Kronos Worldwide
2003
ANNUAL REPORT
MESSAGE TO STOCKHOLDERS
We welcome you as new stockholders of Kronos Worldwide, Inc. During 2003, we achieved record TiO2
sales and production volumes for the second consecutive year, and segment profit increased 42%.
Additional information about the Company is included in the accompanying Annual Report on Form 10-K.
Harold C. Simmons
Chairman of the Board and Chief Executive Officer
FINANCIAL HIGHLIGHTS
Sales
Segment profit
Income from operations
Operating data (thousands of metric tons of Ti02):
Sales volumes
Production volumes
2002
2003
(In $ millions)
$ 875.2
$1,008.2
96.5
91.5
455
442
137.4
132.5
462
476
See the copy of Kronos’ news release dated February 24, 2004, which follows the attached Form 10-K, for
a description of segment profit and income from operations, and a reconciliation of such amounts.
ABOUT THE COMPANY
Kronos is the world’s fifth largest producer, and Europe’s second-largest producer, of titanium dioxide
pigments (“TiO2”), with an estimated 12% share of worldwide TiO2 sales volumes and an 18% share of
European sales volumes in 2003. TiO2, a quality-of-life product that can be manufactured as either a
white powder or wet slurry, is a key ingredient for end-use products in a wide variety of industries,
including paints, plastics, papers, fibers, foods, ceramics and cosmetics. TiO2, with its unique ability to
reflect light, is used to impart whiteness, brightness and opacity to various end-use products. Kronos has
production facilities at six sites located throughout Europe and North America, with a combined annual
production capacity of approximately 480,000 metric tons. Kronos sells its products to over 4,000
customers in 100 countries.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the fiscal year ended December 31, 2003
Commission file number 1-31763
KRONOS WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 76-0294959
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 233-1700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock
($.01 par value)
Name of each exchange on
which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
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 X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act). Yes No X
No common stock was held by nonaffiliates of Kronos Worldwide, Inc. as of June
30, 2003 (the last business day of the Registrant's most recently-completed
second fiscal quarter).
As of February 27, 2004, 48,943,099 shares of the Registrant's common stock
were outstanding.
Documents incorporated by reference
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
-1-
ITEM 1.
BUSINESS
PART I
Kronos Worldwide, Inc., (NYSE: KRO) organized as a Delaware corporation
is the world's fifth largest producer of titanium dioxide pigments ("TiO2")
with an estimated 12% share of worldwide TiO2 sales volume in 2003.
Approximately one-half of the Company's 2003 sales volume was in Europe, where
the Company is the second largest producer of TiO2 with an estimated 18% share
of European TiO2 sales volumes. The Company has an estimated 15% share of
North American TiO2 sales volume. Kronos has production facilities throughout
Europe and North America. Kronos and its consolidated subsidiaries are
sometimes referred to herein collectively as the "Company."
At December 31, 2003, (i) NL Industries, Inc. (NYSE: NL) directly held
51% of the outstanding common stock of the Company, (ii) Valhi, Inc (NYSE:
VHI) and a wholly-owned subsidiary of Valhi held an additional 42% of the
Company’s common stock, (iii) Valhi and such wholly-owned subsidiary of Valhi
held 84% of NL’s outstanding common stock and (iv) Contran Corporation and its
subsidiaries held approximately 90% of Valhi’s outstanding common stock.
Substantially all of Contran’s outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold C.
Simmons of which Mr. Simmons is sole trustee. Mr. Simmons, the Chairman of
the Board of each of Contran, Valhi, NL and Kronos may be deemed to control
such companies.
Prior to December 2003, the Company was a wholly-owned subsidiary of NL.
On December 8, 2003, NL completed the pro-rata distribution to its
stockholders of approximately 48.8% of the Company's outstanding common stock
(including Valhi and a wholly-owned subsidiary of Valhi). Stockholders of NL
received one share of common stock of Kronos for every two shares of NL common
stock outstanding as of the close of business on November 17, 2003, the record
date for the distribution.
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in
this Annual Report on Form 10-K relating to matters that are not historical
facts, including, but not limited to, statements found in this Item 1 -
"Business," Item 3 - "Legal Proceedings," Item 7 - "Management’s Discussion and
Analysis of Financial Condition and Results of Operations" and Item 7A -
"Quantitative and Qualitative Disclosures About Market Risk," are forward-
looking statements that represent management's beliefs and assumptions based on
currently available information. Forward-looking statements can be identified
by the use of words such as "believes," "intends," "may," "should," "could,"
"anticipates," "expected" or comparable terminology, or by discussions of
strategies or trends. 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 are the risks and uncertainties discussed in this Annual
Report and those described from time to time in the Company's other filings
with the SEC including, but not limited to, the following:
• Future supply and demand for the Company’s products,
• The extent of the dependence of certain of the Company’s businesses on
certain market sectors,
-2-
• The cyclicality of the Company's businesses,
• 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),
• 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,
• 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, fires, explosions, unscheduled or unplanned downtime and
transportation interruptions),
• The ability of the Company to renew or refinance credit facilities,
• The ultimate outcome of income tax audits, tax settlement initiatives or
other tax matters,
• Environmental matters (such as those requiring 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.
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.
Industry. Titanium dioxide pigments are chemical products used for
imparting whiteness, brightness and opacity to a wide range of products,
including paints, plastics, paper, fibers, food, ceramics and cosmetics. TiO2
is considered a "quality-of-life" product with demand affected by gross
domestic product in various regions of the world.
Pricing within the global TiO2 industry over the long term is cyclical,
and changes in industry economic conditions, especially in Western
industrialized nations, can significantly impact the Company’s earnings and
operating cash flows. The Company’s average TiO2 selling prices were
generally decreasing during all of 2001 and the first quarter of 2002, were
generally flat during the second quarter of 2002, were generally increasing
during the third and fourth quarters of 2002 and the first quarter of 2003,
were generally flat during the second quarter of 2003 and were generally
decreasing during the third and fourth quarters of 2003. Industry-wide demand
for Ti)2 is estimated to have been flat or declined slightly throughout 2003.
This is believed to have been the result of lower customer inventory levels
resulting from overall declining selling prices. Volume demand in 2004 is
expected to increase moderately over 2003 levels.
-3-
Per capita consumption of TiO2 in the United States and Western Europe
far exceeds that in other areas of the world and these regions are expected to
continue to be the largest consumers of TiO2. Significant regions for TiO2
consumption could emerge in Eastern Europe, the Far East or China as the
economies in these regions develop to the point that quality-of-life products,
including TiO2, are in greater demand. The Company believes that, due to its
strong presence in Western Europe, it is well positioned to participate in
growth in consumption of TiO2 in Eastern Europe. Geographic information is
contained in Note 2 to the Consolidated Financial Statements.
Products and operations. TiO2 is produced in two crystalline forms:
rutile and anatase. Rutile TiO2 is a more tightly bound crystal that has a
higher refractive index than anatase TiO2 and, therefore, provides better
opacification and tinting strength in many applications. Although many end-
use applications can use either form of TiO2, rutile TiO2 is the preferred
form for use in coatings, plastics and ink. Anatase TiO2 has a bluer
undertone and is less abrasive than rutile TiO2, and it is often preferred for
use in paper, ceramics, rubber and man-made fibers.
The Company believes that there are no effective substitutes for TiO2.
However, extenders such as kaolin clays, calcium carbonate and polymeric
opacifiers are used in a number of the Company’s markets. Generally,
extenders are used to reduce to some extent the utilization of higher-cost
TiO2. The use of extenders has not significantly changed TiO2 consumption
over the past decade because, to date, extenders generally have failed to
match the performance characteristics of TiO2. As a result, the Company
believes that the use of extenders will not materially alter the growth of the
TiO2 business in the foreseeable future.
The Company currently produces over 40 different TiO2 grades, sold under
the Kronos trademark, which provide a variety of performance properties to
meet customers’ specific requirements. The Company’s major customers include
domestic and international paint, plastics and paper manufacturers.
The Company is one of the world’s leading producers and marketers of
TiO2. The Company and its distributors and agents sell and provide technical
services for its products to over 4,000 customers with the majority of sales
in Europe and North America. TiO2 is distributed by rail, truck and ocean
carrier in either dry or slurry form. The Company’s manufacturing facilities
are located in Germany, Canada, Belgium and Norway, and the Company owns a
one-half interest in a TiO2 manufacturing joint venture located in Louisiana,
U.S.A. The Company conducts sales and marketing activities in over 100
countries worldwide. The Company and its predecessors have produced and
marketed TiO2 in North America and Europe for over 80 years. As a result, the
Company believes that it has developed considerable expertise and efficiency
in the manufacture, sale, shipment and service of its products in domestic and
international markets. By volume, approximately one-half of the Company’s
2003 TiO2 sales were to Europe, with approximately 40% to North America and
the balance to export markets.
The Company is also engaged in the mining and sale of ilmenite ore (a
raw material used directly as a feedstock by some sulfate-process TiO2 plants)
pursuant to a governmental concession with an unlimited term that allows the
Company to operate an ilmenite mine in Norway. The ore body, owned by the
Norwegian government, has estimated ilmenite reserves that are expected to
last at least 20 years. Approximately 5% of the Company’s consolidated net
sales in the last three years represented ilmenite sales to third-party
customers. The Company is also engaged in the manufacture and sale of iron-
based water treatment chemicals (derived co-products of the pigment production
processes). The Company’s water treatment chemicals (marketed under the name
Ecochem) are used as treatment and conditioning agents for industrial
effluents and municipal wastewater, and in the manufacture of iron pigments.
-4-
Sales of water treatment chemicals were approximately 3% of the Company’s
revenues in each of 2001, 2002 and 2003.
Manufacturing process and raw materials. TiO2 is manufactured by the
Company using both the chloride process and the sulfate process.
Approximately 72% of the Company’s current production capacity is based on the
chloride. The chloride process is a continuous process in which chlorine is
used to extract rutile TiO2. In general, the chloride process is also less
intensive than the sulfate process in terms of capital investment, labor and
energy. Because much of the chlorine is recycled and feedstock bearing a
higher titanium content is used, the chloride process produces less waste than
the sulfate process. The sulfate process is a batch chemical process that
uses sulfuric acid to extract TiO2. Sulfate technology normally produces
either anatase or rutile pigment. Once an intermediate TiO2 pigment has been
produced by either the chloride or sulfate process, it is ‘finished’ into
products with specific performance characteristics for particular end-use
applications through proprietary processes involving various chemical surface
treatments and intensive milling and micronizing.
Due to environmental factors and customer considerations, the proportion
of TiO2 industry sales represented by chloride-process pigments has increased
relative to sulfate-process pigments and, in 2003, chloride-process production
facilities represented approximately 62% of industry capacity.
Kronos produced a new Company record 476,000 metric tons of TiO2 in
2003, compared to the prior record 442,000 metric tons produced in 2002 and
412,000 metric tons in 2001. The Company’s average production capacity
utilization rate in 2003 was near full capacity, up from 96% in 2002. The
rates in 2002 and 2003 were higher than 2001 due in part to debottlenecking
activities. The Company believes its current annual attainable production
capacity is approximately 480,000 metric tons, including its one-half interest
in the joint venture-owned Louisiana plant (see “TiO2 manufacturing joint
venture”). The Company expects this production capacity will be increased by
approximately 10,000 metric tons, primarily at its chloride facilities, with
moderate capital expenditures, bringing the Company’s capacity to
approximately 490,000 metric tons during 2005.
The primary raw materials used in the TiO2 chloride production process
are titanium-containing feedstock derived from sand ilmenite, natural rutile
ore, chlorine and coke. Chlorine and coke are available from a number of
suppliers. Titanium-containing feedstock suitable for use in the chloride
process is available from a limited but increasing number of suppliers around
the world, principally in Australia, South Africa, Canada, India and the
United States. The Company purchased approximately 390,000 metric tons of
chloride feedstock in 2003, of which the vast majority was slag.
The Company purchased slag in 2003 from two subsidiaries of Rio Tinto
plc UK – Richards Bay Iron and Titanium Limited South Africa and Q.I.T. Fer et
Titane Inc. Canada (“Q.I.T.”) under long-term supply contracts that expire at
the end of 2007 and 2006 respectively. Natural rutile ore is purchased
primarily from Iluka Resources, Limited (Australia), a company formed through
the merger of Westralian Sands Limited (Australia) and RGC Mineral Sands,
Ltd., under a long-term supply contract that expires at the end of 2005. The
Company does not expect to encounter difficulties obtaining long-term
extensions to existing supply contracts prior to the expiration of the
contracts. Raw materials purchased under these contracts and extensions
thereof are expected to meet the Company’s chloride feedstock requirements
over the next several years.
The primary raw materials used in the TiO2 sulfate production process
are titanium-containing feedstock, derived primarily from rock and beach sand
ilmenite, and sulfuric acid. Sulfuric acid is available from a number of
suppliers. Titanium-containing feedstock suitable for use in the sulfate
-5-
process is available from a limited number of suppliers around the world.
Currently, the principal active sources are located in Norway, Canada,
Australia, India and South Africa. As one of the few vertically integrated
producers of sulfate-process pigments, the Company operates a rock ilmenite
mine in Norway, which provided all of the Company’s feedstock for its European
sulfate-process pigment plants in 2003. The Company produced approximately
850,000 metric tons of ilmenite in 2003 of which approximately 300,000 metric
tons were used internally with the remainder sold to third parties. For its
Canadian sulfate-process plant, the Company also purchases sulfate grade slag
(approximately 25,000 metric tons in 2003) primarily from Q.I.T., under a
long-term supply contract that expires at the end of 2006.
The Company believes the availability of titanium-containing feedstock
for both the chloride and sulfate processes is adequate for the next several
years. The Company does not expect to experience any interruptions of its raw
material supplies because of its long-term supply contracts. However,
political and economic instability in certain countries from which the Company
purchases its raw material supplies could adversely affect the availability of
such feedstock. Should the Company’s vendors not be able to meet their
contractual obligations or should the Company be otherwise unable to obtain
necessary raw materials, the Company may incur higher costs for raw materials
or may be required to reduce production levels, which may have a material
adverse effect on the Company’s financial position, results of operations or
liquidity.
TiO2 manufacturing joint venture. A Subsidiary of the Company and
Huntsman International Holdings LLC ("Huntsman") each own a 50%-interest in a
manufacturing joint venture, Louisiana Pigment Company ("LPC"). LPC owns and
operates a chloride-process TiO2 plant located in Lake Charles, Louisiana.
Production from the plant is shared equally by the Company and Huntsman (the
“Partners”) pursuant to separate offtake agreements.
A supervisory committee, composed of four members, two of whom are
appointed by each Partner, directs the business and affairs of LPC including
production and output decisions. Two general managers, one appointed and
compensated by each Partner, manage the operations of the joint venture acting
under the direction of the supervisory committee.
The manufacturing joint venture operates on a break-even basis and,
accordingly, the Company reports no equity in earnings of the joint venture.
The Company’s cost for its share of the TiO2 produced is equal to its share of
the joint venture’s costs. The Company’s share of net costs is reported as
cost of sales as the related TiO2 acquired from the joint venture is sold.
See Note 6 to the Consolidated Financial Statements.
Competition. The TiO2 industry is highly competitive. The Company
competes primarily on the basis of price, product quality and technical
service, and the availability of high performance pigment grades. Although
certain TiO2 grades are considered specialty pigments, the majority of the
Company’s grades and substantially all of the Company’s production are
considered commodity pigments with price generally being the most significant
competitive factor. During 2003 the Company had an estimated 12% share of
worldwide TiO2 sales volume, and the Company believes that it is the leading
seller of TiO2 in several countries, including Germany and Canada.
The Company’s principal competitors are E.I. du Pont de Nemours & Co.
(“DuPont”); Millennium Chemicals, Inc.; Huntsman; Kerr-McGee Corporation; and
Ishihara Sangyo Kaisha, Ltd. The Company’s five largest competitors have
estimated individual shares of TiO2 production capacity ranging from 24% to
5%, and an estimated aggregate 70% share of worldwide TiO2 production volume.
DuPont has about one-half of total U.S. TiO2 production capacity and is the
Company’s principal North American competitor.
-6-
Capacity additions that are the result of construction of greenfield
plants in the worldwide TiO2 market require significant capital and
substantial lead time, typically three to five years in the Company’s
experience. As no new plants are currently under construction, additional
greenfield capacity is not expected in the next three to five years, but
industry capacity can be expected to increase as the Company and its
competitors debottleneck existing plants. In addition to potential capacity
additions, certain competitors have either idled or shut down facilities.
Based on the factors described under the caption “Industry” above, the Company
expects that the average annual increase in industry capacity from announced
debottlenecking projects will be less than the average annual demand growth
for TiO2 over the next three to five years.
No assurance can be given that future increases in the TiO2 industry
production capacity and future average annual demand growth rates for TiO2
will conform to the Company’s expectations. If actual developments differ
from the Company’s expectations, the Company and the TiO2 industry’s
performance could be unfavorably affected.
Research and development. The Company’s expenditures for research and
development and certain technical support programs were approximately $6
million in each of 2001 and 2002 and $7 million in 2003. Research and
development activities are conducted principally at the Leverkusen, Germany
facility. Such activities are directed primarily toward improving both the
chloride and sulfate production processes, improving product quality and
strengthening the Company’s competitive position by developing new pigment
applications.
Patents and trademarks. Patents held for products and production
processes are believed to be important to the Company and to the continuing
business activities of the Company. The Company continually seeks patent
protection for its technical developments, principally in the United States,
Canada and Europe, and from time to time enters into licensing arrangements
with third parties.
The Company’s major trademarks, including Kronos(TM), are protected by
registration in the United States and elsewhere with respect to those products
it manufactures and sells.
Foreign operations. The Company’s chemical businesses have operated in
non-U.S. markets since the 1920s. Most of the Company’s current production
capacity is located in Europe and Canada with non-U.S. net property and
equipment aggregating approximately $435 million at December 31, 2003. Net
property and equipment in the U.S., including 50% of the property and
equipment of LPC, was approximately $116 million at December 31, 2003.
Kronos’ European operations include production facilities in Germany, Belgium
and Norway. Approximately $711 million of the Company’s 2003 consolidated
sales were to non-U.S. customers, including $91 million to customers in areas
other than Europe and Canada. Sales to customers in the U.S. aggregated $297
million in 2003. Foreign operations are subject to, among other things,
currency exchange rate fluctuations and the Company’s results of operations
have, in the past, been both favorably and unfavorably affected by
fluctuations in currency exchange rates. Effects of fluctuations in currency
exchange rates on the Company’s results of operations are discussed in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Item 7A. “Quantitative and Qualitative Disclosures about
Market Risk.”
Political and economic uncertainties in certain of the countries in
which the Company operates may expose it to risk of loss. The Company does
not believe that there is currently any likelihood of material loss through
-7-
political or economic instability, seizure, nationalization or similar event.
The Company cannot predict, however, whether events of this type in the future
could have a material effect on its operations. The Company’s manufacturing
and mining operations are also subject to extensive and diverse environmental
regulation in each of the foreign countries in which they operate. See
“Regulatory and Environmental Matters.”
Customer base and annual seasonality. The Company believes that neither
its aggregate sales nor those of any of its principal product groups are
concentrated in or materially dependent upon any single customer or small
group of customers. The Company’s largest ten customers accounted for
approximately 25% of net sales in 2003. Neither the Company’s business as a
whole nor that of any of its principal product groups is seasonal to any
significant extent. Due in part to the increase in paint production in the
spring to meet the spring and summer painting season demand, TiO2 sales are
generally higher in the first half of the year than in the second half of the
year.
Employees. As of December 31, 2003, the Company employed approximately
2,450 persons, excluding LPC employees, with approximately 50 employees in the
United States and approximately 2,400 at sites outside the United States.
Hourly employees in production facilities worldwide, including LPC, are
represented by a variety of labor unions, with labor agreements having various
expiration dates. The Company believes its labor relations are good.
Regulatory and environmental matters. Kronos’ operations are governed
by various environmental laws and regulations. Certain of Kronos’ businesses
are, or have been engaged in the handling, manufacture or use of substances or
compounds that may be considered toxic or hazardous within the meaning of
applicable environmental laws. As with other companies engaged in similar
businesses, certain past and current operations and products of Kronos have
the potential to cause environmental or other damage. Kronos has implemented
and continues to implement various policies and programs in an effort to
minimize these risks. The policy of Kronos is to maintain compliance with
applicable environmental laws and regulations at all its facilities and to
strive to improve its environmental performance. It is possible that future
developments, such as stricter requirements in environmental laws and
enforcement policies thereunder, could adversely affect Kronos’ production,
handling, use, storage, transportation, sale or disposal of such substances as
well as Kronos’ consolidated financial position, results of operations or
liquidity.
Kronos’ U.S. manufacturing operations are governed by federal
environmental and worker health and safety laws and regulations, principally
the Resource Conservation and Recovery Act (“RCRA”), the Occupational Safety
and Health Act, the Clean Air Act, the Clean Water Act, the Safe Drinking
Water Act, the Toxic Substances Control Act and the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act (“CERCLA”), as well as the state
counterparts of these statutes. Kronos believes the TiO2 plant owned by the
LPC joint venture and a TiO2 slurry facility owned by Kronos in Lake Charles,
Louisiana are in substantial compliance with applicable requirements of these
laws or compliance orders issued thereunder. Kronos has no other U.S. plants.
From time to time, Kronos’ facilities may be subject to environmental
regulatory enforcement under such statutes. Resolution of such matters
typically involves the establishment of compliance programs. Occasionally,
resolution may result in the payment of penalties, but to date such penalties
have not involved amounts having a material adverse effect on Kronos’
consolidated financial position, results of operations or liquidity.
Kronos’ production facilities operate in an environmental regulatory
framework in which governmental authorities typically are granted broad
-8-
discretionary powers that allow them to issue operating permits required for
the plants to operate. Kronos believes that all its plants are in substantial
compliance with applicable environmental laws. Neither Kronos nor any of its
subsidiaries have been notified of any environmental claim in the United
States or any foreign jurisdictions by the U.S. EPA or any applicable foreign
authority or any state, provincial or local authority.
While the laws regulating operations of industrial facilities in Europe
vary from country to country, a common regulatory denominator is provided by
the European Union (the “EU”). Germany and Belgium are members of the EU and
follow its initiatives. Norway, although not a member, generally patterns its
environmental regulatory actions after the EU. Kronos believes that it has
obtained all required permits and is in substantial compliance with applicable
EU requirements, including EU Directive 92/112/EEC regarding establishment of
procedures for reduction and eventual elimination of pollution caused by waste
from the TiO2 industry.
At Kronos’ sulfate plant facilities other than Fredrikstad, Norway and
Varennes, Quebec, Canada Kronos recycles spent acid either through contracts
with third parties or using Kronos’ own facilities. At its Fredrikstad,
Norway plant, Kronos ships its spent acid to a third party location where it
is treated and disposed. Kronos’ Canadian sulfate plant neutralizes its spent
acid and byproduct gypsum is sold to a local wallboard manufacturer and solid
wastes are landfilled. Kronos has a contract with a third party to treat
certain by-products of its German sulfate-process plants. Either party may
terminate the contract after giving four years advance notice with regard to
its Nordenham, Germany plant. Under certain circumstances, Kronos may
terminate the contract after giving six months notice with respect to
treatment of by-products from the Leverkusen, Germany plant.
Kronos is also involved in various other environmental, contractual,
product liability and other claims and disputes incidental to its business.
Kronos’ capital expenditures related to its ongoing environmental
protection and improvement programs in 2003 were approximately $5 million, and
are currently expected to be approximately $5 million in 2004.
Website and other available information. The Company maintains a
website on the Internet with the address of www.kronostio2.com. Copies of
this Annual Report on Form 10-K for the year ended December 31, 2003 and
copies of the Company’s Quarterly Reports on Form 10-Q for 2003 and 2004 and
any Current Reports on Form 8-K for 2003 and 2004, and any amendments thereto,
are or will be available free of charge at such website as soon as reasonably
practical after they are filed with the SEC. Additional information regarding
the Company, including the Company’s Audit Committee charter and the Company’s
Code of Business Conduct and Ethics, can also be found at this website as
required. Information contained on the Company’s website is not part of this
report.
The general public may read and copy any materials the Company files
with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company
is an electronic filer, and the SEC maintains an Internet website that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including the
Company. The Internet address of the SEC’s website is www.sec.gov.
ITEM 2.
PROPERTIES
The Company currently operates four TiO2 plants in Europe (one in
Leverkusen, Germany; one in Nordenham, Germany; one in Langerbrugge, Belgium;
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and one in Fredrikstad, Norway). In North America, the Company has a TiO2
plant in Varennes, Quebec, Canada and, through the manufacturing joint venture
described above, a one-half interest in a TiO2 plant in Lake Charles,
Louisiana. The Company operates an ilmenite ore mine in Hauge i Dalane,
Norway pursuant to a governmental concession and also owns a TiO2 slurry plant
in Lake Charles, Louisiana. See Note 6 to the Consolidated Financial
Statements.
The Company’s principal German operating subsidiary leases the land
under its Leverkusen TiO2 production facility pursuant to a lease expiring in
2050. The Leverkusen facility, with about one-third of the Company’s current
TiO2 production capacity, is located within an extensive manufacturing complex
owned by Bayer AG. Rent for the Leverkusen facility is periodically
established by agreement with Bayer AG for periods of at least two years at a
time. Under a separate supplies and services agreement expiring in 2011,
Bayer provides some raw materials, including chlorine and certain amounts of
sulfuric acid, auxiliary and operating materials and utilities services
necessary to operate the Leverkusen facility. The lease and the supplies and
services agreement have certain restrictions regarding the Company’s ability
to transfer ownership or use of the Leverkusen facility.
The Company owns all of its principal production facilities described
above, except for the land under the Leverkusen and Fredrikstad facilities.
The Company also operates an ilmenite ore mine in Norway pursuant to a
governmental concession with an unlimited term to operate the ilmenite mine in
Norway.
The Company has under lease various corporate and administrative offices
located in the U.S. and various sales offices located in the U.S., France, the
Netherlands, Denmark and the U.K.
ITEM 3.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings. Certain
information called for by this Item is included in Note 16 to the Consolidated
Financial Statements, which information is incorporated herein by reference.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to December 2003, the Company was a wholly-owned subsidiary of NL.
On December 8, 2003, NL completed the pro-rata distribution to its
stockholders of approximately 48.8% of the Company's outstanding common stock
(including Valhi and a wholly-owned subsidiary of Valhi.) Stockholders of NL
received one share of common stock of Kronos for every two shares of NL common
stock outstanding as of the close of business on November 17, 2003, the record
date for the distribution.
The Company’s common stock is listed and traded on the New York Stock
Exchange (symbol: KRO). As of February 27, 2004, there were approximately
5,300 holders of record of common stock. The Company’s common stock commenced
trading on December 8, 2003. For the period from December 8, 2003 to December
31, 2003, the high and low closing per share sales price of Kronos common
stock according to Bloomberg was $24.79 and $16.00 respectively. On February
-10-
27, 2004 the closing price of Kronos common stock according to the NYSE
Composite Tape was $32.25.
Immediately prior to NL’s distribution of shares of Kronos common stock
to its stockholders, the Company declared and paid a dividend to NL in the
form of a $200 million long-term note payable. See Note 10 to the
Consolidated Financial Statements.
On February 19, 2004, the Company’s Board of Directors declared a
regular quarterly dividend of $.25 per share to stockholders of record as of
March 11, 2004 to be paid on March 29, 2004. The declaration and payment of
future dividends is discretionary, and the amount, if any, will be dependent
upon the Company’s results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Company’s Board of
Directors.
ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
following selected historical financial data of Kronos with respect to the
years ended December 31, 2000, 2001, 2002 and 2003 and as of December 31, 2001,
2002 and 2003, is derived from, and should be read in conjunction with, Kronos’
audited Consolidated Financial Statements. The selected historical financial
data for the year ended December 31, 1999, and as of December 31, 1999 and
2000, is derived from Kronos’ unaudited Consolidated Financial Statements. The
earnings per share and cash dividends per share data presented below has been
restated to give effect to the September 2003 change in Kronos’ capital
structure discussed in Note 1 to Kronos’ Consolidated Financial Statements in
which the 1,000 shares of Kronos’ common stock previously outstanding were
reclassified in the form of a stock split into approximately 48.9 million
shares of Kronos’ common stock. The selected historical financial data
reflects Kronos’ results as it has historically been operated as a part of NL,
and these results may not be indicative of Kronos’ future performance as a
publicly traded company following the distribution.
Years ended December 31,
_2003_
_2001_
(In millions, except per share data)
_2002_
_1999_
_2000_
STATEMENTS OF OPERATIONS DATA:
Net sales
Net income (1)
Net income per share
Cash dividends per share (2)
$ 908.4 $ 922.3 $ 835.1
125.9 130.2 154.5
2.57 2.66 3.16
$ .61 $ 1.12 $ .62
$ 875.2
66.3
1.35
$ 2.27
$1,008.2
87.5
1.79
$ .14
BALANCE SHEET DATA (at year end):
Total assets
Notes payable and long-term debt
including current maturities
Common stockholder’s equity
973.6 893.4 910.1
988.5
1,121.9
340.4 266.1 242.7
310.9 346.6 378.5
370.5
314.2
556.7
159.4
TiO2 OPERATING STATISTICS:
Average selling price
Index (1983=100)
Sales volume*
Production volume*
Production capacity at beginning
153
161
156
142
146
427
411
436
441
402
412
455
442
462
476
of year*
440
440
450
455
470
Production rate as a percentage of
capacity
93%
Full
91%
96%
Full
__________________________________
* Metric tons in thousands
-11-
(1) Net income in 1999 includes a $57.7 million income tax benefit related to (i) a
favorable resolution of Kronos’ previously-reported tax contingency in Germany
($29.1 million) and (ii) a net reduction in Kronos’ deferred income tax asset
valuation allowance due to a change in the estimate of Kronos’ ability to utilize
certain income tax attributes under the “more-likely-than-not” recognition
criteria ($28.6 million).
(2) Excludes Kronos’ December 2003 dividend to NL in the form of a $200 million long-
term note payable. See Note 10 to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical accounting policies and estimates
The accompanying "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are based upon the Company's consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amount of revenues and expenses
during the reported period. On an on-going basis, the Company evaluates its
estimates, including those related to bad debts, inventory reserves,
impairments of investments in marketable securities and investments accounted
for by the equity method, the recoverability of other long-lived assets
(including goodwill and other intangible assets), pension and other post-
retirement benefit obligations and the underlying actuarial assumptions
related thereto, the realization of deferred income tax assets and accruals
for litigation, income tax and other contingencies. The Company bases its
estimates on historical experience and on various other assumptions that it
believes to be reasonable under the circumstances, the results of which form
the basis for making judgments about the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from
previously-estimated amounts under different assumptions or conditions.
The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements:
• The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required
payments and other factors. The Company takes into consideration the
current financial condition of its customers, the age of the outstanding
balance and the current economic environment when assessing the adequacy
of the allowance. If the financial condition of the Company’s customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. During 2001, 2002 and
2003, the net amount written off against the allowance for doubtful
accounts as a percentage of the balance of the allowance for doubtful
accounts as of the beginning of the year ranged from 12% to 18%.
• The Company provides reserves for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated net realizable value using assumptions about future demand for
its products and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory
reserves may be required. The Company also provides reserves for tools
and supplies inventory based generally on both historical and expected
future usage requirements.
-12-
• The Company recognizes an impairment charge associated with its long-
lived assets, including property and equipment, whenever it determines
that recovery of such long-lived asset is not probable. Such
determination is made in accordance with the applicable GAAP
requirements associated with the long-lived asset, and is based upon,
among other things, estimates of the amount of future net cash flows to
be generated by the long-lived asset and estimates of the current fair
value of the asset. Adverse changes in such estimates of future net
cash flows or estimates of fair value could result in an inability to
recover the carrying value of the long-lived asset, thereby possibly
requiring an impairment charge to be recognized in the future.
Under applicable GAAP (SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets), property and equipment is not assessed
for impairment unless certain impairment indicators, as defined, are
present. During 2003, no such impairment indicators, as defined, were
present.
• The Company maintains various defined benefit pension plans and
postretirement benefits other than pensions (“OPEB”). The amount
recognized as defined benefit pension and OPEB expense, and the reported
amount of prepaid and accrued pension costs and accrued OPEB costs, are
actuarially determined based on several assumptions, including discount
rates, expected rates of returns on plan assets and expected health care
trend rates. Variances from these actuarially assumed rates will result
in increases or decreases, as applicable, in the recognized pension and
OPEB obligations, pension and OPEB expense and funding requirements.
These assumptions are more fully described below under “—Assumptions on
defined benefit pension plans and OPEB plans.”
• The Company records a valuation allowance to reduce its deferred income
tax assets to the amount that is believed to be realized under the
"more-likely-than-not" recognition criteria. While the Company has
considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for a valuation allowance, it
is possible that in the future the Company may change its estimate of
the amount of the deferred income tax assets that would "more-likely-
than-not" be realized in the future, resulting in an adjustment to the
deferred income tax asset valuation allowance that would either increase
or decrease, as applicable, reported net income in the period such
change in estimate was made.
• The Company records accruals for legal, income tax and other
contingencies when estimated future expenditures associated with such
contingencies become probable, and the amounts can be reasonably
estimated. However, new information may become available, or
circumstances (such as applicable laws and regulations) may change,
thereby resulting in an increase or decrease in the amount required to
be accrued for such matters (and therefore a decrease or increase in
reported net income in the period of such change).
Executive summary
Relative changes in the Company’s TiO2 sales and operating income during
the past three years are primarily due to (i) relative changes in TiO2 sales and
production volumes, (ii) relative changes in TiO2 average selling prices and
(iii) relative changes in foreign currency exchange rates. The relatively
lower levels of sales and production volumes in 2001 as compared to 2002 and
2003 are due in part to the effects of a fire at one of the Company’s
production facilities, as discussed below.
-13-
Selling prices for TiO2, the Company’s principal product, were generally
decreasing during all of 2001 and the first quarter of 2002, were generally
flat during the second quarter of 2002, were generally increasing during the
last half of 2002 and the first quarter of 2003, were generally flat during the
second quarter of 2003 and were generally declining during the third and fourth
quarters of 2003.
Results of operations
Average TiO2 selling prices in billing currencies (which exclude the
effects of foreign currency translation) were generally decreasing during all
of 2001 and the first quarter of 2002, were generally flat during the second
quarter of 2002 and were generally increasing during the last half of 2002 and
the first quarter of 2003. Average selling prices for TiO2 were generally flat
during the second quarter of 2003 and were generally decreasing throughout the
remainder of 2003.
Years ended December 31,
2002
2001
(In millions, except selling
price data)
2003
% Change
2001-02 2002-03
Net sales
Cost of sales
$ 835.1 $ 875.2
578.1 671.8
$1,008.2 + 5% +15%
739.2 +16% +10%
Gross margin
257.0 203.4
269.0 -21% +32%
Selling, general and
administrative expense
(98.7) (107.7) (124.4) + 9% +16%
Insurance recoveries, net 7.2 -
Currency transaction gains
-
(losses), net
Corporate expense
Other operating income
(expense), net
1.2 (.5) (7.7)
(4.9) (3.3) (4.2)
.2 (.4) (.2)
Income from operations
$ 162.0 $ 91.5
$ 132.5 -44% +45%
TiO2 operating statistics:
Percent change in average
selling prices:
Using actual foreign
currency exchange
rates
Impact of changes in
foreign currency
exchange rates
In billing currencies
- 7% +13%
- 2% -10%
- 9% + 3%
Sales volumes*
Production volumes*
Production rate as
402
412
455
442
462
476
+13% + 2%
+ 7% + 8%
percent of capacity
91%
96%
Full
____________________________________
* Thousands of metric tons
-14-
Year ended December 31, 2003 compared to year ended December 31, 2002
The Company’s net sales increased $133.0 million (15%) in 2003 compared
to 2002 due to higher average selling prices along with higher sales volumes
in 2003 and the positive effects of currency exchange rates, specifically the
weaker U.S. dollar as compared to the euro and Canadian dollar. Excluding the
effect of fluctuations in the value of the U.S. dollar relative to other
currencies, the Company’s average TiO2 selling price in 2003 was 3% higher
than 2002, primarily due to the European and export markets. When translated
from billing currencies to U.S. dollars using actual foreign currency exchange
rates prevailing during the respective periods, the Company’s average TiO2
selling prices in 2003 increased 13% compared to 2002. The Company’s TiO2
sales volumes in 2003 set a new record, increasing 2% from the previous record
achieved in 2002, with higher volumes in European and North American markets
more than offsetting a decline in volumes to export markets. By volume,
approximately one-half of the Company’s 2002 and 2003 TiO2 sales volumes were
attributable to markets in Europe, with 40% attributable to North America and
the balance to export markets.
The Company’s sales are denominated in various currencies, including the
U.S. dollar, the euro, other major European currencies and the Canadian
dollar. The disclosure of the percentage change in the Company’s average TiO2
selling price in billing currencies (which excludes the effects of
fluctuations in the value of the U.S. dollar relative to other currencies) is
considered a "non-GAAP" financial measure under regulations of the SEC. The
disclosure of the percentage change in the Company’s average TiO2 selling
prices using actual foreign currency exchange rates prevailing during the
respective periods is considered the most directly comparable financial
measure presented in accordance with accounting principles generally accepted
in the United States ("GAAP measure"). The Company discloses percentage
changes in its average TiO2 prices in billing currencies because the Company
believes such disclosure provides useful information to investors to allow
them to analyze such changes without the impact of changes in foreign currency
exchange rates, thereby facilitating period-to-period comparisons of the
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. The difference between the 13% increase in the Company’s average
TiO2 selling prices during 2003 as compared to 2002 using actual foreign
currency exchange rates prevailing during the respective periods (the GAAP
measure) and the 3% percentage increase in the Company’s average TiO2 selling
price in billing currencies (the non-GAAP measure) during such periods is due
to the effect of changes in foreign currency exchange rates. The table above
presents (i) the percentage change in the Company’s average TiO2 selling
prices using actual foreign currency exchange rates prevailing during the
respective periods (the GAAP measure), (ii) the percentage change in Kronos
average TiO2 selling price in billing currencies (the non-GAAP measure) and
(iii) the percentage change due to changes in foreign currency exchange rates
(or the reconciling item between the non-GAAP measure and the GAAP measure).
The Company’s cost of sales increased $67.4 million (10%) in 2003
compared to 2002 due to the higher sales volumes. The Company’s cost of
sales, as a percentage of net sales, decreased from 77% in 2002 to 73% in 2003
due primarily to the effects of continued cost reduction efforts combined with
the impact of higher production volumes and higher average selling prices.
Operating rates were near full capacity during most of 2003, setting a new
Company production record.
-15-
The Company’s gross margins increased $65.5 million (32%) from 2002 to
2003 due to the net effects of the aforementioned changes in sales and cost of
sales during such periods.
As a percentage of net sales, selling general and administrative
expenses remained consistent at 12%, increasing proportionately with the
increased sales and production volume.
Certain of the sales generated by the Company’s European and Canadian
operations are denominated in the U.S. dollar, and such operations routinely
hold U.S. dollar-denominated receivables. Primarily as a result of the
weakening of the U.S. dollar as compared to the Canadian dollar and the euro
throughout the year, the Company's results in 2003 included net currency
transaction losses of $7.7 million. Due to a more stable dollar in 2002, the
Company recognized net currency transaction losses of $500,000.
Corporate expenses for 2003 increased 26% to $4.1 million as compared to
2002 primarily due to higher fees associated with Kronos becoming a separate
SEC registrant and certain corporate office relocation expenses.
Kronos has substantial operations and assets located outside the United
States (primarily in Germany, Belgium, Norway and Canada). A significant
amount of Kronos’ sales generated from its non-U.S. operations are denominated
in currencies other than the U.S. dollar, principally the euro, other major
European currencies and the Canadian dollar. A portion of Kronos’ sales
generated from its non-U.S. operations are denominated in the U.S. dollar.
Certain raw materials, primarily titanium-containing feedstocks, are purchased
in U.S. dollars, while labor and other production costs are denominated
primarily in local currencies. Consequently, the translated U.S. dollar value
of Kronos’ foreign sales and operating results are subject to currency exchange
rate fluctuations which may favorably or adversely impact reported earnings and
may affect the comparability of period-to-period operating results. Overall,
fluctuations in the value of the U.S. dollar relative to other currencies,
primarily the euro, increased TiO2 sales in 2003 by a net $93 million compared
to 2002. Fluctuations in the value of the U.S. dollar relative to other
currencies similarly impacted Kronos’ foreign currency-denominated operating
expenses. The Company’s operating costs that are not denominated in the U.S.
dollar, when translated into U.S. dollars, were higher in 2003 compared to the
same periods of 2002. Overall, currency exchange rate fluctuations resulted
in a net decrease in Kronos’ operating income in 2003 of approximately $6
million as compared to 2002.
Year ended December 31, 2002 compared to year ended December 31, 2001
The Company’s sales increased $40.1 million (5%) in 2002 compared to 2001
due primarily to higher TiO2 sales volumes, offset by lower average TiO2 selling
prices. The Company’s record TiO2 sales volumes in 2002 were 13% higher
compared to 2001 primarily due to higher volumes in European and North American
markets of 14% and 17%, respectively. By volume, approximately one-half of the
Company’s 2002 TiO2 sales volumes were attributable to markets in Europe, with
39% attributable to North America and the balance to export markets. The lower
TiO2 sales volumes in 2001 were due in part to the effect of a fire at the
Company’s Leverkusen, Germany facility in March 2001 that disrupted operations.
See Note 14 to the Consolidated Financial Statements. Excluding the effect of
fluctuations in the value of the U.S. dollar relative to other currencies, the
Company's average TiO2 selling price in 2002 was 9% lower than 2001, with
prices lower in all major regions. When translated from billing currencies to
U.S. dollars using actual foreign currency exchange rates prevailing during
the respective periods, the Company's average TiO2 selling prices in 2002
decreased 7% compared to 2001.
-16-
The Company's cost of sales increased $93.8 million (16%) in 2002
compared to 2001 due to the higher sales volume, partially offset by lower
unit costs, which resulted primarily from the higher production levels. The
effects of lower TiO2 sales and production volumes in 2001 were partially
offset by receipt of the business interruption proceeds discussed above. The
Company's cost of sales, as a percentage of net sales, increased from 69% in
2001 to 77% in 2002 primarily due to the impact on net sales of the lower
average selling prices partially offset by lower unit costs.
The Company's gross margin declined $53.6 million (21%) in 2002 compared
to 2001 as the effect of lower average TiO2 selling prices more than offset
the effect of higher TiO2 sales and production volumes. The effect of the
higher sales and production volumes was offset in part by the $27.3 million of
business interruption proceeds received in 2001, as discussed below.
The Company's record TiO2 production volume in 2002 was 7% higher than
2001. Kronos' operating rates in 2001 were lower as compared to 2002
primarily due to lost production resulting from the Leverkusen fire.
The Company's income from operations in 2001 includes $27.3 million of
business interruption insurance proceeds as payment for losses (unallocated
period costs and lost margin) caused by the Leverkusen fire. The effects of
the lower TiO2 sales and production volumes were offset in part by the
business interruption insurance proceeds. Of such $27.3 million of business
interruption insurance proceeds, $20.1 million was recorded as a reduction of
cost of sales to offset unallocated period costs that resulted from lost
production, and the remaining $7.2 million, presenting recovery of lost
margin, is included in income from operations (as shown on the table above).
The business interruption insurance proceeds distorted the income from
operations margin percentage in 2001 as there are no sales associated with the
$7.2 million of lost margin recognized. See Note 14 to the Consolidated
Financial Statements.
The Company also recognized insurance recoveries of $29.1 million in 2001
for property damage and related cleanup and other extra expenses related to
the Leverkusen fire, resulting in an insurance gain of $17.5 million, as the
insurance recoveries exceeded the carrying value of the property destroyed and
the cleanup and other extra expenses incurred. Such insurance gain is not
reported as a component of income from operations but is included in other
income and expense, as discussed below. The Company does not expect to
recognize any additional insurance recoveries related to the Leverkusen fire.
See Note 14 to the Consolidated Financial Statements.
The Company's selling, general and administrative expenses ("SG&A
expenses") increased $9.0 million (9%) in 2002 as compared to 2001 primarily
due to higher distribution expenses ($600,000) associated with the higher
sales volume in 2002 and higher administrative expenses of $5.8 million, as
well as the impact of relative changes in foreign currency exchange rates,
which increased Kronos' expenses in 2002 compared to 2001. SG&A expenses were
approximately 12% of sales in both 2001 and 2002.
As discussed above, Kronos has substantial operations and assets located
outside the United States (primarily in Germany, Belgium, Norway and Canada)
and consequently, the translated U.S. dollar value of Kronos’ foreign sales and
operating results are subject to currency exchange rate fluctuations that may
favorably or adversely impact reported earnings and may affect the
comparability of period-to-period operating results. Overall, fluctuations in
the value of the U.S. dollar relative to other currencies, primarily the euro,
increased TiO2 sales in 2002 by a net $21 million compared to 2001.
Fluctuations in the value of the U.S. dollar relative to other currencies
similarly impacted Kronos’ foreign currency-denominated operating expenses.
The Company's operating costs that are not denominated in the U.S. dollar,
when translated into U.S. dollars, were higher in 2003 compared to the same
-17-
periods of 2002. Overall, currency exchange rate fluctuations on Kronos’
operating income comparisons was not significant in 2002 as compared to 2001.
Outlook.
Kronos expects its TiO2 production volumes in 2004 will approximate its
2003 production volumes, and sales volumes are expected to be slightly higher
in 2004 as compared to 2003. Kronos’ average Ti02 selling price, which
declined during the second half of 2003, is expected to continue to decline
during the first quarter of 2004. Kronos is hopeful that its average selling
prices will cease to decline sometime during the first half of 2004 and will
rise thereafter. Nevertheless, Kronos expects its average TiO2 selling prices,
in billing currencies, will be lower in 2004 as compared to 2003. Overall,
Kronos expects its operating income in 2004 will be lower than 2003. Kronos'
expectations as to the future prospects of Kronos and the TiO2 industry are
based upon a number of factors beyond its control, including worldwide growth
of gross domestic product, competition in the marketplace, unexpected or
earlier-than-expected capacity additions and technological advances. If actual
developments differ from Kronos’ expectations, Kronos’ results of operations
could be unfavorably affected.
The following table sets forth certain information regarding other income and
expense items.
Years ended December 31, Change
2001-02 2002-03
2003
(In millions)
2001
2002
Trade interest income
Interest income from
$ 2.3 $ 1.7 $ .7 $ (.6) $ (1.0)
affiliates
33.4 20.7 .7 (12.7) (20.0)
Other interest income
.3 .7 .2 .4 (.5)
Currency transaction gains - 6.3 - 6.3 (6.3)
Insurance recoveries, net 17.5 - - (17.5) -
Interest expense
Interest expense to
(4.3) (16.8) (33.0) (12.5) (16.2)
affiliates
(22.9) (12.3) (1.8) 10.6 10.5
$(26.3) $ .3 $(33.2) $(26.0) $(33.5)
Interest income fluctuates in part based upon the amount of funds
invested and yields thereon. Aggregate interest income declined $21.0 million
in 2003 compared to 2002 and $13.3 million in 2002 compared with 2001
primarily due to lower average yields on invested funds. The Company expects
interest income will be lower in 2004 than 2003 due to lower average funds
available for investment and to lower average yields and lower average levels
of funds available for investment.
In June 2002 Kronos International, Inc. (“KII”), a wholly-owned
subsidiary of the Company, sold €285 million of its 8.875% Senior Secured
Notes (the “Notes”) due 2009. KII used the net proceeds of the Notes offering
to repay certain intercompany indebtedness owed to the Company, a portion of
which the Company used to redeem at par all of its outstanding 11.75% Senior
Secured Notes due 2003, plus accrued interest. As a result of the
refinancing, the Company recognized a foreign currency transaction gain of
$6.3 million in 2002 related to the extinguishment of certain intercompany
indebtedness. See Note 8 to the Consolidated Financial Statements.
The insurance recoveries, net of $17.5 million in 2001 related to
insurance proceeds received from property damage resulting from the Leverkusen
fire. The insurance proceeds received exceeded the carrying value of the
-18-
property destroyed and cleanup costs incurred. See Note 14 to the
Consolidated Financial Statements.
Aggregate interest expense in 2003 increased $5.7 million compared to
2002 primarily due to higher levels of outstanding debt and associated
currency effects, partially offset by lower interest rates. Aggregate
interest expense in 2002 increased $1.9 million compared with 2001 primarily
due to $2.0 million of additional second-quarter 2002 interest expense related
to the early extinguishment of the Company’s 11.75% Senior Secured Notes. See
Note 8 to the Consolidated Financial Statements. Assuming no significant
change in interest rates, interest expense in 2004 is expected to be higher
compared with 2003 due to higher average levels of outstanding indebtedness,
partially offset by lower average interest rates.
Provision for income taxes. The principal reasons for the difference
between the Company's effective income tax rates and the U.S. federal
statutory income tax rates are explained in Note 12 to the Consolidated
Financial Statements. Income tax rates vary by jurisdiction (country and/or
state), and relative changes in the geographic mix of the Company's pre-tax
earnings can result in fluctuations in the effective income tax rate.
During 2003, the Company reduced its deferred income tax asset valuation
allowance by approximately $6.7 million, primarily as a result of utilization
of certain income tax attributes for which the benefit had not previously been
recognized. In addition, the Company recognized a $38.0 million income tax
benefit related to the net refund of certain prior year German income taxes.
During 2002, the Company reduced its deferred income tax asset valuation
allowance by approximately $1.8 million, primarily as a result of utilization
of certain income tax attributes for which the benefit had not previously been
recognized. The provision for income taxes in 2002 also includes a $2.3
million deferred income tax benefit related to certain changes in the Belgian
tax law.
During 2001, the Company reduced its deferred income tax asset valuation
allowance by $23.2 million. This entire reduction related to a change in
estimate of the Company’s ability to utilize certain German income tax
attributes following the completion of a restructuring of its German
operations, the benefit of which had not previously been recognized under the
"more-likely-than-not" recognition criteria.
At December 31, 2003, the Company had the equivalent of approximately
$438 million of income tax loss carryforwards in Germany with no expiration
date. However, the Company has provided a deferred tax valuation allowance
against substantially all of these income tax loss carryforwards because the
Company currently believes they do not meet the “more-likely-than-not”
recognition criteria. The Company periodically evaluates the “more-likely-
than-not” recognition criteria with respect to such tax loss carryforwards,
and it is possible that in the future the Company may conclude such
carryforwards do meet the recognition criteria, at which time the Company
would reverse all or a portion of such deferred tax valuation allowance.
In January 2004, the German federal government enacted new tax law
amendments that limit the annual utilization of income tax loss carryforward
effective January 1, 2004. The new law may significantly affect Kronos’
future income tax expense and cash tax payments.
Related party transactions. The Company is a party to certain
transactions with related parties. See Note 15 to the Consolidated Financial
Statements.
Accounting principles newly adopted in 2003. See Note 18 to the
Consolidated Financial Statements.
-19-
Accounting principles not yet adopted. See Note 20 to the Consolidated
Financial Statements.
Defined benefit pension plans. The Company maintains various defined
benefit pension plans in the U.S., Europe and Canada. See Note 13 to the
Consolidated Financial Statements.
The Company accounts for its defined benefit pension plans using SFAS
No. 87, “Employer’s Accounting for Pensions.” Under SFAS No. 87, defined
benefit pension plan expense and prepaid and accrued pension costs are each
recognized based on certain actuarial assumptions, principally the assumed
discount rate, the assumed long-term rate of return on plan assets and the
assumed increase in future compensation levels. The Company recognized
consolidated defined benefit pension plan expense of $5.0 million in 2001,
$7.1 million in 2002 and $8.4 million in 2003. The amount of funding
requirements for these defined benefit pension plans is generally based upon
applicable regulations (such as ERISA in the U.S.), and will generally differ
from pension expense recognized under SFAS No. 87 for financial reporting
purposes. Contributions made by the Company to all of its plans aggregated
$7.4 million in 2001, $9.0 million in 2002 and $13.6 million in 2003.
The discount rates the Company utilizes for determining defined benefit
pension expense and the related pension obligations are based on current
interest rates earned on long-term bonds that receive one of the two highest
ratings given by recognized rating agencies in the applicable country where
the defined benefit pension benefits are being paid. In addition, the Company
receives advice about appropriate discount rates from the Company’s third-
party actuaries, who may in some cases utilize their own market indices. The
discount rates are adjusted as of each valuation date (September 30th) to
reflect then-current interest rates on such long-term bonds. Such discount
rates are used to determine the actuarial present value of the pension
obligations as of December 31st of that year, and such discount rates are also
used to determine the interest component of defined benefit pension expense
for the following year.
At December 31, 2003, approximately 4%, 63%, 12% and 17% of the
projected benefit obligation related to Company plans in the U.S., Germany,
Canada and Norway, respectively. The Company uses several different discount
rate assumptions in determining its consolidated defined benefit pension plan
obligations and expense because the Company maintains defined benefit pension
plans in several different countries in North America and Europe and the
interest rate environment differs from country to country.
The Company used the following discount rates for its defined benefit
pension plans:
Discount rates used for:
Obligations at
December 31, 2001
and expense in 2002
Obligations at
December 31, 2002
and expense in 2003
Obligations at
December 31, 2003
and expense in 2004
Germany
Canada
Norway
5.8%
7.3%
6.0%
5.5%
7.0%
6.0%
5.3%
6.3%
5.5%
The assumed long-term rate of return on plan assets represents the
estimated average rate of earnings expected to be earned on the funds invested
or to be invested in the plans’ assets provided to fund the benefit payments
inherent in the projected benefit obligations. Unlike the discount rate,
which is adjusted each year based on changes in current long-term interest
-20-
rates, the assumed long-term rate of return on plan assets will not
necessarily change based upon the actual, short-term performance of the plan
assets in any given year. Defined benefit pension expense each year is based
upon the assumed long-term rate of return on plan assets for each plan and the
actual fair value of the plan assets as of the beginning of the year.
Differences between the expected return on plan assets for a given year and
the actual return are deferred and amortized over future periods based either
upon the expected average remaining service life of the active plan
participants (for plans for which benefits are still being earned by active
employees) or the average remaining life expectancy of the inactive
participants (for plans for which benefits are not still being earned by
active employees).
At December 31, 2003, approximately 5%, 57%, 12% and 22% of the plan
assets related to plan assets for the Company’s plans in the U.S., Germany,
Canada and Norway, respectively. The Company uses several different long-term
rates of return on plan asset assumptions in determining its consolidated
defined benefit pension plan expense because the Company maintains defined
benefit pension plans in several different countries in North America and
Europe, the plan assets in different countries are invested in a different mix
of investments and the long-term rates of return for different investments
differ from country to country.
In determining the expected long-term rate of return on plan asset
assumptions, the Company considers the long-term asset mix (e.g. equity vs.
fixed income) for the assets for each of its plans and the expected long-term
rates of return for such asset components. In addition, the Company receives
advice about appropriate long-term rates of return from the Company’s third-
party actuaries. Such assumed asset mixes are summarized below:
• In Germany, the composition of the Company’s plan assets is established
to satisfy the requirements of the German insurance commissioner. The
current plan asset allocation at December 31, 2003 was 25% to equity
managers and 75% to fixed income managers.
• In Canada, the Company currently has a plan asset target allocation of
65% to equity managers and 35% to fixed income managers, with an
expected long-term rate of return for such investments to average
approximately 125 basis points above the applicable equity or fixed
income index. The current plan asset allocation at December 31, 2003
was 57% to equity managers and 43% to fixed income managers.
• In Norway, the Company currently has a plan asset target allocation of
14% to equity managers and 86% to fixed income managers, with an
expected long-term rate of return for such investments of approximately
8% and 6%, respectively. The current plan asset allocation at December
31, 2003 was 15% to equity managers and 85% to fixed income managers.
The Company regularly reviews its actual asset allocation for each of
its plans, and will periodically rebalance the investments in each plan to
more accurately reflect the targeted allocation when considered appropriate.
The Company’s assumed long-term rates of return on plan assets for 2001,
2002 and 2003 were as follows:
Germany
Canada
Norway
2001
2002
2003
7.3%
7.8%
7.0%
6.8%
7.0%
7.0%
6.5%
7.0%
6.0%
The Company currently expects to utilize the same long-term rate of
return on plan asset assumptions in 2004 as it used in 2003 for purposes of
determining the 2004 defined benefit pension plan expense.
-21-
To the extent that a plan’s particular pension benefit formula
calculates the pension benefit in whole or in part based upon future
compensation levels, the projected benefit obligations and the pension expense
will be based in part upon expected increases in future compensation levels.
For all of the Company’s plans for which the benefit formula is so calculated,
the Company generally bases the assumed expected increase in future
compensation levels upon average long-term inflation rates for the applicable
country.
In addition to the actuarial assumptions discussed above, because the
Company maintains defined benefit pension plans outside the U.S., the amount
of recognized defined benefit pension expense and the amount of prepaid and
accrued pension costs will vary based upon relative changes in foreign
currency exchange rates.
Based on the actuarial assumptions described above and the Company’s
current expectation for what actual average foreign currency exchange rates
will be during 2004, the Company expects its defined benefit pension expense
will approximate $13 million in 2004. In comparison, the Company expects to
be required to make approximately $9 million of contributions to such plans
during 2004.
As noted above, defined benefit pension expense and the amount
recognized as prepaid and accrued pension costs are based upon the actuarial
assumptions discussed above. The Company believes all of the actuarial
assumptions used are reasonable and appropriate. If the Company had lowered
the assumed discount rate by 25 basis points for all of its plans as of
December 31, 2003, the Company’s aggregate projected benefit obligations would
have increased by approximately $11.6 million at that date, and the Company’s
defined benefit pension expense would be expected to increase by approximately
$1.6 million during 2004. Similarly, if the Company lowered the assumed long-
term rate of return on plan assets by 25 basis points for all of its plans,
the Company’s defined benefit pension expense would be expected to increase by
approximately $600,000 during 2004.
OPEB plans. Certain subsidiaries of the Company in the U.S. and Canada
currently provide certain health care and life insurance benefits for eligible
retired employees. See Note 13 to the Consolidated Financial Statements.
The Company accounts for such OPEB costs under SFAS No. 106, Employers
Accounting for Postretirement Benefits other than Pensions. Under SFAS No.
106, OPEB expense and accrued OPEB costs are based on certain actuarial
assumptions, principally the assumed discount rate and the assumed rate of
increases in future health care costs. The Company recognized consolidated
OPEB income of approximately $76,000 in 2001, $265,000 in 2002 and $133,000 in
2003. Similar to defined benefit pension benefits, the amount of funding will
differ from the expense recognized for financial reporting purposes, and
contributions to the plans to cover benefit payments aggregated $1.2 million
in 2001 and $1.0 million in 2002 and 2003.
The assumed discount rates the Company utilizes for determining OPEB
expense and the related accrued OPEB obligations are generally based on the
same discount rates the Company utilizes for its Canadian defined benefit
pension plans.
In estimating the health care cost trend rate, the Company considers its
actual health care cost experience, future benefit structures, industry trends
and advice from its third-party actuaries. During each of the past three
years, the Company has assumed that the relative increase in health care costs
will generally trend downward over the next several years, reflecting, among
other things, assumed increases in efficiency in the health care system and
industry-wide cost containment initiatives. For example, at December 31,
-22-
2003, the expected rate of increase in future health care costs ranges from
10% in 2004, declining to 5.5% in 2009 and thereafter.
Based on the actuarial assumptions described above and the Company’s
current expectation for what actual average foreign currency exchange rates
will be during 2004, the Company expects its consolidated OPEB credit will
approximate $200,000 in 2004. In comparison, the Company expects to be
required to make approximately $2 million of contributions to such plans
during 2004.
As noted above, OPEB expense and the amount recognized as accrued OPEB
costs are based upon the actuarial assumptions discussed above. The Company
believes all of the actuarial assumptions used are reasonable and appropriate.
If the Company had lowered the assumed discount rate by 25 basis points for
all of its OPEB plans as of December 31, 2003, the Company’s aggregate
projected benefit obligations would have increased by approximately $400,000
at that date, and the Company’s OPEB expense would be expected to increase by
less than $50,000 during 2004. Similarly, if the assumed future health care
cost trend rate had been increased by 100 basis points, the Company’s
accumulated OPEB obligations would have increased by approximately $1.1
million at December 31, 2003, and OPEB expense would have increased by
$200,000 in 2003.
Foreign operations
The Company has substantial operations located outside the United States
(principally Europe and Canada) for which the functional currency is not the
U.S. dollar. As a result, the reported amount of the Company’s assets and
liabilities related to its non-U.S. operations, and therefore the Company’s
consolidated net assets, will fluctuate based upon changes in currency
exchange rates. As of January 1, 2001, the functional currency of the
Company’s German, Belgian, Dutch and French operations had been converted to
the euro from their respective national currencies. At December 31, 2003, the
Company had substantial net assets denominated in the euro, Canadian dollar,
Norwegian kroner and United Kingdom pound sterling.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash flows
The Company’s consolidated cash flows for each of the past three years
are presented below:
Operating activities
Investing activities
Financing activities
Years ended December 31,
2001
2003
2002
(In millions)
$ 135.7 $ 111.1 $ 107.6
(33.7) (34.6) (35.4)
(99.0) (93.9) (61.8)
Net cash provided (used) by operating,
investing and financing activities
$ 3.0 $ (17.4) $ 10.4
Operating cash flows. Certain items included in the determination of
net income do not represent current inflows or outflows of cash. For example,
insurance recoveries, net of $17.5 million in 2001, are excluded from the
determination of operating cash flow. These insurance proceeds are shown in
the statement of cash flows under investing activities to partially offset the
cash outflow impact of capital expenditures related to the Leverkusen sulfate
plant reconstruction. Certain other items included in the determination of
-23-
net income have an impact on cash flows from operating activities, but the
impact of such items on cash will differ from their impact on net income. For
example, the amount of income or expense recorded for pension and OPEB assets
and obligations (which depend upon a number of factors, including actuarial
assumptions used to value obligations) will generally differ from the outflows
of cash for such benefits. See Note 13 to the Company’s Consolidated
Financial Statements.
The TiO2 industry is cyclical and changes in economic conditions within
the industry significantly impact the earnings and operating cash flows of the
Company. Cash flow from operations is considered the primary source of
liquidity for the Company. Changes in TiO2 pricing, production volume and
customer demand, among other things, could significantly affect the liquidity
of the Company.
Relative changes in assets and liabilities generally result from the
timing of production, sales, purchases and income tax payments. Such relative
changes can significantly impact the comparability of cash flow from
operations from period to period, as the income statement impact of such items
may occur in a different period from when the underlying cash transaction
occurs. For example, raw materials may be purchased in one period, but the
payment for such raw materials may occur in a subsequent period. Similarly,
inventory may be sold in one period, but the cash collection of the receivable
may occur in a subsequent period.
Cash flows from operating activities decreased from $111.1 million in
2002 to $107.7 million in 2003. This $3.4 million decrease was due primarily
to the effect of (i) higher net income of $21.3 million, (ii) higher
depreciation expense of $7.3 million, (iii) lower net distributions from the
TiO2 manufacturing joint venture of $875,000 in 2003 compared to $8.0 million
in 2002, (iv) a lower amount of net cash generated from relative changes in
the Company’s inventories, receivables, payables and accruals and accounts
with affiliates of $30.7 million in 2003 as compared to 2002 and (v) lower
cash paid for income taxes of $15.8 million. Relative changes in accounts
receivable are affected by, among other things, the timing of sales and the
collection of the resulting receivable. Relative changes in inventories and
accounts payable and accrued liabilities are affected by, among other things,
the timing of raw material purchases and the payment for such purchases and
the relative difference between production volume and sales volume.
Cash flows from operating activities decreased from $135.7 million in
2001 to $111.1 million in 2002. This $24.6 million decrease was due primarily
to the net effect of (i) lower net income of $88.2 million, (ii) higher
depreciation expense of $3.2 million, (iii) insurance recoveries, net of $17.5
million in 2001 as compared to nil in 2002, (iv) lower distributions from the
manufacturing joint venture of $3.4 million in 2002 and (vi) a higher amount
of net cash generated from relative changes in the Company’s inventories,
receivables, payables and accruals and accounts with affiliates of $22.9
million in 2002 as compared to 2001. Relative changes in accounts receivable
are affected by, among other things, the timing of sales and the collection of
the resulting receivable.
Investing cash flows. The Company’s capital expenditures were $53.7
million, $32.6 million and $35.2 million in 2001, 2002 and 2003, respectively.
Capital expenditures in 2001 and 2002 included an aggregate of $22.3 million
and $3.1 million, respectively, for the rebuilding of the Company’s
Leverkusen, Germany sulfate plant. In 2001 the Company received $23.4 million
of insurance proceeds for property damage resulting from the Leverkusen fire
and paid $3.2 million of expenses related to repairs and clean-up costs.
The Company’s capital expenditures during the past three years include
an aggregate of approximately $15.4 million ($5.4 million in 2003) for the
Company’s ongoing environmental protection and compliance programs. The
-24-
Company’s estimated 2004 capital expenditures are $38 million and include
approximately $5 million in the area of environmental protection and
compliance.
Financing cash flows. In March 2003, KII’s operating subsidiaries in
Germany, Belgium and Norway borrowed €15 million ($16.1 million when
borrowed), in April 2003, repaid NOK 80 million ($11.0 million when repaid)
and in the third quarter of 2003, repaid €30.0 million ($33.9 million when
repaid) under its three-year €80 million secured revolving credit facility
(“European Credit Facility”). See Note 8 to the Consolidated Financial
Statements.
In March 2002 the Company redeemed $25 million principal amount of its
11.75% Senior Secured Notes using available cash on hand, and in June 2002 the
Company redeemed the remaining $169 million principal amount of such 11.75%
Senior Secured Notes using a portion of the proceeds from the June 2002
issuance of the €285 million principal amount of the KII 8.875% Senior Secured
Notes ($280 million when issued). Also in June 2002, KII’s operating
subsidiaries in Germany, Belgium and Norway borrowed €13 million ($13 million)
and NOK 200 million ($26 million) which, along with available cash, was used
to repay and terminate KII’s short term notes payable ($53.2 million when
repaid). In 2002, the Company repaid a net euro-equivalent 12.7 million
($12.4 million when repaid) and 1.7 million ($1.6 million when repaid),
respectively, of the European Credit Facility.
In September 2002 the Company’s U.S. operating subsidiaries entered into
a three-year $50 million asset-based revolving credit facility (“U.S. Credit
Facility”). As of December 31, 2003, no borrowings were outstanding under the
U.S. Credit Facility and borrowing availability was approximately $39 million.
See Note 8 to the Consolidated Financial Statements.
Deferred financing costs of $10.7 million for the Notes, the European
Credit Facility and the U.S. Credit Facility are being amortized over the life
of the respective agreements and are included in other noncurrent assets as of
December 31, 2003.
In 2001 the Company repaid €7.6 million ($6.5 million when paid) and
€16.4 million ($14.9 million when paid), respectively, of its euro-denominated
short-term debt with excess cash flow from operations.
Other than operating lease commitments disclosed in Note 16 to the
Consolidated Financial Statements, the Company is not party to any material
off-balance sheet financing arrangements.
Cash dividends paid during 2001, 2002 and 2003 totaled $30.5 million,
$111.0 million and $7.0 million, respectively. On February 19, 2004, the
Company’s Board of Directors declared a regular quarterly dividend of $.25 per
share to stockholders of record as of March 11, 2004 to be paid on March 26,
2004. The declaration and payment of future dividends is discretionary, and
the amount, if any, will be dependent upon the Company’s results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Company’s Board of Directors.
Cash flows related to capital contributions and other transactions with
affiliates aggregated net cash outflows of $47.5 million and $73.7 million in
2001 and 2002, respectively and a net cash inflow of $19.7 million in 2003.
Such amounts related principally to loans that Kronos made to affiliates (such
notes receivable from affiliates being reported as reductions to Kronos’
stockholders’ equity, and therefore considered financing cash flows).
Additionally, settlement of the above-mentioned notes receivable from
affiliates was not then currently contemplated in the foreseeable future. In
2002, Kronos transferred certain such notes receivable from affiliates to NL,
-25-
and as a result, Kronos will no longer report cash flows related to certain
such notes receivable from affiliates. Such net cash flows in 2002 also
included $9.2 million related to the Company’s purchase of EWI RE, Inc. See
Note 1 to the Consolidated Financial Statements.
Cash, cash equivalents, restricted cash and restricted marketable debt
securities and borrowing availability.
At December 31, 2003, the Company
had current cash and cash equivalents aggregating $55.9 million ($41 million
held by non-U.S. subsidiaries). At December 31, 2003, the Company’s U.S. and
non-U.S. subsidiaries had current restricted cash equivalents of $1.3 million
and noncurrent restricted marketable debt securities of $2.6 million. At
December 31, 2003, certain of the Company’s subsidiaries had approximately
$139 million available for borrowing with approximately $100 million available
under non-U.S. credit facilities (including approximately $97 million under
the European Credit Facility) and approximately $39 million available under
the U.S. Credit Facility (based on borrowing availability). At December 31,
2003, KII had approximately $70 million available for payment of dividends and
other restricted payments as defined in the Notes indenture. At December 31,
2003, the Company had complied with all financial covenants governing its debt
agreements.
Based upon the Company’s expectations for the TiO2 industry and
anticipated demands on the Company’s cash resources as discussed herein, the
Company expects to have sufficient liquidity to meet its near-term obligations
including operations, capital expenditures, debt service and current dividend
policy. To the extent that actual developments differ from Company’s
expectations, the Company’s liquidity could be adversely affected.
Legal proceedings and environmental matters. See Note 16 to the
Consolidated Financial Statements for certain legal proceedings and
environmental matters with respect to the Company.
Foreign operations. As discussed above, the Company has substantial
operations located outside the United States for which the functional currency
is not the U.S. dollar. As a result, the reported amount of the Company’s
assets and liabilities related to its non-U.S. operations, and therefore the
Company’s consolidated net assets, will fluctuate based upon changes in
currency exchange rates. As of January 1, 2001, the functional currency of
the Company’s German, Belgian, Dutch and French operations have been converted
to the euro from their respective national currencies. At December 31, 2003,
the Company had substantial net assets denominated in the euro, Canadian
dollar, Norwegian kroner and United Kingdom pound sterling.
Other. The Company periodically evaluates its liquidity requirements,
alternative uses of capital, capital needs and availability of resources in
view of, among other things, its dividend policy, its debt service and capital
expenditure requirements and estimated future operating cash flows. As a
result of this process, the Company in the past has sought, and in the future
may seek, to reduce, refinance, repurchase or restructure indebtedness; raise
additional capital; issue additional securities; repurchase shares of its
common stock; modify its dividend policy; restructure ownership interests;
sell interests in subsidiaries or other assets; or take a combination of such
steps or other steps to manage its liquidity and capital resources. In the
normal course of its business, the Company may review opportunities for the
acquisition, divestiture, joint venture or other business combinations in the
chemicals or other industries, as well as the acquisition of interests in
related companies. In the event of any acquisition or joint venture
transaction, the Company may consider using available cash, issuing equity
securities or increasing its indebtedness to the extent permitted by the
agreements governing the Company’s existing debt. See Note 8 to the
Consolidated Financial Statements.
-26-
Summary of debt and other contractual commitments
As more fully described in the notes to the Consolidated Financial
Statements, the Company is a party to various debt, lease and other agreements
which contractually and unconditionally commit the Company to pay certain
amounts in the future. See Notes 8 and 16 to the Consolidated Financial
Statements. The following table summarizes such contractual commitments of
the Company and its consolidated subsidiaries that are unconditional both in
terms of timing and amount by the type and date of payment.
Unconditional payment due date
Contractual commitment
2004
2005/2006
2007/2008
(In millions)
2009 and
after
Total
Third-party indebtedness
$ .3
$ .3
$ -
$ 356.1
$ 356.7
Operating leases
3.3
3.7
2.5
19.9
29.4
Fixed asset acquisitions
9.6
-
-
-
9.6
Long-term supply contracts
for the purchase of TiO2
feedstock
Asset retirement
146.1
265.8
135.0
-
546.9
obligations and other
-
-
-
5.8
5.8
$ 159.3
$ 269.8
$ 137.5
$ 381.8
$ 948.4
The above table does not reflect any amounts that the Company might pay
to fund its defined benefit pension plans and OPEB plans, as the timing and
amount of any such future fundings are unknown and dependent on, among other
things, the future performance of defined benefit pension plan assets,
interest rate assumptions and actual future retiree medical costs. Such
defined benefit pension plans and OPEB plans are discussed above in greater
detail.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. The Company is exposed to market risk from changes in foreign
currency exchange rates, interest rates and equity security prices. In the
past, the Company has periodically entered into interest rate swaps or other
types of contracts in order to manage a portion of its interest rate market
risk. Otherwise, the Company does not generally enter into forward or option
contracts to manage such market risks, nor does the Company enter into any such
contract or other type of derivative instrument for trading or speculative
purposes. Other than as described below, the Company was not a party to any
material forward or derivative option contract related to foreign exchange
rates, interest rates or equity security prices at December 31, 2002 and 2003.
See Notes 1 and 17 to the Consolidated Financial Statements.
Interest rates. The Company is exposed to market risk from changes in
interest rates, primarily related to indebtedness. At December 31, 2003,
substantially all of the Company’s aggregate indebtedness was comprised of
fixed-rate instruments (2002 - 92% of fixed-rate instruments and 8% of variable
rate borrowings). The large percentage of fixed-rate debt instruments
minimizes earnings volatility that would result from changes in interest rates.
The following table presents principal amounts and weighted average interest
rates for the Company’s aggregate outstanding indebtedness at December 31,
-27-
2003. At December 31, 2002 and 2003, all outstanding fixed-rate indebtedness
was denominated in U.S. dollars or the euro, and the outstanding variable rate
borrowings were denominated in U.S. dollars, the euro or the Norwegian kroner.
Information shown below for such foreign currency denominated indebtedness is
presented in its U.S. dollar equivalent at December 31, 2003 using exchange
rates of 1.25 U.S. dollars per euro. Certain Norwegian kroner denominated
capital leases totaling $700,000 in 2003 have been excluded from the table
below.
Indebtedness
Fixed-rate indebtedness:
Euro-denominated KII
Senior Secured Notes
Amount
Carrying
value
Fair
value
(In millions)
Interest
rate
Maturity
date
$ 356.1
$ 356.1
8.9%
2009
At December 31, 2002, fixed rate indebtedness aggregated $296.9 million
(fair value - $299.9 million) with a weighted-average interest rate of 8.9%;
and variable rate indebtedness at such date aggregated $27.1 million, which
approximates fair value, with a weighted-average interest rate of 6.5%. All of
such fixed rate indebtedness was denominated in euros. Such variable rate
indebtedness was denominated in the euro (58% of the total) or the Norwegian
kroner (42%).
Foreign currency exchange rates. The Company is exposed to market risk
arising from changes in foreign currency exchange rates as a result of
manufacturing and selling its products worldwide. Earnings are primarily
affected by fluctuations in the value of the U.S. dollar relative to the euro,
the Canadian dollar, the Norwegian kroner and the United Kingdom pound
sterling.
As described above, at December 31, 2003, the Company had the equivalent
of $356.1 million of outstanding euro-denominated indebtedness (2002 – the
equivalent of $312.5 million of euro-denominated indebtedness and $11.5
million of Norwegian kroner-denominated indebtedness). The potential increase
in the U.S. dollar equivalent of the principal amount outstanding resulting
from a hypothetical 10% adverse change in exchange rates at such date would be
approximately $35.6 million at December 31, 2003 (2002 - $32.4 million).
At December 31, 2003, the Company had entered into a short-term currency
forward contract maturing on January 2, 2004 to exchange an aggregate of €40
million into U.S. dollars at an exchange rate of U.S. $1.25 per euro. Such
contract was entered into in conjunction with the January 2004 payment of an
intercompany dividend from one of the Company’s European subsidiaries. At
December 31, 2004, the actual exchange rate was U.S. $1.25 per euro. The
estimated fair value of such foreign currency forward contract was not
material at December 31, 2003.
Other. The Company believes there may be a certain amount of
incompleteness in the sensitivity analyses presented above. For example, the
hypothetical effect of changes in exchange rates discussed above ignores the
potential effect on other variables which affect the Company’s results of
operations and cash flows, such as demand for the Company’s products, sales
volumes and selling prices and operating expenses. Accordingly, the amounts
presented above are not necessarily an accurate reflection of the potential
losses the Company would incur assuming the hypothetical changes in exchange
rates were actually to occur.
The above discussion and estimated sensitivity analysis amounts include
forward-looking statements of market risk which assume hypothetical changes in
currency exchange rates. Actual future market conditions will likely differ
-28-
materially from such assumptions. Accordingly, such forward-looking statements
should not be considered to be projections by the Company of future events,
gains or losses.
Non-GAAP financial measures. In an effort to provide investors with
additional information regarding the Company’s results as determined by GAAP,
Kronos has disclosed certain non-GAAP information which the Company believes
provides useful information to investors. As discussed above, the Company
discloses percentage changes in its average TiO2 prices in billing currencies,
which excludes the effects of foreign currency translation. Such disclosure
of the percentage change in Kronos' average TiO2 selling price in billing
currencies is considered a "non-GAAP" financial measure under regulations of
the SEC. The disclosure of the percentage change in the Company’s average
TiO2 selling prices using actual foreign currency exchange rates prevailing
during the respective periods is considered the most directly comparable GAAP
measure. The Company discloses percentage changes in its average TiO2 prices
in billing currencies because the Company believes such disclosure provides
useful information to investors to allow them to analyze such changes without
the impact of changes in foreign currency exchange rates, thereby facilitating
period-to-period comparisons of the 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 using actual exchange rates
prevailing during the respective periods.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in a separate
section of this Annual Report. See "Index of Financial Statements and
Schedules" (page F-1).
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures.
The term "disclosure controls and procedures," as defined by regulations of
the SEC, means controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that the Company files or
submits to the SEC under the Securities Exchange Act of 1934, as amended (the
"Act"), is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits to the SEC under the Act is accumulated and
communicated to the Company's management, including its principal executive
officer and its principal financial officer, as appropriate to allow timely
decisions to be made regarding required disclosure. Each of Harold C.
Simmons, the Company's Chief Executive Officer, and Gregory M. Swalwell, the
Company's Vice President and Chief Financial Officer, have evaluated the
Company's disclosure controls and procedures as of December 31, 2003. Based
upon their evaluation, these executive officers have concluded that the
Company's disclosure controls and procedures are effective as of the date of
such evaluation.
The Company also maintains a system of internal controls over financial
reporting. The term “internal control over financial reporting,” as defined
by regulations of the SEC, means a process designed by, or under the
supervision of, the Company’s principal executive and principal financial
-29-
officers, or persons performing similar functions, and effected by the
Company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America
(“GAAP)”, and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the Company,
• Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with GAAP,
and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the
Company, and
• Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets
that could have a material effect on the Company’s consolidated
financial statements.
There has been no change to the Company's system of internal controls over
financial reporting during the quarter ended December 31, 2003 that has
materially affected, or is reasonably likely to materially affect, the
Company’s system of internal controls over financial reporting.
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed with the SEC pursuant to
Regulation 14A within 120 days after the end of the fiscal year covered by this
report (the " Kronos Proxy Statement ").
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Kronos Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Kronos Proxy Statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Kronos Proxy Statement. See also Note 15 to the Consolidated Financial
Statements.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by the Item is incorporated by reference to the
Kronos Proxy Statement.
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ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PART IV
(a) and (d) Financial Statements and Schedules
The Registrant
The consolidated financial statements and schedules of the
Registrant listed on the accompanying Index of Financial
Statements and Schedules (see page F-1) are filed as part of this
Annual Report.
(b) Reports on Form 8-K
Reports on Form 8-K filed for the quarter ended December 31, 2003.
None.
(c) Exhibits
Included as exhibits are the items listed in the Exhibit Index.
The Company will furnish a copy of any of the exhibits listed
below upon payment of $4.00 per exhibit to cover the costs to the
Company of furnishing the exhibits. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, any instrument defining the
rights of holders of long-term debt issues and other agreements
related to indebtedness which do not exceed 10% of consolidated
total assets as of December 31, 2003 will be furnished to the
Commission upon request.
The Company will also furnish, without charge, a copy of its Code
of Business Conduct and Ethics, as adopted by the board of
directors on February 19, 2004, upon request. Such requests
should be directed to the attention of the Company’s Corporate
Secretary at the Company’s corporate offices located at 5430 LBJ
Freeway, Suite 1700, Dallas, TX 75240.
Item No.
Exhibit Index
2.1
3.1
3.2
4.1
Form of Distribution Agreement between NL Industries, Inc. and
Kronos Worldwide, Inc. – incorporated by reference to Exhibit 2.1
of the Registration Statement on Form 10 of the Registrant (File
No. 001-31763).
First Amended and Restated Certificate of Incorporation of Kronos
Worldwide, Inc. – incorporated by reference to Exhibit 3.1 of the
Registration statement on Form 10 of the Registrant (File No. 001-
31763).
Amended and Restated Bylaws of Kronos Worldwide, Inc. –
incorporated by reference to Exhibit 3.2 of the Registration
statement on Form 10 of the Registrant (File No. 001-31763).
Indenture governing the 8.875% Senior Secured Notes due 2009 dated
as of June 28, 2002, between Kronos International, Inc. and The
Bank of New York, as trustee - incorporated by reference to
Exhibit 4.1 to the Quarterly Report on Form 10-Q of NL Industries,
Inc. for the quarter ended June 30, 2002
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4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
10.1
10.2
Form of certificate of 8.875% Senior Secured Note due 2009
(included as Exhibit A to Exhibit 4.2) - incorporated by reference
to Exhibit 4.2 to Kronos International, Inc.'s Registration
Statement on Form S-4 (File No. 333-100047).
Form of certificate of 8.875% Senior Secured Note due 2009
(included as Exhibit B to Exhibit 4.2) - incorporated by reference
to Exhibit 4.3 to Kronos International Inc.'s Registration
Statement on Form S-4 (File No. 333-100047).
Purchase Agreement, dated as of June 19, 2002, among Kronos
International, Inc., Deutsche Bank AG London, Dresdner Bank AG,
London Branch, and Commerzbank Aktiengesellschaft, London Branch -
incorporated by reference to Exhibit 4.4 to the Quarterly Report
on Form 10-Q of NL Industries, Inc. for the quarter ended June 30,
2002.
Collateral Agency Agreement, dated as of June 28, 2002, among The
Bank of New York, U.S. Bank, N.A. and Kronos International, Inc.
(filed herewith only with respect to Sections 2, 5, 6 and 8
thereof) - incorporated by reference to Exhibit 4.6 to the
Quarterly Report on Form 10-Q of NL Industries, Inc. for the
quarter ended June 30, 2002.
Security Over Shares Agreement (shares of Kronos Limited), dated
June 28, 2002, between Kronos International, Inc. and The Bank of
New York, U.S., as trustee - incorporated by reference to Exhibit
4.7 to the Quarterly Report on Form 10-Q of NL Industries, Inc.
for the quarter ended June 30, 2002.
Pledge of Shares (shares of Kronos Denmark ApS), dated June 28,
2002, between Kronos International, Inc. and U.S. Bank, N.A., as
collateral agent - incorporated by reference to Exhibit 4.8 to the
Quarterly Report on Form 10-Q of NL Industries, Inc. for the
quarter ended June 30, 2002.
Pledge Agreement (pledge of shares of Societe Industrielle du
Titane, S.A.), dated June 28, 2002, between Kronos International,
Inc. and U.S. Bank, N.A., as collateral agent - incorporated by
reference to Exhibit 4.9 to the Quarterly Report on Form 10-Q of
NL Industries, Inc. for the quarter ended June 30, 2002.
Partnership Interest Pledge Agreement (pledge of fixed capital
contribution in Kronos Titan GmbH & Co. OHG), dated June 28, 2002,
between Kronos International, Inc. and U.S. Bank, N.A., as
collateral agent - incorporated by reference to Exhibit 4.10 to
the Quarterly Report on Form 10-Q of NL Industries, Inc. for the
quarter ended June 30, 2002.
Form of Tax Agreement between Valhi, Inc. and Kronos Worldwide,
Inc. – incorporated by reference to Exhibit 10.1 of the
Registration statement on Form 10 of the Registrant (File No. 001-
31763).
Form of Intercorporate Services Agreement between Contran
Corporation and Kronos Worldwide, Inc. – incorporated by reference
to Exhibit 10.2 of the Registration statement on Form 10 of the
Registrant (File No. 001-31763).
10.3
Form of Promissory Note made by Kronos Worldwide, Inc. in favor of
NL Industries, Inc. – incorporated by reference to Exhibit 10.3
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10.4**
10.5
10.6
10.7
10.8
10.9
10.10
10.11
of the Registration statement on Form 10 of the Registrant (File
No. 001-31763).
Form of Kronos Worldwide, Inc. Long-Term Incentive Plan –
incorporated by reference to Exhibit 10.4 of the Registration
statement on Form 10 of the Registrant (File No. 001-31763).
€80,000,000 Facility Agreement, dated June 25, 2002, among Kronos
Titan GmbH & Co. OHG, Kronos Europe S.A./N.V., Kronos Titan A/S
and Titania A/S, as borrowers, Kronos Titan GmbH & Co. OHG, Kronos
Europe S.A./N.V. and Kronos Norge AS, as guarantors, Kronos
Denmark ApS, as security provider, Deutsche Bank AG, as mandated
lead arranger, Deutsche Bank Luxembourg S.A., as agent and
security agent, and KBC Bank NV, as fronting bank, and the
financial institutions listed in Schedule 1 thereto, as lenders -
incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q of NL Industries, Inc. for the quarter ended June 30,
2002.
Lease Contract, dated June 21, 1952, between Farbenfabrieken Bayer
Aktiengesellschaft and Titangesellschaft mit beschrankter Haftung
(German language version and English translation thereof)-
incorporated by reference to Exhibit 10.14 to the Annual Report on
Form 10-K of NL Industries, Inc. for the year ended December 31,
1985.
Contract on Supplies and Services, dated as of June 30, 1995, among
Bayer AG, Kronos Titan-GmbH & Co. OHG and Kronos International,
Inc. (English translation from German language document) -
incorporated by reference to Exhibit 10.1 to Quarterly Report on
Form 10-Q of NL Industries, Inc. for the quarter ended September
30, 1995.
Master Technology Exchange Agreement, dated as of October 18,
1993, among Kronos Worldwide, Inc. (f/k/a Kronos, Inc.), Kronos
Louisiana, Inc., Kronos International, Inc., Tioxide Group Limited
and Tioxide Group Services Limited - incorporated by reference to
Exhibit 10.8 to the Quarterly Report on Form 10-Q of NL
Industries, Inc. for the quarter ended September 30, 1993.
Services Agreement, dated as of January 1, 1995, amended as of
April 1, 2002, among NL Industries, Inc., Kronos (US), Inc. and
Kronos International, Inc. - incorporated by reference to Exhibit
10.6 to Kronos International, Inc.'s Registration Statement on
Form S-4 (File No. 333-100047).
Form of Kronos Cost Sharing Agreement, effective as of January 1,
2002, among Kronos International, Inc., Kronos Europe S.A./N.V.,
Kronos (US), Inc., NL Industries, Inc., Kronos Titan GmbH & Co.
OHG, Societe Industrielle du Titane, S.A., Kronos Titan A/S,
Titania A/S, Kronos Limited, Kronos Canada, Inc., Kronos Denmark
ApS and Kronos Louisiana Inc. - incorporated by reference to
Exhibit 10.8 to Kronos International, Inc.'s Registration
Statement on Form S-4 (File No. 333-100047).
Form of Assignment and Assumption Agreement, dated as of January
1, 1999, between Kronos (US), Inc. and Kronos International, Inc.
- incorporated by reference to Exhibit 10.9 to Kronos
International, Inc.'s Registration Statement on Form S-4 (File No.
333-100047).
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10.12
10.13*
10.14*
10.15*
10.16*
10.17*
10.18
10.19
10.20
10.21
10.22
Form of Cross License Agreement, effective as of January 1, 1999,
between Kronos Inc. (formerly known as Kronos (USA), Inc.) and
Kronos International, Inc. - incorporated by reference to Exhibit
to Kronos International, Inc.'s Registration Statement on Form S-4
(File No. 333-100047).
Richards Bay Slag Sales Agreement dated May 1, 1995, between
Richards Bay Iron and Titanium (Proprietary) Limited and Kronos
Worldwide, Inc. (f/k/a Kronos, Inc.) - incorporated by reference
to Exhibit 10.17 to the Annual Report on Form 10-K for NL
Industries, Inc. for the year ended December 31, 1995.
Amendment to Richards Bay Slag Sales Agreement, dated May 1, 1999,
between Richards Bay Iron and Titanium (Proprietary) Limited and
Kronos Worldwide, Inc. (f/k/a Kronos, Inc.) - incorporated by
reference to Exhibit 10.4 to the Annual Report on Form 10-K for NL
Industries, Inc. for the year ended December 31, 1999.
Amendment to Richards Bay Slag Sales Agreement, dated June 1,
2001, between Richards Bay Iron and Titanium (Proprietary) Limited
and Kronos Worldwide, Inc. (f/k/a Kronos, Inc.) - incorporated by
reference to Exhibit 10.5 to the Annual Report on Form 10-K for NL
Industries, Inc. for the year ended December 31, 2001.
Amendment to Richards Bay Slag Sales Agreement dated December 20,
2002 between Richards Bay Iron and Titanium (Proprietary) Limited
and Kronos Worldwide, Inc. (f/k/a Kronos, Inc.) - incorporated by
reference to Exhibit 10.7 to the Annual Report on Form 10-K for NL
Industries, Inc. for the year ended December 31, 2002.
Amendment to Richards Bay Slag Sales Agreement dated October 31,
2003 between Richards Bay Iron and Titanium (Proprietary) Limited
and Kronos, Inc.
Agreement between Sachtleben Chemie GmbH and Kronos Titan-GmbH
effective December 30, 1986 - incorporated by reference to Exhibit
10.1 of Kronos International, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2002.
Supplementary Agreement to the Agreement of December 30, 1986
between Sachtleben Chemie GmbH and Kronos Titan-GmbH dated May 3,
1996 - incorporated by reference to Exhibit 10.2 of Kronos
International, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002.
Second Supplementary Agreement to the Contract dated December 30,
1986 between Sachtleben Chemie GmbH and Kronos Titan-GmbH dated
January 8, 2002 - incorporated by reference to Exhibit 10.3 of
Kronos International, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002.
Formation Agreement dated as of October 18, 1993 among Tioxide
Americas Inc., Kronos Louisiana, Inc. and Louisiana Pigment
Company, L.P. - incorporated by reference to Exhibit 10.2 to NL
Industries, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
Joint Venture Agreement dated as of October 18, 1993 between
Tioxide Americas Inc. and Kronos Louisiana, Inc. - incorporated by
reference to Exhibit 10.3 to NL Industries, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
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10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
Kronos Offtake Agreement dated as of October 18, 1993 between
Kronos Louisiana, Inc. and Louisiana Pigment Company, L.P. -
incorporated by reference to Exhibit 10.4 to NL Industries, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
Amendment No. 1 to Kronos Offtake Agreement dated as of December
20, 1995 between Kronos Louisiana, Inc. and Louisiana Pigment
Company, L.P. - incorporated by reference to Exhibit 10.22 to NL
Industries, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1995.
Tioxide Americas Offtake Agreement dated as of October 18, 1993
between Tioxide Americas Inc. and Louisiana Pigment Company, L.P.
- incorporated by reference to Exhibit 10.5 to NL Industries,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
Amendment No. 1 to Tioxide Americas Offtake Agreement dated as of
December 20, 1995 between Tioxide Americas Inc. and Louisiana
Pigment Company, L.P. - incorporated by reference to Exhibit 10.24
to NL Industries, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995.
TCI/KCI Output Purchase Agreement dated as of October 18, 1993
between Tioxide Canada Inc. and Kronos Canada, Inc. - incorporated
by reference to Exhibit 10.6 to NL Industries, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
TAI/KLA Output Purchase Agreement dated as of October 18, 1993
between Tioxide Americas Inc. and Kronos Louisiana, Inc. -
incorporated by reference to Exhibit 10.7 to NL Industries, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
Master Technology Exchange Agreement dated as of October 18, 1993
among Kronos Worldwide, Inc. (f/k/a Kronos, Inc.), Kronos
Louisiana, Inc., Kronos International, Inc., Tioxide Group Limited
and Tioxide Group Services Limited - incorporated by reference to
Exhibit 10.8 to NL Industries, Inc.'s Quarterly Report on Form 10-
Q for the quarter ended September 30, 1993.
Parents' Undertaking dated as of October 18, 1993 between ICI
American Holdings Inc. and Kronos Worldwide, Inc. (f/k/a Kronos,
Inc.) - incorporated by reference to Exhibit 10.9 to NL
Industries, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
Allocation Agreement dated as of October 18, 1993 between Tioxide
Americas Inc., ICI American Holdings, Inc., Kronos Worldwide, Inc.
(f/k/a Kronos, Inc.) and Kronos Louisiana, Inc. - incorporated by
reference to Exhibit 10.10 to NL Industries, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
Amendment dated August 11, 2003 to the Contract on Supplies and
Services among Bayer AG, Kronos Titan-GmbH & Co. OHG and Kronos
International (English translation of German language document) –
incorporated by reference to Exhibit 10.32 of the Registration
statement on Form 10 of the Registrant (File No. 001-31763).
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10.33
10.34**
International
Insurance sharing agreement dated October 30, 2003 by and among
Keystone
CompX
Consolidated Industries, Inc., Titanium Metals Corp., Valhi, Inc.,
NL Industries, Inc. and the Registrant – incorporated by reference
to Exhibit 10.48 to NL Industries, Inc.’s Annual Report on Form
10-K for the year ended December 31, 2003.
Corporation,
Contran
Inc.,
Summary of Consulting Arrangement beginning on August 1, 2003
between Lawrence A. Wigdor and Kronos Worldwide, Inc. –
incorporated by reference to Exhibit 10.50 to NL Industries,
Inc.’s Annual Report on Form 10-K for the year ended December 31,
2003.
21.1
31.1
31.2
32.1
Subsidiaries.
Certification.
Certification.
Certification.
___________________________________
*
Portions of the exhibit have been omitted pursuant to a request for
confidential treatment.
**
Management contact, compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Kronos Worldwide, Inc.
(Registrant)
By:/s/ Harold C. Simmons
Harold C. Simmons
March 8, 2004
(Chairman of the Board and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Harold C. Simmons /s/ Steven L. Watson__________
Harold C. Simmons, March 8, 2004
(Chairman of the Board and Chief
Executive Officer)
Steven L. Watson, March 8, 2004
(Director)
/s/ George E. Poston
George E. Poston, March 8, 2004
(Director)
/s/ Glenn R. Simmons__________
Glenn R. Simmons, March 8, 2004
(Director)
/s/ C. H. Moore, Jr.
C. H. Moore, Jr., March 8, 2004
(Director)
/s/ Gregory M. Swalwell_______
Gregory M. Swalwell, March 8, 2004
(Vice President, Chief Financial
Officer, Principal Financial Officer)
/s/ R. Gerald Turner
R. Gerald Turner, March 8, 2004
(Director)
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