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: November 4, 2005
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)
(Former name or address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2):
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
Item 7.01 Regulation FD Disclosure.
Pursuant to Items 2.02 and 7.01 of this current report, the registrant
hereby furnishes the information set forth in its press release issued on
November 4, 2005, 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.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Item No. Exhibit Index
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99.1 Press Release dated November 4, 2005 issued
by the registrant.
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
Date: November 4, 2005
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- --------------------------------------------------
99.1 Press release dated November 4, 2005 issued by Kronos Worldwide,
Inc.
[LOGO GOES HERE]
Kronos Worldwide, Inc. Contact: Gregory M. Swalwell
Three Lincoln Centre Vice President, Finance
5430 LBJ Freeway, Suite 1700 (972) 233-1700
Dallas, TX 75240-2697
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News Release
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
KRONOS WORLDWIDE REPORTS THIRD QUARTER RESULTS
DALLAS, TEXAS...November 4, 2005...Kronos Worldwide, Inc. (NYSE:KRO) today
reported net income for the third quarter of 2005 of $8.0 million, or $.16 per
diluted share, compared with net income of $10.1 million, or $.21 per diluted
share, in the third quarter of 2004. For the first nine months of 2005, Kronos
reported net income of $62.2 million, or $1.27 per diluted share, compared with
net income of $304.6 million, or $6.22 per diluted share, in the first nine
months of 2004. The primary factor impacting year-over-year comparisons of net
income is due to certain non-cash income tax adjustments, as discussed below, as
segment profit increased in the 2005 periods as compared to 2004.
Net sales of $292.1 million in the third quarter of 2005 were $6.0 million, or
2%, higher than the third quarter of 2004. Net sales of $895.7 million for the
first nine months of 2005 were $50.6 million, or 6%, higher than the first nine
months of 2004. Both increases are primarily due to the net effects of higher
average TiO2 selling prices, lower TiO2 sales volumes and the favorable effect
of fluctuations in foreign currency exchange rates, which increased sales by
approximately $2 million and $24 million in the quarter and year-to-date
periods, respectively.
The Company's TiO2 segment profit (see description of non-GAAP information
below) for the third quarter of 2005 was $39.5 million compared with $29.8
million in the third quarter of 2004, and was $146.8 million for the first nine
months of 2005 compared with $96.2 million for the first nine months of 2004.
Segment profit improved primarily due to the net effects of higher average TiO2
selling prices, and higher year-to-date production volumes, partially offset by
lower sales volumes. Furthermore, fluctuations in foreign currency exchange
rates resulted in approximately a net $2 million increase in the company's
segment profit for the year-to-date period (currency exchange rate fluctuations
did not have a significant effect on the quarter-to-quarter comparisons).
Segment profit for the first nine months of 2004 includes $6.3 million of income
($4.1 million, or $.08 per diluted share, net of income taxes) related to the
settlement of a contract dispute with a customer.
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 the third quarter and first nine months of 2005 were 7% and
9% higher than the respective periods of 2004. 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 third quarter of
2005 were 8% higher than the third quarter of 2004 and 12% higher for the first
nine months of 2005 compared with 2004. The Company's average TiO2 selling
prices in billing currencies in the third quarter of 2005 decreased 1% compared
to the second quarter of 2005.
The Company's TiO2 sales volumes in both the third quarter and the first nine
months of 2005 decreased 7% compared to the corresponding periods in 2004, as
demand was lower in all regions of the world. The Company's TiO2 production
volumes decreased 1% in the third quarter of 2005 and increased 2% during the
first nine months of 2005 as compared to the same periods in 2004, with
operating rates at near full capacity in all periods. The Company's finished
goods inventories at September 30, 2005 represented approximately 2 months of
average sales.
Results for the first nine months of 2005 include a securities transaction gain
of $5.4 million ($3.5 million, or $.07 per diluted share, net of income taxes)
related to a second quarter gain on the sale of the company's passive interest
in a Norwegian smelting operation.
Interest expense to affiliates for the third quarter and nine months ended
September 30, 2004 relates primarily to the Company's $200 million 9% long-term
note payable to affiliates issued in December 2003, which was prepaid in
November 2004. Other interest expense increased due primarily to higher levels
of indebtedness resulting from the issuance of an additional (euro)90 million
principal amount of the Company's Senior Secured Notes in November 2004.
Additionally, 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)285 million Senior Secured Notes issued
in June 2002 (and outstanding during all periods presented) by approximately $1
million in the first nine months of 2005 as compared to the year-ago period.
The Company's income tax expense in the third quarter of 2005 include a net
non-cash provision of $5.0 million, or $.10 per diluted share, related to
developments with respect to ongoing non-U.S. income tax audits, primarily in
Germany, Belgium and Canada. As previously reported, the Company's income tax
benefit in the 2004 periods includes a second quarter non-cash $268.6 million
tax benefit ($5.49 per diluted share) related to the reversal of a deferred
income tax asset valuation allowance attributable to the Company's German
subsidiary (principally net operating loss carry forwards).
On September 22, 2005, the chloride-process TiO2 facility operated by the
Company's 50%-owned joint venture, Louisiana Pigment Company ("LPC"),
temporarily halted production due to Hurricane Rita. Although storm damage to
core processing facilities was not extensive, a variety of factors, including
loss of utilities, limited access, and availability of employees and raw
materials, prevented the resumption of partial operations until October 9, 2005.
Operations are expected to be fully restored in early November. LPC expects the
majority of its damage and unabsorbed fixed costs for periods in which normal
production levels were not achieved is covered by insurance, and the Company
believes insurance will cover its business interruption losses resulting from
its share of the lost production from LPC. The Company's results of operations
in the third quarter of 2005 include approximately $1 million of costs
(primarily the Company's share of LPC's unabsorbed fixed costs) for which no
insurance recovery has yet been recognized as the amounts are not presently
determinable. The effect on the Company's financial results will depend on the
timing and amount of insurance recoveries. The Company's owned warehouse and
slurry facilities located near to LPC were also temporarily closed due to the
storm, but property damage to these facilities was not significant.
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. The factors that
could cause actual future results to differ materially include, but are not
limited to, the following:
o Future supply and demand for the Company's products,
o The cyclicality of the Company's business,
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 timing and amounts of insurance recoveries,
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 matters,
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 forecasted or expected. The
Company disclaims any intention or obligation to update or revise any
forward-looking statement whether as a result of changes in 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 TiO2 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 TiO2 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 Nine months ended
September 30, September 30,
-----------------------------------------------------
-----------------------------------------------------
2004 2005 2004 2005
-----------------------------------------------------
-----------------------------------------------------
Net sales $ 286.1 $ 292.1 $ 845.1 $ 895.7
Cost of sales 219.4 216.2 649.1 640.9
----------- ---------- ----------- ----------
Gross margin 66.7 75.9 196.0 254.8
Selling, general and administrative expense 35.8 36.9 106.0 112.0
Other operating income (expense):
Currency transaction gains, net (1.4) .2 (.8) 3.5
Contract dispute settlement - - 6.3 -
Corporate expense (.6) (1.0) (1.9) (3.9)
---------- ---------- ----------- ----------
Income from operations 28.9 38.2 93.6 142.4
Other income (expense):
Trade interest income .3 .3 .7 .5
Other interest income .3 .1 .6 .7
Securities transaction gain - - - 5.4
Interest expense to affiliates (4.5) - (13.5) -
Other interest expense (8.7) (10.6) (26.5) (34.0)
----------- ---------- ----------- ----------
Income before income taxes 16.3 28.0 54.9 115.0
Income tax expense (benefit) 6.2 20.0 (249.7) 52.8
----------- ---------- ----------- ----------
Net income $ 10.1 $ 8.0 $ 304.6 $ 62.2
=========== ========== ========= =========
Basic and diluted net income per share $ .21 $ .16 $ 6.22 $ 1.27
=========== ========== =========== =========
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 128 119 383 356
Production volumes 123 122 363 371
KRONOS WORLDWIDE, INC.
RECONCILIATION OF SEGMENT PROFIT TO
INCOME FROM OPERATIONS
(In millions)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-----------------------------------------------------
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2004 2005 2004 2005
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Segment profit $ 29.8 $ 39.5 $ 96.2 $ 146.8
Adjustments:
Trade interest income (.3) (.3) (.7) (.5)
Corporate expense (.6) (1.0) (1.9) (3.9)
---------- ---------- ---------- ----------
Income from operations $ 28.9 $ 38.2 $ 93.6 $ 142.4
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RECONCILIATION OF PERCENTAGE CHANGE IN
AVERAGE SELLING PRICES
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2005 vs. 2004 2005 vs. 2004
---------------- ----------------
Percentage change in average selling prices:
Using actual foreign currency exchange rates +8% +12%
Impact of changes in foreign currency exchange rates -1% -3%
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In billing currencies +7% +9%
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