Kronos(KRO) - 2021 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements Presents Kronos Worldwide's unaudited financial statements as of September 30, 2021, showing significant increases in net income and operating cash flow Condensed Consolidated Balance Sheets Total assets slightly decreased to $2,004.5 million by September 30, 2021, with liabilities decreasing and stockholders' equity increasing Condensed Consolidated Balance Sheet Highlights (In millions) | Balance Sheet Item | Dec 31, 2020 | Sep 30, 2021 (unaudited) | | :--- | :--- | :--- | | Total current assets | $1,218.3 | $1,219.1 | | Total assets | $2,036.7 | $2,004.5 | | Total current liabilities | $260.2 | $259.7 | | Total liabilities | $1,240.2 | $1,182.5 | | Total stockholders' equity | $796.5 | $822.0 | Condensed Consolidated Statements of Income Net income surged to $36.0 million in Q3 2021 and $81.3 million for nine months, driven by higher net sales and improved gross margins Income Statement Summary (In millions, except per share data) | Metric | Q3 2020 | Q3 2021 | Nine Months 2020 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $416.9 | $499.8 | $1,223.9 | $1,443.4 | | Gross margin | $80.6 | $123.0 | $264.5 | $327.7 | | Income from operations | $19.3 | $57.3 | $95.8 | $135.1 | | Net income | $8.1 | $36.0 | $53.7 | $81.3 | | Net income per share | $0.07 | $0.31 | $0.46 | $0.70 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $126.0 million for nine months, driven by higher net income and favorable working capital changes Cash Flow Summary - Nine Months Ended Sep 30 (In millions) | Cash Flow Activity | 2020 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $56.1 | $126.0 | | Net cash used in investing activities | ($36.8) | ($35.9) | | Net cash used in financing activities | ($63.6) | ($64.7) | Notes to Condensed Consolidated Financial Statements Details basis of presentation, ownership, and revenue disaggregation, noting a new $225 million credit facility and compliance with debt covenants - The company is indirectly controlled by Ms. Lisa K. Simmons and the Family Trust through their control of Contran Corporation and its subsidiaries, Valhi and NL Industries[22] Net Sales by Customer Location (Point of Destination) - Nine Months Ended Sep 30 (In millions) | Region | 2020 | 2021 | | :--- | :--- | :--- | | Europe | $578.6 | $712.1 | | North America | $434.4 | $476.9 | | Other | $210.9 | $254.4 | | Total | $1,223.9 | $1,443.4 | - In April 2021, the company entered into a new $225 million global revolving credit facility maturing in April 2026, which was fully available at September 30, 2021 The company was in compliance with all debt covenants[31][32] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong performance to higher TiO2 sales volumes and prices, expecting continued demand but facing supply chain and cost challenges Results of Operations Operating results significantly improved, with Q3 net sales up 20% and operating income up 197%, driven by price and volume growth Q3 2021 vs Q3 2020 Performance (Dollars in millions) | Metric | Q3 2020 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $416.9 | $499.8 | 20% | | Gross Margin | $80.6 | $123.0 | 53% | | Income from Operations | $19.3 | $57.3 | 197% | - The 20% increase in Q3 2021 net sales was primarily driven by an 11% increase in average TiO2 selling prices and a 6% increase in sales volumes[61] Nine Months 2021 vs 2020 Performance (Dollars in millions) | Metric | Nine Months 2020 | Nine Months 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,223.9 | $1,443.4 | 18% | | Gross Margin | $264.5 | $327.7 | 24% | | Income from Operations | $95.8 | $135.1 | 41% | - For the first nine months of 2021, currency exchange rate fluctuations increased net sales by approximately $47 million but decreased income from operations by approximately $15 million compared to the same period in 2020[77][84] Outlook Strong global demand is expected to continue, leading to higher sales and production, despite rising costs and supply chain disruptions - The company expects sales and production volumes to be higher in 2021 than in 2020 due to strong global demand[85] - Ongoing challenges include supply chain disruptions, availability of feedstock, transportation delays, and increasing production costs (raw materials, shipping, energy)[85] - Management expects TiO2 selling prices will continue to rise through the remainder of 2021, mitigating cost increases and leading to higher full-year sales and income from operations compared to 2020[85] Liquidity and Capital Resources Liquidity is strong with $126.0 million cash from operations and a new $225 million credit facility, sufficient for obligations - Cash provided by operating activities increased by $69.9 million in the first nine months of 2021 compared to 2020, primarily due to higher income from operations and favorable changes in working capital[89] - The company has a new $225 million Global Revolver maturing in April 2026, with the full amount available for borrowing as of September 30, 2021[93][99] - Planned capital expenditures for 2021 are approximately $70 million, primarily for maintaining and improving existing facilities[100] Item 3. Quantitative and Qualitative Disclosure About Market Risk No material changes in market risk exposure (currency, interest, equity, raw material prices) since the 2020 Annual Report - There have been no material changes in market risks (currency exchange, interest rates, equity security, and raw material prices) since the 2020 Annual Report[105] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[106][107] - No changes occurred in internal control over financial reporting during the quarter ended September 30, 2021, that materially affected or are likely to materially affect internal controls[110] Part II. OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 12 and the 2020 Annual Report for legal proceedings, noting no material loss from litigation is probable - For information on legal proceedings, the report refers to Note 12 of the financial statements and the 2020 Annual Report[113] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the 2020 Annual Report on Form 10-K - The report refers to the risk factors section in the 2020 Annual Report, indicating no material changes[114] Item 5. Other Information A dam at the Norway mine was reclassified to the highest level, increasing regulatory oversight with unknown operational impact - A dam at the company's mine in Norway was reclassified to the highest level, resulting in increased regulatory oversight The potential impact on operations is not yet known[115] Item 6. Exhibits Lists exhibits filed, including CEO and CFO certifications and Inline XBRL data files - The exhibits filed with this report include officer certifications and Inline XBRL data files[116]