SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarterly period ended March 31, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934
Commission file number 333-100047
KRONOS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2949593
- ---------------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16825 Northchase Drive, Suite 1200, Houston, Texas 77060-2544
- -------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 423-3300
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes No X
------- -------
The Registrant is a wholly owned subsidiary of NL Industries, Inc. (File No.
1-640) and meets the conditions set forth in General Instructions H(1)(a) and
H(1)(b) of Form 10-Q for reduced disclosure format.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets -March 31, 2003
and December 31, 2002 3-4
Consolidated Statements of Income - Three months
ended March 31, 2003 and 2002 5
Consolidated Statements of Comprehensive Income
- Three months ended March 31, 2003 and 2002 6
Consolidated Statement of Common Stockholder's
Equity - Three months ended March 31, 2003 7
Consolidated Statements of Cash Flows - Three
months ended March 31, 2003 and 2002 8-9
Notes to Consolidated Financial Statements 10-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-25
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 25
Item 4. Controls and Procedures 25-26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 27
-2-
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31, December 31,
ASSETS 2003 2002
-------- ------------
Current assets:
Cash and cash equivalents ........................ $ 14,888 $ 15,023
Restricted cash equivalents ...................... 729 --
Accounts and notes receivable .................... 112,075 92,493
Receivable from affiliates ....................... 5,446 972
Refundable income taxes .......................... 567 1,718
Inventories ...................................... 135,129 143,664
Prepaid expenses ................................. 3,948 5,266
Deferred income taxes ............................ 737 695
-------- --------
Total current assets ......................... 273,519 259,831
-------- --------
Other assets:
Prepaid pension cost ............................. 17,424 17,572
Other ............................................ 13,577 16,135
-------- --------
Total other assets ........................... 31,001 33,707
-------- --------
Property and equipment:
Land ............................................. 26,534 25,487
Buildings ........................................ 118,674 115,812
Machinery and equipment .......................... 545,298 536,835
Mining properties ................................ 62,331 65,296
Construction in progress ......................... 7,444 7,749
-------- --------
760,281 751,179
Less accumulated depreciation and depletion ...... 439,730 433,416
-------- --------
Net property and equipment ................... 320,551 317,763
-------- --------
$625,071 $611,301
======== ========
-3-
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except per share data)
LIABILITIES AND STOCKHOLDER'S EQUITY March 31, December 31,
2003 2002
----------- ------------
Current liabilities:
Current maturities of long-term debt ......... $ 1,238 $ 1,298
Accounts payable and accrued liabilities ..... 89,333 93,563
Payable to affiliates ........................ -- 21,430
Income taxes ................................. 5,406 5,845
Deferred income taxes ........................ 1,594 3,219
----------- -----------
Total current liabilities ................ 97,571 125,355
----------- -----------
Noncurrent liabilities:
Long-term debt ............................... 349,021 324,608
Deferred income taxes ........................ 53,857 49,688
Accrued pension cost ......................... 20,781 21,486
Other ........................................ 13,848 12,933
----------- -----------
Total noncurrent liabilities ............. 437,507 408,715
----------- -----------
Minority interest ................................ 418 383
----------- -----------
Common stockholder's equity:
Common stock - $100 par value; 100,000 shares
authorized; 2,968 shares issued ............ 297 297
Additional paid-in capital ................... 1,944,185 1,944,185
Accumulated deficit .......................... (1,707,105) (1,721,859)
Accumulated other comprehensive loss:
Currency translation adjustment .......... (141,052) (139,025)
Pension liabilities ...................... (6,750) (6,750)
----------- -----------
Total common stockholder's equity ........ 89,575 76,848
----------- -----------
$ 625,071 $ 611,301
=========== ===========
Commitments and contingencies (Note 11)
See accompanying notes to consolidated financial statements.
-4-
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Three months ended
March 31,
---------------------
2003 2002
--------- ---------
Revenues and other income (loss):
Net sales .......................................... $ 178,197 $ 139,569
Interest income from affiliates .................... -- 8,895
Other income (loss), net ........................... 2,032 (205)
--------- ---------
180,229 148,259
--------- ---------
Costs and expenses:
Cost of sales ...................................... 130,770 110,723
Selling, general and administrative ................ 20,495 16,668
Interest ........................................... 7,910 700
Interest expense to affiliates ..................... 64 9,774
--------- ---------
159,239 137,865
Income before income taxes and minority interest 20,990 10,394
Income tax expense ..................................... 6,212 2,402
--------- ---------
Income before minority interest ................ 14,778 7,992
Minority interest ...................................... 24 10
--------- ---------
Net income ..................................... 14,754 7,982
Dividends and accretion applicable to redeemable
preferred stock and profit participation certificates -- (73,442)
--------- ---------
Net income (loss) available to common stock ............ $ 14,754 $ (65,460)
========= =========
See accompanying notes to consolidated financial statements.
-5-
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Three months ended
March 31,
--------------------
2003 2002
-------- --------
Net income ............................................... $ 14,754 $ 7,982
-------- --------
Other comprehensive loss - currency translation adjustment (2,027) (398)
-------- --------
Comprehensive income ......................... $ 12,727 $ 7,584
======== ========
See accompanying notes to consolidated financial statements.
-6-
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDER'S EQUITY
Three months ended March 31, 2003
(In thousands)
Accumulated other
comprehensive loss
-------------------------- Total
Additional Currency common
Common paid-in Accumulated translation Pension stockholder's
stock capital deficit adjustment liabilities equity
----------- ----------- ----------- ----------- ----------- -------------
Balance at December 31, 2002 $ 297 $ 1,944,185 $(1,721,859) $ (139,025) $ (6,750) $ 76,848
Net income ................. -- -- 14,754 -- -- 14,754
Other comprehensive loss ... -- -- -- (2,027) -- (2,027)
----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2003 .. $ 297 $ 1,944,185 $(1,707,105) $ (141,052) $ (6,750) $ 89,575
=========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
-7-
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2003 and 2002
(In thousands)
2003 2002
-------- --------
Cash flows from operating activities:
Net income ......................................... $ 14,754 $ 7,982
Depreciation, depletion and amortization ........... 8,120 6,313
Noncash currency transaction loss .................. -- 2,288
Noncash interest income from affiliates ............ -- (8,895)
Noncash interest expense to affiliates ............. -- 4,107
Noncash interest expense ........................... 464 --
Deferred income taxes .............................. 3,488 1,087
Minority interest .................................. 24 10
Net loss from disposition of property and equipment 61 47
Pension, net ....................................... (1,319) (293)
-------- --------
25,592 12,646
Change in assets and liabilities:
Accounts and notes receivable ...................... (17,809) (12,957)
Insurance receivable ............................... -- 10,909
Inventories ........................................ 11,066 12,594
Prepaid expenses ................................... 1,365 (660)
Accounts payable and accrued liabilities ........... (5,461) (5,147)
Income taxes ....................................... 904 (538)
Accounts with affiliates ........................... (26,153) (921)
Other, net ......................................... 779 1,472
-------- --------
Net cash (used) provided by operating activities (9,717) 17,398
-------- --------
Cash flows from investing activities:
Capital expenditures ............................... (5,613) (4,782)
Change in restricted cash equivalents .............. (779) --
Proceeds from disposition of property and equipment 42 27
-------- --------
Net cash used by investing activities .......... (6,350) (4,755)
-------- --------
-8-
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three months ended March 31, 2003 and 2002
(In thousands)
2003 2002
-------- --------
Cash flows from financing activities:
Indebtedness:
Borrowings ..................................... $ 16,106 $ --
Principal payments ............................. (342) (263)
Repayments of loans from affiliates ................ -- (25,000)
Other capital transactions with affiliates, net .... -- 25,000
-------- --------
Net cash provided (used) by financing activities ... 15,764 (263)
-------- --------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities .. (303) 12,380
Currency translation ........................... 168 (263)
-------- --------
(135) 12,117
Balance at beginning of period ..................... 15,023 30,343
-------- --------
Balance at end of period ........................... $ 14,888 $ 42,460
======== ========
Supplemental disclosures - cash paid for:
Interest ........................................... $ 702 $ 1,975
Income taxes ....................................... $ 1,820 $ 1,853
See accompanying notes to consolidated financial statements.
-9-
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Kronos International, Inc. ("KII") is incorporated in the state of
Delaware, U.S.A., with its seat of management in Leverkusen, Germany. KII is a
wholly owned subsidiary of Kronos, Inc. ("Kronos"), a wholly owned subsidiary of
NL Industries, Inc. ("NL"). NL conducts its titanium dioxide pigments ("TiO2")
operations through Kronos. KII conducts Kronos' European TiO2 operations. At
March 31, 2003, Valhi, Inc., ("Valhi") and its subsidiaries held approximately
85% of NL's outstanding common stock, and Contran Corporation ("Contran") and
its subsidiaries held approximately 90% of Valhi's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee. Mr. Simmons, the Chairman of the
Board of each of Contran, Valhi and NL, may be deemed to control each of such
companies and KII.
KII's operations are conducted primarily through its German, Belgian and
Norwegian subsidiaries with three TiO2 plants in Germany, one TiO2 plant in
Belgium and one TiO2 plant and an ilmenite ore mining operation in Norway. KII
also operates TiO2 sales and distribution facilities in England, France, Denmark
and the Netherlands. Prior to April 30, 2002, KII also conducted operations in
Canada through Kronos Canada, Inc. ("KC"), its wholly owned subsidiary.
Effective April 30, 2002, in anticipation of a proposed debt securities
offering, KII sold 100% of KC's capital stock to Kronos in exchange for a
promissory note receivable in the amount of $217 million bearing interest of
7.87% per annum with a maturity date of April 30, 2012. KII has accounted for
the disposition of KC as a change in accounting entity. Accordingly, KII's
consolidated financial statements have been retroactively restated to exclude
the results of operations and cash flows of KC for all periods presented. KII's
cash dividends received from KC and cash capital contributions to KC prior to
April 30, 2002 are reflected as part of "other capital transactions with
affiliates, net" in the accompanying consolidated statement of cash flows.
The consolidated balance sheet of KII and its majority
owned-subsidiaries (collectively, the "Company") at December 31, 2002 has been
condensed from the Company's audited consolidated financial statements at that
date. The consolidated balance sheet at March 31, 2003 and the consolidated
statements of income, comprehensive income, shareholders' equity and cash flows
for the interim periods ended March 31, 2003 and 2002 have been prepared by the
Company without audit. In the opinion of management all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operations and cash flows have been
made. The results of operations for the interim periods are not necessarily
indicative of the operating results for a full year or of future operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles in the U.S. ("GAAP") have been condensed or omitted. Certain
prior-year amounts have been reclassified to conform to the current year
presentation. The accompanying consolidated financial statements should be read
in conjunction with the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002 (the
"2002 Annual Report").
-10-
While the Company has not issued any stock options to purchase KII's
common stock, certain employees of the Company have been granted options by NL
to purchase NL common stock. The Company has elected the disclosure alternative
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," and to
account for its stock-based employee compensation related to these NL stock
options in accordance with Accounting Principles Board Opinion ("APBO") No. 25,
"Accounting for Stock Issued to Employees," and its various interpretations.
Under APBO No. 25, no compensation cost is generally recognized for fixed stock
options in which the exercise price is not less than the market price on the
grant date. During the fourth quarter of 2002, NL, including the Company,
commenced accounting for its stock options using the variable accounting method,
which requires the intrinsic value of all unexercised stock options (including
those with an exercise price at least equal to the market price on the date of
grant) to be accrued as an expense, with subsequent increases (decreases) in
NL's market price resulting in additional compensation expense (income). Net
compensation income recognized by the Company in accordance with APBO No. 25 in
the first quarter of 2003 was $.2 million and net compensation cost recognized
by the Company in the first quarter of 2002 was nil. The Company pays NL when
stock options are exercised by employees of the Company in an amount equal to
the intrinsic value of the options on the date of exercise.
The following table illustrates the effect on net income (loss)
available to common stock if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation.
Three months ended March 31,
----------------------------
2003 2002
-------- --------
(In thousands, except per
share amounts)
Net income (loss) available to common stock - as
reported ............................................. $ 14,754 $(65,460)
Deduct: Stock-based compensation income, net of
tax, included in reported net income ................. (180) --
Deduct: Stock-based compensation cost, net of tax,
determined under fair value based method for all
awards ............................................... (34) (78)
-------- --------
Net income (loss) available to common stock - pro forma $ 14,540 $(65,538)
======== ========
The Company adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective January 1, 2003. Under SFAS No. 143, the fair value of a
liability for an asset retirement obligation covered under the scope of SFAS No.
143 is recognized in the period in which the liability is incurred, with an
offsetting increase in the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its future value, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity would either settle the obligation for its recorded amount
or incur a gain or loss upon settlement.
Under the transition provisions of SFAS No. 143, at the date of adoption
on January 1, 2003 the Company recognized (i) an asset retirement cost
capitalized as an increase to the carrying value of its property, plant and
equipment, (ii) accumulated depreciation on such capitalized cost and (iii) a
liability for the asset retirement obligation. Amounts resulting from the
initial application of SFAS No. 143 were measured using information, assumptions
and interest rates all as of January 1, 2003. The amount recognized as the asset
-11-
retirement cost was measured as of the date the asset retirement obligation was
incurred. Cumulative accretion on the asset retirement obligation, and
accumulated depreciation on the asset retirement cost, were recognized for the
time period from the date the asset retirement cost and liability would have
been recognized had the provisions of SFAS No. 143 been in effect at the date
the liability was incurred, through January 1, 2003. The difference between the
amounts recognized as described above and the associated amounts recognized in
the Company's balance sheet as of December 31, 2002 was recognized as a
cumulative effect of change in accounting principle as of January 1, 2003. The
effect of adopting SFAS No. 143 as of January 1, 2003, as summarized in the
table below, did not have a material effect on the Company's consolidated
financial position, results of operations or liquidity, and is not separately
recognized in the accompanying statement of income.
Amount
------
(In millions)
Increase in carrying value of net property, plant and equipment:
Cost ................................................................ $.4
Accumulated depreciation ............................................ (.1)
Decrease in liabilities previously accrued for
closure and post closure activities ................................. .3
Asset retirement obligation recognized .................................. (.6)
---
Net impact ...................................................... $--
===
At March 31, 2003, the asset retirement obligation was approximately $.6
million and was included in other noncurrent liabilities. Accretion expense on
the asset retirement obligation during the first quarter of 2003, included in
cost of sales, was not material. If the Company had adopted SFAS No. 143 as of
January 1, 2002, the asset retirement obligation would have been approximately
$.5 million at each of January 1, 2002 and March 31, 2002, and the effect on the
Company's reported net income for the three months ended March 31, 2002 would
not have been material.
-12-
Note 2 - Business segment information:
The Company's operations are conducted in one operating business segment
- - activities associated with the production and sale of TiO2.
Three months ended
March 31,
----------------------
2003 2002
(In thousands)
Net sales .............................................. $ 178,197 $ 139,569
Other income, excluding corporate ...................... 2,032 2,083
--------- ---------
180,229 141,652
Cost of sales .......................................... 130,770 110,723
Selling, general and administrative, excluding corporate 20,495 16,668
--------- ---------
Operating income ............................... 28,964 14,261
General corporate income (expense):
Currency transaction loss, net ..................... -- (2,288)
Interest expense ................................... (7,910) (700)
Interest expense to affiliates ..................... (64) (9,774)
Interest income from affiliates .................... -- 8,895
--------- ---------
Income before income taxes and minority interest $ 20,990 $ 10,394
========= =========
Note 3 - Accounts and notes receivable:
March 31, December 31,
2003 2002
--------- ------------
(In thousands)
Trade receivables .............................. $ 107,038 $ 83,929
Insurance claims receivable .................... 311 312
Recoverable VAT and other receivables .......... 6,709 10,159
Allowance for doubtful accounts ................ (1,983) (1,907)
--------- ---------
$ 112,075 $ 92,493
========= =========
-13-
Note 4 - Inventories:
March 31, December 31,
2003 2002
-------- ------------
(In thousands)
Raw materials ............................ $ 26,174 $ 36,960
Work in process .......................... 15,945 14,009
Finished products ........................ 67,819 67,469
Supplies ................................. 25,191 25,226
-------- --------
$135,129 $143,664
======== ========
Note 5 - Other noncurrent assets:
March 31, December 31,
2003 2002
--------- ------------
(In thousands)
Deferred financing costs ........................... $ 9,719 $ 9,879
Restricted marketable debt securities .............. 1,940 2,492
Unrecognized net pension obligations ............... 292 292
Other .............................................. 1,626 3,472
------- -------
$13,577 $16,135
======= =======
Note 6 - Accounts payable and accrued liabilities:
March 31, December 31,
2003 2002
--------- ------------
(In thousands)
Accounts payable ........................... $34,843 $49,630
------- -------
Accrued liabilities:
Employee benefits ...................... 21,533 20,131
Interest ............................... 7,038 217
Other .................................. 25,919 23,585
------- -------
54,490 43,933
------- -------
$89,333 $93,563
======= =======
-14-
Note 7 - Long-term debt:
March 31, December 31,
2003 2002
--------- ------------
(In thousands)
8.875% Senior Secured Notes, (euro)285 million
principal amount ................................. $305,691 $296,942
Revolving credit facility .......................... 43,098 27,077
Other .............................................. 1,470 1,887
-------- --------
350,259 325,906
Less current maturities ............................ 1,238 1,298
-------- --------
$349,021 $324,608
======== ========
In March 2003 the Company borrowed (euro)15.0 million ($16.1 million
when borrowed) under the revolving credit facility. In April 2003 the Company
repaid NOK 80 million (approximately $11 million when repaid) under the
revolving credit facility.
Note 8 - Other noncurrent liabilities:
March 31, December 31,
2003 2002
--------- ------------
(In thousands)
Insurance claims and expenses .................. $ 1,141 $ 889
Employee benefits .............................. 4,131 4,025
Environmental costs ............................ 5,999 5,921
Other .......................................... 2,577 2,098
------- -------
$13,848 $12,933
======= =======
Note 9 - Other income (loss), net:
Three months ended
March 31,
----------------------
2003 2002
------- -------
(In thousands)
Currency transaction gain (loss), net ............ $ 93 $(1,668)
Royalty income ................................... 1,748 1,287
Trade interest income ............................ 150 213
Disposition of property and equipment ............ (61) (47)
Other, net ....................................... 102 10
------- -------
$ 2,032 $ (205)
======= =======
Net currency transaction losses in the first quarter of 2002 included
$2.3 million of noncash losses associated with the Company's dollar-denominated
notes payable to affiliates which were repaid in June 2002.
The Company receives royalty income from KC for use of certain of the
Company's intellectual property.
-15-
Note 10 - Income taxes:
The difference between the provision for income tax expense attributable
to income before income taxes and minority interest and the amount that would be
expected using the U.S. federal statutory income tax rate of 35% is presented
below.
Three months ended
March 31,
-------------------
2003 2002
------- -------
(In thousands)
Expected tax expense ................................... $ 7,347 $ 3,638
Non-U.S. tax rates ..................................... (451) (323)
Valuation allowance .................................... (679) (125)
Currency transaction losses for which no income tax
benefit is recognized ................................ -- 801
Other, net ............................................. (5) (1,589)
------- -------
Income tax expense ............................. $ 6,212 $ 2,402
======= =======
Note 11 - Commitments and contingencies:
For descriptions of certain legal proceedings, income tax and other
commitments and contingencies related to the Company, reference is made to (i)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (ii) Part II, Item 1 "Legal Proceedings," and (iii) the 2002 Annual
Report.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Three months ended %
March 31, Change
------------------- ------
2003 2002
------ ------
(In millions, except percentages and
metric tons)
Net sales and operating income
Net sales ......................................... $178.2 $139.6 +28%
Operating income .................................. $ 29.0 $ 14.3 +103%
Operating income margin percentage ................ 16% 10%
TiO2 operating statistics
Percent change in average selling price (in billing
currencies) ..................................... +9%
Sales volume (metric tons in thousands) ........... 79.5 79.2 N/C
Production volume (metric tons in thousands) ...... 78.5 72.2 +9%
The Company's operating income in the first quarter of 2003 increased
$14.7 million or 103% from the first quarter of 2002 due to higher average
selling prices and higher production volume. Compared with the fourth quarter of
2002, operating income in the first quarter of 2003 increased $17.2 million, or
146%, on higher sales and production volumes, higher average selling prices and
lower operating costs.
KII's average selling price in billing currencies (which excludes the
effects of foreign currency translation) during the first quarter of 2003 was 9%
higher than the first quarter of 2002 and 2% higher than the fourth quarter of
2002. The average selling price in billing currencies in March 2003 was
comparable to the average selling price for the first quarter of 2003. The
Company expects higher average selling prices in billing currencies for
full-year 2003 compared to full-year 2002. The Company discloses percentage
changes in its average TiO2 selling prices in billing currencies (which excludes
the effects of foreign currency translation), so that such changes can be
analyzed without the impact of changes in foreign currency exchange rates,
thereby facilitating period-to-period comparisons. Generally, when the U.S.
dollar either strengthens or weakens against other currencies, the percentage
change in average selling prices in billing currencies will be higher or lower,
respectively, than such percentage changes would be using actual exchange rates
prevailing during the respective periods. When translated from billing
currencies to U.S. dollars using currency exchange rates prevailing during the
respective periods, KII's first-quarter 2003 average selling price in U.S.
dollars was 27% higher than in the first quarter of 2002 and 8% higher than the
fourth quarter of 2002.
The Company's first quarter 2003 sales volume of 79,500 metric tons was
comparable to the first quarter of 2002 and increased 24% from the fourth
quarter of 2002. Compared to the fourth quarter of 2002, sales volume increased
in all major markets. The Company expects its sales volume for full-year 2003
will be comparable to full-year 2002. Finished goods inventory levels at the end
of the first quarter of 2003 decreased 2% from December 2002 levels and
represented under two months of sales.
-17-
The Company's first quarter 2003 production volume of 78,500 metric tons
was 9% higher than the first quarter of 2002 and 14% higher than the fourth
quarter of 2002. Operating rates in the first quarter of 2003 were at near full
capacity compared with 96% of capacity in the first quarter of 2002 and 85% of
capacity in the fourth quarter of 2002. Decreased production volume in the
fourth quarter of 2002 was primarily due to maintenance stops. The Company
anticipates its production volume for full-year 2003 will be higher than that of
full-year 2002.
The Company currently expects TiO2 industry demand in 2003 to increase
slightly over 2002 levels. KII's TiO2 production volume in 2003 is expected to
approximate KII's 2003 TiO2 sales volume. In December 2002, KII announced
additional price increases in Europe which averaged approximately 8%. KII is
hopeful that it will realize additional price increases during the remainder of
2003, but the extent to which KII can realize price increases will depend on
market conditions and global economic recovery. Overall, the Company expects its
TiO2 operating income in 2003 will be higher than 2002, primarily due to higher
average TiO2 selling prices. The Company's expectations as to the future
prospects of the Company and the TiO2 industry are based upon a number of
factors beyond the Company's control, including worldwide growth of gross
domestic product, competition in the marketplace, unexpected or
earlier-than-expected capacity additions and technological advances. If actual
developments differ from the Company's expectations, the Company's results of
operations could be unfavorably affected.
Compared to the year-earlier period, cost of sales as a percentage of
net sales decreased in the first quarter of 2003 primarily due to higher average
selling prices in billing currencies and higher production volume. Excluding the
effects of foreign currency translation, which increased the Company's expenses
in the first quarter of 2003 compared to year-earlier period, the Company's
selling, general and administrative expenses, excluding corporate expenses, in
the first quarter of 2003 were comparable to the first quarter of 2002.
A significant amount of KII's sales and operating costs are denominated
in currencies other than the U.S. dollar. Fluctuations in the value of the U.S.
dollar relative to other currencies, primarily a weaker U.S. dollar compared to
the euro in the first quarter of 2003 versus the year-earlier period, increased
the dollar value of sales in the first quarter of 2003 by a net $26.2 million
when compared to the year-earlier period. The effect of the weaker U.S. dollar
on KII's operating costs that are not denominated in U.S. dollars increased
operating costs in the first quarter of 2003 compared to the year-earlier
period. In addition, sales to export markets are typically denominated in U.S.
dollars and a weaker U.S. dollar decreases margins on these sales at the
Company's non-U.S. subsidiaries. The unfavorable margin on export sales tends to
offset the favorable effect of translating local currency profits to U.S.
dollars when the dollar is weaker. As a result, the net impact of currency
exchange rate fluctuations was not significant in the first quarter of 2003 when
compared to the first quarter of 2002.
-18-
General corporate
The following table sets forth certain information regarding general
corporate income (expense).
Three months ended
March 31, Difference
------------------ ----------
2003 2002
------ ------
(In millions)
Currency transaction loss, net ............. $ -- $ (2.3) $ 2.3
Interest expense ........................... (7.9) (.7) (7.2)
Interest expense to affiliates ............. (.1) (9.8) 9.7
Interest income from affiliates ............ -- 8.9 (8.9)
------ ------ ------
$ (8.0) $ (3.9) $ (4.1)
====== ====== ======
Interest expense to third parties in the first quarter of 2003 was $7.9
million, an increase of $7.2 million from the first quarter 2002 primarily due
to higher levels of outstanding debt and associated currency effects. Interest
expense to affiliates decreased $9.7 million from the first quarter of 2002 due
to the repayment of loans from affiliates in June 2002 using proceeds from the
Company's (euro)285 million Senior Secured Notes offering (the "Notes"). The
Company expects its aggregate interest expense for full-year 2003 to be higher
than full-year 2002 due to higher levels of outstanding indebtedness, offset in
part by the effect of lower average rates on outstanding borrowings. As a result
of the repayment of the loans from affiliates in June 2002, the Company does not
expect a material amount of interest expense to affiliates in 2003.
Interest income from affiliates decreased $8.9 million from the first
quarter of 2002 due to the redemption and extinguishment of all notes receivable
from affiliates in July 2002. As a result of the redemption and extinguishment
of affiliate notes receivable, the Company does not expect any interest income
from affiliates in 2003.
Net corporate currency transaction losses in 2002 related to the
Company's dollar-denominated, 11.75% Second-tier Senior Mirror Note payable to
Kronos, Inc., which was repaid in June 2002 using a portion of the proceeds from
the Notes offering. As a result of the repayment of this loan from affiliate,
the Company does not expect any corporate currency transaction gains or losses
in 2003.
Provision for income taxes
The Company's provision for income taxes for the first quarter of 2003
differs from the normally expected statutory rate due to the geographic mix of
earnings and the utilization of certain tax attributes that previously did not
meet the "more-likely-than-not" recognition criteria. The Company's provision
for income taxes for the first quarter of 2002 differs from the normally
expected statutory rate due principally to the geographic mix of earnings,
currency transaction losses on which no income tax benefit was recognized and
adjustment to certain other deferred tax liabilities.
-19-
Recently adopted accounting principles
As described in Note 1 in the Consolidated Financial Statements, the
Company adopted Statement of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations," effective January 1, 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows from operating, investing and
financing activities for the three months ended March 31, 2003 and 2002 are
presented below.
Three months ended
March 31,
------------------
2003 2002
------- -------
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities ........... $ 25.6 $ 12.6
Changes in assets and liabilities .................. (35.3) 4.8
------- -------
(9.7) 17.4
Investing activities ................................... (6.4) (4.7)
Financing activities ................................... 15.8 (.3)
------- -------
Net cash (used) provided by operating, investing,
and financing activities ........................... $ (.3) $ 12.4
======= =======
Operating activities
The TiO2 industry is cyclical and changes in economic conditions within
the industry significantly affect the earnings and operating cash flows of the
Company. Cash flow from operations is considered the primary source of liquidity
for the Company. Changes in TiO2 pricing, production volume and customer demand,
among other things, could significantly affect the liquidity of the Company.
Cash flow from operations, before changes in assets and liabilities, in the
first three months of 2003 increased from the comparable period in 2002
primarily due to $14.7 million of higher operating income partially offset by
$1.4 million of higher current tax expense. The net cash used to fund changes in
the Company's inventories, receivables, payables and accounts with affiliates
(excluding the effect of currency translation) in the first three months of 2003
was significantly higher than the first three months of 2002 due to higher
inventory balances, decreases in accounts payable and accrued liabilities and
decreases in accounts with affiliates in the first three months of 2003.
Decreases in accounts with affiliates in first quarter 2003 compared with first
quarter 2002 was due primarily to payments for raw materials purchases. In
addition, changes in assets and liabilities in the first quarter of 2002 were
favorably affected by the collection of insurance proceeds.
Investing activities
Capital expenditures were $5.6 million and $4.8 million in the first
three months of 2003 and 2002, respectively. Capital expenditures in the first
quarter of 2002 included approximately $1.2 million related to reconstruction of
the Company's Leverkusen, Germany sulfate plant damaged in the March 2001 fire.
-20-
Financing activities
In March 2003 the Company borrowed (euro)15.0 million ($16.1 million
when borrowed) under the European Credit Facility. In April 2003 the Company
repaid NOK 80 million (approximately $11 million when repaid) under the European
Credit Facility.
In March 2002 the Company repaid $25 million in principal amount of
affiliate indebtedness to Kronos.
Cash flows related to capital contributions and other transactions with
affiliates aggregated a net cash inflow of $25 million for the first three
months of 2002. Such amounts relate principally to cash flows related to
dividends or loans KII received from, or capital contributions or loans KII made
to affiliates (such notes receivable from affiliates having previously been
reported as a reduction of the Company's stockholder's equity, and therefore
considered financing cash flows). As discussed in Note 1 of the Consolidated
Financial Statements, KII transferred its Canadian operations to Kronos in April
2002, and accordingly KII no longer reports such capital transaction cash flows
related to such Canadian operations subsequent to April 2002.
Cash, cash equivalents, restricted cash and noncurrent restricted marketable
debt securities and borrowing availability
At March 31, 2003, the Company had cash and cash equivalents aggregating
$14.9 million and an additional $2.7 million of restricted cash and noncurrent
restricted marketable debt securities, of which $1.9 million was classified as
noncurrent. Based upon expectations for the TiO2 industry and anticipated
demands on cash resources as discussed herein, the Company expects to have
sufficient liquidity to meet near-term obligations including operations, capital
expenditures and debt service. To the extent that actual developments differ
from expectations, liquidity could be adversely affected.
Certain of the Company's subsidiaries had approximately $41 million
available for borrowing at March 31, 2003 under the European Credit Facility. At
March 31, 2003, the Company had approximately $48 million available for payments
of dividends and other restricted payments as defined in the Notes indenture. At
March 31, 2003, the Company had complied with all financial covenants governing
its debt agreements.
Income tax contingencies
Certain of the Company's tax returns in various U.S. and non-U.S.
jurisdictions are being examined and tax authorities have proposed or may
propose tax deficiencies, including penalties and interest.
The Company has received preliminary tax assessments for the years 1991
to 1997 from the Belgian tax authorities proposing tax deficiencies, including
related interest, of approximately (euro)10.4 million ($11.2 million at March
31, 2003). The Company has filed protests to the assessments for the years 1991
to 1997. The Company is in discussions with the Belgian tax authorities and
believes that a significant portion of the assessments is without merit. In
April 2003 the Company received a notification from the Belgian tax authorities
of their intent to assess a tax deficiency related to 1999. The anticipated
assessment, including interest, is expected to approximate (euro)12 million
-21-
($12.9 million at March 31, 2003). The Company believes the proposed assessment
related to 1999 is without merit and in April 2003 filed a written response in
opposition to the notification of intent to assess.
In 2002, the Company received a notification from the Norwegian tax
authorities of their intent to assess tax deficiencies of approximately NOK 12.2
million ($1.7 million at March 31, 2003) relating to 1998 through 2000. The
Company has objected to this proposed assessment in a written response to the
Norwegian tax authorities.
In the first quarter of 2003, the Company was notified by the German
Federal Fiscal Court (the "Court") that the Court had ruled in the Company's
favor concerning a claim for refund suit in which the Company sought refunds of
prior taxes paid during the periods 1990 through 1997. The Company expects to
file amended German tax returns claiming such tax refunds for all years affected
by the Court's decision, which is expected to result in a net refund of taxes
and interest of approximately $30 million. As of March 31, 2003, the Company has
not reflected this tax refund in its consolidated financial statements and
expects to reflect the refund in its consolidated financial statements once
certain procedural requirements are satisfied, including a review of the amended
German tax returns by the German tax authorities.
No assurance can be given that the Company's tax matters will be
favorably resolved due to the inherent uncertainties involved in court and tax
proceedings. The Company believes that it has provided adequate accruals for
additional taxes and related interest expense which may ultimately result from
all such examinations and believes that the ultimate disposition of such
examinations should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
At March 31, 2003 the Company had the equivalent of approximately $451
million of income tax loss carryforwards in Germany with no expiration date.
However, the Company has provided a deferred tax valuation allowance against
substantially all of these income tax loss carryforwards because the Company
currently believes they do not meet the "more-likely-than-not" recognition
criteria. In 2002, the German federal government proposed certain changes to its
income tax law, including certain changes that would have imposed limitations on
the annual utilization of income tax loss carryforwards. Such proposal, if
enacted, would have significantly affected the Company's 2003 and future income
tax expense and cash tax payments. In April 2003 the German federal government
passed a new tax law which does not contain the provision that would have
restricted the utilization of tax loss carryforwards. Furthermore, the
provisions contained in the new law are not expected to materially impact the
Company's income tax expense or cash tax payments.
At March 31, 2003, the Company had net deferred tax liabilities of $54
million. The Company operates in numerous tax jurisdictions, in certain of which
it has temporary differences that net to deferred tax assets (before valuation
allowance). The Company has provided a deferred tax valuation allowance of $157
million at March 31, 2003, principally related to Germany, partially offsetting
deferred tax assets which the Company believes do not currently meet the
"more-likely-than-not" recognition criteria.
Redeemable preferred stock, profit participation certificates and notes
receivable from affiliates
In July 2002 KII and Kronos agreed to a recapitalization of the Company
as contemplated in the Notes offering. In connection with the recapitalization
agreement, KII converted the Series A (738 shares) and Series B (647 shares)
redeemable preferred stock (including liquidation and redemption preferences and
-22-
accrued and unpaid dividends) held by Kronos into 1,385 shares of KII, $100 par
value, common stock. As a result of the conversion, the Series A and B
redeemable preferred stock certificates were canceled. Further, KII redeemed its
profit participation certificates held by Kronos in exchange for various notes
receivable from NL. As a result of the redemption, the profit participation
certificates were canceled. Finally, KII redeemed 1,613 shares of KII common
stock held by Kronos in exchange for its remaining notes receivable from NL and
Kronos.
Foreign operations
The Company's operations are located outside the United States for which
the functional currency is not the U.S. dollar. As a result, the reported amount
of the Company's assets and liabilities (and income and expenses) related to its
non-U.S. operations, and therefore the Company's consolidated net assets, will
fluctuate based upon changes in currency exchange rates. At March 31, 2003, the
Company had substantial net assets denominated in the euro, Norwegian kroner and
United Kingdom pound sterling.
Environmental, product liability and litigation matters
The Company's operations are governed by various foreign environmental
laws and regulations. Certain of the Company's businesses 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. As with other companies engaged in similar businesses, certain past and
current operations and products of the Company have the potential to cause
environmental or other damage. The Company has implemented and continues to
implement new and improve existing policies and programs in an effort to
minimize these risks. The policy of the Company is to maintain compliance with
applicable environmental laws and regulations at all of its facilities and to
strive to improve its environmental performance. It is possible that future
changes in environmental laws and enforcement policies thereunder could affect
the Company's production, handling, use, storage, transportation, sale or
disposal of such substances as well as adversely affect the Company's
consolidated financial position, results of operations or liquidity.
The Company's production facilities operate in an environmental
regulatory framework in which governmental authorities typically are granted
broad discretionary powers which allow them to issue operating permits required
for the plants to operate. The Company believes all of its plants are in
substantial compliance with applicable environmental laws.
While the laws regulating operations of industrial facilities in Europe
vary from country to country, a common regulatory base is provided by the
European Union (the "EU"). The Company's German and Belgian subsidiaries are
members of the EU and follow its initiatives. Norway, although not a member,
generally patterns its environmental regulatory actions after the EU. The
Company believes that it has all required permits and is in substantial
compliance with applicable EU requirements, including EU Directive 92/112/EEC
regarding establishment of procedures for reduction and eventual elimination of
pollution caused by waste from the TiO2 industry.
At all of the Company's sulfate plant facilities other than Fredrikstad,
Norway, the Company recycles spent acid either through contracts with third
parties or using the Company's own facilities. At its Fredrikstad, Norway plant,
the Company ships its spent acid to a third party location where it is treated
-23-
and disposed. The Company has a contract with a third party to treat certain
by-products of its German sulfate-process plants. Either party may terminate the
contract after giving four years advance notice with regard to its Nordenham,
Germany plant. Under certain circumstances, Kronos may terminate the contract
after giving six months notice with respect to treatment of by-products from the
Leverkusen, Germany plant.
The Company landfills waste generated at its Nordenham, Germany and
Langerbrugge, Belgium plants, and mine tailings waste generated at its facility
in Norway. The Company maintains reserves, as required under GAAP, to cover the
anticipated cost of closure of these landfills, which were approximately $.5
million as of March 31, 2003. These requirements for landfills are expected to
increase in the future in view of recently adopted EU requirements.
The Company is responsible for certain closure costs at landfills used
and formerly used by its Leverkusen, Germany TiO2 plants. The Company has a
reserve of approximately $6 million related to such landfills as of March 31,
2003.
The Company's Belgian subsidiary and various of its Belgian employees
are the subject of an investigation by Belgian authorities relating to an
accident resulting in two fatalities that occurred in its Langerbrugge, Belgium
facility in October 2000. The investigation stage, which could ultimately result
in civil and criminal sanctions against the Company, was completed in 2002. In
May 2003 the Belgian authorities are expected to announce if the Company or any
of its employees will be prosecuted.
The Company is also involved in various other environmental,
contractual, product liability and other claims and disputes incidental to its
business. The Company currently believes the disposition of all claims and
disputes, individually or in the aggregate, should not have a material adverse
effect on the Company's consolidated financial condition, results of operations
or liquidity.
Other
The Company periodically evaluates its liquidity requirements,
alternative uses of capital, capital needs and availability of resources in view
of, among other things, its debt service and capital expenditure requirements
and estimated future operating cash flows. As a result of this process, the
Company in the past has sought, and in the future may seek, to reduce,
refinance, repurchase or restructure indebtedness; raise additional capital;
repurchase shares of its common stock; modify its dividend policy; restructure
ownership interests; sell interests in subsidiaries or other assets; or take a
combination of such steps or other steps to manage its liquidity and capital
resources. In the normal course of its business, the Company may review
opportunities for the acquisition, divestiture, joint venture or other business
combinations in the chemicals or other industries, as well as the acquisition of
interests in, and loans to, related companies. In the event of any acquisition
or joint venture transaction, the Company may consider using available cash,
issuing equity securities or increasing its indebtedness to the extent permitted
by the agreements governing the Company's existing debt.
Disclosure regarding forward-looking statements
The statements contained in these Consolidated Financial Statements
relating to matters that are not historical facts, including, but not limited
to, statements found under the captions "Results of Operations" and "Liquidity
and Capital Resources" above, are forward-looking statements that represent
-24-
management's beliefs and assumptions based on currently available information.
Forward-looking statements can be identified by the use of words such as
"believes," "intends," "may," "will," "should," "could," "anticipates,"
"expects," or comparable terminology or by discussions of strategy or trends.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it cannot give any assurances that
these expectations will prove to be correct. Such statements by their nature
involve risks and uncertainties, including, but not limited to, the cyclicality
of the titanium dioxide industry, global economic and political conditions,
changes in global productive capacity, changes in customer inventory levels,
changes in product pricing, changes in product costing, changes in foreign
currency exchange rates, competitive technology positions, operating
interruptions (including, but not limited to, labor disputes, leaks, fires,
explosions, unscheduled downtime, transportation interruptions, war and
terrorist activities), the ultimate resolution of NL's pending or possible
future lead pigment litigation and legislative developments related to the lead
paint litigation, the outcome of other litigation and tax controversies, and
other risks and uncertainties included in this Quarterly Report and in the 2002
Annual Report, and the uncertainties set forth from time to time in the
Company's and NL's filings with the Securities and Exchange Commission. 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 and NL disclaim any intention or obligation to update publicly or revise
such statements whether as a result of new information, future events or
otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's market risks, refer to the caption
"Quantitative and Qualitative Disclosures About Market Risk" in the 2002 Annual
Report. There have been no material changes to the information provided that
would require additional information with respect to the quarter ended March 31,
2003.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures.
The term "disclosure controls and procedures," as defined by regulations of the
Securities and Exchange Commission ("SEC"), means controls and other procedures
that are designed to ensure that information required to be disclosed in the
reports that the Company files or submits to the SEC under the Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits to the SEC under the Act is
accumulated and communicated to the Company's management, including its
principal executive officer and its principal financial officer, as appropriate
to allow timely decisions to be made regarding required disclosure. Each of Dr.
Lawrence A. Wigdor, the Company's Chief Executive Officer, and Robert D. Hardy,
the Company's Chief Financial Officer, have evaluated the Company's disclosure
controls and procedures as of a date within 90 days of the filing date of this
Form 10-Q. Based upon their evaluation, these executive officers have concluded
that the Company's disclosure controls and procedures are effective as of the
date of such evaluation.
-25-
The Company also maintains a system of internal controls. The term
"internal controls," as defined by the American Institute of Certified Public
Accountants' Codification of Statement on Auditing Standards, AU Section 319,
means controls and other procedures designed to provide reasonable assurance
regarding the achievement of objectives in the reliability of the Company's
financial reporting, the effectiveness and efficiency of the Company's
operations and the Company's compliance with applicable laws and regulations.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect such controls subsequent to the
date of their last evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
-26-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Environmental, product
liability and litigation matters" and to the 2002 Annual Report for descriptions
of previously reported legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Reports on Form 8-K filed during the quarter ended March 31, 2003
and through the date of this report:
May 6, 2003 - Reported Items 7 and 9.
-27-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KRONOS INTERNATIONAL, INC.
(Registrant)
Date: May 9, 2003 By /s/ Robert D. Hardy
- ------------------ --------------------------
Robert D. Hardy
Principal Financial and
Accounting Officer
-28-
CERTIFICATIONS
I, Dr. Lawrence A. Wigdor, the Chief Executive Officer of Kronos International,
Inc., certify that:
1) I have reviewed this quarterly report on Form 10-Q of Kronos International,
Inc.
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003
/s/ Dr. Lawrence A. Wigdor
- --------------------------
Dr. Lawrence A. Wigdor
Chief Executive Officer
-29-
CERTIFICATIONS
I, Robert D. Hardy, the Chief Financial Officer of Kronos International, Inc.,
certify that:
1) I have reviewed this quarterly report on Form 10-Q of Kronos International,
Inc.
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003
/s/ Robert D. Hardy
- -----------------------
Robert D. Hardy
Chief Financial Officer
-30-