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 September 30, 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 October 31, 2022:  115,470,027.

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

INDEX

		Page number
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets -    December 31, 2021; September 30, 2022 (unaudited)	3
	Condensed Consolidated Statements of Income (unaudited) -    Three and nine months ended September 30, 2021 and 2022	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) -    Three and nine months ended September 30, 2021 and 2022	6
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) -    Three and nine months ended September 30, 2021 and 2022	7
	Condensed Consolidated Statements of Cash Flows (unaudited) -    Nine months ended September 30, 2021 and 2022	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		27
Item 4.	Controls and Procedures		27
Part II.	OTHER INFORMATION
Item 1A.	Risk Factors		28
Item 6.	Exhibits	28
Items 2, 3, 4 and 5 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,		September 30,
	2021		2022
			(unaudited)
Current assets:
Cash and cash equivalents	$	406.0	$	338.5
Restricted cash		2.1		1.5
Accounts and other receivables, net		379.1		357.5
Inventories, net		432.3		511.7
Prepaid expenses and other		38.5		47.6
Total current assets		1,258.0		1,256.8
Other assets:
Investment in TiO2 manufacturing joint venture		101.9		110.4
Restricted cash		4.5		4.4
Marketable securities		4.2		3.6
Operating lease right-of-use assets		19.9		20.3
Deferred income taxes		106.8		90.7
Other		14.1		12.0
Total other assets		251.4		241.4
Property and equipment:
Land		43.9		38.8
Buildings		222.2		201.2
Equipment		1,122.1		1,012.1
Mining properties		129.6		109.0
Construction in progress		72.7		66.4
		1,590.5		1,427.5
Less accumulated depreciation and amortization		1,087.1		982.8
Net property and equipment		503.4		444.7
Total assets	$	2,012.8	$	1,942.9

3

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In millions)

LIABILITIES AND STOCKHOLDERS’ EQUITY	December 31,		September 30,
	2021		2022
			(unaudited)
Current liabilities:
Current maturities of long-term debt	$	1.4	$	1.3
Accounts payable and accrued liabilities		275.1		322.6
Income taxes		12.3		6.3
Total current liabilities		288.8		330.2
Noncurrent liabilities:
Long-term debt		449.8		390.9
Accrued pension costs		287.4		245.7
Payable to affiliate - income taxes		44.7		33.5
Operating lease liabilities		15.8		16.2
Deferred income taxes		28.1		23.4
Other		28.0		24.1
Total noncurrent liabilities		853.8		733.8
Stockholders’ equity:
Common stock		1.2		1.2
Additional paid-in capital		1,395.4		1,394.2
Retained deficit		(122.1)		(63.5)
Accumulated other comprehensive loss		(404.1)		(453.0)
Treasury stock, at cost		(.2)		-
Total stockholders’ equity		870.2		878.9
Total liabilities and stockholders’ equity	$	2,012.8	$	1,942.9

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				Nine months ended
	September 30,				September 30,
	2021		2022		2021		2022
	(unaudited)
Net sales	$	499.8	$	459.6	$	1,443.4	$	1,587.8
Cost of sales		376.8		375.6		1,115.7		1,234.0
Gross margin		123.0		84.0		327.7		353.8
Selling, general and administrative expense		64.2		59.0		185.1		183.6
Other operating income:
Currency transactions, net		1.2		6.7		1.2		17.1
Other operating expense, net		(2.7)		(.9)		(8.7)		(8.0)
Income from operations		57.3		30.8		135.1		179.3
Other income (expense):
Interest and dividend income		-		1.4		.2		2.1
Marketable equity securities		(.1)		(2.9)		1.2		(.5)
Other components of net periodic pension and OPEB cost		(4.3)		(2.9)		(12.9)		(9.2)
Interest expense		(4.8)		(4.2)		(15.0)		(13.0)
Income before income taxes		48.1		22.2		108.6		158.7
Income tax expense		12.1		1.2		27.3		34.3
Net income	$	36.0	$	21.0	$	81.3	$	124.4
Net income per basic and diluted share	$	.31	$	.18	$	.70	$	1.08
Weighted average shares used in the calculation of net income per share		115.5		115.5		115.5		115.5

See accompanying notes to Condensed Consolidated Financial Statements.

5

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2022		2021		2022
	(unaudited)
Net income	$	36.0	$	21.0	$	81.3	$	124.4
Other comprehensive income (loss), net of tax:
Currency translation		(7.8)		(25.9)		(3.8)		(55.6)
Defined benefit pension plans		3.5		2.2		10.5		6.9
Other postretirement benefit plans		(.1)		(.1)		(.2)		(.2)
Total other comprehensive income (loss), net		(4.4)		(23.8)		6.5		(48.9)
Comprehensive income (loss)	$	31.6	$	(2.8)	$	87.8	$	75.5

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 September 30, 2021 and 2022 (unaudited)
							Accumulated
			Additional				other
	Common		paid-in		Retained		comprehensive		Treasury
	stock		capital		deficit		loss		stock		Total
Balance at June 30, 2021	$	1.2	$	1,395.4	$	(148.1)	$	(437.3)	$	-	$	811.2
Net income		-		-		36.0		-		-		36.0
Other comprehensive loss, net of tax		-		-		-		(4.4)		-		(4.4)
Dividends paid - $.18 per share		-		-		(20.8)		-		-		(20.8)
Balance at September 30, 2021	$	1.2	$	1,395.4	$	(132.9)	$	(441.7)	$	-	$	822.0
Balance at June 30, 2022	$	1.2	$	1,394.2	$	(62.6)	$	(429.2)	$	-	$	903.6
Net income		-		-		21.0		-		-		21.0
Other comprehensive loss, net of tax		-		-		-		(23.8)		-		(23.8)
Dividends paid - $.19 per share		-		-		(21.9)		-		-		(21.9)
Balance at September 30, 2022	$	1.2	$	1,394.2	$	(63.5)	$	(453.0)	$	-	$	878.9

	Nine months ended September 30, 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		-		-		81.3		-		-		81.3
Other comprehensive income, net of tax		-		-		-		6.5		-		6.5
Issuance of common stock		-		.1		-		-		-		.1
Dividends paid - $.54 per share		-		-		(62.4)		-		-		(62.4)
Balance at September 30, 2021	$	1.2	$	1,395.4	$	(132.9)	$	(441.7)	$	-	$	822.0
Balance at December 31, 2021	$	1.2	$	1,395.4	$	(122.1)	$	(404.1)	$	(.2)	$	870.2
Net income		-		-		124.4		-		-		124.4
Other comprehensive loss, net of tax		-		-		-		(48.9)		-		(48.9)
Issuance of common stock		-		.1		-		-		-		.1
Dividends paid - $.57 per share		-		-		(65.8)		-		-		(65.8)
Treasury stock acquired		-		-		-		-		(1.1)		(1.1)
Treasury stock retired		-		(1.3)		-		-		1.3		-
Balance at September 30, 2022	$	1.2	$	1,394.2	$	(63.5)	$	(453.0)	$	-	$	878.9

See accompanying notes to Condensed Consolidated Financial Statements

7

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

	Nine months ended
	September 30,
	2021		2022
	(unaudited)
Cash flows from operating activities:
Net income	$	81.3	$	124.4
Depreciation		38.1		39.0
Amortization of operating lease right-of-use assets		5.0		3.4
Deferred income taxes		3.2		1.6
Benefit plan expense greater than cash funding		9.2		4.8
Marketable equity securities		(1.2)		.5
Contributions to TiO2 manufacturing joint venture, net		(2.2)		(8.5)
Other, net		.4		3.2
Change in assets and liabilities:
Accounts and other receivables, net		(61.0)		(17.9)
Inventories, net		81.0		(134.1)
Prepaid expenses		(18.3)		(14.8)
Accounts payable and accrued liabilities		11.4		52.2
Income taxes		(1.5)		(2.5)
Accounts with affiliates		(19.4)		6.5
Other, net		-		1.3
Net cash provided by operating activities		126.0		59.1
Cash flows from investing activities:
Capital expenditures		(35.9)		(44.4)
Other		-		.1
Net cash used in investing activities		(35.9)		(44.3)
Cash flows from financing activities:
Payments on long-term debt		(.5)		(.5)
Deferred financing fees		(1.8)		-
Dividends paid		(62.4)		(65.8)
Treasury stock acquired		-		(1.1)
Net cash used in financing activities		(64.7)		(67.4)
Cash, cash equivalents and restricted cash - net change from:
Operating, investing and financing activities		25.4		(52.6)
Effect of currency exchange rate changes on cash		(7.7)		(15.6)
Balance at beginning of period		362.0		412.6
Balance at end of period	$	379.7	$	344.4

8

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In millions)

	Nine months ended
	September 30,
	2021		2022
	(unaudited)
Supplemental disclosures:
Cash paid for:
Interest, net of amount capitalized	$	18.0	$	15.8
Income taxes		33.9		32.2
Accrual for capital expenditures		4.1		2.0

See accompanying notes to Condensed Consolidated Financial Statements

9

KRONOS WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(unaudited)

Note 1 - Organization and basis of presentation:

Organization - At September 30, 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 September 30, 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 periods ended September 30, 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,		September 30,
	2021		2022
	(In millions)
Trade receivables	$	326.3	$	304.0
Recoverable VAT and other receivables		32.4		35.3
Receivables from affiliates:
Louisiana Pigment Company, L.P. (LPC)		15.8		16.7
Other		2.6		2.5
Refundable income taxes		4.0		2.4
Allowance for doubtful accounts		(2.0)		(3.4)
Total	$	379.1	$	357.5

10

Note 3 - Inventories, net:

	December 31,		September 30,
	2021		2022
	(In millions)
Raw materials	$	76.3	$	125.0
Work in process		30.4		25.8
Finished products		245.6		286.4
Supplies		80.0		74.5
Total	$	432.3	$	511.7

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
September 30, 2022:
Valhi common stock	1	$	3.6	$	3.2	$	.4

At December 31, 2021 and September 30, 2022, we held approximately 144,000 shares of Valhi’s common stock. At the beginning of the second quarter of 2022 we held a nominal number of shares of NL and CompX common stocks. During the second quarter of 2022 we sold all of our shares of NL and CompX common stock to the respective issuer in two separate private transactions that were approved in advance by our independent directors (using a 10-day trailing average price per share to determine the purchase price) for an aggregate sales price of $.1 million. At December 31, 2021 and September 30, 2022, the per share quoted market price of Valhi’s common stock was $28.75 and $25.16, respectively.

The Valhi common stock we own is 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,		September 30,
	2021		2022
	(In millions)
Kronos International, Inc. 3.75% Senior Notes	$	448.8	$	390.2
Other		2.4		2.0
Total debt		451.2		392.2
Less current maturities		1.4		1.3
Total long-term debt	$	449.8	$	390.9

11

Senior Notes - At September 30, 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 $2.4 million.

Revolving credit facility - During the first nine months of 2022, we had no borrowings or repayments under our $225 million global revolving credit facility (Global Revolver) and at September 30, 2022, approximately $207 million was available for borrowing.

Other - We are in compliance with all of our debt covenants at September 30, 2022.

Note 6 - Accounts payable and accrued liabilities:

	December 31,		September 30,
	2021		2022
	(In millions)
Accounts payable	$	143.6	$	169.2
Accrued sales discounts and rebates		28.7		22.5
Employee benefits		28.9		23.1
Payables to affiliates:
LPC		17.3		20.8
Income taxes payable to Valhi		.9		13.9
Operating lease liabilities		3.7		3.8
Other		52.0		69.3
Total	$	275.1	$	322.6

Note 7 - Other noncurrent liabilities:

	December 31,		September 30,
	2021		2022
	(In millions)
Accrued postretirement benefits	$	8.4	$	7.9
Employee benefits		6.1		5.0
Other		13.5		11.2
Total	$	28.0	$	24.1

12

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				Nine months ended
	September 30,				September 30,
	2021		2022		2021		2022
	(In millions)
Net sales - point of origin:
United States	$	297.6	$	330.3	$	787.5	$	980.4
Germany		254.2		213.5		724.2		762.0
Canada		88.6		105.1		288.8		313.1
Belgium		69.6		76.0		212.0		256.3
Norway		63.4		64.7		198.5		211.1
Eliminations		(273.6)		(330.0)		(767.6)