Kronos(KRO) - 2020 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements This section presents Kronos Worldwide, Inc.'s unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2020, reflecting the COVID-19 pandemic's impact Condensed Consolidated Balance Sheets As of September 30, 2020, total assets decreased slightly to $1.947 billion, primarily due to reduced cash, while total liabilities increased and equity decreased Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Dec 31, 2019 | Sep 30, 2020 (unaudited) | | :--- | :--- | :--- | | Total Current Assets | $1,219.7 | $1,188.7 | | Total Assets | $1,965.8 | $1,946.9 | | Total Current Liabilities | $270.6 | $235.5 | | Total Liabilities | $1,149.7 | $1,145.2 | | Total Stockholders' Equity | $816.1 | $801.7 | Condensed Consolidated Statements of Income Net income significantly decreased in Q3 2020 to $8.1 million and for the nine months to $53.7 million, driven by lower net sales and gross margin Income Statement Summary (in millions, except per share data) | Metric | Q3 2019 | Q3 2020 | Nine Months 2019 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $437.4 | $416.9 | $1,358.4 | $1,223.9 | | Gross Margin | $87.7 | $80.6 | $306.5 | $264.5 | | Income from Operations | $33.1 | $19.3 | $128.6 | $95.8 | | Net Income | $17.9 | $8.1 | $77.7 | $53.7 | | Net Income per Share | $0.16 | $0.07 | $0.67 | $0.46 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities sharply decreased to $56.1 million for the first nine months of 2020, primarily due to lower net income and working capital changes Cash Flow Summary (Nine months ended Sep 30, in millions) | Cash Flow Activity | 2019 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $123.8 | $56.1 | | Net cash used in investing activities | $(39.2) | $(36.8) | | Net cash used in financing activities | $(66.1) | $(63.6) | | Net change in cash | $18.5 | $(44.3) | - The financial statements have been prepared on the same basis as the audited statements in the 2019 Annual Report on Form 10-K, with all necessary normal recurring adjustments made for fair presentation[25] - Operating results for the first nine months of 2020 were significantly impacted by the COVID-19 pandemic, primarily through reduced product demand due to the global economic contraction[26] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, attributing lower net income in Q3 and the first nine months of 2020 to reduced sales volumes and lower TiO2 selling prices due to the COVID-19 pandemic Results of Operations Net sales decreased 5% in Q3 and 10% year-to-date 2020, driven by lower sales volumes and average TiO2 selling prices, leading to reduced production capacity utilization Q3 2020 vs Q3 2019 Performance | Metric | Q3 2019 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $437.4M | $416.9M | (5)% | | Income from Operations | $33.1M | $19.3M | (42)% | | Sales Volumes (k metric tons) | 144 | 136 | (6)% | | Production Volumes (k metric tons) | 136 | 122 | (11)% | Nine Months 2020 vs 2019 Performance | Metric | Nine Months 2019 | Nine Months 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,358.4M | $1,223.9M | (10)% | | Income from Operations | $128.6M | $95.8M | (26)% | | Sales Volumes (k metric tons) | 445 | 396 | (11)% | | Production Volumes (k metric tons) | 406 | 387 | (5)% | - The decrease in Q3 2020 net sales was primarily due to a 6% decrease in sales volumes and a 4% decrease in average TiO2 selling prices[67] - Production capacity utilization rates decreased significantly in the third quarter of 2020 to 86%, compared to 97% in the same period of 2019, as the company aligned production with lower demand[63][64] Effects of Currency Exchange Rates Currency fluctuations had a mixed impact, increasing Q3 2020 net sales by $7 million but decreasing income from operations by $5 million, with varied effects year-to-date Impact of Currency Exchange Rates (in millions) | Period | Impact on Net Sales | Impact on Income from Operations | | :--- | :--- | :--- | | Q3 2020 vs Q3 2019 | +$7 | -$5 | | 9M 2020 vs 9M 2019 | -$4 | +$6 | Outlook The company anticipates continued negative impact from COVID-19 on sales and earnings for the remainder of 2020, while managing hurricane-related disruptions at its LPC joint venture - The company expects sales volumes and earnings for the rest of 2020 to remain lower than 2019 due to the ongoing impact of COVID-19 on the global economy[94] - The company believes it has sufficient liquidity, with $348 million in cash and $231 million in available credit, to navigate the uncertainty and is prepared to implement cash-saving strategies if needed[95] - The Louisiana Pigment Company (LPC) facility, a 50%-owned joint venture, experienced temporary production halts due to Hurricanes Laura and Delta, with most losses expected to be covered by insurance[96] Liquidity and Capital Resources Cash from operations decreased to $56.1 million for the first nine months of 2020, but the company maintains sufficient liquidity with $353.9 million in cash and $231 million in available credit - Cash from operating activities decreased by $67.7 million in the first nine months of 2020 compared to 2019, primarily due to lower income from operations and higher cash used for working capital[98] - Capital expenditures for the first nine months of 2020 were $38.3 million, with projected total 2020 capital expenditures of approximately $60 million[101][112] - At September 30, 2020, total available liquidity included $353.9 million in cash and approximately $231 million in borrowing capacity under its North American and European credit facilities[111] - During the first nine months of 2020, the company paid $62.4 million in dividends and repurchased $1.0 million of its common stock[103][104] - The company identifies TiO2 selling prices, sales and production volumes, manufacturing costs (especially feedstock and energy), and currency exchange rates as the key factors impacting operating results[56][58] - Net income for Q3 2020 was $8.1 million, down from $17.9 million in Q3 2019, and for the first nine months of 2020, it was $53.7 million, compared to $77.7 million in the prior-year period, attributed to lower sales volumes and prices due to the COVID-19 pandemic[57] Quantitative and Qualitative Disclosure About Market Risk No material changes in market risk exposure, including currency, interest rates, equity, and raw material prices, have occurred since the 2019 Annual Report filing - There have been no material changes in market risks (currency, interest rates, equity, raw materials) since the 2019 Annual Report[118] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[119] - No changes to internal control over financial reporting occurred during the third quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the company's internal controls[123] Part II. OTHER INFORMATION Legal Proceedings This section refers to Note 13 of the financial statements and the 2019 Annual Report for details on legal proceedings - For information on legal proceedings, the report refers to Note 13 of the financial statements and the 2019 Annual Report[126] Risk Factors No material changes to the company's risk factors have occurred during the nine months ended September 30, 2020, since the 2019 Annual Report - There have been no material changes to the company's risk factors during the first nine months of 2020[127] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - The exhibits filed with the report include officer certifications and Inline XBRL data files[128]