KRONOS WORLDWIDE, INC. 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 nine months endedSeptember 30, 2022 , approximately one-half of our sales volumes were sold into European markets. Our production facilities are located inEurope andNorth 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
? 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$21.0 million , or$.18 per share, in the third quarter of 2022 compared to$36.0 million , or$.31 per share, in the third quarter of 2021. For the first nine months of 2022, we reported net income of$124.4 million , or$1.08 per share, compared to net income of$81.3 million , or$.70 per share, in the first nine months of 2021. Net income decreased in the third quarter of 2022 as compared to the third quarter 2021 primarily due to lower income from operations resulting from the net effect of higher production costs, lower sales volumes and higher average TiO2 selling prices. Net income increased in the first nine months of 2022 as compared to the same period in 2021 primarily due to higher income from operations resulting from the net effects of higher average TiO2 selling prices, higher production costs and lower sales volumes. Comparability of our results was also impacted by the effects of changes in currency exchange rates. Our net income in the first nine months of 2022 includes the recognition of a pre-tax insurance settlement gain of$2.7 million recognized in the third quarter ($2.2 million , or$.02 per share, net of income tax expense) related to a business interruption insurance claim arising from Hurricane Laura in 2020. 17 Table of Contents 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 theSEC 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)
Operating interruptions (including, but not limited to, labor disputes, leaks,
? natural disasters, fires, explosions, unscheduled or unplanned downtime such as
disruptions in energy supplies, transportation interruptions, cyber-attacks 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
? 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
? 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 15% in the first
nine months of 2022 in response to our rising production costs. Overall sales
volumes declined in the first nine months of 2022 compared to the first nine
months of 2021 primarily due to demand contraction in our European and export
markets, particularly in the third quarter.
The following table shows our capacity utilization rates during 2021 and 2022.
Throughout most of 2021 and continuing into the first quarter of 2022, our
production facilities operated at full practical capacity. We operated our
production facilities at 96% of practical capacity utilization in the first nine
months of 2022 compared to approximately 99% in the first nine months of 2021.
During the third quarter of 2022, we operated our facilities at approximately
93% of practical capacity primarily due to maintenance activities and alignment
of our production and inventory levels to anticipated near-term customer demand
which reduced our production rates.
Production Capacity Utilization Rates
2021 2022
First Quarter 97% 100%
Second Quarter 100% 95%
Third Quarter 100% 93%
Due to significant increases in production costs (primarily energy and
feedstock), our cost of sales per metric ton of TiO2 sold in the third quarter
and first nine months of 2022 was higher as compared to the comparable periods
in 2021 (excluding the effect of changes in currency exchange rates).
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Quarter endedSeptember 30, 2022 compared to the quarter endedSeptember 30, 2021 Three months ended September 30, 2021 2022 (Dollars in millions) Net sales$ 499.8 100 %$ 459.6 100 % Cost of sales 376.8 75 375.6 82 Gross margin 123.0 25 84.0 18 Selling, general and administrative expense 64.2 13 59.0 13 Other operating income (expense): Currency transactions, net 1.2 - 6.7 2 Other operating expense, net (2.7) (1) (.9) - Income from operations$ 57.3 11 %$ 30.8 7 % % Change TiO2 operating statistics: Sales volumes* 142 113 (20) % Production volumes* 137 131 (5) % Percentage change in net sales: TiO2 product pricing 21 % TiO2 sales volumes (20) TiO2 product mix/other (3)
Changes in currency exchange rates
(6)
Total (8) %
* Thousands of metric tons
Net sales - Net sales in the third quarter of 2022 decreased 8%, or $40.2
million , compared to the third quarter of 2021 primarily due to the net effect
of a 21% increase in average TiO2 selling prices (which increased net sales by
approximately $105 million ), a 20% decrease in sales volumes (which decreased
net sales by approximately $100 million ) and changes in currency exchange rates
(primarily the euro) which we estimate decreased our net sales by approximately
$31 million . TiO2 selling prices will increase or decrease generally as a result
of competitive market pressures, changes in the relative level of supply and
demand as well as changes in raw material and other manufacturing costs.
Our sales volumes decreased 20% in the third quarter of 2022 as compared to the
third quarter of 2021 primarily due to lower demand from our European customers
which we began experiencing towards the end of the second quarter and
accelerated during the third quarter. We also experienced lower sales volumes in
our North American and export markets during the third quarter.
Cost of sales and gross margin - Our cost of sales as a percentage of net sales
increased to 82% in the third quarter of 2022 compared to 75% in the same period
of 2021 primarily due to the net effects of higher production costs of
approximately $91 million (primarily raw materials and energy), a 20% decrease
in sales volumes and lower absorption of fixed costs due to a 5% decrease in
production volumes.
Gross margin as a percentage of net sales decreased to 18% in the third quarter
of 2022 compared to 25% in the third quarter of 2021. As discussed and
quantified above, our gross margin as a percentage of net sales decreased
primarily due to the net effects of higher production costs, lower production
and sales volumes, higher average TiO2 selling prices and changes in currency
exchange rates.
Selling, general and administrative expense - Selling, general and administrative expense was comparable in the third quarters of 2022 and 2021 at approximately 13% of net sales.
Income from operations - Income from operations decreased by$26.5 million , or 46%, in the third quarter of 2022 compared to the third quarter of 2021. Income from operations as a percentage of net sales decreased to 7% in the third quarter of 2022 from 11% in the same period of 2021 as a result of the factors impacting gross margin discussed above. We recognized a gain of$2.7 million in 20 Table of Contents
the third quarter of 2022 related to cash received from the settlement of a business interruption insurance claim. See Note 14 to our Condensed Consolidated Financial Statements. We estimate changes in currency exchange rates increased income from operations by approximately$13 million in the third quarter of 2022 as compared to the same period in 2021, as discussed in the Effects of currency exchange rates section below. Other non-operating income (expense) - We recognized a loss of$2.9 million on the change in market price of our marketable equity securities in the third quarter of 2022 compared to a loss of$.1 million in the third quarter of 2021. See Note 4 to our Condensed Consolidated Financial Statements. Other components of net periodic pension and OPEB cost in the third quarter of 2022 decreased$1.4 million compared to the third quarter of 2021 primarily due to the net effects of higher discount rates impacting interest cost and previously unrecognized actuarial losses. See Note 9 to our Condensed Consolidated Financial Statements. Interest expense in the third quarter of 2022 decreased$.6 million compared to the third quarter of 2021 primarily due to the effects of the strengthening of theU.S. dollar relative to the euro (see discussion in the Effects of currency exchange rates section below). See Note 5 to our Condensed Consolidated Financial Statements. Income tax expense - We recognized income tax expense of$1.2 million in the third quarter of 2022 compared to income tax expense of$12.1 million in the third quarter of 2021. The difference is primarily due to lower earnings in the third quarter of 2022 and the jurisdictional mix of such earnings. Our earnings are subject to income tax in variousU.S. and non-U.S. jurisdictions, and the income tax rates applicable to the pre-tax earnings (losses) of our non-U.S. operations are generally higher than the income tax rates applicable to ourU.S. operations. We would generally expect our overall effective tax rate, excluding the impact of the reversal of a portion of our deferred income tax asset valuation allowance, to be higher than theU.S. federal statutory tax rate of 21% primarily because of our sizeable non-U.S. operations. See Note 10 to our Condensed Consolidated Financial Statements. Nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 Nine months ended September 30, 2021 2022 (Dollars in millions) Net sales$ 1,443.4 100 %$ 1,587.8 100 % Cost of sales 1,115.7 77 1,234.0 78 Gross margin 327.7 23 353.8 22 Selling, general and administrative expense 185.1 13 183.6
12
Other operating income (expense): Currency transactions, net 1.2 - 17.1 1 Other operating expense, net (8.7) (1) (8.0) - Income from operations$ 135.1 9 %$ 179.3 11 % % Change TiO2 operating statistics: Sales volumes* 427 399 (7) % Production volumes* 404 401 (1) % Percentage change in net sales: TiO2 product pricing 24 % TiO2 sales volumes (7) TiO2 product mix/other (1)
Changes in currency exchange rates
(6)
Total 10 %
* Thousands of metric tons
Net sales - Net sales in the first nine months of 2022 increased 10%, or $144.4
million , compared to the first nine months of 2021 primarily due the net effect
of a 24% increase in average TiO2 selling prices (which increased net sales by
approximately $346 million ) and a 7% decrease in sales volumes (which decreased
net sales by $101 million ). We estimate that changes in currency exchange rates
(primarily the euro) decreased our net sales by approximately $83 million in the
first nine months of 2022 as compared to the first
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nine months of 2021. TiO2 selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs. Our sales volumes decreased 7% in the first nine months of 2022 as compared to the first nine months of 2021 primarily due to lower demand from our European and export customers, with a significant portion of the decrease occurring in the third quarter. Cost of sales and gross margin - Cost of sales increased$118.3 million , or 11%, in the first nine months of 2022 compared to the first nine months of 2021 primarily due to the net effects of higher production costs of approximately$250 million (including higher costs for raw materials and energy), a 7% decrease in sales volumes and the positive impact from changes in currency exchange rates. Our cost of sales as a percentage of net sales increased to 78% in the first nine months of 2022 compared to 77% in the same period of 2021 due to the impact of higher production costs, including higher raw material and energy costs partially offset by the favorable effects of higher average TiO2 selling prices. Gross margin as a percentage of net sales decreased to 22% in the first nine months of 2022 compared to 23% in the first nine months of 2021. As discussed and quantified above, our gross margin as a percentage of net sales decreased primarily due to the net effects of higher raw material and energy costs, higher average TiO2 selling prices, lower sales volumes, and changes in currency exchange rates. Selling, general and administrative expense - Selling, general and administrative expense as a percentage of net sales decreased to 12% of net sales in the first nine months of 2022 compared to 13% in the first nine months of 2021, primarily due to the effects of higher net sales resulting from higher average TiO2 selling prices. Income from operations - Income from operations increased by$44.2 million , or 33%, in the first nine months of 2022 compared to the first nine months of 2021. Income from operations as a percentage of net sales increased to 11% in the first nine months of 2022 from 9% in the same period of 2021. This increase was driven by the effects of higher net sales on gross margin and selling, general and administrative expenses discussed above. We recognized a gain of$2.7 million in the first nine months of 2022 related to cash received from the settlement of a business interruption insurance claim. See Note 14 to our Condensed Consolidated Financial Statements. We estimate that changes in currency exchange rates increased income from operations by approximately$21 million in the first nine months of 2022 as compared to the same period in 2021, as further discussed below. Other non-operating income (expense) - We recognized a loss of$.5 million on the change in market price of our marketable equity securities in the first nine months of 2022 and a gain of$1.2 million in the first nine months of 2021. See Note 4 to our Condensed Consolidated Financial Statements. Other components of net periodic pension and OPEB cost in the first nine months of 2022 decreased$3.7 million compared to the first nine months of 2021 primarily due to the net effects of higher discount rates impacting interest cost and previously unrecognized actuarial losses. See Note 9 to our Condensed Consolidated Financial Statements. Interest expense in the first nine months of 2022 decreased$2.0 million compared to the first nine months of 2021 due to fees associated with the refinancing of our revolving credit facility in the second quarter of 2021 and the effects of changes in currency exchange rates. Income tax expense - We recognized income tax expense of$34.3 million in the first nine months of 2022 compared to income tax expense of$27.3 million in the first nine months of 2021. The difference is primarily due to higher earnings in 2022 and the jurisdictional mix of such earnings. Our earnings are subject to income tax in variousU.S. and non-U.S. jurisdictions, and the income tax rates applicable to the pre-tax earnings (losses) of our non-U.S. operations are generally higher than the income tax rates applicable to ourU.S. operations. We would generally expect our overall effective tax rate, excluding the impact of the reversal of a portion of our deferred income tax asset valuation allowance, to be higher than theU.S. federal statutory tax rate of 21% primarily because of our sizeable non-U.S. operations. See Note 10 to our Condensed Consolidated Financial Statements.
Effects of currency exchange rates
We have substantial operations and assets located outsidethe United States (primarily inGermany ,Belgium ,Norway andCanada ). The majority of our sales from non-U.S. operations are denominated in currencies other than theU.S. dollar, principally the euro, other major European currencies and the Canadian dollar. A portion of our sales generated from our non-U.S. operations is denominated in theU.S. dollar (and consequently our non-U.S. operations will generally holdU.S. dollars from time to time). Certain raw materials used in all our production facilities, primarily titanium-containing feedstocks, are purchased primarily inU.S. dollars, 22
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while labor and other production and administrative costs are incurred primarily in local currencies. Consequently, the translatedU.S. dollar value of our non-U.S. sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of period-to-period operating results. In addition to the impact of the translation of sales and expenses over time, our non-U.S. operations also generate currency transaction gains and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarilyU.S. dollar denominated) are initially accrued and when such amounts are settled with the non-local currency, and (ii) changes in currency exchange rates during time periods when our non-U.S. operations are holding non-local currency (primarilyU.S. dollars). Overall, we estimate that fluctuations in currency exchange rates had the following effects on our sales and income from operations for the periods indicated. Impact of changes in currency exchange rates Three months ended September 30, 2022 vs September 30, 2021 Translation Total gains/(losses) - currency Transaction gains recognized impact of impact 2021 2022 Change rate changes 2022 vs 2021 (In millions) Impact on: Net sales $ - $ - $ - $ (31) $ (31) Income from operations 1 7 6 7 13 The$31 million decrease in net sales (translation losses) was caused primarily by a strengthening of theU.S. dollar relative to the euro, as our euro-denominated sales were translated into fewerU.S. dollars in 2022 as compared to 2021. The strengthening of theU.S. dollar relative to the Canadian dollar and the Norwegian krone in 2022 did not have a significant effect on our net sales, as a substantial portion of the sales generated by our Canadian and Norwegian operations is denominated in theU.S. dollar.
The
Higher net currency transaction gains of approximately
caused by relative changes in currency exchange rates at each applicable
balance sheet date between the
? the Norwegian krone, and between the euro and the Norwegian krone, which causes
increases or decreases, as applicable, in
and payables and
Norwegian krone denominated receivables and payables held by our non-
operations, and
Approximately
by a strengthening of the
Norwegian krone, as local currency-denominated operating costs were translated
? into fewer
gains and losses caused by a strengthening of the
euro had minimal impact on translation gains and losses in 2022 as compared to
2021.
Impact of changes in currency exchange rates
Nine months ended September 30, 2022 vs September 30, 2021
Translation Total
gains/(losses) - currency
Transaction gains recognized impact of impact
2021 2022 Change rate changes 2022 vs 2021
(In millions)
Impact on:
Net sales $ - $ - $ - $ (83) $ (83)
Income from operations 1 17 16 5 21
The
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U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2022 did not have a significant effect on our net sales, as a substantial portion of the sales generated by our Canadian and Norwegian operations is denominated in theU.S. dollar.
The
Higher net currency transaction gains of approximately
caused by relative changes in currency exchange rates at each applicable
balance sheet date between the
? the Norwegian krone, and between the euro and the Norwegian krone, which causes
increases or decreases, as applicable, in
and payables and
Norwegian krone denominated receivables and payables held by our non-
operations, and
Approximately
by a strengthening of the
Norwegian krone, as local currency-denominated operating costs were translated
into fewer
? currency translation losses primarily caused by a strengthening of the
dollar relative to the euro as the negative effects of the stronger
on euro-denominated sales more than offset the favorable effects of
euro-denominated operating costs being translated into fewer
2022 as compared to 2021.
Outlook
As previously reported, late in the second quarter we began to experience some decline in demand in residential architectural coatings markets in certain areas ofEurope and the export markets. Late in the third quarter, the demand weakness inEurope and the export markets began to rapidly accelerate as many of our customers in those regions reduced their production rates in response to economic conditions and geopolitical uncertainties. In the third quarter, demand in the North American and Latin American markets remained relatively stable, although recently we have begun to see some softening in demand mainly in the architectural coatings market.
In addition, we continue to experience rising costs led by natural gas, electricity, and certain key raw materials. Feedstock costs increased significantly during the first nine months of the year, but we expect these costs to moderate going forward. We expect our sales volumes and operating results in the near term will be adversely impacted by the effects of reduced demand and increased costs.
In response to the decline in demand coupled with increased production costs, particularly inEurope , we have implemented production curtailments at two of our European facilities during the fourth quarter. We will continue to monitor current and anticipated near-term customer demand levels and will align our production and inventories accordingly. The long-term outlook for our industry remains very positive, and the steps we are taking in the near term are intended to preserve our global market share and position our business to profitably grow in the future. Our expectations for the TiO2 industry and our operations are based on a number of factors outside our control. As noted above, we have experienced global market disruptions including high energy costs and availability concerns and future impacts on our operations will depend on, among other things, future energy costs and availability and the impact economic conditions and geopolitical events have on our operations or our customers' and suppliers' operations, all of which remain uncertain and cannot be predicted.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash flows
Operating activities
Trends in cash flows as a result of our operating activities (excluding the impact of significant asset dispositions and relative changes in assets and liabilities) are generally similar to trends in our earnings. In addition to the impact of the operating, investing and financing cash flows discussed below, changes in the amount of cash, cash equivalents and restricted cash we report from period to period can be impacted by changes in currency exchange rates, since a portion of our cash, cash equivalents and restricted cash is held by our non-U.S. subsidiaries. 24 Table of Contents Cash provided by operating activities was$59.1 million in the first nine months of 2022 compared to cash provided by operating activities of$126.0 million in the first nine months of 2021. This$66.9 million decrease in the amount of cash provided was primarily due to the net effect of the following:
higher amount of net cash used associated with relative changes in our
? inventories, receivables, payables and accruals in 2022 of
compared to 2021, and
? higher income from operations in 2022 of
Changes in working capital were affected by accounts receivable and inventory changes. As shown below:
Our average days sales outstanding, or DSO, increased from
?
collections, and
Our average days sales in inventory, or DSI, increased from
? to
production volumes exceeding sales volumes in the first nine months of 2022
compared to 2021.
For comparative purposes, we have also provided comparable prior year numbers below.
December 31, 2020 September 30, 2021 December 31, 2021 September 30, 2022
DSO 68 days 66 days 65 days 66 days
DSI 74 days 51 days 59 days 69 days
Investing activities
Our capital expenditures of
Financing activities
During the first nine months of 2022, we paid quarterly dividends of$.19 per share to stockholders aggregating$65.8 million and in the first nine months of 2021, we paid quarterly dividends of$.18 per share to stockholders aggregating$62.4 million . In addition, during the first nine months of 2022, we acquired 73,881 shares of our common stock in market transactions for an aggregate purchase price of
$1.1 million . Outstanding debt obligations
At
€400 million aggregate outstanding on our
? 3.75% Senior Secured Notes (
debt issuance costs) due in
? approximately
We had no outstanding borrowings atSeptember 30, 2022 on our$225 million global revolving credit facility (Global Revolver) and approximately$207 million was available for borrowings thereunder. Our Senior Secured Notes and our Global Revolver contain a number of covenants and restrictions which, among other things, restrict our ability to incur or guarantee additional debt, incur liens, pay dividends or make other restricted payments, or merge or consolidate with, or sell or transfer substantially all of our assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of these types. Our credit agreements contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons other than defaults for failure to comply with typical financial or payment covenants. For example, the credit agreements allow the lender to accelerate the maturity of the indebtedness upon a change of control (as defined in the agreement) of the borrower. In addition, the credit agreements could result in the acceleration of all or a portion of the indebtedness following a sale of assets outside the ordinary course of business. The terms of all of our debt instruments are discussed in Note 8 to our Consolidated Financial Statements included in our 25 Table of Contents
2021 Annual Report. We are in compliance with all of our debt covenants at
Our assets consist primarily of investments in operating subsidiaries, and our ability to service our obligations, including the Senior Secured Notes, depends in part upon the distribution of earnings of our subsidiaries, whether in the form of dividends, advances or payments on account of intercompany obligations or otherwise. Our Senior Secured Notes are collateralized by, among other things, a first priority lien on (i) 100% of the common stock or other ownership interests of each existing and future direct domestic subsidiary of KII and the guarantors, and (ii) 65% of the voting common stock or other ownership interests and 100% of the non-voting common stock or other ownership interests of each non-U.S. subsidiary that is directly owned by KII or any guarantor. Our Global Revolver is collateralized by, among other things, a first priority lien on the borrower's trade receivables and inventories. See Note 5 to our Condensed Consolidated Financial Statements.
Future cash requirements
Liquidity
Our primary source of liquidity on an ongoing basis is cash flows from operating activities which is generally used to (i) fund capital expenditures, (ii) repay any short-term indebtedness incurred for working capital purposes, (iii) provide for the payment of dividends and (iv) fund purchases of shares of our common stock under our stock repurchase program. From time-to-time we will incur indebtedness, generally to (i) fund short-term working capital needs, (ii) refinance existing indebtedness or (iii) fund major capital expenditures or the acquisition of other assets outside the ordinary course of business. We will also from time-to-time sell assets outside the ordinary course of business and use the proceeds to (i) repay existing indebtedness, (ii) make investments in marketable and other securities, (iii) fund major capital expenditures or the acquisition of other assets outside the ordinary course of business or (iv) pay dividends. The TiO2 industry is cyclical, and changes in industry economic conditions significantly impact earnings and operating cash flows. Changes in TiO2 pricing, production volumes and customer demand, among other things, could significantly affect our liquidity. We routinely evaluate our liquidity requirements, alternative uses of capital, capital needs and availability of resources in view of, among other things, our dividend policy, our debt service, our capital expenditure requirements and estimated future operating cash flows. As a result of this process, we have in the past and may in the future seek to reduce, refinance, repurchase or restructure indebtedness, raise additional capital, repurchase shares of our common stock, modify our dividend policy, restructure ownership interests, sell interests in our subsidiaries or other assets, or take a combination of these steps or other steps to manage our liquidity and capital resources. Such activities have in the past and may in the future involve related companies. In the normal course of our business, we may investigate, evaluate, discuss and engage in acquisition, joint venture, strategic relationship and other business combination opportunities in the TiO2 industry. In the event of any future acquisition or joint venture opportunity, we may consider using then-available liquidity, issuing our equity securities or incurring additional indebtedness. AtSeptember 30, 2022 we had aggregate cash, cash equivalents and restricted cash on hand of$344.4 million , of which$115.3 million was held by non-U.S. subsidiaries. Following implementation of a territorial tax system under the 2017 Tax Act, repatriation of any cash and cash equivalents held by our non-U.S. subsidiaries would not be expected to result in any material income tax liability as a result of such repatriation. Our$225 million Global Revolver we entered into inApril 2021 , which replaced our North American and European facilities, matures inApril 2026 and currently approximately$207 million is available for borrowing under this facility and we could borrow all available amounts without violating our existing debt covenants. See Note 5 to our Condensed Consolidated Financial Statements. Based upon our expectation for the TiO2 industry and anticipated demands on cash resources, we expect to have sufficient liquidity to meet our short-term obligations (defined as the twelve-month period endingSeptember 30, 2023 ) and our long-term obligations (defined as the five-year period endingSeptember 30, 2027 , our time period for long-term budgeting). If actual developments differ from our expectations, our liquidity could be adversely affected. 26 Table of Contents Capital expenditures We intend to invest approximately$65 million in capital expenditures primarily to maintain and improve our existing facilities during 2022, including$44.4 million in expenditures throughSeptember 30, 2022 . It is possible we will delay planned capital projects based on market conditions including but not limited to expected demand, the general availability of materials, equipment and supplies necessary to complete such projects.
Stock repurchase program
At
Commitments and contingencies
See Notes 10 and 12 to our Condensed Consolidated Financial Statements for a description of certain income tax contingencies, certain legal proceedings and other commitments.
Recent accounting pronouncements
Not applicable
Critical accounting policies
For a discussion of our critical accounting policies, refer to Part I, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report. There have been no changes in our critical accounting policies during the first nine months of 2022.
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