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, 2006 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 a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934). Large accelerated filer
Accelerated filer Non-accelerated filer X ---
--- ---
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes No X
--- ---
Number of shares of the Registrant's common stock outstanding on July 28, 2006:
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
Condensed Consolidated Balance Sheets -
December 31, 2005; June 30, 2006 (unaudited) 3
Condensed Consolidated Statements of Income -
Three and six months ended June 30, 2005 and 2006
(unaudited) 5
Condensed Consolidated Statements of Comprehensive Income -
Six months ended June 30, 2005 and 2006 (unaudited) 6
Condensed Consolidated Statement of Stockholders' Equity -
Six months ended June 30, 2006 (unaudited) 7
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 2005 and 2006 (unaudited) 8
Notes to Condensed Consolidated Financial Statements
(unaudited) 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 23
Item 4. Controls and Procedures 24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 1A Risk Factors 25
Item 6. Exhibits 25
Items 2, 3, 4, and 5 of Part II are omitted because there is no information to
report
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, June 30,
2005 2006
------------ ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 63,284 $ 51,738
Restricted cash 1,355 1,227
Accounts and other receivables, net 120,182 165,482
Receivables from affiliates 1,952 3,930
Refundable income taxes 1,053 1,577
Inventories, net 185,348 180,681
Prepaid expenses 2,680 3,373
Deferred income taxes - 123
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Total current assets 375,854 408,131
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Other assets:
Deferred financing costs, net 7,722 9,076
Restricted marketable debt securities 2,572 2,765
Unrecognized net pension obligation 6,108 6,529
Deferred income taxes 213,275 227,430
Other 960 1,048
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Total other assets 230,637 246,848
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Property and equipment:
Land 30,288 32,397
Buildings 138,925 148,957
Equipment 644,271 693,122
Mining properties 68,163 72,369
Construction in progress 12,112 9,852
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893,759 956,697
Less accumulated depreciation and amortization 544,984 593,153
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Net property and equipment 348,775 363,544
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Total assets $ 955,266 $1,018,523
========== ==========
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30,
2005 2006
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(unaudited)
Current liabilities:
Current maturities of long-term debt $ 958 $ 983
Accounts payable and accrued liabilities 118,285 131,772
Payable to affiliates 14,882 282
Income taxes 21,799 5,599
Deferred income taxes 4,136 775
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Total current liabilities 160,060 139,411
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Noncurrent liabilities:
Long-term debt 452,865 503,152
Deferred income taxes 19,265 20,514
Accrued pension costs 125,766 126,066
Other 15,434 16,766
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Total noncurrent liabilities 613,330 666,498
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Minority interest 75 80
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Stockholder's equity:
Common stock 297 297
Additional paid-in capital 1,944,185 1,944,185
Retained deficit (1,339,332) (1,326,320)
Notes receivable from affiliates (209,526) (209,526)
Accumulated other comprehensive loss:
Currency translation (130,178) (112,457)
Pension liabilities (83,645) (83,645)
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Total stockholder's equity 181,801 212,534
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Total liabilities, minority interest
and stockholders equity $ 955,266 $1,018,523
========== ==========
Commitments and contingencies (Notes 9 and 10)
See accompanying Notes to Condensed Consolidated Financial Statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
--------------------- ----------------------
2005 2006 2005 2006
---- ---- ---- ----
(unaudited)
Net sales $227,572 $248,509 $437,108 $457,145
Cost of sales 157,045 190,402 304,211 345,990
-------- -------- -------- --------
Gross margin 70,527 58,107 132,897 111,155
Selling, general and administrative expense 27,926 30,258 56,010 57,919
Other operating income (expense):
Currency transaction gains (losses), net 1,427 (1,927) 2,197 (3,134)
Disposition of property and equipment (113) (646) (147) (1,079)
Royalty income 1,913 1,900 3,415 4,053
Other income, net 76 49 112 57
-------- -------- -------- --------
Income from operations 45,904 27,225 82,464 53,133
Other income (expense):
Trade interest income 118 362 192 823
Other interest income - 830 - 830
Securities transaction gain 5,439 - 5,439 -
Interest income from affiliates 4,815 4,686 9,756 9,136
Loss on prepayment of debt - (22,311) - (22,311)
Interest expense (11,248) (12,472) (22,859) (22,775)
-------- -------- -------- --------
Income before income taxes and minority interest 45,028 (1,680) 74,992 18,836
Provision for income taxes (benefit) 16,498 (11,513) 28,220 (4,147)
Minority interest in after-tax earnings 3 3 7 5
-------- -------- -------- --------
Net income $ 28,527 $ 9,830 $ 46,765 $ 22,978
======== ======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six months ended June 30, 2005 and 2006
(In thousands)
2005 2006
---- ----
(Unaudited)
Net income $46,765 $22,978
Other comprehensive income, net of tax -
currency translation adjustment 5,907 17,721
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Comprehensive income $52,672 $40,699
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See accompanying Notes to Condensed Consolidated Financial Statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Six months ended June 30, 2006
(In thousands)
Accumulated other
Notes comprehensive loss
Additional receivable -------------------------- Total
Common paid-in Retained from Currency Pension stockholder's
stock capital deficit affiliates translation liabilities equity
(unaudited)
Balance at December 31, 2005 $ 297 $1,944,185 $(1,339,332) $(209,526) $(130,178) $(83,645) $181,801
Net income - - 22,978 - - - 22,978
Other comprehensive income - - - - 17,721 - 17,721
Dividends - - (9,966) - - - (9,966)
------ ---------- ----------- --------- --------- -------- --------
Balance at June 30, 2006 $ 297 $1,944,185 $(1,326,320) $(209,526) $(112,457) $(83,645) $212,534
====== ========== =========== ========= ========= ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2005 and 2006
(In thousands)
2005 2006
---- ----
(Unaudited)
Cash flows from operating activities:
Net income $ 46,765 $ 22,978
Depreciation and amortization 18,763 18,036
Loss on prepayment of debt - 22,311
Call premium paid on prepayment of debt - (20,898)
Noncash interest expense 1,379 1,066
Deferred income taxes 14,575 (8,160)
Minority interest 7 5
Net loss from disposition of property and equipment 147 1,079
Securities transaction gain (5,439) -
Defined benefit pension plan expense less than cash funding (1,187) 1,312
Other, net (1,523) (591)
Change in assets and liabilities:
Accounts and other receivables (32,669) (35,527)
Inventories (11,884) 16,889
Prepaid expenses (2,109) (418)
Accounts with affiliates (15,680) (16,503)
Accounts payable and accrued liabilities 4,179 6,856
Income taxes 4,414 (17,828)
Other, net (6,268) (993)
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Net cash provided by (used in) operating activities 13,470 (10,386)
-------- --------
Cash flows from investing activities:
Capital expenditures (10,399) (12,265)
Change in restricted cash, net 437 225
Proceeds from disposal of interest in
Norwegian smelting operation 3,542 -
Other, net 32 38
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Net cash used in investing activities (6,388) (12,002)
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Cash flows from financing activities:
Indebtedness -
Borrowings - 498,474
Principal payments (13,015) (470,594)
Deferred financing costs paid - (8,789)
Dividends paid - (9,966)
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Net cash provided by (used in) financing activities (13,015) 9,125
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Cash and cash equivalents - net change from:
Operating, investing and financing activities (5,933) (13,263)
Currency translation (1,145) 1,717
Cash and cash equivalents at beginning of period 17,505 63,284
-------- --------
Cash and cash equivalents at end of period $ 10,427 $ 51,738
======== ========
Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized $ 21,360 $ 14,765
Income taxes, net 9,153 22,364
Noncash investing activity - inventory received as partial
consideration for disposal of interest in Norwegian
smelting operation $ 1,897 $ -
See accompanying Notes to Condensed Consolidated Financial Statements.
KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(unaudited)
Note 1 - Organization and basis of presentation:
Organization - We are incorporated in the state of Delaware, U.S.A., with
our seat of management in Leverkusen, Germany. We are a wholly-owned subsidiary
of Kronos Worldwide, Inc. ("Kronos") (NYSE:KRO). At June 30, 2006, Valhi, Inc.
(NYSE: VHI) held approximately 59% of Kronos' outstanding common stock and NL
Industries, Inc. (NYSE:NL) held an additional 36% of Kronos' common stock. Valhi
owned approximately 83% of NL's outstanding common stock at June 30, 2006.
Approximately 92% of Valhi's outstanding common stock is held by Contran
Corporation and its subsidiaries. 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.
Consequently, Mr. Simmons may be deemed to control each of Contran, Valhi, NL,
Kronos and us.
Basis of presentation - The unaudited Condensed Consolidated Financial
Statements contained in this Quarterly Report have been prepared on the same
basis as the audited Consolidated Financial Statements in our Annual Report on
Form 10-K for the year ended December 31, 2005 that we filed with the Securities
and Exchange Commission ("SEC") on March 16, 2006 (the "2005 Annual Report"). In
our opinion, we have made all necessary adjustments (which include only normal
recurring adjustments) in order to state fairly, in all material respects, our
consolidated financial position, results of operations and cash flows as of the
dates and for the periods presented. We have condensed the Consolidated Balance
Sheet at December 31, 2005 contained in this Quarterly Report as compared to our
audited Consolidated Financial Statements at that date, and we have omitted
certain information and footnote disclosures (including those related to the
Consolidated Balance Sheet at December 31, 2005) normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP"). Our results of operations for the
interim periods ended June 30, 2006 may not be indicative of our operating
results for the full year. The Condensed Consolidated Financial Statements
contained in this Quarterly Report should be read in conjunction with our 2005
Consolidated Financial Statements contained in our 2005 Annual Report.
Unless otherwise indicated, references in this report to "we", "us" or
"our" refer to Kronos International, Inc. and its subsidiaries taken as a whole.
Note 2 - Accounts and other receivables, net:
December 31, June 30,
2005 2006
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(In thousands)
Trade receivables $ 110,268 $ 150,935
Recoverable VAT and other receivables 11,343 16,332
Allowance for doubtful accounts (1,429) (1,785)
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Total $ 120,182 $ 165,482
========= =========
Note 3 - Inventories, net:
December 31, June 30,
2005 2006
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(In thousands)
Raw materials $ 42,807 $ 36,517
Work in process 13,654 12,640
Finished products 98,004 93,848
Supplies 30,883 37,676
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Total $ 185,348 $ 180,681
========= =========
Note 4 - Accounts payable and accrued liabilities:
December 31, June 30,
2005 2006
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(In thousands)
Accounts payable $ 63,382 $ 63,258
Employee benefits 27,147 25,295
Interest 117 7,283
Other 27,639 35,936
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Total $ 118,285 $ 131,772
========= =========
Note 5 - Long-term debt:
December 31, June 30,
2005 2006
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(In thousands)
6.5% Senior Secured Notes $ - $ 499,354
8.875% Senior Secured Notes 449,298 -
Other 4,525 4,781
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Total debt 453,823 504,135
Less current maturities 958 983
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Total long-term debt $ 452,865 $ 503,152
========= =========
Senior Secured Notes - On April 11, 2006, we issued an aggregate of euro
400 million principal amount of new 6.5% Senior Secured Notes due April 2013, at
99.306% of their principal amount ($498.5 million when issued). These Senior
Secured Notes were issued pursuant to an indenture that contains covenants,
restrictions and collateral substantially identical to the covenants,
restrictions and collateral of the 8.875% Senior Secured Notes. On May 11, 2006,
we redeemed all of our 8.875% Senior Secured Notes at 104.437% of the aggregate
principal amount of euro 375 million for an aggregate of $491.4 million,
including the $20.9 million call premium. We used the proceeds from the 6.5%
Senior Secured Notes issued in April 2006 to fund the redemption. We recognized
a $22.3 million pre-tax interest charge in the second quarter related to the
prepayment of the 8.875% Senior Secured Notes, consisting of the call premium on
the notes and the write-off of deferred financing costs and unamortized premium
related to the notes.
Note 6 - Other noncurrent liabilities:
December 31, June 30,
2005 2006
------------ ----------
(In thousands)
Employee benefits $ 4,735 $ 6,197
Insurance claims and expenses 1,255 656
Asset retirement obligations 934 1,032
Other 8,510 8,881
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Total $ 15,434 $ 16,766
========= =========
Note 7 - 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,
------------------- -------------------
2005 2006 2005 2006
---- ---- ---- ----
(In thousands) (In thousands)
Service cost $1,523 $1,428 $3,139 $2,745
Interest cost 3,570 3,751 7,262 7,343
Expected return on plan assets (3,100) (2,783) (6,304) (5,444)
Amortization of prior service cost 122 84 248 165
Amortization of net transition obligations 77 60 158 118
Recognized actuarial losses 770 1,917 1,564 3,755
------ ------ ------ ------
Total $2,962 $4,457 $6,067 $8,682
====== ====== ====== ======
Contributions. We expect our 2006 contributions for our pension plans to be
consistent with the amount we disclosed in our 2005 Annual Report.
Note 8 - Accounts with affiliates:
December 31, June 30,
2005 2006
------------ ----------
(In thousands)
Current receivables from affiliates:
Kronos Canada Inc. $ 1,948 $ 3,929
Other 4 1
-------- --------
Total $ 1,952 $ 3,930
======== ========
Current payables to affiliates:
Kronos (US), Inc. $ 14,882 $ 282
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Total $ 14,882 $ 282
======== ========
Note 9 - Commitments and contingencies:
We and our affiliates are also involved in various environmental,
contractual, product liability, patent (or intellectual property), employment
and other claims and disputes incidental to our present and former operations.
In certain cases, we have insurance coverage for these items. We currently
believe the disposition of all claims and disputes, individually or in the
aggregate, should not have a material adverse effect on our consolidated
financial position, results of operations or liquidity.
Please refer to our 2005 Annual Report for a discussion of certain other
legal proceedings to which we are a party.
Note 10 - Provision for income taxes (benefit):
Six months ended
June 30,
-------------------------
2005 2006
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(In millions)
Expected tax expense $26.2 $ 6.6
Non-U.S. tax rates .1 (.5)
Nondeductible expenses 1.9 1.2
Resolutions of prior year income tax issues, net - (2.0)
Contingency reserve adjustment, net - (9.5)
Other, net - .1
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Total $28.2 $(4.1)
===== =====
Due to the favorable resolution of certain income tax issues related to our
German and Belgian operations during the first six months of 2006, we recognized
a $2 million income tax benefit ($1 million in the second quarter of 2006)
related to adjustments of prior year taxes.
Tax authorities are examining certain of our non-U.S. tax returns and have
or may propose tax deficiencies, including penalties and interest. For example:
o We previously received a preliminary tax assessment related to 1993
from the Belgian tax authorities proposing tax deficiencies, including
related interest, of approximately euro 6 million ($7.2 million at
June 30, 2006). The Belgian tax authorities filed a lien on the fixed
assets of our Belgian TiO2 operations in connection with their
assessment. This lien does not interfere with on-going operations at
the facility. We filed a protest to this assessment, and in July 2006
the Belgian tax authorities withdrew the assessment. We believe the
lien will be released by the end of 2006.
o The Norwegian tax authorities previously notified us of their intent
to assess tax deficiencies of approximately kroner 12 million ($2.4
million at June 30, 2006) relating to the years 1998 through 2000. We
objected to this proposed assessment, and in May 2006 the Norwegian
tax authorities withdrew the assessment.
Principally as a result of the withdrawal of the Belgian and Norwegian
assessments discussed above, we have recognized a $9.5 million income tax
benefit in the second quarter related to the reduction in our income tax
contingency reserve. Other income tax examinations related to our operations
continue, and we cannot guarantee that these tax matters will be resolved in our
favor due to the inherent uncertainties involved in settlement initiatives and
court and tax proceedings. We believe we have adequate accruals for additional
taxes and related interest expense which could ultimately result from tax
examinations. We believe the ultimate disposition of tax examinations should not
have a material adverse effect on our consolidated financial position, results
of operations or liquidity.
Note 11 - Recent accounting pronouncements:
Inventory costs - Statement of Financial Accounting Standards ("SFAS") No.
151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, became effective
for us for inventory costs incurred on or after January 1, 2006. SFAS No. 151
requires that the allocation of fixed production overhead costs to inventory be
based on normal capacity of the production facilities, as defined by SFAS No.
151. SFAS No. 151 also clarifies the accounting for abnormal amounts of idle
facility expense, freight handling costs and wasted material, requiring those
items be recognized as current-period charges. Our existing production cost
policies complied with the requirements of SFAS No. 151, therefore the adoption
of SFAS No. 151 did not affect our Consolidated Financial Statements.
Stock options - We adopted the fair value provisions of SFAS No. 123R,
"Share-Based Payment," on January 1, 2006, using the modified prospective
application method. SFAS No. 123R, among other things, requires the cost of
employee compensation paid with equity instruments to be measured based on the
grant-date fair value. That cost is then recognized over the vesting period.
Using the modified prospective method, we will apply the provisions of the
standard to all new equity compensation granted after January 1, 2006 and any
existing awards vesting after January 1, 2006. We have not issued any stock
options to purchase Kronos common stock. However, certain of our employees have
been granted options by NL to purchase NL common stock. The number of non-vested
equity awards issued by NL as of December 31, 2005 is not material. Prior to the
adoption of SFAS No. 123R we accounted for equity compensation in accordance
with APBO No. 25, Accounting for Stock Issued to Employees. Our NL affiliate
accounted for their equity awards under the variable accounting method whereby
the equity awards were revalued based on the current trading price at each
balance sheet date. We now account for these awards using the liability method
under SFAS No. 123R, which is substantially identical to the variable accounting
method we previously used. We recorded no material income or compensation
expense in the quarter ended June 30, 2006 for stock-based employee
compensation. We recorded income for stock-based employee compensation of
approximately $500,000 in the quarter ended June 30, 2005 and $500,000 and
$200,000 in the six months ended June 30, 2005 and 2006, respectively. If we
grant a significant number of equity awards or modify, repurchase or cancel
existing equity awards in the future, the amount of equity compensation expense
in our Consolidated Financial Statements could be material.
Effective January 1, 2006, SFAS No. 123R requires the cash income tax
benefit resulting from the exercise of stock options in excess of the cumulative
income tax benefit previously recognized for GAAP financial reporting purposes
to be reflected as a component of cash flows from financing activities in our
Consolidated Financial Statements. Because we account for these options to
purchase NL common stock under the liability method of SFAS No. 123R, the cash
income tax benefit resulting from the exercise of such stock options will always
be equal to the cumulative income tax benefit we would have previously
recognized for GAAP financial reporting purposes. SFAS No. 123R also requires
certain expanded disclosures regarding equity compensation, and we provided
these expanded disclosures in our 2005 Annual Report
Uncertain tax positions - In the second quarter of 2006 the Financial
Accounting Standards Board ("FASB") issued FASB Interpretation No. ("FIN") 48,
Accounting for Uncertain Tax Positions, which will become effective for us on
January 1, 2007. FIN No. 48 clarifies when and how much of a benefit we can
recognize in our Consolidated Financial Statements for certain positions taken
in our income tax returns under SFAS No. 109, Accounting for Income Taxes, and
enhances the disclosure requirements for our income tax policies and reserves.
Among other things, FIN No. 48 will prohibit us from recognizing the benefits of
a tax position unless we believe it is more-likely-than-not our position will
prevail with the applicable tax authorities and limits the amount of the benefit
to the largest amount for which we believe the likelihood of realization is
greater than 50%. FIN No. 48 also requires companies to accrue penalties and
interest on the difference between tax positions taken on their tax returns and
the amount of benefit recognized for financial reporting purposes under the new
Standard. Our current income tax accounting policies comply with this aspect of
the new Standard. We will also be required to reclassify any reserves we have
for uncertain tax positions from deferred income tax liabilities, where they are
currently recognized, to a separate current or noncurrent liability, depending
on the nature of the tax position. We are currently evaluating the impact of FIN
No. 48 on our Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
Business and results of operations overview
We are a leading global producer and marketer of value-added titanium
dioxide pigments ("TiO2"). TiO2 is used for a variety of manufacturing
applications, including plastics, paints, paper and other industrial products.
For the six months ended June 30, 2006, approximately three-fourths of our sales
volumes were attributable to markets in Europe. We believe we are the second
largest producer of TiO2 in Europe with an estimated 20% share of European TiO2
sales volumes. Our production facilities are located throughout Europe.
We reported net income of $9.8 million, in the second quarter of 2006 as
compared to net income of $28.5 million, in the second quarter of 2005. For the
first six months of 2006, we reported net income of $23.0 million, compared to
net income of $46.8 million, in the first six months of 2005. Our earnings
declined from the 2005 periods to the 2006 periods primarily due to the
unfavorable effect of lower income from operations in 2006, a gain from the sale
of our passive interest in a Norwegian smelting operation in 2005 and a charge
in the second quarter 2006 from the prepayment of our 8.875% Senior Secured
Notes more than offset the favorable effect of certain income tax benefits
recognized in 2006.
Our net income in the first six months of 2005 includes a second quarter
gain from the sale of our passive interest in a Norwegian smelting operation of
$5.4 million. Our net income in the first six months of 2006 includes (1) a
second quarter charge related to the redemption of our 8.875% Senior Secured
Notes of $22.3 million and (2) an aggregate income tax benefit of $11.5 million
($10.5 million for the second quarter of 2006) related to the withdrawal of
certain income tax assessments previously made by the Belgian and Norwegian tax
authorities and the favorable resolution of certain income tax issues related to
our German and Belgian operations.
Forward-looking information
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements in this Quarterly
Report on Form 10-Q that are not historical in nature are forward-looking in
nature about our future that are not statements of historical fact. Statements
in this report including, but not limited to, statements found in Item 2 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements that represent our beliefs and
assumptions based on currently available information. In some cases you can
identify these forward-looking statements by the use of words such as
"believes," "intends," "may," "should," "could," "anticipates," "expected" or
comparable terminology, or by discussions of strategies or trends. Although we
believe the expectations reflected in forward-looking statements are reasonable,
we do not know if these expectations will be correct. Forward-looking statements
by their nature involve substantial risks and uncertainties that could
significantly impact expected results. Actual future results could differ
materially from those predicted. While it is not possible to identify all
factors, we continue to face many risks and uncertainties. Among the factors
that could cause our actual future results to differ materially from those
described herein are the risks and uncertainties discussed in this Quarterly
Report and those described from time to time in our other filings with the SEC
including, but not limited to, the following:
o Future supply and demand for our products,
o The extent of our dependence on certain market sectors,
o The cyclicality of our businesses,
o Customer inventory levels (such as the extent to which our 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 The introduction of trade barriers,
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, natural disasters, fires, explosions, unscheduled or
unplanned downtime and transportation interruptions),
o The timing and amounts of insurance recoveries,
o Our ability 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 forecasted or expected. We
disclaim any intention or obligation to update or revise any forward-looking
statement whether as a result of changes in information, future events or
otherwise.
Results of operations
We consider TiO2 to be a "quality of life" product, with demand affected by
gross domestic product (or "GDP") in various regions of the world. Over the
long-term, we expect that demand for TiO2 will grow by 2% to 3% per year,
consistent with our expectations for the long-term growth in GDP. However, even
if we and our competitors maintain consistent shares of the worldwide market,
demand for TiO2 in any interim or annual period may not change in the same
proportion as the change in GDP, in part due to relative changes in the TiO2
inventory levels of our customers. We believe that our customers' inventory
levels are partly influenced by their expectation for future changes in market
TiO2 selling prices.
The factors having the most impact on our reported operating results are:
o Our TiO2 average selling prices,
o Foreign currency exchange rates (particularly the exchange rate for
the U.S. dollar relative to the euro),
o Our TiO2 sales and production volumes, and
o Manufacturing costs particularly maintenance and energy-related
expenses.
Our key performance indicators are our TiO2 average selling prices, and our
level of TiO2 sales and production volumes.
Quarter ended June 30, 2005 compared to the
quarter ended June 30, 2006 -
Three months ended
June 30,
-------------------------------------------
2005 2006
----------------- ------------------
(Dollars in millions)
Net sales $227.6 100% $248.5 100%
Cost of sales 157.0 69% 190.4 77%
------ ---- ------ ----
Gross margin 70.6 31% 58.1 23%
Other operating income and costs, net 24.7 11% 30.9 12%
------ ---- ------ ----
Income from operations $ 45.9 20% $ 27.2 11%
====== ==== ====== ====
%
Change
TiO2 operating statistics:
Sales volumes* 86 98 +14%
Production volumes* 86 89 +3%
Percent change in net sales:
TiO2 product pricing -2%
TiO2 sales volumes +14%
TiO2 product mix -1%
Changes in currency exchange rates -2%
----
Total +9%
====
* Thousands of metric tons
Net sales - Net sales increased 9% or $20.9 million compared to the second
quarter of 2005 primarily due to a 14% increase in TiO2 sales volumes. The
benefit of higher sales volumes was offset somewhat by a 2% decrease in average
TiO2 selling prices and the impact of currency exchange rates. We estimate the
unfavorable effect of changes in currency exchange rates decreased our net sales
by approximately $5 million, or 2%, compared to the same period in 2005. We
expect selling prices to remain stable in the second half of 2006 compared to
the second quarter of 2006.
Our 14% increase in sales volume in the second quarter of 2006 is primarily
due to higher sales volumes in Europe and export markets. We expect overall
demand will continue to remain high for the remainder of the year.
Cost of sales - Cost of sales increased $33.4 million or 21% in the second
quarter of 2006 compared to 2005 primarily due to the impact of increased sales
volumes and higher operating costs (including energy costs). The cost of sales
as a percentage of net sales increased to 77% in the second quarter of 2006
compared to 69% in the second quarter of 2005 primarily due to increases in raw
material and other operating costs (including energy costs).
The negative impact of the increase in raw materials and energy costs was
somewhat offset by record production levels. TiO2 production volumes increased
3% in the second quarter of 2006 compared to the same period in 2005, which
favorably impacted our operating income comparisons. We continued to gain
operational efficiencies at our existing TiO2 facilities by debottlenecking
production to meet long-term demand. Our operating rates were near full capacity
in both periods, and we set a new production volume record in the second quarter
of 2006.
Through our debottlenecking program, we added finishing capacity in the
German chloride-process facility and also equipment upgrades and enhancements in
several locations have allowed us to reduce downtime for maintenance activities.
Our production capacity has increased by approximately 25% over the past ten
years with only moderate capital expenditures. We believe our annual attainable
TiO2 production capacity for 2006 is approximately 345,000 metric tons, with
some additional capacity expected to be available in 2007 through our continued
debottlenecking efforts.
Income from operations - Income from operations for the second quarter of
2006 declined by 41% to $27.2 million compared to the same period in 2005 and as
a percentage of net sales, income from operations declined to 11% in the second
quarter of 2006 from 20% in the same period for 2005. This decrease is driven by
the decline in gross margin, which fell to 23% in 2006 compared to 31% in 2005.
Our gross margin decrease is due to lower selling prices for TiO2, the increases
we experienced in raw materials and energy costs in 2006, as well as the
negative effect of changes in currency exchange rates, partially offset by the
higher sales and production volumes. We estimate the negative effect of changes
in foreign currency exchange rates decreased income from operations by
approximately $7 million. We expect income from operations for the second half
of 2006 will continue to be lower than the second half of 2005.
Other non-operating income (expense) - In April 2006, we issued our euro
400 million principal amount of 6.5% Senior Secured Notes, and used the proceeds
to redeem our euro 375 million principal amount of 8.875% Senior Secured Notes.
As a result of our prepayment of the 8.875% Senior Secured Notes, we recognized
a $22.3 million pre-tax interest charge ($14.8 million net of income tax
benefit) in the second quarter of 2006 for the prepayment of the notes,
representing (1) the call premium on the notes, (2) the write-off of deferred
financing costs and (3) the write-off of the existing unamortized premium on the
old Notes. See Note 5 to the Condensed Consolidated Financial Statements. Annual
interest expense on the new 6.5% Senior Secured Notes will be approximately euro
6 million less than on the old 8.875% Senior Secured Notes.
Interest expense increased $1.3 million from $11.2 million in the second
quarter of 2005 to $12.5 million in the second quarter of 2006 due primarily to
the 8.875% Senior Secured Notes and the 6.5% Senior Secured Notes both being
outstanding for 30 days during the quarter. This additional interest expense was
partially offset by changes in currency exchange rates in 2006 compared to 2005.
Excluding the effect of currency exchange rates, we expect interest expense will
be lower in second half of 2006 as compared to the first half of 2006.
We have a significant amount of indebtedness denominated in the euro,
primarily the Senior Secured Notes. The interest expense we recognize will vary
with fluctuations in the euro exchange rate.
Provision for income taxes (benefit) - An income tax benefit of $11.5
million was recorded in the second quarter of 2006 compared to an expense of
$16.5 million in the same period last year. The income tax benefit in 2006 is
primarily due to a $9.5 million reduction in our income tax contingency reserves
related to favorable developments with income tax audits for our Belgian and
Norwegian operations, a $1 million benefit associated with favorable
developments with certain income tax issues related to our Belgian operations.
See Note 10 to the Condensed Consolidated Financial Statements.
Six months ended June 30, 2005 compared to the
six months ended June 30, 2006 -
Three months ended
June 30,
-------------------------------------------
2005 2006
----------------- ------------------
(Dollars in millions)
Net sales $437.1 100% $457.1 100%
Cost of sales 304.2 70% 346.0 76%
------ ---- ------ ----
Gross margin 132.9 30% 111.1 24%
Other operating income and costs, net 50.4 11% 58.0 13%
------ ---- ------ ----
Income from operations $ 82.5 19% $ 53.1 11%
====== ==== ====== ====
%
Change
-------
TiO2 operating statistics:
Sales volumes* 162 181 +12%
Production volumes* 167 174 +4%
Percent change in net sales:
TiO2 product pricing -1%
TiO2 sales volumes +12%
TiO2 product mix -1%
Changes in currency exchange rates -5%
----
Total +5%
====
* Thousands of metric tons
Net sales - Net sales increased 5% or $20 million compared to the six
months ended June 30, 2005, primarily due to a 12% increase in TiO2 sales
volumes, offset somewhat by the impact of currency exchange rates. We estimate
the unfavorable effect of changes in currency exchange rates decreased our net
sales by approximately $22 million, or 5%, compared to the same period in 2005.
Our 12% increase in sales volume in the six months ended June 30, 2006 is
primarily due to higher sales volumes in Europe and export markets.
Cost of sales - Cost of sales increased $41.8 million or 14% in the six
months ended June 30, 2006, compared to the same period in 2005, primarily due
to the impact of increased sales volumes and higher operating costs (including
energy costs). The cost of sales percentage of net sales increased to 76% in the
six months ended June 30, 2006, compared to 70% in the same period of 2005
primarily due to increases in higher raw material and other operating costs
(including energy costs).
The negative impact of the increase in raw materials and energy costs was
somewhat offset by record production levels. TiO2 production volumes increased
4% in the six months ended June 30, 2006 compared to the same period in 2005,
which favorably impacted our income from operations comparisons. Our operating
rates were near full capacity in both periods. Production volume was a record
aided by our continuing debottlenecking efforts.
Income from operations - Income from operations for the six months ended
June 30, 2006 declined by 36% to $53.1 million compared to the same period in
2005, the income from operations as a percentage of net sales declined to 11% in
the six months ended June 30, 2006 from 19% in the same period for 2005. The
decline in income from operations is driven by the decline in gross margin,
which fell to 24% in 2006 compared to 30% in 2005 due primarily to the increases
we experienced in raw materials and energy costs in 2006, as well as the
negative effect of changes in currency exchange rates, partially offset by the
higher sales and production volumes. We estimate the negative effect of changes
in foreign currency exchange rates decreased income from operations by
approximately $10 million.
Other non-operating income (expense) - Interest expense remained constant
at $22.8 million for the six months ended June 30, 2005 compared to the same
period in 2006. The increase in interest expense due to the 8.875% Senior
Secured Notes and the 6.5% Senior Secured Notes both being outstanding for 30
days during the six months ended June 30, 2006 was offset by changes in currency
exchange rates in 2006 compared to 2005.
Provision for income taxes (benefit) - An income tax benefit of $4.1
million was recorded in the first six months of 2006 compared to income tax
expense of $28.2 million in the same period last year. The income tax benefit in
2006 is primarily due to a $9.5 million reduction in our income tax, contingency
reserves related to favorable developments with income tax audits for our
Belgian and Norwegian operations, a $2 million benefit associated with favorable
developments with certain income tax issues related to our Belgian and German
operations. Our tax rate varies as the mix of earnings contributed by our
various subsidiaries changes. See Note 10 to the Condensed Consolidated
Financial Statements for a tabular reconciliation of the statutory tax expense
to our actual tax benefit.
Currency exchange
We have substantial operations and assets located outside the United States
(primarily in Germany, Belgium and Norway). The majority of our sales are
denominated in foreign currencies, primarily the euro and other major European
currencies. A portion of our sales generated from our operations are denominated
in the U.S. dollar. Certain raw materials used worldwide, primarily
titanium-containing feedstocks, are purchased in U.S. dollars, while labor and
other production costs are purchased primarily in local currencies. As a result,
the translated U.S. dollar value of our 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 foreign currency exchange rates had the
following effects on our sales and income from operations in 2006 as compared to
2005.
Three months ended Six months ended
June 30, 2006 June 30, 2006
vs. 2005 vs. 2005
------------------ ----------------
Increase (decrease), in millions
----------------------------------------------
Impact on:
Net sales $ (5) $(22)
Income from operations (7) (10)
Outlook
We expect income from operations for the second half of 2006 will be lower
than the second half of 2005. Our expectations as to the future of the TiO2
industry are based upon a number of factors beyond our 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 our expectations, our results of
operations could be unfavorably affected.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash flows
Operating activities
Trends in cash flows as a result of our operating activities (excluding the
impact of significant asset dispositions and relative changes in assets and
liabilities) are generally similar to trends in our earnings.
Our cash flows from operating activities provided $13.5 million in the
first six months of 2005, compared to $10.4 million used in the first six months
of 2006. This decrease was due primarily to the net effects of the following
items:
o Lower income from operations in 2006 of $29.3 million;
o Payment of the $20.9 million call premium as a result of the May 2006
prepayment of our 8.875% Senior Secured Notes
o Higher cash paid for income taxes in 2006 of $13.2 million; and
o Lower cash paid for interest in 2006 of $6.6 million, primarily as a
result of the May 2006 redemption of our 8.875% Senior Secured Notes
(which paid interest semiannually in June and December) and the April
2006 issuance of our 6.5% Senior Secured Notes (which will pay
interest semiannually in April and October);
o A lower amount of net cash used from relative changes in our
inventories, receivables, payables and accruals of $11.6 million in
the first six months of 2006 as compared to the first six months of
2005.
Changes in working capital were affected by accounts receivable and
inventory changes. Our average days sales outstanding ("DSO") increased from 52
days at December 31, 2005 to 60 days at June 30, 2006 due to the timing of
collection on higher accounts receivable balances at the end of June. For
comparative purposes, our average DSO remained constant at 58 days, from
December 31, 2004 to June 30, 2005. Our average days sales in inventory ("DSI")
decreased from 105 days at December 31, 2005 to 85 days at June 30, 2006, as our
strong TiO2 sales volumes in the first six months of 2006 exceeded our strong
TiO2 production volumes during such period by approximately 7,000 metric tons.
For comparative purposes, our TiO2 production volumes were higher than our TiO2
sales volumes in the first six months of 2005, and our average DSI decreased
from 99 days at December 31, 2004 to 93 days at June 30, 2005.
Investing activities
Capital expenditures were $10.4 million and $12.3 million in the six months
ended June 30, 2005 and 2006, respectively. Capital expenditures are primarily
for improvements and upgrades to existing facilities.
Financing activities
In the second quarter of 2006 we redeemed our euro 375 million principal
amount of 8.875% Senior Secured Notes ($470.5 million when redeemed) and issued
euro 400 million principal amount of 6.5% Senior Secured Notes at 99.306%
($498.5 million when issued). See Note 5 to the Condensed Consolidated Financial
Statements.
We paid a dividend of $10 million in the second quarter of 2006.
Outstanding debt obligations
At June 30, 2006, our consolidated debt was comprised of:
o euro 400 million principal amount of 6.5% Senior Secured Notes ($499.4
million at June 30, 2006) due in 2013; and
o Approximately $4.8 million of other indebtedness
Certain of our credit agreements contain provisions which could result in
the acceleration of indebtedness prior to its stated maturity for reasons other
than defaults for failure to comply with certain financial covenants. For
example, certain credit agreements allow the lender to accelerate the maturity
of the indebtedness upon a change of control (as defined in the agreement) of
the borrower. In addition, certain credit agreements could result in the
acceleration of all or a portion of the indebtedness following a sale of assets
outside the ordinary course of business. We are in compliance with all of our
debt covenants at June 30, 2006. See Note 5 to the Condensed Consolidated
Financial Statements.
Our assets consist primarily of investments in operating subsidiaries, and
our ability to service parent level obligations, including the Senior Secured
Notes, depends in large part upon the distribution of earnings of our
subsidiaries, whether in the form of dividends, advances or payments on account
of intercompany obligation or otherwise. None of our subsidiaries have
guaranteed the Senior Secured Notes, although we have pledged 65% of the common
stock or other ownership interests of certain of our first-tier operating
subsidiaries as collateral of the Senior Secured Notes.
Future cash requirements
Liquidity
Our primary source of liquidity on an ongoing basis is cash flows from
operating activities. From time-to-time we will incur indebtedness, generally to
(i) fund short-term working capital needs, (ii) refinance existing indebtedness
or (iii) fund major capital expenditures or the acquisition of other assets
outside the ordinary course of business. We will also from time-to-time sell
assets outside the ordinary course of business, the proceeds of which are
generally used to (i) repay existing indebtedness, (ii) make investments in
marketable and other securities, (iii) fund major capital expenditures or the
acquisition of other assets outside the ordinary course of business or (iv) pay
dividends.
Pricing within the TiO2 industry is cyclical, and changes in industry
economic conditions significantly impact earnings and operating cash flows.
Changes in TiO2 pricing, production volumes and customer demand, among other
things, could significantly affect our liquidity.
We periodically evaluate our liquidity requirements, alternative uses of
capital, capital needs and availability of resources in view of, among other
things, our dividend policy, our debt service and capital expenditure
requirements and estimated future operating cash flows. As a result of this
process, we have in the past and may in the future seek to reduce, refinance,
repurchase or restructure indebtedness, raise additional capital, repurchase
shares of our common stock, modify our dividend policy, restructure ownership
interests, sell interests in our subsidiaries or other assets, or take a
combination of these steps or other steps to manage our liquidity and capital
resources. Such activities have in the past and may in the future involve
related companies.
At June 30, 2006, unused credit available under all of our existing credit
facilities was approximately $98 million. Based upon our expectation for the
TiO2 industry and anticipated demands on cash resources, we expect to have
sufficient liquidity to meet our future obligations including operations,
capital expenditures, debt service and current dividend policy. If actual
developments differ from our expectations, our liquidity could be adversely
affected.
Capital expenditures
We intend to spend approximately $40 million for major improvements and
upgrades to our existing facilities during 2006, including the $12.3 million we
spent though June 30, 2006.
Off-balance sheet financing
We do not have any off-balance sheet financing agreements other than the
operating leases discussed in our 2005 Annual Report.
Commitments and contingencies
See Notes 9 and 10 to the Condensed Consolidated Financial Statements for a
description of certain legal proceedings and income tax examinations currently
underway.
Recent accounting pronouncements
See Note 11 to the Condensed Consolidated Financial Statements.
Critical accounting policies
For a discussion of our critical accounting policies, refer to Part I, Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our 2005 Annual Report. There have been no changes in our
critical accounting policies during the first six months of 2006.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk, including foreign currency exchange rates,
interest rates and security prices. For a discussion of such market risk items,
refer to Part I, Item 7A, "Quantitative and Qualitative Disclosure About Market
Risk" in our 2005 Annual Report. There have been no material changes in these
market risks during the first six months of 2006.
We have substantial operations located outside the United States for which
the functional currency is not the U.S. dollar. As a result, the reported
amounts of our assets and liabilities related to our non-U.S. operations, and
therefore our consolidated net assets, will fluctuate based upon changes in
currency exchange rates.
We periodically use currency forward contracts to manage a very nominal
portion of foreign exchange rate risk associated with trade receivables
denominated in a currency other than the holder's functional currency or similar
exchange rate risk associated with future sales. We have not entered into these
contracts for trading or speculative purposes in the past, nor do we currently
anticipate entering into such contracts for trading or speculative purposes in
the future.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
We maintain 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
we are required to disclose in the reports we file or submit to the SEC under
the Act is accumulated and communicated to our management, including our
principal executive officer and our principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions to be
made regarding required disclosure. Each of Harold C. Simmons, our Chief
Executive Officer, and Gregory M. Swalwell, our Vice President, Finance and
Chief Financial Officer, have evaluated the design and effectiveness of our
disclosure controls and procedures as of June 30, 2006. Based upon their
evaluation, these executive officers have concluded that our disclosure controls
and procedures are effective as of June 30, 2006.
Internal control over financial reporting
We also maintain internal control 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, our principal
executive and principal financial officers, or persons performing similar
functions, and effected by our 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 our
assets,
o Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with GAAP, and that our receipts and expenditures are being made only
in accordance with authorizations of our management and directors, and
o Provide reasonable assurance regarding prevention or timely detection
of an unauthorized acquisition, use or disposition of our assets that
could have a material effect on our Condensed Consolidated Financial
Statements.
As permitted by the SEC, our assessment of internal control over financial
reporting excludes (i) internal control over financial reporting of its equity
method investees and (ii) internal control over the preparation of our financial
statement schedules required by Article 12 of Regulation S-X.
Changes in internal control over financial reporting
There has been no change to our internal control over financial reporting
during the quarter ended June 30, 2006 that has materially affected, or is
reasonably likely to materially affect, the internal control over financial
reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 9 of the Condensed Consolidated Financial Statements and to
the 2005 Annual Report for descriptions of certain legal proceedings.
Item 1A. Risk Factors
For a discussion of the risk factors related to our businesses, refer to
Part I, Item 1A., "Risk Factors," in our 2005 Annual report. There have been no
material changes to such risk factors during the six months ended June 30, 2006.
Item 6. Exhibits
31.1 - Certification
31.2 - Certification
32.1 - Certification
We have retained a signed original of any of the above exhibits that
contains signatures, and will provide such exhibit to the Commission or its
staff upon request. We will also furnish, without charge, a copy of Kronos' Code
of Business Conduct and Ethics, Audit Committee Charter and Corporate Governance
Guidelines, each as adopted by Kronos' board of directors, upon request.
Requests should be directed to the attention of the Corporate Secretary at our
corporate offices located at 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240.
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 4, 2006 By /s/ Gregory M. Swalwell
-------------- -----------------------------
Gregory M. Swalwell
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Date August 4, 2006 By /s/ Tim C. Hafer
-------------- -----------------------------
Tim C. Hafer
Vice President and Controller
(Principal Accounting Officer)