Kronos Worldwide
2015
ANNUAL REPORT
KRONOS WORLDWIDE, INC. CORPORATE AND OTHER INFORMATION
Board of Directors
Keith R. Coogan (a)(b)
Private Investor
Loretta J. Feehan
Financial Consultant
C. H. Moore, Jr. (a)
Retired Partner
KPMG LLP
Bobby D. O’Brien
Vice Chairman, President
and Chief Executive Officer
Gen. Thomas P. Stafford (ret.) (a)(b)
United States Air Force (retired)
Dr. R. Gerald Turner (a)(b)
President
Southern Methodist University
Steven L. Watson
Chairman
Dr. C. Kern Wildenthal (a)(b)
President
Children’s Medical Center Foundation
Board Committees
(a) Audit Committee
(b) Management Development
and Compensation Committee
Annual Meeting
The 2016 Annual Meeting of Stockholders
will be held at the office of the Company,
Three Lincoln Centre, 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240-2697, on
the date and time as set forth in the notice
of the meeting, proxy statement and form
of proxy that will be mailed to
stockholders in advance of the meeting.
Stock Exchange
Kronos’ common shares are listed on the
New York Stock Exchange under the
symbol “KRO.”
Corporate and
Operating Management
Steven L. Watson
Chairman
Bobby D. O’Brien
Vice Chairman, President and
Chief Executive Officer
James M. Buch
Chief Operating Officer
Benjamin R. Corona
President, Global Sales Management
Gregory M. Swalwell
Executive Vice President
and Chief Financial Officer
Kelly D. Luttmer
Executive Vice President
and Global Tax Director
Brian W. Christian
Executive Vice President
Robert D. Graham
Executive Vice President
Clarence B. Brown, III
Vice President, Associate General
Counsel and Assistant Secretary
Steve S. Eaton
Vice President and Director of Internal
Control Over Financial Reporting
Tim C. Hafer
Vice President and Controller
Janet G. Keckeisen
Vice President, Corporate Strategy
and Investor Relations
Patricia A. Kropp
Vice President, Director
of Global Human Resources
A. Andrew R. Louis
Vice President, Secretary
and Associate General Counsel
H. Joseph Maas
Vice President, Marketing
and Communication
Andrew B. Nace
Vice President
Courtney J. Riley
Vice President,
Environmental Affairs
John A. Sunny
Vice President and
Chief Technology Officer
John A. St. Wrba
Vice President and Treasurer
Product Information
Information about our products and
services is available online or by
contacting:
Kronos Worldwide, Inc.
5 Cedar Brook, Drive
Cranbury, NJ. 08512
Phone: (609) 860-6200
Customer Service: 1-800-866-5600.
Email: kronos.marketing@kronosww.com
Transfer Agent
Computershare acts as transfer agent,
registrar and dividend paying agent for the
Company’s common stock.
Communications regarding stockholder
accounts, dividends and change of
address should be directed to:
Computershare Trust Company, N.A.
P.O. Box 30170
College Station, Texas 77842-3170
Telephone: (877) 373-6374
Internet address:
http://www.computershare.com/investor
Visit us on the Web
http://www.kronostio2.com
Form 10-K Report
The Company’s Annual Report on Form
10-K for the year ended December 31,
2015, as filed with the Securities and
Exchange Commission is printed as part
of this Annual Report. Additional copies
are available without charge upon written
request to:
Janet G. Keckeisen
Vice President, Investor Relations
Kronos Worldwide, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95) Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934:
For the fiscal year ended December 31, 2015
Commission file number 1-31763
KRONOS WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
76-0294959
(IRS Employer
Identification No.)
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
(Address of principal executive offices)
Registrant’s telephone number, including area code: (972) 233-1700
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
No securities are registered pursuant to Section 12(g) of the Act.
Indicate by check mark:
If the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:95)
If the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:95)
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 (cid:95) No (cid:133)
Whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the Registrant was required to submit and post such files). Yes (cid:95) No (cid:133)
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. Yes (cid:133) No (cid:95)
Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company (as defined in Rule 12b-2 of the Act).
Large accelerated filer (cid:133) Accelerated filer (cid:95) Non-accelerated filer (cid:133) Smaller reporting company (cid:133)
Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:95)
The aggregate market value of the 21.0 million shares of voting stock held by nonaffiliates of Kronos Worldwide, Inc. as of
June 30, 2015 (the last business day of the Registrant’s most recently-completed second fiscal quarter) approximated
$229.7 million.
As of February 29, 2016, 115,880,598 shares of the Registrant’s common stock were outstanding.
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.
Documents incorporated by reference
Forward-Looking Information
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended. Statements in this Annual Report that are not historical facts
are forward-looking in nature and represent management’s beliefs and assumptions based on currently available
information. In some cases, you can identify forward-looking statements by the use of words such as “believes,”
“intends,” “may,” “should,” “could,” “anticipates,” “expects” or comparable terminology, or by discussions of
strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are
reasonable, we do not know if these expectations will be correct. Such statements by their nature involve substantial
risks and uncertainties that could significantly impact expected results. Actual future results could differ materially
from those predicted. The factors that could cause actual future results to differ materially from those described
herein are the risks and uncertainties discussed in this Annual Report and those described from time to time in our
other filings with the SEC include, but are not limited to, the following:
(cid:120) Future supply and demand for our products
(cid:120) The extent of the dependence of certain of our businesses on certain market sectors
(cid:120) The cyclicality of our business
(cid:120) Customer and producer inventory levels
(cid:120) Unexpected or earlier-than-expected industry capacity expansion
(cid:120) Changes in raw material and other operating costs (such as energy and ore costs)
(cid:120) Changes in the availability of raw materials (such as ore)
(cid:120) 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)
(cid:120) Competitive products and substitute products
(cid:120) Customer and competitor strategies
(cid:120) Potential consolidation of our competitors
(cid:120) Potential consolidation of our customers
(cid:120) The impact of pricing and production decisions
(cid:120) Competitive technology positions
(cid:120) Potential difficulties in upgrading or implementing new accounting and manufacturing software
systems
(cid:120) The introduction of trade barriers
(cid:120) Possible disruption of our business, or increases in our cost of doing business, resulting from terrorist
activities or global conflicts
(cid:120) Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar
and each of the euro, the Norwegian krone and the Canadian dollar), or possible disruptions to our
business resulting from potential instability resulting from uncertainties associated with the euro or
other currencies
(cid:120) Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires,
explosions, unscheduled or unplanned downtime, transportation interruptions and cyber attacks)
(cid:120) Our ability to renew or refinance credit facilities
(cid:120) Our ability to maintain sufficient liquidity
(cid:120) The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters
2
(cid:120) Our ability to utilize income tax attributes, the benefits of which may not have been recognized under
the more-likely-than-not recognition criteria
(cid:120) Environmental matters (such as those requiring compliance with emission and discharge standards for
existing and new facilities)
(cid:120) Government laws and regulations and possible changes therein
(cid:120) The ultimate resolution of pending litigation
(cid:120) 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. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a
result of changes in information, future events or otherwise.
3
ITEM 1.
General
BUSINESS
PART I
Kronos Worldwide, Inc. (NYSE: KRO) (Kronos), a Delaware corporation, is a leading global producer and
marketer of value-added titanium dioxide pigments, or TiO2, a base industrial product used in a wide range of
applications. We, along with our distributors and agents, sell and provide technical services for our products to
approximately 4,000 customers in 100 countries with the majority of sales in Europe and North America. We
believe we have developed considerable expertise and efficiency in the manufacture, sale, shipment and service of
our products in domestic and international markets.
TiO2 is a white inorganic pigment used in a wide range of products for its exceptional durability and its
ability to impart whiteness, brightness and opacity. TiO2 is a critical component of everyday applications, such as
coatings, plastics and paper, as well as many specialty products such as inks, food and cosmetics. TiO2 is widely
considered to be superior to alternative white pigments in large part due to its hiding power (or opacity), which is the
ability to cover or mask other materials effectively and efficiently. TiO2 is designed, marketed and sold based on
specific end-use applications.
TiO2 is the largest commercially used whitening pigment because it has a high refractive rating, giving it
more hiding power than any other commercially produced white pigment. In addition, TiO2 has excellent resistance
to interaction with other chemicals, good thermal stability and resistance to ultraviolet degradation. Although there
are other white pigments on the market, we believe there are no effective substitutes for TiO2 because no other white
pigment has the physical properties for achieving comparable opacity and brightness or can be incorporated in as
cost-effective a manner. Pigment extenders such as kaolin clays, calcium carbonate and polymeric opacifiers are
used together with TiO2 in a number of end-use markets. However, these products are not able to duplicate the
opacity performance characteristics of TiO2 and we believe these products are unlikely to have a significant impact
on the use of TiO2.
TiO2 is considered a “quality-of-life” product. Demand for TiO2 has generally been driven by worldwide
gross domestic product and has generally increased with rising standards of living in various regions of the world.
According to industry estimates, TiO2 consumption has grown at a compound annual growth rate of approximately
3.0% since 1990. Per capita consumption of TiO2 in Western Europe and the United States far exceeds that in other
areas of the world, and these regions are expected to continue to be the largest consumers of TiO2 on a per capita
basis. We believe that Western Europe and North America currently account for approximately 20% and 18% of
global TiO2 consumption, respectively. Markets for TiO2 are generally increasing in South America, Eastern
Europe, the Asia Pacific region and China and we believe these are significant markets where we expect continued
growth as economies in these regions continue to develop and quality-of-life products, including TiO2, experience
greater demand.
At December 31, 2015, approximately 50% of our common stock was owned by Valhi, Inc. (NYSE: VHI)
and approximately 30% was owned by NL Industries, Inc. (NYSE: NL). Valhi also owns approximately 83% of NL
Industries’ outstanding common stock. A wholly-owned subsidiary of Contran Corporation held approximately
93% of Valhi’s outstanding common stock. As discussed in Note 1 to our Consolidated Financial Statements, Lisa
K. Simmons and Serena Simmons Connelly may be deemed to control Contran, Valhi, NL and us.
4
Products and end-use markets
Including our predecessors, we have produced and marketed TiO2 in North America and Europe, our
primary markets, for almost 100 years. We believe that we are the largest producer of TiO2 in Europe with
approximately one-half of our sales volumes attributable to markets in Europe. The table below shows our market
share for our significant markets, Europe and North America, for the last three years.
Europe
North America
2013
2014
2015
18%
18%
18%
17%
18 %
15 %
We believe we are the leading seller of TiO2 in several countries, including Germany, with an estimated 9%
share of worldwide TiO2 sales volume in 2015. Overall, we are one of the top five producers of TiO2 in the world.
We offer our customers a broad portfolio of products that include over 40 different TiO2 pigment grades
under the Kronos® trademark, which provide a variety of performance properties to meet customers’ specific
requirements. Our major customers include domestic and international paint, plastics, decorative laminate and paper
manufacturers. We ship TiO2 to our customers in either a powder or slurry form via rail, truck and/or ocean carrier.
Sales of our core TiO2 pigments represented approximately 90% of our net sales in 2015. We and our agents and
distributors primarily sell our products in three major end-use markets: coatings, plastics and paper.
The following tables show our approximate TiO2 sales volume by geographic region and end use for the
year ended December 31, 2015:
Sales volumes percentages
by geographic region
Sales volumes percentages
by end-use
Europe
North America
Asia Pacific
Rest of World
52% Coatings
29% Plastics
8% Other
11% Paper
Some of the principal applications for our products include the following.
55%
31%
9%
5%
TiO2 for coatings - Our TiO2 is used to provide opacity, durability, tinting strength and brightness in
industrial coatings, as well as coatings for commercial and residential interiors and exteriors, automobiles, aircraft,
machines, appliances, traffic paint and other special purpose coatings. The amount of TiO2 used in coatings varies
widely depending on the opacity, color and quality desired. In general, the higher the opacity requirement of the
coating, the greater the TiO2 content.
TiO2 for plastics - We produce TiO2 pigments that improve the optical and physical properties in plastics,
including whiteness and opacity. TiO2 is used to provide opacity in items such as containers and packaging
materials, and vinyl products such as windows, door profiles and siding. TiO2 also generally provides hiding power,
neutral undertone, brightness and surface durability for housewares, appliances, toys, computer cases and food
packages. TiO2’s high brightness along with its opacity, is used in some engineering plastics to help mask their
undesirable natural color. TiO2 is also used in masterbatch, which is a concentrate of TiO2 and other additives and is
one of the largest uses for TiO2 in the plastics end-use market. In masterbatch, the TiO2 is dispersed at high
concentrations into a plastic resin and is then used by manufacturers of plastic containers, bottles, packaging and
agricultural films.
TiO2 for paper - Our TiO2 is used in the production of several types of paper, including laminate
(decorative) paper, filled paper and coated paper to provide whiteness, brightness, opacity and color stability.
Although we sell our TiO2 to all segments of the paper end-use market, our primary focus is on the TiO2 grades used
in paper laminates, where several layers of paper are laminated together using melamine resin under high
temperature and pressure. The top layer of paper contains TiO2 and plastic resin and is the layer that is printed with
decorative patterns. Paper laminates are used to replace materials such as wood and tile for such applications as
5
counter tops, furniture and wallboard. TiO2 is beneficial in these applications because it assists in preventing the
material from fading or changing color after prolonged exposure to sunlight and other weathering agents.
TiO2 for other applications - We produce TiO2 to improve the opacity and hiding power of printing inks.
TiO2 allows inks to achieve very high print quality while not interfering with the technical requirements of printing
machinery, including low abrasion, high printing speed and high temperatures. Our TiO2 is also used in textile
applications where TiO2 functions as an opacifying and delustering agent. In man-made fibers such as rayon and
polyester, TiO2 corrects an otherwise undesirable glossy and translucent appearance. Without the presence of TiO2,
these materials would be unsuitable for use in many textile applications.
We produce high purity sulfate process anatase TiO2 used to provide opacity, whiteness and brightness in a
variety of cosmetic and personal care products, such as skin cream, lipstick, eye shadow and toothpaste. Our TiO2 is
also found in food products, such as candy and confectionaries, and in pet foods where it is used to obtain
uniformity of color and appearance. In pharmaceuticals, our TiO2 is used commonly as a colorant in pill and capsule
coatings as well as in liquid medicines to provide uniformity of color and appearance. Kronos® purified anatase
grades meet the applicable requirements of the CTFA (Cosmetics, Toiletries and Fragrances Association), USP and
BP (United States Pharmacopoeia and British Pharmacopoeia) and the FDA (United States Food and Drug
Administration).
Our TiO2 business is enhanced by the following three complementary businesses, which comprised
approximately 10% of our net sales in 2015:
(cid:120) We own and operate two ilmenite mines in Norway pursuant to a governmental concession with an
unlimited term. Ilmenite is a raw material used directly as a feedstock by some sulfate-process TiO2
plants. We believe that we have a significant competitive advantage because our mines supply our
feedstock requirements for all of our European sulfate-process plants. We also sell ilmenite ore to
third parties, some of whom are our competitors, and we sell an ilmenite-based specialty product to the
oil and gas industry. The mines have estimated ilmenite reserves that are expected to last at least 50
years.
(cid:120) We manufacture and sell iron-based chemicals, which are co-products and processed co-products of
the sulfate and chloride process TiO2 pigment production. These co-product chemicals are marketed
through our Ecochem division and are primarily used as treatment and conditioning agents for
industrial effluents and municipal wastewater as well as in the manufacture of iron pigments, cement
and agricultural products.
(cid:120) We manufacture and sell titanium oxychloride and titanyl sulfate, which are side-stream specialty
products from the production of TiO2. Titanium oxychloride is used in specialty applications in the
formulation of pearlescent pigments, production of electroceramic capacitors for cell phones and other
electronic devices. Titanyl sulfate productions are used in pearlescent pigments, natural gas pipe and
other specialty applications.
Manufacturing, operations and properties
We produce TiO2 in two crystalline forms: rutile and anatase. Rutile TiO2 is manufactured using both a
chloride production process and a sulfate production process, whereas anatase TiO2 is only produced using a sulfate
production process. Manufacturers of many end-use applications can use either form, especially during periods of
tight supply for TiO2. The chloride process is the preferred form for use in coatings and plastics, the two largest
end-use markets. 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 2015, chloride
process production facilities represented approximately 49% of industry capacity. The sulfate process is preferred
for use in selected paper products, ceramics, rubber tires, man-made fibers, food products and cosmetics. 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 micronizing (milling).
(cid:120) Chloride process - The chloride process is a continuous process in which chlorine is used to extract
rutile TiO2. The chloride process produces less waste than the sulfate process because much of the
6
chlorine is recycled and feedstock bearing higher titanium content is used. The chloride process also
has lower energy requirements and is less labor-intensive than the sulfate process, although the
chloride process requires a higher-skilled labor force. The chloride process produces an intermediate
base pigment with a wide range of properties.
(cid:120)
Sulfate process - The sulfate process is a batch process in which sulfuric acid is used to extract the
TiO2 from ilmenite or titanium slag. After separation from the impurities in the ore (mainly iron), the
TiO2 is precipitated and calcined to form an intermediate base pigment ready for sale or can be
upgraded through finishing treatments.
We produced 528,000 metric tons of TiO2 in 2015, up from the 511,000 metric tons we produced in 2014.
Our production amounts include our share of the output produced by our TiO2 manufacturing joint venture discussed
below in “TiO2 Manufacturing Joint Venture.” Our average production capacity utilization rates were
approximately 86%, 92% and 95% of capacity in 2013, 2014 and 2015, respectively. Our production utilization
rates in 2013 were impacted by the previously-reported lockout at our Canadian production facility that began in
June 2013. We operated our Canadian plant at approximately 15% of the plant’s capacity with non-union
management employees during the lockout. Our production rates in 2014 were also impacted by such lockout, as
restart of production at the facility did not begin until February 2014. Our production rates in 2014 and in the first
quarter of 2015 were also impacted by the implementation of certain productivity-enhancing improvement projects
at other facilities, as well as necessary improvements to ensure continued compliance with our permit regulations,
which resulted in longer-than-normal maintenance shutdowns in some instances.
We operate four TiO2 plants in Europe (one in each of Leverkusen, Germany; Nordenham, Germany;
Langerbrugge, Belgium; and Fredrikstad, Norway). In North America, we have a TiO2 plant in Varennes, Quebec,
Canada and, through the manufacturing joint venture described below in “TiO2 Manufacturing Joint Venture,” a
50% interest in a TiO2 plant in Lake Charles, Louisiana.
Our production capacity in 2015 was 555,000 metric tons, approximately three-fourths of which was from
the chloride production process.
The following table presents the division of our expected 2016 manufacturing capacity by plant location
and type of manufacturing process:
Facility
Leverkusen, Germany (1)
Description
TiO2 production, chloride and sulfate
process, co-products
Nordenham, Germany
TiO2 production, sulfate process, co-
Langerbrugge, Belgium
Fredrikstad, Norway (2)
Varennes, Canada
products
TiO2 production, chloride process, co-
products, titanium chemicals products
TiO2 production, sulfate process, co-
products
TiO2 production, chloride and sulfate
process, slurry facility, titanium
chemicals products
Lake Charles, LA, US (3)
TiO2 production, chloride process
Total
% of capacity by TiO2
manufacturing process
Chloride Sulfate
39 %
25%
-
21
-
39
-
23
21
19
100 %
13
-
100%
(1) The Leverkusen facility is located within an extensive manufacturing complex owned by Bayer AG. We own
the Leverkusen facility, which represents about one-third of our current TiO2 production capacity, but we lease
the land under the facility from Bayer under a long-term agreement which expires in 2050. Lease payments
are periodically negotiated with Bayer for periods of at least two years at a time. A majority-owned subsidiary
7
of Bayer provides some raw materials including chlorine, auxiliary and operating materials, utilities and
services necessary to operate the Leverkusen facility under separate supplies and services agreements.
(2) The Fredrikstad plant is located on public land and is leased until 2063.
(3) We operate the Lake Charles facility in a joint venture with Tioxide Americas LLC (Tioxide), a subsidiary of
Huntsman Corporation and the amount indicated in the table above represents the share of TiO2 produced by
the joint venture to which we are entitled. See Note 5 to our Consolidated Financial Statements and “TiO2
Manufacturing Joint Venture.”
We own the land underlying all of our principle production facilities unless otherwise indicated in the table
above.
Our production capacity has increased by approximately 12% over the past ten years due to
debottlenecking programs, with only moderate capital expenditures. We believe that our annual attainable
production capacity for 2016 is approximately 555,000 metric tons, and we currently expect our production capacity
rate will be at near-capacity levels in 2016.
We also operate two ilmenite mines in Norway pursuant to a governmental concession with an unlimited
term. In addition, we operate a rutile slurry manufacturing plant in Lake Charles, Louisiana, which converts dry
pigment manufactured for us at the Lake Charles TiO2 facility into a slurry form that is then shipped to customers.
We have various corporate and administrative offices located in the U.S., Germany, Norway, Canada and
Belgium and various sales offices located in the U.S., Canada, Belgium, France, the Netherlands and the United
Kingdom.
TiO2 Manufacturing Joint Venture
Kronos Louisiana, Inc., one of our subsidiaries, and Tioxide each own a 50% interest in a manufacturing
joint venture, Louisiana Pigment Company, L.P., or LPC. LPC owns and operates a chloride-process TiO2 plant
located in Lake Charles, Louisiana. We and Huntsman share production from the plant equally pursuant to separate
offtake agreements, unless we and Huntsman otherwise agree (such as in 2015, when we purchased approximately
52% of the production from the plant).
A supervisory committee directs the business and affairs of the joint venture, including production and
output decisions. This committee is composed of four members, two of whom we appoint and two of whom
Huntsman appoints. Two general managers manage the operations of the joint venture acting under the direction of
the supervisory committee. We appoint one general manager and Huntsman appoints the other.
The joint venture is not consolidated in our financial statements, because we do not control it. We account
for our interest in the joint venture by the equity method. The joint venture operates on a break-even basis and
therefore we do not have any equity in earnings of the joint venture. We are required to purchase one half of the
TiO2 produced by the joint venture. All costs and capital expenditures are shared equally with Huntsman with the
exception of feedstock (purchased natural rutile ore or slag) and packaging costs for the pigment grades produced.
Our share of net costs is reported as cost of sales as the TiO2 is sold. See Notes 5 and 14 to our Consolidated
Financial Statements.
Raw materials
The primary raw materials used in chloride process TiO2 are titanium-containing feedstock (purchased
natural rutile ore or slag), chlorine and coke. Chlorine is available from a number of suppliers, while petroleum
coke is available from a limited number of suppliers. Titanium-containing feedstock suitable for use in the chloride
process is available from a limited but increasing number of suppliers principally in Australia, South Africa, Canada,
India and the United States. We purchase chloride process grade slag from Rio Tinto Iron and Titanium Limited
under a long-term supply contract that expires at the end of 2018, subject to two-year renewal periods if both parties
agree. We also purchase upgraded slag from Rio Tinto Iron and Titanium Limited under a long-term supply
8
contract that expires at the end of 2019. We purchase natural rutile ore under contracts primarily from Iluka
Resources, Limited and Sierra Rutile Limited, all of which expire in 2016. In the past we have been, and we expect
that we will continue to be, successful in obtaining short-term and long-term extensions to these and other existing
supply contracts prior to their expiration. We expect the raw materials purchased under these contracts, and
contracts that we may enter into, will meet our chloride process feedstock requirements over the next several years.
The primary raw materials used in sulfate process TiO2 are titanium-containing feedstock, primarily
ilmenite or purchased sulfate grade slag and sulfuric acid. Sulfuric acid is available from a number of suppliers.
Titanium-containing feedstock suitable for use in the sulfate process is available from a limited number of suppliers
principally in Norway, Canada, Australia, India and South Africa. As one of the few vertically-integrated producers
of sulfate process TiO2, we operate two rock ilmenite mines in Norway, which provided all of the feedstock for our
European sulfate process TiO2 plants in 2015. We expect ilmenite production from our mines to meet our European
sulfate process feedstock requirements for the foreseeable future. For our Canadian sulfate process plant, we
purchase sulfate grade slag primarily from Rio Tinto Fer et Titane Inc. under a supply contract that renews annually,
subject to termination upon twelve months written notice. We expect the raw materials purchased under these
contracts, and contracts that we may enter into, to meet our sulfate process feedstock requirements over the next
several years.
Many of our raw material contracts contain fixed quantities we are required to purchase, or specify a range
of quantities within which we are required to purchase. The pricing under these agreements is generally negotiated
quarterly.
The following table summarizes our raw materials purchased or mined in 2015.
Production process/raw material
Chloride process plants -
Purchased slag or rutile ore
Sulfate process plants:
Ilmenite ore mined and used internally
Purchased slag
Raw materials
procured or
mined
(In thousands
of metric tons)
451
323
10
Sales and marketing
Our marketing strategy is aimed at developing and maintaining strong customer relationships with new and
existing accounts. Because TiO2 represents a significant raw material cost for our customers, the purchasing
decisions are often made by our customers’ senior management. We work to maintain close relationships with the
key decision makers, through in-depth and frequent in-person meetings. We endeavor to extend these commercial
and technical relationships to multiple levels within our customers’ organization using our direct sales force and
technical service group to accomplish this objective. We believe this has helped build customer loyalty to Kronos
and strengthened our competitive position. Close cooperation and strong customer relationships enable us to stay
closely attuned to trends in our customers’ businesses. Where appropriate, we work in conjunction with our
customers to solve formulation or application problems by modifying specific product properties or developing new
pigment grades. We also focus our sales and marketing efforts on those geographic and end-use market segments
where we believe we can realize higher selling prices. This focus includes continuously reviewing and optimizing
our customer and product portfolios.
Our marketing strategy is also aimed at working directly with customers to monitor the success of our
products in their end-use applications, evaluate the need for improvements in product and process technology and
identify opportunities to develop new product solutions for our customers. Our marketing staff closely coordinates
with our sales force and technical specialists to ensure that the needs of our customers are met, and to help develop
and commercialize new grades where appropriate.
9
We sell a majority of our products through our direct sales force operating from six sales offices in Europe
and one sales office in North America. We also utilize sales agents and distributors who are authorized to sell our
products in specific geographic areas. In Europe, our sales efforts are conducted primarily through our direct sales
force and our sales agents. Our agents do not sell any TiO2 products other than Kronos® brand products. In North
America, our sales are made primarily through our direct sales force and supported by a network of distributors. In
addition to our direct sales force and sales agents, many of our sales agents also act as distributors to service our
smaller customers in all regions. We offer customer and technical service to the customers who purchase our
products through distributors as well as to our larger customers serviced by our direct sales force.
We sell to a diverse customer base with only one customer representing 10% or more of our sales in 2015
(Behr Process Corporation – 10%). Our largest ten customers accounted for approximately 34% of sales in 2015.
Neither our business as a whole nor any of our principal product groups is seasonal to any significant
extent. However, TiO2 sales are generally higher in the second and third quarters of the year, due in part to the
increase in paint production in the spring to meet demand during the spring and summer painting seasons. With
certain exceptions, we have historically operated our production facilities at near full capacity rates throughout the
entire year, which among other things helps to minimize our per-unit production costs. As a result, we normally will
build inventories during the first and fourth quarters of each year, in order to maximize our product availability
during the higher demand periods normally experienced in the second and third quarters.
Competition
The TiO2 industry is highly competitive. We compete primarily on the basis of price, product quality,
technical service and the availability of high performance pigment grades. Since TiO2 is not a traded commodity, its
pricing is largely a product of negotiation between suppliers and their respective customers. Although certain TiO2
grades are considered specialty pigments, the majority of our grades and substantially all of our production are
considered commodity pigments with price and availability being the most significant competitive factors along
with quality and customer service. During 2015, we had an estimated 9% share of worldwide TiO2 sales volume,
and based on sales volumes, we believe we are the leading seller of TiO2 in several countries, including Germany.
Our principal competitors are The Chemours Company, or Chemours (which was spun-off from E.I. du
Pont de Nemours & Co. into a separate publicly-traded company in 2015); Millennium Inorganic Chemicals, Inc. (a
subsidiary of National Titanium Dioxide Company Ltd.), or Cristal; Huntsman Corporation; and Tronox
Incorporated. The top five TiO2 producers (i.e. we and our four principal competitors) account for approximately
56% of the world’s production capacity. Huntsman completed its purchase of the TiO2 business of Sachtleben
Chemie GmbH in 2014, and has also announced its intent to exit the TiO2 business by December 31, 2016. In
February 2015, Huntsman announced a plan to reduce its TiO2 capacity by approximately 100,000 metric tons at one
of its European sulfate process facilities. In August 2015, Chemours announced plans to close its plant in Delaware
and shut down a production line at its facility in Tennessee, reducing its overall capacity by approximately 150,000
metric tons.
The following chart shows our estimate of worldwide production capacity in 2015:
Worldwide production capacity - 2015
Chemours
Huntsman
Cristal
Kronos
Tronox
Other
17 %
12 %
12 %
8 %
7 %
44 %
Chemours has over one-half of total North American TiO2 production capacity and is our principal North
American competitor.
10
Over the past ten years, we and our competitors increased industry capacity through debottlenecking
projects, which in part compensated for the shut-down of various TiO2 plants in France, the United States, the
United Kingdom and China. Chemours has announced the scheduled production start-up of a 200,000 metric ton
line at its plant in Mexico in mid-2016. Although overall industry demand is expected to be generally higher in
2016 as compared to 2015 as a result of improving worldwide economic conditions, we do not expect any other
significant efforts will be undertaken by us or our principal competitors to further increase capacity for the
foreseeable future, other than through debottlenecking projects. If actual developments differ from our expectations,
the TiO2 industry’s performance and that of our own could be unfavorably affected.
The TiO2 industry is characterized by high barriers to entry consisting of high capital costs, proprietary
technology and significant lead times (typically three to five years in our experience) required to construct new
facilities or to expand existing capacity. We believe it is unlikely any new TiO2 plants will be constructed in Europe
or North America in the foreseeable future.
Research and development
We employ scientists, chemists, process engineers and technicians who are engaged in research and
development, process technology and quality assurance activities in Leverkusen, Germany. These individuals have
the responsibility for improving our chloride and sulfate production processes, improving product quality and
strengthening our competitive position by developing new applications. Our expenditures for these activities were
approximately $18 million in 2013, $19 million in 2014 and $16 million in 2015. We expect to spend
approximately $14 million on research and development in 2016.
We continually seek to improve the quality of our grades and have been successful at developing new
grades for existing and new applications to meet the needs of our customers and increase product life cycles. Since
2010, we have added seven new grades for pigments and other applications.
Patents, trademarks, trade secrets and other intellectual property rights
We have a comprehensive intellectual property protection strategy that includes obtaining, maintaining and
enforcing our patents, primarily in the United States, Canada and Europe. We also protect our trademark and trade
secret rights and have entered into license agreements with third parties concerning various intellectual property
matters. We have also from time to time been involved in disputes over intellectual property.
Patents - We have obtained patents and have numerous patent applications pending that cover our products
and the technology used in the manufacture of our products. Our patent strategy is important to us and our
continuing business activities. In addition to maintaining our patent portfolio, we seek patent protection for our
technical developments, principally in the United States, Canada and Europe. U.S. Patents are generally in effect for
20 years from the date of filing. Our U.S. patent portfolio includes patents having remaining terms ranging from
one year to 19 years.
Trademarks and trade secrets - Our trademarks, including Kronos®, are covered by issued and/or pending
registrations, including in Canada and the United States. We protect the trademarks that we use in connection with
the products we manufacture and sell and have developed goodwill in connection with our long-term use of our
trademarks. We conduct research activities in secret and we protect the confidentiality of our trade secrets through
reasonable measures, including confidentiality agreements and security procedures, including data security. We rely
upon unpatented proprietary knowledge and continuing technological innovation and other trade secrets to develop
and maintain our competitive position. Our proprietary chloride production process is an important part of our
technology and our business could be harmed if we fail to maintain confidentiality of our trade secrets used in this
technology.
11
Employees
As of December 31, 2015, we employed the following number of people:
Europe
Canada
United States (1)
Total
1,890
345
45
2,280
(1) Excludes employees of our Louisiana joint venture.
Certain employees at each of our production facilities are organized by labor unions. In Europe, our union
employees are covered by master collective bargaining agreements for the chemical industry that are generally
renewed annually. In Canada, our union employees are covered by a collective bargaining agreement that expires in
June 2018. At December 31, 2015, approximately 87% of our worldwide workforce is organized under collective
bargaining agreements. It is possible that there could be future work stoppages or other labor disruptions that could
materially and adversely affect our business, results of operations, financial position or liquidity.
Regulatory and environmental matters
Our operations and properties are governed by various environmental laws and regulations, which are
complex, change frequently and have tended to become stricter over time. These environmental laws govern,
among other things, the generation, storage, handling, use and transportation of hazardous materials; the emission
and discharge of hazardous materials into the ground, air or water; and the health and safety of our employees.
Certain of our operations are, or have been, engaged in the generation, storage, handling, manufacture or use of
substances or compounds that may be considered toxic or hazardous within the meaning of applicable environmental
laws and regulations. As with other companies engaged in similar businesses, certain of our past and current
operations and products have the potential to cause environmental or other damage. We have implemented and
continue to implement various policies and programs in an effort to minimize these risks. Our policy is to comply
with applicable environmental laws and regulations at all our facilities and to strive to improve our environmental
performance. It is possible that future developments, such as stricter requirements in environmental laws and
enforcement policies, could adversely affect our operations, including production, handling, use, storage,
transportation, sale or disposal of hazardous or toxic substances or require us to make capital and other expenditures
to comply, and could adversely affect our consolidated financial position and results of operations or liquidity.
Our U.S. manufacturing operations are governed by federal, state and local environmental and worker
health and safety laws and regulations. These include the Resource Conservation and Recovery Act, or 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, or CERCLA, as well as the state counterparts of
these statutes. Some of these laws hold current or previous owners or operators of real property liable for the costs
of cleaning up contamination, even if these owners or operators did not know of, and were not responsible for, such
contamination. These laws also assess liability on any person who arranges for the disposal or treatment of
hazardous substances, regardless of whether the affected site is owned or operated by such person. Although we
have not incurred and do not currently anticipate any material liabilities in connection with such environmental laws,
we may be required to make expenditures for environmental remediation in the future.
While the laws regulating operations of industrial facilities in Europe vary from country to country, a
common regulatory framework is provided by the European Union, or the EU. Germany and Belgium are members
of the EU and follow its initiatives. Norway is not a member but generally patterns its environmental regulatory
actions after the EU.
At our sulfate plant facilities in Germany, we recycle spent sulfuric acid either through contracts with third
parties or at our own facilities. In addition, at our German locations we have a contract with a third-party to treat
certain sulfate-process effluents. At our Norwegian plant, we ship spent acid to a third party location where it is
12
used as a neutralization agent. These contracts may be terminated by either party after giving three or four years
advance notice, depending on the contract.
From time to time, our facilities may be subject to environmental regulatory enforcement under U.S. and
non-U.S. statutes. Typically we establish compliance programs to resolve these matters. Occasionally, we may pay
penalties. To date such penalties have not involved amounts having a material adverse effect on our consolidated
financial position, results of operations or liquidity. We believe that all of our facilities are in substantial
compliance with applicable environmental laws.
Our capital expenditures related to ongoing environmental compliance, protection and improvement
programs, including capital expenditures which are primarily focused on increased operating efficiency but also
result in improved environmental protection such as lower emissions from our manufacturing facilities, were $6.9
million in 2015 and are currently expected to be approximately $9 million in 2016.
Website and other available information
Our fiscal year ends December 31. Our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to those reports are available on our website at kronostio2.com.
These reports are available on the website, without charge, as soon as is reasonably practicable after we file or
furnish them electronically with the Securities and Exchange Commission, or SEC. Additional information
regarding us, including our Audit Committee charter, Code of Business Conduct and Ethics and our Corporate
Governance Guidelines, can also be found at this website. Information contained on our website is not part of this
report. We will also provide free copies of such documents upon written request. Such requests should be directed
to the Corporate Secretary at our address on the cover page of this Form 10-K.
The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. The public may obtain information about the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. We are 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 at www.sec.gov.
ITEM 1A.
RISK FACTORS
Below are certain risk factors associated with our business. See also certain risk factors discussed in Item
7- “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting
Policies and Estimates.” In addition to the potential effect of these risk factors, any risk factor which could result in
reduced earnings or operating losses, or reduced liquidity, could in turn adversely affect our ability to service our
liabilities or pay dividends on our common stock or adversely affect the quoted market prices for our securities.
Demand for, and prices of, certain of our products are influenced by changing market conditions for our
products, which may result in reduced earnings or in operating losses.
Approximately 90% of our revenues are attributable to sales of TiO2. Pricing within the global TiO2
industry over the long term is cyclical and changes in economic conditions, especially in Western industrialized
nations, can significantly impact our earnings and operating cash flows. Historically, the markets for many of our
products have experienced alternating periods of increasing and decreasing demand. Relative changes in the selling
prices for our products are one of the main factors that affect the level of our profitability. In periods of increasing
demand, our selling prices and profit margins generally will tend to increase, while in periods of decreasing demand
our selling prices and profit margins generally tend to decrease. In addition, pricing may affect customer inventory
levels as 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. Our ability to further increase capacity without
additional investment in greenfield or brownfield capacity increases may be limited and as a result, our profitability
may become even more dependent upon the selling prices of our products.
13
The TiO2 industry is concentrated and highly competitive and we face price pressures in the markets in which
we operate, which may result in reduced earnings or operating losses.
The global market in which we operate our business is concentrated with the top five TiO2 producers
accounting for over 50% of the world’s production capacity and is highly competitive. Competition is based on a
number of factors, such as price, product quality and service. Some of our competitors may be able to drive down
prices for our products if their costs are lower than our costs. In addition, some of our competitors’ financial,
technological and other resources may be greater than our resources and such competitors may be better able to
withstand changes in market conditions. Our competitors may be able to respond more quickly than we can to new
or emerging technologies and changes in customer requirements. Further, consolidation of our competitors or
customers may result in reduced demand for our products or make it more difficult for us to compete with our
competitors. The occurrence of any of these events could result in reduced earnings or operating losses.
Higher costs or limited availability of our raw materials may reduce our earnings and decrease our liquidity.
In addition, many of our raw material contracts contain fixed quantities we are required to purchase.
The number of sources for and availability of certain raw materials is specific to the particular geographical
region in which a facility is located. For example, titanium-containing feedstocks suitable for use in our TiO2
facilities are available from a limited number of suppliers around the world. Political and economic instability in the
countries from which we purchase our raw material supplies could adversely affect their availability. If our
worldwide vendors were unable to meet their contractual obligations and we were unable to obtain necessary raw
materials, we could incur higher costs for raw materials or may be required to reduce production levels. We
experienced significantly higher ore costs in 2012 which carried over into 2013. We have seen moderation in the
purchase cost of third-party feedstock ore in 2013 and throughout 2014 and 2015, but such reductions did not begin
to be significantly reflected in our cost of sales until the third quarter of 2013. We may also experience higher
operating costs such as energy costs, which could affect our profitability. We may not always be able to increase
our selling prices to offset the impact of any higher costs or reduced production levels, which could reduce our
earnings and decrease our liquidity.
We have long-term supply contracts that provide for our TiO2 feedstock requirements that currently expire
through 2019. While we believe we will be able to renew these contracts, there can be no assurance we will be
successful in renewing these contracts or in obtaining long-term extensions to these contracts prior to expiration.
Our current agreements (including those entered into through February 2016) require us to purchase certain
minimum quantities of feedstock with minimum purchase commitments aggregating approximately $865 million in
years subsequent to December 31, 2015. In addition, we have other long-term supply and service contracts that
provide for various raw materials and services. These agreements require us to purchase certain minimum quantities
or services with minimum purchase commitments aggregating approximately $147 million at December 31, 2015.
Our commitments under these contracts could adversely affect our financial results if we significantly reduce our
production and were unable to modify the contractual commitments.
Our leverage may impair our financial condition or limit our ability to operate our businesses.
As of December 31, 2015, our total consolidated debt was approximately $341.0 million, which relates
primarily to a term loan entered into in February 2014. Our level of debt could have important consequences to our
stockholders and creditors, including:
(cid:120) making it more difficult for us to satisfy our obligations with respect to our liabilities;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
increasing our vulnerability to adverse general economic and industry conditions;
requiring that a portion of our cash flows from operations be used for the payment of interest on our
debt, which reduces our ability to use our cash flow to fund working capital, capital expenditures,
dividends on our common stock, acquisitions or general corporate requirements;
limiting the ability of our subsidiaries to pay dividends to us;
limiting our ability to obtain additional financing to fund future working capital, capital expenditures,
acquisitions or general corporate requirements;
14
(cid:120)
(cid:120)
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate; and
placing us at a competitive disadvantage relative to other less leveraged competitors.
In addition to our indebtedness, at December 31, 2015 we are party to various lease and other agreements
(including feedstock ore purchase contracts and other long-term supply and service contracts, as discussed above)
pursuant to which, along with our indebtedness, we are committed to pay approximately $453 million in 2016. Our
ability to make payments on and refinance our debt and to fund planned capital expenditures depends on our future
ability to generate cash flow. To some extent, this is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. In addition, our ability to borrow funds under our revolving
credit facilities in the future will, in some instances, depend in part on our ability to maintain specified financial
ratios and satisfy certain financial covenants contained in the applicable credit agreement.
Our business may not generate cash flows from operating activities sufficient to enable us to pay our debts
when they become due and to fund our other liquidity needs. As a result, we may need to refinance all or a portion
of our debt before maturity. We may not be able to refinance any of our debt in a timely manner on favorable terms,
if at all, in the current credit markets. Any inability to generate sufficient cash flows or to refinance our debt on
favorable terms could have a material adverse effect on our financial condition.
Global climate change legislation could negatively impact our financial results or limit our ability to operate
our businesses.
We operate production facilities in several countries. In many of the countries in which we operate,
legislation has been passed, or proposed legislation is being considered, to limit greenhouse gases through various
means, including emissions permits and/or energy taxes. In several of our production facilities, we consume large
amounts of energy, primarily electricity and natural gas. To date, the permit system in effect in the various countries
in which we operate has not had a material adverse effect on our financial results. However, if further greenhouse
gas legislation were to be enacted in one or more countries, it could negatively impact our future results from
operations through increased costs of production, particularly as it relates to our energy requirements or our need to
obtain emissions permits. If such increased costs of production were to materialize, we may be unable to pass price
increases onto our customers to compensate for increased production costs, which may decrease our liquidity,
operating income and results of operations.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None
ITEM 2.
PROPERTIES
Information on our properties is incorporated by reference to Item 1: Manufacturing, Operations and
Properties above. Our corporate headquarters is located in Dallas, Texas. See Note 15 to our Consolidated
Financial Statements for information on our leases.
ITEM 3.
LEGAL PROCEEDINGS
We are involved in various environmental, contractual, intellectual property, product liability and other
claims and disputes incidental to our business. Information called for by this Item is incorporated by reference to
Note 15 to our Consolidated Financial Statements.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable
15
PART II
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed and traded on the New York Stock Exchange (symbol: KRO). As of
February 29, 2016, there were approximately 2,200 holders of record of our common stock. The following table
sets forth the high and low closing per share sales price for our common stock for the periods indicated according to
Bloomberg and dividends paid during such periods. On February 29, 2016 the closing price of our common stock
was $6.37.
High
Low
Cash
dividends
paid
Year ended December 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
18.80 $
16.96
16.00
13.87
14.74 $
14.29
13.78
11.88
13.07 $
13.63
10.90
8.35
11.12 $
10.96
5.84
5.13
January 1, 2016 through February 29, 2016
$
6.37 $
4.00 $
.15
.15
.15
.15
.15
.15
.15
.15
-
In February 2016, our board of directors declared a first quarter 2016 regular quarterly dividend of $.15 per
share, payable on March 17, 2016 to stockholders of record as of March 7, 2016. The declaration and payment of
future dividends is discretionary, and the amount, if any, will be dependent upon our results of operations, financial
condition, cash requirements for our business, the current long-term outlook for our business and other factors
deemed relevant by our board. There are currently no restrictions on our ability to pay dividends, although
provisions in certain credit agreements to which we are a party could in the future limit or restrict our ability to pay
dividends.
In December 2010 our board of directors authorized the repurchase of up to 2.0 million shares of our
common stock in open market transactions, including block purchases, or in privately-negotiated transactions at
unspecified prices and over an unspecified period of time. We have 1,951,000 shares available for repurchase under
the plan at December 31, 2015. See Note 13 to our Consolidated Financial Statements.
16
Performance graph
Set forth below is a table and line graph comparing the yearly change in our cumulative total stockholder
return on our common stock against the cumulative total return of the S&P Composite 500 Stock Index and the S&P
500 Diversified Chemicals Index. The graph shows the value at December 31 of each year, assuming an original
investment of $100 at December 31, 2010 and reinvestment of cash dividends and other distributions to
stockholders.
Kronos common stock
S&P 500 Composite Stock Index
S&P 500 Diversified Chemicals Index
$
100 $
100
100
89 $
102
94
99 $
118
113
101 $
157
162
72 $
178
175
34
181
182
2010
2011
2012
2013
2014
2015
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
Kronos Common Stock
S&P 500 Composite Stock
S&P 500 Diversified Chemicals
The information contained in the performance graph shall not be deemed “soliciting material” or “filed”
with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act, except to the extent we
specifically request that the material be treated as soliciting material or specifically incorporate this performance
graph by reference into a document filed under the Securities Act or the Securities Exchange Act.
Equity compensation plan information
We have an equity compensation plan, which was approved by our stockholders, pursuant to which an
aggregate of 200,000 shares of our common stock can be awarded to members of our board of directors. At
December 31, 2015, 177,000 shares are available for award under this plan. See Note 13 to our Consolidated
Financial Statements.
17
ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our Consolidated Financial
Statements and Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Years ended December 31,
2014
2013
(In millions, except per share data and TiO2 operating statistics) (cid:3)
2015
2012
2011
STATEMENTS OF OPERATIONS DATA:
Net sales
Gross margin
Income (loss) from operations
Net income (loss)
Net income (loss) per share (1)
Cash dividends per share (1)
BALANCE SHEET DATA (at year end):
Total assets (2) (3)
Notes payable and long-term debt
including current maturities (2)
Common stockholders' equity
STATEMENTS OF CASH FLOW DATA:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
$ 1,943.3 $ 1,976.3 $ 1,732.4 $ 1,651.9 $ 1,348.8
192.3
(1.1)
(173.6)
(1.50)
.60
112.2
(132.6)
(102.0)
(.88)
.60
349.7
149.7
99.2
.86
.60
748.4
546.5
321.0
2.77
1.075
560.4
359.6
218.5
1.89
.60
$ 1,809.5 $ 2,013.6 $ 1,610.0 $ 1,633.1 $ 1,242.7
363.9
924.3
396.2
1,062.1
183.5
935.1
343.6
781.1
341.0
461.9
$
295.6 $
(218.1)
(299.6)
76.9 $
149.8
(28.1)
130.4 $
(68.2)
(292.3)
87.7 $
(54.0 )
89.6
52.1
(46.8)
(72.1)
TiO2 OPERATING STATISTICS:(cid:3)
Sales volume (4)
Production volume (4)
Production capacity at beginning of year (4)
Production rate as a percentage of capacity
503
550
532
103%
470
469
550
85%
498
474
550
86%
496
511
555
92 %
525
528
555
95%
(1)
In May 2011, we implemented a 2-for-1 stock split of our common stock effected in the form of a stock
dividend. All per share disclosures above reflect this stock split. Cash dividends in 2011 include a $.50 per
share special dividend paid to stockholders in the first quarter of 2011. See Note 13 to our Consolidated
Financial Statements.
(2) Prior period amounts have been reclassified to reflect the change in the balance sheet classifications of
unamortized debt issuance costs effective December 31, 2015. See Note 18 to our Consolidated Financial
Statements. As a result, deferred financing costs of $1.2 million at December 31, 2011, $3.9 million at
December 31, 2012 and $5.0 million at December 31, 2014, previously recognized as a noncurrent asset, are
now classified as a direct deduction from the carrying value of its related debt liability.
(3) Prior period amounts have been reclassified to reflect the change in the balance sheet classification of deferred
income taxes effective December 31, 2015. See Note 18 to our Consolidated Financial Statements. As a
result, total assets decreased as compared to previously reported amounts by $13.2 million at December 31,
2011, $9.5 million at December 31, 2012, $9.1 million at December 31, 2013 and $4.4 million at December
31, 2014.
(4) Metric tons in thousands
18
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Business overview
We are a leading global producer and marketer of value-added TiO2. TiO2 is used for a variety of
manufacturing applications, including plastics, paints, paper and other industrial products. During 2015,
approximately one-half of our sales volumes were sold into European markets. We believe we are the largest
producer of TiO2 in Europe with an estimated 18% share of European TiO2 sales volumes in 2015. In addition, we
estimate we have a 15% share of North American TiO2 sales volumes in 2015. Our production facilities are located
throughout Europe and North America.
We consider TiO2 to be a “quality of life” product, with demand affected by gross domestic product, or
GDP, and overall economic conditions in our markets located in various regions of the world. Over the long-term,
we expect demand for TiO2 will grow by 2% to 3% per year, consistent with our expectations for the long-term
growth in GDP. However, even if we and our competitors maintain consistent shares of the worldwide market,
demand for TiO2 in any interim or annual period may not change in the same proportion as the change in GDP, in
part due to relative changes in the TiO2 inventory levels of our customers. We believe that our customers’ inventory
levels are influenced in part by their expectation for future changes in market TiO2 selling prices as well as their
expectation for future availability of product. Although certain of our TiO2 grades are considered specialty
pigments, the majority of our grades and substantially all of our production are considered commodity pigment
products with price and availability being the most significant competitive factors along with quality and customer
service.
The factors having the most impact on our reported operating results are:
(cid:120) Our TiO2 sales and production volumes,
(cid:120) TiO2 selling prices,
(cid:120) Manufacturing costs, particularly raw materials such as third-party feedstock ore, maintenance and
energy-related expenses, and
(cid:120) Currency exchange rates (particularly the exchange rate for the U.S. dollar relative to the euro, the
Norwegian krone and the Canadian dollar).
Our key performance indicators are our TiO2 average selling prices, our level of TiO2 sales and production
volumes and the cost of our third-party feedstock ore. TiO2 selling prices generally follow industry trends and the
selling prices will increase or decrease generally as a result of competitive market pressures.
In addition, our effective income tax rate in both 2014 and 2015 was impacted by certain favorable and
unfavorable developments discussed below.
Executive summary
We reported a net loss of $173.6 million, or $1.50 per share for 2015 compared to net income of $99.2
million, or $.86 per share for 2014. We reported a net loss in 2015 primarily due to lower income from operations,
the recognition of an aggregate $159.0 million non-cash deferred income tax asset valuation allowance related to our
German and Belgian operations, the recognition of an aggregate $12.0 million pre-tax other-than-temporary
impairment (OTTI) charge on our investment in a marketable equity security, and a $21.7 million charge associated
with the implementation of certain workforce reductions. Comparability of our results was also impacted by lower
average selling prices in 2015, partially offset by the favorable effects of higher sales volumes, lower manufacturing
and other production costs (primarily raw materials) and the net effect of changes in currency exchange rates.
19
We reported net income of $99.2 million, or $.86 per share for 2014 compared to a net loss of $102.0
million, or $.88 per share for 2013. We reported net income in 2014 compared to a loss in 2013 principally due to
improved results from operations primarily resulting from lower raw material costs and higher production volumes,
partially offset by lower average selling prices in 2014 as well as a 2013 litigation settlement charge and unabsorbed
fixed production and other costs associated with the labor lockout at our Canadian plant as further discussed below.
Our net loss in 2015 includes:
(cid:120)
(cid:120)
(cid:120)
the recognition of an aggregate non-cash deferred income tax asset valuation allowance related to our
German and Belgian operations of $159.0 million ($1.37 per share), mostly recognized in the second
quarter,
the third quarter recognition of an aggregate pre-tax OTTI loss on our investment in a marketable
equity security of $12.0 million ($7.8 million, or $.07 per share, net of income tax benefit), and
a pre-tax charge of $21.7 million ($18.5 million, or $.16 per share, net of income tax benefit) related to
workforce reduction costs, mostly recognized in the second quarter.
Our net income in 2014 includes an aggregate non-cash income tax benefit of $5.1 million ($.04 per share)
related to a net reduction in our reserve for uncertain tax positions (mostly in the second quarter).
Our net loss in 2013 includes:
(cid:120)
(cid:120)
(cid:120)
a pre-tax litigation settlement charge of $35 million ($22.5 million, or $.19 per share, net of income tax
benefit),
approximately $28 million aggregate costs ($21 million, or $.18 per share, net of income tax benefit)
related to unabsorbed fixed production and other costs as a result of the Canadian plant lockout, and
costs associated with the terms of a new collective bargaining agreement reached with our Canadian
workforce, and
an aggregate charge of $8.9 million ($5.8 million, or $.05 per share, net of income tax benefit) related
to the voluntary prepayment of $390 million principal amount of our term loan, consisting of the write-
off of original issue discount costs and deferred financing costs.
Critical accounting policies and estimates
The accompanying “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” is based upon our Consolidated Financial Statements, which we have prepared in accordance with
accounting principles generally accepted in the United States of America, or GAAP. The preparation of these
financial statements requires us 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 ongoing basis we evaluate our estimates,
including those related to the recoverability of long-lived assets, pension and other postretirement 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. We base our estimates on historical experience and on various
other assumptions which we believe 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 significantly from previously-estimated amounts under different assumptions or conditions.
The following critical accounting policies affect our more significant judgments and estimates used in the
preparation of our Consolidated Financial Statements:
(cid:120) Long-lived assets - We recognize an impairment charge associated with our long-lived assets,
including property and equipment, whenever we determine that recovery of such long-lived asset is not
probable. Such determination is made in accordance with the applicable GAAP requirements of
Accounting Standard Codification, or ASC, Topic 360-10-35 Property, Plant and Equipment 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. Significant judgment is
20
required in estimating such cash flows. 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. We do not assess our
property and equipment for impairment unless certain impairment indicators specified in ASC Topic
360-10-35 are present. We did not evaluate any long-lived assets for impairment during 2015 because
no such impairment indicators were present.
(cid:120) Benefit plans - We maintain various defined benefit pension plans and postretirement benefits other
than pensions, or OPEB, plans. The amounts recognized as defined benefit pension and OPEB
expenses and the reported amounts of pension asset and accrued pension and OPEB costs are
actuarially determined based on several assumptions, including discount rates, expected rates of return
on plan assets, expected health care trend rates and expected mortality. Variances from these
actuarially assumed rates will result in increases or decreases, as applicable, in the recognized pension
and OPEB obligations, pension and OPEB expenses and funding requirements. These assumptions are
more fully described below under “Defined Benefit Pension Plans” and “OPEB Plans.”
(cid:120)
Income taxes - We recognize deferred taxes for future tax effects of temporary differences between
financial and income tax reporting. Deferred income tax assets and liabilities for each tax-paying
jurisdiction in which we operate are netted and presented as either a noncurrent deferred income tax
asset or liability, as applicable. We record a valuation allowance to reduce our deferred income tax
assets to the amount that is believed to be realized under the more-likely-than-not recognition criteria.
While we have considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for a valuation allowance, it is possible that we may change our
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.
For example, at December 31, 2015 we have substantial net operating loss (NOL) carryforwards in
Germany (the equivalent of $683 million for German corporate purposes and $96 million for German
trade tax purposes) and in Belgium (the equivalent of $86 million for Belgian corporate tax purposes),
all of which have an indefinite carryforward period. As a result, we have net deferred income tax
assets with respect to these two jurisdictions, primarily related to these NOL carryforwards. The
German corporate tax is similar to the U.S. federal income tax, and the German trade tax is similar to
the U.S. state income tax.
Prior to June 30, 2015, and using all available evidence, we had concluded no deferred income tax
asset valuation allowance was required to be recognized with respect to these net deferred income tax
assets under the more-likely-than-not recognition criteria, primarily because (i) the carryforwards have
an indefinite carryforward period, (ii) we utilized a portion of such carryforwards during the most
recent three-year period, and (iii) we expect to utilize the remainder of the carryforwards over the long
term. We had also previously indicated that facts and circumstances could change, which might in the
future result in the recognition of a valuation allowance against some or all of such deferred income
tax assets. However, as of June 30, 2015, and given our operating results during the second quarter of
2015 and our expectations at that time for our operating results for the remainder of 2015, which as
discussed elsewhere in this Annual Report have been driven in large part by the trend in our average
TiO2 selling prices over such periods as well as the $21.1 million pre-tax charge recognized in the
second quarter of 2015 in connection with the implementation of certain workforce reductions, we did
not have sufficient positive evidence to overcome the significant negative evidence of having
cumulative losses in the most recent twelve consecutive quarters in both our German and Belgian
jurisdictions at June 30, 2015 (even considering that the carryforward period of our German and
Belgian NOL carryforwards is indefinite, one piece of positive evidence). Accordingly, at June 30,
2015, we concluded that we were required to recognize a non-cash deferred income tax asset valuation
allowance under the more-likely-than-not recognition criteria with respect to our German and Belgian
net deferred income tax assets. Such valuation allowance aggregated $150.3 million at June 30, 2015.
We recognized an additional $8.7 million non-cash deferred income tax asset valuation allowance
under the more-likely-than-not recognition criteria during the second half of 2015, due to losses
recognized by our German and Belgian operations during such period.
21
We record a reserve for uncertain tax positions where we believe it is more-likely-than-not our tax
positions will not prevail with the applicable tax authorities. It is possible that in the future we may
change our assessment regarding the probability that our tax positions will prevail that would require
an adjustment to the amount of our reserve for uncertain tax positions that could either increase or
decrease, as applicable, reported net income in the period the change in assessment was made.
In addition, we evaluate at the end of each reporting period as to whether or not some or all of the
undistributed earnings of our non-U.S. subsidiaries are permanently reinvested (as that term is defined
in GAAP). While we may have concluded in the past that some of such undistributed earnings are
permanently reinvested, facts and circumstances can change in the future and it is possible that a
change in facts and circumstances, such as a change in the expectation regarding the capital needs of
our non-U.S. subsidiaries, could result in a conclusion that some or all of such undistributed earnings
are no longer permanently reinvested. In such an event, we would be required to recognize a deferred
income tax liability in an amount equal to the estimated incremental U.S. income tax and withholding
tax liability that would be generated if all of such previously-considered permanently reinvested
undistributed earnings were to be distributed to the U.S.
(cid:120) Contingencies - We record accruals for legal and other contingencies when estimated future
expenditures associated with such contingencies and commitments 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).
Results from operations is impacted by certain of these and other significant judgments and estimates, such
as allowance for doubtful accounts, reserves for obsolete or unmarketable inventories, impairment of equity method
investments and long-lived assets, defined benefit pension plans and loss accruals. In addition, net income is
impacted by the significant judgments and estimates for deferred income tax asset valuation allowances and loss
accruals.
Comparison of 2015 to 2014 Results of Operations
Year ended December 31,
2015
2014
(Dollars in millions)
$ 1,651.9
1,302.2
349.7
200.0
149.7
$
100 %$ 1,348.8
79 1,156.5
21
192.3
12
193.4
9 %$
(1.1 )
100 %
86
14
14
- %
%
Change
496
511
525
528
6 %
3 %
(14)%
6
(2)
(8)
(18)%
Net sales
Cost of sales
Gross margin
Other operating expense, net
Income (loss) from operations
TiO2 operating statistics:(cid:3)
Sales volumes*
Production volumes*
Percentage change in net sales:
TiO2 product pricing(cid:3)
TiO2 sales volumes(cid:3)
TiO2 product mix(cid:3)
Changes in currency exchange rates
Total
* Thousands of metric tons
22
Industry conditions and 2015 overview – Due to competitive pressures, our average TiO2 selling prices
decreased throughout 2014 and 2015. Our average selling prices at the end of 2015 were 17% lower than at the end
of 2014, with lower prices in all major markets, most notably in North American and certain export markets. Our
average selling prices in 2015 were also impacted by a higher percentage of sales to lower-priced export markets in
2015 compared to 2014. We experienced higher sales volumes in European and export markets in 2015 as
compared to 2014, partially offset by lower volumes in North American markets in 2015 as compared to 2014.
The following table shows our capacity utilization rates during 2014 and 2015.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Overall
2014
2015
90%
97%
96%
86%
92%
93 %
100 %
95 %
92 %
95 %
Our production capacity utilization rates in the first quarter of 2014 were impacted by a union labor lockout
at our Canadian production facility that ended in December 2013, as restart of production at the facility did not
begin until February 2014. Our production rates in the fourth quarter of 2014 and the first and fourth quarters of
2015 were impacted by the implementation of certain productivity-enhancing improvement projects at certain
facilities, as well as necessary improvements to ensure continued compliance with our permit regulations, which
resulted in longer-than-normal maintenance shutdowns in some instances.
We continued to experience moderation in the cost of TiO2 feedstock ore procured from third parties in
2014 and 2015. Given the time lag between when third-party feedstock ore is procured and when the TiO2 product
produced with such ore is sold and recognized in our cost of sales, our cost of sales per metric ton of TiO2 sold
declined throughout 2014 and 2015. Consequently, our cost of sales per metric ton of TiO2 sold in 2015 was slightly
lower than our cost of sales per metric ton of TiO2 sold in 2014 (excluding the effect of changes in currency
exchange rates).
In the second quarter of 2015, we initiated a restructuring plan designed to improve our long-term cost
structure. A portion of such expected cost savings are planned to occur through workforce reductions. During the
second, third and fourth quarters of 2015, we implemented certain voluntary and involuntary workforce reductions
at certain of our facilities impacting approximately 160 individuals. We recognized an aggregate $21.7 million
charge in 2015 (substantially all of which was recognized in the second quarter) for such workforce reductions we
had implemented through December 31, 2015, $10.8 million of which is classified as part of cost of sales and $10.9
million of which is classified in selling, general and administrative expense. The charge associated with the
workforce reductions implemented in the third and fourth quarters of 2015, which impacted approximately 50
individuals, was not material due to the applicable law affecting such individuals, which generally provides for a
short notice period (if any) and the payment of a nominal amount of severance (if any). See Note 17 to our
Consolidated Financial Statements.
Net sales - Our net sales decreased 18% or $303.1 million in 2015 compared to 2014, primarily due to the
net effect of a 14% decrease in average TiO2 selling prices (which decreased net sales by approximately $231
million) and a 6% increase in sales volumes (which increased net sales by approximately $99 million). TiO2 selling
prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of
supply and demand as well as changes in raw material and other manufacturing costs.
Our sales volumes increased primarily due to higher sales in certain European and export markets, partially
offset by lower sales in North American markets. We estimate that changes in currency exchange rates decreased
our net sales by approximately $138 million, or 8%, as compared to 2014.
Cost of sales - Cost of sales decreased $145.7 million or 11% in 2015 compared to 2014 due to the net
impact of lower raw materials and other production costs of approximately $26 million (primarily caused by the
lower third-party feedstock ore costs, as discussed above), a 3% increase in TiO2 production volumes and currency
23
fluctuations (primarily the euro). In addition, cost of sales in 2015 includes approximately $10.8 million of
severance costs related to the workforce reduction plan discussed above.
Our cost of sales as a percentage of net sales increased to 86% in 2015 compared to 79% in 2014, as the
unfavorable impact of lower average selling prices and the workforce reduction charge more than offset the
favorable effects of lower raw material costs and efficiencies related to higher production volumes, as discussed
above.
Gross margin and income (loss) from operations - Income from operations decreased by $150.8 million,
from income of $149.7 million in 2014 to a loss from operations of $1.1 million in 2015. Income (loss) from
operations as a percentage of net sales decreased to (1)% in 2015 from 9% in 2014. This decrease was driven by the
decline in gross margin, which decreased to 14% in 2015 compared to 21% in 2014, as well as the negative impact
of the workforce reduction charge classified as part of other operating expense ($10.9 million). As discussed and
quantified above, our gross margin decreased primarily due to the net effect of lower selling prices, workforce
reduction costs classified as part of cost of sales ($10.8 million), lower manufacturing costs (primarily raw
materials), higher production volumes, and higher sales volumes. We estimate that changes in currency exchange
rates increased income from operations by approximately $40 million in 2015 as compared to 2014.
Selling, general and administrative expenses were approximately 13% and 12% of net sales for 2015 and
2014, respectively. As discussed above, the relative increase in 2015 is primarily due to the workforce reduction
charge classified as part of selling, general and administrative expense ($10.9 million).
Other non-operating income (expense) – We recognized a $12.0 million pre-tax impairment charge in the
third quarter of 2015 due to other-than-temporary impairment on our investment in a marketable equity security
available for sale. See Note 6 to our Consolidated Financial Statements.
Interest expense increased $1.5 million from $17.0 million in 2014 to $18.5 million in 2015 primarily due
to higher average debt levels mostly offset by lower average interest rates in 2015. See Note 9 to our Consolidated
Financial Statements.
Income tax expense - We recognized income tax expense of $142.8 million in 2015 compared to income
tax expense of $34.5 million in 2014. As discussed above in “Critical Accounting Policies and Estimates”
subsection, our income tax expense in 2015 includes an aggregate non-cash deferred income tax expense of $159.0
million related to the recognition of a deferred income tax asset valuation allowance for our German and Belgian
operations (mostly recognized in the second quarter). We continue to believe we will ultimately realize the full
benefit of our German and Belgian NOL carryforwards, in part because of their indefinite carryforward period.
However, our ability to reverse all or a portion of such valuation allowance in the future is dependent on the
presence of sufficient positive evidence, such as the existence of cumulative profits in the most recent twelve
consecutive quarters, and the ability to demonstrate future profitability for a sustainable period. Until such time as
we are able to reverse the valuation allowance in full, to the extent we generate additional losses in Germany or
Belgium in the intervening periods, our effective income tax rate would be impacted by the existence of such
valuation allowance, because such losses would effectively be recognized without any associated net income tax
benefit, as such losses would result in a further increase in the deferred income tax asset valuation allowance.
Alternatively, until such time as we are able to reverse the valuation allowance in full, to the extent we generate
income in Germany or Belgium in the intervening periods, our effective income tax rate would also be impacted by
the existence of such valuation allowance, because such income would effectively be recognized without any
associated net income tax expense, as we would reverse a portion of the valuation allowance to offset the income tax
expense attributable to such income. In addition, any change in tax law related to the indefinite carryforward period
of these NOLs could adversely impact our ability to reverse the valuation allowance in full. Consistent with our
expectation regarding our consolidated results of operations in 2016 (as discussed below under the “Outlook”
subsection), we currently believe it is likely our German and Belgian operations will report improved operating
results in 2016 as compared to 2015. However, we currently do not expect that our German and Belgian operating
results would improve to such an extent in 2016 that reversal of the valuation allowance in full would be supported
by the presence of sufficient positive evidence.
24
In 2014, our income tax expense was favorably impacted by an aggregate non-cash income tax benefit of
$5.1 million related to a net reduction in our reserve for uncertain tax positions. Our earnings are subject to income
tax in various U.S. and non-U.S. jurisdictions, and the income tax rates applicable to our pre-tax earnings (losses) of
our non-U.S. operations are generally lower than the income tax rates applicable to our U.S. operations. Excluding
the impact of the net reduction in our reserve for uncertain tax positions in 2014, our effective tax rate in such period
was lower than the U.S. federal statutory tax rate of 35% primarily due to our non-U.S. earnings. Our effective
income tax rate in 2015, excluding the impact of the deferred income tax asset valuation allowance, was higher than
the U.S. federal statutory tax rate of 35%, primarily due to a current U.S. income tax benefit attributable to current
year losses of one of our non-U.S. subsidiaries. See Note 10 to our Consolidated Financial Statements for a tabular
reconciliation of our statutory income tax provision to our actual tax provision.
Comparison of 2014 to 2013 Results of Operations
Year ended December 31,
2013
2014
(Dollars in millions)
Net sales
Cost of sales
Gross margin
Other operating expense, net
Income (loss) from operations
$
$
1,732.4
1,620.2
112.2
244.8
(132.6)
100 %$
94
6
14
(8) %$
1,651.9
1,302.2
349.7
200.0
149.7
100 %
79
21
12
9 %
% Change
TiO2 operating statistics:(cid:3)
Sales volumes*
Production volumes*
Percentage change in net sales:
TiO2 product pricing(cid:3)
TiO2 sales volumes(cid:3)
TiO2 product mix(cid:3)
Changes in currency exchange rates
Total
* Thousands of metric tons
498
474
496
511
- %
8 %
(6) %
-
-
1
(5) %
Net sales - Our net sales decreased 5% or $80.5 million in 2014 compared to 2013, primarily due a 6%
decrease in average TiO2 selling prices (which decreased net sales by approximately $104 million). TiO2 selling
prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of
supply and demand as well as changes in raw material and other manufacturing costs.
Our sales volumes in 2014 remained relatively stable compared to 2013 as slightly higher sales in Europe
were offset by lower sales in certain export markets. In addition, we estimate the favorable effect of changes in
currency exchange rates increased our net sales by approximately $12 million, or 1%, as compared to 2013.
Cost of sales - Cost of sales decreased $318.0 million or 20% in 2014 compared to 2013 due to the net
impact of lower raw materials and other production costs of approximately $250 million (primarily caused by the
lower third-party feedstock ore costs, as discussed above), an 8% increase in TiO2 production volumes and currency
fluctuations (primarily the euro). Our cost of sales as a percentage of net sales decreased to 79% in 2014 compared
to 94% in 2013, primarily due to the net effects of lower raw material and other production costs and the lower
average TiO2 selling prices discussed above. In addition, cost of sales in 2013 includes approximately $19 million
of unabsorbed fixed production and other manufacturing costs associated with the lockout at the Canadian TiO2
production facility and approximately $9 million of one-time costs resulting from the terms of the new collective
25
bargaining agreement for our Canadian workforce, each of which were charged directly to cost of sales as discussed
below.
Unionized employees in our Canadian TiO2 production facility were covered by a collective bargaining
agreement that expired June 15, 2013. The Canadian facility represents approximately 19% of our worldwide TiO2
production capacity. The union employees represented by the Confederation des Syndicat National (CSN) rejected
our revised global offer, and we declared a lockout of unionized employees upon the expiration of the existing
contract. Effective the end of November 2013, a new collective bargaining agreement was reached with CSN and
production at the facility resumed in February 2014. During the lockout we operated our Canadian plant at
approximately 15% of the plant’s capacity with non-union management employees. The reduction in our TiO2
production volumes at our Canadian facility resulted in approximately $19 million of unabsorbed fixed production
and other manufacturing costs that were charged directly to cost of sales. In addition, we recognized approximately
$9 million in expenses associated with reaching a new collective bargaining agreement, consisting of a net $7
million non-cash charge due to the curtailment of one of our Canadian defined benefit pension plans and our
Canadian other postretirement benefit plan and approximately $2 million of severance and other back-to-work
expenses.
Other operating expense, net – Other operating expense in 2013 includes a previously-reported third
quarter litigation settlement charge of $35 million.
Gross margin and income (loss) from operations - Income from operations increased by $282.3 million
from a loss of $132.6 million in 2013 to income of $149.7 in 2014. Income (loss) from operations as a percentage of
net sales increased to 9% in 2014 from (8)% in 2013. This increase was driven by the improvement in gross margin,
which increased to 21% in 2014 compared to 6% in 2013 and by the 2013 litigation settlement charge as discussed
above. As discussed and quantified above, our gross margin increased primarily due to the net effect of lower
manufacturing costs (primarily raw materials), lower selling prices, higher production volumes and 2013 costs
associated with reaching a new Canadian collective bargaining agreement and related unabsorbed fixed costs
charged directly to cost of sales. Additionally, changes in currency exchange rates have positively affected our
gross margin and income from operations. We estimate that changes in currency exchange rates increased income
from operations by approximately $42 million in 2014 as compared to 2013.
As a percentage of net sales, selling, general and administrative expenses were relatively consistent at
approximately 12% and 11% for 2014 and 2013 respectively.
Other non-operating income (expense) – In 2013, we recognized an aggregate $8.9 million pre-tax charge,
consisting of the write-off of unamortized original issue discount costs and deferred financing costs related to the
voluntary prepayment of our prior term loan by $290 million in the first quarter of 2013 and the remaining $100
million in the third quarter of 2013. See Note 9 to our Consolidated Financial Statements.
Interest expense decreased $2.6 million from $19.6 million in 2013 to $17.0 million in 2014 primarily due
to lower average interest rates on outstanding borrowings in 2014 partially offset by higher average debt levels. See
Note 9 to our Consolidated Financial Statements.
Income tax expense (benefit) - We recognized income tax expense of $34.5 million in 2014 compared to an
income tax benefit of $57.9 million in 2013. This difference is primarily due to our increased earnings in 2014. In
addition, our income tax expense in 2014 was favorably impacted by an aggregate non-cash income tax benefit of
$5.1 million related to a net reduction in our reserve for uncertain tax positions. See Note 10 to our Consolidated
Financial Statements for a tabular reconciliation of our statutory income tax provision to our actual tax provision.
Effects of currency exchange rates
We have substantial operations and assets located outside the United States (primarily in Germany,
Belgium, Norway and Canada). The majority of our sales from 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 our sales generated from our non-U.S. operations is denominated in the U.S. dollar (and consequently our non-
26
U.S. operations will generally hold U.S. dollars from time to time). Certain raw materials used worldwide, primarily
titanium-containing feedstocks, are purchased primarily in U.S. dollars, while labor and other production costs are
purchased primarily in local currencies. Consequently, the translated U.S. dollar value of our non-U.S. sales and
operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact
reported earnings and may affect the comparability of period-to-period operating results. In addition to the impact
of the translation of sales and expenses over time, our non-U.S. operations also generate currency transaction gains
and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local
currency sales or operating costs (primarily U.S. dollar denominated) are initially accrued and when such amounts
are settled with the non-local currency, (ii) changes in currency exchange rates during time periods when our non-
U.S. operations are holding non-local currency (primarily U.S. dollars), and (iii) relative changes in the aggregate
fair value of currency forward contracts held from time to time. As discussed in Note 16 to our Consolidated
Financial Statements, we periodically use currency forward contracts to manage a portion of our currency exchange
risk, and relative changes in the aggregate fair value of any currency forward contracts we hold from time to time
serves in part to mitigate the currency transaction gains or losses we would otherwise recognize from the first two
items described above.
Overall, we estimate that fluctuations in currency exchange rates had the following effects on our sales and
income from operations for the periods indicated.
Impact of changes in currency exchange rates - 2015 vs. 2014
Transaction gains/(losses) recognized
Change
2014
2015
Translation
gain/loss-
impact of
Total currency
impact
rate changes 2015 vs. 2014
Impact on:
Net sales
Income from operations
$
- $
4
- $
-
- $
(4)
$
(138 )
44
(138)
40
(In millions)
The $138 million reduction in net sales (translation loss) was caused primarily by a strengthening of the
U.S. dollar relative to the euro, as our euro-denominated sales were translated into fewer U.S. dollars in 2015 as
compared to 2014. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in
2015 did not have a significant effect on the reported amount of our net sales, as a substantial portion of the sales
generated by our Canadian and Norwegian operations are denominated in the U.S. dollar.
The $40 million increase in income from operations comprised the following net effects:
(cid:120) A reduction in the amount of net currency transaction gains during the two periods of approximately
$4 million. Such net currency transaction gains (losses) result primarily from U.S. dollar-denominated
receivables and U.S. dollar currency held by our non-U.S. operations, which are translated into the
applicable local currency at each balance sheet date. During 2014, a relative strengthening of the U.S.
dollar relative to the euro and the Norwegian krone gave rise to a net $4 million currency transaction
gain, whereas we recognized a nominal currency transaction loss during 2015, and
(cid:120) Approximately $44 million from net currency translation gains caused primarily by a strengthening of
the U.S. dollar relative to the Canadian dollar and the Norwegian krone, as their local currency-
denominated operating costs were translated into fewer U.S. dollars in 2015 as compared to 2014.
Overall, the strengthening of the U.S. dollar relative to the euro in 2015 did not have a significant
impact on our income from operations, as the reduction in net sales caused by such strengthening was
substantially offset by the effect of our euro-denominated operating costs being translated into fewer
U.S. dollars.
27
Impact of changes in currency exchange rates - 2014 vs. 2013
Transaction gains/(losses) recognized
Change
2014
2013
Translation
gain/loss-
impact of
Total currency
impact
rate changes 2014 vs. 2013
Impact on:
Net sales
Income from operations
$
- $
(4)
- $
4
- $
8
$
12
34
12
42
(In millions)
The $12 million increase in net sales (translation gain) was caused primarily by a weakening of the U.S.
dollar relative to the euro, as our euro-denominated sales were translated into more U.S. dollars in 2014 as compared
to 2013. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2014 did
not have a significant effect on the reported amount of our net sales, as a substantial portion of the sales generated
by our Canadian and Norwegian operations are denominated in the U.S. dollar.
The $42 million increase in income from operations comprised the following net effects:
(cid:120) An increase in the amount of net currency transaction gains (losses) during the two periods of
approximately $8 million. Such net currency transaction gains (losses) result primarily from U.S.
dollar-denominated receivables and U.S. dollar currency held by our non-U.S. operations, which are
translated into the applicable local currency at each balance sheet date. During 2013, a relative
strengthening of the U.S. dollar relative to the Canadian dollar and the krone, partially offset by a
relative weakening of the USD to the euro, gave rise to a net $4 million currency transaction loss,
whereas we recognized a $4 million currency transaction gain during 2014, and
(cid:120) Approximately $34 million from net currency translation gains caused primarily by a strengthening of
the U.S. dollar relative to the Canadian dollar and the Norwegian krone, as their local currency-
denominated operating costs were translated into fewer U.S. dollars in 2014 as compared to 2013, and
the weakening of the U.S. dollar relative to the euro in 2014 as their U.S. dollar denominated raw
materials purchases resulted in a favorable currency impact relative to 2013.
Outlook
During 2015 we operated our production facilities at 95% of practical capacity compared to 92% in 2014.
We expect our production volumes to be higher in 2016 as compared to 2015, as our production rates in 2015 were
impacted by the implementation of certain productivity-enhancing improvement projects at certain facilities, as well
as necessary improvements to ensure continued compliance with our permit regulations, which resulted in longer-
than-normal maintenance shutdowns in some instances. Assuming economic conditions do not deteriorate in the
various regions of the world, we expect our sales volumes to be higher in 2016 as compared to 2015. We will
continue to monitor current and anticipated near-term customer demand levels and align our production and
inventories accordingly.
We continued to experience moderation in the cost of TiO2 feedstock ore procured from third parties in
2014 and 2015. Given the time lag between when third-party feedstock ore is procured and when the TiO2 product
produced with such ore is sold and recognized in our cost of sales, our cost of sales per metric ton of TiO2 sold in
2015 was slightly lower than our cost of sales per metric ton of TiO2 sold in 2014 (excluding the effect of changes in
currency exchange rates). We expect our cost of sales per metric ton of TiO2 sold in 2016 will be lower than our
per-metric ton cost in 2015, due in part to the favorable effect of the workforce reductions and other cost reduction
initiatives we are undertaking as well as some modest improvement in the cost of feedstock ore.
We started 2015 with selling prices 9% lower than the beginning of 2014, and prices declined by an
additional 17% during 2015. Industry data indicates that overall TiO2 inventory held by producers has declined
significantly during 2015. In addition, we believe most customers hold very low inventories of TiO2 with many
28
operating on a just-in-time basis. With the improvement in sales volumes experienced in 2015, we continue to see
evidence of strengthening demand for our TiO2 products in certain of our primary markets. We and our major
competitors announced a price increase in late 2015, which is expected to be implemented in the first quarter of
2016, or as contracts allow. The extent to which we will be able to achieve any price increases in the near term will
depend on market conditions.
We initiated a restructuring plan in 2015 designed to improve our long-term cost structure. A portion of
such expected cost savings is planned to occur through workforce reductions. During 2015, we implemented certain
voluntary and involuntary workforce reductions at certain of our facilities impacting approximately 160 individuals.
As of December 31, 2015 we have recognized an aggregate $21.7 million charge for such workforce reductions we
had implemented through that date, $10.8 million of which is classified as part of cost of sales and $10.9 million of
which is classified in selling, general and administrative expense. The workforce reductions we have implemented
through December 31, 2015 are not expected to negatively impact our ability to operate our production facilities at
their practical capacity rates.
In addition to the workforce reductions implemented through December 31, 2015, we are also in the
process of implementing other cost reduction initiatives throughout the organization, including the implementation
of continued process productivity improvements. The workforce reductions we have implemented through
December 31, 2015, combined with certain open positions that are not expected to be filled and cost savings
expected to be realized from our other cost reduction initiatives we are undertaking, are expected to result in a
payback of the aggregate workforce reduction charge accrued at December 31, 2015 within approximately one year,
the benefit of which we began to recognize in the second half of 2015.
Overall, we expect income from operations in 2016 will be higher as compared to 2015 as a result of:
(cid:120)
(cid:120)
(cid:120)
the favorable effects of anticipated higher sales and production volumes in 2015,
the favorable effect of lower-cost feedstock ore, and
the expected cost savings from workforce reductions and other cost reduction initiatives throughout the
organization.
However, given, among other things, the level of our average selling prices at the beginning of 2016, we
believe it is possible we would report a loss from operations in the first quarter of 2016.
Due to the constraints of high capital costs and extended lead time associated with adding significant new
TiO2 production capacity, especially for premium grades of TiO2 products produced from the chloride process, we
believe increased and sustained profit margins will be necessary to financially justify major expansions of TiO2
production capacity required to meet expected future growth in demand. As a result of customer decisions over the
last year and the resulting adverse effect on global TiO2 pricing, some industry projects to increase TiO2 production
capacity have been cancelled or deferred indefinitely, and announcements have been made regarding the closure of
certain facilities. Given the lead time required for production capacity expansions, a shortage of TiO2 products
could occur if economic conditions improve and global demand levels for TiO2 increase sufficiently.
Our expectations for our future operating results are based upon a number of factors beyond our control,
including worldwide growth of gross domestic product, competition in the marketplace, continued operation of
competitors, unexpected or earlier-than-expected capacity additions or reductions and technological advances. If
actual developments differ from our expectations, our results of operations could be unfavorably affected.
29
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash flows
Operating activities
Trends in cash flows as a result of our operating activities (excluding the impact of significant asset
dispositions and relative changes in assets and liabilities) are generally similar to trends in our earnings. In addition
to the impact of the operating, investing and financing cash flows discussed below, changes in the amount of cash
and cash equivalents we report from year to year can be impacted by changes in currency exchange rates, since a
portion of our cash and cash equivalents is held by our non-U.S. subsidiaries. For example, during 2015, relative
changes in currency exchange rates resulted in an $8.4 million decrease in the reported amount of our cash and cash
equivalents compared to $9.4 million decrease in 2014 and a $1.2 million increase in 2013.
Cash provided by operating activities was $52.1 million in 2015 compared to $87.7 million in 2014. This
$35.6 million decrease was primarily due to the net effects of the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
lower income from operations in 2015 of $150.8 million,
lower cash used in 2015 of $122.6 million associated with relative changes in our inventories,
receivables, prepaids, payables and accruals,
lower net cash paid for income taxes in 2015 of $16.1 million due to decreased profits,
lower net distributions from our TiO2 joint venture in 2015 of $4.1 million, primarily due to the timing
of the joint venture’s working capital needs, and
higher cash paid for interest in 2015 of $1.9 million, primarily due to higher average debt levels mostly
offset by lower average interest rates on borrowings.
Cash provided by operating activities was $87.7 million in 2014 compared to $130.4 million in 2013. This
$42.7 million decrease was primarily due to the net effects of the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
higher income from operations in 2014 of $282.3 million,
net cash used in 2014 of $106.1 million associated with relative changes in our inventories,
receivables, prepaids, payables and accruals as compared to net cash provided by such relative changes
in 2013 of $219.8 million, primarily due to a significant amount of cash provided by relative changes
in our inventories in 2013 resulting principally from lower inventory costs,
lower net cash paid for income taxes in 2014 of $15.7 million due to the timing of payments,
lower cash paid for interest in 2014 of $3.9 million, primarily due to lower average interest rates on
borrowings, and
lower cash funding of pension plans in 2014 of $6.9 million.
Changes in working capital are affected by accounts receivable and inventory changes. As shown below:
(cid:120) Our average days
to
December 31, 2015 due to higher sales volume in 2015, partially offset by the effect of lower sales
prices in the fourth quarter of 2015 as compared to the fourth quarter of 2014, and
sales outstanding, or DSO,
from December 31, 2014
increased
(cid:120) Our average days sales
from December 31, 2014
December 31, 2015, due to higher inventory volumes offset by lower inventory raw material costs.
inventory, or DSI,
increased
in
to
For comparative purposes, we have provided prior year numbers below.
Days sales outstanding
Days sales in inventory
December 31,
2013
62 days
75 days
December 31,
2014
61 days
76 days
December 31,
2015
66 days
80 days
30
Investing activities
Our capital expenditures were $67.6 million in 2013, $61.2 million in 2014 and $47.1 in 2015. Capital
expenditures are primarily incurred to maintain and improve the cost effectiveness of our manufacturing facilities.
In addition, approximately $5 million of our 2015 capital expenditure relates to the implementation of a new
accounting and manufacturing system. Our capital expenditures during the past three years include an aggregate of
approximately $44.0 million (including $6.9 million in 2015) for our ongoing environmental protection and
compliance programs. We had a net reduction in restricted cash of $7.2 million in 2014, principally related to the
release of certain restricted cash deposits upon the cancellation of certain letters of credit issued in connection with
the appeal of a Canadian income tax assessment which was completed in our favor. See Notes 9 and 10 to our
Consolidated Financial Statements.
Financing activities
During 2015, we paid quarterly dividends aggregating $.60 per share ($69.5 million).
During 2014, we:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
borrowed $348.3 million on our new term loan and subsequently repaid $2.6 million,
repaid $170.0 million under our note payable with Contran,
borrowed $81.0 million on our revolving North American credit facility and subsequently repaid $92.1
million,
borrowed $1.1 million from a Canadian economic development agency, and
paid quarterly dividends to stockholders aggregating $.60 per share ($69.5 million).
During 2013, we:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
voluntarily prepaid $390.0 million principal amount on our prior term loan,
borrowed $190.0 million and subsequently repaid $20 million on our note payable with Contran
entered into in February 2013,
borrowed $162.1 million and subsequently repaid $151.0 million on our revolving North American
credit facility,
borrowed €10 million ($12.8 million when borrowed) on our European credit facility and subsequently
repaid an aggregate €20 million ($26.5 million when repaid),
borrowed $1.7 million from a Canadian economic development agency,
purchased 49,000 shares of our common stock in open market transactions for $.7 million, and
paid quarterly dividends to stockholders aggregating $.60 per share ($69.5 million).
In February 2016, our board of directors declared a first quarter 2016 regular quarterly dividend of $.15 per
share, payable March 17, 2016 to stockholders of record as of March 7, 2016.
Outstanding debt obligations and borrowing availability
At December 31, 2015, our consolidated debt comprised:
(cid:120)
(cid:120)
$343.9 million aggregate borrowing under our term loan ($338.0 million carrying amount, net of
unamortized original issue discount and debt issuance costs) due in February 2020, and
approximately $3.0 million of other indebtedness.
31
Our North American and European revolvers and our term loan contain a number of covenants and
restrictions which, among other things, restrict our ability to incur additional debt, incur liens, pay dividends or
merge or consolidate with, or sell or transfer substantially all of our assets to, another entity, and contains other
provisions and restrictive covenants customary in lending transactions of this type. Certain of our credit agreements
contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons
other than defaults for failure to comply with typical financial or payment covenants. For example, certain credit
agreements allow the lender to accelerate the maturity of the indebtedness upon a change of control (as defined in
the agreement) of the borrower. In addition, certain credit agreements could result in the acceleration of all or a
portion of the indebtedness following a sale of assets outside the ordinary course of business. Our European
revolving credit facility also requires the maintenance of certain financial ratios, and one of such requirements is
based on the ratio of net debt to the last twelve months EBITDA of the borrowers. The terms of all of our debt
instruments (including revolving lines of credit for which we have no outstanding borrowings at December 31,
2015) are discussed in Note 9 to our Consolidated Financial Statements. We are in compliance with all of our debt
covenants at December 31, 2015. We believe that we will be able to continue to comply with the financial covenants
contained in our credit facilities through their maturity.
In addition to the outstanding indebtedness indicated above, at December 31, 2015 we had $68.3 million
available for borrowing under our North American revolving credit facility, and we could borrow all such available
amount without violating any of the facility’s covenants. At December 31, 2015, based upon the last twelve months
EBITDA and the net debt to EBITDA financial test for our European revolving credit facility, our borrowing
availability under such facility is approximately 19% of the credit facility, or €23.1 million ($25.3 million).
Our assets consist primarily of investments in operating subsidiaries, and our ability to service parent-level
obligations depends in part upon the distribution of earnings of our subsidiaries, whether in the form of dividends,
advances or payments on account of intercompany obligations or otherwise. Our term loan is collateralized, by,
among other things, a first priority lien on (i) 100% of the common stock of certain of our U.S. wholly-owned
subsidiaries, (ii) 65% of the common stock or other ownership interest of our Canadian subsidiary (Kronos Canada,
Inc.) and certain first-tier European subsidiaries (Kronos Titan GmbH and Kronos Denmark ApS) and (iii) a $395.7
million unsecured promissory note issued by our wholly-owned subsidiary, Kronos International, Inc. (KII). The
term loan is also collateralized by a second priority lien on our U.S. assets which collateralize our North American
revolving facility. Our North American revolving credit facility is collateralized by, among other things, a first
priority lien on the borrower’s trade receivables and inventories. Our European revolving credit facility is
collateralized by, among other things, the accounts receivable and inventories of the borrowers plus a limited pledge
of all the other assets of the Belgian borrower. See Note 9 to our Consolidated Financial Statements.
Liquidity
Our primary source of liquidity on an ongoing basis is cash flows from operating activities which is
generally used to (i) fund working capital expenditures, (ii) repay any short-term indebtedness incurred for working
capital purposes and (iii) provide for the payment of dividends. From time-to-time we will incur indebtedness,
generally to (i) fund short-term working capital needs, (ii) refinance existing indebtedness or (iii) fund major capital
expenditures or the acquisition of other assets outside the ordinary course of business. We will also from time-to-
time sell assets outside the ordinary course of business and use the proceeds to (i) repay existing indebtedness,
(ii) make investments in marketable and other securities, (iii) fund major capital expenditures or the acquisition of
other assets outside the ordinary course of business or (iv) pay dividends.
The TiO2 industry is cyclical, and changes in industry economic conditions significantly impact earnings
and operating cash flows. Changes in TiO2 pricing, production volumes and customer demand, among other things,
could significantly affect our liquidity.
We routinely evaluate our liquidity requirements, alternative uses of capital, capital needs and availability
of resources in view of, among other things, our dividend policy, our debt service, our capital expenditure
requirements and estimated future operating cash flows. As a result of this process, we have in the past and may in
the future seek to reduce, refinance, repurchase or restructure indebtedness, raise additional capital, repurchase
shares of our common stock, modify our dividend policy, restructure ownership interests, sell interests in our
subsidiaries or other assets, or take a combination of these steps or other steps to manage our liquidity and capital
32
resources. Such activities have in the past and may in the future involve related companies. In the normal course of
our business, we may investigate, evaluate, discuss and engage in acquisition, joint venture, strategic relationship
and other business combination opportunities in the TiO2 industry. In the event of any future acquisition or joint
venture opportunity, we may consider using then-available liquidity, issuing our equity securities or incurring
additional indebtedness.
Based upon our expectation for the TiO2 industry and anticipated demands on cash resources, we expect to
have sufficient liquidity to meet our short term obligations (defined as the twelve-month period ending
December 31, 2016) and our long-term obligations (defined as the five-year period ending December 31, 2020, our
time period for long-term budgeting). If actual developments differ from our expectations, our liquidity could be
adversely affected.
Cash, cash equivalents, restricted cash and marketable securities
At December 31, 2015 we had:
Cash and cash equivalents
Restricted cash
Noncurrent marketable securities
Stock repurchase program
Held by
U.S.
entities
$
16.2
-
2.4
Non-U.S.
entities
(In millions)
$
76.3 $
1.8
-
Total
92.5
1.8
2.4
At December 31, 2015, we have 1,951,000 shares available for repurchase under a stock repurchase
program authorized by our board of directors. See Note 13 to our Consolidated Financial Statements.
Capital expenditures
We intend to spend approximately $63 million primarily to maintain and improve our existing facilities
during 2016, including approximately $9 million in the area of environmental compliance, protection and
improvement. The majority of our expenditures in 2016 will be to maintain and improve the cost-effectiveness of
our manufacturing facilities. In addition, a significant portion of planned capital expenditures in 2016 relates to the
implementation of a new accounting and manufacturing system. Our capital expenditures in the area of
environmental compliance, protection and improvement include expenditures which are primarily focused on
increased operating efficiency but also result in improved environmental protection, such as lower emissions from
our manufacturing plants. Capital spending for 2016 is expected to be funded through cash on hand or borrowing
under existing credit facilities.
Off-balance sheet financing
Other than operating lease commitments disclosed in Note 15 to our Consolidated Financial Statements, we
are not party to any material off-balance sheet financing arrangements.
Related party transactions
We are party to certain transactions with related parties. See Note 14 to our Consolidated Financial
Statements. It is our policy to engage in transactions with related parties on terms, in our opinion, no less favorable
to us than could be obtained from unrelated parties.
33
Commitments and contingencies
See Notes 10 and 15 to our Consolidated Financial Statements for a description of certain income tax
examinations currently underway, certain legal proceedings and other commitments.
Recent accounting pronouncements
See Note 18 to our Consolidated Financial Statements.
Debt and other contractual commitments
As more fully described in the Notes to the Consolidated Financial Statements, we are a party to various
debt, lease and other agreements which contractually and unconditionally commit us to pay certain amounts in the
future. See Notes 9, 14, 15 and 16 to our Consolidated Financial Statements. The timing and amount shown for our
commitments in the table below are based upon the contractual payment amount and the contractual payment date
for such commitments. The following table summarizes such contractual commitments of ours and our consolidated
subsidiaries as of December 31, 2015.
Contractual commitment
Indebtedness:
Principal (1)
Interest payments (2)
Operating leases
Long-term supply contracts for the purchase
of TiO2 feedstock (3)
Long-term service and other supply contracts (4)
Fixed asset acquisitions
Estimated tax obligations (5)
Payment due date
2019/
2020
2017/
2018
2021
and after Total
2016
$
$
3.8 $
17.4
11.0
7.6 $
34.3
13.1
334.7 $
19.2
7.8
1.3 $
-
23.7
347.4
70.9
55.6
340.5
50.4
24.5
5.7
453.3 $
456.4
71.1
2.7
-
585.2 $
68.0
15.7
-
-
445.4 $
-
9.5
-
-
864.9
146.7
27.2
5.7
34.5 $ 1,518.4
(1) At December 31, 2015, a significant portion of the amount shown for indebtedness relates to our term loan
($343.9 million at December 31, 2015 which includes $5.9 million unamortized original issue discount and
debt issuance costs). The timing and amount shown for principal payments on our term loan is based on the
mandatory contractual principal repayment schedule, and assumes no voluntary prepayments. See Item 7A -
“Quantitative and Qualitative Disclosures About Market Risk” and Note 9 to the Consolidated Financial
Statements.
(2) The amounts shown for interest payments relate to outstanding variable-rate indebtedness, and reflect the net
impact of the associated interest rate swap. Interest payments assume that variable-rate indebtedness remains
outstanding until maturity.
(3) Our contracts for the purchase of TiO2 feedstock contain fixed quantities that we are required to purchase, or
specify a range of quantities within which we are required to purchase based on our feedstock requirements.
The pricing under these agreements is generally negotiated quarterly or semi-annually. The timing and
amount shown for our commitments related to the supply contracts for TiO2 feedstock are based upon our
current estimate of the quantity of material that will be purchased in each time period shown, the payment that
would be due based upon such estimated purchased quantity and an estimate of the prices for the various
suppliers which is primarily based on first half 2016 pricing. The actual amount of material purchased and the
actual amount that would be payable by us, may vary from such estimated amounts. Our obligation for the
purchase of TiO2 feedstock is more fully described in Note 15 to our Consolidated Financial Statements and
above in “Business – raw materials.” The amounts shown in the table above include the feedstock ore
requirements from contracts we entered into through February 2016.
34
(4) The amounts shown for the long-term service and other supply contracts primarily pertain to agreements we
have entered into with various providers of products or services which help to run our plant facilities
(electricity, natural gas, etc.), utilizing December 31, 2015 exchange rates. See Note 15 to our Consolidated
Financial Statements.
(5) The amount shown for estimated tax obligations is the consolidated amount of income taxes payable at
December 31, 2015, which is assumed to be paid during 2016.
The above table does not reflect:
(cid:120) Any amounts we might pay to fund our 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. We expect to be required to contribute an aggregate of approximately $16 million to
our defined benefit pension plans and OPEB plans during 2016. Such defined benefit pension plans
and OPEB plans are discussed below in greater detail. See Note 11 to our Consolidated Financial
Statements.
(cid:120) Any amounts we might pay to settle any of our uncertain tax positions, as the timing and amount of
any such future settlements are unknown and dependent on, among other things, the timing of tax
audits. See Note 10 to our Consolidated Financial Statements; and
(cid:120) Any amounts we might pay to acquire TiO2 from our TiO2 manufacturing joint venture, as the timing
and amount of such purchases are unknown and dependent on, among other things, the amount of TiO2
produced by the joint venture in the future and the joint venture’s future cost of producing such TiO2.
However, the table does include amounts related to our share of the joint venture’s ore requirements
necessary to produce TiO2 for us. See Item 1, “Business” and Note 5 to our Consolidated Financial
Statements.
We occasionally enter into raw material supply arrangements to mitigate the short-term impact of future
increases in raw material costs. While these arrangements do not necessarily commit us to a minimum volume of
purchase, they generally provide for stated unit prices based upon achievement of specified volume purchase levels.
This allows us to stabilize raw material purchase prices to a certain extent, provided the specified minimum monthly
purchase quantities are met.
Defined benefit pension plans
We maintain various defined benefit pension plans in the U.S., Europe and Canada. See Note 11 to our
Consolidated Financial Statements.
Under defined benefit pension plan accounting, defined benefit pension plan expense, pension assets and
accrued pension costs are each recognized based on certain actuarial assumptions. These assumptions are
principally the assumed discount rate, the assumed long-term rate of return on plan assets and the assumed increase
in future compensation levels. We recognize the full funded status of our defined benefit pension plans as either an
asset (for overfunded plans) or a liability (for underfunded plans) in our Consolidated Balance Sheet.
We recognized consolidated defined benefit pension plan expense of $36.8 million in 2013, $21.8 million
in 2014 and $23.4 million in 2015. Included in our 2013 defined benefit plan expense is a curtailment charge of
$7.3 million resulting from amendments to one of our Canadian plans. Certain non-U.S. employees are covered by
plans in their respective countries, principally in Germany, Canada and Norway. Participation in the defined benefit
pension plan in Germany was closed to new participants effective in 2005. German employees hired beginning in
2005 participate in a new plan in which the retirement benefit is based upon the amount of employee and employer
contributions to the plan, but for which in accordance with German law the employer guarantees a minimum rate of
return on invested assets and a guaranteed indexed lifetime benefit payment after retirement based on the
participant’s account balance at the time of retirement. In accordance with GAAP, the new pension plan is
accounted for as a defined benefit plan, principally because of such guaranteed minimum rate of return and
guaranteed lifetime benefit payment. Participation in the defined benefit plan in Canada with respect to hourly and
35
salaried workers was closed to new participants in December 2013 and 2014, respectively, and existing hourly and
salaried plan participants will no longer accrue additional defined pension benefits after December 2013 and 2014,
respectively. Our U.S. plan was closed to new participants in 1996, and existing participants no longer accrued any
additional benefits after that date. 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 for financial reporting purposes. We made contributions to all of our plans which aggregated $27.0 million
in 2013, $20.1 million in 2014 and $17.2 million in 2015.
The discount rates we use 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, we receive third-party advice about appropriate discount rates and these advisors may in some
cases use their own market indices. We adjust these discount rates as of each December 31 valuation date to reflect
then-current interest rates on such long-term bonds. We use these discount rates to determine the actuarial present
value of the pension obligations as of December 31 of that year. We also use these discount rates to determine the
interest component of defined benefit pension expense for the following year.
At December 31, 2015, approximately 69%, 16%, 8% and 3% of the projected benefit obligations related to
our plans in Germany, Canada, Norway and the U.S., respectively. We use several different discount rate
assumptions in determining our consolidated defined benefit pension plan obligation and expense. This is because
we maintain defined benefit pension plans in several different countries in Europe and North America and the
interest rate environment differs from country to country.
We used the following discount rates for our defined benefit pension plans:
Obligations
at December 31, 2013
and expense in 2014
3.5%
4.7%
4.0%
4.5%
Discount rates used for:
Obligations
at December 31, 2014
and expense in 2015
2.3%
3.8%
2.3%
3.8%
Obligations
at December 31, 2015
and expense in 2016
2.3%
3.9%
2.8%
4.1%
Germany
Canada
Norway
U.S.
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 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,
the actual fair value of the plan assets as of the beginning of the year and an estimate of the amount of contributions
to and distributions from the plan during 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, 2015, approximately 58%, 24%, 12% and 4% of the plan assets related to our plans in
Germany, Canada, Norway and the U.S., respectively. We use several different long-term rates of return on plan
asset assumptions in determining our consolidated defined benefit pension plan expense. This is because 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, we consider the long-term
asset mix (e.g. equity vs. fixed income) for the assets for each of our plans and the expected long-term rates of return
36
for such asset components. In addition, we receive third-party advice about appropriate long-term rates of return.
Substantially all of the assets of our U.S. plan are invested in the Combined Master Retirement Trust (CMRT), a
collective investment trust sponsored by Contran to permit the collective investment by certain master trusts which
fund certain employee benefits sponsored by Contran and certain of its affiliates, including us. Such assumed asset
mixes are discussed in Note 11 to our Consolidated Financial Statements.
Our pension plan weighted average asset allocations by asset category were as follows:
Equity securities and limited partnerships
Fixed income securities
Real estate
Other
Total
Equity securities and limited partnerships
Fixed income securities
Real estate
Other
Total
Germany
20%
70
9
1
100%
Germany
19%
67
11
3
100%
December 31, 2015
Norway
Canada
CMRT
36%
56
-
8
100%
12 %
62
9
17
100 %
56%
38
-
6
100%
December 31, 2014
Norway
Canada
CMRT
43%
47
-
10
100%
13 %
60
8
19
100 %
60%
32
-
8
100%
We regularly review our actual asset allocation for each non-US plan and will periodically rebalance the
investments in each plan to more accurately reflect the targeted allocation when considered appropriate. The CMRT
trustee and investment committee do not maintain a specific target asset allocation in order to achieve their
objectives, but instead they periodically change the asset mix of the CMRT based upon, among other things, advice
they receive from third-party advisors and their expectations regarding potential returns for various investment
alternatives and what asset mix will generate the greatest overall return.
Our assumed long-term rates of return on plan assets for 2013, 2014 and 2015 were as follows:
Germany
Canada
Norway
U.S.
2013
2014
2015
4.8%
5.8%
4.8%
10.0%
4.3%
5.5%
3.8%
7.5%
4.3 %
5.8 %
3.8 %
7.5 %
We currently expect to use the same long-term rate of return on plan asset assumptions in 2016 as we used
in 2015 for purposes of determining the 2016 defined benefit pension plan expense.
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 our plans for which the benefit formula is
so calculated, we generally base 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, the amount of recognized defined benefit pension
expense and the amount of net pension asset and net pension liability will vary based upon relative changes in
currency exchange rates.
37
A reduction in the assumed discount rate generally results in an actuarial loss, as the actuarially-determined
present value of estimated future benefit payments will increase. Conversely, an increase in the assumed discount
rate generally results in an actuarial gain. In addition, an actual return on plan assets for a given year that is greater
than the assumed return on plan assets results in an actuarial gain, while an actual return on plan assets that is less
than the assumed return results in an actuarial loss. Other actual outcomes that differ from previous assumptions,
such as individuals living longer or shorter than assumed in mortality tables, which are also used to determine the
actuarially-determined present value of estimated future benefit payments, changes in such mortality table
themselves or plan amendments, will also result in actuarial losses or gains. These amounts are recognized in other
comprehensive income. In addition, any actuarial gains generated in future periods would reduce the negative
amortization effect of any cumulative unrecognized actuarial losses, while any actuarial losses generated in future
periods would reduce the favorable amortization effect of any cumulative unrecognized actuarial gains.
During 2015, all of our defined benefit pension plans generated a combined net actuarial gain of
approximately $2.7 million. This actuarial gain resulted primarily from the increase in discount rates from
December 31, 2014 to December 31, 2015, partially offset by an actual return on plan assets during 2015 below the
expected return.
Based on the actuarial assumptions described above and our current expectation for what actual average
currency exchange rates will be during 2016, we expect our defined benefit pension expense will approximate $21
million in 2016. In comparison, we expect to be required to contribute approximately $15.2 million to such plans
during 2016.
As noted above, defined benefit pension expense and the amounts recognized as accrued pension costs are
based upon the actuarial assumptions discussed above. We believe all of the actuarial assumptions used are
reasonable and appropriate. However, if we had lowered the assumed discount rate by 25 basis points for all plans
as of December 31, 2015, our aggregate projected benefit obligations would have increased by approximately $27.3
million at that date and our defined benefit pension expense would be expected to increase by approximately $2.3
million during 2015. Similarly, if we lowered the assumed long-term rate of return on plan assets by 25 basis points
for all of our plans, our defined benefit pension expense would be expected to increase by approximately $1.1
million during 2015.
OPEB plans
Certain of our subsidiaries in the U.S. and Canada currently provide certain health care and life insurance
benefits for eligible retired employees. Under other postretirement employee benefits (OPEB) accounting, 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. We recognize the full unfunded status of our OPEB
plans as a liability. See Note 11 to the Consolidated Financial Statements for a discussion of the consolidated OPEB
cost we recognized during the last three years, the amount of our accrued OPEB costs, and the associated actuarial
assumptions utilized.
Based on such actuarial assumptions and our current expectation for what actual average currency
exchange rates will be during 2015, we expect our consolidated OPEB benefit will approximate $.2 million in 2016.
In comparison, we expect to be required to make approximately $.4 million of contributions to such plans during
2016.
We believe that all of the actuarial assumptions used are reasonable and appropriate. However, if we had
lowered the assumed discount rate by 25 basis points for all plans as of December 31, 2015, our aggregate projected
benefit obligations at that date and our OPEB cost during 2015 would not be materially impacted. Similarly, a one
percent assumed change in health care trend rates for all plans would not materially impact our OPEB costs.
Operations outside the United States
As discussed above, we have 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 our assets and liabilities related to our
38
non-U.S. operations, and therefore our consolidated net assets, will fluctuate based upon changes in currency
exchange rates. At December 31, 2015, we had substantial net assets denominated in the euro, Canadian dollar and
Norwegian krone.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
We are exposed to market risk from changes in interest rates, currency exchange rates, equity security and
raw materials prices.
Interest rates
At December 31, 2015, our variable-rate term loan comprised the majority of our aggregate indebtedness.
The following table presents principal amounts and weighted average interest rates for our aggregate outstanding
indebtedness at December 31, 2014 and 2015. See Note 9 to our Consolidated Financial Statements.
Indebtedness Amount
Year-end
Carrying
amount
Fair
value
(In millions)
Interest
rate
Maturity
date
December 31, 2015
Variable rate indebtedness - term loan
December 31, 2014
Variable rate indebtedness - term loan
$
$
338.0 $
309.5
4.0 %
2020
340.9 $
341.5
4.75 %
2020
As part of our interest rate risk management strategy, in 2015 we entered into a pay-fixed/receive-variable
interest rate swap contract to minimize our exposure to volatility in the benchmark LIBOR interest rate as it relates
to our forecasted outstanding variable-rate indebtedness. As a result of this swap the amount of interest expense we
will incur is fixed at the swap rate, consequently a change in LIBOR rate will not impact the amount of interest
expense recognized. See Note 16 to our Consolidated Financial Statements for a discussion of this interest rate
swap.
Currency exchange rates
We are exposed to market risk arising from changes in currency exchange rates as a result of manufacturing
and selling our 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 krone and the United Kingdom pound sterling.
The majority of our sales from 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 our sales
generated from our non-U.S. operations is denominated in the U.S. dollar (and consequently our non-U.S. operations
will generally hold U.S. dollars from time to time). Certain raw materials used worldwide, primarily titanium-
containing feedstocks, are purchased primarily in U.S. dollars, while labor and other production costs are purchased
primarily in local currencies. Consequently, the translated U.S. dollar value of our non-U.S. sales and operating
results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported
earnings. In addition to the impact of the translation of sales and expenses over time, our non-U.S. operations also
generate currency transaction gains and losses which primarily relate to (i) the difference between the currency
exchange rates in effect when non-local currency sales or operating costs (primarily U.S. dollar denominated) are
initially accrued and when such amounts are settled with the non-local currency, (ii) changes in currency exchange
rates during time periods when our non-U.S. operations are holding non-local currency (primarily U.S. dollars), and
(iii) relative changes in the aggregate fair value of currency forward contracts held from time to time.
We periodically use currency forward contracts to manage a very nominal portion of currency exchange
rate risk associated with trade receivables denominated in a currency other than the holder’s functional currency or
39
similar exchange rate risk associated with future sales. We have not entered into these contracts for trading or
speculative purposes in the past, nor do we currently anticipate entering into such contracts for trading or speculative
purposes in the future. See Note 16 to our Consolidated Financial Statements for a discussion of certain currency
forward contracts to which we are a party at December 31, 2015.
Marketable security prices
We are exposed to market risk due to changes in prices of the marketable securities which we own. In this
regard, during 2015, we recorded a $12.0 million pre-tax impairment charge due to other-than-temporary
impairment on our investment in a marketable security available for sale. See Note 6 to our Consolidated Financial
Statements. The fair value of securities which includes investments in publicly-traded shares of related parties was
$11.1 million and $2.4 million, respectively, at December 31, 2014 and December 31, 2015. The potential change
in the aggregate fair value of these investments, assuming a 10% change in prices, would be approximately $1
million and $.2 million, respectively, at December 31, 2014 and December 31, 2015.
Raw materials
We are exposed to market risk from changes in commodity prices relating to our raw materials. As
discussed in Item 1 we generally enter into long-term supply agreements for certain of our raw material
requirements. Many of our raw material contracts contain fixed quantities we are required to purchase, or specify a
range of quantities within which we are required to purchase. Raw material pricing under these agreements is
generally negotiated quarterly or semi-annually depending upon the suppliers. For certain raw material
requirements we do not have long-term supply agreements either because we have assessed the risk of the
unavailability of those raw materials and/or the risk of a significant change in the cost of those raw materials to be
low, or because long-term supply agreements for those raw materials are generally not available.
Other
We believe 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 our results of operations and cash flows, such as demand for our products, sales
volumes and selling prices and operating expenses. Accordingly, the amounts presented above are not necessarily
an accurate reflection of the potential losses we 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 materially from such assumptions. Accordingly, such forward-looking statements should not be
considered to be projections by us of future events, gains or losses.
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” (page F-1).
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
40
CONTROLS AND PROCEDURES
ITEM 9A.
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means
controls and other procedures that are designed to ensure that information required to be disclosed in the reports that
we file or submit 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 we
are required to disclose in the reports we file or submit to the SEC under the Act is accumulated and communicated
to our management, including our principal executive officer and our principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure.
Each of Bobby D. O’Brien, our Vice Chairman of the Board, President and Chief Executive Officer and Gregory M.
Swalwell, our Executive Vice President and Chief Financial Officer, have evaluated the design and effectiveness of
our disclosure controls and procedures as of December 31, 2015. Based upon their evaluation, these executive
officers have concluded that our disclosure controls and procedures are effective as of the date of such evaluation.
Management’s report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting which, as defined by Exchange Act Rule 13a-15(f) means a process designed by, or under the supervision
of, our principal executive and principal financial officers, or persons performing similar functions, and effected by
the 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 generally
accepted accounting principles, and includes those policies and procedures that:
(cid:120) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets,
(cid:120) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures are being made only
in accordance with authorizations of management and directors and
(cid:120) Provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition,
use or disposition of assets that could have a material effect on our Consolidated Financial Statements.
Our evaluation of the effectiveness of internal control over financial reporting is based upon the criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission in 2013 (commonly referred to as the “2013 COSO” framework). Based on our
evaluation under that framework, we have concluded that our internal control over financial reporting was effective
as of December 31, 2015.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that has audited our
consolidated financial statements included in this Annual Report, has audited the effectiveness of our internal
control over financial reporting as of December 31, 2015, as stated in their report, which is included in this Annual
Report on Form 10-K.
As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal
control over financial reporting of equity method investees and (ii) internal control over the preparation of any
financial statement schedules which would be required by Article 12 of Regulation S-X. However, our assessment
of internal control over financial reporting with respect to equity method investees did include controls over the
recording of amounts related to our investment that are recorded in the consolidated financial statements, including
controls over the selection of accounting methods for our investments, the recognition of equity method earnings
and losses and the determination, valuation and recording of our investment account balances.
41
Changes in internal control over financial reporting
There has been no change to our internal control over financial reporting during the quarter ended
December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Certifications
Our chief executive officer is required to annually file a certification with the New York Stock Exchange,
or NYSE, certifying our compliance with the corporate governance listing standards of the NYSE. During 2015, our
chief executive officer filed such annual certification with the NYSE. The 2015 certification was unqualified.
Our chief executive officer and chief financial officer are also required to, among other things, file
quarterly certifications with the SEC regarding the quality of our public disclosures, as required by Section 302 of
the Sarbanes-Oxley Act of 2002. The certifications for the quarter ended December 31, 2015 have been filed as
Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
Not applicable
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to our 2016 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.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our 2016 proxy statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to our 2016 proxy statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to our 2016 proxy statement. See also
Note 14 to our Consolidated Financial Statements.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by the Item is incorporated by reference to our 2016 proxy statement.
42
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) and (c) Financial Statements
The Registrant
The consolidated financial statements of the Registrant listed on the accompanying Index of Financial
Statements (see page F-1) are filed as part of this Annual Report.
50%-or-less owned persons
We are not required to provide any consolidated financial statements pursuant to Rule 3-09 of
Regulation S-X.
(b)
Exhibits
Included as exhibits are the items listed in the Exhibit Index. We will furnish a copy of any of the
exhibits listed below upon payment of $4.00 per exhibit to cover our costs to furnish 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, 2015 will be furnished to the Commission upon request.
Item No.
3.1+
3.2
10.1
10.2
10.3*
10.4
10.5
Exhibit Index
Restated First Amended and Restated Certificate of Incorporation of Kronos Worldwide, Inc., as
amended on May 12, 2011 - incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report
on Form 8-K (File No. 001-31763) filed on May 12, 2011.
Amended and Restated Bylaws of Kronos Worldwide, Inc. as of October 25, 2007 - incorporated by
reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-31763) filed
with the U.S. Securities and Exchange Commission on October 31, 2007.
Amended and Restated Tax Agreement between Valhi, Inc. and Kronos Worldwide, Inc. dated as of
December 1, 2012 - incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on
Form 10-K (File No. 001-31763) for the year ended December 31, 2012.
Intercorporate Services Agreement by and between Contran Corporation and Kronos Worldwide, Inc.,
effective as of January 1, 2004 - incorporated by reference to Exhibit 10.2 to the Quarterly Report on
Form 10-Q of the Registrant (File No. 001-31763) for the quarter ended March 31, 2004.
Kronos Worldwide, Inc. 2012 Director Stock Plan - incorporated by reference to Exhibit 4.4 of the
Registration statement on Form S-8 of the Registrant (File No. 333-113425).
€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. (File No. 001-00640) for the quarter ended June 30, 2002.
First Amendment Agreement, dated September 3, 2004, Relating to a Facility Agreement dated June
25, 2002 among Kronos Titan GmbH, Kronos Europe S.A./N.V., Kronos Titan AS and Titania A/S, as
borrowers, Kronos Titan GmbH, Kronos Europe S.A./N.V. and Kronos Norge AS, as guarantors,
Kronos Denmark ApS, as security provider, with Deutsche Bank Luxembourg S.A., acting as agent -
incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K of the Registrant dated
November 17, 2004 (File No. 333-119639).
43
Item No.
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Exhibit Index
Second Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
June 14, 2005 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A. as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A./N.V,
Kronos Titan AS, Kronos Norge AS, Titania AS and Kronos Denmark ApS – incorporated by reference
to Exhibit 10.3 to the Annual Report on Form 10-K of Kronos International, Inc. (File No. 333-100047)
for the year ended December 31, 2009.
Third Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
May 26, 2008 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A., as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A.,/N.V,
Kronos Titan AS, Kronos Norge AS, Titania AS and Kronos Denmark ApS - incorporated by reference
to Exhibit 10.4 to the Annual Report on Form 10-K of Kronos International, Inc. (File No. 333-100047)
for the year ended December 31, 2009.
Fourth Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
September 15, 2009 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A., as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A./N.V.,
Kronos Titan AS, Kronos Norge AS, Titania AS and Kronos Denmark ApS - incorporated by reference
to Exhibit 10.5 to the Annual Report on Form 10-K of Kronos International, Inc. (File No. 333-
1000947) for the year ended December 31, 2009.
Fifth Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
October 28, 2010 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A., as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A./N.V.,
Kronos Titan AS, Kronos Norge AS, Titania AS and Kronos Denmark ApS - incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K of Kronos International, Inc. dated October 28, 2010
(File No. 333-100047).
Sixth Amendment Agreement Relating to a Facility Agreement dated June 25, 2002 executed as of
September 27, 2012 by and among Deutsche Bank AG, as mandated lead arranger, Deutsche Bank
Luxembourg S.A., as agent, the participating lenders, Kronos Titan GmbH, Kronos Europe S.A./N.V,
Kronos Titan AS, Titania AS, Kronos Norge AS, and Kronos Denmark ApS - incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 001-31763) filed with the U.S.
Securities and Exchange Commission on October 3, 2012.
Credit Agreement, dated June 13, 2012, by and among Kronos Worldwide, Inc. and Wells Fargo Bank,
National Association - incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
(File No. 001-31763) dated June 13, 2012 and filed by the registrant on June 18, 2012.
Lease Contract, dated June 21, 1952, between Farbenfabriken 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 (File No. 001-00640)of
NL Industries, Inc. for the year ended December 31, 1985.
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 (File No. 001-00640) of NL Industries, Inc. for the quarter ended September 30, 1993.
Form of Assignment and Assumption Agreement, dated as of January 1, 1999, between Kronos Inc.
(formerly known as Kronos (USA), 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).
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).
44
Item No.
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24**
10.25**
10.26**
***
Exhibit Index
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 (File No. 001-00640) 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 (File No. 001-00640) for the quarter ended September 30, 1993.
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 (File No. 001-00640) 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 (File No. 001-00640) 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 (File No. 001-00640) 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 (File No. 001-00640) for the year ended
December 31, 1995.
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 (File No. 001-00640) 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 (File No. 001-
00640) for the quarter ended September 30, 1993.
First amended and Restated Agreement Regarding Shared Insurance among CompX International Inc.,
Contran Corporation, Keystone Consolidated Industries, Inc., Kronos Worldwide, Inc., NL Industries,
Inc., and Valhi, Inc. dated October 15, 2015.
Eighth Amended and Restated Unsecured Revolving Demand Promissory Note dated December 31,
2015 in the original principal amount of $100.0 million executed by Valhi, Inc. and payable to the order
of Kronos Worldwide, Inc.
Restated and Amended Agreement by and between Richards Bay Titanium (Proprietary) Limited
(acting through its sales agent Rio Tinto Iron & Titanium Limited) and Kronos (US), Inc. effective
January 1, 2016. The exhibits to this Exhibit 10.26 have not been filed because they relate to
procedures for sampling and analyzing the ore under contract and are not an integral part of the
agreement. Upon request, the Registrant will furnish supplementally to the Commission a copy of any
ommitted exhibit.
10.27
Credit Agreement, dated February 18, 2014, by and among Kronos Worldwide, Inc. and Deutsche Bank
AG New York Branch - incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
(File No. 001-31763) dated February 18, 2014 and filed by the registrant on February 18, 2014.
45
Item No.
10.28
10.29
10.30
Exhibit Index
First Amendment to Credit Agreement dated May 21, 2015 among the registrant, Deutsche Bank AG
New York Branch, as Administrative Agent, and the lenders a party thereto - incorporated by reference
to Exhibit 10.1 to the current report on Form 8-K (File No. 001-31763) dated May 21, 2015 and filed
by the registrant on May 21, 2015.
Guaranty and Security Agreement, dated February 18, 2014, among Kronos Worldwide, Inc., Kronos
Louisiana, Inc., Kronos (US), Inc., Kronos International, Inc. and Deutsche Bank AG New York
Branch - incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-
31763) dated February 18, 2014 and filed by the registrant on February 18, 2014.
Intercreditor Agreement dated as of February 18, 2014, by and between Wells Fargo Capital Finance and
Deutsche Bank AG New York Branch, and acknowledged by Kronos Worldwide, Inc., Kronos Louisiana,
Inc. and Kronos (US), Inc. - incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K
(File No. 001-31763) dated February 18, 2014 and filed by the registrant on February 18, 2014.
21.1**
Subsidiaries.
23.1**
Consent of PricewaterhouseCoopers LLP.
31.1**
Certification.
31.2**
Certification.
32.1**
Certification.
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase
101.DEF**
XBRL Taxonomy Extension Definition Linkbase
101.LAB**
XBRL Taxonomy Extension Label Linkbase
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase
+
Exhibit 3.1 is restated for the purposes of the disclosure requirements of Item 601 of Regulation S-K
promulgated by the U.S. Securities and Exchange Commission and does not represent a restated certificate of
incorporation that has been filed with the Delaware Secretary of State.
* Management contract, compensatory plan or arrangement
**
Filed herewith
*** Portions of the exhibit have been omitted pursuant to a request for confidential treatment.
46
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.
SIGNATURES
Kronos Worldwide, Inc.
(Registrant)
By: /s/ Bobby D. O’Brien
Bobby D. O’Brien, March 10, 2016
(Vice Chairman, President 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/ Steven L. Watson
Steven L. Watson, March 10, 2016
(Chairman of the Board)
/s/ Thomas P. Stafford
Thomas P. Stafford, March 10, 2016
(Director)
/s/ C. Kern Wildenthal
C. Kern Wildenthal, March 10, 2016
(Director)
/s/ Loretta J. Feehan
Loretta J. Feehan, March 10, 2016
(Director)
/s/ Tim C. Hafer
Tim C. Hafer, March 10, 2016
(Vice President, Controller,
Principal Accounting Officer)
/s/ Bobby D. O’Brien
Bobby D. O’Brien, March 10, 2016
(Vice Chairman, President and Chief Executive Officer)
/s/ C. H. Moore, Jr.
C. H. Moore, Jr., March 10, 2016
(Director)
/s/ Keith R. Coogan
Keith R. Coogan, March 10, 2016
(Director)
/s/ R. Gerald Turner
R. Gerald Turner, March 10, 2016
(Director)
/s/ Gregory M. Swalwell
Gregory M. Swalwell, March 10, 2016
(Executive Vice President and
Chief Financial Officer, Principal Financial Officer)
47
KRONOS WORLDWIDE, INC.
Annual Report on Form 10-K
Items 8, 15(a) and 15(c)
Index of Financial Statements
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2014 and 2015
Consolidated Statements of Operations -
Years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Comprehensive Income (Loss) -
Years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Stockholders’ Equity -
Years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Cash Flows -
Years ended December 31, 2013, 2014 and 2015
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-5
F-6
F-7
F-8
F-10
All financial statement schedules have been omitted either because they are not applicable or required, or the
information that would be required to be included is disclosed in the Notes to the Consolidated Financial Statements.
F-1
F-2
KRONOS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
ASSETS
December 31,
2014
2015
Current assets:
Cash and cash equivalents
Restricted cash
Accounts and other receivables
Receivable from affiliate
Inventories, net
Prepaid expenses and other
Total current assets
Other assets:
Investment in TiO2 manufacturing joint venture
Marketable securities
Deferred income taxes
Other
Total other assets
Property and equipment:
Land
Buildings
Equipment
Mining properties
Construction in progress
Less accumulated depreciation and amortization
$
167.7 $
2.2
260.2
18.0
423.6
8.2
879.9
89.0
11.1
167.3
6.1
92.5
1.8
218.3
2.5
387.2
8.5
710.8
82.9
2.4
14.0
3.1
273.5
102.4
42.6
220.6
1,035.6
116.7
24.4
1,439.9
960.2
37.8
197.4
941.6
102.6
29.2
1,308.6
879.1
Net property and equipment
479.7
429.5
Total assets
$
1,633.1 $
1,242.7
F-3
KRONOS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In millions, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
2014
2015
Current liabilities:
Current maturities of long-term debt
Accounts payable and accrued liabilities
Payables to affiliates
Income taxes
Total current liabilities
Noncurrent liabilities:
Long-term debt
Deferred income taxes
Accrued pension cost
Accrued postretirement benefits cost
Other
Total noncurrent liabilities
Stockholders' equity:
$
3.9 $
202.6
19.9
7.8
234.2
339.7
6.1
237.1
8.1
26.8
617.8
3.8
172.7
19.5
5.7
201.7
337.2
8.1
202.7
6.7
24.4
579.1
Common stock, $.01 par value; 240.0 shares authorized; 115.9 shares
issued
Additional paid-in capital
Retained deficit
Accumulated other comprehensive loss
Total stockholders' equity
1.2
1,398.6
(282.9 )
(335.8 )
1.2
1,398.7
(526.0)
(412.0)
781.1
461.9
Total liabilities and stockholders' equity
$
1,633.1 $
1,242.7
Commitments and contingencies (Notes 10 and 15)
See accompanying notes to consolidated financial statements.
F-4
KRONOS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Years ended December 31,
2014
2015
2013
Net sales
Cost of sales
Gross margin
Selling, general and administrative expense
Other operating income (expense):
Currency transaction gains (losses), net
Disposition of property and equipment
Other expense, net
Corporate expense
$
1,732.4 $
1,620.2
1,651.9 $
1,302.2
1,348.8
1,156.5
112.2
349.7
192.3
190.4
191.9
178.0
(3.8)
(.8)
(1.1)
(48.7)
4.0
(.9 )
(.7 )
(10.5 )
(.1)
(.8)
(.9)
(13.6)
Income (loss) from operations
(132.6)
149.7
(1.1)
Other income (expense):
Interest and dividend income
Securities transactions, net
Loss on prepayment of debt, net
Interest expense
1.2
-
(8.9)
(19.6)
1.0
-
-
(17.0 )
.8
(12.0)
-
(18.5)
Income (loss) before income taxes
(159.9)
133.7
(30.8)
Income tax expense (benefit)
(57.9)
34.5
142.8
Net income (loss)
Net income (loss) per basic and diluted share
Cash dividends per share
$
$
$
(102.0) $
99.2 $
(173.6)
(.88) $
.86 $
(1.50)
.60 $
.60 $
.60
Weighted average shares used in the calculation of net
income (loss) per share
115.9
115.9
115.9
See accompanying notes to consolidated financial statements.
F-5
KRONOS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Years ended December 31,
2014
2015
2013
Net income (loss)
$
(102.0) $
99.2 $
(173.6)
Other comprehensive income (loss), net of tax:
Currency translation
Marketable securities
Defined benefit pension plans
Other postretirement benefit plans
Interest rate swap
6.7
6.6
27.9
3.9
-
(103.0 )
(13.7 )
(66.0 )
(1.1 )
-
(92.2)
2.3
16.2
(.2)
(2.3)
Total other comprehensive income (loss), net
45.1
(183.8 )
(76.2)
Comprehensive loss
$
(56.9) $
(84.6 ) $
(249.8)
See accompanying notes to consolidated financial statements.
F-6
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KRONOS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Years ended December 31,
2014
2015
2013
Cash flows from operating activities:
Net income (loss)
Depreciation and amortization
Deferred income taxes
Loss on prepayment of debt, net
Securities transactions, net
Benefit plan expense greater than cash funding
Distributions from TiO2 manufacturing joint venture, net
Other, net
Change in assets and liabilities:
$
Accounts and other receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes
Accounts with affiliates
Other noncurrent assets
Other noncurrent liabilities
(102.0) $
50.2
(67.9)
8.9
-
9.2
10.9
8.2
24.8
222.2
.8
9.1
(9.6)
(37.2)
(1.5)
4.3
99.2 $
49.2
19.6
-
-
.5
10.6
10.7
(27.8 )
(52.3 )
(.4 )
(21.1 )
6.3
(4.1 )
2.6
(5.3 )
(173.6)
42.1
138.5
-
12.0
5.1
6.5
6.3
20.1
(9.5)
(1.6)
(12.0)
(1.5)
19.2
.3
.2
Net cash provided by operating activities
130.4
87.7
52.1
Cash flows from investing activities:
Capital expenditures
Change in restricted cash
Other, net
(67.6)
(.5)
(.1)
(61.2 )
7.2
-
(47.1)
.3
-
Net cash used in investing activities
(68.2)
(54.0 )
(46.8)
F-8
KRONOS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In millions)
Years ended December 31,
2014
2015
2013
Cash flows from financing activities:
Indebtedness:
Borrowings
Principal payments
Deferred financing fees
Dividends paid
Treasury stock acquired
366.6
(588.7)
-
(69.5)
(.7)
430.4
(265.2 )
(6.1 )
(69.5 )
-
1.3
(3.9)
-
(69.5)
-
Net cash provided by (used in) financing activities
(292.3)
89.6
(72.1)
Cash and cash equivalents - net change from:
Operating, investing and financing activities
Effect of exchange rate changes on cash
(230.1)
1.2
123.3
(9.4 )
(66.8)
(8.4)
Net change for the year
(228.9)
113.9
(75.2)
Balance at beginning of year
282.7
53.8
167.7
Balance at end of year
Supplemental disclosures –
Cash paid for:
Interest, net of amounts capitalized
Income taxes
Accrual for capital expenditures
$
$
53.8 $
167.7 $
92.5
18.6 $
33.2
7.4
14.7 $
17.5
7.0
16.6
1.4
6.8
See accompanying notes to consolidated financial statements.
F-9
KRONOS WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Note 1 - Summary of significant accounting policies:
Organization and basis of presentation - At December 31, 2015, Valhi, Inc. (NYSE: VHI) held
approximately 50% of our outstanding common stock and NL Industries, Inc. (NYSE: NL) held approximately 30%
of our common stock, Valhi owned approximately 83% of NL’s outstanding common stock and a wholly-owned
subsidiary of Contran Corporation held approximately 93% of Valhi’s outstanding common stock. All of Contran’s
outstanding voting stock is held by a family trust established for the benefit of Lisa K. Simmons and Serena
Simmons Connelly and their children, for which Ms. Simmons and Ms. Connelly are co-trustees, or is held directly
by Ms. Simmons and Ms. Connelly or entities related to them. Consequently, Ms. Simmons and Ms. Connelly may
be deemed to control Contran, Valhi, NL and us.
Unless otherwise indicated, references in this report to “we,” “us” or “our” refers to Kronos Worldwide,
Inc. and its subsidiaries, taken as a whole.
Management’s estimates - In preparing our financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) we are required to make estimates and assumptions 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 reporting period. Actual
results may differ significantly from previously-estimated amounts under different assumptions or conditions.
Principles of consolidation - The consolidated financial statements include our accounts and those of our
majority-owned subsidiaries. We have eliminated all material intercompany accounts and balances.
Translation of currencies - We translate the assets and liabilities of our subsidiaries whose functional
currency is other than the U.S. dollar at year-end exchange rates, while we translate our revenues and expenses at
average exchange rates prevailing during the year. We accumulate the resulting translation adjustments in
stockholders’ equity as part of accumulated other comprehensive income (loss), net of related deferred income taxes.
We recognize currency transaction gains and losses in income currently.
Derivatives and hedging activities - We recognize derivatives as either assets or liabilities measured at fair
value. We recognize the effect of changes in the fair value of derivatives either in net income or other
comprehensive income (loss), depending on the intended use of the derivative. See Note 16.
Cash and cash equivalents - We classify bank time deposits and U.S. Treasury securities purchased under
short-term agreements to resell with original maturities of three months or less as cash equivalents.
Restricted cash and cash equivalents - We classify cash and cash equivalents that have been segregated or
are otherwise limited in use as restricted. To the extent the restricted amount relates to a recognized liability, we
classify such restricted amount as either a current or noncurrent asset to correspond with the classification of the
liability. To the extent the restricted amount does not relate to a recognized liability, we classify restricted cash as a
current asset.
F-10
Marketable securities and securities transactions - We carry marketable securities at fair value.
Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, establishes a
consistent framework for measuring fair value and (with certain exceptions) this framework is generally applied to
all financial statement items required to be measured at fair value. The standard requires fair value measurements to
be classified and disclosed in one of the following three categories:
(cid:121) Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
(cid:121) Level 2 - Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the assets or liability; and
(cid:121) Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable.
We classify all of our marketable securities as available-for-sale and unrealized gains or losses on these
securities are recognized through other comprehensive income, net of deferred income taxes, except for any decline
in value we conclude is other than temporary, which is accounted for as a realized loss as a component of net
income. We base realized gains and losses upon the specific identification of the securities sold.
We evaluate our investments whenever events or conditions occur to indicate that the fair value of such
investments has declined below their carrying amounts. If the carrying amount for an investment declines below its
historical cost basis, we evaluate all available positive and negative evidence including, but not limited to, the extent
and duration of the impairment, business prospects for the investee and our intent and ability to hold the investment
for a reasonable period of time sufficient for the recovery of fair value. If we determine the decline in fair value is
other than temporary, the carrying amount of the investment is written down to fair value.
See Notes 6, 11 and 16.
Accounts receivable - We provide an allowance for doubtful accounts for known and estimated potential
losses arising from sales to customers based on a periodic review of these accounts. See Note 3.
Inventories and cost of sales - We state inventories at the lower of cost or market, net of allowance for
obsolete and slow-moving inventories. We generally base inventory costs for all inventory categories on average
cost that approximates the first-in, first-out method. Inventories include the costs for raw materials, the cost to
manufacture the raw materials into finished goods and overhead. Depending on the inventory’s stage of completion,
our manufacturing costs can include the costs of packing and finishing, utilities, maintenance, depreciation, and
salaries and benefits associated with our manufacturing process. We allocate fixed manufacturing overheads based
on normal production capacity. Unallocated overhead costs resulting from periods with abnormally low production
levels are charged to expense as incurred. As inventory is sold to third parties, we recognize the cost of sales in the
same period that the sale occurs. We periodically review our inventory for estimated obsolescence or instances
when inventory is no longer marketable for its intended use, and we record any write-down equal to the difference
between the cost of inventory and its estimated net realizable value based on assumptions about alternative uses,
market conditions and other factors. See Note 4.
Investment in TiO2 manufacturing joint venture - We account for our investment in a 50%-owned
manufacturing joint venture by the equity method. See Note 5.
F-11
Property and equipment and depreciation - We state property and equipment at cost, including capitalized
interest on borrowings during the actual construction period of major capital projects. Capitalized interest costs
were $1.5 million in 2013, $2.9 million in 2014 and $1.1 million in 2015. We compute depreciation of property and
equipment for financial reporting purposes (including mining equipment) principally by the straight-line method
over the estimated useful lives of the assets as follows:
Asset
Buildings and improvements
Machinery and equipment
Mine development costs
Useful lives
10 to 40 years
3 to 20 years
units-of-production
We use accelerated depreciation methods for income tax purposes, as permitted. Upon the sale or
retirement of an asset, we remove the related cost and accumulated depreciation from the accounts and recognize
any gain or loss in income currently.
We expense costs incurred for maintenance, repairs and minor renewals (including planned major
maintenance) while we capitalize expenditures for major improvements.
We have a governmental concession with an unlimited term to operate our ilmenite mines in Norway.
Mining properties consist of buildings and equipment used in our Norwegian ilmenite mining operations. While we
own the land and ilmenite reserves associated with the mining operations, such land and reserves were acquired for
nominal value and we have no material asset recognized for the land and reserves related to our mining operations.
We perform impairment tests when events or changes in circumstances indicate the carrying value may not
be recoverable. We consider all relevant factors. We perform the impairment test by comparing the estimated
future undiscounted cash flows (exclusive of interest expense) associated with the asset to the asset’s net carrying
value to determine if a write-down to fair value or discounted cash flow value is required.
Long-term debt - We state long-term debt net of any unamortized original issue premium, discount or
deferred financing costs. We classify amortization of deferred financing costs and any premium or discount
associated with the issuance of indebtedness as interest expense and compute such amortization by either the interest
method or the straight-line method over the term of the applicable issue. See Note 9.
Employee benefit plans - Accounting and funding policies for our retirement plans are described in
Note 11.
Income taxes - We, Valhi and our qualifying subsidiaries are members of Contran’s consolidated U.S.
federal income tax group (the Contran Tax Group) and we and certain of our qualifying subsidiaries also file
consolidated income tax returns with Contran in various U.S. state jurisdictions. As a member of the Contran Tax
Group, we are jointly and severally liable for the federal income tax liability of Contran and the other companies
included in the Contran Tax Group for all periods in which we are included in the Contran Tax Group. See Note 15.
As a member of the Contran Tax Group, we are a party to a tax sharing agreement which provides that we compute
our provision for U.S. income taxes on a separate-company basis using the tax elections made by Contran. Pursuant
to the tax sharing agreement, we make payments to or receive payments from Valhi in amounts we would have paid
to or received from the U.S. Internal Revenue Service or the applicable state tax authority had we not been a
member of the Contran Tax Group. We made net payments of income taxes to Valhi of $24.2 million in 2013 and
$8.2 million in 2014, and received net income tax refunds from Valhi of $3.5 million in 2015.
We recognize deferred income tax assets and liabilities for the expected future tax consequences of
temporary differences between the income tax and financial reporting carrying amounts of assets and liabilities,
including investments in our subsidiaries and affiliates who are not members of the Contran Tax Group and
undistributed earnings of non-U.S. subsidiaries which are not deemed to be permanently reinvested. The earnings of
non-U.S. subsidiaries subject to permanent reinvestment plans aggregated $645 million at December 31, 2015. It is
not practical for us to determine the amount of the unrecognized deferred income tax liability related to such
earnings due to the complexities associated with the U.S. taxation on earnings of non-U.S. subsidiaries repatriated to
F-12
the U.S. Deferred income tax assets and liabilities for each tax-paying jurisdiction in which we operate are netted
and presented as either a noncurrent deferred income tax asset or liability, as applicable. We periodically evaluate
our deferred tax assets in the various taxing jurisdictions in which we operate and adjust any related valuation
allowance based on the estimate of the amount of such deferred tax assets that we believe does not meet the more-
likely-than-not recognition criteria.
We record a reserve for uncertain tax positions for tax positions where we believe that it is more-likely-
than-not our position will not prevail with the applicable tax authorities. The amount of the benefit associated with
our uncertain tax positions that we recognize is limited to the largest amount for which we believe the likelihood of
realization is greater than 50%. We accrue penalties and interest on the difference between tax positions taken on
our tax returns and the amount of benefit recognized for financial reporting purposes. We classify our reserves for
uncertain tax positions in a separate current or noncurrent liability, depending on the nature of the tax position. See
Note 10.
Net sales - We record sales when products are shipped and title and other risks and rewards of ownership
have passed to the customer. Shipping terms of products shipped are generally FOB shipping point, although in
some instances shipping terms are FOB destination point (for which we do not recognize sales until the product is
received by the customer) or other standard shipping terms. We state sales net of price, early payment and
distributor discounts and volume rebates. We report any tax assessed by a governmental authority that we collect
from our customers that is both imposed on and concurrent with our revenue-producing activities (such as sales, use,
value added and excise taxes) on a net basis (meaning we do not recognize these taxes either in our revenues or in
our costs and expenses).
Selling, general and administrative expense; shipping and handling costs - Selling, general and
administrative expense includes costs related to marketing, sales, distribution, shipping and handling, research and
development, legal, and administrative functions such as accounting, treasury and finance, and includes costs for
salaries and benefits not associated with our manufacturing process, travel and entertainment, promotional materials
and professional fees. We include shipping and handling costs in selling, general and administrative expense and
these costs were $93 million in 2013, $95 million in 2014 and $87 million in 2015. We expense research,
development and certain sales technical support costs as incurred and these costs approximated $18 million in 2013,
$19 million in 2014 and $16 million in 2015. We expense advertising costs as incurred and these costs were not
material in any year presented.
Note 2 - Geographic information:
Our operations are associated with the production and sale of titanium dioxide pigments (TiO2). TiO2 is
used to impart whiteness, brightness, opacity and durability to a wide variety of products, including paints, plastics,
paper, fibers and ceramics. Additionally, TiO2 is a critical component of everyday applications, such as coatings,
plastics and paper, as well as many specialty products such as inks, foods and cosmetics. At December 31, 2014 and
2015 the net assets of non-U.S. subsidiaries included in consolidated net assets approximated $380 million and $123
million, respectively.
F-13
For geographic information, we attribute net sales to the place of manufacture (point of origin) and to the
location of the customer (point of destination); we attribute property and equipment to their physical location.
Years ended December 31,
2015
2014
2013
(In millions)
Net sales - point of origin:
Germany
United States
Canada
Belgium
Norway
Eliminations
Total
Net sales - point of destination:
Europe
North America
Other
Total
$
915.8 $
830.4
246.5
254.6
261.2
(776.1)
844.1 $ 690.0
783.1
657.8
252.3
216.9
249.3
198.8
256.8
183.5
(733.7 )
(598.2 )
$ 1,732.4 $ 1,651.9 $ 1,348.8
$
904.6 $
575.7
252.1
882.9 $ 700.4
544.3
421.4
224.7
227.0
$ 1,732.4 $ 1,651.9 $ 1,348.8
Identifiable assets - net property and equipment:
Germany
Belgium
Norway
Canada
Other
Total
Note 3 - Accounts and other receivables:
Trade receivables
Recoverable VAT and other receivables
Refundable income taxes
Allowance for doubtful accounts
Total
December 31,
2014
2015
(In millions)
237.9 $
88.8
82.3
61.8
8.9
479.7 $
212.1
80.1
69.5
53.8
14.0
429.5
December 31,
2014
2015
(In millions)
230.9 $
23.4
7.5
(1.6)
260.2 $
194.8
17.8
6.8
(1.1 )
218.3
$
$
$
$
F-14
Note 4 - Inventories, net:
Raw materials
Work in process
Finished products
Supplies
Total
December 31,
2014
2015
(In millions)
76.0 $
32.9
252.5
62.2
423.6 $
75.9
21.1
232.4
57.8
387.2
$
$
Note 5 - Investment in TiO2 manufacturing joint venture:
We own a 50% interest in Louisiana Pigment Company, L.P. (LPC). LPC is a manufacturing joint venture
whose other 50%-owner is Tioxide Americas LLC (Tioxide). Tioxide is a subsidiary of Huntsman Corporation.
LPC owns and operates a chloride-process TiO2 plant in Lake Charles, Louisiana.
We and Tioxide are both required to purchase one-half of the TiO2 produced by LPC, unless we and
Tioxide agree otherwise (such as in 2015, when we purchased approximately 52% of the production from the plant).
LPC operates on a break-even basis and, accordingly, we report no equity in earnings of LPC. Each owner’s
acquisition transfer price for its share of the TiO2 produced is equal to its share of the joint venture’s production
costs and interest expense, if any. Our share of net cost is reported as cost of sales as the related TiO2 acquired from
LPC is sold. We report distributions we receive from LPC, which generally relate to excess cash generated by LPC
from its non-cash production costs, and contributions we make to LPC, which generally relate to cash required by
LPC when it builds working capital, as part of our cash flows from operating activities in our Consolidated
Statements of Cash Flows. The components of our net distributions from LPC are shown in the table below.
2013
Years ended December 31,
2014
(In millions)
2015
Distributions from LPC
Contributions to LPC
Net distributions
$
$
70.7 $
(59.8)
10.9 $
48.0 $
(37.4 )
10.6 $
48.2
(41.7 )
6.5
Summary balance sheets of LPC are shown below:
ASSETS
Current assets
Property and equipment, net
Total assets
LIABILITIES AND PARTNERS' EQUITY
Other liabilities, primarily current
Partners' equity
Total liabilities and partners' equity
December 31,
2014
2015
(In millions)
$
$
$
$
107.4 $
110.6
218.0 $
37.3 $
180.7
218.0 $
96.2
110.1
206.3
37.8
168.5
206.3
F-15
Summary income statements of LPC are shown below:
2013
Years ended December 31,
2014
(In millions)
2015
Revenues and other income:
Kronos
Tioxide
Total revenues and other income
Cost and expenses:
Cost of sales
General and administrative
Total costs and expenses
Net income
$
$
224.5 $
224.6
449.1
193.1 $
193.8
386.9
176.5
162.5
339.0
448.7
.4
449.1
- $
386.4
.5
386.9
- $
338.5
.5
339.0
-
Note 6 - Marketable securities:
Our marketable securities consist of investments in the publicly-traded shares of related parties: Valhi, NL
and CompX International Inc. NL owns the majority of CompX’s outstanding common stock. All of our
marketable securities are accounted for as available-for-sale securities, which are carried at fair value using quoted
market prices in active markets for each marketable security and represent a Level 1 input within the fair value
hierarchy. See Note 16. Because we have classified all of our marketable securities as available-for-sale, any
unrealized gains or losses on the securities are recognized through other comprehensive income, net of deferred
income taxes.
Marketable security
December 31, 2014
Valhi common stock
NL and CompX common stocks
Total
December 31, 2015
Valhi common stock
NL and CompX common stocks
Total
Fair value
measurement
level
Market
value
Cost
basis
Unrealized
loss
1
1
1
1
$
$
$
$
11.0 $ 15.3 $
.1
11.1 $ 15.4 $
.1
2.3 $ 3.2 $
.1
.1
2.4 $ 3.3 $
(4.3)
-
(4.3)
(.9)
-
(.9)
At December 31, 2014 and 2015, we held approximately 1.7 million shares of Valhi’s common stock. We
also held a nominal number of shares of CompX and NL common stocks. At December 31, 2014 and 2015, the
quoted per share market price of Valhi’s common stock was $6.41 and $1.34, respectively.
With respect to our investment in Valhi stock, as of September 30, 2015 our cost basis had exceeded its
market value since March 2014. At September 30, 2015, we determined that the decline in fair value was other than
temporary and recognized an aggregate $12.0 million pre-tax impairment charge to write down the cost basis of our
investment in the 1.7 million shares of Valhi’s common stock to its aggregate market value at that date. In
determining such decline in value was other than temporary at September 30, 2015, we considered all available
evidence in reaching this conclusion, including the length of time the cost basis had exceeded its market value (18
months) and the steep decline in the quoted market price of Valhi common from June 30, 2015 to September 30,
2015. Such impairment charge, accounted for as a realized loss, is classified as a securities transaction loss, and was
reclassified out of accumulated other comprehensive income along with the related deferred income tax of $4.2
million. We will continue to monitor the quoted market price for this investment. In this regard, as of February 29,
F-16
2016, the aggregate quoted market price for our shares of Valhi common stock was $1.0 million less than our
aggregate cost basis. If we conclude in the future that a decline in value of one or more of these securities was other
than temporary, we would recognize impairment through an income statement charge at that time. Such income
statement impairment charge would be offset in other comprehensive income by the reversal of the previously
recognized unrealized losses to the extent they were previously recognized in accumulated other comprehensive
income.
The Valhi, CompX and NL common stocks we own are subject to the restrictions on resale pursuant to
certain provisions of the Securities and Exchange Commission (SEC) Rule 144. In addition, as a majority-owned
subsidiary of Valhi we cannot vote our shares of Valhi common stock under Delaware General Corporation Law,
but we do receive dividends from Valhi on these shares, when declared and paid.
Note 7 – Other noncurrent assets:
Deferred financing costs, net
Pension asset
Other
Total
December 31,
2014
2015
(In millions)
1.8 $
-
4.3
6.1 $
1.0
.4
1.7
3.1
$
$
See Notes 9 and 18 for disclosure regarding deferred financing costs related to our term loan, which are
now shown as a direct deduction from the carrying value of such debt liability at December 31, 2014 and 2015.
Note 8 - Accounts payable and accrued liabilities:
Accounts payable
Accrued sales discounts and rebates
Employee benefits
Accrued workforce reduction costs
Interest rate swap contract
Accrued interest
Other
Total
December 31,
2014
2015
(In millions)
121.4 $
14.8
24.6
-
-
.5
41.3
202.6 $
96.1
18.9
14.2
5.3
3.3
.2
34.7
172.7
$
$
See Note 16 for a discussion of the interest rate swap contract, and Note 17 for a discussion on accrued
workforce reduction costs.
F-17
Note 9 - Long-term debt:
Term loan
Other
Total debt
Less current maturities
Total long-term debt
December 31,
2014
2015
(In millions)
340.9 $
2.7
343.6
3.9
339.7 $
338.0
3.0
341.0
3.8
337.2
$
$
Term loans - In 2013, we voluntarily repaid our entire $400 million term loan that was issued in June 2012.
We prepaid an aggregate $390 million principal amount and recognized a non-cash pre-tax interest charge of $8.9
million in 2013 related to this prepayment consisting of the write-off of the unamortized original issue discount costs
and deferred financing costs associated with such prepayment. Funds for the aggregate prepayments were provided
by $150 million of our cash on hand, borrowings of $190 million under a 2013 loan agreement from Contran as
described below and borrowings of $50 million under our revolving North American credit facility.
In February 2014, we entered into a new $350 million term loan. The term loan was issued at 99.5% of the
principal amount, or an aggregate of $348.3 million. We used $170 million of the net proceeds of the new term loan
to prepay the outstanding principal balance of our note payable to Contran (along with accrued and unpaid interest
through the prepayment date), and such note payable was cancelled. The remaining net proceeds of the term loan
were available for our general corporate purposes. The new term loan:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
bears interest, at our option, at LIBOR (with LIBOR no less than 1.0%) plus 3.75%, or the base rate, as
defined in the agreement, plus 2.75%;
requires quarterly principal repayments of $875,000 which commenced in June 2014, other mandatory
principal repayments of formula-determined amounts under specified conditions with all remaining
principal balance due in February 2020. Voluntary principal prepayments are permitted at any time;
is collateralized by, among other things, a first priority lien on (i) 100% of the common stock of certain
of our U.S. wholly-owned subsidiaries, (ii) 65% of the common stock or other ownership interest of
our Canadian subsidiary (Kronos Canada, Inc.) and certain first-tier European subsidiaries (Kronos
Titan GmbH and Kronos Denmark ApS) and (iii) a $395.7 million unsecured promissory note issued
by our wholly-owned subsidiary, Kronos International, Inc. (KII) to us;
is also collateralized by a second priority lien on all of the U.S. assets which collateralize our North
American revolving facility, as discussed below;
contains a number of covenants and restrictions which, among other things, restrict our ability to incur
additional debt, incur liens, pay dividends or merge or consolidate with, or sell or transfer substantially
all of our assets to, another entity, contains other provisions and restrictive covenants customary in
lending transactions of this type (however, there are no ongoing financial maintenance covenants); and
contains customary default provisions, including a default under any of our other indebtedness in
excess of $50 million.
In May 2015 we entered into an amendment to our term loan due in February 2020. As a result of the
amendment:
(cid:120) The applicable margin on outstanding LIBOR-based borrowings was reduced from 3.75% to 3.00%,
and the applicable margin on outstanding base rate borrowings was reduced from 2.75% to 2.00%; and
(cid:120) A provision was added whereby if we elected to call all or a portion of the outstanding principal
balance within six months of completing the amendment (i.e. before November 2015), a 1% call
premium of the aggregate principal amount so prepaid would apply. There is no prepayment penalty
applicable to any call after November 2015. We made no such call prior to November 2015.
F-18
We accounted for such amendment to our term loan as a modification of the terms of the term loan. All
other terms of the term loan, including principal repayments, maturity and collateral remain unchanged. We paid a
$750,000 refinancing fee in connection with this amendment, which along with the existing unamortized deferred
financing costs associated with the term loan are being amortized over the remaining term of the loan.
The average interest rate on the term loan borrowings as of and for the year ended December 31, 2015 was
4.0% and 4.29%, respectively. The carrying value of the term loan at December 31, 2015 is stated net of
unamortized original issue discount of $1.2 million and debt issuance costs of $4.7 million (December 31, 2014 -
$1.5 million and $5.0 million). See Note 18.
See Note 16 for a discussion of the interest rate swap we entered into in the third quarter of 2015 pursuant
to our interest rate risk management strategy.
Note payable to Contran - As discussed above, in February 2013 we entered into a promissory note with
Contran. This loan from Contran contained terms and conditions similar to the terms and conditions of our prior
$400 million term loan, except that the loan from Contran was unsecured and contained no ongoing financial
maintenance covenant. The independent members of our board of directors approved the terms and conditions of
the loan from Contran. In 2013, we borrowed $190 million and subsequently repaid $20 million. As discussed
above, in February 2014 we used $170 million of the proceeds from our new term loan and prepaid the remaining
balance owed to Contran under this note payable (without penalty), and the note payable to Contran was cancelled.
Revolving credit facilities
Revolving North American credit facility - In June 2012, we entered into a $125 million revolving bank
credit facility which matures in June 2017. Borrowings under the revolving credit facility are available for our
general corporate purposes. Available borrowings on this facility are based on formula-determined amounts of
eligible trade receivables and inventories, as defined in the agreement, of certain of our North American subsidiaries
less any outstanding letters of credit up to $15 million issued under the facility (with revolving borrowings by our
Canadian subsidiary limited to $25 million). Any amounts outstanding under the revolving credit facility bear
interest, at our option, at LIBOR plus a margin ranging from 1.5% to 2.0% or at the applicable base rate, as defined
in the agreement, plus a margin ranging from .5% to 1.0%. The credit facility is collateralized by, among other
things, a first priority lien on the borrowers’ trade receivables and inventories. The facility contains a number of
covenants and restrictions which, among other things, restricts the borrowers’ ability to incur additional debt, incur
liens, pay dividends or merge or consolidate with, or sell or transfer all or substantially all of their assets to, another
entity, contains other provisions and restrictive covenants customary in lending transactions of this type and under
certain conditions requires the maintenance of a specified financial covenant (fixed charge coverage ratio, as
defined) to be at least 1.1 to 1.0. During 2014, we borrowed $81.0 million and repaid $92.1 million under this
facility. We had no borrowings or repayments under this facility during 2015, and at December 31, 2015 we had
approximately $68.3 million available for borrowing under this revolving facility.
Revolving European credit facility - Our operating subsidiaries in Germany, Belgium, Norway and
Denmark have a €120 million secured revolving bank credit facility that matures in September 2017. We may
denominate borrowings in Euros, Norwegian kroner or U.S. dollars. Outstanding borrowings bear interest at LIBOR
plus 1.90%. The facility is collateralized by the accounts receivable and inventories of the borrowers, plus a limited
pledge of all of the other assets of the Belgian borrower. The facility contains certain restrictive covenants that,
among other things, restrict the ability of the borrowers to incur debt, incur liens, pay dividends or merge or
consolidate with, or sell or transfer all or substantially all of the assets to, another entity, and requires the
maintenance of certain financial ratios. In addition, the credit facility contains customary cross-default provisions
with respect to other debt and obligations of the borrowers, KII and its other subsidiaries.
F-19
We had no borrowings or repayments under this facility during 2015 and at December 31, 2015, there were
no outstanding borrowings under this facility. Our European revolving credit facility requires the maintenance of
certain financial ratios, and one of such requirements is based on the ratio of net debt to last twelve months earnings
before income tax, interest, depreciation and amortization expense (EBITDA) of the borrowers. Based upon the
borrowers’ last twelve months EBITDA as of December 31, 2015 and the net debt to EBITDA financial test, our
borrowing availability at December 31, 2015 is approximately 19% of the credit facility, or €23.1 million ($25.3
million).
Canada - In December 2011, our Canadian subsidiary entered into an agreement with an economic
development agency of the Province of Quebec, Canada pursuant to which we have borrowed an aggregate of Cdn.
$4.5 million through December 31, 2015 (no additional amounts are expected to be borrowed under this facility).
Borrowings may only be used to fund capital improvements at our Canadian plant and are limited to a specified
percentage of such capital improvements. Borrowings are non-interest bearing, with equal monthly payments
commencing in 2018. The agreement contains certain restrictive covenants, which, among other things, restricts the
subsidiary’s ability to sell assets or enter into mergers, and requires our subsidiary to maintain certain financial
ratios and maintain specified levels of employment. At December 31, 2015, we had Cdn. $4.5 million (USD $3.3
million), outstanding under this agreement.
Prior to December 31, 2014, we had an aggregate of Cdn. $7.9 million of letters of credit outstanding
issued by a bank on behalf of our Canadian subsidiary. These letters of credit were issued in connection with the
appeal of a Canadian income tax assessment discussed in Note 10. Upon the successful completion of the appeal in
2014, such letters of credit were cancelled, and an equivalent amount of restricted cash deposits which had been
collateralizing such letters of credit, classified as noncurrent restricted cash, were released.
Aggregate maturities and other - Aggregate maturities of debt at December 31, 2015 are presented in the
table below.
Year ending December 31,
2016
2017
2018
2019
2020
2021 and thereafter
Gross maturities
Less original issue discount and debt issuance costs
Total
Amount
(In millions)(cid:3)(cid:3)
3.8
$
3.5
4.1
4.2
330.5
.8
346.9
5.9
341.0
$
We are in compliance with all of our debt covenants at December 31, 2015.
F-20
Note 10 - Income taxes:
Pre-tax income (loss):
U.S.
Non-U.S.
Total
Expected tax expense (benefit), at U.S. federal
statutory income tax rate of 35%
Non-U.S. tax rates
Incremental net tax (benefit) on earnings and losses
of non-U.S. companies
Valuation allowance
Adjustment to the reserve for uncertain tax
positions, net
Nondeductible expenses
U.S. state income taxes and other, net
Provision for income taxes (benefit)
(cid:3)(cid:3)
Components of income tax expense:
Currently payable (refundable):
U.S. federal and state
Non-U.S.
Deferred income taxes (benefit):
U.S. federal and state
Non-U.S.
Years ended December 31,
2015
2014
2013
(In millions)
$
$
$
$
(cid:3)
$
(15.1) $
(144.8)
(159.9) $
59.2 $
74.5
133.7 $
5.5
(36.3)
(30.8)
(56.0) $
4.2
46.8 $
(4.2 )
(10.8)
.5
(7.4)
-
(3.7 )
-
(8.7)
159.0
(.4)
2.1
(.4)
(57.9) $
(5.1 )
.7
1.9
2.1
(1.2 )
-
34.5 $ 142.8
(cid:3)
(cid:3)(cid:3)
7.3 $
(1.2)
6.1
1.9 $
15.2
17.1
.3
3.3
3.6
(22.0)
(42.0)
(64.0)
(57.9) $
10.0
(6.4)
7.4
145.6
17.4
139.2
34.5 $ 142.8
Provision for income taxes (benefit)
$
Comprehensive provision for income taxes (benefit)
allocable to:
Net income (loss)
Other comprehensive income (loss):
Currency translation
Marketable securities
Pension plans
OPEB plans
Interest rate swap
Total
$
(57.9) $
34.5 $ 142.8
5.5
3.1
11.8
1.4
-
(36.1) $
(16.9 )
(6.7 )
(30.1 )
(.4 )
-
-
1.1
1.5
(.1)
(1.3)
(19.6 ) $ 144.0
$
The amount shown in the above table of our income tax rate reconciliation for non-U.S. tax rates represents
the result determined by multiplying the pre-tax earnings or losses of each of our non-U.S. subsidiaries by the
difference between the applicable statutory income tax rate for each non-U.S. jurisdiction and the U.S. federal
statutory tax rate of 35%. The amount shown on such table for incremental net tax (benefit) on earnings and losses
on non-U.S. companies includes, as applicable, (i) current income taxes (including withholding taxes, if applicable),
if any, associated with any current-year earnings of our non-U.S. subsidiaries to the extent such current-year
earnings were distributed to us in the current year, (ii) deferred income taxes (or deferred income tax benefit)
F-21
associated with the current-year change in the aggregate amount of undistributed earnings of our Canadian
subsidiary, which earnings are not subject to a permanent reinvestment plan, in an amount representing the current-
year change in the aggregate current income tax that would be generated (including withholding taxes, if applicable)
when such aggregate undistributed earnings are distributed to us, and (iii) current U.S. income taxes (or current
income tax benefit), including U.S. personal holding company tax, as applicable, attributable to current-year income
(losses) of one of our non-U.S. subsidiaries, which subsidiary is treated as a dual resident for U.S. income tax
purposes, to the extent the current-year income (losses) of such subsidiary is subject to U.S. income tax under the
U.S. dual-resident provisions of the Internal Revenue Code.
The components of our net deferred income taxes at December 31, 2014 and 2015 are summarized in the
following table.
Tax effect of temporary differences related to:
Inventories
Property and equipment
Accrued OPEB costs
Accrued pension cost
Currency revaluation on intercompany debt
Other accrued liabilities and deductible
differences
Other taxable differences
Tax on unremitted earnings of non-U.S.
subsidiaries
Tax loss and tax credit carryforwards
Valuation allowance
Adjusted gross deferred tax assets (liabilities)
Netting by tax jurisdiction
Net noncurrent deferred tax asset
(liability)
December 31,
2014
2015
Assets
Liabilities Assets
Liabilities
$
4.6 $
-
2.4
47.6
5.6
13.7
-
-
163.3
(.1)
237.1
(69.8)
(In millions)
(cid:3)
(4.9) $
(67.5)
-
-
-
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
3.2 $
-
2.0
39.4
18.6
-
(.9)
19.4
-
(2.6)
-
-
(75.9)
69.8
-
157.4
(168.9)
71.1
(57.1)
(3.5)
(59.3)
-
-
-
-
(.5)
(1.9)
-
-
(65.2)
57.1
$
167.3 $
(6.1) $
14.0 $
(8.1)
We have substantial net operating loss (NOL) carryforwards in Germany (the equivalent of $683 million
and $96 million for German corporate and trade tax purposes, respectively, at December 31, 2015) and in Belgium
(the equivalent of $86 million for Belgian corporate tax purposes at December 31, 2015), all of which have an
indefinite carryforward period. As a result, we have net deferred income tax assets recognized with respect to these
two jurisdictions, primarily related to these NOL carryforwards. The German corporate tax is similar to the U.S.
federal income tax, and the German trade tax is similar to the U.S. state income tax. Prior to June 30, 2015, and
using all available evidence, we had concluded no deferred income tax asset valuation allowance was required to be
recognized with respect to these net deferred income tax assets under the more-likely-than-not recognition criteria,
primarily because (i) the carryforwards have an indefinite carryforward period, (ii) we utilized a portion of such
carryforwards during the most recent three-year period, and (iii) we expect to utilize the remainder of the
carryforwards over the long term. We had also previously indicated that facts and circumstances could change,
which might in the future result in the recognition of a valuation allowance against some or all of such deferred
income tax assets. However, as of June 30, 2015, and given our operating results during the second quarter of 2015
and our expectations at that time for our operating results for the remainder of 2015, we did not have sufficient
positive evidence to overcome the significant negative evidence of having cumulative losses in the most recent
twelve consecutive quarters in both our German and Belgian jurisdictions at June 30, 2015 (even considering that
the carryforward period of our German and Belgian NOL carryforwards is indefinite, one piece of positive
evidence). Accordingly, at June 30, 2015, we concluded that we were required to recognize a non-cash deferred
income tax asset valuation allowance under the more-likely-than-not recognition criteria with respect to our German
and Belgian net deferred income tax assets. Such valuation allowance aggregated $150.3 million at June 30, 2015.
F-22
We recognized an additional $8.7 million non-cash deferred income tax asset valuation allowance under the more-
likely-than-not recognition criteria during the third and fourth quarters of 2015, due to losses recognized by our
German and Belgian operations during such period. In addition to the aggregate $159.0 million increase in the
deferred income tax asset valuation allowance recognized as part of the provision for income taxes in 2015, the
deferred income tax asset valuation allowance also increased by an aggregate of $9.8 million in 2015 due to amounts
recognized in other comprehensive income.
Tax authorities are examining certain of our U.S. and non-U.S. tax returns and have or may propose tax
deficiencies, including penalties and interest. Because of the inherent uncertainties involved in settlement initiatives
and court and tax proceedings, we cannot guarantee that these tax matters will be resolved in our favor, and
therefore our potential exposure, if any, is also uncertain. In 2011 and 2012 we received notices of re-assessment
from the Canadian federal and provincial tax authorities related to the years 2002 through 2004. We objected to the
re-assessments and believed the position was without merit. Accordingly, we appealed the re-assessments and in
connection with such appeal we were required to post letters of credit aggregating Cdn. $7.9 million (see Note 9). In
2014, the Appeals Division of the Canadian Revenue Authority ruled in our favor and reversed in their entirety such
notices of re-assessment. As a result, we recognized a non-cash income tax benefit of $3.0 million related to the
release of a portion of our reserve for uncertain tax positions in 2014 related to the completion of this Canadian
income tax audit. In addition, the related letters of credit have been cancelled. Also during 2014, we recognized a
non-cash income tax benefit of $3.1 million related to the release of a portion of our reserve for uncertain tax
positions in conjunction with the completion of an audit of our U.S. income tax return for 2009. We believe we
have adequate accruals for additional taxes and related interest expense which could ultimately result from tax
examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on
our consolidated financial position, results of operations or liquidity.
We accrue interest and penalties on our uncertain tax positions as a component of our provision for income
taxes. The amount of interest and penalties we accrued during 2013, 2014 and 2015 was not material, and at
December 31, 2013, 2014 and 2015, we had $3.7 million, $2.8 million and $2.3 million, respectively, accrued for
interest and penalties for our uncertain tax positions.
The following table shows the changes in the amount of our uncertain tax positions (exclusive of the effect
of interest and penalties discussed above) during 2013, 2014 and 2015:
2013
Years ended December 31,
2014
(In millions)
2015
Changes in unrecognized tax benefits:
Unrecognized tax benefits at beginning of year
Net increase (decrease):
Tax positions taken in prior periods
Tax positions taken in current period
Lapse due to applicable statute of limitations
Change in currency exchange rates
(cid:3)
$
Unrecognized tax benefits at end of year $
13.0 $
(.3)
3.9
-
(.7)
15.9 $
(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
15.9 $
(cid:3)
10.4
(5.4 )
1.1
-
(1.2 )
10.4 $
(.3 )
1.1
(.2 )
(1.3 )
9.7
If our uncertain tax positions were recognized, a benefit of $15.1 million, $8.8 million and $7.8 million
would affect our effective income tax rates for 2013, 2014 and 2015 respectively. At December 31, 2015, we
currently estimate that our unrecognized tax benefits will not change materially during the next twelve months
related to our prior year returns.
We file income tax returns in various U.S. federal, state and local jurisdictions. We also file income tax
returns in various non-U.S. jurisdictions, principally in Germany, Canada, Belgium and Norway. Our U.S. income
tax returns prior to 2012 are generally considered closed to examination by applicable tax authorities. Our non-U.S.
income tax returns are generally considered closed to examination for years prior to 2011 for Germany, 2012 for
Belgium, 2010 for Canada and 2006 for Norway.
F-23
Note 11 - Employee benefit plans:
Defined contribution plans - We maintain various defined contribution pension plans with our
contributions based on matching or other formulas. Defined contribution plan expense approximated $1.8 million in
2013, $2.6 million in 2014 and $2.7 million in 2015.
Accounting for defined benefit and postretirement benefits other than pensions (OPEB) plans - We
recognize an asset or liability for the over or under funded status of each of our individual defined benefit pension
plans on our Consolidated Balance Sheets. Changes in the funded status of these plans are recognized either in net
income (loss), to the extent they are reflected in periodic benefit cost, or through other comprehensive income (loss).
Defined benefit plans - We sponsor various defined benefit pension plans. Certain non-U.S. employees are
covered by plans in their respective countries. Our U.S. plan was closed to new participants in 1996, and existing
participants no longer accrued any additional benefits after that date. The benefits under our plans are based upon
years of service and employee compensation. Our funding policy is to contribute annually the minimum amount
required under ERISA (or equivalent non-U.S.) regulations plus additional amounts as we deem appropriate.
We expect to contribute the equivalent of approximately $15.2 million to all of our defined benefit pension
plans during 2016. Benefit payments to plan participants out of plan assets are expected to be the equivalent of:
Years ending December 31,
2016
2017
2018
2019
2020
Next 5 years
$
Amount
(In millions)
19.8
20.0
20.4
20.9
21.7
122.0
F-24
The funded status of our non-U.S. defined benefit pension plans is presented in the table below.
$
Change in projected benefit obligations (PBO):
Benefit obligations at beginning of the year
Service cost
Interest cost
Participant contributions
Actuarial losses (gains)
Change in currency exchange rates
Benefits paid
Benefit obligations at end of the year
Change in plan assets:
Fair value of plan assets at beginning of the
year
Actual return on plan assets
Employer contributions
Participant contributions
Change in currency exchange rates
Benefits paid
Funded status
Fair value of plan assets at end of year
$
December 31,
2014
2015
(In millions)
595.1 $
9.9
21.7
1.9
120.5
(74.4)
(26.3)
648.4
431.4
39.7
19.8
1.9
(51.7)
(26.3)
414.8
(233.6) $
648.4
11.2
14.6
1.6
(8.7 )
(76.4 )
(21.0 )
569.7
414.8
10.6
17.1
1.6
(51.1 )
(21.0 )
372.0
(197.7 )
Amounts recognized in the balance sheet:
Noncurrent pension asset
Accrued pension costs:
Current
Noncurrent
Total
Accumulated other comprehensive loss:
Actuarial losses
Prior service cost
Total
Accumulated benefit obligations (ABO)
$
$
$
$
$
- $
.4
(.7)
(232.9)
(233.6) $
-
(198.1 )
(197.7 )
248.3 $
2.2
250.5 $
230.6
1.9
232.5
616.6 $
545.2
F-25
The components of our net periodic defined benefit pension cost for our non-U.S. defined benefit pension
plans are presented in the table below. In December 2013, we amended one of our Canadian plans in which
participation with respect to hourly workers was closed to new participants in December 2013, and existing hourly
plan participants will no longer accrue additional benefits after December 2013, resulting in a $7.1 million
curtailment charge for recognition of previously unamortized prior service cost and transition obligation and $.2
million for special termination benefits. In 2014, we amended the other Canadian plan in which participation with
respect to salaried workers was closed to new participants in December 2014, and existing hourly plan participants
will no longer accrue additional benefits after December 2014, resulting in a nominal curtailment charge. The
amounts shown below for the amortization of prior service cost, net transition obligations and recognized actuarial
losses for 2013, 2014 and 2015 were recognized as components of our accumulated other comprehensive income
(loss) at December 31, 2012, 2013 and 2014, respectively, net of deferred income taxes.
Net periodic pension cost:
Service cost benefits
Interest cost on PBO
Expected return on plan assets
Settlement gain
Curtailment loss
Recognized actuarial losses
Amortization of prior service cost
Amortization of net transition obligations
Total
Years ended December 31,
2014
2013
(In millions)
2015
(cid:3)
$
$
(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
9.9 $
21.7
(20.0 )
(.3 )
-
10.0
.5
.1
21.9 $
(cid:3)
11.2
14.6
(16.6 )
-
-
13.6
.4
-
23.2
13.1 $
21.1
(18.5)
-
7.3
12.5
1.1
.4
37.0 $
Certain information concerning our non-U.S. defined benefit pension plans is presented in the table below.
Plans for which the ABO exceeds plan assets:
PBO
ABO
Fair value of plan assets
December 31,
2014
2015
(In millions)
$
621.7 $
592.5
390.6
518.1
498.7
321.6
The weighted-average rate assumptions used in determining the actuarial present value of benefit
obligations for our non-U.S. defined benefit pension plans as of December 31, 2014 and 2015 are presented in the
table below.
Rate
Discount rate
Increase in future compensation levels
December 31,
2014
2015
2.5%
2.6%
2.6 %
2.9 %
F-26
The weighted-average rate assumptions used in determining the net periodic pension cost for our non-U.S.
defined benefit pension plans for 2013, 2014 and 2015 are presented in the table below.
Rate
Years ended December 31,
2014
2015
2013
Discount rate
Increase in future compensation levels
Long-term return on plan assets
3.7%
3.1%
5.0%
3.8%
2.7%
5.0%
2.5 %
2.6 %
4.6 %
Variances from actuarially assumed rates will result in increases or decreases in accumulated pension
obligations, pension expense and funding requirements in future periods.
The funded status of our U.S. defined benefit pension plan is presented in the table below.
Change in PBO:
Benefit obligations at beginning of the year
Interest cost
Actuarial losses (gains)
Benefits paid
Benefit obligations at end of the year
Change in plan assets:
Fair value of plan assets at beginning of the year
Actual return (loss) on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Funded status
Amounts recognized in the balance sheet:
Accrued pension costs:
Current
Noncurrent
Total
Accumulated other comprehensive loss - actuarial losses
ABO
$
$
$
$
$
$
December 31,
2014
2015
(In millions)
17.2 $
.8
2.9
(1.1)
19.8
15.8
.5
.3
(1.1)
15.5
(4.3) $
19.8
.8
(1.0 )
(1.0 )
18.6
15.5
(.7 )
.1
(1.0 )
13.9
(4.7 )
(.1) $
(4.2)
(4.3) $
(.1 )
(4.6 )
(4.7 )
11.2 $
11.6
19.8 $
18.6
F-27
The components of our net periodic defined benefit pension cost for our U.S. defined benefit pension plan
is presented in the table below. The amounts shown below for recognized actuarial losses for 2013, 2014 and 2015
were recognized as components of our accumulated other comprehensive income (loss) at December 31, 2012, 2013
and 2014 respectively, net of deferred income taxes.
2013
Years ended December 31,
2014
(In millions)
2015
Net periodic pension cost (income):
Interest cost on PBO
Expected return on plan assets
Recognized actuarial losses
Total
(cid:3)
$
$
(cid:3)
.7 $
(1.4)
.5
(.2) $
(cid:3)(cid:3)
.8 $
(1.2 )
.3
(.1 ) $
.8
(1.1 )
.5
.2
The discount rate assumptions used in determining the actuarial present value of the benefit obligation for
our U.S. defined benefit pension plan as of December 31, 2014 and 2015 are 3.8% and 4.1%, respectively. The
impact of assumed increases in future compensation levels does not have an effect on the benefit obligation as the
plan is frozen with regards to compensation.
The weighted-average rate assumptions used in determining the net periodic pension cost for our U.S.
defined benefit pension plan for 2013, 2014 and 2015 are presented in the table below. The impact of assumed
increases in future compensation levels also does not have an effect on the periodic pension cost as the plan is frozen
with regards to compensation.
Rate
Years ended December 31,
2014
2015
2013
Discount rate
Long-term return on plan assets
3.6%
10.0%
4.5%
7.5%
3.8 %
7.5 %
Variances from actuarially assumed rates will result in increases or decreases in accumulated pension
obligations, pension expense and funding requirements in future periods.
The amounts shown in the above tables for actuarial losses and prior service cost at December 31, 2014 and
2015 have not yet been recognized as components of our periodic defined benefit pension cost as of those dates.
These amounts will be recognized as components of our periodic defined benefit cost in future years and are
recognized, net of deferred income taxes, in our accumulated other comprehensive income (loss) at December 2014
and 2015. We expect approximately $11.4 million and $.2 million of the unrecognized actuarial losses and prior
service costs, respectively, will be recognized as components of our consolidated net periodic defined benefit
pension cost in 2016.
F-28
The table below details the changes in our consolidated other comprehensive income (loss) during 2013,
2014 and 2015.
2013
Years ended December 31,
2014
(In millions)
2015
Changes in plan assets and benefit obligations
recognized in other comprehensive income (loss):
Current year:
Net actuarial gain (loss)
Plan curtailment
Settlements
Amortization of unrecognized:
Net actuarial losses
Prior service cost
Net transition obligations
Total
(cid:3)
$
$
(cid:3)
(cid:3)(cid:3)
14.7 $
7.1
-
13.0
1.1
.4
36.3 $
(103.9 ) $
-
(.3 )
10.3
.5
.1
(93.3 ) $
2.7
-
-
14.1
.4
-
17.2
At December 31, 2014 and 2015, substantially all of the assets attributable to our U.S. plan were invested
in the Combined Master Retirement Trust (CMRT), a collective investment trust sponsored by Contran to permit the
collective investment by certain master trusts that fund certain employee benefits plans sponsored by Contran and
certain of its affiliates. As previously disclosed, prior to his death in December 2013, Mr. Harold Simmons was the
sole trustee of the CMRT, and he along with the CMRT’s investment committee, of which Mr. Simmons was a
member, actively managed the investments of the CMRT. The CMRT’s long-term investment objective was to
provide a rate of return exceeding a composite of broad market equity and fixed income indices (including the S&P
500 and certain Russell indices) while utilizing both third-party investment managers as well as investments directed
by Mr. Simmons (prior to his death). During the history of the CMRT from its inception in 1988 through
December 31, 2013, the average annual rate of return was 14%. For the year ended December 31, 2013, the assumed
long-term rate of return for plan assets invested in the CMRT was 10%. In determining the appropriateness of the
long-term rate of return assumption, we primarily relied on the historical rates of return achieved by the CMRT,
although we considered other factors as well including, among other things, the investment objectives of the
CMRT’s managers and their expectation that such historical returns would in the future continue to be achieved over
the long-term.
Following the death of Mr. Simmons in December 2013, the Contran board of directors in January 2014
appointed a financial institution as the new directed trustee of the CMRT, and the Contran board appointed five
individuals (all executive officers of Contran) as the new investment committee of the CMRT. During 2014, the
new investment committee began a process of reallocating to current and/or new investment managers or various
mutual funds and comingled funds the portion of the CMRT assets that had previously been under direct and active
management by Mr. Simmons. The reallocation process would be done prudently over a period of time, given the
diverse asset composition of this portion of the portfolio, and was substantially complete at December 31,
2015. Concurrent with this change in investment strategy in which there is no longer a portion of the CMRT’s
assets under direct and active management by Mr. Simmons, and considering the long-term asset mix of the assets
of the CMRT and the expected long-term rates of return for such asset components as well as advice from Contran’s
actuaries, beginning in 2014 the assumed long-term rate of return for plan assets invested in the CMRT was reduced
to 7.5%.
The CMRT unit value is determined semi-monthly, and the plans have the ability to redeem all or any
portion of their investment in the CMRT at any time based on the most recent semi-monthly valuation. However, the
plans do not have the right to individual assets held by the CMRT and the CMRT has the sole discretion in
determining how to meet any redemption request. For purposes of our plan asset disclosure, we consider the
investment in the CMRT as a Level 2 input because (i) the CMRT value is established semi-monthly and the plans
have the right to redeem their investment in the CMRT, in part or in whole, at any time based on the most recent
value and (ii) observable inputs from Level 1 or Level 2 were used to value approximately 80% and 81% of the
F-29
assets of the CMRT at December 31, 2014 and 2015, respectively, as noted below. The aggregate fair value of all of
the CMRT assets, including funds of Contran and its other affiliates that also invest in the CMRT, and supplemental
asset mix details of the CMRT are as follows:
CMRT asset value
CMRT fair value input:
Level 1
Level 2
Level 3
CMRT asset mix:
Domestic equities, principally publicly traded
International equities, principally publicly traded
Fixed income securities, principally publicly traded
Privately managed limited partnerships
Hedge funds
Other, primarily cash
December 31,
2014
2015
$
(In millions)
715.5 $
648.8
67%
13
20
100%
48%
11
32
7
-
2
100%
54%
27
19
100%
29%
22
38
5
5
1
100%
In determining the expected long-term rate of return on non-U.S. plan asset assumptions, we consider the
long-term asset mix (e.g. equity vs. fixed income) for the assets for each of our plans and the expected long-term
rates of return for such asset components. In addition, we receive third-party advice about appropriate long-term
rates of return. Such assumed asset mixes are summarized below:
(cid:120)
(cid:120)
(cid:120)
In Germany, the composition of our plan assets is established to satisfy the requirements of the
German insurance commissioner. Our German pension plan assets represent an investment in a large
collective investment fund established and maintained by Bayer AG in which several pension plans,
including our German pension plan and Bayer’s pension plans, have invested. Our plan assets
represent a very nominal portion of the total collective investment fund maintained by Bayer. These
plan assets are a Level 3 input because there is not an active market that approximates the value of our
investment in the Bayer investment fund. We determine the fair value of the Bayer plan assets based
on periodic reports we receive from the managers of the Bayer plan. These periodic reports are subject
to audit by the German pension regulator.
In Canada, we currently have a plan asset target allocation of 38% to equity securities, 55% to fixed
income securities, 7% to other investments and cash. We expect the long-term rate of return for such
investments to average approximately 125 basis points above the applicable equity or fixed income
index. The Canadian assets are Level 1 inputs because they are traded in active markets.
In Norway, we currently have a plan asset target allocation of 11% to equity securities, 79% to fixed
income securities, 7% to real estate and the remainder primarily to other investments and liquid
investments such as money markets. The expected long-term rate of return for such investments is
approximately 7%, 3%, 5% and 5%, respectively. The majority of Norwegian plan assets are Level 1
inputs because they are traded in active markets; however approximately 11% of our Norwegian plan
assets are invested in real estate and other investments not actively traded and are therefore a Level 3
input.
(cid:120) We also have plan assets in Belgium and the United Kingdom. The Belgian plan assets are invested in
certain individualized fixed income insurance contracts for the benefit of each plan participant as
required by the local regulators and are therefore a Level 3 input. The United Kingdom plan assets
consist of marketable securities which are Level 1 inputs because they trade in active markets.
F-30
We regularly review our actual asset allocation for each plan, and will periodically rebalance the
investments in each plan to more accurately reflect the targeted allocation and/or maximize the overall long-term
return when considered appropriate.
The composition of our December 31, 2014 and 2015 pension plan assets by asset category and fair value
level is shown in the table below. The amounts shown for plan assets invested in the CMRT include a nominal
amount of cash held by our U.S. pension plan which is not part of the plan’s investment in the CMRT.
Fair Value Measurements at December 31, 2014
Quoted
prices
in active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
(In millions)
Total
$
240.7 $
- $
- $
240.7
12.4
34.4
50.3
10.1
.6
1.9
5.1
29.3
3.8
4.5
10.3
12.4
34.4
50.3
10.1
.6
1.9
5.1
29.3
3.8
-
9.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4.5
1.1
15.5
11.4
430.3 $
-
3.6
160.7 $
15.5
-
15.5 $
-
7.8
254.1
$
Germany
Canada:
Local currency equities
Non local currency equities
Local currency fixed income
Global mutual fund
Cash and other
Norway:
Local currency equities
Non local currency equities
Local currency fixed income
Non local currency fixed income
Real estate
Cash and other
U.S.
CMRT
Other
Total
F-31
Fair Value Measurements at December 31, 2015
Quoted
prices
in active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
(In millions)
Total
$
223.1 $
- $
- $
223.1
9.6
23.3
50.6
6.8
.5
2.0
3.6
24.5
4.7
4.2
7.9
9.6
23.3
50.6
6.8
.5
2.0
3.6
24.5
4.7
-
6.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4.2
1.2
13.9
11.2
385.9 $
-
3.5
135.8 $
13.9
-
13.9 $
-
7.7
236.2
$
Germany
Canada:
Local currency equities
Non local currency equities
Local currency fixed income
Global mutual fund
Cash and other
Norway:
Local currency equities
Non local currency equities
Local currency fixed income
Non local currency fixed income
Real estate
Cash and other
U.S.
CMRT
Other
Total
A rollforward of the change in fair value of Level 3 assets follows.
Fair value at beginning of year
Gain on assets held at end of year
Gain on assets sold during the year
Assets purchased
Assets sold
Currency exchange rate fluctuations
Fair value at end of year
December 31,
2014
2015
(In millions)
261.5 $
24.5
.3
16.9
(15.2)
(33.9)
254.1 $
254.1
6.5
.3
13.7
(12.4 )
(26.0 )
236.2
$
$
F-32
Postretirement benefits other than pensions (OPEB) - We provide certain health care and life insurance
benefits for eligible retired employees. Certain of our Canadian employees may become eligible for such
postretirement health care and life insurance benefits if they reach retirement age while working for us. In the U.S.,
employees who retired after 1998 are not entitled to any such benefits. The majority of all retirees are required to
contribute a portion of the cost of their benefits and certain current and future retirees are eligible for reduced health
care benefits at age 65. We have no OPEB plan assets, rather, we fund medical claims as they are paid.
Contributions to our OPEB plans to cover benefit payments are expected to be the equivalent of:
Years ending December 31,
Amount
(In millions)
2016
2017
2018
2019
2020
Next 5 years
$
.4
.4
.4
.4
.4
2.3
The funded status of our OPEB plans is presented in the table below:
Change in accumulated OPEB obligations:
Obligations at beginning of the year
Service cost
Interest cost
Actuarial losses (gains)
Change in currency exchange rates
Benefits paid from employer contributions
Obligations at end of the year
Fair value of plan assets
Funded status
Amounts recognized in the balance sheet:
Current accrued pension costs
Noncurrent accrued pension costs
Total
Accumulated other comprehensive income:
Net actuarial losses
Prior service credit
Total
$
$
$
$
$
$
December 31,
2014
2015
(In millions)
8.2 $
.1
.4
.8
(.6)
(.4)
8.5
-
(8.5) $
(.4) $
(8.1)
(8.5) $
3.6 $
(7.0)
(3.4) $
8.5
.1
.3
(.2 )
(1.3 )
(.4 )
7.0
-
(7.0 )
(.3 )
(6.7 )
(7.0 )
3.1
(6.2 )
(3.1 )
The amounts shown in the table above for net actuarial losses and prior service credit at December 31, 2014
and 2015 have not yet been recognized as components of our periodic OPEB cost as of those dates. These amounts
will be recognized as components of our periodic OPEB cost in future years and are recognized, net of deferred
income taxes, in our accumulated other comprehensive income (loss). We expect to recognize approximately $.2
million of unrecognized actuarial losses and $.8 million of prior service credit as components of our periodic OPEB
cost in 2016.
F-33
At December 31, 2015, the accumulated OPEB obligations for all OPEB plans comprised $.6 million
related to U.S. plans and $6.4 million related to our Canadian plan (in 2014 the amounts were $.7 million and $7.8
million, respectively).
In 2013, we amended the benefit formula for most Canadian participants of our plans effective January 1,
2014, resulting in a curtailment gain as of December 31, 2013. Key assumptions including the service cost and
benefit duration as of December 31, 2013 and 2014 now reflect these plan revisions to the benefit formula.
The components of our periodic OPEB costs are presented in the table below. The amounts shown below
for amortization of prior service credit and recognized actuarial losses for 2013, 2014 and 2015 were recognized as
components of our accumulated other comprehensive income (loss) at December 31, 2012, 2013 and 2014,
respectively, net of deferred income taxes.
2013
Years ended December 31,
2014
(In millions)
2015
Net periodic OPEB cost:
Service cost
Interest cost
Amortization of prior service credit
Recognized actuarial losses
Curtailment gain
Total
(cid:3)
$
$
(cid:3)
.3 $
.6
(.6)
.3
(.6)
- $
(cid:3)(cid:3)
.1 $
.4
(.9 )
.2
-
(.2 ) $
.1
.3
(.8 )
.3
-
(.1 )
The table below details the changes in benefit obligations recognized in accumulated other comprehensive
income (loss) during 2013, 2014 and 2015.
2013
Years ended December 31,
2014
(In millions)
2015
Changes in benefit obligations recognized
in other comprehensive income (loss):
Current year:
Net actuarial gain/(loss)
Plan amendments/curtailment
Amortization of unrecognized:
Net actuarial loss
Prior service cost
Total
(cid:3)
(cid:3)
(cid:3)(cid:3)
$
$
1.6 $
4.5
.3
(1.1)
5.3 $
(.8 ) $
-
.2
(.9 )
(1.5 ) $
.2
-
.3
(.8 )
(.3 )
A summary of our key actuarial assumptions used to determine the net benefit obligation as of
December 31, 2014 and 2015 are presented in the table below. The weighted average discount rate was determined
using the projected benefit obligation as of such dates. The impact of assumed increases in future compensation
levels does not have a material effect on the actuarial present value of the benefit obligation as substantially all of
such benefits relate solely to eligible retirees, for which compensation is not applicable.
Healthcare inflation:
Initial rate
Ultimate rate
Year of ultimate rate achievement
Weighted average discount rate
2014
2015
7.0%
5.0%
2021
3.7%
7.0 %
5.0 %
2021
3.9 %
F-34
Assumed health care cost trend rates affect the amounts we report for health care plans. A one percent
change in assumed health care trend rates would not have a material effect on the net periodic OPEB cost for 2015
or on the accumulated OPEB obligation at December 31, 2015.
The weighted average discount rate used in determining the net periodic OPEB cost for 2015 was 3.7%
(2014 – 4.6%; 2013 – 3.9%). Such weighted average rate was determined using the projected benefit obligation as
of the beginning of each year. The impact of assumed increases in future compensation levels does not have a
material effect on the net periodic OPEB cost as substantially all of such benefits relate solely to eligible retirees, for
which compensation is not applicable. The impact of the assumed rate of return on plan assets also does not have a
material effect on the net periodic OPEB cost as there were no plan assets as of December 31, 2014 or 2015.
Variances from actuarially-assumed rates will result in additional increases or decreases in accumulated
OPEB obligations, net periodic OPEB cost and funding requirements in future periods.
Note 12 - Other noncurrent liabilities:
Reserve for uncertain tax positions
Employee benefits
Interest rate swap contract
Insurance claims and expenses
Other
Total
See Note 16 for a discussion on the interest rate swap contract.
December 31,
2014
2015
(In millions)
13.1 $
8.1
-
.3
5.3
26.8 $
11.8
7.5
.2
.2
4.7
24.4
$
$
Note 13 - Stockholders’ equity:
Long-term incentive compensation plan – Prior to 2013, our board of directors adopted a new plan that
would provide for the award of stock to our board of directors, and up to a maximum of 200,000 shares could be
awarded. We awarded 7,000 shares in 2013, and 8,000 shares in each of 2014 and 2015 under this new plan, and
177,000 shares are available for future award under this new plan at December 31, 2015.
Stock repurchase program – Prior to 2013, our board of directors authorized the repurchase of up to
2.0 million shares of our common stock in open market transactions, including block purchases, or in privately-
negotiated transactions at unspecified prices and over an unspecified period of time. We may repurchase our
common stock from time to time as market conditions permit. The stock repurchase program does not include
specific price targets or timetables and may be suspended at any time. Depending on market conditions, we may
terminate the program prior to its completion. We would use cash on hand or other sources of liquidity to acquire
the shares. Repurchased shares will be added to our treasury and cancelled.
During 2013 we repurchased 49,000 shares in market transactions for an aggregate of $.7 million in cash.
We cancelled these treasury shares and allocated their cost to common stock at par value and additional paid-in
capital. At December 31, 2015 an additional 1,951,000 shares are available for repurchase under this authorization.
F-35
Accumulated other comprehensive loss - Changes in accumulated other comprehensive loss for 2013,
2014 and 2015 are presented in the table below.
Accumulated other comprehensive loss, net of tax:
Currency translation:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Marketable securities:
Balance at beginning of year
Other comprehensive income (loss):
Unrealized gains (losses) arising during the
year
Less reclassification adjustment for
amounts included in realized loss
Balance at end of year
Defined benefit pension plans:
Balance at beginning of year
Other comprehensive income (loss):
2013
Years ended December 31,
2014
(In millions)
2015
$
$
$
$
$
(63.5) $
6.7
(56.8) $
(56.8) $
(103.0)
(159.8) $
(159.8 )
(92.2 )
(252.0 )
4.2 $
10.8 $
(2.9 )
5.3
(13.7)
1.3
10.8 $
-
(2.9) $
(6.5 )
8.8
(.6 )
(137.3) $
(109.4) $
(175.4 )
Amortization of prior service cost and net
losses included in net periodic pension cost
Net actuarial gain (loss) arising during year
Plan curtailment
Balance at end of year
$
10.0
12.6
5.3
(109.4) $
7.2
(73.2)
-
(175.4) $
10.0
6.2
-
(159.2 )
OPEB plans:
Balance at beginning of year
Other comprehensive (income) loss:
$
(.5) $
3.4 $
2.3
Amortization of prior service credit and net
losses included in net periodic OPEB cost
Net actuarial gain (loss) arising during year
Plan amendments
Balance at end of year
$
Interest rate swap:
Balance at beginning of year
Other comprehensive loss:
Unrealized losses arising during the year
Less reclassification adjustment
for amounts included in interest expense
Balance at end of year
Total accumulated other comprehensive loss:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
$
$
$
$
(.6)
1.2
3.3
3.4 $
- $
-
-
- $
(.5)
(.6)
-
2.3 $
(.4 )
.2
-
2.1
- $
-
-
-
- $
(2.9 )
.6
(2.3 )
(197.1) $
45.1
(152.0) $
(152.0) $
(183.8)
(335.8) $
(335.8 )
(76.2 )
(412.0 )
See Note 6 for further discussion of our marketable securities, Note 11 for amounts related to our defined
benefit pension plans and OPEB plans and Note 16 for discussion of our interest rate swap contract.
F-36
Note 14 - Related party transactions:
We may be deemed to be controlled by Ms. Simmons and Ms. Connelly. See Note 1. Corporations that
may be deemed to be controlled by or affiliated with such individuals sometimes engage in (a) intercorporate
transactions such as guarantees, management and expense sharing arrangements, shared fee arrangements, joint
ventures, partnerships, loans, options, advances of funds on open account, and sales, leases and exchanges of assets,
including securities issued by both related and unrelated parties and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations, securities repurchases, and purchases and sales
(and other acquisitions and dispositions) of subsidiaries, divisions or other business units, which transactions have
involved both related and unrelated parties and have included transactions which resulted in the acquisition by one
related party of a publicly-held noncontrolling interest in another related party. While no transactions of the type
described above are planned or proposed with respect to us other than as set forth in these financial statements, we
continuously consider, review and evaluate, and understand that Contran and related entities consider, review and
evaluate such transactions. Depending upon the business, tax and other objectives then relevant, it is possible that
we might be a party to one or more such transactions in the future.
Current receivables from and payables to affiliates are summarized in the table below.
Current receivable from affiliate:
LPC
Income taxes receivable from Valhi
Other
Current payables to affiliates:
LPC
Income taxes payable to Valhi
Total
December 31,
2014
2015
(In millions)
$
$
$
$
13.0 $
3.5
1.5
18.0 $
19.9 $
-
19.9 $
-
-
2.5
2.5
19.4
.1
19.5
From time to time, we may have loans and advances outstanding between us and various related parties
pursuant to term and demand notes. We generally enter into these loans and advances for cash management
purposes. When we loan funds to related parties, we are generally able to earn a higher rate of return on the loan
than we would earn if we invested the funds in other instruments, and when we borrow from related parties, we are
generally able to pay a lower rate of interest than we would pay if we had incurred third-party indebtedness. While
certain of these loans to affiliates may be of a lesser credit quality than cash equivalent instruments otherwise
available to us, we believe we have considered the credit risks in the terms of the applicable loans. In this regard:
(cid:120)
(cid:120)
In November 2010, we entered into an unsecured revolving demand promissory note with Valhi
whereby, as amended, we have agreed to loan Valhi up to $100 million. Our loan to Valhi bears
interest at prime plus 1.00%, payable quarterly, with all principal due on demand, but in any event no
earlier than December 31, 2017. The amount of our outstanding loans to Valhi at any time is at our
discretion. As of December 31, 2014 and 2015, we had no outstanding loans to Valhi under this
promissory note; and
In February 2013, we entered into a promissory note with Contran in which we borrowed $190 million
on this note and subsequently repaid $20 million during 2013. We prepaid and cancelled this note
payable to Contran in February 2014 using a portion of the net proceeds of our new term loan. See
Note 9.
Interest income (including unused commitment fees) on our loan to Valhi was $.5 million in each of 2013,
2014 and 2015. Interest expense on our loan from Contran was $11.7 million in 2013 and $1.6 million in 2014.
F-37
Amounts payable to LPC are generally for the purchase of TiO2, while amounts receivable from LPC are
generally from the sale of TiO2 feedstock. See Note 5. Purchases of TiO2 from LPC were $224.5 million in 2013,
$193.1 million in 2014 and $176.5 million in 2015. Sales of feedstock to LPC were $141.1 million in 2013, $98.4
million in 2014 and $80.6 million in 2015.
Under the terms of various intercorporate services agreements (ISAs) entered into between us and various
related parties, including Contran, employees of one company will provide certain management, tax planning,
financial and administrative services to the other company on a fee basis. Such charges are based upon estimates of
the time devoted by the employees of the provider of the services to the affairs of the recipient, and the
compensation and associated expenses of such persons. Because of the large number of companies affiliated with
Contran, we believe we benefit from cost savings and economies of scale gained by not having certain management,
financial and administrative staffs duplicated at each entity, thus allowing certain individuals to provide services to
multiple companies but only be compensated by one entity. The net ISA fee charged to us, approved by the
independent members of our board of directors, is included in selling, general and administrative expense and
corporate expense and was $12.9 million in 2013, $12.3 million in 2014 and $13.4 million in 2015. This agreement
is renewed annually and we expect to pay approximately $15.2 million under the ISA during 2016.
Contran and certain of its subsidiaries and affiliates, including us, purchase certain of their insurance
policies as a group, with the costs of the jointly-owned policies being apportioned among the participating
companies. Tall Pines Insurance Company and EWI RE, Inc., each subsidiaries of Valhi, provide for or broker
certain insurance policies for Contran and certain of its subsidiaries and affiliates, including ourselves. Tall Pines
purchases reinsurance from third-party insurance carriers with an A.M. Best Company rating of generally at A-
(excellent) for substantially all of the risks it underwrites. Consistent with insurance industry practices, Tall Pines
and EWI receive commissions from insurance and reinsurance underwriters and/or assess fees for the policies that
they provide or broker. The aggregate premiums paid to Tall Pines and EWI by us and our joint venture were $11.3
million in 2013, $10.7 million in 2014 and $10.3 million in 2015. These amounts principally represent payments for
insurance premiums, which include premiums or fees paid to Tall Pines or fees paid to EWI. These amounts also
include payments to insurers or reinsurers through EWI for the reimbursement of claims within our applicable
deductible or retention ranges that such insurers or reinsurers paid to third parties on our behalf, as well as amounts
for claims and risk management services and various other third-party fees and expenses incurred by the program.
We expect these relationships with Tall Pines and EWI will continue in 2016.
With respect to certain of such jointly-owned policies, it is possible that unusually large losses incurred by
one or more insureds during a given policy period could leave the other participating companies without adequate
coverage under that policy for the balance of the policy period. As a result, Contran and certain of its subsidiaries
and affiliates, including us, have entered into a loss sharing agreement under which any uninsured loss is shared by
those entities who have submitted claims under the relevant policy. We believe the benefits, in the form of reduced
premiums and broader coverage associated with the group coverage for such policies, justifies the risk associated
with the potential for any uninsured loss.
Contran and certain of its subsidiaries, including us, participate in a combined information technology data
recovery program that Contran provides from a data recovery center that it established. Pursuant to the program,
Contran and certain of its subsidiaries, including us, as a group share information technology data recovery services.
The program apportions its costs among the participating companies. We paid Contran $88,000 in 2013, $116,000
in 2014 and $144,000 in 2015 for such services. We expect that this relationship with Contran will continue in
2016.
Note 15 - Commitments and contingencies:
Environmental matters - Our operations are governed by various environmental laws and regulations.
Certain of our operations are and 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 and
regulations. As with other companies engaged in similar businesses, certain of our past and current operations and
products have the potential to cause environmental or other damage. We have implemented and continue to
implement various policies and programs in an effort to minimize these risks. Our policy is to maintain compliance
F-38
with applicable environmental laws and regulations at all of our facilities and to strive to improve our environmental
performance. From time to time, we may be subject to environmental regulatory enforcement under U.S. and non-
U.S. statutes, the resolution of which typically involves the establishment of compliance programs. It is possible
that future developments, such as stricter requirements of environmental laws and enforcement policies thereunder,
could adversely affect our production, handling, use, storage, transportation, sale or disposal of such substances. We
believe all of our manufacturing facilities are in substantial compliance with applicable environmental laws.
Litigation matters - We are involved in various environmental, contractual, product liability, patent (or
intellectual property), employment and other claims and disputes incidental to our business. At least quarterly our
management discusses and evaluates the status of any pending litigation to which we are a party. The factors
considered in such evaluation include, among other things, the nature of such pending cases, the status of such
pending cases, the advice of legal counsel and our experience in similar cases (if any). Based on such evaluation, we
make a determination as to whether we believe (i) it is probable a loss has been incurred, and if so if the amount of
such loss (or a range of loss) is reasonably estimable, or (ii) it is reasonably possible but not probable a loss has been
incurred, and if so if the amount of such loss (or a range of loss) is reasonably estimable, or (iii) the probability a
loss has been incurred is remote. We have not accrued any amounts for either of the two matters discussed below,
as it is not reasonably possible we have incurred a loss in either case that would be material to our consolidated
financial condition, results of operations or liquidity.
In 2013 we entered into a settlement agreement with the class plaintiffs in the consolidated complaint,
Haley Paint et al. v. E.I. Du Pont de Nemours and Company, et al. (United States District Court, for the District of
Maryland, Case No. 1:10-cv-00318-RDB). Without admitting any fault or wrongdoing, we agreed to pay an
aggregate of $35 million (which was paid in 2014), and we and the other defendants have been dismissed with
prejudice from this matter. Other operating expense in 2013 includes a $35 million charge related to this settlement.
In March 2013, we were served with the complaint, Los Gatos Mercantile, Inc. d/b/a Los Gatos Ace
Hardware, et al v. E.I. Du Pont de Nemours and Company, et al. (United States District Court, for the Northern
District of California, Case No. 3:13-cv-01180-SI). The defendants include us, E.I. Du Pont de Nemours &
Company, Huntsman International LLC and Millennium Inorganic Chemicals, Inc. As amended by plaintiffs’
second amended complaint, plaintiffs seek to represent a class consisting of indirect purchasers of titanium dioxide
in the states of Arizona, Arkansas, California, the District of Columbia, Florida, Kansas, Massachusetts, Michigan,
Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Mexico, New York, North Carolina, Oregon,
South Carolina, Tennessee and Wisconsin that indirectly purchased titanium dioxide from one or more of the
defendants on or after March 1, 2002. The complaint alleges that the defendants conspired and combined to fix,
raise, maintain, and stabilize the price at which titanium dioxide was sold in the United States and engaged in other
anticompetitive conduct. The case is now proceeding in the trial court. We believe the action is without merit, will
deny all allegations of wrongdoing and liability and intend to defend against the action vigorously. Based on our
quarterly status evaluation of this case, we have determined that it is not reasonably possible that a loss has been
incurred in this case.
In November 2013, we were served with the complaint, The Valspar Corporation, et al v. E.I. Du Pont de
Nemours and Company, et al. (United States District Court, for the District of Minnesota, Case No. 1:13-cv-03214-
RHK-L1B). The defendants include us, E.I. Du Pont de Nemours & Company, Huntsman International LLC,
Millennium Inorganic Chemicals, Inc. and the National Titanium Dioxide Company Limited (d/b/a Cristal). The
plaintiff opted out of the settlement in the original lawsuit, Haley Paint et al. v. E.I. Du Pont de Nemours and
Company, et al. (United States District Court, for the District of Maryland, Case No. 1:10-cv-00318-RDB) and filed
its own lawsuit against the defendants. The complaint alleged that the defendants conspired and combined to fix,
raise, maintain, and stabilize the price at which titanium dioxide was sold in the United States and engaged in other
anticompetitive conduct. In October 2014, the court granted our motion to transfer, and the case is now proceeding
in the trial court in the United States District Court for the Southern District of Texas, Case No. 4:14-cv-01130. The
trial in this case is currently set to commence in September 2016. We believe the action is without merit, will deny
all allegations of wrongdoing and liability and intend to defend against the action vigorously. Based on our
quarterly status evaluation of the case, we have determined that while it is reasonably possible (but not probable)
that a loss has been incurred in this case, we do not believe the amount of such loss will be material to our
consolidated financial condition, results of operations or liquidity.
F-39
Concentrations of credit risk - Sales of TiO2 accounted for approximately 90% of our sales in each of
2013, 2014 and 2015. The remaining sales result from the mining and sale of ilmenite ore (a raw material used in
the sulfate pigment production process), and the manufacture and sale of iron-based water treatment chemicals and
certain titanium chemical products (derived from co-products of the TiO2 production processes). TiO2 is generally
sold to the paint, plastics and paper industries. Such markets are generally considered “quality-of-life” markets
whose demand for TiO2 is influenced by the relative economic well-being of the various geographic regions. We
sell TiO2 to over 4,000 customers, with the top ten customers approximating 34% of net sales in 2013, 35% in 2014
and 34% in 2015. In each of 2013, 2014 and 2015 one customer, Behr Process Corporation, accounted for
approximately 10% of our net sales. The table below shows the approximate percentage of our TiO2 sales by
volume for our significant markets, Europe and North America, for the last three years.
Europe
North America
2013
2014
2015
49%
33%
50%
33%
52 %
29 %
Long-term contracts - We have long-term supply contracts that provide for certain of our TiO2 feedstock
requirements through 2019. The agreements require us to purchase certain minimum quantities of feedstock with
minimum purchase commitments aggregating approximately $865 million over the life of the contracts in years
subsequent to December 31, 2015. In addition, we have other long-term supply and service contracts that provide
for various raw materials and services. These agreements require us to purchase certain minimum quantities or
services with minimum purchase commitments aggregating approximately $147 million at December 31, 2015.
Operating leases - Our principal German operating subsidiary leases the land under its Leverkusen TiO2
production facility pursuant to a lease with Bayer AG that expires in 2050. The Leverkusen facility itself, which we
own and which represents approximately one-third of our current TiO2 production capacity, is located within
Bayer’s extensive manufacturing complex. We periodically establish the amount of rent for the land lease
associated with the Leverkusen facility by agreement with Bayer for periods of at least two years at a time. The
lease agreement provides for no formula, index or other mechanism to determine changes in the rent for such land
lease; rather, any change in the rent is subject solely to periodic negotiation between Bayer and us. We recognize
any change in the rent based on such negotiations as part of lease expense starting from the time such change is
agreed upon by both parties, as any such change in the rent is deemed “contingent rentals” under GAAP. Under the
terms of a master supply and services agreement, a majority-owned subsidiary of Bayer provides raw materials,
including chlorine, auxiliary and operating materials, utilities and services necessary to operate the Leverkusen
facility. This agreement, as amended, expires in 2017 and will automatically renew for successive three year terms
until terminated by either party upon one year’s prior notice.
We also lease various other manufacturing facilities and equipment. Some of the leases contain purchase
and/or various term renewal options at fair market and fair rental values, respectively. In most cases we expect that,
in the normal course of business, such leases will be renewed or replaced by other leases. Net rent expense
approximated $15 million in 2013, $16 million in 2014 and $14 million in 2015. At December 31, 2015, future
minimum payments under non-cancellable operating leases having an initial or remaining term of more than one
year were as follows:
Years ending December 31,
Amount
(In millions)
2016
2017
2018
2019
2020
2021 and thereafter
Total
$
$
11.0
8.0
5.1
4.3
3.5
23.7
55.6
F-40
Approximately $14 million of the $55.6 million aggregate future minimum rental commitments at
December 31, 2015 relates to our Leverkusen facility lease discussed above. The minimum commitment amounts
for such lease included in the table above for each year through the 2050 expiration of the lease are based upon the
current annual rental rate as of December 31, 2015. As discussed above, any change in the rent is based solely on
negotiations between Bayer and us, and any such change in the rent is deemed “contingent rentals” under GAAP
which is excluded from the future minimum lease payments disclosed above.
Income taxes - We and Valhi are a party to a tax sharing agreement providing for the allocation of tax
liabilities and tax payments as described in Note 1. Under applicable law, we, along with every other member of the
Contran Tax Group, are each jointly and severally liable for the aggregate federal income tax liability of Contran
and the other companies included in the Contran Tax Group for all periods in which we are included in the Contran
Tax Group. Valhi has agreed, however, to indemnify us for any liability for income taxes of the Contran Tax Group
in excess of our tax liability computed in accordance with the tax sharing agreement.
Note 16 - Financial instruments:
The following table summarizes the valuation of our financial instruments recorded on a fair value basis as
of December 31, 2014 and 2015:
Fair value measurements
Quoted prices
in active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
(In millions)
Total
$
(4.2) $
(4.2) $
11.1
11.1
- $
-
$
(1.2) $
(3.5)
(1.2) $
-
- $
(3.5 )
2.4
2.4
-
-
-
-
-
-
Asset (liability)
December 31, 2014
Currency forward contracts
Noncurrent marketable securities
(See Note 6)
December 31, 2015
Currency forward contracts
Interest rate swap contract
Noncurrent marketable securities
(See Note 6)
Our earnings and cash flows are subject to fluctuations due to changes in currency exchange rates and
interest rates. Our risk management policy allows for the use of derivative financial instruments to prudently
manage exposure to currency exchange rates and interest rates. Derivatives that we use are primarily currency
forward contracts and interest rate swaps. We have not entered into these contracts for trading or speculative
purposes in the past, nor do we currently anticipate entering into such contracts for trading or speculative purposes
in the future.
Currency forward contracts - Certain of our sales generated by our non-U.S. operations are denominated in
U.S. dollars. We periodically use currency forward contracts to manage a very nominal portion of currency
exchange rate risk associated with trade receivables denominated in a currency other than the holder’s functional
currency or similar exchange rate risk associated with future sales. Derivatives used to hedge forecasted
transactions and specific cash flows associated with financial assets and liabilities denominated in currencies other
than the U.S. dollar and which meet the criteria for hedge accounting are designated as cash flow hedges.
Consequently, the effective portion of gains and losses is deferred as a component of accumulated other
comprehensive income and is recognized in earnings at the time the hedged item affects earnings. Contracts that do
not meet the criteria for hedge accounting are marked-to-market at each balance sheet date with any resulting gain or
loss recognized in income currently as part of net currency transaction gains and losses. The fair value of the
F-41
currency forward contracts is determined using Level 1 inputs based on the currency spot forward rates quoted by
banks or currency dealers.
At December 31, 2015, we had currency forward contracts to exchange an aggregate of $17.9 million for
an equivalent value of Canadian dollars at an exchange rate of Cdn. $1.29 per U.S. dollar. These contracts with
Wells Fargo Bank, N.A. mature from January through July 2016 at a rate of $2.6 million per month.
The estimated fair value of such currency forward contracts at December 31, 2015 was a $1.2 million net
liability, which is recognized as part of accounts payable and accrued liabilities in our Consolidated Balance Sheet,
with a corresponding $1.2 million currency transaction loss in our Consolidated Statement of Operations (in 2014
we had a $4.2 million net liability, of which $4.2 million was recognized as part of accounts payable and accrued
liabilities in our Consolidated Balance Sheet, with a corresponding $4.2 million currency transaction loss in our
Consolidated Statement of Operations). We did not use hedge accounting for any of our contracts to the extent we
held such contracts during 2013, 2014 and 2015.
Interest rate swap contract - As part of our interest rate risk management strategy, in August 2015 we
entered into a pay-fixed/receive-variable interest rate swap contract with Wells Fargo Bank, N.A. to minimize our
exposure to volatility in LIBOR as it relates to our forecasted outstanding variable-rate indebtedness. Under this
interest rate swap, we will pay a fixed rate of 2.016% per annum, payable quarterly, and receive a variable rate of
three-month LIBOR (subject to a 1.00% floor), also payable quarterly, in each case based on the notional amount of
the swap then outstanding. The effective date of the swap contract was September 30, 2015. The notional amount
of the swap started at $344.75 million and declines by $875,000 each quarter beginning December 31, 2015, with a
final maturity of the swap contract in February 2020. This swap contract has been designated as a cash flow hedge
and qualified as an effective hedge at inception under ASC Topic 815. The effective portion of changes in fair value
on this interest rate swap is recorded as a component of other comprehensive income, net of deferred income taxes.
Commencing in the fourth quarter of 2015, as interest expense accrues on LIBOR-based variable rate debt, we
classify the amount we pay under the pay-fixed leg of the swap and the amount we receive under the receive-
variable leg of the swap as part of interest expense, with the net effect that the amount of interest expense we
recognize on our LIBOR-based variable rate debt each quarter, as it relates to the notional amount of the swap
outstanding each quarter, will be based on a fixed rate of 2.016% per annum in lieu of the level of LIBOR prevailing
during the quarter. The amount of hedge ineffectiveness, if any, related to the swap will be recorded in earnings
(also as part of interest expense). As of December 31, 2015, there were no gains or losses recognized in earnings in
the current period representing hedge ineffectiveness with respect to the interest rate swap.
During the year ended December 31, 2015, the pretax amount recognized in other comprehensive income
related to the interest rate swap contract was a $4.4 million loss. During the same period, $.9 million was
reclassified from accumulated other comprehensive income into earnings. During the next twelve months, the
amount of the December 31, 2015 accumulated other comprehensive income balance that is expected to be
reclassified to earnings is $3.5 million pre-tax.
The fair value of the interest rate swap contract at December 31, 2015 was a liability of $3.5 million and is
reflected in the Condensed Consolidated Balance Sheet as part of accounts payable and accrued liabilities ($3.3
million) and other noncurrent liabilities ($.2 million). See Notes 8 and 12. The fair value of the interest rate swap
was estimated by a third party using inputs that are observable or that can be corroborated by observable market data
such as interest rate yield curves, and therefore, is classified within Level 2 of the valuation hierarchy.
F-42
The following table presents the financial instruments that are not carried at fair value but which require
fair value disclosure as of December 31, 2014 and 2015.
Cash, cash equivalents and restricted cash
Variable rate term loan
Common stockholders' equity
December 31, 2014
Fair
value
Carrying
amount
December 31, 2015
Fair
value
Carrying
amount
$
169.9 $
340.9
781.1
(In millions)
169.9 $
341.5
1,508.7
94.3 $
338.0
461.9
94.3
309.5
653.6
At December 31, 2015, the estimated market price of our term loan was $900 per $1,000 principal amount.
The fair value of our term loan was based on quoted market prices; however, these quoted market prices represented
Level 2 inputs because the markets in which the term loan trades were not active. The fair value of our common
stockholders’ equity is based upon quoted market prices at each balance sheet date, which represent Level 1 inputs.
Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered
equivalent to fair value. See Notes 3 and 8.
Note 17 - Restructuring Costs
In the second quarter of 2015, we initiated a restructuring plan designed to improve our long-term cost
structure. A portion of such expected cost savings is planned to occur through workforce reductions. During the
second, third and fourth quarters of 2015 we implemented certain voluntary and involuntary workforce reductions at
certain of our facilities impacting approximately 160 individuals. A substantial portion of such workforce
reductions were accomplished through voluntary programs, for which eligible workforce reduction costs are
recognized at the time both the employee and employer are irrevocably committed to the terms of the separation.
For involuntary programs, eligible costs are recognized when management approves the separation program, the
affected employees are properly notified and the costs are estimable. To the extent there is a statutorily-mandated
notice period and the affected employee is not required to provide services to us during such notice period,
severance and all wages during such notice period are accrued at the time of separation. To the extent the affected
employee is required to provide services to us during all or a portion of such notice period, the severance (and if
applicable notice period wages for any period beyond the time the affected employee is required to provide future
services to us) is accrued ratably over the period in which services will be provided. As of December 31, 2015 we
have recognized an aggregate $21.7 million charge for such workforce reductions we had implemented through that
date (substantially all of which was recognized in the second quarter of 2015), $10.8 million of which is classified in
cost of sales and $10.9 million of which is classified in selling, general and administrative expense. For workforce
reductions implemented through December 31, 2015, we do not expect to accrue any further material amounts
associated with the affected individuals who are providing service to us past December 31, 2015. All accrued
severance costs at December 31, 2015 are expected to be paid through the third quarter of 2018.
F-43
A summary of the activity in our accrued workforce reduction costs for 2015 is shown in the table below
(in millions):
Accrued workforce reduction costs as of
January 1, 2015
Workforce reduction costs accrued
Workforce reduction costs paid
Currency translation adjustments, net
Accrued workforce reduction costs at
December 31, 2015
Amounts recognized in the balance sheet:
Current liability
Noncurrent liability
$
$
$
$
-
21.7
(15.9 )
(.2 )
5.6
5.3
.3
5.6
Note 18 - Recent accounting pronouncements:
Adopted
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs, which requires unamortized debt issuance costs (or deferred financing costs) to be presented in the balance
sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of
a debt discount. Previously, such unamortized debt issue costs were generally presented as a noncurrent asset. ASU
2015-15, issued by the FASB in August 2015, clarified that the scope of ASU 2015-03 does not include deferred
financing costs related to revolving credit facilities. The guidance in the new standard is limited to the presentation
of debt issuance costs within its scope and does not affect the recognition, measurement or amortization of debt
issuance costs. The standard is effective for financial statements issued for fiscal years beginning after December 15,
2015, and interim periods within those fiscal years and is applied on a retrospective basis. Early adoption is
permitted, and we have adopted this ASU in this Annual Report. As a result of adopting this ASU, deferred
financing costs of $5.0 million at December 31, 2014, previously recognized as an asset, are now classified as a
direct deduction from the carrying value of such term loan in our Consolidated Balance Sheet at such date. All of
our other deferred financing costs at December 31, 2014 and 2015 (see Note 9) relate to our revolving credit
facilities in North America and Europe, and continue to be recognized as an asset under the guidance of the ASU.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes, which eliminates the requirement to separate deferred income tax assets and
liabilities into current and noncurrent amounts. Under the ASU all deferred income tax assets and liabilities will be
classified as noncurrent. The current requirement that deferred income tax assets and liabilities of a tax-paying
component of an entity be offset and presented as a single amount is not affected by the amendments in this ASU.
This amendment is effective for us beginning in the first quarter of 2017; however early adoption is permitted. In
addition, prospective or retrospective application is permitted. We have elected to adopt this ASU retrospectively
beginning with this Annual Report and accordingly we have presented all deferred income tax assets and liabilities
as noncurrent in our Consolidated Balance Sheets and related Footnotes. At December 31, 2014, we had previously
recognized a current deferred income tax asset and liability of $6.3 million and $3.7 million, respectively, and a
noncurrent deferred income tax asset and liability of $165.4 million and $6.8 million, respectively. As a result of the
retrospective application of this ASU, we no longer have a current deferred income tax asset or liability recognized
at December 31, 2014, and the noncurrent deferred income tax asset and liability we now have recognized at
December 31, 2014 is $167.3 million and $6.1 million, respectively. See Note 10.
F-44
Pending adoption
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic
606). This standard replaces existing revenue recognition guidance, which in many cases was tailored for specific
industries, with a uniform accounting standard applicable to all industries and transactions. The new standard, as
amended, is currently effective for us beginning with the first quarter of 2018. Entities may elect to adopt ASU No.
2014-09 retrospectively for all periods for all contracts and transactions which occurred during the period (with a
few exceptions for practical expediency) or retrospectively with a cumulative effect recognized as of the date of
adoption. ASU No. 2014-09 is a fundamental rewriting of existing GAAP with respect to revenue recognition, and
we are still evaluating the effect the Standard will have on our Consolidated Financial Statements. We currently
expect to adopt the standard in the first quarter of 2018. In addition, we have not yet determined the method we will
use to adopt the Standard.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects related
to the recognition, measurement, presentation and disclosure of financial instruments. The ASU requires equity
investments (except for those accounted for under the equity method of accounting or those that result in the
consolidation of the investee) to generally be measured at fair value with changes in fair value recognized in net
income. The amendment also requires a number of other changes, including among others: simplifying the
impairment assessment for equity instruments without readily determinable fair values; eliminating the requirement
for public business entities to disclose methods and assumptions used to determine fair value for financial
instruments measured at amortized cost; requiring an exit price notion when measuring the fair value of financial
instruments for disclosure purposes; and requiring separate presentation of financial assets and liabilities by
measurement category and form of asset. The changes indicated above will be effective for us beginning in the first
quarter of 2018, with prospective application required, and early adoption is not permitted. The most significant
aspect of adopting this ASU will be the requirement to recognize changes in fair value of our available-for-sale
marketable equity securities in net income (currently changes in fair value of such securities are recognized in other
comprehensive income).
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is a comprehensive rewriting
of the lease accounting guidance which aims to increase comparability and transparency with regard to lease
transactions. The primary change will be the recognition of lease assets for the right-of-use of the underlying asset
and lease liabilities for the obligation to make payments by lessees on the balance sheet for leases currently
classified as operating leases. The ASU also requires increased qualitative disclosure about leases in addition to
quantitative disclosures currently required. Companies are required to use a modified retrospective approach to
adoption with a practical expedient which will allow companies to continue to account for existing leases under the
prior guidance unless a lease is modified, other than the requirement to recognize the right-of-use asset and lease
liability for all operating leases. The changes indicated above will be effective for us beginning in the first quarter
of 2019, with early adoption permitted. We have not yet evaluated the effect this ASU will have on our
Consolidated Financial Statements, but given the material amount of our future minimum payments under non-
cancellable operating leases at December 31, 2015 discussed in Note 15, we expect to recognize a material right-of-
use lease asset and lease liability upon adoption of the ASU.
F-45
Note 19 – Quarterly results of operations (unaudited):
Year ended December 31, 2014
Net sales
Gross margin
Net income
Basic and diluted income per share
Year ended December 31, 2015
Net sales
Gross margin
Net income (loss)
Basic and diluted income (loss) per share
Quarter ended
March 31
June 30
September 30(cid:3)(cid:3)(cid:3) December 31
(In millions, except per share data)
$
$
$
$
420.1 $
80.5
14.3
.12 $
365.1 $
77.4
18.4
.16 $
443.5 $
93.8
33.1
.29 $
360.2 $
46.5
(159.8)
(1.38) $
414.8 $
95.7
31.9
.28 $
336.5 $
43.2
(11.8 )
(.10 ) $
373.5
79.7
19.9
.17
287.0
25.2
(20.4)
(.18)
In 2014 we recognized a non-cash income tax benefit of $5.7 million in the second quarter of 2014 related
to a net reduction in our reserve for uncertain tax positions.
We recognized the following amounts during 2015:
(cid:120)
(cid:120)
(cid:120)
pretax charges of $21.1 million, $.4 million and $.2 million in the second, third and fourth quarters,
respectively, in workforce reduction charges (see Note 17),
a $12.0 million non-cash pretax impairment charge in the third quarter due to other-than-temporary
impairment on our investment in a marketable security held for sale (see Note 6), and
non-cash deferred income tax expense of $150.3 million, $2.3 million and $6.4 million in the second,
third and fourth quarters, respectively, related to the recognition of a deferred income tax asset
valuation allowance related to our German and Belgium operations (see Note 10).
The sum of the quarterly per share amounts may not equal the annual per share amounts due to relative
changes in the weighted average number of shares used in the per share computations.
F-46
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21.1
Jurisdiction of
incorporation
or organization
% of voting
securities held at
December 31, 2015(a)
NAME OF CORPORATION
Kronos Canada, Inc.
Kronos International, Inc.
Kronos Titan GmbH
Kronos Specialties GmbH
Kronos Recovery GmbH
Société Industrielle du Titane, S.A.
Kronos Limited
Kronos Denmark ApS
Kronos Europe S.A./N.V.
Kronos B.V.
Kronos Norge A/S
Kronos Titan A/S
Titania A/S
The Jossingfjord Manufacturing Company A/S
Elkania DA
Kronos Louisiana, Inc.
Kronos (US), Inc.
Louisiana Pigment Company, L.P.
(a) Held by the Registrant or the indicated subsidiary of the Registrant
Canada
Delaware
Germany
Germany
Germany
France
United Kingdom
Denmark
Belgium
Netherlands
Norway
Norway
Norway
Norway
Norway
Delaware
Delaware
Delaware
100
100
100
100
100
99
100
100
100
100
100
100
100
100
50
100
100
50
Kronos Worldwide, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240-2697
News Release
FOR IMMEDIATE RELEASE
Contact: Janet G. Keckeisen
Vice President, Corporate
Strategy and Investor Relations
(972) 233-1700
KRONOS WORLDWIDE ANNOUNCES FOURTH QUARTER 2015 RESULTS
DALLAS, TEXAS…March 10, 2016… Kronos Worldwide, Inc. (NYSE:KRO) today reported a net loss for
the fourth quarter of 2015 of $20.4 million, or $.18 per share, compared to net income of $19.9 million, or
$.17 per share, in the fourth quarter of 2014. For the full year of 2015, Kronos Worldwide reported a net
loss of $173.6 million, or $1.50 per share, compared to net income of $99.2 million, or $.86 per share in
2014. We reported a net loss in the full year of 2015 due primarily to the recognition of a non-cash deferred
income tax asset valuation allowance related to our German and Belgian operations and a charge
associated with the implementation of certain workforce reductions, both of which were mostly recognized
in the second quarter, and the third quarter recognition of a non-cash other than temporary impairment
(OTTI) charge on our investment in a marketable equity security. The future cost savings resulting from
such workforce reductions, as well as other cost reduction initiatives we plan to implement throughout the
organization over the next few quarters, are expected to result in a payback of the aggregate workforce
reduction charge accrued within approximately one year. Comparability of the Company’s results was also
impacted by lower average TiO2 selling prices in 2015, partially offset by the favorable effects of higher
sales volumes, lower manufacturing and other production costs (primarily raw materials) and the net effect
of changes in currency exchange rates, as discussed further below.
Net sales of $287.0 million in the fourth quarter of 2015 were $86.5 million, or 23%, lower than in the fourth
quarter of 2014. Net sales of $1,348.8 million in the full year of 2015 were $303.1 million, or 18%, lower
than in the full year 2014. Net sales decreased in the fourth quarter and full year of 2015 as compared to
the same periods of 2014 primarily due to lower average TiO2 selling prices, partially offset by higher sales
volumes. The Company’s average TiO2 selling prices were 16% lower in the fourth quarter of 2015 as
compared to the fourth quarter of 2014, and were 14% lower in the full year as compared to 2014. The
Company’s average selling prices at the end of the fourth quarter of 2015 were 4% lower than at the end
of the third quarter of 2015, and 17% lower than at the end of 2014, with lower prices in all major markets.
The Company’s average TiO2 selling prices in 2015 were also impacted by a higher percentage of sales to
lower-priced export markets in 2015 compared to 2014. TiO2 sales volumes in the fourth quarter and the
full year of 2015 were approximately 3% and 6% higher, respectively, than in same periods of 2014 due to
higher sales in certain European and export markets, partially offset by lower sales in North American
markets. Fluctuations in currency exchange rates also impacted net sales comparisons, decreasing net
sales by approximately $25 million in the fourth quarter and by approximately $138 million in the full year
2015 as compared to the comparable periods in 2014. The table at the end of this press release shows
how each of these items impacted the overall change in sales.
The Company reported a TiO2 segment loss (see description of non-GAAP information below) in the fourth
quarter of 2015 of $16.6 million compared to segment profit of $34.3 million in the fourth quarter of 2014.
For the full year 2015, the Company’s segment profit was $12.6 million compared to $160.5 million in 2014.
Segment profit in the full year of 2015 includes an aggregate workforce reduction charge of $21.7 million
($18.5 million, or $.16 per share, net of income tax benefit), most of which was recognized in the second
quarter, $10.8 million of which is classified in cost of sales and $10.9 million of which is classified in selling,
general and administrative expense. Segment profit decreased in 2015 primarily due to the net effects of
lower average TiO2 selling prices, the workforce reduction charge, lower manufacturing and other
production costs (primarily raw materials) and higher sales and production volumes. Excluding the impact
of the workforce reduction charge, the Company’s TiO2 segment results were a segment loss of $16.4
Page 1 of 5
million in the fourth quarter of 2015, and segment profit of $34.3 million in the full year of 2015. Kronos’
TiO2 production volumes were 7% higher in the fourth quarter of 2015 as compared to the fourth quarter of
2014, and were 3% higher in 2015 over 2014. We operated our production facilities at an overall average
capacity utilization rate of 95% in 2015 (approximately 93%, 100%, 95% and 92% of practical capacity in
the first, second, third and fourth quarters, respectively) compared to approximately 92% in 2014 (90%,
97%, 96% and 86% in the first, second, third and fourth quarters of 2014, respectively). Our production
capacity utilization rates in the first quarter of 2014 were impacted by a union labor lockout at our Canadian
production facility that ended in December 2013, as restart of production at the facility did not begin until
February 2014. Our production rates in the fourth quarter of 2014 and the first quarter of 2015 were
impacted by the implementation of certain productivity-enhancing improvement projects at certain facilities,
as well as necessary improvements to ensure continued compliance with our permit regulations, which
resulted in longer-than-normal maintenance shutdowns in some instances. Segment profit comparisons
were also impacted by the effects of fluctuations in currency exchange rates, which increased segment
profit by approximately $10 million in the fourth quarter and by approximately $40 million for the year.
Securities transactions, net in 2015 includes a third quarter aggregate non-cash charge of $12.0 million
($7.8 million, or $.07 per share, net of income tax benefit) for an OTTI charge on our investment in a
marketable equity security.
The Company’s income tax expense in 2015 includes an aggregate non-cash deferred income tax expense
of $159.0 million ($1.37 per share) related to the recognition of a deferred income tax asset valuation
allowance related to our German and Belgian operations, most of which was recognized in the second
quarter ($6.4 million, or $.06 per share, was recognized in the fourth quarter). The Company’s income tax
expense in 2014 includes an aggregate non-cash income tax benefit of $5.1 million ($.04 per share) related
to a net reduction in our reserve for uncertain tax positions, most of which was recognized in the second
quarter.
The statements in this release relating to matters that are not historical facts are forward-looking statements
that represent management's beliefs and assumptions based on currently available information. Although
the Company believes that the expectations reflected in such forward-looking statements are reasonable,
it cannot give any assurances that these expectations will prove to be correct. Such statements by their
nature involve substantial risks and uncertainties that could significantly impact expected results, and actual
future results could differ materially from those described in such forward-looking statements. While it is not
possible to identify all factors, the Company continues to face many risks and uncertainties. The factors
that could cause actual future results to differ materially include, but are not limited to, the following:
Future supply and demand for our products
The extent of the dependence of certain of our businesses on certain market sectors
The cyclicality of our business
(cid:120)
(cid:120)
(cid:120)
(cid:120) Customer and producer inventory levels
(cid:120) Unexpected or earlier-than-expected industry capacity expansion
(cid:120) Changes in raw material and other operating costs (such as ore and energy costs)
(cid:120) Changes in the availability of raw materials (such as ore)
(cid:120) 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)
(cid:120) Competitive products and substitute products
(cid:120) Customer and competitor strategies
(cid:120)
(cid:120)
(cid:120)
(cid:120) Competitive technology positions
(cid:120)
Potential consolidation of our competitors
Potential consolidation of our customers
The impact of pricing and production decisions
Potential difficulties in upgrading or implementing new accounting and manufacturing software
systems
The introduction of trade barriers
Possible disruption of our business, or increases in our cost of doing business, resulting from
terrorist activities or global conflicts
(cid:120)
(cid:120)
Page 2 of 5
(cid:120)
Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S.
dollar and each of the euro, the Norwegian krone and the Canadian dollar), or possible
disruptions to our business resulting from potential instability resulting from uncertainties
associated with the euro or other currencies
(cid:120) Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters,
fires, explosions, unscheduled or unplanned downtime, transportation interruptions and cyber
attacks)
(cid:120) Our ability to renew or refinance credit facilities
(cid:120) Our ability to maintain sufficient liquidity
(cid:120)
(cid:120) Our ability to utilize income tax attributes, the benefits of which may not have been recognized
The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters
(cid:120)
under the more-likely-than-not recognition criteria
Environmental matters (such as those requiring compliance with emission and discharge
standards for existing and new facilities)
(cid:120) Government laws and regulations and possible changes therein
(cid:120)
(cid:120)
The ultimate resolution of pending litigation
Possible future litigation.
Should one or more of these risks materialize (or the consequences of such a development worsen), or
should the underlying assumptions prove incorrect, actual results could differ materially from those
forecasted or expected. The Company disclaims any intention or obligation to update or revise any forward-
looking statement whether as a result of changes in information, future events or otherwise.
In an effort to provide investors with additional information regarding the Company's results of operations
as determined by accounting principles generally accepted in the United States of America (GAAP), the
Company has disclosed certain non-GAAP information, which the Company believes provides useful
information to investors:
(cid:120)
The Company discloses segment profit, which is used by the Company’s management to assess
the performance of the Company’s TiO2 operations. The Company believes disclosure of segment
profit provides useful information to investors because it allows investors to analyze the
performance of the Company’s TiO2 operations in the same way that the Company’s management
assesses performance. The Company defines segment profit as income before income taxes,
interest expense and certain general corporate items. Corporate items excluded from the
determination of segment profit include corporate expense and interest income not attributable to
the Company’s TiO2 operations.
Kronos Worldwide, Inc. is a major international producer of titanium dioxide products.
Page 3 of 5
KRONOS WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share and metric ton data)
192.3
178.0
(.1)
(1.7)
(13.6)
(1.1)
.1
.7
(12.0)
(18.5)
(30.8)
Net sales
Cost of sales
Gross margin
Selling, general and administrative expense
Other operating income (expense):
Currency transactions, net
Other expense, net
Corporate expense
Three months ended
December 31,
2014
2015
(Unaudited)
Year ended
December 31,
2014
2015
$
373.5
293.8
$
287.0
261.8
$
1,651.9
1,302.2
$
1,348.8
1,156.5
79.7
46.0
1.2
(.8)
(2.6)
25.2
40.7
(.7)
(.4)
(3.1)
349.7
191.9
4.0
(1.6)
(10.5)
Income (loss) from operations
31.5
(19.7)
149.7
Other income (expense):
Trade interest income
Other interest and dividend income
Securities transactions, net
Interest expense
Income (loss) before income taxes
Income tax expense (benefit)
.2
.1
-
(4.4)
27.4
7.5
-
.2
-
(5.2)
.3
.7
-
(17.0)
(24.7)
133.7
(4.3)
34.5
142.8
Net income (loss)
$
19.9
$
(20.4)
$
99.2
$
(173.6)
Net income (loss) per basic and diluted share
$
.17
$
(.18)
$
.86
$
(1.50)
Weighted-average shares used in the
calculation of net income (loss) per share
115.9
115.9
115.9
115.9
TiO2 data - metric tons in thousands:
Sales volumes
Production volumes
116
123
119
131
496
511
525
528
Page 4 of 5
KRONOS WORLDWIDE, INC.
RECONCILIATION OF SEGMENT PROFIT (LOSS) TO
INCOME (LOSS) FROM OPERATIONS
(In millions)
(Unaudited)
Segment profit (loss)
Before workforce reduction charge
Workforce reduction charge
Total segment profit (loss)
Adjustments:
Trade interest income
Corporate expense
Three months ended
December 31,
Year ended
December 31,
2014
2015
2014
2015
$
34.3
-
34.3
$
(16.4)
(.2)
$
160.5
-
$
34.3
(21.7)
(16.6)
160.5
12.6
(.2)
(2.6)
-
(3.1)
(.3)
(10.5)
(.1)
(13.6)
Income (loss) from operations
$
31.5
$
(19.7)
$
149.7
$
(1.1)
IMPACT OF PERCENTAGE CHANGE IN SALES
(Unaudited)
Three months ended
December 31,
2015 vs. 2014
Year ended
December 31,
2015 vs. 2014
Percentage change in sales:
TiO2 product pricing
TiO2 sales volume
TiO2 product mix
Changes in currency exchange rates
(16) %
(14) %
3
(3)
(7)
6
(2)
(8)
Total
(23) %
(18) %
Page 5 of 5
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Kronos Worldwide, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240-2697
(972) 233-1700