KRO - NYSE

Steve Watson – Vice Chairman & Chief Executive Officer Greg Swalwell – Executive Vice President & Chief Financial Officer Janet Keckeisen – Vice President, Investor Relations Brian Christian – Vice President of Strategic Business Development Kelly Luttmer – Vice President, Global Tax Director John St. Wrba – Vice President, Treasurer Tim Hafer – Vice President and Controller

James Sheehan – Deutsche Bank Trey Grooms – Stephens Inc. Frank Mitsch – Wells Fargo Securities Edward Yang – Oppenheimer & Co. Stuart Pulvirent – Merlin Securities Danielle Ward – JPMorgan Jayanth Kandalam – Lucror Analytics Tom McKay – T.A. McKay & Co.

Welcome to KRONOS Worldwide Third Quarter 2011 Earnings Call. My name is Tahitia and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. I will now turn the call over to your host, Janet Keckeisen, Vice President of Investor Relations for KRONOS Worldwide. You may begin, Janet.

Thanks, Tahitia. Good morning and welcome to the KRONOS Worldwide 2011 third quarter earnings call. With me this morning are Steve Watson, Chief Executive Officer; and Greg Swalwell, Chief Financial Officer. The earnings release that was issued this morning can be found on our website at KRONOSww.com During the course of this conference call, we will make forward-looking statements. All statements relating to matters that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Although the Company believes that expectations reflected in such forward-looking statements are reasonable, it cannot give any assurance that these expectations will prove to be correct. Such statements by their nature involves substantial risks and uncertainties that could significantly impact expected results and actual future results could differ materially from those described in such forward-looking statements. We assume no obligation to update or revise any forward-looking statements. Please refer to the earnings release for a discussion of some of the factors that could cause actual results to differ materially. In an effort to provide investors with additional information regarding the Company's results of operations, we will refer to certain non-GAAP information. We ask that you refer to the earnings release for a reconciliation of this non-GAAP information to our GAAP financial statements. I will now turn the call over to Steve.

Thank you, Janet. And welcome to everyone participating on this conference call. In addition to Janet and Gregg, with me today are several members of our management team, Kelly Luttmer, Vice President and Global Tax Director, John St. Wrba, Vice President Treasurer, Tim Hafer, Vice President and Controller and Brian Christian, Vice President Strategic Business Development. I also want to give special recognition to our exceptional operating management team. The leaders of that team Doug Weaver, Dr. Ulfert Fiand, Klemens Schluter and Joe Maas have the knowledge and experience necessary to maximize potential of the KRONOS business and we act effectively to any challenges we encounter. During the years, these leaders have also developed and managed the professionals who will serve our business very well into the future. We are very proud of our organization which has been built with a focus on continuous improvement. As an example, our manufacturing and technical groups have an outstanding record of increasing product capacity and decreasing production costs generally with minimal capital cost and providing a level of superior service to our customers. During the first nine months of 2011, we continued to experience strong global customer demand for TiO2 products. This allowed us to successfully implement further significant selling price increases. Our TiO2 segment profit for the nine months ended September 30, 2011 increased 233% over the same period in 2010 and represents a new record for KRONOS. We believe the global shortage will continue for several years due to the constraints to adding significant new production capacity, especially for TiO2 premium grades produced through the chloride process. Major capacity additions both Brownfield and Greenfield require considerable investments of capital and time. It generally takes two to five years, depending on the project, from commencement of a significant capacity expansion until additional facilities are fully operational. As we have discussed previously, the mere announcement of capacity expansion such as those occurring in the last few months, will not affect the near term production levels and will do little to relieve the longer term shortage of TiO2 products. We expect the supply of TiO2 products to increase through various methods, but we believe the magnitude of such increases will not exceed the expected global demand for TiO2 products in the foreseeable future. The increasing cost and availability of raw materials, in particular the global shortage of ore feedstocks, is also an impediment to capacity expansion. We anticipate the tightness in ore feedstocks supplies to last for at least the next couple of years. As we have previously discussed, an extended period of low profit margins did not foster the investment in and development of ore suppliers that are now needed for an expanding TiO2 industry. The TiO2 industry cannot grow without the expansion of ore suppliers and the ore industry needs the TiO2 industry to grow in capacity and profitability in order to justify its own expansion. We believe that increasing costs at ore will remain in check so not to become a major factor in hindering profit margin expansion in the TiO2 industry, which could in turn hinder TiO2 capacity expansion. Although the ore supplies situation is tight, we believe our long standing relationships with our key suppliers will allow us to continue to have an assured supply of ore feedstocks. We are also partially hedged against ore shortages and cost increases due to our backward integrations. We currently supply 100% of our European sulfate production ore feedstocks from our mines in Norway and sales additional ore production to third parties. Our style of management is from an owner’s perspective. Our focus is to provide the highest total return to our stockholders through the appreciation of the value of our stock and dividend distributions while maintaining strong financial liquidity and strategic position. In conclusion, we can confirm that we continue to believe the anticipated TiO2 industry conditions will result in higher profit margins and cash flows for several years. Gregg will now review our overall financial performance after which we will open the call up for questions.

Thank you, Steve, and good morning to everyone on the call. We achieved record operating results in the third quarter and the first nine months of the year primarily due to the favorable impact of the higher average selling prices for TiO2. We reported operating income or segment profit which is a term that we use in our earnings release of $159.2 million for the third quarter of this year, up from the $58.9 million in the third quarter of last year. For the first nine months of 2011, our segment profit was $409.9 million as compared to $123.2 million last year. Our average TiO2 selling prices in the third quarter of this year were up 41% as compared to the third quarter of last year and our selling prices at the end of the third quarter were 10% higher as compared to the end of the second quarter of this year. For the first nine months of the year, our selling prices were up 37% on a year-over-year basis. As a result of the global shortage of TiO2, we anticipate that our selling prices will continue to increase during the remainder of the year. We continue to operate our plant at near full practical capacity utilization levels and our production volumes for the first nine months of the year were up 4% from the same period last year. Our year-to-date production volume of 409,000 metric tons was a new record for us. As we previously said our ability to achieve additional increases in our production capacity through the bottlenecking projects is limited. Our sales volumes for the first nine months of the year were comparable to our volumes in the first nine months of the year. On the cost side of the equation and as expected, our raw material costs were $17.3 million higher in the quarter and they were $47.9 million higher on a year-to-date basis reflecting higher costs primarily for the feedstock ore and Petroleum Cork. Our maintenance costs were also up slightly a consistent with our higher production levels. Overall we currently expect that our per metric ton of TiO2 will increase from 10% to 15% for all of 2011 as compared to calendar 2010, consistent with our cost expectations that we’ve reflected at the end of the first quarter of this year. Our EBITDA for the quarter was about $170 million, up from $68 million a year ago on a year-to-date basis. Our EBITDA this year was about $443 million as compared to $151 million in the first nine months of last year. Our interest expense for the quarter ended at eight periods was lower primarily due to the first quarter redemption of €80 million principal amount of our Senior Secured Notes that we completed in March 2011and favorable interest rates on our borrowings that were outstanding under the revolver. At the end of September we have no borrowings outstanding other than the Senior Secured Notes. During the third quarter this year, we also purchased in market transactions approximately 30 million Euro principal amounts of our Senior Notes offering an aggregate cost that was slightly less than par value. In addition, during the month of October we purchased in open market transaction an additional €10 million principal amount our notes on similar terms. Our net income for the third quarter was $85.9 million or $0.74 per diluted share, this compares to net income in the third quarter of last year of $32.1 million or $0.33 per diluted share. For the first nine months of the year, net income was $235.2 million, $2.03 per dilute share compared to $94.1 million or $0.96 per diluted share in the first nine months of last year. And our year-to-date results for the first nine months to 2010 (inaudible) impact of the previously reported non-cash deterred income tax benefit of $35.2 million which equates to $0.36 per diluted share related to a favorable development in Germany. As we previously reported in May of this year, we implemented a two-per-one stock split and all of the per share that I have discussed this morning has been computed on this post split basis. For the remainder of the year, we expect our segment profit and net income will continue to be significantly higher compared to 2010, as the favorable effect of our higher average selling prices will more than offset the impact of our higher anticipated production costs. That concludes my prepared remarks and at this point, we can open the call up for Q&A.

Thank you. Ladies and gentlemen (operator instructions). Your first question comes the line of David Begleiter from Deutsche Bank. Please proceed.

Hi, this is James Sheehan, in for David Begleiter. Just want to talk about pricing a little bit. Could you sort of give your understanding of the way pricing went in October? You didn’t fully implement the price increase that you had nominated in October. What was the reason for that? And also looking at the January pricing action how is that being received by customers in light of the global economic slowdown?

I think the main point is that we expect prices to increase in the fourth quarter, whether its implemented in one time or in phases, we expect prices to be substantially higher in the fourth quarter than they were in the third quarter.

So that means you are in a contingent to implement the full October price increase in 2012?

We will continue to increase our prices in the fourth quarter.

Okay. And word is you had an estimate for 2011 ore costs, and I guess you may still be in the midst negotiating 2012 ore costs. But do you have a sense for what the percentage increase might be in 2012?

No, we are still just in very preliminary discussions with the ore suppliers. We’ve not made any final decisions of definitive terms, and so we are not able to give any quantification on what our ore overall production cost would be anticipated to increase in 2012. That said, we know that the talk out in the market and we are expecting significant increases in ore costs in 2012. One other – Brian question wanted to add a follow up.

Just to give a little bit more clarification on the pricing. Price increases are implemented in difference phases depending on the kind of loose classification of customers. We customers that take price increases effective immediately based upon various different contracts with some our larger customers, and in some cases there is varying degrees of price protection in different markets of the world. We have different periods of time where we implement those price increases faster than others and then in some cases distributors and agents are in a separate classification as well. So when looking at the quarterly results, you are going see a little bit of noise in the analysis in terms of the actual implementation as that fluctuates throughout our quarter depending on those various classes of customers.

Okay, very helpful. And then one last question, just on your mix, that metrics has been unfavorable for the last three quarters or so. When would you expect mix to turn positive for you?

Mix is really just sort of a catchall for the things that aren’t covered in the other three items that we list. So there can be a number of different factors involved in mix and we can’t predict when it’s going to go positive and be negative.

Okay. Thank you very much.

It wouldn’t be customer discounts. There aren’t any customer discounts. It can be changes in volume sales to one customer at one price versus selling to another customer. So that is an actual customer mix. There is an actual product mix in there. How much you’re selling your particular product that may have a different price in volumes associated with that. Those are the obvious changes.

No. I think the destock – any destocking that we’ve seen and like John said, I think John’s right. It’s hard to categorize whether it’s true destocking. But I think we would categorize it as normal seasonal volume for the quarter in the time of year that we’re in. I think this is the normal pattern of what customers do. They probably destock a little bit at the end of the year and with the announced price increases out there, I think the industry has changed and realized that the price increases are coming on a more regular basis now. That could have some impact on behavior versus in comparison to last year when I think that they were still getting used to the price increases and maybe some people were trying to buy ahead. So maybe that’s why we didn’t see as much of the seasonal downturn last year. But I do think there’s been a little destocking going on and as Steve alluded to, at some point we anticipate that there’ll be restocking and whether that’s at the end of the fourth quarter, spills over into first quarter, I think we’ll have to wait and see. But like he also said, we don’t see anything that’s alarming at this point in time.

I think we agree with what you’re saying is that any increase in demand that would come about from whatever sector is just going to exasperate the existing shortage.

I think what we said was just – when you look at our volumes, whether they’re up a few thousand tons or down a few thousand tons on a quarter year-to-date basis, that’s pretty much consistent with our expectations is we just don’t think that our volumes are going to change that much, in part because we were pretty much tapped out on our production volume. So when you look at our year-to-date volumes and they’re down 1,000 tons, 1,000 or 2,000 metric tons, that’s really nothing of any concern to us and how that washes through in the fourth quarter is not something we’re really that concerned about.

You are right on the point that we described in our filings that a lot of the foreign jurisdictions, there is a longer process because you’ve got to ship it further. The stuff ships very easy, low cost shipping, but the time lags sometimes happen and then also the credit. A lot of the regions that we sell into we actually require financial assurance put up. Sometimes they actually have to pay in advance before the ship even starts. So some of the paperwork and mechanics can flow from quarter to quarter and there’s no real way to tell until the very end of the quarter how much was – effectively we thought was sold in the quarter flops over into the first week or two of the next quarter. That happens every single quarter to more or less extent just depending on those variables that we don’t have total control over. But it’s usually a very short period. We’re talking two to three weeks usually from one quarter to the beginning of the next quarter.

It really depends on the customer. We know that some of our large slurry customers have limits on how much they can store because it’s got to be on rail lines and so they can only store so much. If you’re talking about in powder form, that’s going to be subject to each customer’s warehousing capability. So we don’t know. We would – the bigger restriction would be on whether or not we’ve got the material to sell to them and whether we’d want to do it all in that period of time. So that’s probably a bigger restriction.