SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2004 Commission file number 333-100047
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KRONOS INTERNATIONAL, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 22-2949593
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 233-1700
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes No X
--- ---
Number of shares of the Registrant's common stock outstanding on July 30, 2004:
2,968.
The Registrant is a wholly owned subsidiary of Kronos Worldwide, Inc. (File No.
1-31763) 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
number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 2003 and June 30, 2004 3
Consolidated Statements of Income -
Three months and six months ended June 30, 2003 and 2004 5
Consolidated Statements of Comprehensive Income -
Six months ended June 30, 2003 and 2004 6
Consolidated Statement of Stockholder's Equity -
Six months ended June 30, 2004 7
Consolidated Statements of Cash Flows -
Six months ended June 30, 2003 and 2004 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 4. Controls and Procedures 24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 26
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, June 30,
2003 2004
------------ ------------
Current assets:
Cash and cash equivalents $ 37,121 $ 35,895
Restricted cash and cash equivalents 1,313 1,047
Accounts and other receivables 112,797 139,710
Refundable income taxes 35,150 1,141
Receivable from affiliates 1,884 2,012
Inventories 168,131 152,585
Prepaid expenses 3,349 2,482
Deferred income taxes 943 1,317
---------- ---------
Total current assets 360,688 336,189
---------- ---------
Other assets:
Restricted marketable debt securities 2,586 2,548
Deferred financing costs, net 9,761 8,453
Unrecognized net pension obligation 7,812 7,647
Deferred income taxes - 179,588
Other 1,266 1,157
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Total other assets 21,425 199,393
---------- ---------
Property and equipment:
Land 31,106 30,320
Buildings 139,665 136,185
Equipment 644,733 634,996
Mining properties 63,701 62,542
Construction in progress 7,565 8,114
---------- ---------
886,770 872,157
Less accumulated depreciation and amortization 518,383 522,695
---------- ---------
Net property and equipment 368,387 349,462
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$ 750,500 $ 885,044
========== ==========
See accompanying notes to consolidated financial statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30,
2003 2004
------------ ------------
Current liabilities:
Current maturities of long-term debt $ 288 $ 148
Accounts payable and accrued liabilities 103,804 108,007
Payable to affiliates 8,697 8,840
Income taxes 12,007 6,809
Deferred income taxes 3,436 -
---------- ----------
Total current liabilities 128,232 123,804
---------- ----------
Noncurrent liabilities:
Long-term debt 356,451 346,682
Accrued pension costs 53,010 52,120
Deferred income taxes 86,622 24,235
Other 14,098 12,814
---------- ----------
Total noncurrent liabilities 510,181 435,851
---------- ----------
Minority interest 525 505
---------- ----------
Stockholder's equity:
Common stock 297 297
Additional paid-in capital 1,944,185 1,944,185
Retained deficit (1,665,098) (1,448,247)
Accumulated other comprehensive loss:
Currency translation (133,425) (136,954)
Pension liabilities (34,397) (34,397)
---------- ----------
Total stockholder's equity 111,562 324,884
---------- ----------
$ 750,500 $ 885,044
========== ==========
Commitments and contingencies (Notes 7 and 10)
See accompanying notes to consolidated financial statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Three months ended Six months ended
June 30, June 30,
------------------ --------------------
2003 2004 2003 2004
---- ---- ---- ----
Net sales $ 182,878 $ 208,102 $ 361,075 $ 400,275
Cost of sales 134,200 156,300 264,970 298,923
--------- --------- --------- ---------
Gross margin 48,678 51,802 96,105 101,352
Selling, general and administrative expense 21,712 25,316 42,207 50,727
Other operating income (expense):
Currency transaction gains (losses), net (1,105) 64 (1,011) 510
Disposition of property and equipment 17 21 (44) (2)
Royalty income 1,628 1,653 3,375 3,017
Other income 9 70 112 87
--------- --------- --------- ---------
Income from operations 27,515 28,294 56,330 54,237
Other income (expense):
Trade interest income 188 202 338 400
Interest income from affiliates 30 2 30 7
Interest expense to affiliates (6) - (70) -
Interest expense (8,225) (8,432) (16,136) (17,479)
--------- --------- --------- ---------
Income before income taxes and minority interest 19,502 20,066 40,492 37,165
Income tax benefit (17,199) (243,617) (10,987) (239,706)
Minority interest in after-tax earnings 19 12 43 20
--------- --------- --------- ---------
Net income $ 36,682 $ 263,671 $ 51,436 $ 276,851
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six months ended June 30, 2003 and 2004
(In thousands)
2003 2004
---- ----
Net income $ 51,436 $ 276,851
Other comprehensive income (loss), net of tax -
currency translation adjustment 1,264 (3,529)
--------- ---------
Comprehensive income $ 52,700 $ 273,322
========= =========
See accompanying notes to consolidated financial statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Six months ended June 30, 2004
(In thousands)
Accumulated other
comprehensive loss
Additional ----------------------- Total
Common paid-in Retained Currency Pension stockholder's
stock capital deficit translation liabilities equity
------- ----------- ---------- ------------- ----------- --------------
Balance at December 31, 2003 $ 297 $1,944,185 $(1,665,098) $(133,425) $(34,397) $111,562
Net income - - 276,851 - - 276,851
Dividends - - (60,000) - - (60,000)
Other comprehensive loss - - - (3,529) - (3,529)
------ ---------- ----------- --------- -------- --------
Balance at June 30, 2004 $ 297 $1,944,185 $(1,448,247) $(136,954) $(34,397) $324,884
====== ========== =========== ========= ======== ========
See accompanying notes to consolidated financial statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2003 and 2004
(In thousands)
2003 2004
---- ----
Cash flows from operating activities:
Net income $ 51,436 $276,851
Depreciation and amortization 16,526 18,713
Noncash interest expense 948 1,058
Deferred income taxes 6,826 (245,780)
Minority interest 43 20
Net loss from disposition of property and equipment 44 2
Pension cost, net (1,954) 1,236
Other, net - 248
Change in assets and liabilities:
Accounts and other receivables (18,136) (30,062)
Inventories 10,855 11,741
Prepaid expenses 3,359 997
Accounts with affiliates (16,746) 308
Accounts payable and accrued liabilities 2,598 4,462
Income taxes (23,086) 28,476
Other, net 129 (1,000)
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Net cash provided by operating activities 32,842 67,270
-------- --------
Cash flows from investing activities:
Capital expenditures (11,948) (8,956)
Change in restricted cash, net (1,005) 273
Other, net 47 84
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Net cash used in investing activities (12,906) (8,599)
-------- --------
Cash flows from financing activities:
Indebtedness:
Borrowings 16,106 99,968
Principal payments (11,615) (99,994)
Dividends paid (25,000) (60,000)
-------- --------
Net cash used in financing activities (20,509) (60,026)
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Cash and cash equivalents - net change from:
Operating, investing and financing activities (573) (1,355)
Currency translation 1,347 129
Cash and cash equivalents at beginning of period 15,023 37,121
-------- --------
Cash and cash equivalents at end of period $ 15,797 $ 35,895
======== ========
Supplemental disclosures - cash paid (received) for:
Interest, net of amounts capitalized $ 16,321 $ 16,494
Income taxes, net 5,233 (22,087)
See accompanying notes to consolidated financial statements.
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 Worldwide, Inc. ("Kronos") (NYSE:KRO). At June
30, 2004, NL Industries, Inc. (NYSE: NL) held 50.5% of the outstanding common
stock of Kronos. NL conducts its titanium dioxide pigments ("TiO2") operations
through Kronos. KII conducts Kronos' European TiO2 operations. At June 30, 2004,
Valhi, Inc. and a wholly-owned subsidiary of Valhi held approximately 83% of
NL's outstanding common stock, and Contran Corporation and its subsidiaries held
approximately 90% of Valhi's outstanding common stock. At June 30, 2004, Valhi
and a wholly-owned subsidiary of Valhi held an additional 43.6% of Kronos'
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, or is
held by Mr. Simmons or persons or other entities related to Mr. Simmons. Mr.
Simmons, the Chairman of the Board of Valhi, Contran, NL, Kronos and the Company
may be deemed to control each of such companies.
The consolidated balance sheet of KII at December 31, 2003 has been
condensed from the Company's audited consolidated financial statements at that
date. The consolidated balance sheet at June 30, 2004, and the consolidated
statements of income, comprehensive income, stockholder's equity and cash flows
for the interim periods ended June 30, 2003 and 2004, have been prepared by the
Company, without audit, in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). 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 normally included in financial statements prepared in
accordance with GAAP has been condensed or omitted, and 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 Company's Annual Report on Form 10-K for the year ended December 31,
2003 (the "2003 Annual Report").
The Company has complied with the consolidation requirements of FASB
Interpretation ("FIN") No. 46R, "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51," as amended, as of March 31, 2004. See Note 11.
The Company has not issued any stock options to purchase KII common stock.
However, certain employees of the Company have been granted options by NL to
purchase NL common stock. As disclosed in the 2003 Annual Report, the Company
accounts for stock-based employee compensation 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 greater than or equal to the market price on the grant date. Prior to 2003,
the Company commenced accounting for its stock options using the variable
accounting method of APBO No. 25, which requires the intrinsic value of all
unexercised stock options (including stock options 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 the Company's market price
resulting in recognition of additional compensation expense (income). Aggregate
compensation expense related to NL stock options held by employees of the
Company was approximately $200,000 and nil in the second quarter and first six
months of 2003, respectively, and aggregate compensation expense was
approximately nil and $200,000 in the second quarter and first six months of
2004, respectively.
The following table presents what the Company's consolidated net income
would have been in the 2003 and 2004 periods presented if the Company and its
subsidiaries and affiliates had each elected to account for their respective
stock-based employee compensation related to stock options in accordance with
the fair value-based recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," for all awards granted subsequent to January 1, 1995.
Three months ended Six months ended
June 30, June 30,
------------------ --------------------
2003 2004 2003 2004
---- ---- ---- ----
(In millions, except per share amounts)
Net income as reported $36.7 $263.7 $51.4 $276.9
Adjustments, net of applicable income tax effects, of
stock-based employee compensation determined under:
APBO No. 25 .2 - - .1
SFAS No. 123 (.1) - - -
----- ------ ----- ------
Pro forma net income $36.8 $263.7 $51.4 $277.0
===== ====== ===== ======
Note 2 - Accounts and other receivables:
December 31, June 30,
2003 2004
------------ ------------
(In thousands)
Trade receivables $106,304 $ 134,658
Recoverable VAT and other receivables 8,715 7,200
Allowance for doubtful accounts (2,222) (2,148)
-------- ---------
$112,797 $ 139,710
======== =========
Note 3 - Inventories:
December 31, June 30,
2003 2004
------------ ------------
(In thousands)
Raw materials $ 30,261 $ 27,956
Work in process 15,623 14,524
Finished products 92,009 81,261
Supplies 30,238 28,844
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$168,131 $ 152,585
======== =========
Note 4 - Accounts payable and accrued liabilities:
December 31, June 30,
2003 2004
------------ ------------
(In thousands)
Accounts payable $ 50,626 $ 47,380
Employee benefits 23,592 22,717
Other 29,586 37,910
-------- ---------
$103,804 $ 108,007
======== =========
Note 5 - Long-term debt:
December 31, June 30,
2003 2004
------------ ------------
(In thousands)
8.875% Senior Secured Notes $356,136 $ 346,446
Other 603 384
-------- ---------
356,739 346,830
Less current maturities 288 148
-------- ---------
$356,451 $ 346,682
======== =========
During the first quarter of 2004, certain of KII's operating subsidiaries
borrowed a net euro 26 million ($32 million when borrowed) under the European
revolving credit facility at an interest rate of 3.8%. Such amounts were repaid
in the second quarter of 2004.
Note 6 - Other noncurrent liabilities:
December 31, June 30,
2003 2004
------------ ------------
(In thousands)
Employee benefits $ 4,849 $ 4,622
Insurance 1,222 636
Other 8,027 7,556
-------- ---------
$ 14,098 $ 12,814
======== =========
Note 7 - Provision (benefit) for income taxes:
Six months ended
June 30,
----------------------
2003 2004
---- ----
(In millions)
Expected tax expense $ 14.2 $ 13.0
Change in deferred income tax valuation
allowance, net (.1) (254.3)
Refund of prior year German income taxes (24.6) (3.2)
Non-U.S. tax rates (.1) (.3)
Other, net (.4) 5.1
------ ------
$(11.0) $239.7
====== ======
Certain of the Company's tax returns are being examined and tax authorities
have or may propose tax deficiencies, including penalties and interest. For
example:
o The Company has received a preliminary tax assessment related to 1993 from
the Belgian tax authorities proposing tax deficiencies, including related
interest, of approximately euro 6 million ($7 million at June 30, 2004).
The Company has filed a protest to this assessment and believes that a
significant portion of the assessment is without merit. The Belgian tax
authorities have filed a lien on the fixed assets of the Company's Belgian
TiO2 operations in connection with this assessment. In April 2003, the
Company received a notification from the Belgian tax authorities of their
intent to assess a tax deficiency related to 1999 that, including interest,
is expected to be approximately euro 13 million ($16 million). The Company
believes the proposed assessment is substantially without merit, and the
Company has filed a written response.
o The Norwegian tax authorities have notified the Company of their intent to
assess tax deficiencies of approximately kroner 12 million ($2 million at
June 30, 2004) relating to the years 1998 to 2000. The Company has objected
to this proposed assessment.
No assurance can be given that these tax matters will be resolved in the
Company's favor in view of the inherent uncertainties involved in settlement
initiatives, 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 its consolidated financial position, results of operations or
liquidity.
At December 31, 2003, the Company had a significant amount of net operating
loss carryforwards for German corporate and trade tax purposes, all of which
have no expiration date. These net operating loss carryforwards were generated
by the Company principally during the 1990s when the Company had a significantly
higher level of outstanding indebtedness than is currently outstanding. For
financial reporting purposes, however, the benefit of such net operating loss
carryforwards had not previously been recognized because the Company did not
believe they met the "more-likely-than-not" recognition criteria, and
accordingly the Company had a deferred income tax asset valuation allowance
offsetting the benefit of such net operating loss carryforwards and the
Company's other tax attributes in Germany. Prior to the end of 2003, the Company
believed there was significant uncertainty regarding its ability to utilize such
net operating loss carryforwards under German tax law and, principally because
of this uncertainty, the Company had concluded the benefit of the net operating
loss carryforwards did not meet the "more-likely-than-not" criteria. By the end
of 2003, and primarily as a result of a favorable German court ruling in 2003
and the procedures the Company had completed during 2003 with respect to the
filing of certain amended German tax returns (as discussed below), the Company
had concluded that the significant uncertainty regarding its ability to utilize
such net operating loss carryforwards under German tax law had been eliminated.
However, at the end of 2003, the Company believed that it would generate a
taxable loss in Germany during 2004. Such expectation was based primarily upon
then current levels of prices for TiO2, and the fact that the Company was
experiencing a downward trend in its TiO2 selling prices and the Company did not
have any indication that the downward trend would improve. Accordingly, the
Company continued to conclude at the end of 2003 that the benefit of the German
net operating loss carryforwards did not meet the "more-likely-than-not"
criteria. The expectation for a taxable loss in Germany continued through the
end of the first quarter of 2004. By the end of the second quarter of 2004,
however, the Company's TiO2 selling prices had started to increase, and the
Company believes its selling prices will continue to increase during the second
half of 2004 after the Company and its major competitors announced an additional
round of price increases. Consequently, the Company's revised projections now
reflect taxable income for Germany in 2004 as well as 2005. Accordingly, based
on all available evidence, the Company concluded that the benefit of the net
operating loss carryforwards and other German tax attributes now meet the
"more-likely-than-not" recognition criteria, and the Company reversed the
deferred income tax asset valuation allowance related to Germany. Accordingly,
in the first six months of 2004, the Company recognized a $254.3 million income
tax benefit related to the reversal of such deferred income tax asset valuation
allowance attributable to the Company's income tax attributes in Germany
(principally the net operating loss carryforwards). Of such $254.3 million, $8.7
million relates primarily to the utilization of the German net operating loss
carryforwards during the first six months of 2004, the benefit of which had
previously not met the "more-likely-than-not" recognition criteria, and $245.6
million relates to the German deferred income tax asset valuation allowance
attributable to the remaining German net operating loss carryforwards and other
tax attributes as of June 30, 2004, the benefit of which the Company has
concluded now meet the "more-likely-than-not" recognition criteria. At June 30,
2004, the net operating loss carryforwards for German corporate and trade tax
purposes aggregated the equivalent of $594 million and $255 million,
respectively, all of which have no expiration date.
In the first quarter of 2003, the Company was notified by the German
Federal Fiscal Court (the "Court") that the Court had ruled in KII's favor
concerning a claim for refund suit in which KII sought refunds of prior taxes
paid during the periods 1990 through 1997. KII and its German operating
subsidiary were required to file amended tax returns with the German tax
authorities to receive refunds for such years, and all of such amended returns
were filed during 2003. Such amended returns reflected an aggregate net refund
of taxes and related interest to the Company's German operating subsidiary of
euro 26.9 million ($32.1 million), and the Company recognized the benefit for
these net refunds in its 2003 results of operations. During the first six months
of 2004, the Company recognized a benefit of euro 2.5 million ($3.1 million)
related to additional net interest, which has accrued on the outstanding refund
amounts. Assessments and refunds will be processed by year as the respective
returns are reviewed by the tax authorities. Certain interest components may
also be refunded separately. The German tax authorities have reviewed and
accepted the amended return with respect to the 1990 and 1991 tax years. Through
June 2004, KII's German operating subsidiary received net refunds of euro 24.5
million ($28.4 million when received). KII believes it will receive the net
refunds for the remaining years during 2004. In addition to the refunds for the
1990 to 1997 periods, the court ruling also resulted in a refund of 1999 income
taxes and interest for which the Company received euro 21.5 million ($24.6
million) in 2003, and the Company recognized the benefit of this refund in the
second quarter of 2003.
Note 8 - Employee benefit plans:
The components of net periodic defined benefit pension cost are presented
in the table below.
Three months ended Six months ended
June 30, June 30,
------------------ --------------------
2003 2004 2003 2004
---- ---- ---- ----
(In thousands)
Minority interest in net earnings:
Service cost benefits $ 1,016 $ 1,158 $ 1,999 $2,446
Interest cost on projected benefit obligations 3,094 3,471 6,082 7,010
Expected return on plan assets (3,106) (3,059) (6,688) (6,181)
Amortization of prior service cost 64 113 128 229
Amortization of net transition obligations 131 91 257 182
Recognized actuarial losses 207 576 416 1,154
------- ------- ------- -------
$ 1,406 $ 2,350 $ 2,194 $ 4,840
======= ======= ======= =======
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the "Medicare 2003 Act") introduced a prescription drug benefit under Medicare
(Medicare Part D) as well as a federal subsidy to sponsors of retiree health
care benefit plans that provide a benefit that is at least actuarially
equivalent to Medicare Part D. Detailed regulations necessary to implement the
Medicare 2003 Act have not been issued, including those that would specify the
manner in which actuarial equivalency would be determined, the evidence required
to demonstrate actuarial equivalence and the documentation requirements
necessary to receive the subsidy. Until such definitive regulations are issued,
the Company is unable to determine whether the prescription drug benefit offered
under its postretirement benefit plans is at least actuarially equivalent to
Medicare Part D. Accordingly, the Company's accumulated postretirement benefit
obligation and net periodic postretirement benefit cost, as reflected in the
accompanying consolidated financial statements, do not reflect any effect of the
federal subsidy. When such definitive regulations are issued or at such other
time that the Company can determine whether the prescription drug benefit
offered under its postretirement benefit plans is at least actuarially
equivalent to Medicare Part D, the Company would account for the effect of the
federal subsidy, if any, prospectively from that date, as permitted by and in
accordance with FASB Staff Position No. 106-2.
Note 9 - Accounts with affiliates:
December 31, June 30,
2003 2004
------------ ------------
(In thousands)
Current receivables from affiliates:
Kronos Canada, Inc. $ 1,847 $ 1,978
Kronos (US), Inc. 30 34
Other 7 -
------- -------
$ 1,884 $ 2,012
======= =======
Current payables to affiliates - KUS $ 8,697 $ 8,840
======= =======
Note 10 - Commitments and contingencies:
The Company is involved in various environmental, contractual, product
liability, patent (or intellectual property), employment and other claims and
disputes incidental to its present and former businesses. In certain cases, the
Company has insurance coverage for such items. The Company currently believes
the disposition of all of these 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.
Note 11 - Accounting principle newly adopted in 2004:
The Company complied with the consolidation requirements of FIN No. 46R,
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,"
as amended, as of March 31, 2004. The Company does not have any involvement with
any variable interest entity (as that term is defined in FIN No. 46R) covered by
the scope of FIN No. 46R which had not already been consolidated under prior
applicable GAAP, and therefore the impact to the Company of adopting the
consolidation requirements of FIN No. 46R was not material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
Executive summary
Relative changes in the Company's TiO2 sales and income from operations
during the second quarter and first six months of 2003 and 2004 are primarily
due to (i) relative changes in average TiO2 selling prices, (ii) relative
changes in TiO2 sales volumes and (iii) relative changes in foreign currency
exchange rates. Selling prices were generally increasing during the first
quarter of 2003, were generally flat during the second quarter of 2003, were
generally decreasing during the third and fourth quarters of 2003 and the first
quarter of 2004 and were generally flat during the second quarter of 2004.
The Company reported net income of $263.7 million in the second quarter of
2004 compared to net income of $36.7 million in the second quarter of 2003. For
the first six months of 2004, the Company reported net income of $276.9 million
compared to net income of $51.4 million in the first six months of 2003. The
increase in the Company's reported net income from the first quarter and first
six months of 2003 to the same periods in 2004 is due primarily to the net
effects of (i) significantly higher tax benefit generated from the reversal of
the Company's German deferred income tax asset valuation allowance, (ii) lower
gross margins, (iii) higher selling, general and administrative expense and (iv)
higher currency transaction gains. Overall, the Company believes its net income
in 2004 will be higher than in 2003 as the impact of the reversal of the
Company's deferred income tax asset valuation allowance is expected to more than
offset the effect of expected lower gross margins.
Forward-looking information
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
Quarterly Report on Form 10-Q relating to matters that are not historical facts
are forward-looking statements that represent management's beliefs and
assumptions based on currently available information. Forward-looking statements
can be identified by the use of words such as "believes," "intends," "may,"
"should," "could," "anticipates," "expects" or comparable terminology, or by
discussions of strategies or trends. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
cannot give any assurances that these expectations will prove to be correct.
Such statements by their nature involve substantial risks and uncertainties that
could significantly impact expected results, and actual future results could
differ materially from those described in such forward-looking statements. While
it is not possible to identify all factors, the Company continues to face many
risks and uncertainties. Among the factors that could cause actual future
results to differ materially are the risks and uncertainties discussed in this
Quarterly Report and those described from time to time in the Company's other
filings with the Securities and Exchange Commission ("SEC") including, but not
limited to, the following:
o Future supply and demand for the Company's products,
o The cyclicality of the Company's businesses,
o Customer inventory levels (such as the extent to which the Company's
customers may, from time to time, accelerate purchases of TiO2 in advance
of anticipated price increases or defer purchases of TiO2 in advance of
anticipated price decreases),
o Changes in raw material and other operating costs (such as energy costs),
o The possibility of labor disruptions,
o 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),
o Competitive products and substitute products,
o Customer and competitor strategies,
o The impact of pricing and production decisions,
o Competitive technology positions,
o Fluctuations in currency exchange rates (such as changes in the exchange
rate between the U.S. dollar and each of the euro and the Norwegian
kroner),
o Operating interruptions (including, but not limited to, labor disputes,
leaks, fires, explosions, unscheduled or unplanned downtime and
transportation interruptions),
o The ability of the Company to renew or refinance credit facilities,
o The ultimate outcome of income tax audits, tax settlement initiatives or
other tax matters,
o The ultimate ability to utilize income tax attributes, the benefit of which
has been recognized under the "more-likely-than-not" recognition criteria,
o Environmental matters (such as those requiring emission and discharge
standards for existing and new facilities),
o Government laws and regulations and possible changes therein,
o The ultimate resolution of pending litigation and
o 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 forecast or expected. The
Company disclaims any intention or obligation to update or revise any
forward-looking statement whether as a result of new information, future events
or otherwise.
Net sales and income from operations
Three months ended Six months ended
June 30, June 30,
---------------------------------- ------------------------------------
2003 2004 % Change 2003 2004 % Change
---- ---- -------- ---- ---- --------
(In millions, except percentages and volumes)
Net sales $182.9 $208.1 +14% $361.1 $400.3 +11%
Cost of sales 134.2 156.3 +16% 265.0 298.9 +13%
------ ------ ------ ------
Gross margin 48.7 51.8 +6% 96.1 101.4 +6%
Selling, general and administrative (21.7) (25.3) (42.2) (50.7)
expense
Currency transaction gains (losses),
net (1.1) .1 (1.0) .5
Royalty income 1.6 1.7 3.4 3.0
------ ------ ------ ------
Income from operations $ 27.5 $ 28.3 +3% $ 56.3 $ 54.2 -4%
====== ====== ====== ======
TiO2 data:
Percent change in average selling
prices:
Using actual foreign currency
exchange rates -1% +3%
Impact of changes in foreign
currency exchange rates -5% -8%
---- ----
In billing currencies -6% -5%
==== ====
Sales volumes* 79 90 158 171
Production volumes* 80 83 158 162
________________________________
* Thousands of metric tons
The Company's sales increased $25.2 million (14%) in the second quarter of
2004 compared to the second quarter of 2003 and increased $39.2 million (11%) in
the first six months of 2004 compared to the same period in 2003, as the
favorable effect of fluctuations in foreign currency exchange rates, which
increased sales by approximately $13 million and $33 million, respectively, (as
more fully discussed below) and increased sales volumes, more than offset the
impact of lower average TiO2 selling prices. Excluding the effect of
fluctuations in the value of the U.S. dollar relative to other currencies, the
Company's average TiO2 selling prices in billing currencies in the second
quarter and first six months of 2004 were 6% and 5% lower, respectively, than
the comparable periods in 2003. When translated from billing currencies into
U.S. dollars using actual foreign currency exchange rates prevailing during the
respective periods, the Company's average TiO2 selling prices in the second
quarter of 2004 were 1% lower compared to the second quarter of 2003 and 3%
higher for the first six months of 2004 compared to the first six months of
2003. The Company's TiO2 sales volumes in the second quarter and first six
months of 2004 increased 14% and 8%, respectively, compared to the same periods
of 2003, primarily due to higher volumes in European markets. The Company's TiO2
sales volumes in the first six months of 2004 were a new record for the Company.
The Company's sales are denominated in various currencies, including the
U.S. dollar, the euro and other major European currencies. The disclosure of the
percentage change in the Company's average TiO2 selling prices in billing
currencies (which excludes the effects of fluctuations in the value of the U.S.
dollar relative to other currencies) is considered a "non-GAAP" financial
measure under regulations of the SEC. The disclosure of the percentage change in
the Company's average TiO2 selling prices using actual foreign currency exchange
rates prevailing during the respective periods is considered the most directly
comparable financial measure presented in accordance with accounting principles
generally accepted in the United States ("GAAP measure"). The Company discloses
percentage changes in its average TiO2 prices in billing currencies because the
Company believes such disclosure provides useful information to investors to
allow them to analyze such changes without the impact of changes in foreign
currency exchange rates, thereby facilitating period-to-period comparisons of
the relative changes in average selling prices in the actual various billing
currencies. Generally, when the U.S. dollar either strengthens or weakens
against other currencies, the percentage change in average selling prices in
billing currencies will be higher or lower, respectively, than such percentage
changes would be using actual exchange rates prevailing during the respective
periods. The difference between the 1% decrease and 3% increase in the Company's
average TiO2 selling prices during the second quarter and first six months of
2004, as compared to the same periods in 2003 using actual foreign currency
exchange rates prevailing during the respective periods (the GAAP measure) and
the 6% decrease and 5% decrease in the Company's average TiO2 selling price in
billing currencies (the non-GAAP measure) during the second quarter and first
six months of 2004, is due to the effect of changes in foreign currency exchange
rates. The above table presents (i) the percentage change in the Company's
average TiO2 selling prices using actual foreign currency exchange rates
prevailing during the respective periods (the GAAP measure), (ii) the percentage
change in the Company's average TiO2 selling prices in billing currencies (the
non-GAAP measure) and (iii) the percentage change due to changes in foreign
currency exchange rates (or the reconciling item between the non-GAAP measure
and the GAAP measure).
The Company's cost of sales increased $22.1 million (16%) in the second
quarter of 2004 compared to the second quarter of 2003, and increased $33.9
million (13%) in the year-to-date period largely due to the increased sales
volumes and the effects of translating foreign currencies (primarily the euro)
into U.S. dollars. As a result of the lower average TiO2 selling prices in
billing currencies, the Company's cost of sales, as a percentage of net sales
increased from 73% in each of the second quarter and first six months of 2003 to
75% in each of the second quarter and first six months of 2004. The Company's
TiO2 production volumes in the second quarter of 2004 increased 4% compared to
the second quarter of 2003, and increased 3% in the first six months of 2004,
with operating rates near full capacity in those periods. The Company's TiO2
production volumes in the first six months of 2004 were also a new Company
record.
The Company's gross margins for the second quarter of 2004 increased $3.1
million (6%) from the second quarter of 2003 and increased $5.3 million (6%)
from the first six months of 2003 as compared to the first six months of 2004.
Such increase was due to increased sales volumes and the favorable effect on
gross margin resulting from relative changes in foreign currency exchange rates
offset by the unfavorable effect of lower average TiO2 selling prices.
Reflecting the impact of partial implementation of prior price increase
announcements, the Company's average TiO2 selling prices in the second quarter
of 2004 were generally flat as compared to the first quarter of 2004. The
Company has also recently announced additional price increases of euro 120 per
metric ton in Europe, which is targeted to be implemented later in 2004. The
extent to which such price increase announcements will be realized will depend
on, among other things, economic factors.
Selling, general and administrative expenses increased $3.6 million (17%)
and $8.5 million (20%), respectively, in the second quarter and first six months
of 2004 as compared to the corresponding periods in 2003. These increases are
largely attributable to the higher sales volumes as well as the impact of
translating foreign currencies (primarily the euro) into U.S. dollars.
The Company's operations and assets are located outside the United States
(particularly in Germany, Belgium and Norway). A significant amount of the
Company's sales generated from its non-U.S. operations are denominated in
currencies other than the U.S. dollar, primarily the euro and other major
European currencies. Certain raw materials, primarily titanium-containing
feedstocks, are purchased in U.S. dollars, while labor and other production
costs are denominated primarily in local currencies. Consequently, the
translated U.S. dollar value of the Company's foreign sales and operating
results are subject to currency exchange rate fluctuations which may favorably
or adversely impact reported earnings and may affect the comparability of
period-to-period operating results. Overall, fluctuations in the value of the
U.S. dollar relative to other currencies, primarily the euro, increased TiO2
sales in the second quarter of 2004 by approximately $13 million compared to the
same period in 2003 and increased TiO2 sales in the first six months of 2004 by
approximately $33 million compared to the same period in 2003. Fluctuations in
the value of the U.S. dollar relative to other currencies similarly impacted the
Company's foreign currency-denominated operating expenses. The Company's
operating costs that are not denominated in the U.S. dollar, when translated
into U.S. dollars, were higher in the second quarter and first six months of
2004 compared to the second quarter and first six months of 2003. Overall,
currency exchange rate fluctuations resulted in net increases in the Company's
income from operations of approximately $5 million and $9 million in the second
quarter and first six months of 2004, respectively, as compared to the same
periods in 2003.
Outlook
The Company expects its TiO2 sales and production volumes in calendar 2004
will be higher for the full year 2004 as compared to 2003. The Company expects
its average TiO2 selling prices, in billing currencies, will be lower in
calendar 2004 as compared to 2003 and expects its gross margin in 2004 to be
lower than 2003. The Company's expectations as to the future prospects of the
Company and the TiO2 industry are based upon a number of factors beyond its
control, including worldwide growth of gross domestic product, competition in
the marketplace, unexpected or earlier-than-expected capacity additions and
technological advances. If actual developments differ from the Company's
expectations, the Company's results of operations could be unfavorably affected.
Other income (expense)
Three months ended Six months ended
June 30, June 30,
---------------------------------- -----------------------------------
2003 2004 Difference 2003 2004 Difference
---- ---- ---------- ---- ---- ----------
(In millions)
Interest expense to affiliates $ - $ - $ - $ (.1) $ - $ .1
Trade interest income .2 .2 - .3 .4 .1
Interest expense (8.2) (8.4) (.2) (16.1) (17.5) (1.4)
----- ----- ------ ------ ------ ------
$(8.0) $(8.2) $ (.2) $(15.9) $(17.1) $ (1.2)
===== ===== ====== ====== ====== ======
The Company has a significant amount of outstanding indebtedness
denominated in the euro, including its euro 285 million Senior Secured Notes.
Accordingly, the reported amount of interest expense will vary depending on
relative changes in foreign currency exchange rates. Interest expense in the
second quarter and first six months of 2004 was $8.4 million and $17.5 million,
respectively, an increase of $200,000 and $1.4 million, respectively, from the
second quarter and first six months of 2003. The increase was due primarily to
relative changes in foreign currency exchange rates, which increased the U.S.
dollar equivalent of interest expense on the Company's Senior Secured Notes by
approximately $600,000 in the second quarter of 2004 and $1.7 million in the
first six months of 2004 as compared to the second quarter and first six months
of 2003. Assuming no significant change in interest rates or foreign currency
exchange rates, interest expense for the full-year 2004 is expected to be
slightly higher than amounts for the same periods in 2003.
Provision for income taxes
The principal reasons for the difference between the Company's effective
income tax rates and the U.S. federal statutory income tax rates are explained
in Note 7 to the Consolidated Financial Statements.
At June 30, 2004, the Company had the equivalent of $594 million and $255
million, respectively, of net operating loss carryforwards for German corporate
and trade tax purposes, all of which have no expiration date. As more fully
described in Note 7 to the Consolidated Financial Statements, the Company had
previously provided a deferred income tax asset valuation allowance against
substantially all of these tax loss carryforwards and other deductible temporary
differences in Germany because the Company did not believe they met the
"more-likely-than-not" recognition criteria. During the first six months of
2004, the Company reduced its deferred income tax asset valuation allowance by
approximately $8.7 million, primarily as a result of utilization of these German
net operating loss carryforwards, the benefit of which had not previously been
recognized. At June 30, 2004, after considering all available evidence, the
Company concluded that these German tax loss carryforwards and other deductible
temporary differences now meet the "more-likely-than-not" recognition criteria.
Accordingly, as of June 30, 2004, the Company reversed the remaining $245.6
million valuation allowance related to such items. Because the benefit of such
net operating loss carryforwards and other deductible temporary differences in
Germany has now been recognized, the Company's future effective income tax rate
will be higher than what it would have otherwise been, although its future cash
income tax rate would not be affected.
In January 2004, the German federal government enacted new tax law
amendments that limit the annual utilization of income tax loss carryforwards
effective January 1, 2004 to 60% of taxable income after the first euro 1
million of taxable income. The new law will have a significant effect on the
Company's cash tax payments in Germany going forward, the extent of which will
be dependent on the level of income earned in Germany.
Recently adopted accounting principle
See Note 11 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES:
Consolidated cash flows
The Company's consolidated cash flows from operating, investing and
financing activities for the six months ended June 30, 2003 and 2004 are
presented below:
Six months ended
June 30,
----------------------
2003 2004
---- ----
(In millions)
Net cash provided (used) by:
Operating activities $ 32.8 $ 67.2
Investing activities (12.9) (8.6)
Financing activities (20.5) (60.0)
------ ------
Net cash used by operating, investing
and financing activities $ (.6) $ (1.4)
====== ======
Operating activities
The TiO2 industry is cyclical and changes in economic conditions within the
industry significantly impact the earnings and operating cash flows of the
Company. Cash flow from operations is considered the primary source of liquidity
for the Company. Changes in TiO2 pricing, production volume and customer demand,
among other things, could significantly affect the liquidity of the Company.
Trends in cash flows from operating activities (excluding the impact of
significant asset dispositions and relative changes in assets and liabilities)
are generally similar to trends in the Company's earnings. However, certain
items included in the determination of net income are non-cash, and therefore
such items have no impact on cash flows from operating activities. Non-cash
items included in the determination of net income include depreciation and
amortization expense, deferred income taxes and non-cash interest expense.
Non-cash interest expense consists of amortization of deferred financing costs.
Certain other items included in the determination of net income may have an
impact on cash flows from operating activities, but the impact of such items on
cash flows from operating activities will differ from their impact on net
income. For example, the amount of periodic defined benefit pension plan expense
depends upon a number of factors, including certain actuarial assumptions, and
changes in such actuarial assumptions will result in a change in the reported
expense. The amount of such periodic expense generally differs from the outflows
of cash required to be currently paid for such benefits.
Relative changes in assets and liabilities generally result from the timing
of production, sales, purchases and income tax payments. Such relative changes
can significantly impact the comparability of cash flow from operations from
period to period, as the income statement impact of such items may occur in a
different period from when the underlying cash transaction occurs. For example,
raw materials may be purchased in one period, but the payment for such raw
materials may occur in a subsequent period. Similarly, inventory may be sold in
one period, but the cash collection of the receivable may occur in a subsequent
period.
Cash flows for operating activities increased from $32.8 million provided
in the first six months of 2003 to $67.2 million of cash provided by operating
activities in the first six months of 2004. This $34.4 million increase was due
primarily to the net effects of (i) higher net income of $225.4 million, (ii)
higher depreciation expense of $2.2 million, (iii) lower deferred income taxes
of $252.6 million, (iv) a lower amount of net cash used in relative changes in
the Company's inventories, receivables, payables and accruals and accounts with
affiliates of $7.9 million in the first quarter of 2004 as compared to the first
quarter of 2003 and (v) lower cash paid for income taxes of $27.3 million.
Relative changes in accounts receivable are affected by, among other things, the
timing of sales and the collection of the resulting receivables. Relative
changes in inventories and accounts payable and accrued liabilities are affected
by, among other things, the timing of raw material purchases and the payment for
such purchases and the relative difference between production volumes and sales
volumes.
Investing and financing activities
The Company's capital expenditures were $11.9 million and $9.0 million in
the first six months of 2003 and 2004, respectively.
In the first quarter of 2004 the Company's operating subsidiaries in
Germany, Belgium and Norway borrowed a net euro 26 million ($32 million when
borrowed) under the European revolving credit facility at an interest rate of
3.8%. Such amounts were repaid in the second quarter of 2004.
In the first six months of 2004, the Company paid a cash dividend of $60
million to Kronos.
Cash, cash equivalents, restricted cash and restricted marketable debt
securities and borrowing availability
At June 30, 2004, the Company and its subsidiaries had (i) current cash and
cash equivalents aggregating $35.9 million, (ii) current restricted cash
equivalents of $1.0 million and (iii) noncurrent restricted marketable debt
securities of $2.5 million. At June 30, 2004, certain of the Company's
subsidiaries had approximately $97.2 million available for borrowing (including
approximately $94.8 million under its revolving credit facility). At June 30,
2004, the Company had approximately $220 million available for payment of
dividends and other restricted payments as defined in the Senior Secured Notes
indenture.
Provisions contained in certain of the Company's credit agreements could
result in the acceleration of the applicable indebtedness prior to its stated
maturity for reasons other than defaults from failing to comply with typical
financial covenants. For example, certain credit agreements allow the lender to
accelerate the maturity of the indebtedness upon a change of control (as
defined) 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. Other than operating leases
discussed in the 2003 Annual Report, neither the Company nor any of its
subsidiaries or affiliates are party to any off-balance sheet financing
arrangements.
Pricing within the TiO2 industry is cyclical, and changes in industry
economic conditions significantly impact the Company's earnings and operating
cash flows. Cash flows from operations is considered the primary source of
liquidity for the Company. Changes in TiO2 pricing, production volumes and
customer demand, among other things, could significantly affect the liquidity of
the Company.
Litigation matters
See Note 10 to the Consolidated Financial Statements and Part II, Item 1,
"Legal Proceedings."
Income tax contingencies
See Note 7 to the Consolidated Financial Statements for certain income tax
examinations currently underway with respect to certain of the Company's income
tax returns in various non-U.S. jurisdictions.
Other matters
The Company periodically evaluates its liquidity requirements, alternative
uses of capital, its dividend policy, capital needs and availability of
resources in view of, among other things, its dividend policy, debt service and
capital expenditure requirements and estimated future operating cash flows. As a
result of this process, the Company has in the past and may in the future seek
to reduce, refinance, repurchase or restructure indebtedness, raise additional
capital, issue additional securities, 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 acquisitions, divestitures, joint ventures or other business
combinations in the chemicals industry or other industries, as well as the
acquisition of interests in related entities. In the event of any such
transaction, the Company may consider using its available cash, issuing its
equity securities or increasing its indebtedness to the extent permitted by the
agreements governing the Company's existing debt.
Non-GAAP financial measures
In an effort to provide investors with additional information regarding the
Company's results of operations as determined by GAAP, the Company has disclosed
certain non-GAAP information which the Company believes provides useful
information to investors.
o The Company discloses percentage changes in its average TiO2 selling prices
in billing currencies, which excludes the effects of foreign currency
translation. The Company believes disclosure of such percentage changes
allows investors to analyze such changes without the impact of changes in
foreign currency exchange rates, thereby facilitating period-to-period
comparisons of the relative changes in average selling prices in the actual
various billing currencies. Generally, when the U.S. dollar either
strengthens or weakens against other currencies, the percentage change in
average selling prices in billing currencies will be higher or lower,
respectively, than such percentage changes would be using actual exchange
rates prevailing during the respective periods.
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 SEC,
means controls and other procedures that are designed to ensure that information
required to be disclosed in the reports that the Company files or submits to the
SEC under the Securities Exchange Act of 1934, as amended (the "Act"), is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
to the SEC under the Act is accumulated and communicated to the Company's
management, including its principal executive officer and its principal
financial officer, as appropriate to allow timely decisions to be made regarding
required disclosure. Each of Harold C. Simmons, the Company's Chief Executive
Officer, and Gregory M. Swalwell, the Company's Vice President, Finance and
Chief Financial Officer, have evaluated the Company's disclosure controls and
procedures as of June 30, 2004. Based upon their evaluation, these executive
officers have concluded that the Company's disclosure controls and procedures
are effective as of the date of such evaluation.
The Company also maintains a system of internal controls over financial
reporting. The term "internal control over financial reporting," as defined by
regulations of the SEC, means a process designed by, or under the supervision
of, the Company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the Company's board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP, and includes
those policies and procedures that:
o Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the Company,
o Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and
that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company,
and
o Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that
could have a material effect on the Company's consolidated financial
statements.
There has been no change to the Company's system of internal controls over
financial reporting during the quarter ended June 30, 2004 that has materially
affected, or is reasonably likely to materially affect, the Company's system of
internal controls over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to the 2003 Annual Report, Note 10 to the Consolidated
Financial Statements and the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004 for descriptions of certain legal proceedings.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The Company has retained a signed original of any exhibit listed below
that contains signatures, and the Company will provide any such
exhibit to the SEC or its staff upon request. Such requests should be
directed to the attention of the Company's corporate secretary at the
Company's corporate offices located at 5430 LBJ Freeway, Suite 1700,
Dallas, Texas 75240.
31.1 - Certification
31.2 - Certification
32.1 - Certification
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended June 30, 2004.
None.
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 August 5, 2004 By /s/ Gregory M. Swalwell
----------------- --------------------------------
Gregory M. Swalwell
Vice President, Finance and Chief
Financial Officer
(Principal Financial Officer)
Date August 5, 2004 By /s/ James W. Brown
----------------- --------------------------------
James W. Brown
Vice President and Controller
(Principal Accounting Officer)