What changed in this filing

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Item 1A. Risk Factors

2024-03-06 compared with 2023-03-08 · 40 added, 38 removed, 138 unchanged (36% of the section changed)

4 unchanged sentences

Kronos’ sales and profitability are largely dependent on the TiO 2 industry.

In 2022, 92% of Kronos’ sales were attributable to sales of TiO 2 .

In 2023, approximately 90% of Kronos’ sales were attributable to sales of TiO 2 .

TiO 2 is used in many “quality of life” products for which demand historically has been linked to global, regional and local gross domestic product and discretionary spending, which can be negatively impacted by regional and world events or economic conditions.

9 unchanged sentences

Competition is based on a number of factors, such as price, product quality and service.

Some of Kronos’ competitors may be able to drive down prices for Kronos’ products if their costs are lower than Kronos’ costs.

Kronos faces significant competition from international and regional competitors, including TiO 2 producers in China, who have significant sulfate production process capacity.

Chinese producers have also continued to develop chloride process technology, and the risk of substitution of Kronos’ products with products made by Chinese producers could increase if Chinese producers increase the use of chloride process technology and improve the quality of their sulfate and chloride products.

Some of Kronos’ competitors may be able to drive down prices for Kronos’ products if their costs are lower than Kronos’ costs, including its competitors with vertically integrated sources of raw materials for the chloride process who may have a competitive advantage during periods of high or rising raw material costs or who operate in regions with less stringent regulatory requirements.

In addition, some of Kronos’ competitors’ financial, technological and other resources may be greater than its resources and such competitors may be better able to withstand changes in market conditions.

18 unchanged sentences

CompX spends a significant amount of time and effort to refine, improve and adapt its existing products for new customers and applications.

Since expenditures for these types of activities are not considered research and development expense under accounting principles generally accepted in the United States of America (“GAAP”), the amount of CompX’s research and development expenditures, which is not significant, is not indicative of the overall effort involved in the development of new product features.

Since expenditures for these types of activities are not considered research and development expense under accounting principles generally accepted in

the United States of America (“GAAP”), the amount of CompX’s research and development expenditures, which is not significant, is not indicative of the overall effort involved in the development of new product features.

The introduction of new product features requires the coordination of the design, manufacturing and marketing of the new product features with current and potential customers.

The ability to coordinate these activities with current and potential customers may be affected by factors beyond CompX’s control.

While CompX will continue to emphasize the introduction of innovative new product features that target customer-specific opportunities, we do not know if any new product features it introduces will achieve the same degree of success that it has achieved with its existing products.

Introduction of new product features typically requires CompX to increase production volume on a timely basis while maintaining product quality.

Manufacturers often encounter difficulties in increasing production volumes, including delays, quality control problems and shortages of qualified personnel or raw materials.

As CompX attempts to introduce new product features in the future, we do not know if it will be able to increase production volumes without encountering these or other problems, which might negatively impact our financial condition or results of operations.

While CompX will continue to emphasize the introduction of innovative new product features that target customer-specific opportunities, it does not know if any new product features it introduces will achieve the same degree of success that it has achieved with its existing products.

At times CompX works with new and existing customers on specific product innovations.

Sometimes CompX has a cost sharing arrangement for development efforts although it may also fully bear the development costs.

If a customer were to ultimately reject or abandon custom product innovation efforts, CompX may not be able to recover its development costs.

Higher costs or unavailability of CompX’s raw materials could negatively impact our financial results.

6 unchanged sentences

Certain components used in CompX’s products are manufactured by foreign suppliers located in China and elsewhere.

Global economic and political conditions, including natural disasters, terrorist acts, global conflicts and public health crises such as pandemics, could prevent CompX’s vendors from being able to supply these components.

Global economic and political conditions, including natural disasters, terrorist acts, transportation disruptions, global conflicts and public health crises such as pandemics, could prevent CompX’s vendors from being able to supply these components.

Should CompX’s vendors not be able to meet their supply obligations or should CompX be otherwise unable to obtain necessary raw materials or components, CompX may incur higher supply costs or may be required to reduce production levels, either of which may decrease our liquidity or negatively impact our financial condition or results of operations as CompX may be unable to offset the higher costs with increases in its selling prices or reductions in other operating costs.

5 unchanged sentences

If Kronos or Kronos’ worldwide vendors are unable to meet their planned or contractual obligations and Kronos was unable to obtain necessary raw materials, Kronos could incur higher costs for raw materials or may be required to reduce production levels.

Kronos experienced increases in feedstock costs in 2021 and 2022, and Kronos expects feedstock costs to continue to increase in 2023.

Kronos may also experience higher operating costs such as energy costs, which could affect its profitability.

Kronos may not always be able to increase its selling prices to offset the impact of any higher costs or reduced production levels, which could reduce its earnings and decrease its liquidity.

Kronos has supply contracts that provide for its TiO 2 feedstock requirements that currently expire in 2023 and one contract that extends through 2026.

While Kronos believes it will be able to renew these contracts, Kronos does not know if it will be successful in renewing them or in obtaining long-term extensions to them prior to expiration.

Kronos’ current agreements (including those entered into through February 2023) require it to purchase certain minimum quantities of feedstock with minimum purchase commitments aggregating approximately $1.0 billion beginning in 2023 and extending through 2026.

Kronos experienced increases in feedstock costs in 2022 and 2023, for example, which affected its margins.

Kronos has also experienced higher operating costs such as energy costs.

Future variations in the cost of energy, which primarily reflect market prices for oil and natural gas, and for raw materials may significantly affect its operating results and decrease liquidity as Kronos may not always be able to increase its selling prices to offset the impact of any higher costs or reduced production levels.

Kronos has supply contracts that provide for its TiO 2 feedstock requirements.

While Kronos believes it will be able to renew these contracts, as necessary, Kronos does not know if it will be successful in renewing them or in obtaining long-term extensions to them prior to expiration.

Kronos’ current agreements require it to purchase certain minimum quantities of feedstock with minimum purchase commitments aggregating approximately $583 million beginning in 2024 and extending through 2026.

In addition, Kronos has other long-term supply and service contracts that provide for various raw materials and services.

10 unchanged sentences

Kronos’ leverage may impair our financial condition.

Kronos has a significant amount of debt, primarily related to its Senior Notes issued in September 2017.

Kronos has a significant amount of debt, primarily related to its Senior Secured Notes issued in September 2017 and February 2024.

As of December 31, 2023, Kronos’ total consolidated debt was approximately $441 million.

7 unchanged sentences

● placing Kronos at a competitive disadvantage relative to other less leveraged competitors.

Indebtedness outstanding under Kronos’ global revolving credit facility accrues interest at variable rates.

To the extent market interest rates rise, the cost of Kronos’ debt could increase, adversely affecting its financial condition, results of operations and cash flows.

Indebtedness outstanding under Kronos’ global revolving credit facility (Global Revolver) accrues interest at variable rates.

To the extent market interest rates rise, the cost of Kronos’ debt could increase, even if the amount borrowed remains the same, adversely affecting its financial condition, results of operations and cash flows.

In addition to Kronos’ indebtedness, Kronos is party to various lease and other agreements (including feedstock purchase contracts and other long-term supply and service contracts, as discussed above) pursuant to which, along with its indebtedness, Kronos is committed to pay approximately $543 million in 2024.

1 unchanged sentence

To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control.

In addition, Kronos’ ability to borrow funds under its revolving credit facility in the future, in some instances, will depend in part on its ability to maintain specified financial ratios and satisfy certain financial covenants contained in the applicable credit agreement.

In addition, Kronos’ ability to borrow funds under its Global Revolver in the future, in some instances, will depend in part on its ability to maintain specified financial ratios and satisfy certain financial covenants contained in the credit agreement governing the Global Revolver.

Kronos’ business may not generate cash flows from operating activities sufficient to enable it to pay its debts when they become due and to fund its other liquidity needs.

As a result, Kronos may need to refinance all or a portion of its debt before maturity.

As a result, Kronos may need to refinance all or a portion of its debt before maturity, as we have done in the past.

Kronos may not be able to refinance any of its debt in a timely manner on favorable terms, if at all, in the current credit markets.

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See also Item 3 - “Legal Proceedings - Environmental matters and litigation.”

If Kronos’ or CompX’s intellectual property were to be declared invalid, or copied by or become known to competitors, or if Kronos’ or CompX’s competitors were to develop similar or superior intellectual property or technology, their ability to compete could be adversely impacted.

Protection of intellectual property rights, including patents, trade secrets, confidential information, trademarks and tradenames, is important to Kronos’ and CompX’s businesses and their competitive positions.

Kronos and CompX endeavor to protect their intellectual property rights in key jurisdictions in which their products are produced or used and in jurisdictions into which their products are imported.

If some or all of Kronos’ or CompX’s intellectual property were to be declared invalid, held to be unenforceable or copied by competitors, or some or all of Kronos’ or CompX’s confidential information become known to competitors, or if Kronos’ or CompX’s competitors were to develop similar or superior intellectual property or technology, their ability to compete could be adversely impacted.

Protection of intellectual property rights, including patents, copyrights, trade secrets, confidential information, trademarks and tradenames, is important to Kronos’ and CompX’s businesses and their competitive positions.

Kronos and CompX endeavor to protect their intellectual property rights in key jurisdictions in which their products are produced, sold or used and in jurisdictions into which their products are imported.

However, Kronos and CompX may be unable to obtain protection for their intellectual property in key jurisdictions.

Although Kronos and CompX have applied for numerous patents and trademarks throughout the world, they may have to rely on judicial enforcement of their patents and other proprietary rights.

Kronos’ and CompX’s patents and other intellectual property rights may be challenged, invalidated, circumvented and rendered unenforceable or otherwise compromised.

Although Kronos and CompX have applied for numerous patents and trademarks throughout the world, they may have to engage in judicial enforcement in order to protect their patent rights and other proprietary rights.

Kronos’ and CompX’s patents and other intellectual property rights may be challenged, invalidated, circumvented, rendered unenforceable or otherwise compromised.

A failure to protect, defend or enforce intellectual property could have an adverse effect on our financial condition and results of operations.

Similarly, third parties may assert claims against Kronos and Compx and their customers and distributors alleging their products infringe upon third-party intellectual property rights.

trade secrets or proprietary know-how, or adequate remedies for breaches of such agreements may not be available in the event of an unauthorized use or disclosure of such trade secrets and know-how.

In the event that any such third party prevails against Kronos or CompX on such claims, there could be an adverse effect on our financial condition and results of operations.

Although it is the practice of Kronos to enter into confidentiality agreements with its employees and third parties to protect its proprietary expertise and other trade secrets, these agreements may not provide sufficient protection for its trade secrets or proprietary know-how, or adequate remedies for breaches of such agreements may not be available in the event of an unauthorized use or disclosure of such trade secrets and know-how.

Kronos also may not be able to readily detect breaches of such agreements.

The failure of Kronos’ patents or confidentiality agreements to protect its proprietary technology, know-how or trade secrets could result in a material loss of its competitive position, which could lead to significantly lower revenues, reduced profit margins or loss of market share.

The failure of Kronos’ confidentiality agreements to protect its proprietary technology,

know-how or trade secrets could result in a material loss of its competitive position, which could lead to significantly lower revenues, reduced profit margins or loss of market share.

CompX relies on patent, trademark and trade secret laws in the United States and similar laws in other countries to establish and maintain intellectual property rights in its technology and designs.

Despite these measures, any of CompX’s intellectual property rights could be challenged, invalidated, circumvented or misappropriated.

Others may independently discover CompX’s trade secrets and proprietary information, and in such cases CompX could not assert any trade secret rights against such parties.

Third parties may independently discover CompX’s trade secrets and proprietary information, and in such cases CompX could not assert any trade secret rights against such parties.

Further, CompX does not know if any of its pending trademark or patent applications will be approved.

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If CompX cannot or does not license the infringed technology on reasonable pricing terms or at all, or substitute similar technology from another source, our business could be adversely impacted.

If Kronos or CompX must take legal action to protect, defend or enforce intellectual property rights, any suits or proceedings could result in significant costs and diversion of resources and management’s attention, and Kronos or CompX may not prevail in any such suits or proceedings.

A failure to protect, defend or enforce intellectual property rights could have an adverse effect on our financial condition and results of operations.

If Kronos or CompX must take legal action to protect, defend or enforce intellectual property rights, any suits or proceedings could result in significant costs, including attorney’s fees and diversion of resources and management’s attention, and Kronos or CompX may not prevail in any such suits or proceedings.

Environmental, health and safety laws and regulations, particularly as they relate to Kronos, may result in increased regulatory scrutiny which could decrease demand for Kronos’ products, increase Kronos’ manufacturing and compliance costs or obligations and result in unanticipated losses which could negatively impact its financial results or limit its ability to operate its business.

From time to time, new environmental, health and safety regulations are passed or proposed in the countries in which Kronos operates or sells its products, seeking to regulate its operations or to restrict, limit or classify TiO 2 , or its use.

Increased regulatory scrutiny could affect consumer perception of TiO 2 or limit the marketability and demand for TiO 2 or products containing TiO 2 and increase Kronos’ manufacturing and regulatory compliance obligations and costs.

Increased regulatory scrutiny could affect consumer perception of TiO 2 or limit the marketability and demand for TiO 2 or products containing TiO 2 or increase Kronos’ manufacturing and regulatory compliance obligations and costs.

Increased compliance obligations and costs or restrictions on operations, raw materials and certain TiO 2 applications could negatively impact Kronos’ future financial results through increased costs of production, or reduced sales which may decrease its liquidity, operating income and results of operations, which could in turn negatively impact our investment in Kronos.

3 unchanged sentences

government and various non-U.S.

governmental agencies of countries in which Kronos and CompX operate have determined the consumption of energy derived from fossil fuels is a major contributor to climate change and have introduced or are contemplating regulatory changes in response to the potential impact of climate change, including laws and regulations requiring enhanced reporting (such as the Corporate Social Responsibility Directive adopted by the European Union on November 28, 2022) as well as legislation regarding carbon emission costs, GHG emissions and renewable energy targets.

governmental agencies of countries in which Kronos and CompX operate have determined the consumption of energy derived from fossil fuels is a major contributor to climate change and have adopted or are contemplating regulatory changes in response to the potential impact of climate change, including laws and regulations requiring enhanced reporting (such as the Corporate Social Responsibility Directive adopted by the European Union on November 28, 2022) as well as legislation regarding carbon emission costs, GHG emissions and renewable energy targets.

International treaties or agreements may also result in increasing regulation of GHG emissions, including emissions permits and/or energy taxes or the introduction of carbon emissions trading mechanisms.

To date, the existing GHG laws and regulations in effect in the various countries in which

Kronos or CompX operates have not had a material adverse effect on financial results.

Until the timing, scope and extent of any new or future regulation becomes known, we cannot predict the effect on Kronos’ or CompX’s business, results of operations or financial condition.

To date, the existing GHG laws and regulations in effect in the various countries in which Kronos or CompX operates have not had a material adverse effect on financial results.

Until the timing, scope and extent

of any new or future regulation becomes known, we cannot predict the effect on Kronos’ or CompX’s business, results of operations or financial condition.

However, if further GHG laws and regulations were to be enacted in one or more countries, it could negatively impact Kronos or CompX future results of operations through increased costs of production, particularly as it relates to their energy requirements or their need to obtain emissions permits.

3 unchanged sentences

Kronos’ operating as a global business presents risks associated with global and regional economic, political, and regulatory environments.

Kronos has significant international operations which, along with its customers and suppliers, could be substantially affected by a number of risks arising from operating a multi-national business, including trade barriers, tariffs, economic sanctions, exchange controls, global and regional economic downturns, natural disasters, terrorism, armed conflict (such as the current conflict between Russia and Ukraine), health crises (such as COVID-19) and political conditions.

Kronos has significant international operations which, along with its customers and suppliers, could be substantially affected by a number of risks arising from operating a multi-national business, including trade barriers, tariffs, economic sanctions, exchange controls, global and regional economic downturns, terrorism, armed conflict (such as the current conflicts between Russia and Ukraine and Israel and Hamas), natural disasters, pandemics or other health crises and political conditions.

Kronos may encounter difficulties enforcing agreements or other legal rights and the effective tax rate may fluctuate based on the variability of geographic earnings and statutory tax rates.

2 unchanged sentences

Technology failures or cybersecurity breaches could have a material adverse effect on our operations.

Kronos and CompX rely on integrated information technology systems to manage, process and analyze data, including to facilitate the manufacture and distribution of their products to and from their plants, receive, process and ship orders, manage the billing of and collections from their customers and manage payments to vendors.

Kronos and CompX rely on integrated information technology systems to manage, process and analyze data, including to facilitate the manufacture and distribution of their products to and from their facilities, receive, process and ship orders, manage the billing of and collections from their customers and manage payments to vendors.

Although Kronos and CompX have systems and procedures in place to protect information technology systems, there can be no assurance that such systems and procedures would be sufficiently effective.

10 unchanged sentences

Any such events could have a material adverse effect on Kronos’ or CompX’s costs or results of operations.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors