Kronos(KRO) - 2020 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements Kronos Worldwide reported decreased Q1 2020 net income and total assets, a shift to negative operating cash flow, and anticipates future COVID-19 impacts Condensed Consolidated Balance Sheets Total assets and liabilities decreased, leading to a decline in total stockholders' equity from year-end 2019 to Q1 2020 Condensed Consolidated Balance Sheet Highlights (In millions) | Account | Dec 31, 2019 | Mar 31, 2020 (unaudited) | | :--- | :--- | :--- | | Total Current Assets | $1,219.7 | $1,163.4 | | Total Assets | $1,965.8 | $1,874.8 | | Total Current Liabilities | $270.6 | $231.2 | | Total Liabilities | $1,149.7 | $1,092.5 | | Total Stockholders' Equity | $816.1 | $782.3 | | Total Liabilities and Stockholders' Equity | $1,965.8 | $1,874.8 | Condensed Consolidated Statements of Income Net income decreased in Q1 2020 due to lower net sales and gross margin, despite a positive currency transaction gain Condensed Consolidated Statements of Income (In millions, except per share data) | Metric | Q1 2019 | Q1 2020 | | :--- | :--- | :--- | | Net sales | $436.5 | $421.0 | | Gross margin | $109.3 | $88.1 | | Income from operations | $49.0 | $43.5 | | Net income | $30.3 | $27.0 | | Net income per share | $0.26 | $0.23 | Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive loss in Q1 2020, a significant reversal from prior year's income, primarily driven by a net loss from currency translation Comprehensive Income (Loss) (In millions) | Metric | Q1 2019 | Q1 2020 | | :--- | :--- | :--- | | Net income | $30.3 | $27.0 | | Other comprehensive income (loss), net | $2.1 | $(39.0) | | Comprehensive income (loss) | $32.4 | $(12.0) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased in Q1 2020 due to a comprehensive loss and dividend payments, partially offset by net income - Dividends of $0.18 per share were paid in Q1 2020, totaling $20.8 million[18] - The company acquired $1.0 million of its common stock as treasury stock during Q1 2020[18] Condensed Consolidated Statements of Cash Flows Operating cash flow shifted to a net use in Q1 2020 due to working capital changes, while investing and financing cash flows remained relatively stable Net Cash Flow Summary (In millions) | Activity | Q1 2019 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $7.0 | $(9.8) | | Net cash used in investing activities | $(17.5) | $(13.8) | | Net cash used in financing activities | $(21.0) | $(21.9) | | Net change in Cash | $(31.5) | $(45.5) | Notes to Condensed Consolidated Financial Statements The notes detail ownership, presentation, and disaggregated net sales, noting the adoption of ASU 2019-12 and the expected negative impact of the COVID-19 pandemic - At March 31, 2020, Valhi, Inc. held approximately 50% and an NL Industries, Inc. subsidiary held 30% of the company's outstanding common stock[25] Net Sales by Point of Destination (In millions) | Region | Q1 2019 | Q1 2020 | | :--- | :--- | :--- | | Europe | $215.2 | $214.5 | | North America | $146.8 | $132.3 | | Other | $74.5 | $74.2 | | Total | $436.5 | $421.0 | - The CARES Act provided a $0.5 million cash tax benefit in Q1 2020 from the reversal of a valuation allowance on disallowed interest expense[47] - The COVID-19 pandemic is expected to result in lower sales and earnings for the remainder of 2020, with the full extent of impact uncertain[56] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2020 net income decline to lower sales volumes and higher costs, anticipates negative COVID-19 impacts, but maintains strong liquidity Results of Operations Income from operations decreased in Q1 2020 due to lower TiO2 sales volumes and gross margin, partially offset by favorable currency exchange rates TiO2 Operating Statistics (Thousands of metric tons) | Metric | Q1 2019 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Sales volumes | 143 | 136 | (5)% | | Production volumes | 134 | 132 | (1)% | - Net sales decreased by 4% ($15.5 million), primarily due to a 5% decrease in sales volumes, with comparable average TiO2 selling prices year-over-year[69] - Currency exchange rate changes decreased net sales by approximately $7 million but increased income from operations by approximately $11 million in Q1 2020[71][74][79] Outlook Management anticipates lower sales and earnings for the remainder of 2020 due to COVID-19, despite essential operations, with the full impact remaining uncertain - The company's manufacturing facilities are designated as essential businesses and remain open, operating at near planned capacities[82] - Due to COVID-19's global economic impact, the company expects lower sales and earnings than originally planned for 2020[84] - The company maintains sufficient liquidity with over $341 million in cash and over $200 million in available credit, prepared for cash-saving strategies if needed[81][86] Liquidity and Capital Resources The company maintains strong liquidity with substantial cash and credit, despite negative operating cash flow in Q1 2020, and plans approximately $60 million in capital expenditures - Cash used in operating activities was $9.8 million in Q1 2020, a $16.8 million decrease from cash provided of $7.0 million in Q1 2019[88] Key Working Capital Metrics | Metric | Dec 31, 2019 | Mar 31, 2020 | | :--- | :--- | :--- | | DSO (Days Sales Outstanding) | 71 days | 69 days | | DSI (Days Sales in Inventory) | 83 days | 66 days | - At March 31, 2020, the company had $342.9 million in cash and access to approximately $216.2 million in available credit[98] - The company plans to invest approximately $60 million in capital expenditures during 2020[99] Quantitative and Qualitative Disclosure About Market Risk No material changes in the company's exposure to market risks, including currency, interest rates, equity, and commodity prices, have occurred since the 2019 Annual Report - There have been no material changes to the company's market risk exposures, including currency, interest rates, and commodity prices, since the 2019 Annual Report[105] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during Q1 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[106] - No material changes to internal control over financial reporting occurred during Q1 2020[109] Part II. OTHER INFORMATION Legal Proceedings The company has not accrued for litigation matters, believing a material loss is not reasonably possible, as detailed in Note 13 and the 2019 Annual Report - The company has not accrued amounts for litigation matters, as a material loss is not reasonably possible[52][112] Risk Factors No material changes to the company's risk factors have occurred during the first quarter of 2020 since the 2019 Annual Report - There have been no material changes to the company's risk factors during the first quarter of 2020[113] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 122,489 shares of common stock for approximately $1.0 million in Q1 2020, with 1,563,519 shares remaining available for repurchase Common Stock Purchases - Q1 2020 | Period | Total Shares Purchased | Average Price Paid | Shares Remaining for Repurchase | | :--- | :--- | :--- | :--- | | March 2020 | 122,489 | $8.00 | 1,563,519 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Filed exhibits include CEO and CFO certifications under Sarbanes-Oxley and XBRL data files[116]