable securities as available-for-sale. Our marketable equity securities are carried at fair value using quoted market prices, primarily Level 1 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures, with any unrealized gains or losses on the securities recognized in other income, net on our Condensed Consolidated Statements of Operations. Our current marketable securities are primarily debt securities invested in U.S. government treasuries. The fair value of our marketable debt securities is generally determined using Level 2 inputs because although these securities are traded in many cases, the market is not active and the quarter-end valuation is generally based on the last trade of the quarter, which may be several days prior to quarter end. We accumulate unrealized gains and losses on marketable debt securities as part of accumulated other comprehensive income (loss), net of related deferred income taxes.

Note 6 – Other assets:

    

December 31, 

    

March 31, 

2023

2024

(In millions)

Other noncurrent assets:

 

  

 

  

Restricted cash and cash equivalents

$

32.4

$

32.3

Note receivables - OPA

69.1

65.7

Operating lease right-of-use assets

 

22.7

 

21.8

Land held for development

19.4

16.9

IBNR receivables

 

13.4

 

13.3

Pension asset

 

8.1

 

8.4

Other

 

16.7

 

17.5

Total

$

181.8

$

175.9

Note receivables - OPA – As disclosed in Note 7 to our 2023 Annual Report, under an Owner Participation Agreement (OPA) entered into by LandWell with the Redevelopment Agency of the City of Henderson, Nevada, as LandWell develops certain real property for commercial and residential purposes in its master planned community in Henderson, Nevada, the cost of certain public infrastructure may be reimbursed to LandWell through tax increment. Once the tax increment reimbursement is approved, the amount is recognized as other income and is evidenced by a promissory note issued to LandWell by the City of Henderson. No additional tax increment amounts were approved during the first three months of 2023 and 2024.    

Note 7 – Long-term debt:

December 31, 

March 31, 

    

2023

    

2024

(In millions)

Valhi:

 

  

 

  

Contran credit facility

$

93.4

$

72.8

Subsidiary debt:

 

  

 

  

Kronos:

 

  

 

  

Kronos International, Inc. 9.50% Senior Secured Notes due 2029

292.3

Kronos International, Inc. 3.75% Senior Secured Notes due 2025

 

440.9

 

80.9

Subordinated, Unsecured Term Loan from Contran

53.7

LandWell:

 

  

 

  

Note payable to Western Alliance Business Trust

 

12.2

 

12.2

Total subsidiary debt

 

453.1

 

439.1

Total debt

 

546.5

 

511.9

Less current maturities

 

.7

 

.7

Total long-term debt

$

545.8

$

511.2

Valhi – Contran credit facility – During the first three months of 2024, we had no borrowings and repaid $20.6 million under this facility. The average interest rate on the credit facility for the three months ended March 31, 2024 was 9.50%. At March 31, 2024, the interest rate was 9.50% and $77.2 million was available for borrowing under this facility.

12

Kronos 9.50% Senior Secured Notes due 2029  On February 12, 2024, for certain eligible holders of existing 3.75% Senior Secured Notes due 2025 (the “Old Notes”) of Kronos’ wholly-owned subsidiary Kronos International, Inc. (KII), KII executed an exchange of €325 million principal amount of the outstanding 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 €48.75 million ($52.6 million). 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 also entered into a new $53.7 million unsecured loan from Contran Corporation (described below) in connection with the exchange.

The New Notes:

bear interest at 9.50% per annum, payable semi-annually on March 15 and September 15 of each year, payments begin on September 15, 2024;
have a maturity date of March 15, 2029. Prior to March 15, 2026, Kronos may redeem some or all of the New Notes at a price equal to 100% of the principal amount thereof, plus an applicable premium as of the date of the redemption as described in the indenture governing its New Notes plus accrued and unpaid interest. On or after March 15, 2026, Kronos may redeem the New Notes at redemption prices ranging from 104.750% of the principal amount, declining to 100% on or after March 15, 2028, plus accrued and unpaid interest. In addition, on or before March 15, 2026, Kronos may redeem up to 40% of the New Notes with the net proceeds of certain public or private equity offerings at 109.50% of the principal amount, plus accrued and unpaid interest, provided that following the redemption at least 50% of the New Notes remain outstandingIf Kronos or Kronos’ subsidiaries experience certain change of control events, as outlined in the indenture governing its New Notes, Kronos would be required to make an offer to purchase the New Notes at 101% of the principal amount thereof, plus accrued and unpaid interest. Kronos would also be required to make an offer to purchase a specified portion of the New Notes at par value, plus accrued and unpaid interest, in the event that Kronos and its subsidiaries generate a certain amount of net proceeds from the sale of assets outside the ordinary course of business, and such net proceeds are not otherwise used for specified purposes within a specified time period as described in the indenture governing Kronos’ New Notes;
are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by Kronos Worldwide, Inc. and each of its direct and indirect domestic, wholly-owned subsidiaries;
are collateralized by a first priority lien on (i) 100% of the common stock or other ownership interests of each existing and future direct domestic subsidiary of KII and the guarantors, and (ii) 65% of the voting common stock or other ownership interests and 100% of the non-voting common stock or other ownership interests of each non-U.S. subsidiary that is directly owned by KII or any guarantor;
contain a number of covenants and restrictions which, among other things, restrict Kronos’ 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 this type (however, there are no ongoing financial maintenance covenants); and
contain customary default provisions, including a default under any of Kronos’ other indebtedness in excess of $50.0 million.

At March 31, 2024 the carrying value of the New Notes (€276.174 million aggregate principal amount outstanding) is stated net of unamortized debt issuance costs of $5.6 million. As a result of the note exchange, in the first quarter of 2024 we recognized a non-cash pre-tax interest charge of $1.5 million included in interest expense related to the write-off of the deferred financing costs associated with the Old Notes and capitalized $5.7 million in debt issuance costs associated with the New Notes.    

Subordinated, Unsecured Term Loan from Contran – As part of the refinancing of a majority of Kronos’ Old Notes discussed above, Kronos borrowed $53.7 million (€50.0 million) from Contran through the issuance of an unsecured, subordinated term promissory note dated February 12, 2024 (the “Contran Term Loan”). The Contran Term Loan is guaranteed by Kronos’ domestic wholly-owned subsidiaries. Kronos’ obligations under the Contran Term Loan, and the obligations of the guarantors under the related guaranties, are unsecured and subordinated in right of payment to Kronos’ Senior Secured Notes and its $225 million global revolving

13

credit facility (Global Revolver). Interest on the Contran Term Loan is payable in cash at an interest rate of 11.5%. The additional interest rate spread of 2% over the interest rate on the New Notes was based upon comparable debt transactions at the time of issuance. The Contran Term Loan matures on demand (but no earlier than September 2029), is not subject to any amortization payments and is prepayable at par beginning in March 2026. The restrictive covenants in the Contran Term Loan are substantially similar to those contained in the indenture governing Kronos’ New Notes. In accordance with Kronos’ related party transaction policy, the audit committee of its board of directors, comprised of the independent directors, approved the terms and conditions of the new term loan from Contran.

3.75% Senior Secured Notes due 2025  At March 31, 2024, the carrying value of Kronos’ remaining Old Notes (€75 million aggregate principal amount outstanding) is $80.9 million. In connection with the issuance of the New Notes in February 2024, 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.

Revolving credit facility – During the first three months of 2024, Kronos had no borrowings or repayments under its $225 million global revolving credit facility and at March 31, 2024, the full $225 million was available for borrowing.

Other – We are in compliance with all of our debt covenants at March 31, 2024.

Note 8 – Accounts payable and accrued liabilities:

December 31, 

March 31, 

    

2023

    

2024

(In millions)

Accounts payable:

 

  

 

  

Kronos

$

218.7

$

143.9

CompX

 

3.1

 

3.1

BMI/LandWell

 

6.7

 

4.4

Total

228.5