UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report: August 5, 2004
KRONOS WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-31763 76-0294959
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
5430 LBJ Freeway, Suite 1700, Dallas, TX 75240-2697
(Address of principal executive offices) (Zip Code)
(972) 233-1700
(Registrant's telephone number, including area code)
Item 9: Regulation FD Disclosure
Item 12: Results of Operations and Financial Condition
Pursuant to Items 9 and 12 of this current report, the registrant hereby
furnishes the information set forth in the press release issued on August 5,
2004, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein
by reference.
The information, including the exhibit, the registrant furnishes in this
report is not deemed "filed" for purposes of section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to the liabilities of
that section. Registration statements or other documents filed with the
Securities and Exchange Commission shall not incorporate this information by
reference, except as otherwise expressly stated in such filing.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KRONOS WORLDWIDE, INC.
(Registrant)
By: /s/ Gregory M. Swalwell
----------------------------
Gregory M. Swalwell
Vice President, Finance and
Chief Financial Officer
Date: August 5, 2004
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- --------------------------------------------------
99.1 Press release dated August 5, 2004 issued by Kronos Worldwide, Inc.
Kronos Worldwide, Inc. Contact: Gregory M. Swalwell
Three Lincoln Centre Vice President, Finance
5430 LBJ Freeway, Suite 1700 and Chief Financial Officer
Dallas, TX 75240-2697 (972) 233-1700
- -------------------------------------------------------------------------------
News Release
- -------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
KRONOS WORLDWIDE REPORTS SECOND QUARTER RESULTS
DALLAS, TEXAS...August 5, 2004...Kronos Worldwide, Inc. (NYSE:KRO) today
reported net income for the second quarter of 2004 of $267.5 million, or $5.47
per diluted share, compared with net income of $41.8 million, or $.85 per
diluted share, in the second quarter of 2003. For the first six months of 2004,
Kronos reported net income of $277.3 million, or $5.67 per diluted share,
compared with net income of $58.5 million, or $1.19 per diluted share, in the
first six months of 2003. The primary reason for the increase in net income in
the 2004 periods is due to certain income tax benefits, as described herein.
Sales of $295.8 million in the second quarter of 2004 were $29.2 million, or
11%, higher than the second quarter of 2003, and sales increased $39.5 million,
or 8%, to $559.1 million for the first six months of 2004 as compared to the
first six months of 2003, as the favorable effect of fluctuations in foreign
currency exchange rates, which increased sales by approximately $13 million and
$35 million, respectively, and higher TiO2 sales volumes more than offset the
impact of lower average TiO2 selling prices.
The Company's operating results in the second quarter of 2004 include income of
$6.3 million ($.08 per diluted share, net of income taxes) related to the
settlement of a contract dispute with a customer. The Company's TiO2 segment
profit (see description of non-GAAP information below) for the second quarter of
2004 was $40.1 million compared with $35.5 million in the second quarter of
2003, and was $66.4 million for the first six months of 2004 compared with $69.7
million for the first six months of 2003. In addition to the favorable effect of
the contract dispute settlement, segment profit comparability was principally
impacted by fluctuations in foreign currency exchange rates, which favorably
impacted segment profit comparability by approximately $6 million and $8 million
for the quarter and year-to-date periods, respectively, the higher sales volumes
and the lower average TiO2 selling prices.
The Company's average selling prices in billing currencies (which excludes the
effects of fluctuations in the value of the U.S. dollar relative to other
currencies) during both the second quarter and first six months of 2004 were 5%
lower than the respective periods of 2003. Expressed in U.S. dollars computed
using actual foreign currency exchange rates prevailing during the respective
periods, the Company's average selling prices in the second quarter of 2004 were
comparable to the second quarter of 2003 and were 2% higher for the first six
months of 2004 compared with 2003. Reflecting the partial implementation of
prior price increase announcements, the Company's average selling prices in the
second quarter of 2004 were generally flat compared to the first quarter of
2004, reversing the downward trend in selling prices that has existed since the
third quarter of 2003.
The Company's second quarter 2004 TiO2 sales volumes increased 13% from the
second quarter of 2003, as higher sales volumes in European and export markets
more than offset the effect of lower volumes in Canada. TiO2 sales volumes for
the first six months of 2004 increased 6% from the first six months of 2003. The
Company's second quarter 2004 TiO2 production volumes were 3% higher than the
second quarter of 2003, and were 1% higher for the first six months of 2004
compared to 2003, with operating rates at near full capacity in all periods
presented. Finished goods inventories at June 30, 2004, which represented 1.8
months of average sales, were lower as compared to December 31, 2003. Kronos'
sales and production volumes in the first six months of 2004 were both new
records for Kronos.
Interest expense to affiliates in the second quarter and first six months of
2004 increased $4.2 million and $8.3 million, respectively, from the comparable
prior year periods primarily due to interest on the Company's $200 million 9%
long-term note payable to NL Industries, Inc. that the Company distributed to NL
in December 2003. In addition, other interest expense increased due to relative
changes in foreign currency exchange rates, which increased the U.S. dollar
equivalent of interest expense on the Company's euro-denominated Senior Secured
Notes by approximately $600,000 and $1.7 million in the second quarter and first
six months of 2004, respectively, as compared to the year-ago periods.
The Company's income tax benefit in the 2004 periods includes a second quarter
$245.6 million tax benefit ($5.02 per diluted share) related to the reversal of
a deferred income tax asset valuation allowance attributable to the Company's
income tax attributes in Germany (principally net operating loss carryforwards).
The reversal of the German valuation allowance reflects the Company's revised
estimate of its ability to utilize its German net operating loss carryforwards
in the future under the "more-likely-than-not" recognition criteria. In the
second quarter of 2003, the Company recognized a $24.6 million income tax
benefit ($.50 per diluted share) related to the previously-reported favorable
German court ruling concerning its claim for refund suit.
The statements in this release relating to matters that are not historical facts
are forward-looking statements that represent management's beliefs and
assumptions based on currently available information. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it cannot give any assurances that these expectations will prove to
be correct. Such statements by their nature involve substantial risks and
uncertainties that could significantly impact expected results, and actual
future results could differ materially from those described in such
forward-looking statements. While it is not possible to identify all factors,
the Company continues to face many risks and uncertainties. Among the factors
that could cause actual future results to differ materially include, but are not
limited to:
o Future supply and demand for the Company's products,
o The cyclicality of certain of the Company's businesses,
o Customer inventory levels,
o Changes in raw material and other operating costs,
o The possibility of labor disruptions,
o General global economic and political conditions,
o Competitive products and substitute products,
o Customer and competitor strategies,
o The impact of pricing and production decisions,
o Competitive technology positions,
o Fluctuations in currency exchange rates,
o Operating interruptions,
o The ability of the Company to renew or refinance credit facilities,
o The ultimate outcome of income tax audits, tax settlement initiatives or
other tax controversies,
o The ultimate ability to utilize income tax attributes, the benefit of which
has been recognized under the "more-likely-than-not" recognition criteria,
o Government laws and regulations and possible changes therein,
o The ultimate resolution of pending litigation, and
o Possible future litigation.
Should one or more of these risks materialize (or the consequences of such a
development worsen), or should the underlying assumptions prove incorrect,
actual results could differ materially from those forecast or expected. The
Company disclaims any intention or obligation to update or revise any
forward-looking statement whether as a result of new information, future events
or otherwise.
In an effort to provide investors with additional information regarding the
Company's results as determined by accounting principles generally accepted in
the United States of America ("GAAP"), the Company has disclosed certain
non-GAAP information which the Company believes provides useful information to
investors:
o The Company discloses percentage changes in its average TiO2 selling prices
in billing currencies, which excludes the effects of foreign currency
translation. The Company believes disclosure of such percentage changes
allows investors to analyze such changes without the impact of changes in
foreign currency exchange rates, thereby facilitating period-to-period
comparisons of relative changes in average selling prices in the actual
various billing currencies. Generally, when the U.S. dollar either
strengthens or weakens against other currencies, the percentage change in
average selling prices in billing currencies will be higher or lower,
respectively, than such percentage changes would be using actual exchange
rates prevailing during the respective periods.
o The Company discloses segment profit, which is used by the Company's
management to assess the performance of the Company's TiO2 operations. The
Company believes disclosure of segment profit provides useful information
to investors because it allows investors to analyze the performance of the
Company's TiO2 operations in the same way that the Company's management
assesses performance. The Company defines segment profit as income before
income taxes, interest expense and certain general corporate items.
Corporate items excluded from the determination of segment profit include
corporate expense and interest income not attributable to the Company's
TiO2 operations.
Kronos Worldwide, Inc. is a major international producer of titanium dioxide
pigments.
KRONOS WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share and metric ton data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-----------------------------------------------------
2003 2004 2003 2004
-----------------------------------------------------
Net sales $ 266.6 $ 295.8 $ 519.6 $ 559.1
Cost of sales 197.6 227.5 386.1 429.8
----------- ---------- ----------- ----------
Gross margin 69.0 68.3 133.5 129.3
Selling, general and administrative expense 31.0 35.0 60.4 70.2
Other operating income (expense):
Currency transaction gains (losses), net (2.7) .3 (3.8) .6
Contract dispute settlement - 6.3 - 6.3
Corporate expense (.9) (.8) (1.6) (1.3)
----------- ---------- ----------- ----------
Income from operations 34.4 39.1 67.7 64.7
Other income (expense):
Trade interest income .2 .2 .4 .4
Interest income from affiliates .3 - .7 -
Other interest income .1 .2 .1 .4
Interest expense to affiliates (.3) (4.5) (.7) (9.0)
Other interest expense (8.4) (8.6) (16.4) (17.8)
----------- ---------- ----------- ----------
Income before income taxes 26.3 26.4 51.8 38.7
Income tax benefit (15.5) (241.1) (6.7) (238.6)
----------- ---------- ----------- ----------
Net income $ 41.8 $ 267.5 $ 58.5 $ 277.3
============ ========= =========== ==========
Basic and diluted net income per share $ .85 $ 5.47 $ 1.19 $ 5.67
============ ========= =========== =========
Basic and diluted weighted-average
shares used in the calculation of net
income per share 48.9 48.9 48.9 48.9
TiO2 data - metric tons in thousands:
Sales volumes 121.1 136.5 239.5 254.6
Production volumes 119.5 122.8 236.7 239.7
KRONOS WORLDWIDE, INC.
RECONCILIATION OF SEGMENT PROFIT TO
INCOME FROM OPERATIONS
(In millions)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-----------------------------------------------------
2003 2004 2003 2004
-----------------------------------------------------
Segment profit $ 35.5 $ 40.1 $ 69.7 $ 66.4
Adjustments:
Trade interest income (.2) (.2) (.4) (.4)
Corporate expense (.9) (.8) (1.6) (1.3)
---------- --------- --------- ---------
Income from operations $ 34.4 $ 39.1 $ 67.7 $ 64.7
========== ========= ========== ========
RECONCILIATION OF PERCENTAGE CHANGE IN
AVERAGE SELLING PRICES
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2003 vs. 2004 2003 vs. 2004
---------------- ----------------
Percentage change in average selling prices:
Using actual foreign currency exchange rates - % +2%
Impact of changes in foreign currency exchange rates -5% -7%
-------- --------
In billing currencies -5% -5%
======== ========