Tronox Limited
Tronox Ltd (Form: 10-Q, Received: 08/09/2017 17:12:35)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
Form 10-Q
 

 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to ___________

1-35573
(Commission file number)
 

 
TRONOX LIMITED
(ACN 153 348 111)
(Exact Name of Registrant as Specified in its Charter) extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 


Western Australia, Australia
 
98-1026700
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification Number)
     
263 Tresser Boulevard, Suite 1100
Stamford, Connecticut 06901
 
Lot 22, Mason Road,
Kwinana Beach, WA, 6167
Australia

Registrant’s telephone number, including area code: (203) 705-3800



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company . See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
 
Accelerated filer
Non-accelerated filer
o (Do not check if a smaller reporting company)
 
Smaller reporting company
Emerging growth company
     
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐            No

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes            No ☐
 
As of July 28, 2017, the Registrant had 67,821,274 Class A ordinary shares and 51,154,280 Class B ordinary shares outstanding.
 


Table of Contents

 
Page
PART I – FINANCIAL INFORMATION
 
3
47
59
60
PART II – OTHER INFORMATION
 
60
61
62
62
62
62
63
   
64
 
2

I tem 1.
Financial Statements (Unaudited)

 
Page
No.
   
4
5
6
7
8
9
 
TRONOX LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Millions of U.S. dollars, except share and per share data)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Net sales
 
$
622
   
$
538
   
$
1,191
   
$
1,014
 
Cost of goods sold
   
498
     
479
     
977
     
934
 
                                 
Gross profit
   
124
     
59
     
214
     
80
 
Selling, general and administrative expenses
   
(69
)
   
(51
)
   
(143
)
   
(101
)
Restructuring income (expense)
   
     
1
     
     
(1
)
                                 
Income (loss) from operations
   
55
     
9
     
71
     
(22
)
Interest and debt expense, net
   
(46
)
   
(46
)
   
(92
)
   
(92
)
Gain on extinguishment of debt
   
     
     
     
4
 
Other expense, net
   
(1
)
   
(3
)
   
(7
)
   
(12
)
                                 
Income (loss) before income taxes
   
8
     
(40
)
   
(28
)
   
(122
)
Income tax provision
   
(3
)
   
(10
)
   
(5
)
   
(22
)
                                 
Net income (loss)
   
5
     
(50
)
   
(33
)
   
(144
)
Net income (loss) attributable to noncontrolling interest
   
2
     
2
     
5
     
1
 
                                 
Net income (loss) attributable to Tronox Limited
 
$
3
   
$
(52
)
 
$
(38
)
 
$
(145
)
                                 
Net income (loss) per share, basic and diluted
 
$
0.02
   
$
(0.44
)
 
$
(0.32
)
 
$
(1.24
)
                                 
Weighted average shares outstanding, basic (in thousands)
   
119,188
     
116,184
     
118,804
     
116,052
 
                                 
Weighted average shares outstanding, diluted (in thousands)
   
124,301
     
116,184
     
118,804
     
116,052
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
TRONOX LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Millions of U.S. dollars)
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Net income (loss)
 
$
5
   
$
(50
)
 
$
(33
)
 
$
(144
)
Other comprehensive income:
                               
Foreign currency translation adjustments
   
34
     
     
58
     
53
 
Pension and postretirement plans: amortization of unrecognized actuarial losses, net of taxes of less than $1 million in each of the three and six months ended June 30, 2017 and 2016
   
     
     
1
     
1
 
Unrealized gains (losses) on derivative financial instruments (no tax impact; see Note 13)
   
(1
)
   
2
     
(3
)
   
2
 
                                 
Other comprehensive income
   
33
     
2
     
56
     
56
 
                                 
Total comprehensive income (loss)
   
38
     
(48
)
   
23
     
(88
)
                                 
Comprehensive income (loss) attributable to noncontrolling interest:
                               
Net income (loss)
   
2
     
2
     
5
     
1
 
Foreign currency translation adjustments
   
7
     
     
13
     
13
 
                                 
Comprehensive income (loss) attributable to noncontrolling interest
   
9
     
2
     
18
     
14
 
                                 
Comprehensive income (loss) attributable to Tronox Limited
 
$
29
   
$
(50
)
 
$
5
   
$
(102
)
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
TRONOX LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions of U.S. dollars, except share and per share data)
 
   
June 30,
2017
   
December 31,
2016
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
 
$
303
   
$
248
 
Restricted cash
   
2
     
3
 
Accounts receivable, net of allowance for doubtful accounts
   
457
     
424
 
Inventories, net
   
506
     
532
 
Prepaid and other assets
   
54
     
49
 
Total current assets
   
1,322
     
1,256
 
Noncurrent Assets
               
Property, plant and equipment, net
   
1,816
     
1,831
 
Mineral leaseholds, net
   
1,608
     
1,607
 
Intangible assets, net
   
210
     
223
 
Inventories, net
   
15
     
14
 
Other long-term assets
   
23
     
22
 
Total assets
 
$
4,994
   
$
4,953
 
                 
LIABILITIES AND EQUITY
               
Current Liabilities
               
Accounts payable
 
$
201
   
$
180
 
Accrued liabilities
   
181
     
186
 
Short-term debt
   
150
     
150
 
Long-term debt due within one year
   
16
     
16
 
Income taxes payable
   
2
     
1
 
Total current liabilities
   
550
     
533
 
                 
Noncurrent Liabilities
               
Long-term debt, net
   
2,886
     
2,888
 
Pension and postretirement healthcare benefits
   
116
     
122
 
Asset retirement obligations
   
76
     
73
 
Long-term deferred tax liabilities
   
161
     
152
 
Other long-term liabilities
   
30
     
32
 
Total liabilities
   
3,819
     
3,800
 
                 
Commitments and Contingencies
               
Shareholders’ Equity
               
Tronox Limited Class A ordinary shares, par value $0.01 — 67,903,699 shares issued and 67,727,227 share outstanding at June 30, 2017 and 65,998,306 shares issued and 65,165,672 shares outstanding at December 31, 2016
   
1
     
1
 
Tronox Limited Class B ordinary shares, par value $0.01 — 51,154,280 shares issued and outstanding at June 30, 2017 and December 31, 2016
   
     
 
Capital in excess of par value
   
1,535
     
1,524
 
Accumulated deficit
   
(69
)
   
(19
)
Accumulated other comprehensive loss
   
(454
)
   
(497
)
Total Tronox Limited shareholders’ equity
   
1,013
     
1,009
 
Noncontrolling interest
   
162
     
144
 
                 
Total equity
   
1,175
     
1,153
 
Total liabilities and equity
 
$
4,994
   
$
4,953
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
TRONOX LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions of U.S. dollars)

   
Six Months
Ended June 30,
 
   
2017
   
2016
 
Cash Flows from Operating Activities:
           
Net loss
 
$
(33
)
 
$
(144
)
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation, depletion and amortization
   
123
     
115
 
Deferred income taxes
   
2
     
(3
)
Share-based compensation expense
   
22
     
10
 
Amortization of deferred debt issuance costs and discount on debt
   
6
     
5
 
Pension and postretirement healthcare benefit expense
   
4
     
3
 
Gain on extinguishment of debt
   
     
(4
)
Other, net
   
9
     
20
 
Contributions to employee pension and postretirement plans
   
(11
)
   
(9
)
Changes in assets and liabilities:
               
(Increase) decrease in accounts receivable, net
   
(28
)
   
(13
)
(Increase) decrease in inventories, net
   
36
     
87
 
(Increase) decrease in prepaid and other assets
   
(6
)
   
(2
)
Increase (decrease) in accounts payable and accrued liabilities
   
12
     
(16
)
Increase (decrease) in taxes payable
   
1
     
20
 
Cash provided by operating activities
   
137
     
69
 
                 
Cash Flows from Investing Activities:
               
Capital expenditures
   
(56
)
   
(55
)
Proceeds on sale of assets
   
     
1
 
Cash used in investing activities
   
(56
)
   
(54
)
                 
Cash Flows from Financing Activities:
               
Repayments of debt
   
(8
)
   
(23
)
Dividends paid
   
(12
)
   
(35
)
Restricted stock and performance-based shares settled in cash for taxes
   
(11
)
   
 
Cash used in financing activities
   
(31
)
   
(58
)
                 
Effects of exchange rate changes on cash and cash equivalents
   
5
     
2
 
                 
Net increase (decrease) in cash and cash equivalents
   
55
     
(41
)
Cash and cash equivalents at beginning of period
   
248
     
229
 
                 
Cash and cash equivalents at end of period
 
$
303
   
$
188
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
TRONOX LIMITED
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
(Millions of U.S. dollars)

   
Tronox
Limited
Class A
Ordinary
Shares
   
Tronox
Limited
Class B
Ordinary
Shares
   
Capital in
Excess of
par Value
   
Accumulated
Deficit
   
Accumulated
Other
Comprehensive
Loss
   
Total
Tronox
Limited
Shareholders’
Equity
   
Non-
controlling
Interest
   
Total
Equity
 
Balance at January 1, 2017
 
$
1
   
$
   
$
1,524
   
$
(19
)
 
$
(497
)
 
$
1,009
   
$
144
   
$
1,153
 
Net income (loss)
   
     
     
     
(38
)
   
     
(38
)
   
5
     
(33
)
Other comprehensive income
   
     
     
     
     
43
     
43
     
13
     
56
 
Share-based compensation
   
     
     
22
     
     
     
22
     
     
22
 
Shares cancelled
   
     
     
(11
)
   
     
     
(11
)
   
     
(11
)
Class A and Class B share dividends
   
     
     
     
(12
)
   
     
(12
)
   
     
(12
)
                                                                 
Balance at June 30, 2017
 
$
1
   
$
   
$
1,535
   
$
(69
)
 
$
(454
)
 
$
1,013
   
$
162
   
$
1,175
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
TRONOX LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)

1.
The Company

Tronox Limited and its subsidiaries (collectively referred to as “Tronox Limited,” “we,” “us,” or “our”) is a public limited company registered under the laws of the State of Western Australia. We are a global leader with operations in North America, Europe, South Africa and the Asia-Pacific region in the production and marketing of titanium bearing mineral sands and titanium dioxide (“TiO 2 ”) pigment, and the world’s largest producer of natural soda ash. We classify our operations into two reporting segments: TiO 2 : consisting of products that are critical components of everyday applications such as paint and other coatings, plastics, paper and other uses and our related mineral sands product streams include titanium feedstock, zircon and pig iron, Alkali: consisting of soda ash products used by customers in the glass, detergent, and chemicals manufacturing industries.  

On February 21, 2017, Tronox Limited, The National Titanium Dioxide Company Ltd., a limited company organized under the laws of the Kingdom of Saudi Arabia (“Cristal”), and Cristal Inorganic Chemicals Netherlands Coöperatief  W.A., a cooperative organized under the laws of the Netherlands and a wholly owned subsidiary of Cristal (“Seller”), entered into a Transaction Agreement (the “Transaction Agreement”), pursuant to which we agreed to acquire Cristal’s titanium dioxide business for $1.673 billion in cash, subject to a working capital adjustment at closing (the “Cash Consideration”), plus 37,580,000 Class A ordinary shares (“Class A Shares”), par value $0.01 per share, of Tronox Limited (the “Cristal Transaction”). Following the closing of the Cristal Transaction, the Seller will own approximately 24% of the outstanding ordinary shares (including both Class A and Class B) of Tronox Limited. The Cristal Transaction is conditioned on us obtaining financing sufficient to fund the Cash Consideration, and the Transaction Agreement provides that we must pay to Cristal a termination fee of $100 million if all conditions to closing, other than the financing condition, have been satisfied and the Transaction Agreement is terminated because closing of the Cristal Transaction has not occurred by May 21, 2018. The Cristal Transaction is also conditioned upon the receipt of various regulatory approvals, including antitrust clearance in numerous jurisdictions. On April 13, 2017, the United States Federal Trade Commission (“FTC”) issued a second request to us and Cristal in connection with its filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the parties are cooperating to provide the information requested by the FTC as promptly as practicable. The Cristal Transaction, which has been unanimously approved by our board of directors (the “Board”), is expected to close by the first quarter of 2018, subject to regulatory approvals and satisfaction of customary closing conditions, including the favorable vote of a majority of our outstanding shares.

Concurrently with the announcement of the Cristal Transaction, we expressed intent to begin a process to market our Alkali business. On August 2, 2017, we announced that Tronox, Tronox US Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Tronox (“Tronox Holdings”), Tronox Alkali Corporation, a Delaware corporation and wholly owned subsidiary of Tronox Holdings (“Alkali”), and Genesis Energy, L.P. (“Purchaser”), entered into a Stock Purchase Agreement (the “Purchase Agreement”), pursuant to which the Purchaser agreed to acquire our Alkali  Chemical business (the “Alkali Business”) for $1.325 billion in cash, subject to a working capital adjustment (the “Alkali Sale”). We have agreed unconditionally to guarantee the indemnification and performance of the obligations of Tronox Holdings under the Purchase Agreement. Both Tronox Holdings and the Purchaser have agreed, following the closing, to indemnify the other party for losses arising from certain breaches of the Purchase Agreement and for certain other liabilities, subject to certain limitations. The completion of the Alkali Sale is subject to certain customary closing conditions and is expected to close in the second half of 2017. At June 30, 2017, the Alkali asset group is classified as held and used as it did not meet the held for sale criteria, mainly board approval of a sale and a commitment to a plan to sell. Beginning in the third quarter of 2017, the assets and liabilities of the Alkali Business will be classified as held for sale, in our unaudited Condensed Balance Sheets and its results of operations will be presented within discontinued operations in our unaudited Condensed Consolidated Statements of Operations for all comparative periods presented.

In 2012, our Class B ordinary shares (“Class B Shares”) were issued to Exxaro Resources Limited (“Exxaro”) and one of its subsidiaries in consideration for 74% of Exxaro’s South African mineral sands business. Exxaro has agreed not to acquire any voting shares of Tronox Limited if, following such acquisition, Exxaro will have a voting interest in Tronox Limited of 50% or more unless Exxaro brings any proposal to make such an acquisition to the Board on a confidential basis. In the event an agreement regarding the proposal is not reached, Exxaro is permitted to make a takeover offer for all the shares of Tronox Limited not held by affiliates of Exxaro, subject to certain non-waivable conditions. At June 30, 2017 and December 31, 2016, Exxaro held approximately 43% and 44%, respectively, of the voting securities of Tronox Limited. See Note 19 for additional information regarding Exxaro transactions. On March 8, 2017, Exxaro announced its intention to begin pursuing a path to monetize its ownership stake in Tronox over time. According to Exxaro’s announcement, any such monetization is expected to proceed in stages and would likely begin in the second half of 2017.
 
Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited, and have been prepared pursuant to the rules and regulations of the U. S. Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. The Condensed Consolidated Balance Sheet as of December 31, 2016 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, considered necessary for a fair statement. Our unaudited condensed consolidated financial statements include the accounts of all majority-owned subsidiary companies. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the manner and presentation in the current period.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. It is at least reasonably possible that the effect on the financial statements of a change in estimate due to one or more future confirming events could have a material effect on the financial statements.

Revision of Previously Issued Consolidated Financial Statements

During the three months ended March 31, 2017, we identified a misstatement in our selling, general, and administrative expense for certain prior periods related to a liability resulting from a non-timely filing with a statutory authority. The aggregate misstatement is $11 million, which impacts our previously issued consolidated statements of operations, comprehensive loss, balance sheets and cash flows as of and for the years ended December 31, 2015 and 2016, and the unaudited condensed consolidated financial statements for the third and fourth quarters and corresponding year-to-date periods of 2015, and each quarter and corresponding year-to-date periods of 2016.

In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality , and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements , management evaluated the materiality of the misstatement from qualitative and quantitative perspectives, and concluded that the misstatement was not material to our previously issued annual and interim financial statements. The cumulative amount of the prior period adjustments would have been material to our current statement of operations and comprehensive loss had we made the correction in the three months ended March 31, 2017 and accordingly we will revise our previously issued financial statements to correct this misstatement. We also corrected the timing of other previously recorded immaterial out-of-period adjustments and reflected them in the revised prior period financial statements.  The previously recorded immaterial out-of-period adjustments include a $6 million decrease to cost of goods sold due to an overstated depreciation expense and a $7 million increase to cost of goods sold related to royalty tax both originating in 2013 and previously recorded as out-of-period corrections in 2014; a $5 million decrease to cost of goods sold that originated in 2012 and was previously recorded as an out-of-period correction in 2014 due to overstated depletion expense; and other miscellaneous immaterial corrections.  Periods not presented herein will be revised, as applicable, in future filings.
 
The effects on our unaudited condensed consolidated financial statements are as follows:
 
Unaudited Condensed Consolidated Statement of Operations

   
Three Months Ended June 30, 2016
   
Six Months Ended June 30, 2016
 
   
As
Reported
   
Adjustment
   
Revised
   
As
Reported
   
Adjustment
   
Revised
 
                                     
Net sales
 
$
537
   
$
1
   
$
538
   
$
1,012
   
$
2
   
$
1,014
 
Cost of goods sold
   
480
     
(1
)
   
479
     
935
     
(1
)
   
934
 
Gross profit
   
57
     
2
     
59
     
77
     
3
     
80
 
Selling, general and administrative expenses
   
(50
)
   
(1
)
   
(51
)
   
(97
)
   
(4
)
   
(101
)
Income (loss) from operations
   
8
     
1
     
9
     
(21
)
   
(1
)
   
(22
)
Other expense, net
   
     
(3
)
   
(3
)
   
(9
)
   
(3
)
   
(12
)
Loss before income taxes
   
(38
)
   
(2
)
   
(40
)
   
(118
)
   
(4
)
   
(122
)
Net loss
   
(48
)
   
(2
)
   
(50
)
   
(140
)
   
(4
)
   
(144
)
Net loss attributable to Tronox Limited
   
(50
)
   
(2
)
   
(52
)
   
(141
)
   
(4
)
   
(145
)
Loss per share, basic and diluted
   
(0.42
)
   
(0.02
)
   
(0.44
)
   
(1.21
)
   
(0.03
)
   
(1.24
)
Weighted average shares outstanding, basic and diluted (in thousands)
   
116,184
     
116,184
     
116,184
     
116,052
     
116,052
     
116,052
 
 
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
 
 
As
Reported
 
Adjustment
 
Revised
 
As
Reported
 
Adjustment
 
Revised
 
                         
Net loss
 
$
(48
)
 
$
(2
)
 
$
(50
)
 
$
(140
)
 
$
(4
)
 
$
(144
)
Total comprehensive loss
   
(46
)
   
(2
)
   
(48
)
   
(84
)
   
(4
)
   
(88
)
Comprehensive loss attributable to Tronox Limited
   
(48
)
   
(2
)
   
(50
)
   
(98
)
   
(4
)
   
(102
)
 
Unaudited Condensed Consolidated Balance Sheet

   
December 31, 2016
 
   
As Reported
   
Adjustment
   
Revised
 
Accounts receivable, net of allowance for doubtful accounts
 
$
421
   
$
3
   
$
424
 
Total current assets
   
1,253
     
3
     
1,256
 
Total assets
   
4,950
     
3
     
4,953
 
Accrued liabilities
   
174
     
11
     
185
 
Total current liabilities
   
522
     
11
     
533
 
Total liabilities
   
3,789
     
11
     
3,800
 
Accumulated deficit
   
(13
)
   
(6
)
   
(19
)
Accumulated other comprehensive loss
   
(495
)
   
(2
)
   
(497
)
Total Tronox Limited shareholders’ equity
   
1,017
     
(8
)
   
1,009
 
Total equity
   
1,161
     
(8
)
   
1,153
 
Total liabilities and equity
   
4,950
     
3
     
4,953
 
 
Unaudited Condensed Consolidated Statement of Cash Flows

The corresponding amounts have been revised within the statement of cash flows for the six months ended June 30, 2016 with no net impact to operating, investing and financing cash flows.
 
Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which amends Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation . ASU 2016-09 simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements including income taxes and forfeitures of awards. We adopted ASU 2016-09 during the first quarter of 2017. Its adoption did not have a material impact on our unaudited condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (“ASU 2016-05”), which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument or a change in a critical term of the hedging relationship. As long as all other hedge accounting criteria in ASC 815, Derivatives and Hedging (“ASC 815”) are met, a hedging relationship in which the hedging derivative instrument is novated would not be discontinued or require redesignation. This clarification applies to both cash flow and fair value hedging relationships. We adopted ASU 2016-05 during the first quarter of 2017. Its adoption did not have an impact on our unaudited condensed consolidated financial statements.

In July 2015, as part of its simplification initiative, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 simplifies the subsequent measurement of inventory by requiring entities to remeasure inventory at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted ASU 2015-11 during the first quarter of 2017. The adoption of ASU 2015-11 did not have an impact on our unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

We consider the applicability and impact of all recently issued ASUs. Those not listed below were assessed and determined to be either not applicable or expected to have a minimal impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718):    Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under ASU 2017-09, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ASU 2017-09 is effective prospectively for annual periods beginning on or after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The impact, if any, that ASU 2017-09 will have on our consolidated financial statements will depend on any future award modification.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”) which amends the requirements in ASC 715, Compensation — Retirement Benefits, which requires employers that sponsor defined benefit pension and/or other postretirement plans to aggregate the various components of net periodic benefit cost for presentation purposes but does not prescribe where they should be presented in the income statement. ASU 2017-07 requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from service rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. Employers will have to disclose the line item(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted as of the beginning of an annual period for which an entity’s financial statements (interim or annual) have not been issued. ASU 2017-07 requires the presentation of the components of net periodic benefit cost in the income statement retrospectively while the guidance limiting the capitalization of net periodic benefit cost in assets to the service component will be applied prospectively. We have not yet determined the impact that ASU 2017-07 will have on our consolidated financial statements.
 
In January 2017, the FASB issued ASU 2017-01, Business Combinations    (Topic 805):    Clarifying the Definition of a Business (“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early application of the amendments in ASU 2017-01 is allowed under certain circumstances. The amendments in ASU 2017-01 should be applied prospectively on or after the effective date. The impact, if any, that ASU 2017-01 will have on our consolidated financial statements will depend on the nature of future acquisitions of assets or businesses.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) : Restricted Cash (“ASU 2016-18”), which requires that the reconciliation of the beginning-of-period and end-of period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. ASU 2016-18 does not define restricted cash or restricted cash equivalents, but an entity will need to disclose the nature of the restrictions. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The guidance should be applied retrospectively to all periods presented. We do not expect the adoption of ASU 2016-18 to have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The impact, if any, that ASU 2016-16 will have on our consolidated financial statements will depend upon future intra-entity transfers of assets other than inventory.
 
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) which provides guidance intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years with early adoption permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. We have not yet determined the impact, if any, that ASU 2016-15 will have on our consolidated financial statements as it will depend on the nature of future cash flow transactions impacted by the new guidance.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) which includes a lessee accounting model that recognizes two types of leases - finance leases and operating leases. The standard requires that a lessee recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or an operating lease. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. We have developed an implementation plan for adopting ASU 2016-02, which includes utilizing a software program to manage our lease obligations. We are evaluating the impact that ASU 2016-02 will have on our consolidated financial statements and have concluded that we will not early adopt ASU 2016-02. Refer to Note 14 and 17 included in our Annual Report on Form 10-K for the year ended December 31, 2016 regarding current obligations under lease agreements.
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires several new disclosures. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted, and may be applied either retrospectively or on a modified retrospective basis. Subsequent to the issuance of the May 2014 guidance, several clarifications and updates have been issued on this topic, the most recent of which was issued in February 2017. We have developed an implementation plan for adopting ASU 2014-09 and are currently operating in line with that plan. We have completed our contract evaluation process and are currently validating the results of applying the new revenue guidance. We have also started documenting our accounting policies and evaluating the new disclosure requirements and we expect to complete the evaluation of the impact of the accounting and disclosure requirements on our business processes, controls and systems by the fourth quarter of 2017. We are evaluating the impact that ASU 2014-09 will have on our consolidated financial statements and expect to adopt the new standard using the modified retrospective approach effective January 1, 2018.

2.
Restructuring Expenses

Restructuring income (expense) in our unaudited Condensed Consolidated Statements of Operations consists of charges related to employee severance and associated costs recorded in March 2017 in connection with our Alkali business cost improvement initiative focused on process improvement at our Wyoming facility   (“Wyoming Restructure”), the reversal of restructuring expense pursuant to the settlement of claims previously filed relating to a prior restructure (“Restructuring  Settlement”) and our sodium chlorate plant and global TiO 2 restructure initiatives that commenced in 2015 (“2015 Restructuring Initiatives”).

Restructuring income (expense) for the three and six months ended June 30, 2017 and 2016 is as follows:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Wyoming Restructure
 
$
   
$
   
$
(1
)
 
$
 
Restructuring Settlement
   
     
     
1
     
 
2015 Restructuring Initiatives
   
     
1
     
     
(1
)
   
$
   
$
1
   
$
   
$
(1
)

The cumulative amount incurred to date relating to the Wyoming Restructure is $1 million. The cumulative amount incurred relating to our 2015 Restructuring Initiatives completed in 2016 was $20 million.

Restructuring income (expense) by segment for the three and six months ended June 30, 2017 and 2016 was as follows:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Alkali segment
 
$
   
$
   
$
(1
)
 
$
 
TiO 2 segment
   
     
1
     
     
(1
)
Corporate
   
     
     
1
     
 
   
$
   
$
1
   
$
   
$
(1
)

A summary of the changes in the liability established for restructuring included in accrued liabilities is as follows:
 
   
2017
   
2016
 
Balance, January 1
 
$
   
$
15
 
Additional provision, net
   
     
1
 
Cash (payments) receipts
   
1
     
(13
)
                 
Balance, June 30
 
$
1
   
$
3
 
 
We paid the remaining $3 million liability as of June 30, 2016 relating to the 2015 Restructuring Initiatives during the third quarter of 2016. We expect to pay the remaining liability of $1 million relating to the Wyoming Restructure during the third quarter of 2017.

3.
Income Taxes

Our operations are conducted through our various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned.

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Income tax provision
 
$
(3
)
 
$
(10
)
 
$
(5
)
 
$
(22
)
Income (loss) before income taxes
 
$
8
   
$
(40
)
 
$
(28
)
 
$
(122
)
Effective tax rate
   
38
%
   
(25
)%
   
(18
)%
   
(18
)%

During the fourth quarter of 2016, we implemented various steps of an internal corporate restructuring plan to simplify our corporate, finance and legal structure and thereby improve operational, administrative, and commercial synergies within each of our operating segments (the “Corporate Reorganization”). As a result of this Corporate Reorganization, we reduced our cross jurisdictional financing arrangements during 2016; therefore, the three and six months period ended June 30, 2017 is not impacted by withholding tax accruals on interest income. In connection with the Corporate Reorganization during the three months period ended March 31, 2017, Tronox Limited became managed and controlled in the United Kingdom (“U.K”), with no additional impacts to the consolidated provision for income taxes due to the valuation allowances in various jurisdictions.

During the three months ended March 31, 2017, Tronox Limited, the public parent which is registered under the laws of the State of Western Australia, became managed and controlled in the U.K. The statutory tax rate in the U.K. at June 30, 2017 was 19%. During 2016, Tronox Limited was managed and controlled in Australia which has a statutory tax rate of 30%.

The effective tax rate for the three and six months ended June 30, 2017 differs from the U.K. statutory rate of 19% primarily due to valuation allowances, income in foreign jurisdictions taxed at rates different than 19%. The effective tax rate for the three and six months ended June 30, 2016 differs from the Australian statutory rate of 30% primarily due to valuation allowances and income in foreign jurisdictions taxed at rates lower than 30%, and withholding tax accruals on interest income. The income tax provision for the three and six months ended June 30, 2017 differs from the income tax provision for the three and six months ended June, 2016 primarily due to withholding tax accruals on interest income which we made during 2016.

The statutory tax rates in various countries where subsidiaries of Tronox Limited have operations are different than both the U.K. and the Australian tax rates. Tax rates in the United States (“U.S.”) (35% for corporations), South Africa (28% for limited liability companies), the Netherlands (25% for corporations), Switzerland (8.5% for corporations) and Jersey, U.K. (0% for corporations) all impact our effective tax rate.

We continue to maintain full valuation allowances related to the total net deferred tax assets in Australia, the Netherlands, and the U.S., as we cannot objectively assert that these deferred tax assets are more likely than not to be realized. Future provisions for income taxes will include no tax benefits with respect to losses incurred and tax expense only to the extent of current state tax payments until the valuation allowances are eliminated. Additionally, we have valuation allowances against specific tax assets in South Africa, and during the six month period ended June 30, 2017 we established a valuation allowance of $2 million against deferred tax assets in the U.K. which we do not currently expect to utilize.

 These conclusions were reached by the application of ASC 740, Income Taxes , which require all available positive and negative evidence be weighted to determine whether a valuation allowance should be recorded. The more significant evidential matter in Australia, the U.S., The Netherlands, and the U.K. relates to recent book losses and the lack of sufficient projected taxable income. The more significant evidential matter for South Africa relates to assets that cannot be depleted or depreciated for tax purposes and capital gains tax losses which we do not expect to utilize.
 
The company is currently under audit in Australia and the United States. We believe that we have made adequate provision for income taxes that may be payable with respect to years open for examination; however, the ultimate outcome is not presently known and, accordingly, additional provisions may be necessary and/or reclassifications of noncurrent tax liabilities to current may occur in the future.

4.
Income (Loss) Per Share

The computation of basic and diluted income (loss) per share for the periods indicated is as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Numerator – Basic and Diluted:
                       
Net income (loss)
 
$
5
   
$
(50
)
 
$
(33
)
 
$
(144
)
                                 
Less: Net income attributable to noncontrolling interest
   
2
     
2
     
5
     
1
 
Undistributed net income (loss) attributable to Tronox Limited
   
3
     
(52
)
   
(38
)
   
(145
)
Percentage allocated to ordinary shares (1)
   
100
%
   
100
%
   
100
%
   
100
%
Net income (loss) available to ordinary shares
 
$
3
   
$
(52
)
 
$
(38
)
 
$
(145
)
                                 
Denominator – Basic and Diluted:
                               
                                 
Weighted-average ordinary shares, basic (in thousands)
   
119,188
     
116,184
     
118,804
     
116,052
 
                                 
Weighted-average ordinary shares, diluted (in thousands)
   
124,301
     
116,184
     
118,804
     
116,052
 
                                 
Net income (loss) per Ordinary Share (2) :
                               
Basic and diluted net income (loss) per ordinary share
 
$
0.02
   
$
(0.44
)
 
$
(0.32
)
 
$
(1.24
)
 

(1)
Our earnings per share for the three months ended June 30, 2017 was calculated under the two-class method using the weighted average shares and participating securities since we had net income for this period. Our participating securities do not have a contractual obligation to share in losses; therefore, when we have a net loss, none of the loss is allocated to participating securities. Consequently, for the six months ended June 30, 2017 and the three and six months ended June 30, 2016, the two-class method did not have an effect on our net loss per ordinary share calculation, and as such, dividends paid during the year did not impact this calculation for these periods.
 
  (2)
Net income (loss) per ordinary share amounts were calculated from exact, not rounded net income (loss) and share information.
 
In computing diluted net income (loss) per share under the two-class method, we considered potentially dilutive shares. Anti-dilutive shares not recognized in the diluted net loss per share calculation for the six months ended June 30, 2017 and 2016 were as follows:

   
June 30, 2017
   
June 30, 2016
 
   
Shares
   
Average
Exercise Price
   
Shares
   
Average
Exercise Price
 
Options
   
1,930,616
   
$
21.17
     
2,015,673
   
$
21.19
 
Series A Warrants
   
986,558
   
$
8.51
     
1,438,283
   
$
8.54
 
Series B Warrants
   
1,940,062
   
$
9.37
     
1,947,228
   
$
9.42
 
Restricted share units
   
6,021,045
   
$
11.10
     
5,692,870
   
$
7.22
 

5.
Accounts Receivable, Net of Allowance for Doubtful Accounts

Accounts receivable, net of allowance for doubtful accounts, consisted of the following:
 
   
June 30,
2017
   
December 31,
2016
 
Trade receivables
 
$
436
   
$
403
 
Other
   
23
     
23
 
Subtotal
   
459
     
426
 
Allowance for doubtful accounts
   
(2
)
   
(2
)
Accounts receivable, net of allowance for doubtful accounts
 
$
457
   
$
424
 

6.
Inventories, Net

Inventories, net consisted of the following:
 
   
June 30,
2017
   
December 31,
2016
 
Raw materials
 
$
180
   
$
194
 
Work-in-process
   
37
     
41
 
Finished goods, net
   
190
     
204
 
Materials and supplies, net (1)
   
114
     
107
 
Total
   
521
     
546
 
Less: Inventories, net – non-current
   
(15
)
   
(14
)
Inventories, net - current
 
$
506
   
$
532
 


(1)
Consists of processing chemicals, maintenance supplies, and spare parts, which will be consumed directly and indirectly in the production of our products.

Finished goods include inventory on consignment of $24 million at both June 30, 2017 and December 31, 2016. At June 30, 2017 and December 31, 2016, inventory obsolescence reserves primarily for materials and supplies were $18 and $17 million, respectively. At June 30, 2017 and December 31, 2016, reserves for lower of cost or market were $21 million and $26 million, respectively.
 
7.
Property, Plant and Equipment, Net

Property, plant and equipment, net of accumulated depreciation, consisted of the following:
 
   
June 30,
2017
   
December 31,
2016
 
Land and land improvements
 
$
163
   
$
159
 
Buildings
   
322
     
309
 
Machinery and equipment
   
1,945
     
1,888
 
Construction-in-progress
   
149
     
146
 
Other
   
57
     
50
 
Subtotal
   
2,636
     
2,552
 
Less accumulated depreciation and amortization
   
(820
)
   
(721
)
Property, plant and equipment, net (1)
 
$
1,816
   
$
1,831
 
 

(1)
Substantially all of these assets are pledged as collateral for our debt. See Note 11.

Depreciation expense related to property, plant and equipment during the three months ended June 30, 2017 and 2016 was $46 million and $43 million, respectively, of which $45 million and $42 million, respectively, was recorded in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations and $1 million in each of the periods was recorded in “Selling, general and administrative expenses” in the unaudited Condensed Consolidated Statements of Operations. Depreciation expense related to property, plant and equipment during the six months ended June 30, 2017 and 2016 was $92 million and $82 million, respectively, of which $90 million and $80 million, respectively, was recorded in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations and $2 million each was recorded in “Selling, general and administrative expenses” in the unaudited Condensed Consolidated Statements of Operations.

8.
Mineral Leaseholds, Net

Mineral leaseholds, net of accumulated depletion, consisted of the following:
 
   
June 30,
2017
   
December 31,
2016
 
Mineral leaseholds
 
$
2,017
   
$
1,996
 
Less: accumulated depletion
   
(409
)
   
(389
)
Mineral leaseholds, net
 
$
1,608
   
$
1,607
 

Depletion expense related to mineral leaseholds during the three months ended June 30, 2017 and 2016 was $9 million and $10 million, respectively, and during the six months ended June 30, 2017 and 2016 was $18 million and $20 million, respectively which was recorded in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations.

9.
Intangible Assets, Net

Intangible assets, net of accumulated amortization, consisted of the following:
 
   
June 30, 2017
   
December 31, 2016
 
   
Gross
Cost
   
Accumulated
Amortization
   
Net Carrying
Amount
   
Gross
Cost
   
Accumulated
Amortization
   
Net Carrying
Amount
 
Customer relationships
 
$
291
   
$
(125
)
 
$
166
   
$
291
   
$
(115
)
 
$
176
 
TiO 2 technology
   
32
     
(10
)
   
22
     
32
     
(9
)
   
23
 
Internal-use software
   
45
     
(23
)
   
22
     
45
     
(21
)
   
24
 
Intangible assets, net
 
$
368
   
$
(158
)
 
$
210
   
$
368
   
$
(145
)
 
$
223
 
 
Amortization expense related to intangible assets during the three months ended June 30, 2017 and 2016 was $7 million each, of which $1 million each was recorded in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations and $6 million each was recorded in “Selling, general and administrative expenses” in the unaudited Condensed Consolidated Statements of Operations. Amortization expense related to intangible assets during the six months ended June 30, 2017 and 2016 was $13 million each, of which $1 million each was recorded in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations and $12 million each was recorded in “Selling, general and administrative expenses” in the unaudited Condensed Consolidated Statements of Operations. Estimated future amortization expense related to intangible assets is $13 million for the remainder of 2017, $25 million each for 2018 through 2021, and $97 million thereafter.

10.
Accrued Liabilities

Accrued liabilities consisted of the following:
 
   
June 30,
2017
   
December 31,
2016
 
Employee-related costs and benefits
 
$
71
   
$
83
 
Restructuring costs
   
1
     
 
Interest
   
35
     
35
 
Sales rebates
   
19
     
21
 
Taxes other than income taxes
   
7
     
10
 
Professional fees and other
   
48
     
37
 
Accrued liabilities
 
$
181
   
$
186
 

11.
Debt

Short-term Debt

Our short-term debt consisted of a UBS Revolver, defined below, and was $150 million at both June 30, 2017 and December 31, 2016. Average effective interest rate was 4.8% and 4.7% during the three and six months ended June 30, 2017, respectively, and 4.1% and 4.0% during the three and six months ended June 30, 2016, respectively.

UBS Revolver

On June 18, 2012, we entered into a global senior secured asset-based syndicated revolving credit facility with UBS AG (“UBS”) which has been amended and restated (the “UBS Revolver”). The UBS Revolver provides us with up to $500 million of revolving credit lines, with an $85 million sublimit for letters of credit, with a maturity date of April 1, 2020, provided that the Term Loan, defined below, has not been repaid, refinanced or extended, in which case the maturity date would be December 19, 2019. Availability of revolving credit loans and letters of credit are subject to a borrowing base. Borrowings bear interest at our option, at either an adjusted London Interbank Offered Rate (“LIBOR”), plus an applicable margin that ranges from 1.50% to 2.00%,  or a base rate which is at the greatest of (a) the Administrative Agent’s prime rate, (b) the Federal funds effective rate plus 0.50% and (c) the adjusted LIBOR for a one-month period plus 1.00%, plus a margin that ranges from 0.50% to 1.00%, in each case, based on the average daily borrowing availability.

On April 1, 2015, we borrowed $150 million against the UBS Revolver, which was outstanding at both June 30, 2017 and December 31, 2016. During the three and six months ended June 30, 2017 and 2016, we had no drawdowns or repayments on the UBS Revolver. At June 30, 2017 and December 31, 2016, our amount available to borrow was $181 million and $190 million, respectively.

ABSA Revolving Credit Facility

Our South African Rand (“R”) R1.3 billion (approximately $100 million at June 30, 2017 exchange rate) revolving credit facility with ABSA Bank Limited (the “ABSA Revolver”) acting through its ABSA Capital Division (the “ABSA”) expired on June 14, 2017. We are currently in discussions with ABSA regarding renewing the facility.
 
During the three and six months ended June 30, 2017 and 2016, we had no drawdowns or repayments on the ABSA Revolver. At both June 30, 2017 and December 31, 2016, there were no outstanding borrowings on the ABSA Revolver.

Long-term debt, net of an unamortized discount and debt issuance costs, consisted of the following:
 
   
Original
Principal
   
Annual
Interest Rate
 
Maturity
Date
 
June 30,
2017
   
December 31,
2016
 
Term Loan, net of unamortized discount (1)
 
$
1,500
   
Variable
 
3/19/2020
 
$
1,434
   
$
1,441
 
Senior Notes due 2020
   
900
     
6.375
%
8/15/2020
   
896
     
896
 
Senior Notes due 2022
   
600
     
7.50
%
3/15/2022
   
584
     
584
 
Lease financing
                     
19
     
19
 
Long-term debt
                     
2,933
     
2,940
 
Less: Long-term debt due within one year
                     
(16
)
   
(16
)
Debt issuance costs
                     
(31
)
   
(36
)
Long-term debt, net
                      
$
2,886
   
$
2,888
 
 

(1)
Average effective interest rate of 5.1% and 5.0% during the three and six months ended June 30, 2017, respectively, and 4.9% each during the three and six months ended June 30, 2016.

At June 30, 2017, the scheduled maturities of our long-term debt were as follows:
 
   
Total
Borrowings
 
2017
 
$
8
 
2018
   
16
 
2019
   
16
 
2020
   
2,298
 
2021
   
1
 
Thereafter
   
598
 
Total
   
2,937
 
Remaining accretion associated with the Term Loan
   
(4
)
Total borrowings
 
$
2,933
 
 
Term Loan

On April 23, 2014, we, along with our wholly owned subsidiary, Tronox Pigments (Netherlands) B.V., and certain named guarantor subsidiaries, entered into a Third Amended and Restated Credit and Guaranty Agreement (the “Third Agreement”) with the lender parties thereto and Goldman Sachs Bank USA, as administrative agent. Pursuant to the Third Agreement, we obtained a $1.5 billion senior secured term loan (the “Term Loan”) with a maturity date of March 19, 2020. The Third Agreement defines  “Applicable Margin”  using  a grid pricing matrix dependent upon our public corporate family rating as determined by Moody’s and Standard & Poor’s (“Family Rating”) (with the interest rate subject to Eurodollar Rate and Base Rate floors, as defined). Pursuant to the Third Agreement, based upon our Family Rating, the current interest rate per annum is 350 basis points plus LIBOR (subject to a LIBOR floor of 1% per annum). The Term Loan was issued net of an original issue discount. At June 30, 2017 and December 31, 2016, the unamortized discount was $4 million and $5 million, respectively. During each of the three months ended June 30, 2017 and 2016, we made principal repayments of $4 million, and during the six months ended June 30, 2017 and 2016, we made principal repayments of $8 million and $7 million, respectively. At June 30, 2017 and December 31, 2016, debt issuance costs related to the Term Loan of $14 million and $17 million, respectively, were recorded as a direct reduction to the carrying value of the long term debt as described below.
 
Senior Notes due 2020

On August 20, 2012, our wholly owned subsidiary, Tronox Finance LLC (“Tronox Finance”), completed a private placement offering of $900 million aggregate principal amount of senior notes at par value (the “Senior Notes due 2020”). The Senior Notes due 2020 bear interest semiannually at a rate equal to 6.375%, and are fully and unconditionally guaranteed on a senior, unsecured basis by us and certain of our subsidiaries. The Senior Notes due 2020 were initially offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the U.S. to non-U.S. persons pursuant to Regulation S under the Securities Act. At June 30, 2017 and December 31, 2016, debt issuance costs related to the Senior Notes Due 2020 of $8 million and $9 million, respectively, were recorded as a direct reduction to the carrying value of the long-term debt as described below.

On September 17, 2013, Tronox Finance issued $900 million in aggregate principal amount of registered 6.375% Senior Notes due 2020 in exchange for its then existing $900 million in aggregate principal amount of its 6.375% Senior Notes due 2020. The Senior Notes due 2020 are guaranteed by Tronox and certain of its subsidiaries. See Note 21. There were no repayments during the three and six months ended June 30, 2017. During the six months ended June 30, 2016, we repurchased $4 million of face value of notes at a price of 77% of par, resulting in a net gain of approximately $1 million which was included in “Gain on extinguishment of debt” in the unaudited Condensed Consolidated Statements of Operations.

Senior Notes due 2022

We have $600 million aggregate principal amount, 7.50% Senior Notes due 2022 (the “Senior Notes due 2022”) issued under an indenture dated March 19, 2015 (the “Indenture”). The Senior Notes due 2022 have not been registered under the Securities Act, and may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements. There were no repayments during the three and six months ended June 30, 2017. During the six months ended June 30, 2016, we repurchased $16 million of face value of notes at a weighted average price of 76% of par, resulting in a net gain of approximately $3 million which was included in “Gain on extinguishment of debt” in the unaudited Condensed Consolidated Statements of Operations.

The Indenture and the Senior Notes due 2022 provide, among other things, that the Senior Notes due 2022 are senior unsecured obligations of Tronox Finance. Interest is payable on March 15 and September 15 of each year beginning on September 15, 2015 until their maturity date of March 15, 2022. The terms of the Indenture, among other things, limit, in certain circumstances, the ability of us to: incur certain additional indebtedness and issue preferred stock; make certain dividends, distributions, investments and other restricted payments; sell certain assets; incur liens; agree to any restrictions on the ability of certain subsidiaries to make payments to the Company; consolidate or merge with or into, or sell substantially all of our assets to, another person; enter into transactions with affiliates; and enter into new lines of business. At June 30, 2017 and December 31, 2016, debt issuance costs related to the Senior Notes due 2022 of $9 million and $10 million, respectively, were recorded as a direct reduction of the carrying value of the long-term debt as described below.

Liquidity and Capital Resources

As of June 30, 2017, we had $181 million available under the $500 million UBS Revolver and $303 million in cash and cash equivalents.
 
Lease Financing

We have capital lease obligations in South Africa, which are payable through 2031 at a weighted average interest rate of approximately 14%. At June 30, 2017 and December 31, 2016, assets recorded under capital lease obligations were $22 million and $21 million, respectively. Related accumulated amortization was $7 million and $6 million at June 30, 2017 and December 31, 2016, respectively. During each of the three and six months ended June 30, 2017 and 2016, we made principal payments of less than $1 million.
 
Fair Value

Our debt is recorded at historical amounts. At June 30, 2017 and December 31, 2016, the fair value of the Term Loan was $1.4 billion and $1.5 billion, respectively. At June 30, 2017 and December 31, 2016, the fair value of the Senior Notes due 2020 was $898 million and $841 million, respectively. At June 30, 2017 and December 31, 2016, the fair value of the Senior Notes due 2022 was $603 million and $544 million, respectively. We determined the fair value of the Term Loan, the Senior Notes due 2020 and the Senior Notes due 2022 using quoted market prices. The fair value hierarchy for the Term Loan, the Senior Notes due 2020 and the Senior Notes due 2022 is a Level 1 input. Balances outstanding under our UBS Revolver are carried at contracted amounts, which approximate fair value based on the short term nature of the borrowing and the variable interest rate. The fair value hierarchy for our UBS Revolver is a Level 2 input.

Debt Covenants

At June 30, 2017, we had financial covenants in the UBS Revolver and the Term Loan. The Term Loan and the UBS Revolver are subject to an intercreditor agreement pursuant to which the lenders’ respective rights and interests in the security are set forth. We were in compliance with all our financial covenants as of and for the three and six months ended June 30, 2017 (including the ABSA Revolver which expired on June 14, 2017).

Interest and Debt Expense, Net

Interest and debt expense, net in the unaudited Condensed Consolidated Statements of Operations consisted of the following:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2017
   
2016
   
2017
   
2016
 
Interest on Term loan
 
$
16
   
$
17
   
$
33
   
$
33
 
Interest on Senior Notes due 2020
   
15
     
14
     
29
     
29
 
Interest on Senior Notes due 2022
   
11
     
11
     
22
     
22
 
Amortization of deferred debt issuance costs and discounts on debt
   
3
     
2
     
6
     
5
 
Other
   
2
     
3
     
4
     
5
 
Capitalized interest
   
(1
)
   
(1
)
   
(2
)
   
(2
)
Total interest and debt expense, net
 
$
46
   
$
46
   
$
92
   
$
92
 

In connection with obtaining debt, we incurred debt issuance costs, which are being amortized through the respective maturity dates using the effective interest method. At June 30, 2017, we had deferred debt issuance costs of $3 million related to the UBS Revolver and at December 31, 2016, we had deferred debt issuance costs of $4 million related to the UBS Revolver and ABSA Revolver which are recorded in “Other long-term assets” in the unaudited Condensed Consolidated Balance Sheets. At June 30, 2017 and December 31, 2016, we had   $31 million and $36 million, respectively, of debt issuance costs related to the Term Loan, Senior Notes 2020 and Senior Notes 2022, which were recorded as a direct reduction of the carrying value of the long term debt in the unaudited Condensed Consolidated Balance Sheets.
 
12.
Asset Retirement Obligations

Asset retirement obligations consist primarily of rehabilitation and restoration costs, landfill capping costs, decommissioning costs, and closure and post-closure costs. Activity related to asset retirement obligations was as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Beginning balance
 
$
79
   
$
87
   
$
76
   
$
81
 
Additions
   
     
1
     
     
1
 
Accretion expense
   
1
     
2
     
2
     
3
 
Remeasurement/translation
   
1
     
(2
)
   
4
     
2
 
Changes in estimates, including cost and timing of cash flows
   
     
(10
)
   
     
(9
)
Settlements/payments
   
(1
)
   
     
(2
)
   
 
Balance, June 30,
 
$
80
   
$
78
   
$
80
   
$
78
 

Asset retirement obligations in our unaudited Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016 consist of a current portion of $4 million and $3 million, respectively, included in “Accrued liabilities” and a noncurrent portion of $76 million and $73 million, respectively, included in “Asset retirement obligations”.

During the three months ended June 30, 2016, we amended our lease agreement for our TiO 2 pigment facility in Botlek, The Netherlands, which included an option to extend the lease term for an additional 25 years. This amendment increased the estimated useful life used in determining the asset retirement obligation and consequently, we recognized a $10 million reduction to this liability.

13.
Derivative Instruments

We manufacture and market our products in a number of countries throughout the world and, as a result, are exposed to changes in foreign currency exchange rates, particularly in South Africa, Australia, and the Netherlands. Costs in South Africa and Australia are primarily incurred in local currencies, while the majority of revenues are in U.S. dollars. In Europe, the majority of revenues and costs are in the local currency. This leaves us exposed to movements in the South African Rand and the Australian dollar versus the U.S. dollar.

Our businesses rely on natural gas as one of the main fuel sources in our production process. Natural gas prices have historically been volatile. Natural gas prices could increase as a result of reduced domestic drilling and production activity. Drilling and production operations are subject to extensive federal, state, local and foreign laws and government regulations, which could directly curtail such activity or increase the cost of drilling, resulting in reduced levels of drilling activity and, therefore, increased natural gas prices. This exposes us to commodity price risk.

We mitigate our exposures to currency risks by entering into foreign exchange forward contracts to reduce the effects of fluctuating foreign currency exchange rates. We mitigate our exposures to commodity price risks through a controlled program that uses commodity price swap contracts and forward purchase contracts to manage forecasted energy exposure.

We formally document all relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking our hedge transactions. This process includes relating derivatives that are designated as cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also formally assess, both at the inception of the hedge and throughout its term, whether each derivative is highly effective in offsetting changes in cash flows of the hedged item. If we determine that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively. On the date the derivative instrument is entered into, we assess whether to designate the derivative as a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge) or not. We recognize all derivatives in the unaudited Condensed Consolidated Balance Sheets at fair value.
 
We have designated our natural gas commodity price swap contracts, which qualify as cash flow hedges, for hedge accounting treatment under ASC 815.   We perform an analysis for effectiveness of the derivatives at the end of each quarter based on the terms of the contract and the underlying item being hedged. The effective portion of the change in the fair value of cash flow hedges is deferred in other comprehensive loss and is subsequently recognized in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations for commodity hedges, when the hedged item impacts earnings. Any portion of the change in fair value of derivatives designated as hedging instruments that is determined to be ineffective is recorded in “Other income (expense), net” in the unaudited Condensed Consolidated Statements of Operations.

At December 31, 2016, we recorded $3 million fair value of the natural gas hedge in “Prepaid and other assets” in the unaudited Condensed Consolidated Balance Sheets. At June 30, 2017, the fair value of the natural gas hedge was not material and the $3 million of unrealized losses during the six months ended June 30, 2017 was recognized in accumulated other comprehensive loss, with no tax impact due to valuation allowances. There were no outstanding currency hedges at June 30, 2017 and December 30, 2016. The current open commodity contract hedges forecasted transactions until December 31, 2018. At June 30, 2017 and December 31, 2016, we had an equivalent of 5.3 MMBTUs (millions of British Thermal Units) and 4.8 MMBTUs, respectively, in aggregate notional volume of outstanding natural gas commodity forward contract to hedge forecasted purchases. The fair value of the natural gas commodity price contract was based on market price quotations and the use of a pricing model. The contract was considered a level 2 input in the fair value hierarchy at June 30, 2017 and December 31, 2016.

14.
Commitments and Contingencies

Purchase and Capital Commitments — At June 30, 2017, purchase commitments were $97 million for the remainder of 2017, $81 million for 2018, $50 million for 2019, $45 million for 2020, $28 million for 2021, and $135 million thereafter.

Letters of Credit At June 30, 2017, we had outstanding letters of credit, bank guarantees, and performance bonds of $59 million, of which $34 million were letters of credit issued under the UBS Revolver, $19 million were bank guarantees issued by ABSA, $5 million were bank guarantees issued by Standard Bank and $1 million were performance bonds issued by Westpac Banking Corporation.

Other Matters —From time to time, we may be party to a number of legal and administrative proceedings involving legal, environmental, and/or other matters in various courts or agencies. These proceedings, individually and in the aggregate, may have a material adverse effect on us. These proceedings may be associated with facilities currently or previously owned, operated or used by us and/or our predecessors, some of which may include claims for personal injuries, property damages, cleanup costs, and other environmental matters. Current and former operations may also involve management of regulated materials that are subject to various environmental laws and regulations including the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act or state equivalents. Similar environmental laws and regulations and other requirements exist in foreign countries in which we operate. Currently, we are not party to any pending legal or administrative proceedings that may have a material adverse effect, either individually or in the aggregate, on our business, financial condition or results of operations.
 
15.
Shareholders’ Equity

The changes in outstanding Class A Shares and Class B Shares for the six months ended June 30, 2017 were as follows:

Class A Shares:
     
Balance at January 1, 2017
   
65,165,672
 
Shares issued for share-based compensation
   
2,884,219
 
Shares issued upon warrants exercised
   
295,453
 
Shares issued cancelled for share-based compensation
   
(618,117
)
Balance at June 30, 2017
   
67,727,227
 
Class B Shares:
       
Balance, at both June 30, 2017 and December 31, 2016
   
51,154,280
 

Warrants

We have outstanding Series A Warrants (the “Series A Warrants”) and Series B Warrants (the “Series B Warrants”), together (the “Warrants”). At June 30, 2017, holders of the Series A Warrants and the Series B Warrants were entitled to purchase 6.02 and 6.03 of Class A Shares, respectively, and receive $ 12.50 in cash at an exercise price of $51.21 for each Series A Warrant and $ 56.51 for each Series B Warrant. The Warrants have a seven-year term from the date initially issued and will expire on February 14, 2018. A holder may exercise the Warrants by paying the applicable exercise price in cash or exercising on a cashless basis. The Warrants are freely transferable by the holder. At June 30, 2017 and December 31, 2016, there were 163,880 and 239,306 Series A Warrants outstanding, respectively, and 321,735 and 323,915 Series B Warrants outstanding, respectively.

Dividends

During 2017, we declared and paid quarterly dividends to holders of our Class A Shares and Class B Shares as follows:
 
   
Three Months
Ended March 31,
2017
   
Three Months
Ended June 30,
2017
 
Dividend per share
 
$
0.045
   
$
0.045
 
Total dividend
 
$
6
   
$
6
 
Record date (close of business)
 
March 6
   
May 15
 

During 2016, we declared and paid quarterly dividends to holders of our Class A Shares and Class B Shares as follows:
 
   
Three Months
Ended March 31,
2016
   
Three Months
Ended June 30,
2016
 
Dividend per share
 
$
0.25
   
$
0.045
 
Total dividend
 
$
30
   
$
5
 
Record date (close of business)
 
March 4
   
May 16
 
 
Accumulated Other Comprehensive Loss Attributable to Tronox Limited

The tables below present changes in accumulated other comprehensive income (loss) by component for the three months ended June 30, 2017 and 2016.
 
   
Cumulative
Translation
Adjustment
   
Pension
Liability
Adjustment
   
Unrealized
Gains (Losses)
on
Derivatives
   
Total
 
Beginning balance
 
$
(390
)
 
$
(91
)
 
$
1
   
$
(480
)
Other comprehensive income (loss)
   
27
     
     
(1
)
   
26
 
Balance, June 30, 2017
 
$
(363
)
   
(91
)
   
     
(454
)

   
Cumulative
Translation
Adjustment
   
Pension
Liability
Adjustment
   
Unrealized
Gains (Losses)
on
Derivatives
   
Total
 
Beginning balance
 
$
(456
)
 
$
(101
)
 
$
   
$
(557
)
Other comprehensive income (loss)
   
     
     
2
     
2
 
Balance, June 30, 2016
 
$
(456
)
 
$
(101
)
 
$
2
   
$
(555
)

The tables below present changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2017 and 2016.
 
   
Cumulative
Translation
Adjustment
   
Pension
Liability
Adjustment
   
Unrealized
Gains (Losses)
on
Derivatives
   
Total
 
Beginning balance
 
$
(408
)
 
$
(92
)
 
$
3
   
$
(497
)
Other comprehensive income (loss)
   
45
     
     
(3
)
   
42
 
Amounts reclassified from accumulated other comprehensive income (loss)
   
     
1
     
     
1
 
Balance, June 30, 2017
 
$
(363
)
   
(91
)
   
     
(454
)

   
Cumulative
Translation
Adjustment
   
Pension
Liability
Adjustment
   
Unrealized
Gains (Losses)
on
Derivatives
   
Total
 
Beginning balance
 
$
(496
)
 
$
(102
)
 
$
   
$
(598
)
Other comprehensive income (loss)
   
40
     
     
2
     
42
 
Amounts reclassified from accumulated other comprehensive income (loss)
   
     
1
     
     
1
 
Balance, June 30, 2016
 
$
(456
)
 
$
(101
)
 
$
2
   
$
(555
)

16.
Noncontrolling Interest

Exxaro has a 26% ownership interest in each of our Tronox KZN Sands (Pty) Ltd. and Tronox Mineral Sands (Pty) Ltd. subsidiaries in order to comply with the ownership requirements of the Black Economic Empowerment legislation in South Africa. Exxaro is entitled to exchange this interest for approximately 3.2% in additional Class B Shares under certain circumstances. Exxaro also has a 26% ownership interest in certain of our other non-operating subsidiaries. We account for such ownership interest as “Noncontrolling interest” in the unaudited condensed consolidated financial statements.
 
Noncontrolling interest activity for the three and six months ended June 30, 2017 and 2016 was as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Beginning balance
 
$
153
   
$
124
   
$
144
   
$
112
 
Net income attributable to noncontrolling     interest
   
2
     
2
     
5
     
1
 
Effect of exchange rate changes
   
7
     
     
13
     
13
 
Balance, June 30,
 
$
162
   
$
126
   
$
162
   
$
126
 

  17.  Share-Based Compensation

Share-based compensation expense consisted of the following:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Restricted shares and restricted share units
 
$
8
   
$
4
   
$
22
   
$
8
 
Options
   
     
     
     
1
 
T-Bucks Employee Participation Plan
   
     
1
     
     
1
 
Total share-based compensation expense
 
$
8
   
$
5
   
$
22
   
$
10
 

Tronox Limited Management Equity Incentive Plan

Restricted Shares

We did not grant any restricted shares during the six months ended June 30, 2017.

The following table presents a summary of activity for the six months ended June 30, 2017:
 
   
Number of
Shares
   
Weighted Average
Grant Date
Fair Value
 
Outstanding, January 1, 2017
   
284,400
   
$
6.09
 
Vested
   
(107,928
)
   
8.00
 
Outstanding, June 30, 2017
   
176,472
   
$
4.92
 
Expected to vest, June 30, 2017
   
176,472
   
$
4.92
 

At June 30, 2017, there was $1 million of unrecognized compensation expense related to nonvested restricted shares which is expected to be recognized over a weighted-average period of 1.3 years. Since the restricted shares were granted only to certain members of our Board, the unrecognized compensation expense was not adjusted for estimated forfeitures. The total fair value of restricted shares that vested during the six months ended June 30, 2017 was $1 million.

Restricted Share Units (“RSUs”)

During the six months ended June 30, 2017, we granted RSUs which have time and/or performance conditions. Both the time-based awards and the performance-based awards are classified as equity awards. For the time-based awards, 1,075 RSUs vested immediately, 14,053 RSUs vest ratably over a six-month period, 100,160 RSUs vest ratably over a one-year period and 773,774 RSUs vest ratably over a three-year period, and are valued at the weighted average grant date fair value. For the performance-based awards, 1,145,933 cliff vest at the end of the three years and 883,538 cliff vest at the end of forty months. Included in the performance-based awards are 773,774 RSUs for which vesting is determined based on a relative Total Stockholder Return (“TSR”) calculation over the applicable measurement period. The TSR metric is considered a market condition for which we use a Monte Carlo simulation to determine the grant date fair value. A total of 1,255,697 RSUs were granted, pursuant to an Integration Incentive Award program (the “Integration Incentive Award”) established in connection with the Cristal Transaction, to certain executive officers and managers with significant integration accountability. If the Cristal Transaction does not close by July 1, 2018, then the Integration Incentive Award granted will be cancelled.
 
The following table presents a summary of activity for the six months ended June 30, 2017

   
Number of
Shares
   
Weighted Average
Grant Date
Fair Value
 
Outstanding, January 1, 2017
   
5,587,331
   
$
7.19
 
Granted
   
2,918,533
     
17.16
 
Vested
   
(2,228,057
)
   
9.29
 
Forfeited
   
(256,762
)
   
10.71
 
Outstanding, June 30, 2017
   
6,021,045
   
$
11.10
 
Expected to vest, June 30, 2017
   
7,009,320
   
$
9.58
 

At June 30, 2017, there was $45 million of unrecognized compensation expense related to nonvested RSUs, adjusted for estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years. The weighted-average grant-date fair value of RSUs granted during the six months ended June 30, 2017 and 2016 was $ 17.16 per share and $4.02 per share, respectively. The total fair value of RSUs that vested during the six months ended June 30, 2017 was $21 million.

Options

The following table presents a summary of activity for the six months ended June 30, 2017:

   
Number of
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Contractual
Life (years)
   
Intrinsic
Value
 
Outstanding, January 1, 2017
   
1,970,481
   
$
21.19
     
6.38
   
$
 
Forfeited
   
(2,285
)
   
21.98
                 
Expired
   
(37,580
)
   
22.28
                 
Outstanding, June 30, 2017
   
1,930,616
   
$
21.17
     
4.93
   
$
 
Expected to vest, June 30, 2017
   
2,266
   
$
27.26
     
7.26
   
$
 
Exercisable, June 30, 2017
   
1,928,335
   
$
21.16
     
4.93
   
$
 

The aggregate intrinsic values in the table represent the total pre-tax intrinsic value (the difference between our share price at the indicated dates and the options’ exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at the end of the period. The amount will change based on the fair market value of our stock. No options were exercised during the three and six months ending June 30, 2017 and 2016 and consequently, there was no related intrinsic value. We issue new shares upon the exercise of options. As there were no stock options exercised during the three and six months ended June 30, 2017 and 2016, no cash was received.

At June 30, 2017, we had less than $1 million of unrecognized compensation expense related to options, adjusted for estimated forfeitures. We did not issue any options during the six months ended June 30, 2017.
 
T-Bucks Employee Participation Plan (“T-Bucks EPP”)

During 2012, we established the T-Bucks EPP for the benefit of certain qualifying employees of our South African subsidiaries. We funded a T-Bucks Trust (the “Trust”) with R124 million (approximately $15 million), which was used to acquire Class A Shares. On May 31, 2017, the shares held by the Trust became fully vested. The Trust sold 546,403 shares in June 2017 on behalf of the participants who elected to receive cash. The remaining participants elected to receive shares.

Long-Term Incentive Plan (“LTIP”)

We have a LTIP for the benefit of certain qualifying employees of Tronox subsidiaries in South Africa and Australia. The LTIP is classified as a cash-settled compensation plan and is re-measured to fair value at each reporting date. We did not have an outstanding liability for LTIP at both June 30, 2017 and December 31, 2016.

18.
Pension and Other Postretirement Healthcare Benefits

We sponsor two noncontributory defined benefit retirement plans in the U. S., the qualified retirement plan and Alkali qualified retirement plan (the “U.S. Defined Benefit Plans”). We also have a collective defined contribution plan (a multiemployer plan) in the Netherlands, and a postretirement healthcare plan in South Africa. We had a defined benefit retirement plan in the Netherlands which was settled in the fourth quarter of 2016.

The components of net periodic cost associated with our U.S. defined benefit plans and The Netherlands defined benefit plan recognized in the unaudited Condensed Consolidated Statements of Operations were as follows :

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Net periodic cost:
                       
Service cost
 
$
2
   
$
1
   
$
3
   
$
2
 
Interest cost
   
4
     
5
     
8
     
10
 
Expected return on plan assets
   
(4
)
   
(5
)
   
(8
)
   
(10
)
Net amortization of actuarial loss and prior service credit
   
     
     
1
     
1
 
Total net periodic cost
 
$
2
   
$
1
   
$
4
   
$
3
 

The components of net periodic cost associated with the postretirement healthcare plans was less than $1 million each for the three and six months ended June 30, 2017 and 2016.

For each of the three and six month periods ended June 30, 2017 and 2016, we contributed $1 million and $2 million, respectively, to The Netherlands multiemployer plan, which was primarily recognized in “Cost of goods sold” in the unaudited Condensed Consolidated Statement of Operations.

19.
Related Parties

Exxaro

We have service level agreements with Exxaro for research and development that expire in 2017. Such service level agreements amounted to less than $1 million of expense during each of the three and six months ended June 30, 2017 and 2016 and was included in “Selling, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations. Additionally, we had a professional service agreement with Exxaro related to the Fairbreeze construction project which ended in January 2017. We did not make any payment, and less than $1 million of payment, respectively, to Exxaro relating to Fairbreeze during the during the three months ended June 30, 2017 and 2016 and made less than $1 million and $1 million of payments, respectively, during the six months ended June 30, 2017 and 2016. These payments were capitalized and included in “Property, plant and equipment, net” in our unaudited Condensed Consolidated Balance Sheets. At both June 30, 2017 and December 31, 2016, we had less than $1 million of related party payables, which were recorded in “Accounts payable” in our unaudited Condensed Consolidated Balance Sheets.
 
ANSAC

We sell soda ash directly to customers in the U.S., Canada and Europe and to the American Natural Soda Ash Corporation (“ANSAC”), a non-profit foreign sales association in which we and two other U.S. soda ash producers are members, for resale to customers elsewhere around the world. We hold a membership in ANSAC, which is responsible for promoting exports of US-produced soda ash. Under the ANSAC membership agreement, Alkali’s exports of soda ash to all markets except Canada, the European community, the European Free Trade Association and the Southern African Customs Union are exclusively through ANSAC. Certain sales and marketing costs incurred by ANSAC are charged directly to us. Selling, general and administrative expenses in the unaudited Condensed Consolidated Statement of Operations include amounts charged to us by ANSAC principally consisting of salaries, benefits, office supplies, professional fees, travel, rent and certain other costs, amounted to $1 million and $2 million for each of the three month and six months ended June 30, 2017 and 2016, respectively. During the three months ended June 30, 2017 and 2016, we recorded net sales to ANSAC of $79 million and $70 million, respectively, and $154 million and $130 million for the six months ended June 30, 2017 and 2016, respectively, which was included in “Net sales” in the unaudited Condensed Consolidated Statements of Operations. At June 30, 2017 and December 31, 2016, we had $53 million and $60 million, respectively, of related party receivables from ANSAC, which were recorded in “Accounts receivable, net of allowance for doubtful accounts” in our unaudited Condensed Consolidated Balance Sheets. At both June 30, 2017 and December 31, 2016, we had related party payables due to ANSAC of $1 million recorded in “Accounts payable” in our unaudited Condensed Consolidated Balance Sheets. Additionally, during each of the three and six month ended June 30, 2017, “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations included $1 million of charges to us by ANSAC, for freight costs incurred on our behalf and $1 million and $3 million, respectively, during the three and six months ended June 30, 2016. We did not have a liability payable to ANSAC for freight costs incurred on our behalf at both June 30, 2017 and December 31, 2016.

Natron X Technologies LLC

On April 1, 2015, we completed the acquisition of 100% of the Alkali Chemicals business from FMC Corporation (“FMC”) for an aggregate purchase price of $1.65 billion in cash (the “Alkali Transaction”). In connection with the Alkali Transaction, we acquired FMC’s one-third ownership interest in a joint venture, Natron x Technologies LLC (“Natron x ”). Natron x manufactures and markets sodium-based, dry sorbents for air pollution control in electric utility and industrial boiler operations. Pursuant to an agreement with Natron x , we purchase ground trona from a third-party vendor as an agent on its behalf (the “Supply Agreement”). We also provide certain administrative services such as accounting, technology and customer services to Natron x under a service level agreement (the “SLA”). We are reimbursed by Natron x for the related costs incurred under the Supply Agreement and the SLA. At June 30, 2017, we did not have an outstanding receivable related to these agreements and less than $1 million of such receivables at December 31, 2016, which were recorded in “Accounts receivable, net of allowance for doubtful accounts” in the unaudited Condensed Consolidated Balance Sheets.

On June 30, 2016, Natron x ceased its operations and ended deliveries of products to its customers. In September of 2016, the Natron x board of directors approved the demolition of the plant located at Alkali’s Westvaco facility and other costs associated with dissolving the joint venture. At both June 30, 2017 and December 31, 2016, a reserve of $1 million representing our one-third share of the estimated expenses related to the termination of the Natron x business, including severance and other exit activities, was included in “Accrued liabilities” in our unaudited Condensed Consolidated Balance Sheets. We do not expect to incur any additional future expenses related to the termination of the Natron x business.
 
20.
Segment Information

The reportable segments presented below represent our operating segments for which separate financial information is available and which is utilized on a regular basis by our Chief Executive Officer, who is our chief operating decision maker to assess performance and to allocate resources.

Our TiO 2 operating segment includes the following:

exploration, mining, and beneficiation of mineral sands deposits

production of titanium feedstock (including chloride slag, slag fines, and rutile), pig iron, and zircon

production and marketing of TiO 2; and

electrolytic manganese dioxide manufacturing and marketing

Our Alkali operating segment includes the mining of trona ore for the production from trona of natural soda ash and its derivatives: sodium bicarbonate, sodium sesquicarbonate and caustic soda (collectively referred to as “alkali-products”).

Segment performance is evaluated based on segment operating income (loss), which represents the results of segment operations before unallocated costs, such as general corporate expenses not identified to a specific segment, interest expense, other income (expense), net and income tax expense or benefit.

Net sales and income (loss) from operations by segment were as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
TiO 2 segment
 
$
421
   
$
333
   
$
799
   
$
618
 
Alkali segment
   
201
     
205
     
392
     
396
 
Net sales
 
$
622
   
$
538
   
$
1,191
   
$
1,014
 
TiO 2 segment
 
$
61
   
$
7
   
$
93
   
$
(29
)
Alkali segment
   
23
     
12
     
42
     
33
 
Corporate
   
(29
)
   
(10
)
   
(64
)
   
(26
)
Income (loss) from operations
   
55
     
9
     
71
     
(22
)
Interest and debt expense, net
   
(46
)
   
(46
)
   
(92
)
   
(92
)
Gain on extinguishment of debt
   
     
     
     
4
 
Other expense, net
   
(1
)
   
(3
)
   
(7
)
   
(12
)
Income (loss) before income taxes
   
8
     
(40
)
   
(28
)
   
(122
)
Income tax provision
   
(3
)
   
(10
)
   
(5
)
   
(22
)
Net income (loss)
 
$
5
   
$
(50
)
 
$
(33
)
 
$
(144
)
 
During the three months ended June 30, 2017, our ten largest third-party TiO 2 customers and our ten largest third-party Alkali customers represented approximately 25% and 22%, respectively, of our consolidated net sales. During the three months ended June 30, 2016, our ten largest third-party TiO 2 customers and our ten largest third-party Alkali customers represented approximately 25% and 24%, respectively, of our consolidated net sales. During each of the three months ended June 30, 2017 and 2016, ANSAC accounted for 13% of our consolidated net sales. During the six months ended June 30, 2017, our ten largest third-party TiO 2 customers and our ten largest third-party Alkali customers represented approximately 25% and 22%, respectively, of our consolidated net sales; ANSAC accounted for 13% of our consolidated net sales. During the six months ended June 30, 2016, our ten largest third-party TiO 2 customers and our ten largest Alkali customers represented approximately 22% and 25%, respectively, of our consolidated net sales; ANSAC accounted for 13% of our consolidated net sales.
 
Capital expenditures by segment were as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
TiO 2 segment
 
$
19
   
$
18
   
$
39
   
$
35
 
Alkali segment
   
4
     
4
     
16