ALLAS, TEXAS.November 5, 2012. Kronos Worldwide, Inc. (KRO) today reported net income for the third quarter of 2012 of $35.2 million, or $.30 per share, compared with net income of $85.9 million, or $.74 per share, for the third quarter of 2011. For the first nine months of 2012, Kronos Worldwide reported net income of $236.6 million, or $2.04 per share, compared with net income of $235.2 million, or $2.03 per share in the first nine months of 2011. Comparability of the Company`s results was impacted by higher average TiO2 selling prices and lower sales and production volumes in 2012, as discussed further below.
Net sales of $472.9 million in the third quarter of 2012 were $75.1 million, or 14%, lower than in the third quarter of 2011. Net sales of $1,579.5 million in the first nine months of 2012 were $73.6 million, or 5%, higher than in the first nine months of 2011. Net sales decreased in the third quarter of 2012 as compared to the third quarter of 2011 due to lower sales volumes and the negative impact of currency exchange rates, partially offset by higher average TiO2 selling prices. Net sales increased in the first nine months of 2012 primarily due to higher average TiO2 selling prices, partially offset by lower sales volumes and the negative impact of fluctuations in currency exchange rates. The Company`s average TiO2 selling prices increased 5% in the third quarter of 2012 as compared to the third quarter of 2011, and increased 20% in the first nine months of 2012. The Company`s average TiO2 selling prices at the end of the third quarter of 2012 were 7% lower than at the end of the second quarter of 2012. TiO2 sales volumes in the third quarter and first nine months of 2012 were approximately 15% and 9% lower, respectively, than in the comparable periods of 2011 due to lower customer demand. Fluctuations in currency exchange rates also impacted net sales, decreasing net sales by approximately $34 million in the third quarter and approximately $70 million in the first nine months of 2012. The table at the end of this press release shows how each of these items impacted the overall increase in sales.
The Company`s TiO2 segment profit (see description of non-GAAP information below) in the third quarter of 2012 was $42.0 million compared to segment profit of $159.2 million in the third quarter of 2011. For the year-to-date period the Company`s segment profit was $369.1 million compared to segment profit of $409.9 million in the first nine months of 2011. Segment profit decreased in the 2012 periods due to lower sales and production volumes, higher raw materials costs and the unfavorable effects of unabsorbed fixed production costs resulting from reduced production volumes, partially offset by higher TiO2 selling prices. Kronos` TiO2 production volumes were 27% lower in the third quarter of 2012 as compared to the third quarter of 2011, and were 13% lower in the year-to-date period. During the third quarter of 2012, Kronos operated its facilities at approximately 71% of practical capacity primarily in order to align production and inventory levels with decreased demand. Segment profit comparisons were also impacted by the effects of fluctuations in currency exchange rates, which increased segment profit by approximately $2 million in the third quarter and decreased segment profit by approximately $1 million in the year-to-date period.
As previously reported, in March 2011 we redeemed €80 million principal amount of Kronos International, Inc.`s 6.5% Senior Secured Notes due 2013, and in the third quarter of 2011, we repurchased in open market transactions an aggregate €30.4 million principal amount of the Senior Notes. As a result of these redemptions and open market purchases, the Company`s results in 2011 include a net charge of $3.2 million ($2.1 million, or $.02 per share, net of income tax benefit) consisting of the call premium, the write-off of unamortized deferred financing costs and original issue discount associated with the redeemed and purchased Notes. We purchased an additional €10.4 million principal amount of the Senior Notes in the fourth quarter of 2011. In June 2012, we entered into a new $400 million term loan, and used a portion of the net proceeds to redeem the remaining €279.2 million principal amount of Senior Notes outstanding. As a result, we recognized a second quarter 2012 charge of $7.2 million ($4.7 million, or $.04 per share, net of income tax benefit) associated with the early extinguishment of such remaining Senior Notes. The Company entered into a new $125 million North American revolving credit facility in June 2012, and the full amount of this facility is available for borrowing at September 30, 2012. In September 2012, the Company extended the maturity of its European revolving credit facility and increased the maximum borrowing from €80 million to €120 million, and €85 million ($110 million) is available for borrowing under this credit facility at September 30, 2012.
The Company`s income tax provision in 2011 includes a $13.2 million third quarter provision for U.S. incremental income taxes on earnings repatriated from our German subsidiary, which earnings were used to fund a portion of the repurchases of our Senior Secured Notes. Our income tax benefit in the third quarter of 2012 includes an incremental tax benefit of $11.1 million as we determined during the third quarter that due to global changes in the business we would not remit certain dividends from non-U.S. jurisdictions. As a result, certain current year tax attributes are available for carryback to offset prior year tax expense.
Steven L. Watson, Vice Chairman and Chief Executive Officer, said "The decrease in sales and production volumes have been experienced throughout the TiO2 industry, as the majority of TiO2 producers and consumers have been undertaking inventory correction initiatives in response to continued global economic weakness and uncertainty, and to align production and inventories with current and anticipated near-term demand levels for TiO2 products. Industry indications are that ample feedstock ore supplies exist and that ore costs have begun to stabilize and decline. Based on information from industry sources and our own estimates, we believe as a result of the TiO2 inventory correction efforts that customers` inventory levels are substantially depleted and producers` inventories are declining. With the constraints and high capital costs associated with adding significant new production capacity, especially for the premium grades of TiO2 products through the chloride process, we believe increased and sustained profit margins will be necessary to financially justify major expansions of TiO2 production capacity required to meet future increased demand. Given the lead time involved with such expansions, we expect a prolonged shortage of TiO2 products will develop as economic conditions improve and demand levels increase. Consequently, although there will continue to be intermittent periods of availability and shortage of TiO2 products in the near term, we expect demand for our TiO2 products will increase significantly as customers restock and economic conditions improve in the various regions of the world."
..
