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Business Combinations, Discontinued Operations and Related Transactions | 12 Months Ended
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Dec. 31, 2013
Business Combinations, Discontinued Operations and Related Transactions | Note 3—Business combinations, discontinued operations and related transactions: Kronos Worldwide, Inc. Prior to 2011, Kronos’ board of directors 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 will use cash on hand to acquire the shares. Repurchased shares will be added to Kronos’ treasury and cancelled. During 2013 Kronos repurchased approximately 49,000 shares for an aggregate of $.7 million under its repurchase program. The 2013 purchases are the only purchases Kronos has made to date under the plan and at December 31, 2013 approximately 1.95 million shares are available for repurchase. CompX International Inc. Prior to 2011, CompX’s board of directors 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 will generally use cash on hand to acquire the shares. Repurchased shares will be added to CompX’s treasury and cancelled. CompX did not make any repurchases under the plan during 2011, 2012 and 2013, and at December 31, 2013 approximately 678,000 shares were available for purchase under these authorizations. Discontinued operations—On December 28, 2012, CompX completed the sale of its furniture components operations to a competitor of that business for proceeds, net of expenses, of approximately $58.0 million in cash. We recognized a pre-tax gain in 2012 of $23.7 million on the disposal of these operations ($15.7 million, or $.05 per basic and diluted share, net of income taxes and noncontrolling interest, as shown in the table below). Such pre-tax gain includes income of $10.4 million associated with the reclassification out of accumulated other comprehensive income related to foreign currency translation. The income taxes associated with the pre-tax gain on disposal is less than the U.S. statutory income tax rate of 35% principally due to the utilization of foreign tax credits, the benefit of which had previously not been recognized in part because such benefit did not meet the “more-likely-than-not” recognition criteria and in part because we have not previously elected to claim a credit with respect to foreign income taxes paid because our tax elections are consistent with the elections of Contran and Contran had not previously elected to claim credit. The furniture components operations primarily sold products with lower average margins and higher commodity raw material content than other operations of CompX’s business. We believe disposing of this business enables us to focus more effort on continuing to develop the remaining portion of CompX’s business that we believe has greater opportunity for higher returns and with less volatility in the cost of commodity raw materials. Selected financial data for the operations of the disposed furniture Components business is presented below:
| Years ended December 31, |
| 2011 |  |  | 2012 |
| (In millions) |
Income statement: |  |  |  |  |  |  |
Net sales | $ | 59.0 |  |  | $ | 60.7 |
Operating income | $ | 9.1 |  |  | $ | 7.4 |
Income from discontinued operations: |  |  |  |  |  |  |
Income before taxes | $ | 9.1 |  |  | $ | 7.2 |
Income tax expense |  | 5.0 |  |  |  | 3.5 |
Income from discontinued operations, net of tax |  | 4.1 |  |  |  | 3.7 |
Gain on sale of discontinued operations: |  |  |  |  |  |  |
Gain on sale |  | — |  |  |  | 23.7 |
Income tax expense |  | — |  |  |  | 1.9 |
Gain on sale discontinued operations, net of tax |  | — |  |  |  | 21.8 |
Total discontinued operations, net of tax |  | 4.1 |  |  |  | 25.5 |
Noncontrolling interest in income from discontinued operations |  | 1.1 |  |  |  | 1.0 |
Noncontrolling interest in gain on sale of discontinued operations |  | — |  |  |  | 6.1 |
Total noncontrolling interest in discontinued operations |  | 1.1 |  |  |  | 7.1 |
Total discontinued operations, net of tax and noncontrolling interest | $ | 3.0 |  |  | $ | 18.4 |
In accordance with generally accepted accounting principles, the assets and liabilities relating to the furniture components business were eliminated from our 2012 Consolidated Balance Sheet at the date of sale. We have reclassified our Consolidated Statements of Operations to reflect the disposed business as discontinued operations for all periods presented. We have not reclassified our December 31, 2011 or 2012 Consolidated Statements of Cash Flows to reflect discontinued operations. In conjunction with the sale of CompX’s furniture components reporting unit, the buyer was not interested in retaining certain undeveloped land located in Taiwan owned by CompX’s Taiwanese Furniture Component subsidiary. We had no additional use for the undeveloped land in Taiwan and therefore expected the land to be sold to a third party with CompX receiving the net proceeds. Based on the legal form of how we completed the disposal transaction, our interest in the land was represented by a $3.0 million promissory note receivable at December 31, 2012, issued to CompX by its former Taiwanese subsidiary which retained legal ownership in the land to facilitate the future sale of the land to a third party. The proceeds from the sale of the land were required to be used to settle the note receivable. Such note receivable was classified as part of other current assets in our Consolidated Balance Sheet at December 31, 2012. In 2013 the land was sold to a third party for $3.0 million. Basic Management, Inc. and The Landwell Company Prior to December 2013, we owned a 32% interest in BMI, which among other things provides utility services to an industrial park located in Henderson, NV, and is responsible for the delivery of water to the city of Henderson and various other users through a water distribution system owned by BMI. We also had a 12% interest in Landwell, which is actively engaged in efforts to develop certain real estate in Henderson, Nevada. BMI owns an additional 50% interest in Landwell. We accounted for our 32% interest in BMI and Landwell by the equity method of accounting. See Note 7. Three other entities owned the remaining ownership interest in BMI (a 32% interest, a 31% interest and a 5% interest) and Landwell (a 21% interest, a 15% interest and a 2% interest). Provisions in the governing documents of BMI and Landwell give BMI and Landwell and their owners a right of first refusal upon any proposed transfer of an ownership interest in BMI and Landwell. Prior to November 2010, the 31% ownership interest in BMI and the 15% ownership interest in Landwell indicated above were held by Tronox Incorporated, which among other things conducted operations at the Henderson industrial complex. Tronox filed for bankruptcy protection in January 2009. As part of Tronox’ plan of reorganization, in November 2010 such BMI and Landwell interests were transferred to the Nevada Environmental Response Trust (“NERT”), with the consent of BMI and Landwell and its owners (including us), and the parties agreed to negotiate to establish the price at which such BMI and Landwell interests would be transferred to BMI and Landwell or their owners. Such negotiations continued until February 2012, when the parties reached agreement as to the basic monetary terms of such transfer. Further negotiations over all of the terms and conditions of a definitive agreement continued until December 2013, when the parties reached agreement as to all terms and conditions, including the fact that we would acquire the BMI and Landwell interests formerly owned by Tronox, with the consent of BMI and Landwell and their other owners (who elected not to exercise their right-of-first-refusal rights). As a result, in December 2013 we completed the acquisition of the 31% ownership interest in BMI and the 15% ownership interest in Landwell held by NERT. We completed this acquisition because it allowed us to obtain control of BMI and Landwell (with the consent of BMI and Landwell and their other owners), which increased our direct ownership interest of BMI to 63% and our direct ownership of Landwell to 27%, which also resulted in our control of 77% of Landwell (given BMI’s 50% ownership interest in Landwell our controlling ownership of BMI and our 27% direct ownership of Landwell). The other owners did not exercise their first refusal or participation rights and accordingly did not participate in the acquisition of the additional interest of the BMI and Landwell interests. As part of this transaction with NERT, we also acquired one parcel of real property located in Henderson, and acquired an option to purchase four additional parcels of real property located in Henderson, at our option, without the payment of additional consideration to NERT. These five additional parcels, which NERT had also acquired as part of Tronox’ plan of reorganization, are not part of the land currently being developed by Landwell but are located in or are adjacent to the industrial park. The aggregate fair value of the total consideration we gave for the acquisition of BMI and Landwell interest, the parcel of real property acquired and the option to acquire the four other parcels was $32.6 million consisting of $5.3 million in cash, a $19.1 million promissory note secured by the real property acquired, and a $11.1 million deferred payment obligation (which was discounted to present value of $8.2 million, as discussed below). The acquisition of the BMI and Landwell interests, the parcel of real property and the option for the four additional parcels is accounted for as a business combination under GAAP. The application of the purchase method of accounting for business combinations requires us to use significant estimates and assumptions in the determination of the estimated fair value of assets acquired and liabilities assumed; it also requires us to remeasure our existing ownership interest in BMI and Landwell to their estimated fair value. Our estimates of the fair values of assets acquired and liabilities assumed are based upon assumptions we believe are reasonable, and when appropriate, includes assistance from independent third-party valuation firms. The $19.1 million promissory note bears interest at 3% per annum, with interest payable annually and all principal due in December 2023. The promissory note is collateralized by the BMI and Landwell interests acquired as well as the real property acquired as part of the transaction. The note may be prepaid at any time, without penalty. We must make mandatory prepayments on the note in specified amounts whenever we receive distributions from BMI or Landwell, or in the event we sell any of the real property acquired. The acquisition date estimated fair value of this promissory note is equal to its $19.1 million face amount. The $11.1 million deferred payment obligation bears interest at 3% per annum, commencing in December 2023, and is collateralized by the BMI and Landwell interests acquired. The deferred payment obligation has no specified maturity date. We are required to make repayments on the deferred payment obligation, in specified amounts, whenever we receive distributions from BMI and Landwell, and we may make voluntary repayments on the deferred payment obligation at any time, in each case without any penalty, but in any case only after the promissory note discussed above has been repaid in full. For financial reporting purposes, the acquisition date estimated fair value of the deferred payment obligation is approximately $8.2 million, which was determined by discounting the $11.1 million face amount to its present value using a 3% discount rate from December 2023 (when it becomes interest bearing at 3%). Upon gaining ownership of the BMI and Landwell interests formerly held by Tronox in 2010, NERT concluded that it would not be appropriate to take part in any corporate activities of BMI and Landwell, due to (i) the inherent conflict of interest associated with the fact that NERT was responsible to the Nevada Department of Environmental Protection with respect to the remediation of property NERT had acquired as a result of the Tronox plan of reorganization (including the five parcels of real property discussed above as well as other real property formerly owned by Tronox in Nevada), (ii) BMI and Landwell were involved in certain environmental remediation activities associated with the real property owned by Landwell which was under development, and (iii) NERT was also charged with maximizing the value of its assets, including the interests in BMI and Landwell as well as the real property it held directly. Accordingly, NERT never appointed any representatives to the board of directors of BMI, representatives of NERT never attended any BMI and Landwell board meetings, and at NERT’s request NERT was not provided any financial statements or other information regarding BMI and Landwell and their respective activities. In addition NERT (which received some cash and other assets at its formation as part of the Tronox plan of reorganization and also received the BMI/Landwell interests as well as the real property formerly owned by Tronox) knew it would need to raise funds in order to continue the environmental remediation obligation it assumed as part of its formation because the cash it received at its formation was substantially less than the amount it would need in order to continue such remediation. We believe that due to these conflicts and its desire to raise cash, NERT determined it needed to divest itself of the BMI and Landwell interests as soon as was practicable. And given the provisions of the governing documents of BMI and Landwell that gave BMI and Landwell and their other owners a right-of-first-refusal, there were a limited number of potential buyers for the BMI and Landwell interests held by NERT. For financial reporting purposes, the assets acquired and liabilities assumed of BMI and Landwell have been included in our C onsolidated Balance Sheet as of December 31, 2013, and the results of the operations and cash flows of BMI and Landwell will be included in our Consolidated Statement of Operations and Cash Flows beginning January 1, 2014. Our costs associated with the acquisition are not material. We remeasured our existing ownership interests in BMI and Landwell to their estimated fair value at the acquisition date in accordance with ASC 805-10-25, for a business combination which occurs in stages (because we previously had an ownership interest in BMI and Landwell). As a result of such remeasurement, we recognized a pre-tax gain of $26.6 million in December 2013, representing the difference between the $43.4 million estimated fair value of our existing ownership interests in BMI and Landwell at the acquisition date and their aggregate $16.8 million carrying value at the acquisition date. Such pre-tax gain is included in part of “Other income, net” in our Consolidated Statement of Operations and is part of the line item captioned “Gain on bargain purchase and remeasurement of our existing investment in acquiree” in Note 15. Under ASC 805-30-25, a “bargain purchase” occurs when the acquisition-date amounts for the identifiable net assets acquired (measured as required by applicable GAAP) exceeds the sum of (i) the fair value of the consideration transferred to gain control of the acquiree, (ii) the fair value of any previously-held ownership interests in the acquiree and (iii) the fair value of any noncontrolling interest in the acquiree that exits at the acquisition date. If a bargain purchase is initially identified, the acquirer is to reassess whether all of the assets acquired and liabilities assumed have been appropriately identified, recognized and measured, and whether the fair value of the consideration transferred, previously-held ownership interests and noncontrolling interests that exist at the acquisition date have been appropriately measured. If after this reassessment, if a bargain purchase is still indicated, it is recognized as a gain in earnings. After performing such reassessment with respect to this acquisition, we determined a bargain purchase exists. We believe this acquisition gave rise to a bargain purchase because of NERT’s decision to sell the BMI and Landwell interests it acquired as part of the Tronox plan of reorganization (for the reasons discussed above), the right-of-first-refusal rights granted to BMI and Landwell and their owners under the governing documents of BMI and Landwell and the time (22 months) it took to reach agreement on the terms and conditions of a definitive agreement after reaching agreement on the basic monetary terms. This preliminary bargain purchase gain aggregated $28.0 million, and is included in part of “Other Income, net” in our Consolidated Statement of Operations and is part of the line item captioned “Gain on bargain purchase and remeasurement of our existing investment in acquiree” in Note 15. The following table summarizes the aggregate fair value of the consideration we paid to gain control of BMI and Landwell, the one parcel of real property acquired and the option to acquire the remaining four parcels of real property (which collectively are estimated to have a fair value of $14.9 million), and our current estimates for the fair value of our existing ownership interests in BMI and Landwell, the gain on bargain purchase recognized, the amounts assigned to the identifiable assets acquired and liabilities assumed at the acquisition date and the fair value of the noncontrolling interest in BMI and Landwell that exists as the acquisition date. The purchase price allocation for BMI and Landwell indicated below is preliminary and is subject to further refinement as management’s estimates of the valuation of certain assets acquired and liabilities assumed, including but not limited to the land held for development, certain property, plant and equipment, is not yet completed pending the final independent fair value appraisal. Accordingly, the amounts we ultimately assign to the assets acquired and liabilities assumed and the noncontrolling interest in BMI and Landwell at the acquisition date may change, and the amount of the gain we recognized from remeasurement of our existing ownership interest in BMI and Landwell, and the bargain purchase gain we recognized, may similarly change once our preliminary purchase allocation is finalized. Any such change in the amount of the gain from remeasurement and the bargain purchase gain recognized would be accounted for retrospectively, in accordance with ASC 805-10-25. Our final purchase price allocation will be based upon an independent appraisal of the assets acquired and liabilities assumed of BMI and Landwell, including the fair value of the noncontrolling interest in BMI and Landwell at the acquisition date, using the fair value measurement principles of ASC 820. Such independent appraisal is considered a Level III input under ASC 820. Based on our preliminary analysis of the provisional amounts of the transaction at December 31, 2013 we recognized the following:
| (In millions) |
Consideration: |  |  |
Cash | $ | 5.3 |
Promissory note payable |  | 19.1 |
Deferred payment, obligation ($11.1 million face value) |  | 8.2 |
Total fair value of consideration |  | 32.6 |
Fair value of existing equity interest in BMI and Landwell |  | 43.4 |
Bargain purchase gain recognized |  | 28.0 |
Preliminary total | $ | 104.0 |
Preliminary allocation of purchase price to identifiable assets acquired and liabilities assumed: |  |  |
Cash | $ | 27.4 |
Land held for development: |  |  |
Current |  | 14.3 |
Noncurrent |  | 158.1 |
Other current assets |  | 9.4 |
Property, plant and equipment |  | 29.0 |
Other noncurrent assets |  | 8.5 |
Long-term debt |  | (14.3 | )
Other liabilities |  | (66.9 | )
Total net identifiable assets |  | 165.5 |
Noncontrolling interest in BMI and Landwell |  | (61.5 | )
Preliminary total | $ | 104.0 |
The pro forma effect on our Consolidated Statement of Operations for 2013 and 2012, assuming the acquisition of BMI and Landwell had occurred at the beginning of such periods, is not material.

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- Definition The entire disclosure for a business combinations, discontinued operations and related transactions, including background, timing and recognized assets and liabilities. + References No definition available. + Details
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