UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to      

Commission file number 1-31763

KRONOS WORLDWIDE, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	76-0294959
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

5430 LBJ Freeway, Suite 1700

Dallas, Texas 75240-2620

(Address of principal executive offices)

Registrant’s telephone number, including area code: (972) 233-1700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	KRO	NYSE

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  ☐    No  ☒

Number of shares of the registrant’s common stock, $.01 par value per share, outstanding on April 29, 2022:  115,461,627.

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

INDEX

		Page number
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets -    December 31, 2021; March 31, 2022 (unaudited)	3
	Condensed Consolidated Statements of Income (unaudited) -    Three months ended March 31, 2021 and 2022	5
	Condensed Consolidated Statements of Comprehensive Income (unaudited) -    Three months ended March 31, 2021 and 2022	6
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) -    Three months ended March 31, 2021 and 2022	7
	Condensed Consolidated Statements of Cash Flows (unaudited) -    Three months ended March 31, 2021 and 2022	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		24
Item 4.	Controls and Procedures		24
Part II.	OTHER INFORMATION
Item 1A.	Risk Factors		25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 6.	Exhibits	26
Items 3 and 4 of Part II are omitted because there is no information to report.

2

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

ASSETS	December 31,		March 31,
	2021		2022
				(unaudited)
Current assets:
Cash and cash equivalents	$	406.0	$	350.0
Restricted cash		2.1		1.8
Accounts and other receivables, net		379.1		416.4
Inventories, net		432.3		464.2
Prepaid expenses and other		38.5		47.1
Total current assets		1,258.0		1,279.5
Other assets:
Investment in TiO2 manufacturing joint venture		101.9		105.7
Restricted cash		4.5		4.4
Marketable securities		4.2		4.3
Operating lease right-of-use assets		19.9		21.5
Deferred income taxes		106.8		101.4
Other		14.1		14.7
Total other assets		251.4		252.0
Property and equipment:
Land		43.9		43.8
Buildings		222.2		221.8
Equipment		1,122.1		1,119.8
Mining properties		129.6		133.5
Construction in progress		72.7		80.4
		1,590.5		1,599.3
Less accumulated depreciation and amortization		1,087.1		1,095.5
Net property and equipment		503.4		503.8
Total assets	$	2,012.8	$	2,035.3

3

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)

LIABILITIES AND STOCKHOLDERS’ EQUITY	December 31,		March 31,
	2021		2022
				(unaudited)
Current liabilities:
Current maturities of long-term debt	$	1.4	$	1.4
Accounts payable and accrued liabilities		275.1		261.0
Income taxes		12.3		18.7
Total current liabilities		288.8		281.1
Noncurrent liabilities:
Long-term debt		449.8		443.8
Accrued pension costs		287.4		282.3
Payable to affiliate - income taxes		44.7		44.7
Operating lease liabilities		15.8		17.2
Deferred income taxes		28.1		26.3
Other		28.0		26.3
Total noncurrent liabilities		853.8		840.6
Stockholders’ equity:
Common stock		1.2		1.2
Additional paid-in capital		1,395.4		1,395.2
Retained deficit		(122.1)		(86.5)
Accumulated other comprehensive loss		(404.1)		(395.2)
Treasury stock, at cost		(.2)		(1.1)
Total stockholders’ equity		870.2		913.6
Total liabilities and stockholders’ equity	$	2,012.8	$	2,035.3

Commitments and contingencies (Notes 10 and 12)

See accompanying notes to Condensed Consolidated Financial Statements.

4

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

	Three months ended
	March 31,
	2021		2022
	(unaudited)
Net sales	$	465.0	$	562.9
Cost of sales		369.3		413.6
Gross margin		95.7		149.3
Selling, general and administrative expense		58.0		61.4
Other operating income:
Currency transactions, net		(.5)		(1.5)
Other operating expense, net		(3.2)		(3.1)
Income from operations		34.0		83.3
Other income (expense):
Interest and dividend income		.1		.1
Marketable equity securities		.8		.1
Other components of net periodic pension and OPEB cost		(4.3)		(3.2)
Interest expense		(5.0)		(4.5)
Income before income taxes		25.6		75.8
Income tax expense		6.0		18.3
Net income	$	19.6	$	57.5
Net income per basic and diluted share	$	.17	$	.50
Weighted average shares used in the calculation of net income per share		115.5		115.5

See accompanying notes to Condensed Consolidated Financial Statements.

5

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

	Three months ended
	March 31,
	2021		2022
	(unaudited)
Net income	$	19.6	$	57.5
Other comprehensive income (loss), net of tax:
Currency translation		2.2		6.6
Defined benefit pension plans		3.5		2.4
Other postretirement benefit plans		(.1)		(.1)
Total other comprehensive income, net		5.6		8.9
Comprehensive income	$	25.2	$	66.4

See accompanying notes to Condensed Consolidated Financial Statements.

6

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

	Three months ended March 31, 2021 and 2022 (unaudited)
							Accumulated
			Additional				other
	Common		paid-in		Retained		comprehensive		Treasury
	stock		capital		deficit		loss		stock		Total
Balance at December 31, 2020	$	1.2	$	1,395.3	$	(151.8)	$	(448.2)	$	-	$	796.5
Net income		-		-		19.6		-		-		19.6
Other comprehensive income, net of tax		-		-		-		5.6		-		5.6
Dividends paid - $.18 per share		-		-		(20.8)		-		-		(20.8)
Balance at March 31, 2021	$	1.2	$	1,395.3	$	(153.0)	$	(442.6)	$	-	$	800.9
Balance at December 31, 2021	$	1.2	$	1,395.4	$	(122.1)	$	(404.1)	$	(.2)	$	870.2
Net income		-		-		57.5		-		-		57.5
Other comprehensive income, net of tax		-		-		-		8.9		-		8.9
Dividends paid - $.19 per share		-		-		(21.9)		-		-		(21.9)
Treasury stock acquired		-		-		-		-		(1.1)		(1.1)
Treasury stock retired		-		(.2)		-		-		.2		-
Balance at March 31, 2022	$	1.2	$	1,395.2	$	(86.5)	$	(395.2)	$	(1.1)	$	913.6

See accompanying notes to Condensed Consolidated Financial Statements.

7

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

	Three months ended
	March 31,
	2021		2022
	(unaudited)
Cash flows from operating activities:
Net income	$	19.6	$	57.5
Depreciation		12.7		12.9
Amortization of operating lease right-of-use assets		1.7		1.4
Deferred income taxes		.2		1.7
Benefit plan expense greater than cash funding		3.7		1.6
Marketable equity securities		(.8)		(.1)
Contributions to TiO2 manufacturing joint venture, net		(3.4)		(3.8)
Other, net		.1		1.6
Change in assets and liabilities:
Accounts and other receivables, net		(23.5)		(41.2)
Inventories, net		35.6		(32.8)
Prepaid expenses		5.0		(8.9)
Accounts payable and accrued liabilities		.5		(25.2)
Income taxes		.9		6.4
Accounts with affiliates		4.2		9.8
Other, net		.2		.5
Net cash provided by (used in) operating activities		56.7		(18.6)
Cash flows from investing activities - capital expenditures		(10.8)		(14.2)
Cash flows from financing activities:
Payments on long-term debt		(.2)		(.2)
Dividends paid		(20.8)		(21.9)
Treasury stock acquired		-		(1.1)
Net cash used in financing activities		(21.0)		(23.2)
Cash, cash equivalents and restricted cash - net change from:
Operating, investing and financing activities		24.9		(56.0)
Effect of currency exchange rate changes on cash		(7.0)		(.4)
Balance at beginning of period		362.0		412.6
Balance at end of period	$	379.9	$	356.2
Supplemental disclosures:
Cash paid for:
Interest, net of amount capitalized	$	9.2	$	8.3
Income taxes		3.9		5.5
Accrual for capital expenditures		2.5		3.8

See accompanying notes to Condensed Consolidated Financial Statements

8

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

Note 1 - Organization and basis of presentation:

Organization - At March 31, 2022, Valhi, Inc. (NYSE: VHI) held approximately 50% of our outstanding common stock and a wholly-owned subsidiary of NL Industries, Inc. (NYSE: NL) held approximately 31% of our common stock. Valhi owned approximately 83% of NL’s outstanding common stock and a wholly-owned subsidiary of Contran Corporation held approximately 92% of Valhi’s outstanding common stock. A majority of Contran’s outstanding voting stock is held directly by Lisa K. Simmons and various family trusts established for the benefit of Ms. Simmons, Thomas C. Connelly (the husband of Ms. Simmons’ late sister) and their children and for which Ms. Simmons or Mr. Connelly, as applicable, serve as trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly serves as trustee, he is required to vote the shares of Contran voting stock held in such trusts in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. Simmons. The remainder of Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and her late sister and their children and for which a third-party financial institution serves as trustee. Consequently, at March 31, 2022, Ms. Simmons and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi, NL 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, 2021 that we filed with the Securities and Exchange Commission (SEC) on March 9, 2022 (2021 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, 2021 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, 2021) 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 period ended March 31, 2022 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 2021 Consolidated Financial Statements contained in our 2021 Annual Report.

Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Kronos Worldwide, Inc. and its subsidiaries (NYSE: KRO) taken as a whole.

Note 2 - Accounts and other receivables, net:

	December 31,		March 31,
	2021		2022
	(In millions)
Trade receivables	$	326.3	$	374.1
Recoverable VAT and other receivables		32.4		23.4
Receivables from affiliates:
Louisiana Pigment Company, L.P. (LPC)		15.8		15.2
Other		2.6		2.8
Refundable income taxes		4.0		4.0
Allowance for doubtful accounts		(2.0)		(3.1)
Total	$	379.1	$	416.4

9

Note 3 - Inventories, net:

	December 31,		March 31,
	2021		2022
	(In millions)
Raw materials	$	76.3	$	97.1
Work in process		30.4		35.6
Finished products		245.6		249.0
Supplies		80.0		82.5
Total	$	432.3	$	464.2

Note 4 - Marketable securities:

Our marketable securities consist of investments in the publicly-traded shares of related parties: Valhi, NL and CompX International Inc. NL owns the majority of CompX’s outstanding common stock. All of our marketable securities are accounted for as available-for-sale securities, which are carried at fair value using quoted market prices in active markets for each marketable security and represent a Level 1 input within the fair value hierarchy. Any unrealized gains or losses on the securities are recognized in Other income (expense) - Marketable equity securities on our Condensed Consolidated Statements of Income.

	Fair value
	measurement	Market		Cost		Unrealized
Marketable security	level	value		basis		gain
		(In millions)
December 31, 2021:
Valhi common stock	1	$	4.1	$	3.2	$	.9
NL and CompX common stocks	1		.1		.1		-
Total		$	4.2	$	3.3	$	.9
March 31, 2022:
Valhi common stock	1	$	4.2	$	3.2	$	1.0
NL and CompX common stocks	1		.1		.1		-
Total		$	4.3	$	3.3	$	1.0

At December 31, 2021 and March 31, 2022, we held approximately 144,000 shares of Valhi’s common stock. We also held a nominal number of shares of NL and CompX common stocks. At December 31, 2021 and March 31, 2022, the per share quoted market price of Valhi’s common stock was $28.75 and $29.31, respectively.

The Valhi, CompX and NL common stocks we own are subject to restrictions on resale pursuant to certain provisions of SEC Rule 144. In addition, as a majority-owned subsidiary of Valhi we cannot vote our shares of Valhi common stock under Delaware General Corporation law, but we receive dividends from Valhi on these shares when declared and paid.

Note 5 - Long-term debt:

	December 31,		March 31,
	2021		2022
	(In millions)
Kronos International, Inc. 3.75% Senior Notes	$	448.8	$	442.9
Other		2.4		2.3
Total debt		451.2		445.2
Less current maturities		1.4		1.4
Total long-term debt	$	449.8	$	443.8

10

Senior Notes - At March 31, 2022, the carrying value of our 3.75% Senior Secured Notes due September 15, 2025 (€400 million aggregate principal amount outstanding) is stated net of unamortized debt issuance costs of $3.2 million.

Revolving credit facility - During the first three months of 2022, we had no borrowings or repayments under our $225 million global revolving credit facility (Global Revolver) and at March 31, 2022, the full $225 million was available for borrowing.

Other - We are in compliance with all of our debt covenants at March 31, 2022.

Note 6 - Accounts payable and accrued liabilities:

	December 31,		March 31,
	2021		2022
	(In millions)
Accounts payable	$	143.6	$	132.5
Accrued sales discounts and rebates		28.7		11.1
Employee benefits		28.9		31.0
Payables to affiliates:
LPC		17.3		20.8
Income taxes payable to Valhi		.9		5.2
Operating lease liabilities		3.7		3.9
Other		52.0		56.5
Total	$	275.1	$	261.0

Note 7 - Other noncurrent liabilities:

	December 31,		March 31,
	2021		2022
	(In millions)
Accrued postretirement benefits	$	8.4	$	8.6
Employee benefits		6.1		5.9
Other		13.5		11.8
Total	$	28.0	$	26.3

11

Note 8 - Revenue recognition:

The following table disaggregates our net sales by place of manufacture (point of origin) and to the location of the customer (point of destination), which are the categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

	Three months ended
	March 31,
	2021		2022
	(In millions)
Net sales - point of origin:
United States	$	253.9	$	326.4
Germany		231.2		276.5
Canada		97.2		96.4
Belgium		66.5		92.8
Norway		71.0		78.4
Eliminations		(254.8)		(307.6)
Total	$	465.0	$	562.9
Net sales - point of destination:
Europe	$	227.3	$	269.5
North America		145.3		179.9
Other		92.4		113.5
Total	$	465.0	$	562.9

Note 9 - Employee benefit plans:

The components of net periodic defined benefit pension cost are presented in the table below.

	Three months ended
	March 31,
	2021		2022
	(In millions)
Net periodic pension cost (income):
Service cost	$	3.8	$	3.0
Interest cost		2.2		2.9
Expected return on plan assets		(3.0)		(3.1)
Recognized actuarial losses		5.1		3.4
Total	$	8.1	$	6.2

We expect our 2022 contributions for our pension plans to be approximately $19 million.

12

Note 10 - Income taxes:

	Three months ended
	March 31,
	2021		2022
	(In millions)
Expected tax expense, at U.S. federal statutory income tax rate of 21%	$	5.4	$	15.9
Non-U.S. tax rates		.7		2.0
Incremental net tax benefit on earnings and losses of U.S.    and non-U.S. companies		(.7)		(.4)
Valuation allowance, net		.5		(.1)
Global intangible low-tax income, net		.5		.9
Adjustment to the reserve for uncertain tax positions, net		(.5)		(.8)
Other, net		.1		.8
Income tax expense	$	6.0	$	18.3
Comprehensive provision for income taxes allocable to:
Net income	$	6.0	$	18.3
Other comprehensive income - pension plans		1.6		1.1
Total	$	7.6	$	19.4

The amount shown in the preceding table of our income tax rate reconciliation for non-U.S. tax rates represents the result determined by multiplying the pre-tax earnings or losses of each of our non-U.S. subsidiaries by the difference between the applicable statutory income tax rate for each non-U.S. jurisdiction and the U.S. federal statutory tax rate. The amount shown on such table for incremental net tax expense (benefit) on earnings and losses of U.S. and non-U.S. companies includes, as applicable, (i) deferred income taxes (or deferred income tax benefits) associated with the current-year earnings of all of our non-U.S. subsidiaries and (ii) current U.S. income taxes (or current income tax benefit) including U.S. personal holding company tax, as applicable, attributable to current-year income (losses) of one of our non-U.S. subsidiaries, which subsidiary is treated as a dual resident for U.S. income tax purposes, to the extent the current-year income (losses) of such subsidiaries is subject to U.S. income tax under the U.S. dual-resident provisions of the Internal Revenue Code.

Tax authorities are examining certain of our U.S. and non-U.S. tax returns and may propose tax deficiencies, including penalties and interest. 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. We currently estimate that our unrecognized tax benefits will decrease by approximately $1.3 million during the next twelve months primarily due to the expiration of certain statutes of limitations.

13

Note 11 – Stockholders’ equity:

Changes in accumulated other comprehensive loss are presented in the table below. See Note 9 for discussion of our defined benefit pension plans.

	Three months ended
	March 31,
	2021		2022
	(In millions)
Accumulated other comprehensive loss, net of tax:
Currency translation:
Balance at beginning of period	$	(233.4)	$	(240.4)
Other comprehensive income		2.2		6.6
Balance at end of period	$	(231.2)	$	(233.8)
Defined benefit pension plans:
Balance at beginning of period	$	(214.5)	$	(163.3)
Other comprehensive income - amortization    of prior service cost and net losses included in    net periodic pension cost		3.5		2.4
Balance at end of period	$	(211.0)	$	(160.9)
OPEB plans:
Balance at beginning of period	$	(.3)	$	(.4)
Other comprehensive loss - amortization    of prior service credit and net losses    included in net periodic OPEB cost		(.1)		(.1)
Balance at end of period	$	(.4)	$	(.5)
Total accumulated other comprehensive loss:
Balance at beginning of period	$	(448.2)	$	(404.1)
Other comprehensive income		5.6		8.9
Balance at end of period	$	(442.6)	$	(395.2)

Our board of directors has previously authorized the repurchase of up to 2.0 million shares of our common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time. We may repurchase our common stock from time to time as market conditions permit. The stock repurchase program does not include specific price targets or timetables and may be suspended at any time. Depending on market conditions, we may terminate the program prior to its completion. We use cash on hand or other sources of liquidity to acquire the shares. Repurchased shares are added to our treasury and subsequently cancelled upon approval of the board of directors.

During the fourth quarter of 2021, we acquired 14,409 shares of common stock in market transactions for an aggregate purchase price of $.2 million which were accounted for as treasury stock at December 31, 2021. We subsequently cancelled all such shares in February 2022. During the first three months of 2022, we acquired an additional 73,881 shares of our common stock in market transactions for an aggregate purchase price of $1.1 million which are accounted for as treasury stock at March 31, 2022. At March 31, 2022, 1,475,229 shares are available for repurchase under this stock repurchase program.

14

Note 12 - Commitments and contingencies:

We are involved in various environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our business. At least quarterly our management discusses and evaluates the status of any pending litigation to which we are a party. The factors considered in such evaluation include, among other things, the nature of such pending cases, the status of such pending cases, the advice of legal counsel and our experience in similar cases (if any). Based on such evaluation, we make a determination as to whether we believe (i) it is probable a loss has been incurred, and if so if the amount of such loss (or a range of loss) is reasonably estimable, or (ii) it is reasonably possible but not probable a loss has been incurred, and if so if the amount of such loss (or a range of loss) is reasonably estimable, or (iii) the probability a loss has been incurred is remote. We have not accrued any amounts for litigation matters because it is not reasonably possible we have incurred a loss that would be material to our consolidated financial statements, results of operations or liquidity.

Note 13 - Financial instruments:

See Note 4 for information on how we determine fair value of our marketable securities.

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure:

	December 31, 2021				March 31, 2022
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
	(In millions)
Cash, cash equivalents and restricted cash	$	412.6	$	412.6	$	356.2	$	356.2
Long-term debt - Fixed rate Senior Notes		448.8		460.2		442.9		435.7

At March 31, 2022, the estimated market price of our Senior Notes was €977 per €1,000 principal amount. The fair value of our Senior Notes was based on quoted market prices; however, these quoted market prices represented Level 2 inputs because the markets in which the Senior Notes trade were not active. Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. See Notes 2 and 6.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Business 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 paints, plastics, paper and other industrial and specialty products. For the three months ended March 31, 2022, approximately one-half of our sales volumes were sold into European markets. Our production facilities are located in Europe and North America.

We consider TiO₂ to be a “quality of life” product, with demand affected by gross domestic product, or GDP, and overall economic conditions in our markets located in various regions of the world. Over the long-term, we expect 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 our customers’ inventory levels are influenced in part by their expectation for future changes in TiO₂ selling prices as well as their expectation for future availability of product. Although certain of our TiO₂ grades are considered specialty pigments, the majority of our grades and substantially all of our production are considered commodity pigment products with price and availability being the most significant competitive factors along with product quality and customer and technical support services.

The factors having the most impact on our reported operating results are:

● TiO₂ selling prices,

● TiO₂ sales and production volumes,

● Manufacturing costs, particularly raw materials such as third-party feedstock, maintenance and energy-related expenses, and

● Currency exchange rates (particularly the exchange rate for the U.S. dollar relative to the euro, the Norwegian krone and the Canadian dollar and the euro relative to the Norwegian krone).

Our key performance indicators are our TiO₂ average selling prices, our level of TiO₂ sales and production volumes and the cost of titanium-containing feedstock purchased from third parties. TiO₂ selling prices generally follow industry trends and selling prices will increase or decrease generally as a result of competitive market pressures.

Executive summary

We reported net income of $57.5 million, or $.50 per share, in the first quarter of 2022 compared to $19.6 million, or $.17 per share, in the first quarter of 2021. Net income in the first quarter of 2022 was higher than in the first quarter of 2021 primarily due to higher income from operations resulting from the net effects of higher average TiO₂ selling prices, higher sales volumes, higher production costs and changes in currency exchange rates.

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Forward-looking information

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking in nature and represent management’s beliefs and assumptions based on currently available information. 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 management’s beliefs and assumptions based on currently available information. In some cases you can identify forward-looking statements by the use of words such as “believes,” “intends,” “may,” “should,” “could,” “anticipates,” “expects” 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. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. 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 and include, but are not limited to, the following:

● Future supply and demand for our products

● The extent of the dependence of certain of our businesses on certain market sectors

● The cyclicality of our business

● Customer and producer inventory levels

● Unexpected or earlier-than-expected industry capacity expansion

● Changes in raw material and other operating costs (such as energy and ore costs)

● Changes in the availability of raw materials (such as ore)

● General global economic and political conditions that harm the worldwide economy, disrupt our supply chain, increase material and energy costs or reduce demand or perceived demand for our TiO₂ products or impair our ability to operate our facilities (including changes in the level of gross domestic product in various regions of the world, natural disasters, terrorist acts, global conflicts and public health crises such as COVID-19)

● Competitive products and substitute products

● Customer and competitor strategies

● Potential consolidation of our competitors

● Potential consolidation of our customers

● The impact of pricing and production decisions

● Competitive technology positions

● Potential difficulties in upgrading or implementing accounting and manufacturing software systems

● The introduction of trade barriers or trade disputes

● Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian krone and the Canadian dollar and between the euro and the Norwegian krone), or possible disruptions to our business resulting from uncertainties associated with the euro or other currencies

● Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, cyber-attacks and public health crises such as COVID-19)

● Our ability to renew or refinance credit facilities

● Potential increases in interest rates

● Our ability to maintain sufficient liquidity

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● The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform

● Our ability to utilize income tax attributes, the benefits of which may or may not have been recognized under the more-likely-than-not recognition criteria

● Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities)

● Government laws and regulations and possible changes therein including new environmental, health and safety regulations (such as those seeking to limit or classify TiO₂ or its use)

● 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 statements whether as a result of changes in information, future events or otherwise.

Results of operations

Current industry conditions

We started 2022 with average TiO₂ selling prices 16% higher than at the beginning of 2021 and our average TiO₂ selling prices increased 7% in the first quarter of 2022 in response to customer demand and our rising production costs. We experienced higher sales volumes in our North American, European and Latin American markets in the first three months of 2022 as compared to the same period of 2021.

We operated our production facilities at full practical capacity in the first quarter of 2022 compared to an average capacity rate of 97% in the first quarter of 2021.

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Quarter ended March 31, 2022 compared to the quarter ended March 31, 2021

		Three months ended March 31,
		2021			2022
		(Dollars in millions)
Net sales	$	465.0	100	%	$	562.9	100	%
Cost of sales		369.3	79			413.6	73
Gross margin		95.7	21			149.3	27
Selling, general and administrative expense		58.0	13			61.4	11
Other operating income (expense):
Currency transactions, net		(.5)	-			(1.5)	-
Other operating expense, net		(3.2)	(1)			(3.1)	(1)
Income from operations	$	34.0	7	%	$	83.3	15	%
							% Change
TiO2 operating statistics:
Sales volumes*		141				144	2	%
Production volumes*		130				138	6	%
Percentage change in net sales:
TiO2 product pricing