10-Q 1 kro-20230930x10q.htm 10-Q
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19

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to      

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 75240-2620

(Address of principal executive offices)

Registrant’s telephone number, including area code: (972233-1700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common stock

KRO

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

  Smaller reporting company

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes      No  

Number of shares of the registrant’s common stock, $.01 par value per share, outstanding on October 27, 2023:  115,027,016.

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

INDEX

 

    

 

    

Page
number

Part I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

Condensed Consolidated Balance Sheets -
   December 31, 2022; September 30, 2023 (unaudited)

3

Condensed Consolidated Statements of Operations (unaudited) -
   Three and nine months ended September 30, 2022 and 2023

5

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) -
   Three and nine months ended September 30, 2022 and 2023

6

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) -
   Three and nine months ended September 30, 2022 and 2023

7

Condensed Consolidated Statements of Cash Flows (unaudited) -
   Nine months ended September 30, 2022 and 2023

8

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

25

Item 4.

Controls and Procedures

26

Part II.

OTHER INFORMATION

Item 1A.

Risk Factors

26

Item 6.

Exhibits

27

Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

 

2

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

ASSETS

December 31, 

September 30, 

    

2022

    

2023

(unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

327.8

$

155.3

Restricted cash

 

2.0

 

1.6

Accounts and other receivables, net

 

255.1

 

299.8

Inventories, net

 

608.7

 

497.8

Prepaid expenses and other

 

48.6

 

45.2

Total current assets

 

1,242.2

 

999.7

Other assets:

 

  

 

  

Investment in TiO2 manufacturing joint venture

 

112.9

 

115.7

Restricted cash

 

4.8

 

4.9

Marketable securities

 

3.2

 

1.9

Operating lease right-of-use assets

 

21.5

 

21.0

Deferred income taxes

 

52.0

 

82.4

Other

 

13.3

 

13.6

Total other assets

 

207.7

 

239.5

Property and equipment:

 

  

 

  

Land

 

41.9

 

42.4

Buildings

 

214.7

 

224.6

Equipment

 

1,093.2

 

1,114.1

Mining properties

 

119.6

 

123.4

Construction in progress

 

76.5

 

49.4

 

1,545.9

 

1,553.9

Less accumulated depreciation and amortization

 

1,061.4

 

1,077.2

Net property and equipment

 

484.5

 

476.7

Total assets

$

1,934.4

$

1,715.9

3

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)

LIABILITIES AND STOCKHOLDERS’ EQUITY

December 31, 

September 30, 

    

2022

    

2023

(unaudited)

Current liabilities:

 

  

 

  

Current maturities of long-term debt

$

1.1

$

.7

Accounts payable and accrued liabilities

 

312.3

 

246.4

Income taxes

 

13.3

 

9.1

Total current liabilities

 

326.7

 

256.2

Noncurrent liabilities:

 

  

 

  

Long-term debt

 

424.1

 

422.5

Accrued pension costs

 

128.6

 

122.3

Payable to affiliate - income taxes

 

33.5

 

18.6

Operating lease liabilities

 

17.4

 

16.9

Deferred income taxes

 

26.4

 

25.5

Other

 

20.5

 

20.7

Total noncurrent liabilities

 

650.5

 

626.5

Stockholders’ equity:

 

  

 

  

Common stock

 

1.2

 

1.2

Additional paid-in capital

 

1,394.3

 

1,390.2

Retained deficit

 

(105.4)

 

(214.8)

Accumulated other comprehensive loss

 

(331.5)

 

(343.4)

Treasury stock, at cost

(1.4)

-

Total stockholders’ equity

 

957.2

 

833.2

Total liabilities and stockholders’ equity

$

1,934.4

$

1,715.9

Commitments and contingencies (Notes 10 and 12)

See accompanying notes to Condensed Consolidated Financial Statements.

4

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

Three months ended

Nine months ended

September 30, 

September 30, 

2022

    

2023

    

2022

    

2023

(unaudited)

Net sales

$

459.6

$

396.9

$

1,587.8

$

1,266.4

Cost of sales

 

375.6

 

362.5

 

1,234.0

 

1,157.1

Gross margin

 

84.0

 

34.4

 

353.8

 

109.3

Selling, general and administrative expense

 

59.0

 

53.6

 

183.6

 

156.9

Other operating income (expense):

 

 

 

 

Currency transactions, net

 

6.7

 

(3.9)

 

17.1

 

4.6

Other operating expense, net

(.9)

(2.2)

(8.0)

(7.3)

Income (loss) from operations

 

30.8

 

(25.3)

 

179.3

 

(50.3)

Other income (expense):

 

  

 

  

 

  

 

  

Interest and dividend income

 

1.4

 

1.5

 

2.1

 

5.0

Marketable equity securities

 

(2.9)

 

-

 

(.5)

 

(1.3)

Other components of net periodic pension and OPEB cost

 

(2.9)

 

(1.0)

 

(9.2)

 

(4.1)

Interest expense

 

(4.2)

 

(4.3)

 

(13.0)

 

(12.8)

Income (loss) before income taxes

 

22.2

 

(29.1)

 

158.7

 

(63.5)

Income tax expense (benefit)

 

1.2

 

(8.7)

 

34.3

 

(19.7)

Net income (loss)

$

21.0

$

(20.4)

$

124.4

$

(43.8)

Net income (loss) per basic and diluted share

$

.18

$

(.18)

$

1.08

$

(.38)

Weighted average shares used in the calculation of
     net income (loss) per share

 

115.5

 

115.0

 

115.5

 

115.1

See accompanying notes to Condensed Consolidated Financial Statements.

5

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

Three months ended

Nine months ended

September 30, 

September 30, 

    

2022

    

2023

    

2022

    

2023

(unaudited)

Net income (loss)

$

21.0

$

(20.4)

$

124.4

$

(43.8)

Other comprehensive income (loss), net of tax:

 

 

 

 

Currency translation

 

(25.9)

 

(1.4)

 

(55.6)

 

(14.1)

Defined benefit pension plans

 

2.2

 

.4

 

6.9

 

2.4

Other postretirement benefit plans

 

(.1)

 

(.1)

 

(.2)

 

(.2)

Total other comprehensive loss, net

 

(23.8)

 

(1.1)

 

(48.9)

 

(11.9)

Comprehensive income (loss)

$

(2.8)

$

(21.5)

$

75.5

$

(55.7)

See accompanying notes to Condensed Consolidated Financial Statements.

6

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

Three months ended September 30, 2022 and 2023 (unaudited)

Accumulated

Additional

other

Common

paid-in

Retained

comprehensive

Treasury

    

stock

    

capital

    

deficit

    

loss

    

stock

    

Total

Balance at June 30, 2022

$

1.2

$

1,394.2

$

(62.6)

$

(429.2)

$

-

$

903.6

Net income

 

-

 

-

 

21.0

 

-

 

-

 

21.0

Other comprehensive loss, net of tax

 

-

 

-

 

-

 

(23.8)

 

-

 

(23.8)

Dividends paid - $.19 per share

 

-

 

-

 

(21.9)

 

-

 

-

 

(21.9)

Balance at September 30, 2022

$

1.2

$

1,394.2

$

(63.5)

$

(453.0)

$

-

$

878.9

Balance at June 30, 2023

$

1.2

$

1,390.2

$

(172.6)

$

(342.3)

$

-

$

876.5

Net loss

 

-

 

-

 

(20.4)

 

-

 

-

 

(20.4)

Other comprehensive loss, net of tax

 

-

 

-

 

-

 

(1.1)

 

-

 

(1.1)

Dividends paid - $.19 per share

 

-

 

-

 

(21.8)

 

-

 

-

 

(21.8)

Balance at September 30, 2023

$

1.2

$

1,390.2

$

(214.8)

$

(343.4)

$

-

$

833.2

Nine months ended September 30, 2022 and 2023 (unaudited)

Accumulated

Additional

other

Common

paid-in

Retained

comprehensive

Treasury

    

stock

    

capital

    

deficit

    

loss

    

stock

    

Total

Balance at December 31, 2021

$

1.2

$

1,395.4

$

(122.1)

$

(404.1)

$

(.2)

$

870.2

Net income

 

-

 

-

 

124.4

 

-

 

-

 

124.4

Other comprehensive loss, net of tax

 

-

 

-

 

-

 

(48.9)

 

-

 

(48.9)

Issuance of common stock

 

-

 

.1

 

-

 

-

 

-

 

.1

Dividends paid - $.57 per share

 

-

 

-

 

(65.8)

 

-

 

-

 

(65.8)

Treasury stock acquired

 

-

 

-

 

-

 

-

 

(1.1)

 

(1.1)

Treasury stock retired

 

-

 

(1.3)

 

-

 

-

 

1.3

 

-

Balance at September 30, 2022

$

1.2

$

1,394.2

$

(63.5)

$

(453.0)

$

-

$

878.9

Balance at December 31, 2022

$

1.2

$

1,394.3

$

(105.4)

$

(331.5)

$

(1.4)

$

957.2

Net loss

 

-

 

-

 

(43.8)

 

-

 

-

 

(43.8)

Other comprehensive loss, net of tax

 

-

 

-

 

-

 

(11.9)

 

-

 

(11.9)

Issuance of common stock

 

-

 

.1

 

-

 

-

 

-

 

.1

Dividends paid - $.57 per share

 

-

 

-

 

(65.6)

 

-

 

-

 

(65.6)

Treasury stock acquired

-

-

-

-

(2.8)

(2.8)

Treasury stock retired

-

(4.2)

-

-

4.2

-

Balance at September 30, 2023

$

1.2

$

1,390.2

$

(214.8)

$

(343.4)

$

-

$

833.2

See accompanying notes to Condensed Consolidated Financial Statements.

7

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Nine months ended

September 30, 

    

2022

    

2023

(unaudited)

Cash flows from operating activities:

 

  

 

  

Net income (loss)

$

124.4

$

(43.8)

Depreciation

 

39.0

 

36.6

Amortization of operating lease right-of-use assets

 

3.4

 

3.4

Deferred income taxes

 

1.6

 

(31.7)

Benefit plan expense greater (less) than cash funding

 

4.8

 

(4.3)

Marketable equity securities

 

.5

 

1.3

Contributions to TiO2 manufacturing joint venture, net

 

(8.5)

 

(2.8)

Other, net

 

3.2

 

1.6

Change in assets and liabilities:

 

 

Accounts and other receivables, net

 

(17.9)

 

(57.2)

Inventories, net

 

(134.1)

 

106.5

Prepaid expenses

 

(14.8)

 

3.0

Accounts payable and accrued liabilities

 

52.2

 

(71.2)

Income taxes

 

(2.5)

 

3.8

Accounts with affiliates

 

6.5

 

(5.2)

Other, net

1.3

1.1

Net cash provided by (used in) operating activities

 

59.1

 

(58.9)

Cash flows from investing activities:

Capital expenditures

 

(44.4)

 

(42.1)

Other

 

.1

 

-

Net cash used in investing activities

 

(44.3)

 

(42.1)

Cash flows from financing activities:

 

  

 

  

Payments on long-term debt

 

(.5)

 

(.5)

Dividends paid

 

(65.8)

 

(65.6)

Treasury stock acquired

 

(1.1)

 

(2.9)

Net cash used in financing activities

 

(67.4)

 

(69.0)

Cash, cash equivalents and restricted cash - net change from:

 

  

 

  

Operating, investing and financing activities

(52.6)

(170.0)

Effect of currency exchange rate changes on cash

 

(15.6)

 

(2.8)

Balance at beginning of period

 

412.6

 

334.6

Balance at end of period

$

344.4

$

161.8

Supplemental disclosures:

 

 

Cash paid for:

 

 

Interest, net of amount capitalized

$

15.8

$

15.8

Income taxes

 

32.2

 

15.2

Accrual for capital expenditures

 

2.0

 

.8

See accompanying notes to Condensed Consolidated Financial Statements.

8

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(unaudited)

Note 1 - Organization and basis of presentation:

Organization - At September 30, 2023, Valhi, Inc. (NYSE: VHI) held approximately 50% of our outstanding common stock and a wholly-owned subsidiary of NL Industries, Inc. (NYSE: NL) held approximately 31% of our common stock. Valhi owned approximately 83% of NL’s outstanding common stock and a wholly-owned subsidiary of Contran Corporation held approximately 91% of Valhi’s outstanding common stock. A majority of Contran’s outstanding voting stock is held directly by Lisa K. Simmons and various family trusts established for the benefit of Ms. Simmons, Thomas C. Connelly (the husband of Ms. Simmons’ late sister) and their children and for which Ms. Simmons or Mr. Connelly, as applicable, serve as trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly serves as trustee, he is required to vote the shares of Contran voting stock held in such trusts in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. Simmons. The remainder of Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and her late sister and their children and for which a third-party financial institution serves as trustee. Consequently, at September 30, 2023, Ms. Simmons and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi, NL and us.

Basis of presentation - The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 that we filed with the Securities and Exchange Commission (SEC) on March 8, 2023 (2022 Annual Report). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments), in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. We have condensed the Consolidated Balance Sheet at December 31, 2022 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date, and we have omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, 2022) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Our results of operations for the interim periods ended September 30, 2023 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our 2022 Consolidated Financial Statements contained in our 2022 Annual Report.

Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Kronos Worldwide, Inc. and its subsidiaries (NYSE: KRO) taken as a whole.

Note 2 - Accounts and other receivables, net:

December 31, 

September 30, 

    

2022

    

2023

(In millions)

Trade receivables

$

220.3

$

282.2

Recoverable VAT and other receivables

 

28.5

 

21.1

Receivables from affiliates, other

2.7

.5

Refundable income taxes

 

7.1

 

.1

Allowance for doubtful accounts

 

(3.5)

 

(4.1)

Total

$

255.1

$

299.8

9

Note 3 - Inventories, net:

December 31, 

September 30, 

    

2022

    

2023

(In millions)

Raw materials

$

145.3

$

132.6

Work in process

 

32.0

 

32.6

Finished products

 

349.9

 

246.2

Supplies

 

81.5

 

86.4

Total

$

608.7

$

497.8

Note 4 - Marketable securities:

Our marketable securities consist of investments in the publicly-traded shares of our related party, Valhi. Our marketable securities are accounted for as available-for-sale securities, which are carried at fair value using quoted market prices in active markets for each marketable security and represent a Level 1 input within the fair value hierarchy. Unrealized gains or losses on equity securities are recognized in Other income (expense) - Marketable equity securities on our Condensed Consolidated Statements of Operations.

    

Fair value

    

    

    

measurement

Market

Cost

Unrealized

Marketable security

    

level

    

value

    

basis

    

loss

 

(In millions)

December 31, 2022:

 

  

 

  

 

  

 

  

Valhi common stock

 

1

$

3.2

$

3.2

$

-

September 30, 2023:

 

  

 

  

 

  

Valhi common stock

 

1

$

1.9

$

3.2

$

(1.3)

At December 31, 2022 and September 30, 2023, we held approximately 144,000 shares of Valhi’s common stock. At December 31, 2022 and September 30, 2023, the per share quoted market price of Valhi’s common stock was $22.00 and $13.26, respectively.

The Valhi common stock we own is subject to the restrictions on resale pursuant to certain provisions of the Securities and Exchange Commission (SEC) Rule 144. In addition, as a majority-owned subsidiary of Valhi we cannot vote our shares of Valhi common stock under Delaware General Corporation Law, but we do receive dividends from Valhi on these shares when declared and paid.

Note 5 - Long-term debt:

December 31, 

September 30, 

    

2022

    

2023

(In millions)

Kronos International, Inc. 3.75% Senior Notes

$

424.1

$

422.5

Other

 

1.1

 

.7

Total debt

 

425.2

 

423.2

Less current maturities

 

1.1

 

.7

Total long-term debt

$

424.1

$

422.5

Senior Secured Notes - At September 30, 2023, the carrying value of our 3.75% Senior Secured Notes due September 15, 2025 (€400 million aggregate principal amount outstanding) is stated net of unamortized debt issuance costs of $1.7 million.

Revolving credit facility - During the first nine months of 2023, we had no borrowings or repayments under our $225 million global revolving credit facility and at September 30, 2023, the full $225 million was available for borrowing.

10

Other - We are in compliance with all of our debt covenants at September 30, 2023.

Note 6 - Accounts payable and accrued liabilities:

December 31, 

September 30, 

    

2022

    

2023

(In millions)

Accounts payable

$

177.2

$

117.9

Accrued sales discounts and rebates

 

25.6

 

18.2

Employee benefits

 

22.9

 

26.4

Payables to affiliates:

LPC

17.1

20.0

NL Industries, Inc.

-

.9

Income taxes payable to Valhi

5.8

13.6

Operating lease liabilities

 

3.8

 

3.8

Other

 

59.9

 

45.6

Total

$

312.3

$

246.4

Note 7 - Other noncurrent liabilities:

    

December 31, 

September 30, 

    

2022

    

2023

(In millions)

Accrued postretirement benefits

$

5.9

$

6.0

Employee benefits

 

4.8

 

4.7

Other

 

9.8

 

10.0

Total

$

20.5

$

20.7

Note 8 - Revenue recognition:

The following table disaggregates our net sales by place of manufacture (point of origin) and to the location of the customer (point of destination), which are the categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Three months ended

Nine months ended

September 30, 

September 30, 

    

2022

    

2023

    

2022

    

2023

(In millions)

Net sales - point of origin:

United States

$

330.3

$

250.6

$

980.4

$

739.8

Germany

 

213.5