In an effort to provide investors with additional information regarding the company’s results of operations, we will refer to certain non-GAAP information. We asked that you refer to the earnings release for a reconciliation of this non-GAAP information to our GAAP financial statements.I will now turn the call over to Steve. Steve Watson Thank you, Janet, and welcome everyone participating on this conference call. In addition to Janet and Greg, with me today are several members of our management team; Rob Graham, our Executive Vice President; Kelly Luttmer, Vice President, Global Tax Director; John St. Wrba, Vice President, Treasurer; Tim Hafer, Vice President, Controller; and Brian Christian, Vice President of Strategic Business Development. I also want to give special recognition to our exceptional operating management team. Leaders of that team, including Doug Weaver, Dr. Ulfert Fiand, Klemens Schluter, Joe Maas and Ben Corona, have the talent and the experience necessary to maximize the potential of the Kronos business. These gentlemen and the teams they lead, have built an organization with a long history of continuous improvement. Special recognition goes to our manufacturing and technical groups, who have an outstanding record of increasing production efficiency and capacity, generally with minimal capital costs. In 2011, these groups again broke all previous production records by making 550,000 metric tons of TiO2. Our operating and financial results for 2011 were exceptional, as we were able to increase prices throughout the year to more than offset increased costs. Even with our 2011 sales volume down 5% our operating income of (inaudible) of 2010. During the first nine months of 2011, we experienced strong global customer demand for TiO2 products, which continued to outpace supply. Demand for TiO2 products slowed in the fourth quarter, which we attribute primarily to seasonality and destocking of customers inventories, in some cases to lower than normal seasonal levels. Some customers had built inventories of TiO2 higher than normal during 2011 to assure adequate supply and avoid production disruptions during the highest TiO2 demand periods.
We anticipate a similar pattern may develop in 2012 as we again enter the highest demand periods and assurance of adequate supply becomes critical for many customers. Although our fourth quarter sales volume decreased 19% from the fourth quarter of 2010, we were still able to implement selling price increases. Our sales price at the end of the fourth quarter was 11% higher than the end of the third quarter and 46% higher than the fourth quarter of 2010.Our production facilities were operated at full capacity throughout 2011 even during the fourth quarter when our sales volume declined. This allowed us to rebuild our inventory at 2011 costs, which will positively impact our financial results in 2012. The global shortage of titanium ore feedstocks and rising prices will result in a significant increase in 2012 production costs. But we expect to implement TiO2 price increases to offset these higher costs. As we have previously discussed, an extended period of low profit margins did not foster the investment in and development of ore supplies that are now needed to expand the TiO2 industry. We believe that the ore prices now in effect are producing the profits necessary for the continued development and expansion of ore supplies. We also believe that ore costs will stabilize and moderate as necessary, so not to become a major factor in hindering profit, margin expansion in the TiO2 industry, which could in turn hinder TiO2 capacity expansion necessary to consume the additional ore supplies. We are partially hedged against ore shortages and cost increases. We currently supply 100% of our European sulfate production ore feedstocks from our mines in Norway and sell additional ore production to third parties. We continue to believe the global shortage of TiO2 will last for several years due to the constraints and time required to adding significant new capacity, especially for TiO2 premium grades produced through the chloride process. We expect the supply of TiO2 products to increase through various methods over time, but we believe the magnitude of such increases will not consistently exceed the expected global demand for TiO2 products in the foreseeable future. Read the rest of this transcript for free on seekingalpha.com