UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of The Securities Exchange Act of
1934
Date
of
Report (Date of the earliest event reported)
March
12, 2007
Kronos
Worldwide, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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1-31763
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76-0294959
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(State
or other jurisdiction of incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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5430
LBJ Freeway, Suite 1700, Dallas, Texas
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75240-2697
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code
(972)
233-1700
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(Former
name or former address, if changed since last report.)
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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):
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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Item
2.02
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Results
of Operations and Financial
Condition.
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Item
7.01
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Regulation
FD Disclosure.
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The
registrant hereby furnishes the information set forth in its press release
issued on March 12, 2007, 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 U.S. Securities and
Exchange Commission shall not incorporate this information by reference, except
as otherwise expressly stated in such filing.
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Item
9.01
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Financial
Statements and Exhibits.
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(d)
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Exhibits
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Item
No.
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Exhibit
Index
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99.1
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Press
release dated March 12, 2007 issued by the
registrant.
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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.
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KRONOS
WORLDWIDE, INC.
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(Registrant)
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By: /s/
A. Andrew R. Louis
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Date:
March 14, 2007
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A.
Andrew R. Louis, Secretary
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INDEX
TO EXHIBITS
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Item
No.
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Exhibit
Index
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99.1
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Press
release dated March 12, 2007 issued by the
registrant.
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Kronos
Worldwide, Inc.
Three
Lincoln Centre
5430
LBJ Freeway, Suite 1700
Dallas,
TX 75240-2697
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Contact:
Gregory M. Swalwell
Vice President, Finance
(972) 233-1700
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News
Release
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FOR
IMMEDIATE RELEASE
KRONOS
WORLDWIDE REPORTS FOURTH QUARTER RESULTS
DALLAS,
TEXAS…March
12, 2007…Kronos Worldwide, Inc. (NYSE:KRO) today reported net income for the
fourth quarter of 2006 of $41.2 million, or $.84 per diluted share, compared
with net income of $8.5 million, or $.17 per diluted share, in the fourth
quarter of 2005. For the full year of 2006, Kronos reported net income of $82.0
million, or $1.67 per diluted share, compared with net income of $71.5 million,
or $1.46 per diluted share, for the full year of 2005.
Net
sales
of $298.4 million in the fourth quarter of 2006 were $2.6 million, or 1%, lower
than the fourth quarter of 2005. Net sales of $1.3 billion for the full year
of
2006 were $82.7 million, or 7%, higher than the full year of 2005. Net sales
decreased in the fourth quarter of 2006 primarily due to lower TiO2
sales
volumes, partially offset by the favorable effect of fluctuations in foreign
currency exchange rates, which increased sales by approximately $12 million.
For
the full year, net sales increased due to higher TiO2
sales
volumes and the favorable effect of fluctuations in foreign currency exchange
rates, which increased sales by approximately $2 million. The Company’s average
TiO2
selling
prices for both the fourth quarter and full year of 2006 were comparable to
those for the respective periods of 2005. The table at the end of this release
shows how each of these items impacted the overall increase in
sales.
The
Company’s TiO2
segment
profit (see description of non-GAAP information below) for the fourth quarter
of
2006 was $39.6 million compared with $34.4 million in the fourth quarter of
2005, and was $151.3 million for the full year of 2006 compared with $182.2
million for the full year of 2005. Segment profit increased in the fourth
quarter of 2006 as the favorable effect of higher production volumes was
partially offset by lower TiO2
sales
volumes, higher manufacturing costs, particularly raw materials and energy
costs, and the unfavorable effects of fluctuations in foreign currency exchange
rates, which decreased segment profit by approximately $2 million. In addition,
segment profit in the fourth quarter of 2006 includes income of $1.8 million
for
proceeds of the Company’s business interruption insurance claim related to
Hurricane Rita. Full year segment profit decreased as the favorable effects
of
higher sales and production volumes were more than offset by the unfavorable
effect of higher raw materials and energy costs and the effect of fluctuations
in foreign currency exchange rates, which decreased segment profit by
approximately $20 million.
The
Company’s fourth quarter 2006 TiO2
sales
volumes decreased 5% from the fourth quarter of 2005, as higher volumes in
Europe were more than offset by the effect of lower volumes in all other
markets. TiO2
sales
volumes for the full year 2006 were a new record for Kronos and increased 7%
compared to the full year 2005, with higher sales volumes in the US, Europe
and
export markets offsetting the effects of lower sales volumes in Canada. The
Company’s TiO2
production volumes were 10% and 5% higher in the fourth quarter and full year
of
2006, respectively, as compared to the same periods in 2005, with operating
rates at near full capacity in all periods. The Company’s TiO2
production volumes in 2006 were a new record for Kronos for the fifth
consecutive year. The Company’s finished goods inventories at December 31, 2006
represented approximately 2 months of average sales.
The
Company’s results for the full year of 2005 include a second quarter securities
transaction gain of $5.4 million ($3.5
million, or $.07 per diluted share, net of income taxes)
related
to a gain on the sale of the Company’s passive interest in a Norwegian smelting
operation.
As
previously reported, in April 2006 the Company’s wholly-owned subsidiary, Kronos
International, Inc. (“KII”) issued an aggregate of euro 400 million principal
amount of new 6.5% Senior Secured Notes due April 2013. KII used the proceeds
from the issuance of the 6.5% Senior Secured Notes to redeem all of its 8.875%
Senior Secured Notes in May 2006 at 104.437% of the aggregate principal amount
of euro 375 million. The Company recognized a $22.3 million pre-tax charge
($14.8 million, or $.30 per diluted share, net of income tax benefit) in the
second quarter of 2006 related to the early extinguishment of the 8.875% Senior
Secured Notes. Other interest income increased for the full year of 2006 due
primarily to the interest earned in the second quarter from the net proceeds
of
the new 6.5% Senior Secured Notes which were held in escrow for approximately
one month until the 8.875% Senior Secured Notes were redeemed.
The
Company’s effective income tax rate varies significantly from the U.S. statutory
federal income tax rate in 2006 due primarily to an aggregate net income tax
benefit of $34.9 million, or $.71 per diluted share ($25.7 million, or $.52
per
diluted share, in the fourth quarter), related to the net effect of the
withdrawal of certain income tax assessments previously made by the Belgian
and
Norwegian tax authorities, the favorable resolution of certain income tax audit
issues related to the Company’s German and Belgian operations, the unfavorable
resolution of certain other income tax issues related to the German operations,
an increase in the Company’s income tax contingency reserve principally related
to ongoing income tax audits in Germany and the enactment of a reduction in
the
Canadian federal income tax rate. The Company’s provision for income taxes in
2005 includes an aggregate non-cash income tax expense of $6.0 million, or
$.13
per diluted share, related to the effect of developments in certain of the
Company’s non-U.S. income tax audits.
Effective
December 31, 2006 the Company adopted a new accounting standard related to
planned major maintenance expense. Under the new standard, the Company no longer
accrues the cost of planned major maintenance expense in advance but instead
recognizes the cost of planned major maintenance when incurred. The new standard
is adopted retroactively, and accordingly the Company’s net income in 2005 is
approximately $.4 million, or $.01 per diluted share, higher than previously
reported.
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:
| · |
Future
supply and demand for the Company’s
products,
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| · |
The
extent of the dependence of certain of the Company’s businesses on certain
market sectors,
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| · |
The
cyclicality of the Company's
businesses,
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| · |
Customer
inventory levels (such as the extent to which the Company’s customers may,
from time to time, accelerate purchases of TiO2 in advance of anticipated
price increases or defer purchases of TiO2 in advance of anticipated
price
decreases),
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| · |
Changes
in raw material and other operating costs (such as energy
costs),
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| · |
The
possibility of labor disruptions,
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| · |
General
global economic and political conditions (such as changes in the
level of
gross domestic product in various regions of the world and the impact
of
such changes on demand for TiO2),
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| · |
Competitive
products and substitute products,
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| · |
Customer
and competitor strategies,
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| · |
Potential
consolidation of our competitors
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| · |
The
impact of pricing and production
decisions,
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| · |
Competitive
technology positions,
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| · |
The
introduction of trade barriers,
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| · |
Fluctuations
in currency exchange rates (such as changes in the exchange rate
between
the U.S. dollar and each of the euro, the Norwegian kroner and the
Canadian dollar),
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| · |
Operating
interruptions (including, but not limited to, labor disputes, leaks,
natural disasters, fires, explosions, unscheduled or unplanned downtime
and transportation interruptions),
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| · |
The
timing and amounts of insurance
recoveries,
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| · |
The
ability of the Company to renew or refinance credit
facilities,
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| · |
The
ultimate outcome of income tax audits, tax settlement initiatives
or other
tax matters,
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| · |
The
ultimate ability to utilize income tax attributes, the benefit of
which
has been recognized under the “more-likely-than-not” recognition
criteria,
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| · |
Environmental
matters (such as those requiring emission and discharge standards
for
existing and new facilities),
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| · |
Government
laws and regulations and possible changes therein,
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| · |
The
ultimate resolution of pending litigation, and
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| · |
Possible
future litigation.
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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 of operations 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:
| · |
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.
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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)
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Three
months ended
December
31,
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Year
ended
December
31,
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||||||
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2005
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2006
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2005
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2006
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(Unaudited)
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Net
sales
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$
301.0
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$
298.4
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$1,196.7
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$
1,279.4
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Cost
of sales
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229.3
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221.0
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869.2
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968.9
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Gross
margin
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71.7
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77.4
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327.5
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310.5
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Selling,
general and administrative expense
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38.8
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39.6
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150.7
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158.1
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Other
operating income (expense):
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|||||||
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Currency
transaction gains (losses), net
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1.8
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(.7)
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5.2
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(3.6)
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Disposition
of property & equipment
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(1.0)
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(.2)
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(1.5)
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(1.9)
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Other
income
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-
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1.8
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.5
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2.1
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Corporate
expense
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(1.1)
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(1.8)
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(5.0)
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(5.8)
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Income
from operations
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32.6
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36.9
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176.0
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143.2
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Other
income (expense):
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|||||||
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Trade
interest income
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.7
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.9
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1.2
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2.3
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Other
interest income
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.1
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.1
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.9
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1.3
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Securities
transaction gain
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-
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-
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5.4
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-
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Loss
on prepayment of debt
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-
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-
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-
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(22.3)
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Interest
expense
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(10.7)
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(9.8)
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(44.6)
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(43.2)
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Income
before income taxes
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22.7
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28.1
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138.9
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81.3
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Provision
(benefit) for income taxes
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14.2
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(13.1)
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67.4
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(.7)
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Net
income
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$
8.5
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$
41.2
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$
71.5
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$
82.0
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Basic
and diluted net income per share
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$
.17
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$
.84
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$
1.46
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$
1.67
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Basic
and diluted weighted-average shares used in the calculation of net
income
per share
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48.9
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49.0
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48.9
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49.0
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TiO2
data - metric tons in thousands:
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|||||||
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Sales
volumes
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122
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116
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478
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511
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Production
volumes
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121
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133
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492
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516
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KRONOS
WORLDWIDE, INC.
RECONCILIATION
OF SEGMENT PROFIT TO
INCOME
FROM OPERATIONS
(In
millions)
(Unaudited)
|
Three
months ended
December
31,
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Year
ended
December
31,
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||||||
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2005
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2006
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2005
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2006
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Segment
profit
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$
34.4
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$
39.6
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$
182.2
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$
151.3
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Adjustments:
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|||||||
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Trade
interest income
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(.7)
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(.9)
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(1.2)
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(2.3)
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Corporate
expense
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(1.1)
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(1.8)
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(5.0)
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(5.8)
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Income
from operations
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$
32.6
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$
36.9
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$
176.0
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$
143.2
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IMPACT
OF
PERCENTAGE CHANGE IN SALES
(Unaudited)
|
Three
months ended
December
31,
2006
vs. 2005
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Year
ended
December
31,
2006
vs. 2005
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||
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Percent
change in sales:
|
|||
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TiO2
product pricing
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-%
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-%
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TiO2
sales volume
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-5%
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+7%
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TiO2
product mix
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-%
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-%
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Changes
in foreign currency exchange rates
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+4%
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-%
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|||
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Total
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-
1%
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+7%
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