NLI Holdings Inc (NL) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the NL Industries second-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time.

If you should require assistance during today's call, please press the zero, then star. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, president and CEO, Mr. Lanny Martin. Please go ahead.

Thank you. I want to welcome everybody this morning to the call. With me today, I have Larry Wigdor, Kronos' CEO, and Robert Hardy, NL's CFO and controller.

As most of you know, some of the statements made today will be forward-looking in nature, and such statements involve risks and uncertainties. Our SEC filings and press releases contain discussions of risks and uncertainties that may affect actual results, and actual results may be different than predicted today.

For those listeners who are noteholders of our null issued Euro bonds, I would like to also welcome you to the call and thank you for investing in our business. As you are aware, this conference call focuses on the results of NL on a consolidated basis. The quarterly results of Kronos International, Inc. will not be discussed during this call.

We intend to file second-quarter Kronos International results with the Luxembourg stock exchange under the terms of the listing and will also file the results on form 8-K with the SEC.

Questions prior to the filing of Kronos International's results may be directed to the NL investor relations department telephone number in the U.S. at area code 281-423-3332.

I'll start out with a quick overview of some of the information that is in today's earnings release.

We reported earnings per share in the second quarter of 2002 of 29 cents. Reported EPS includes 10 cents of unusual items related to our recently completed Kronos International, Inc. Euro bond offering and the repayment of NL's 11 and three-quarters senior secured notes. The unusual items will be discussed later in the call and are detailed in our earnings release.

As anticipated, second-quarter earnings per share declined significantly from the prior year period. This decline was primarily due to lower TiO2 selling prices partially offset by strong sales and production volumes.

Operating income of $25 million was $21 million lower than the second quarter of 2001.

The decrease from the second quarter of 2001 was attributable to significantly lower selling prices offset in part by higher sales and production volumes.

Second-quarter 2002 operating income was $3 million higher than the first quarter of 2002. Operating margins declined from 21% in the second quarter of 2001 to 11% in the second quarter of 2002, reflecting the difficult pricing environment.

Operating margins in the second quarter of 2002 were flat compared with the first quarter of 2002.

Adjusting for unusual items, EBITDA decreased from $49 million in the second quarter of 2001 to $27 million in the current quarter. EBITDA in the second quarter of 2002 was computed using $8 million of depreciation and $6 million of net corporate expense.

Compared to the first quarter of 2002, and excluding unusual items, EBITDA was $6 million higher as a result of improved operating profits and lower environmental expenses.

Excluding the effects of foreign currency fluctuations, Kronos' average selling price during the second quarter of 2002 was 14% lower than the second quarter of 2001, and was flat compared with the first quarter of 2002.

Kronos' average selling prices in billing currencies during the second quarter of 2002 were lower in all markets, as compared with the second quarter of 2001, with the largest decline in the European and export markets.

Compared with the first quarter of 2002, average selling prices increased in the European and export markets and decreased in North America.

Average selling prices stabilized during the quarter, with the average selling prices in June 2002 essentially the same as the average for the second quarter of 2002.

June 2002 selling prices were 1% higher than March 2002 selling prices. We expect third-quarter prices to be higher than second-quarter, as previously announced price increases continue to be implemented.

Average selling prices in the first quarter of 2002, including the effects of foreign currency fluctuations, were 13% lower than the second quarter of 2001 and were 2% higher than the first quarter of 2002 prices.

From our product pricing perspective, in the second quarter of 2002, the Euro strengthened 2% against the U.S. dollar as compared with the exchange rate in the second quarter of 2001.

On average, the Euro strengthened 3% against the U.S. dollar from the first quarter 2002.

Sales volume in the second quarter of 2002 of 123,000 metric tons was a record second quarter for Kronos and was 17% higher than the second quarter of 2001. European, North American, and export volumes each increased over 14% from the second quarter of 2001.

Compared with the first quarter of 2002, sales volume was up 9% worldwide, with double-digit growth in the North American and export markets.

Increased sales volume in the second quarter of 2002 was attributable, in part, to customers continuing to restock inventory levels ahead of previously announced price increases. First half 2002 sales volume is up 13% compared with the first half of 2001.

We don't believe these demand levels will be sustained, and we expect the second half of 2002 sales volume to be lower than the first half of the year.

Regarding our operating rates, due to the strong customer demand, we prudently increased our operating rates to near full capacity as compared with the first quarter of 2002. We will continue to evaluate the various market indicators to keep an appropriate balance on inventory on hand and meet the needs of our customers.

Inventories decreased 10,000 metric tons during the second quarter and represents approximately two months of sales. From an industry perspective, we believe producer inventories declined significantly as well.

Capital expenditures in the second quarter were $7 million. Corporate expense for the second quarter was $7.5 million, or $2.6 million higher than the prior year, primarily due to higher environmental expenses and legal expenses.

Corporate expense was $2.6 million lower than the first quarter of 2002, a decrease of 26%, primarily due to lower environmental expenses.

Interest expense in the second quarter of 2002 was $8.1 million, of which $2 million was related to unusual items. The $2 million was comprised of $1.5 million for out-of-period interest we accrued and paid at the close of the refinancing for July, and the write-off of $500,000 of un-amortized deferred financing costs related to the redemption of the company's 11 and three-quarters senior secured notes. Excluding the $2 million of unusual items, or 3 cents a share, interest expense was 6.1 million and decreased 12% from the second quarter of 2001 primarily due to lower levels of outstanding debt.

Cash flow from operations in the second quarter provided $24 million in cash. Free cash flow for the second quarter of 2002 was $18 million, after capital expenditures and other investing activities.

Cash, restricted cash and restricted marketable debt securities at June 30, 2002 was $251 million, up $52 million from the year end 2001 and up $95 million from March 31st, primarily due to the refinancing of our debt.

Restricted cash and restricted marketable debt securities was $75 million at June 30, down $8 million from year end 2001 and down $5 million from March 31st.

Net debt at the end of June 2002 was $74 million, up $13 million from the first quarter of 2002.

As we have previously reported, on June 28th, we completed a private placement offering of 285 million Euro, 8-point - 8 and seven-eighths percent senior secured notes due 2009 through our indirect wholly-owned subsidiary, Kronos International. Kronos International used the net proceeds of the net offering to repay intercompany indebtedness to NL, an portion of which NL utilized to redeem all of our outstanding 11 and three-quarters senior secured notes plus accrued interest. Favorable bond market conditions in Europe for industrial-type credits allowed us to extend the maturity of our long-term debt from 2003 to 2009 on attractive terms and pricing.

The Euro bond offering was well received by investors and was more than two times oversubscribed. We elected to borrow in Euros in an effort to better match cash flows, since the majority of our revenues, profits, and operating cash flows are generated in the Euro or Euro-linked currencies.

Net proceeds from the offering should provide greater financial flexibility to the company.

Further, certain operating subsidiaries of Kronos International entered into a three-year, 80 million-Euro secured revolving credit facility. Approximately 40 million Euro or $39 million was drawn at the close to repay our existing short-term notes payable. The revolver will be used to fund working capital requirements and for general corporate purposes of certain operating subsidiaries of Kronos International.

Included in the P and L during the quarter is $6.3 million of foreign currency transaction gains. These gains were realized as part of the refinancing of NL's debt. The currency gains we recognized were due to the strengthening of the Euro as we restructured our debt portfolio with Euro-denominated debt versus U.S. dollar debt. As the Euro strengthened against the U.S. dollar, U.S. accounting rules required foreign currency fluctuations of certain intercompany indebtedness to be recorded in the P and L in the current period. Historically, these gains and losses have been reported on NL's books as a component of other comprehensive income in the equities section of the balance sheet. Due to the utilization of certain income tax attributes not previously recognized, no income taxes were provided on these gains.

As of June 30, 2002, shareholders' equity was $423 million, up $47 million from the first quarter. The change in equity was primarily a result of $14 million of earnings, currency translation gains of $38 million, and an adjustment for our available for sale portfolio of securities of $5 million offset by $10 million of dividends to shareholders.

I would like to close with some comments on our perspective for the rest of the year.

Demand for our product has been exceptionally strong for the first half of this year. As I said a minute ago, we do not believe this demand level reflects true consumption and we expect volumes to decline in the second half. However, second-half demand should be stronger than the second half of 2001.

Prices continue to show gradual improvement and we expect second-half 2002 prices will be higher than the first half of the year, with the price increase announced in February for the most part being implemented in the third quarter.

We are hopeful that the second round of price increases announced in May can be implemented late this year. The extent of the implementation will depend on worldwide market conditions. We estimate that third-quarter earnings per share will be in the range of 12 cents to 20 cents, and that full-year earnings per share should range between 52 cents and 55 cents, excluding unusual items. We continue to have a positive long-term outlook for the TiO2 industry and for NL in particular. We believe that the long-term future growth of TiO2 consumption should continue to exceed the industry's capacity growth rate.

This concludes my formal remarks, and I would now like to open the call to any questions. Carol, if you could take care of that for us. 00:15:22

Yes. Thank you, ladies and gentlemen. If you wish to ask a question, please press the 1 on your touch-tone phone. You will hear a tone indicating that you've been placed in queue and you may remove yourself from queue at any time by pressing the pound key. If you are using a speaker phone, please pick up your handset before pressing the number. And your first question comes from the line of Leslie Ravitz with Morgan Stanley. Please go ahead.

Gee, I get to go first, guys. Good morning.

Good morning.

Larry, I wondered if you could help me a little bit. Could you talk about where the prices are in either local currency or dollar terms at the end of June, and go over again how much of the first price increase is actually in place at the end of June and what markets and when you expect the second price increase roughly to be in, and how much that is?

Let me deal with the three components, which is the implementation of the first price increase, the status of the second round of price increase announcements, and in general, a comment as to where prices are relative to each other.

In terms of the first price increase, for the most part it has been moved out due to competitive forces with July being the most significant point of implementation.

As you note from the comments of Lanny, we got prices up a little bit in Europe and the export markets and did not have any increase in the North American markets during the second quarter. There was some upward movement, some downward movement in certain places.

In principle, there will be significant increases in the July period, particularly in North America and in Europe.

As for the second round of price increases, I think the key to that remains the strength and health of the economy in general. Timing for that, if it was in line with normal situations, would be in the October/November time frame. If demand is real good, I think we will see some improvement in the fourth quarter. If demand bounces around a little bit, I'm still optimistic at this point that it can be implemented, perhaps, at the beginning of next year.

In terms of relative prices, as you know, with the weakness of the Euro, the European price in dollar terms was substantively below the U.S. prices, and for the most part, the Euro was weak during the second quarter, so if you looked on average, that would be the case.

But by the end of the quarter, with the Euro almost at parity with the dollar, European price was essentially at or slightly above the U.S. price. Export prices are moving selectively in certain regions and are still well below both the European and U.S. prices.

And where, roughly, would you place the end of June price in the U.S. and Europe?

In the U.S., I would put it in the range - I don't want to give exact numbers, Les, as it pertains to us, but it's in the range of $1,800.

And what percentage is left to go in July, of the first price increase?

Well, I wouldn't measure it that way because the whole increase will not be achieved. It will be portions of the increase in different parts. But the majority was still left for July, and particularly in Europe, we'll see certainly well above half being implemented during the July time frame.

And the second, is that - that was the same size as the first increase, correct?

The second increase was actually announced slightly higher than the first price increase. It was announced at various times. It's been announced by all competitors. If you have the typical normal 90-day price lag, the earliest date of implementation would be the beginning of October.

And Larry, could you talk at all about why there was so much trouble in the U.S. raising prices?

There wasn't trouble with our desire to implement it, but this is a very competitive environment and I believe the pressures to raise cash and so on perhaps on some of our competitors caused them to be very cautious on getting prices up.

But I think the overwhelming strength of demand at least indicates that the opportunity to improve prices is there, and it will be improved.

The other thing I think we all have to recognize is we've come through a period of significant quarter-to-quarter declines over the is recent years, so - and you always have to stabilize 6prices first and as we said before, prices did stabilize in the second quarter and although we think prices should have been higher in the second quarter, we remain convinced that they will be higher in the third quarter.

Thank you.

And our next question comes from the line of Bill young with First Boston. Please go ahead.

Good morning, gentlemen.

Hi, Bill.

Maybe you could bring us up-to-date on your litigation situation. Any changes you've noted or, you know, new cases? You know, what might be happening in the near term on some of the existing cases, that kind of thing?

Sure. The - we have a case that's going to trial that you may be familiar with, the Rhode Island case, which was brought by the attorney general of Rhode Island against a number of defendants. That case - one part of that case goes to trial on September 4th. That's the one that's coming up fairly quickly. And otherwise, there are - we've got a number of cases - a number of the other cases are pending, and I don't think we have any new cases that have been recently filed. But a number of cases are coming up, and we're filing motions in a number of these cases and so developments could emerge over the next few months on a number of motions that we've filed.

I think you're aware that we had - we've been dismissed from a case that was scheduled to go to trial in September in Texas brought by the school district, spring branch school district, and we were dismissed - all the defendants were ultimately dismissed prior to trial, so that case has gone away and the period for appeal is still pending. We don't know whether there will be an appeal or not.

And why were all the defendants dismissed?

Well, the reason we were dismissed is that we thought we - the plaintiffs failed to identify our paint as having been used in the school district, so it was a failure to identify the paint.

Now - okay. Second question: Now that you've done your refinancing, what's your capex plan for this year and next year, and how are you going to use your free cash flow?

Go ahead, Larry.

Our capex, Bill, will continue to be in the range of about $30 million per year. That shouldn't change as a function of our refinancing. Our plants are in excellent shape. We continue to do cost-effective de-bottlenecking within the framework of that $30 million.

Speak a little louder, Larry. It's hard to hear you.

I said we continue to expect our expenditures will be in the range of $30 million a year. It will not be affected by the refinancing. Our plants are in excellent shape, and within the framework of this approximate $30 million per year is our ability to continue to do cost-effective de-bottlenecking.

Oh, great. And how about the rest of your free cash flow?

Well, we don't have any specific plans. We felt we were in a strong bond market. It was a good time to replace our existing debt, and we don't go to the market very often for financing, and we just, you know, caught a favorable market and we have a lot of financial flexibility and no specific plans for use of the proceeds or any of our other free cash flow at this time.

You're just going to let the cash build up, is basically what you're saying, for now?

For now, yeah. But even at these operating rates and at the level of pricing, it takes, in order to fund our dividend, we have to generate substantial cash flow just to pay that, so -

Well, we're hopeful - you're hopeful with the prices going up here that you'll be in somewhat better shape to generate a little extra, but - okay. Well, thank you very much.

And our next question comes from the line of Sven Olsen of Deutsche Banc. Please go ahead.

Good afternoon - good morning, gentlemen. Just a few questions. Specifically, first, when do you anticipate reporting separately for - I know you indicated on the previous call for Kronos International, but when will we expect to see specific results for those entities?

I would imagine that we will probably within the next month file the second-quarter results of KII.

Okay. Now, would you be holding separate conference calls for this or would this all be done on the same call?

That is under evaluation but if there's a high level of interest, I believe that we will have separate calls for the bond holders of the Kronos International notes.

Okay. And then on to the - can you give us an indication of the EBITDA for the Kronos International entity?

The trend rate, I think, for KII is very similar to what Lanny and Larry spoke of. It will be up over quarter 1.

Okay. On the - on the - you've obviously got a significant amount of cash on the balance sheet of NL. Have you been looking at any potential acquisitions, any of your JVs that you could - are potentially looking at right now.

Well, as we - you know, as we've always said, we continually look at opportunities to make acquisitions or to buy, you know, facilities and so on. That's a continuous process. That's nothing that's really changed in the last several quarters. But we don't have any specific plans at this time.

Okay. So you're not in active discussions on anything?

That's correct.

Well, yeah. That's true. But, you know, we're constantly looking at opportunities and we - but we have nothing planned and nothing under consideration at this time.

Okay. And then on the inventory level, you're now down to about two months and given your expectation of a - of a softening volume environment, do you anticipate to try to maintain those inventories about where they are, or would you be rebuilding them toward the end of the year?

Typically, our inventory rebuilds toward the end of the year, so we would expect inventory at the end of the year will be somewhat higher than it is at the end of the second quarter, which is essentially always the case.

Is there any target time frame? Like you have two months now. Would you go to three? Two-and-a-half?

No. I think it depends relative - what demand is. We expect our inventory at the end of the year should be lower than at the end of last year.

Okay. And then on the pricing environment, just to get back to that, I know you talked about it. You indicated that the - the original intended kind of June 15 price increases got pushed back a month to about July 15th.

No. Let me clarify, so that - the announcement of the first round of price increases were during February and beginning of March, with the anticipated timing for implementation being around the beginning of June for those who had 90-day protection, with the hope that in some cases, those who didn't have 90-day protection which exists in some parts of the world, particularly outside North America, would go up a little earlier.

For the most part, the primary degree of implementation will take place in the July time frame.

Okay.

And that would more likely be the first of July, not the 15th of July.

Okay. And now, the - you indicated that there was competitive pressures that caused that. Can you kind of give us some more color on, you know, how - you know, like what the competitive environment is out - is like out there? My understanding is that a number of major competitors of yours have announced price increases. Are there any competitors that have not followed along or that have been -

No. All the competitors have announced reasonably similar price increases, and all are implementing those increases based on what they think is appropriate for their companies, but what has taken place is that there has been slippage during this period as to the timing. But the direction of prices, I think, we're very comfortable with, and that is upwards.

Okay. Great. Thank you very much.

And our next question comes from the line of Kunall Energy with Goldman Sachs. Please go ahead.

Yeah. Good morning. Just a couple of questions, the first of which I apologize if you've touched on this already, but given that you just mentioned you were going to be building inventories going into the end of the year a little bit from current levels, could you extrapolate that to what sort of operating rates you foresee? You're operating pretty close to capacity, I take it, right now, so you - sorry.

Yeah. We'll produce, just to give you some feel, based on our current expectations, which obviously change based on economic demand -

Right.

- consideration, but right now, we anticipate we'll produce about the same in the second half volume as we did in the first half of the year, give or take a couple of thousand tons.

Okay. Are there any turnarounds or anything of that sort planned?

We always have turnarounds, you know. The chlorinators run for period of time, then you take them down. Sometimes you have to take them down longer. So that's always a function of what we contemplate when we talk about our capacity and our - and our operating rates.

Okay. The second question - and I don't know if you are in a position to respond to this, but just if you could elaborate a little bit or expand a little bit on [Val High]'s bid for Tremont and how - you know, what the objective there is down the road, would Tremont be rolled into NL or something of that sort? If you could just talk a little bit about that.

Sure. I think this transaction that's been proposed, which is [Val High] has proposed to exchange [Val High] shares for the shares of Tremont that are outstanding that are not owned by [Val High] or [Val High] related parties -

Right.

And from an NL perspective, NL owns shares in Tremont, so NL will evaluate, you know, what position it will take in the transaction and - but Tremont has been a holding company. It owns about 40% of titanium metals and it owns - you know, it has an interest in NL and owns, I think, 12 million shares of NL and basically has no other operations other than a land - a small land development company and they just, I think, made sense that - that it has all the expenses of a public company, yet it has no other operations so I think it made sense to attempt to consolidate or consider consolidating with value Hi and I think that's what is taking place.

As far as any further transaction, I don't have - I'm not aware of any other plans at this time to do anything.

So NL would be a seller in those transactions of its stake in Tremont to [Val High].

NL - if the transaction is approved and moves forward -

Right.

- NL would exchange it's Tremont shares for [Val High] shares. Right.

And do you know the line, would it make sense to kind of consolidate the titanium metals business with NL? I mean strategically how do you look at that? Is there a good overlap or are they completely different businesses?

I would at least imagine on the upstream, they're pretty similar, right?

Well, actually, they're - both companies go through chlorination of - you know, basic titanium ore, and that's the only similarity. Otherwise, one makes a metal product that's sold into com- - you know, obviously completely different markets heavily dependent on aerospace.

Right. Okay.

So that's the only similarity.

Okay. Thank you.

And our next question comes from the line of James Cordry with Lexus Nexus. Please go ahead.

Thank you. Good morning. With the Rhode Island trial coming up in September and in New Jersey the 26 cases there being designated as a mass tort, can you give us an amount in terms of what your legal expenses are to date in terms of the various cases around the country?

We're spending just under 2 million a quarter for legal defense.

Okay. Looking ahead to Rhode Island, obviously it's a future prediction and you can't know for sure, but the paint companies have had an unbeaten record, to put it in somewhat of sports terms, regarding cases against the former manufacturers of led paint. Are you expecting for them to hold there? Do you have - I mean, this is the first trial of its kind with that sort of municipal or state entity, and there's been a lot of back and forth briefing on that. Do you have any - any estimation if form will hold there?

Just to reemphasize - and again, this is spelled out in our SEC filings. The Rhode Island case is going forward on just one aspect, and it's not - it's a preliminary aspect of the overall lawsuit, and it's on the question of whether the state can proceed with their public nuisance theory.

Right.

And that's what the trial - that's the limited issue that's going to be considered at the trial.

So even if the plaintiffs were successful at that stage, there will be many more proceedings down the road to - relating to other defenses and other procedures.

So you would then essentially - I mean obviously that's not a liability phase, the first phase there.

Right.

So you would say that even if Rhode Island does win the first phase, that you don't - you don't foresee that really having much of an effect on the overall state of that case or other cases where entities might file a suit?

Well, I wouldn't say it has no effect. I mean, you know, going to trial is an important issue and we're confident that we're going to prevail in all of these lawsuits, and we - as you say, we've had these - we've been dealing with these suits for 15 years. We've won every case where or they've been successfully dismissed and, you know, we expect to continue to assert our defenses successfully.

Okay. One last question. You mentioned the spring branch case in Texas. Do you have a date handy as to when that dismissal - when you were dismissed from that case?

I think it was about two weeks ago.

Okay. Thank you very much.

And our next question comes from the line of Ian Smith with Grove investment advisors. Please go ahead.

Yeah. Hi. I got just three very quick questions. Firstly, depreciation and amortization for the quarter and going forward, what you expect the tax rate to be going forward for the rest of this year and next year, and you also mentioned that you saw sales during the second half to be lower than in the first half. I just wanted to get some sense of how much lower you were thinking that might be. Thank you.

Depreciation is about 8 million a quarter.

Okay.

Our tax rate will be in the mid-30s without - you know, barring any unusual items.

Okay.

We expect that to continue throughout the rest of the year. And Larry?

We recognize - and Mr. Martin commented - that during the first half of the year, there was some restoration of inventory at customer locations, which means that the true consumption of our products relative to the sales of our products was probably less.

Also put into perspective that second-half sales are normally below first-half sales because of the strong seasonality in the coatings industry. So the fact that the second half is going to be lower than the first half stems from both customer inventory buildup as well as normal trends.

We do expect our sales in the second half will be better than the second half of last year, to put it in further perspective.

Okay. And did I hear you say that you thought there might be another price increase October/November time?

There has been a second round of price increases announced by all producers, to be implemented during the fourth quarter. And the success in implementing that will be dependent, clearly, on market conditions as we approach the fourth quarter.

Subsequent to the July announcement?

The July implementation is the implementation - primary implementation of the first round of price increase announcements which were made in February/March, so there's been two price increase announcements made.

Okay.

The first of which is being implemented now, the second of which wouldn't be implemented until the fourth quarter, and our success in implementing that second round of price increases we're clearly saying is dependent upon economic and market conditions.

Okay.

As we get into the fourth quarter.

Okay. Great. Thanks very much.

You're welcome.

And our next question comes from the line of Richard Phalen with UBS Warburg. Please go ahead.

Good afternoon. Wondering, I think I heard you say that the U.S. prices were now at roughly $1,800 per ton. If you could give us the - the average price in Europe.

Secondly, I think you mentioned in the press release that the volumes were about 123,000 metric tons. If you can provide a breakup - breakdown between the U.S. and Europe.

And finally, recognizing that you will provide some more detailed information on Kronos International later in the month, I guess in the meantime if you could just provide the EBITDA contribution from the Kronos International subsidiary during the second quarter.

Regarding KII, just to make sure we're clear on what we'll - we're not going to file a Form 10-Q in the next 30 days. We will follow the listing requirement in Luxembourg. We will put out an earnings announcement regarding the profitability in the various economic fundamentals of KII in the next 30 days. We are in the middle of a registration statement for the exchange notes as detailed in the prospectus.

Regarding EBITDA, as I stated earlier, it will trend very similar to the Kronos, Inc. EBITDA. It will be up over quarter 1 similarly in profitability to the Kronos, Inc. consolidated number.

Yeah. Relative to pricing, as you realize, the Euro on average was a lot weaker than 1 to 1 ratio, which it was at the end of the quarter. If you took a snapshot at the end of the quarter, what I've previously indicated is that the European price, on average, in dollar terms, would be very similar to the North American price. But obviously for the quarter, the European price was well below, measured in dollar terms, because the Euro was weaker.

In terms of volumes, our volumes grew in all regions, and in principle, we had a particularly strong first quarter in Europe, so that the growth quarter to quarter, first quarter to second quarter, was least in Europe compared to the other regions of the world, but Europe is performing extremely strong relative to last year, and all regions are showing good volume improvement.

And ladies and gentlemen, if there are any additional questions, please press the 1 at this time.

And we do have a question from the line of Michael Sonnenschein with Credit Suisse First Boston. Please go ahead.

Hi. It's Michael Sonnenschein from Credit Suisse First Boston's high yield research desk. I just want to come back for a moment and maybe you can talk a little bit about how output pricing in Europe works, whether you - whether you do, in fact, over time trend toward dollar pricing or the European has its own kind of local currency pricing and how that works as well on the upstream portion of your business, the [illumini] portion.

For the [illumini] portion? Okay. First of all, we sell in Euros in Europe, where Euros exist.

Uh-huh.

And so I'm only translating into dollars so you have a reference point. But today, with the Euro and the dollar about the same, it's going to be easier to make the comparison without looking at currency rates.

In terms of our [illumini] business, it's in very good shape. It's - the plant is running at above a 800,000-ton a year rate. We continue to do - we have long-term contracts, and that business is a solid contributor to our overall performance.

And [Illumini] pricing, is that priced also in Euros so that you have, you know, a good correlation between [Illumini] and TiO2 or are you pricing - or do you have, you know, dollar-based pricing, essentially, for both sets of - for both - for both areas of the business?

The [illumini] is priced in Norwegian krona. The mine is in Norway, and, you know, [Illumini] relative to - relative to TiO2 is cheap.

Yeah. Of course. Okay. So TiO2, you're pricing in local currency terms. It's - I mean, except for the fact that Euro - that the Euro is pretty - is basically parity with the dollar, it's not necessarily a case that trends in dollar pricing for TiO2 will mirror trends in Euro pricing for TiO2, yeah?

Each region has its own pricing dynamics, and in the export market, we primarily price in dollar terms, as do all of our competitors. Just so you have the total picture.

Okay. And can you talk a little bit about the split-out between your fixed costs in your business and your variable costs in the business?

I'd say as a rule of thumb for this company, let's say that 60% variable, 40% fixed.

Okay. Well, thank you very much for such a thorough conference call.

And there are no further questions in queue. Please continue.

Carol, I want to thank everyone for joining the call, and Carol, would you please give the phone-in number, please?

Yes. Ladies and gentlemen, this conference will be available for replay after 12:30 this afternoon, and run through Friday, August 9th at 11:59 p.m. You may access the AT and T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code of 645510. International participants dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844, access code 645510.

That does conclude our conference for today. Thank you for your participation and using AT and T 00:49:00 executive teleconference.