KRONOS WORLDWIDE INC - Quarter Report: 2008 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2008
Commission file number 1-31763
KRONOS WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE	76-0294959
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
5430 LBJ Freeway,  Suite 1700
Dallas, Texas   75240-2697
(Address of principal executive offices)
Registrant's telephone number, including area code:          (972) 233-1700

 

		Page
		number
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets -
	December 31, 2007; March 31, 2008 (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited) -
	Three months ended March 31, 2007 and 2008	5
	Condensed Consolidated Statement of Stockholders'
	Equity and Comprehensive Income (Unaudited) –
	Three months ended March 31, 2008	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) -
	Three months ended March 31, 2007 and 2008	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial
	Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	21
Item 4.	Controls and Procedures	21
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 6.	Exhibits	23
Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

ASSETS		December 31,				March 31,
		2007				2008
						(Unaudited)
Current assets:
Cash and cash equivalents		$	72.2			$	26.2
Restricted cash			1.8				1.2
Accounts and other receivables			227.3				273.0
Inventories			312.8				332.1
Prepaid expenses			6.0				6.5
Deferred income taxes			1.6				1.6
Total current assets			621.7				640.6
Other assets:
Investment in TiO2 manufacturing joint venture			118.5				117.1
Deferred income taxes			168.8				180.7
Other			19.5				20.1
Total other assets			306.8				317.9
Property and equipment:
Land			39.7				42.5
Buildings			232.6				245.0
Equipment			1,009.8				1,080.8
Mining properties			89.7				95.6
Construction in progress			45.6				40.3
			1,417.4				1,504.2
Less accumulated depreciation and amortization			890.9				949.6
Net property and equipment			526.5				554.6
Total assets		$	1,455.0			$	1,513.1

 

LIABILITIES AND STOCKHOLDERS' EQUITY		December 31,  2007				March 31,  2008
						(Unaudited)
Current liabilities:
Current maturities of long-term debt		$	16.2			$	26.7
Accounts payable and accrued liabilities			195.4				197.7
Income taxes			9.6				6.2
Deferred income taxes			3.3				3.5
Total current liabilities			224.5				234.1
Noncurrent liabilities:
Long-term debt			590.0				633.3
Deferred income taxes			48.2				49.2
Accrued pension cost			138.3				143.9
Accrued postretirement benefit cost			11.6				11.4
Other			31.4				33.1
Total noncurrent liabilities			819.5				870.9
Stockholders' equity:
Common stock			.5				.5
Additional paid-in capital			1,061.7				1,061.7
Retained deficit			(527.9	)			(540.5	)
Accumulated other comprehensive loss			(123.3	)			(113.6	)
Total stockholders' equity			411.0				408.1
Total liabilities and stockholders’ equity		$	1,455.0			$	1,513.1

 

 

 

 

		Three months ended  March 31,
		2007				2008
		(Unaudited)
Net sales		$	314.0			$	332.5
Cost of sales			243.6				275.4
Gross margin			70.4				57.1
Selling, general and administrative expense			39.4				43.3
Other operating expense, net			1.7				4.1
Income from operations			29.3				9.7
Other income (expense):
Interest income			.6				.4
Interest expense			(9.5	)			(10.6	)
Income (loss) before income taxes			20.4				(.5	)
Provision for income taxes (benefit)			7.5				(.1	)
Net income (loss)		$	12.9			$	(.4	)
Net income (loss) per basic and diluted share		$	.26			$	(.01	)
Cash dividend per share		$	.25			$	.25
Basic and diluted weighted-average shares used in the calculation of net income (loss) per share			49.0				49.0

						Additional								Accumulated other				Total
		Common  stock				paid-in  capital				Retained  deficit				comprehensive  loss				stockholders'  equity				Comprehensive  income
		(Unaudited)
Balance at December 31, 2007		$	.5			$	1,061.7			$	(527.9	)		$	(123.3	)		$	411.0
Net loss			-				-				(.4	)			-				(.4	)		$	(.4	)
Other comprehensive income, net			-				-				-				9.7				9.7				9.7
Dividends			-				-				(12.2	)			-				(12.2	)			-
Balance at March 31, 2008		$	.5			$	1,061.7			$	(540.5	)		$	(113.6	)		$	408.1
Comprehensive income																						$	9.3

		Three months ended  March 31,
		2007				2008
		(Unaudited)
Cash flows from operating activities:
Net income (loss)		$	12.9			$	(.4	)
Depreciation and amortization			11.8				13.0
Deferred income taxes			(.2	)			.1
Benefit plan expense greater (less) than cash funding:
Defined benefit pension plans			(2.0	)			(2.1	)
Other postretirement benefits			-				.1
Distributions from TiO2 manufacturing  joint venture			1.0				1.4
Other, net			2.0				.8
Change in assets and liabilities:
Accounts and other receivables			(37.2	)			(37.7	)
Inventories			(16.0	)			(3.8	)
Prepaid expenses			(1.2	)			(.2	)
Accounts payable and accrued liabilities			7.1				.8
Income taxes			4.6				(4.0	)
Accounts with affiliates			(.2	)			2.4
Other, net			1.1				.5
Net cash used in operating activities			(16.3	)			(29.1	)
Cash flows from investing activities:
Capital expenditures			(5.5	)			(16.8	)
Change in restricted cash equivalents			.6				.7
Net cash used in investing activities			(4.9	)			(16.1	)
Cash flows from financing activities:
Indebtedness:
Borrowings			92.2				103.8
Principal payments			(67.8	)			(93.5	)
Dividends paid			(12.2	)			(12.2	)
Net cash provided by (used in) financing activities			12.2				(1.9	)
Cash and cash equivalents - net change from:
Operating, investing and financing activities			(9.0	)			(47.1	)
Currency translation			.3				1.1
Cash and cash equivalents at beginning of period			63.3				72.2
Cash and cash equivalents at end of period		$	54.6			$	26.2
Supplemental disclosures:
Cash paid for:
Interest		$	.6			$	1.0
Income taxes			4.8				1.0
Accrual for capital expenditures			-				3.7

 

		December 31,  2007				March 31,  2008
		(In millions)
Trade receivables		$	189.9			$	231.5
Recoverable VAT and other receivables			28.7				35.8
Refundable income taxes			7.5				7.5
Receivable from affiliates:
Income taxes, net - Valhi			2.7				-
Other			.2				-
Allowance for doubtful accounts			(1.7	)			(1.8	)
Total		$	227.3			$	273.0

		December 31,  2007				March 31,  2008
		(In millions)
Raw materials		$	66.2			$	56.2
Work in process			19.9				20.4
Finished products			170.9				195.1
Supplies			55.8				60.4
Total		$	312.8			$	332.1

		December 31,  2007				March 31,  2008
		(In millions)
Deferred financing costs, net		$	8.3			$	8.3
Pension asset			7.2				7.5
Restricted marketable debt securities			3.2				3.5
Other			.8				.8
Total		$	19.5			$	20.1

		December 31,  2007				March 31,  2008
		(In millions)
Accounts payable		$	105.7			$	91.8
Employee benefits			26.5				25.1
Accrued sales discounts and rebates			15.2				15.8
Accrued interest			8.2				19.0
Payable to affiliates – Louisiana Pigment Company, L.P.			11.3				10.2
Other			28.5				35.8
Total		$	195.4			$	197.7

		December 31,  2007				March 31,  2008
		(In millions)
Kronos International, Inc. - 6.5% Senior Secured Notes		$	585.5			$	628.8
Revolving credit facilities - Kronos U.S. subsidiaries			15.4				25.8
Other			5.3				5.4
Total debt			606.2				660.0
Less current maturities			16.2				26.7
Total long-term debt		$	590.0			$	633.3

		Three months ended  March 31,
		2007				2008
		(In millions)
Expected tax expense (benefit), at U.S. Federal statutory income tax rate of 35%		$	7.1			$	(.2	)
Incremental U.S. tax and rate differences on equity in earnings of non-tax group companies			(.2	)			-
Non-U.S. tax rates			(.1	)			-
Nondeductible expenses			.7				-
Change in reserve for uncertain tax positions			-				.1
Total		$	7.5			$	(.1	)

 

		Three months ended
		March 31,
		2007				2008
		(In millions)
Service cost		$	1.9			$	1.7
Interest cost			5.2				6.1
Expected return on plan assets			(4.2	)			(5.1	)
Amortization of prior service cost			.2				.2
Amortization of net transition obligations			.1				.1
Recognized actuarial losses			2.0				1.2
Total		$	5.2			$	4.2

		Three months ended  March 31,
		2007				2008
		(In millions)
Service cost		$	.1			$	.1
Interest cost			.2				.2
Amortization of prior service credit			(.1	)			(.1	)
Total		$	.2			$	.2

		December 31,  2007				March 31,  2008
		(In millions)
Reserve for uncertain tax positions		$	14.9			$	15.0
Employee benefits			8.2				8.8
Insurance claims and expenses			2.3				2.9
Other			6.0				6.4
Total		$	31.4			$	33.1

 

·	Future supply and demand for our products,

·	The extent of our dependence on certain market sectors,

·	The cyclicality of our businesses,

·	Customer inventory levels (such as the extent to which our 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),

·	Changes in raw material and other operating costs (such as energy costs),

·	The possibility of labor disruptions,

·	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),

·	Competitive products and substitute products,

·	Customer and competitor strategies,

·	Potential consolidation of our competitors

·	The impact of pricing and production decisions,

·	Competitive technology positions,

·	The introduction of trade barriers,

·	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),

·	Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime and transportation interruptions),

·	The timing and amounts of insurance recoveries,

·	Our ability to renew or refinance credit facilities,

·	The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters,

·	The ultimate ability to utilize income tax attributes or changes in income tax rates related to such attributes, the benefit of which has been recognized under the more likely than not recognition criteria,

·	Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities),

·	Government laws and regulations and possible changes therein,

·	The ultimate resolution of pending litigation, and

·	Possible future litigation.

·	Our TiO2 selling prices,

·	Foreign currency exchange rates (particularly the exchange rate for the U.S. dollar relative to the euro and the Canadian dollar),

·	Our TiO2 sales and production volumes, and

·	Manufacturing costs, particularly raw materials, maintenance and energy-related expenses.

		Three months ended  March 31,
		2007								2008
		(Dollars in millions)
Net sales		$	314.0				100	%		$	332.5				100	%
Cost of sales			243.6				78				275.4				83
Gross margin			70.4				22				57.1				17
Other operating income and expenses, net			41.1				13				47.4				14
Income from operations		$	29.3				9	%		$	9.7				3	%
														%
														Change
TiO2 operating statistics:
Sales volumes*			125								127				2	%
Production volumes*			133								132				(1	)
Percent change in net sales:
TiO2 product pricing															(4	)%
TiO2 sales volumes															2
TiO2 product mix															1
Changes in currency exchange rates															7
Total															6	%

		Three months ended March 31, 2008 vs. 2007
		Increase (decrease) in millions
Impact on:
Net sales		$	20
Income from operations			(7)

 

·	Lower income from operations in 2008 of $19.6 million;

·	Lower net cash used from relative changes in our inventories, receivables, payables and accruals of $3.1 million in 2008 due primarily to relative changes in our inventory levels, as discussed below and

·	Lower cash paid for income taxes in 2008 of $3.8 million.

·	euro 400 million principal amount of our 6.5% Senior Secured Notes ($628.8 million at March 31, 2008) due in 2013;

·	$25.8 million under our U.S. revolving credit facility which matures in September 2008; and

·	Approximately $5.4 million of other indebtedness.

·	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets,

·	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and

·	Provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or disposition of our assets that could have a material effect on our Condensed Consolidated Financial Statements.

31.1 -  Certification

31.2 -  Certification

32.1 -  Certification

 

                                                         Kronos Worldwide, Inc.           
                                                         (Registrant)