KRO - NYSE

Janet Keckeisen - VP, IR Steve Watson - CEO Greg Swalwell - EVP and CFO Rob Graham - EVP, General Counsel Brian Christian - VP, Strategic Business Development

David Begleiter - Deutsche Bank Sabina Chatterjee - Wells Fargo Securities Edward Yang - Oppenheimer Gregg Goodnight - UBS Sharyl Van Winkle - Independence United Capital Trey Grooms - Stephens Incorporated Graham Morris - Contrarian Capital Stephanie Renegar - JPMorgan

Good day ladies and gentlemen and welcome to the Kronos Worldwide Fourth Quarter and Full-Year 2011 Earnings Call. My name is Ann and I will be your coordinator 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 Ann. Good morning and welcome to the Kronos Worldwide 2011 fourth quarter and full-year 2011 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 related to matters that are not historical facts are forward-looking statements that represent management’s belief and assumption based on currently available information. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it cannot be of any assurances that these expectations will prove to be correct. Such statements of either nature involves substantial risks and uncertainties that could significantly impact the 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 asked 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 everyone participating on this conference call. In addition to Janet and Greg, with me today are several members of our management team; Rob Graham, our Executive Vice President; Kelly Luttmer, Vice President, Global Tax Director; John St. Wrba, Vice President, Treasurer; Tim Hafer, Vice President, Controller; and Brian Christian, Vice President of Strategic Business Development. I also want to give special recognition to our exceptional operating management team. Leaders of that team, including Doug Weaver, Dr. Ulfert Fiand, Klemens Schluter, Joe Maas and Ben Corona, have the talent and the experience necessary to maximize the potential of the Kronos business. These gentlemen and the teams they lead, have built an organization with a long history of continuous improvement. Special recognition goes to our manufacturing and technical groups, who have an outstanding record of increasing production efficiency and capacity, generally with minimal capital costs. In 2011, these groups again broke all previous production records by making 550,000 metric tons of TiO2. Our operating and financial results for 2011 were exceptional, as we were able to increase prices throughout the year to more than offset increased costs. Even with our 2011 sales volume down 5% our operating income of (inaudible) of 2010. During the first nine months of 2011, we experienced strong global customer demand for TiO2 products, which continued to outpace supply. Demand for TiO2 products slowed in the fourth quarter, which we attribute primarily to seasonality and destocking of customers inventories, in some cases to lower than normal seasonal levels. Some customers had built inventories of TiO2 higher than normal during 2011 to assure adequate supply and avoid production disruptions during the highest TiO2 demand periods. We anticipate a similar pattern may develop in 2012 as we again enter the highest demand periods and assurance of adequate supply becomes critical for many customers. Although our fourth quarter sales volume decreased 19% from the fourth quarter of 2010, we were still able to implement selling price increases. Our sales price at the end of the fourth quarter was 11% higher than the end of the third quarter and 46% higher than the fourth quarter of 2010. Our production facilities were operated at full capacity throughout 2011 even during the fourth quarter when our sales volume declined. This allowed us to rebuild our inventory at 2011 costs, which will positively impact our financial results in 2012. The global shortage of titanium ore feedstocks and rising prices will result in a significant increase in 2012 production costs. But we expect to implement TiO2 price increases to offset these higher costs. As we have previously discussed, an extended period of low profit margins did not foster the investment in and development of ore supplies that are now needed to expand the TiO2 industry. We believe that the ore prices now in effect are producing the profits necessary for the continued development and expansion of ore supplies. We also believe that ore costs will stabilize and moderate as necessary, so not to become a major factor in hindering profit, margin expansion in the TiO2 industry, which could in turn hinder TiO2 capacity expansion necessary to consume the additional ore supplies. We are partially hedged against ore shortages and cost increases. We currently supply 100% of our European sulfate production ore feedstocks from our mines in Norway and sell additional ore production to third parties. We continue to believe the global shortage of TiO2 will last for several years due to the constraints and time required to adding significant new capacity, especially for TiO2 premium grades produced through the chloride process. We expect the supply of TiO2 products to increase through various methods over time, but we believe the magnitude of such increases will not consistently exceed the expected global demand for TiO2 products in the foreseeable future. In conclusion, we can confirm that we believe the current and anticipated TiO2 industry conditions will result in strong profits and cash flow for the foreseeable future. Greg will now expand on some of the points I have touched on and review our overall financial performance, after which we will open this call up for questions.

Thank you, Steve, and good morning to everyone on the call. We achieved record operating results in the fourth quarter and for the full-year of 2011, primarily due to the favorable impact of higher selling prices for our main product TiO2. We reported operating income or segment profit which is the term that we use in our earnings release of 145.9 million for the fourth quarter of this year compared to 62.5 million in the fourth quarter of last year. For the full-year of 2011, our segment profit was 555.8 million up from 185.8 million for the full-year of 2010. Our average selling prices in the fourth quarter were up 46% as compared to the fourth quarter of last year. And as Steve mentioned, our selling prices at the end of the fourth quarter were 11% higher as compared to where they were at the end of the third quarter of this year. For the full-year our selling prices were up 40% on a year-over-year basis. We continue to operate our plants at full practical capacity utilization levels, with our production volumes up 5% from 2010. The production volume that we achieved at 550,000 metric tons for the full-year was a new record for us. Thank you, Klemens and your team. We currently expect to operate our facilities in 2012 at production levels consistent with our 2011 levels. Our sales volumes for 2011 were 5% less than 2010 due primarily to the customer destocking most of which occurred in the fourth quarter. On the cost side of the equation and as we have talked about before and as expected, our raw material costs were higher up 27.2 million for the quarter and up 75.1 million for the year as compared to where they were last year reflecting higher costs primarily for feedstock or/and petroleum coke. In addition, our maintenance costs were also up slightly which is consistent with the higher production level. Going into 2012, we expect that the trend of these higher raw material costs are going to continue led by significant increases in our feedstock ore cost. Overall, we currently expect that our per metric ton of TiO2 that we’ll produce in 2012 will be between 50 to 60% higher as compared to our production cost in 2011, largely driven by higher feedstock ore costs. Our cost of sales per metric ton of TiO2 sold in 2012 is consequently expected to be significantly higher as compared to 2011, but only after we’ve sold the TiO2 products that we have on hand in our inventories at the end of 2011 the cost of which is significantly lower than our expected 2012 production costs. And as Steve mentioned, we expect to implement TiO2 price increases to offset these higher operating costs in 2012. EBITDA for the fourth quarter was 157 million up from about 73 million last year and for the full-year, EBITDA was about 600 million as compared to 224 million from last year. Our interest expense for both the fourth quarter and full-year of 2011 was lower than it was from comparable periods in 2010, primarily due to lower debt levels. The lower debt levels came in part from the March 2011 redemption of €80 million principal amount of our senior secured notes, as well as about €41 million principal amount of our senior secured notes that we repurchased in open market transactions during the third and fourth quarters at an aggregate cost slightly less than par value. Our net income for the fourth quarter of 2011 was 85.8 million or $0.74 per diluted share. This is compared to 36.4 million or $0.33 per diluted share in the fourth quarter of last year. For the full-year 2011, our net income was 321 million or $2.77 per share, compared to net income of 130.6 million or $1.29 per diluted share last year. And please keep in mind that our 2010 results include our previously discussed first quarter non-cash deferred income tax benefit of 35.2 million or which is $0.36 per share related to a favorable development of some tax matters in Germany. In addition, our income tax provision in 2011 includes a provision for U.S. incremental taxes on earnings that were repatriated from our German subsidiary of 17.2 million, which was also 4 million in the fourth quarter and those earnings were used to fund a portion of the senior secured notes that we repurchased in the third and fourth quarter. In May of 2011 we implemented a 2-for-1 stock split, and so all of the per share amounts that I have referred to this morning have been computed on a post split basis, including for periods prior to the effective date of the split. Overall for 2011, we expect that our segment profit and net income will be higher than 2011, as the favorable effect of higher selling prices and higher sales volume will more than offset the impact of our higher anticipated production costs. At this point, that’s the end of my remarks and we will open it up for questions.

Thank you. (Operator Instructions) And our first question comes from the line of David Begleiter with Deutsche Bank. Please proceed.

Steve, what’s your forecast for TiO2 industry volume growth in 2012 and your estimate of Kronos’ volume growth in 2012?

As you know, we don’t give any guidance. This is Greg. I’m not going to go into any specifics about our volume growth in a quantitative manner. I will say from a qualitative perspective, we expect our volumes to be higher in 2012 as compared to 2011. And in part, we continue to run our plants full out even through the fourth quarter when our sales volumes were kind of soft. But overall, we expect our volumes to be higher in 2012 as compared to 2011.

And just a follow-up on pricing. What’s your expectation for pricing year-over-year for TiO2 in 2012 versus 2011?

We don’t provide again a quantification of our selling price. It increases expectations. We have never done that historically and we’re not intending to do that. But I will say, as we talked about in our remarks, we do expect the industry dynamics to continue to result in increased selling prices, in part to offset the effect of the higher production costs and we expect those selling prices to be implemented all throughout 2012.

And just last, if I could, how close are your current ore contracts to spot prices right now after all your negotiations?

This is Rob Graham. We don’t comment specifically on individual components of raw material costs and in particular ore prices as well.

And our next question comes from the line of Frank Mitsch with Wells Fargo Securities. Please proceed.

This is Sabina Chatterjee in for Frank Mitsch. Just a question on COGS. In the fourth quarter, it looks like the number was exceptionally low, down about 10% year-over-year despite a 17% sales increase. So, I realize volumes were down, but as a percent of sales, I would have expected maybe flattish results as opposed to down about five points, sequentially. So can you just help us bridge that gap? I mean was it related to mix or purchasing, any details there would be helpful?

This is Greg. There is probably a number of factors. One you probably have a little bit of an FX impact related to the production costs as compared to where our sales are all denominated. And again with the high production volumes that we had, we were able to spread our fixed production costs over a much larger quantity of production, and so as that flowed to our cost of goods sale, we got the benefit of that and the latter is probably more a contributing factor than FX.

Okay. And then just some clarification, the 50 to 60% increase in production costs you mentioned, is that a blended average or does it exclude the portion for which you are self-sufficient?

The 50 to 60% is a blended average for all of our plants, and that would include the benefit that we have that we still source our ilmenite for our European sulfide plants. So that is all blended in there. But as I mentioned the 50 to 60% does not reflect the benefit that we’ll get primarily in the first quarter from selling the lower cost production of the finished goods that we had on hand at the end of the year. 50 to 60% is from a production level not from a sales cost to goods sold level.

So, when do you expect to have exhausted that supply of lower cost 2011 or is it after Q1?

Well, someone here said probably about three days from now, but I can't directly answer that question, because directly answering that question would be giving you some insight into our volume expectations. But I would say generally if you go back and look at the trend of our sales volume, the bulk of that’s going to be in the first quarter.

And our next question comes from the line of Edward Yang with Oppenheimer. Please proceed.

If I think about there is tremendous amount of debate about the sustainability of the current TiO2 cycle, but when I step back it just all comes down to really two things; supply, demand. Maybe addressing the first issue in terms of supply, given some of the concerns there are about ore inflation and TiO2 margins; for example, Huntsman had said that they expected their margins to get hurt by that this year. What’s your expectation in terms of industry supply growth given these concerns about profit margins, understanding that again, you are guiding towards profits to be up year-over-year in 2012?

This is Rob Graham again. The long-term trends in the industry, we believe are well in place. Even with the ore cost increases that have been implemented by ore producers, there have not been and we do not expect new chloride greenfield plant to be at reinvestment levels given the current pricing environment. The supply and demand, we can get a little bit lost in the short-term trends, but as emerging markets continue to grow and as the rest of the world continues to want western style products and services. We are going to continue to see the long-term trend grow and the demand for TiO2 continue to grow. We do think the supply imbalance will continue, the long-term shortage will continue over time. But in the fourth quarter and historically in the first quarter, producers tend to rebuild their inventories as the year progress. There is some seasonality there. So, to answer your question, even with the ore price increases, we don't believe that new plant reinvestment levels, we do think the long-term shortage stays in place and we also don’t believe TiO2 input cost into most producers products are sufficient, a sufficiently high cost element to restrict demand for the products.

On the supply side again, sounds like your expectation is that supply is going to remain very constrained. Does that apply to Chinese producers as well? Are you talking about the overall TiO2 supply market?

Yes. It is the global market. The Chinese market is not a big factor in our business. They have typically had a low grade product that is not, it's the low-grade sulfate product which is primarily used domestically. So, the exports from China have not been a significant factor, and we don’t really see them getting this technology and eventually that probably will at some point in time, but we actually don’t see that being a significant impact in the long-term trends for the industry.

Are they grappling with higher ore prices as well?

Absolutely.

Okay. Just a final question on the demand side. I mean you touched on that a little bit. But maybe thinking, drilling more into the near-term. Clearly, fourth quarter volumes down 19%, that’s an aberration, you can’t really extrapolate that. But in terms of the recovery from that, what are you seeing in terms of volume trends in the short-term and more importantly, when do you think that industry volumes will get sold out again?

Well, we don’t comment superficially on current volumes, but we have actually seen and we are just heading into the high demand season for TiO2, but we are seeing. It depends on the market. It's a global market. Some areas of Europe are doing reasonably well. North America is not just stabilizing, it is better than it has been, we’re seeing a good market here in North America. Certain export markets are very strong right now. We all saw the contraction in the markets a bit, yesterday based upon the Chinese announcement. But again Southeast Asia and Asia is also a growing market its part of the emerging markets that we see. So we have not seen anything that indicate that demand is not there and that demand is reasonable going into 2012. Again that goes back to Greg’s comments about our volume expectations, as well as what we think in terms of our sales volumes for the year.

This is Brian Christian, just to expand on that a little bit further. Rob is exactly right, TiO2 is a global product, the transportation costs are minimal we can ship TiO2 anywhere in the world and with the price increases that we’ve seen, those same transportation costs have become an even smaller percentage. So it has really given us a lot of flexibility on those ends. You are exactly right, there was a what we will call a pause in the fourth quarter due to some things that Greg and Rob have already walked you through, the tightening of China’s fiscal policy, Eurozone concerns back in the fourth quarter. Things have definitely started to improve in 2012. Greg mentioned that we do anticipate sales volumes to be higher in 2012 and to answer specifically as to when we see the shortage conditions coming back into place. I couldn’t give you an exact time. There’s going to be general short-term fluctuations in the market, but we maintain a position that the overall long-term market dynamics have not changed and that we’re still in a over a long period of time a shortage condition, because we don't see new supply coming online anytime soon and we see demand continuing to grow on a global basis as global GDP continues to expand, specifically in the export markets. And as Rob mentioned, North America is recovering strong and parts of Europe that are stable as well, and looking positive there. So we still think that overall, there is a shortage supply but there’s going to be fluctuations from quarter-to-quarter or month-to-month.

And our next question comes from the line of Gregg Goodnight with UBS. Please proceed.

Your production volume 550,000 metric tons is over your former stated capacity of 525. Are you going to restate your nominal capacity for 2012 and what would that be?

As I said, our volumes were very, very strong. It was really we didn’t spend a lot of money to achieve this. It was more kind of an enhanced focus on operating efficiencies, not that we didn’t focus on that before. What our nameplate is, yes we had talked about in the low 530s. From our perspective, we think we have said a new bar at 550 and we would expect to continue to try to at least achieve that 550 for 2012?

Do you have any specific debottlenecking projects on the slate that you’re going to execute this year or next year?

This is Rob Graham again. We have a number of projects that increase efficiency and increase production depending on the plant, whether there is specific debottlenecking that terminology. We don’t have anything major planned for in the next year or so, but we have found that through various process technology improvements, and Steve referenced this in his opening remarks is, we’ve been able to increase the efficiency and find production increases incremental at each of the plants without significant capital investments. So we expect that trend to continue. It will not be probably at some of the rates that we’ve seen previously, but we have been able to run our plants consistently well over the last couple of years and we continue to see process improvements and proprietary technology being implied to increase our production.

A follow-up question if I could. The ore prices for the synthetic rutile seem to be going up faster than ilmenite. Could you comment at least qualitatively on the margins of sulfate based process versus chloride process? Do you look for those margins to maybe converge or come closer together in 2012?

This is Rob Graham again. We don’t comment specifically on the different grades and different products that we have in terms of the margin expectations. You are correct, that ilmenite prices per TiO2 content has not risen as much as the various chloride grade. So, there does tend to be a difference in that. However, again, we don’t really go into specifics beyond that, but we do have a significant sulfide presence in Europe and we also have some in Canada out of North America as well. So, that will actually help margins during the year.

And our next question comes from the line of [Brian Crossett] with UBS. Please proceed.

Can you give us a flavor in terms of what percentage of the ore that you need to purchase is negotiated on a quarterly basis versus semiannual basis? And then, my second question is along the same lines. I notice your Exxaro contract will expire at the end of December 2012. What are your plans to secure ore after that? Thanks.

Well, we don’t specifically comment on the differences between quarterly, semiannual or annual pricing. We have had relationship and a contract with Exxaro. We didn’t tend to negotiate those contracts and look at our requirements toward the second half of the year, so I can’t really specifically comment on our expectations with respect to Exxaro beyond the current year. We have had a relationship with them and we would expect that relationship to continue if we desire it to.

And our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed.

Thank you. On volumes, in the past in 2010 your sales volumes pretty much equaled your production volumes. 2011, because of the weak Q4, your sales volumes fell a little below your production volumes. Would you expect then 2012 in order to equalize these levels that sales volume would exceed production volumes by that roughly 45,000 tons, which fell short off in 2011?

I can't comment specifically on volume expectation and total volume expectations, but clearly if we’re running plants at full capacity, we expect our sales volumes to meet or exceed those volumes.

Let me just take that argument forward, if you do that would imply volumes were up about 16% year-over-year in order to get back to perhaps year-end 2010 inventory levels if you produce at 550 at a net 45,000 of excess year-end inventory. That’s up 16% year-over-year. Whom do you expect to gain share from, because (inaudible) is forecasting volume growth of roughly zero to 2% in TiO2, and the paying producers are making headway in reducing TiO2 usage. So, do you expect to gain share in 2012? Is that a fair characterization?

I think that is definitely part of the answer. I think that there’s a component to it, but we certainly believe in the long-term dynamics of a shortage existing and that there is going to be demand out there that we can achieve and fulfill without taking market share. We continue to believe that the long-term demand for TiO2 is going to be in excess of supply. So, we can grow our volumes without taking market share, but absolutely taking market share is also a good thing as well, and we think that there is some opportunities in certain markets to do that. And we see the market as a very I totally lost my trend, I apologize.

Well let me just expand on one thing Brian was talking about. Particularly in the export in emerging markets, as this demand grows and the consumers in those markets want higher quality products, the demand does increase and again the market share, the overall pie becomes bigger, so we can grow and grow in those volumes without necessarily taking market share. But our hope and expectation is always that we grow market share as well.

I remember where I was going with that, I apologize for that. In 2011, we also remember that in the high demand part of the year and in the second and third quarter, we were in a position where we were completely sold out and turning away orders. And we feel with the inventory build we had in the fourth quarter, we will be in a position this year to be able to meet that excess demand in those peak markets and that should also contribute to the higher volumes in 2012.

Brian, is it fair to assume that 45,000 tons of volumes which exceeded sales in 2011, you will equalize that or normalize that by year-end 2012? Is that the goal?

I think our goals are always extremely high, and I don't think I can comment on what an absolute target would be.

And our next question comes from the line of Sharyl Van Winkle with Independence United Capital.

First question is, when you say that you are going to be up 50 to 60% per ton of TiO2 in 2012 once you’re finished with the 2011 inventories. Are you referring to total cost of sales per ton of TiO2 or some more narrow set of costs like raw materials?

No, the 50 to 60% is total fixed variable, total production costs per metric ton of TiO2 produced.

And is there a difference between production costs and cost of sales per ton? Is there some other factor in there between those two?

As the inventory that we produced in 2012 is sold, that production cost per ton would be reflected in our cost of goods sold.

Okay. So that would be everything, that would include maintenance costs, it would include anything?

Exactly. That’s correct.

Okay. And then secondly, did you say what your net debt was at year-end?

350 million approximately. There’s only 360 million outstanding on the KII note, so subtract cash balance of what was it 80 million?

So 360 minus 80, so about 240.

Yes, right.

Okay. And then I missed the second reason, somebody was asking about why fourth quarter costs of sales seemed low relative to one might have expected. You gave two reasons. I missed the second one?

The second, which was the primary factor, was because we continue to run the plants all out and achieve the exceptional production volume. The fixed cost got spread over a larger volume and so therefore, the fixed cost per metric ton of TiO2 that was sold that flowed into cost of goods sold was lower.

And our next question comes from the line of Trey Grooms with Stephens Incorporated. Please proceed.

First off, the inventory levels are obviously running higher at the manufacturing level for the industry kind of coming out with the fourth quarter, but just kind of broadly speaking, could you talk about kind of what the inventory levels look like throughout the channel like at the buyer level? We know they were very short for quite some time but how does that look now relative to kind of how it has been, if you could just give us some broad color on that, please?

This is Rob Graham. We don't specifically comment on and really can’t give you a view into buyer inventory levels. As mentioned earlier, there is a seasonal build and granted they were slower than normal in fourth quarter. And there is some build of inventory typically as customers come back in the first quarter, but the seasonal trends, as we’ve kind of explained, it appears that certain markets are really pretty good right now as well and there is some weakness in certain other markets that are well publicized, but the overall trends we don’t see anything out of the ordinary in terms of a typical year developing right now.

Then looking at your comments on the ore industry, you expect ore cost increases to moderate at some point. What are you seeing in the ore industry, I guess that kind of leads you to believe that these costs will moderate kind of some point down the line? Could you kind of talk about the fundamental differences in the ore industry that will make it, I guess more difficult for them to increase prices relative to the TiO2 industry as we kind of look out longer term, because it does sound like you expect the TiO2 industry supply-demand dynamics to remain very favorable for the foreseeable future? Just trying to get a feel for the differences there? Thank you.

Trey, this is Brian. A few things to comment on there as it relates to ore. As Steve mentioned in his opening remarks, the ore industry has hitched its wagon for a lack of better explanation to the TiO2 industry and they’ve been able to achieve some very significant price increases, hence, Greg’s comments on our cost increasing. And we believe that the profit margins that they have been able to achieve at this point have allowed them to reach reinvestment levels, hence why you’re seeing so many projects being announced and coming on line here in the relative short-term over the next couple of years. So that’s why we think that as the new supply comes on line, that’s probably one of the biggest data points as to why we think that we’re reaching a point of stabilization in the ore prices. To answer your follow-up question as to why that’s different than what we see in the TiO2 industry, I think we would get more into a high level conversation about barriers to entry. I think there is higher barriers to entry in TiO2 than there are in ore TiO2 bearing. Feedstock is extremely abundant in the world. It's all over the place. Yes, there is a high amount of capital required, but we think it's probably relative. While still a high barrier to entry relative to the TiO2 industry, it is not as high to go in and create new supply in the marketplace. And that these margins I think you will see a lot of people who are interested in developing new ore bodies. The biggest thing that differentiates us on the TiO2 side is the proprietary technology that only a few of the producers have to create new chloride based plants. And as you know and as seen from a lot of the recent press articles that is very highly guarded, all of the major players defend that aggressively, and we feel that that’s probably one of the largest things that’s going to create that separation that you were referring to in your question.

And just on that, do you have any sense of timing of when this additional capacity in the ore industry could come about?

I think we would generalize that as by saying, in the next couple of years, I think it’s probably a fair estimate obviously, when you are talking about bringing on a new ore body, there’s a lot of potential for variance in that. So, I think that’s probably about as specific as we’d like to comment on.

Okay. That’s fair. And then just to make sure I heard things correctly. The cost per unit with your guidance increase of 50 to 60%, just to make sure I understand. It does reflect being vertically integrated with most of your ilmenite needs. But does it reflect the impact from being long ore or selling ore to third parties?

This is Greg. You are correct. The 50 to 60% does reflect on the cost side, it does reflect the benefit we have of being vertically integrated with our ilmenite mines in Norway, supplying 100% of our European sulfate. What that does not reflect is the benefit we would get, everything else being the same, because we don't consume 100% of that ore as you mentioned, it's only about one-third of that production that we consume internally, and the other two-thirds of the ore that we produce, we sell into the open market. And with the market price of feedstock ore going up, it's reasonable to assume that selling prices for that excess production to our customers would be going up as well. That benefit is not inherent in the 50 to 60%. That 50 to 60% is only looking at the cost side.

Okay. Is there any way for us to kind of ballpark what that impact might be? Looking into ‘12 or if not, maybe even looking backwards into ‘11, kind of what impact that might could have been?

No, we don’t go into specifics with respect to the revenues from our mine. I’d just say, if you are looking at the market price, what’s happening in the feedstock or I’d just say, keep in mind that because the TiO2 content of the ilmenite that we produce is lower as compared to feedstock for a chloride plant for example. Directionally, the selling prices would be going up with a market price of ore, but the magnitude of the increase would not be as much as you might see with the increase in the market price for chloride feedstock. Again because the TiO2 content of our ilmenite is lower.

And our next question comes from the line of Graham Morris with Contrarian Capital. Please proceed.

I had a question on fourth quarter production, it grew by 5%. How much of that was just of the capacity utilization going up to a full capacity and how much of that was debottlenecking?

We don’t actually look at it that way. I think we are pausing here, because we don’t look at it that way. It's a combination of factors. I mean there is a continuous process of trying to improve production efficiencies throughout each of the plants, and we have just been able to move things here and there at each of the plants and since we operate them pretty much the same way in each case when we find something in one plant, we can adopt it and implement it at another plant, which enhances the ability and sort of leverages the knowledge base that we’ve got.

And our next question comes from the line of Gregg Goodnight with UBS. Please proceed.

You mentioned that some parts of Europe were doing well. I’m just curious as to your view of European demand. Do you expect it to be flat year-over-year. Is there some weakness there that perhaps you could have sales volumes down in Europe, or what is your view that’s baked into your overall view?

This is Rob again. We don’t look at Europe as a unitary market, so there when we talk about Northern Europe, there are certain economies that have been strong and continue to be strong throughout there. Where we see the issues are really very much in the marketplace and as those tend to get resolved. It's the Southern tier of Europe that is weak. If they get the fiscal house in order and if some of the other issues get resolved, we expect those areas to improve and we hope that they will improve over the course of the year. Even in that area, some of those markets have actually been stronger than we've expected because the business goes on and people still demand the product. You have got Eastern Europe which has been weaker. But generally speaking, the Northern European economies and the Nordic areas have been good markets and continue to be good markets and have been very strong.

One final question if I could. T

No way for us to know.

Yes, we don't know.

Okay. The market is acting like it's that tight. But who knows. Okay, thanks gentlemen.

I think one of the biggest things that we can add to that is it's tough to when you’re trying to go off a nameplate capacity, that’s a really tough initial step in your analysis because a lot of times people don’t produce anywhere close to their nameplate and then in some years Kronos, we were able to exceed our nameplate capacity by a fairly significant amount due to our proprietary technology and our expert management team. So, I think that puts a lot of noise in your analysis.

(Operator Instructions) And our next question comes from the line of Stephanie Renegar with JPMorgan.

Just a very quick one on the bonds. You’ve been taking these down via open market purchases and/or redemption. Just wondering your thoughts on doing a euro versus a dollar issue as well as taking out the bonds immediately with another set of bonds or with cash versus a credit facility; just methods of refinancing concerning they are coming due in April of next year?

Yes, I don't think our guidance has changed on that since the last call or since we filed the K. I mean we certainly intend to refinance the KII bonds prior to their maturity. The vehicle in the geographic area where we do that is still open at this point. We haven't made any decisions on whether they’re euro or U.S. denominated and in what type of financing instruments.