Tronox Limited
Tronox Ltd (Form: 10-Q, Received: 08/10/2012 17:27:40)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2012

OR

 

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

For the transition period from              to             

Commission file number 1-35573

 

 

TRONOX LIMITED

(ACN 153 348 111)

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Western Australia, Australia   98-1026700

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

One Stamford Plaza

263 Tresser Boulevard, Suite 1100

Stamford, Connecticut 06901

(Address of principal executive offices)

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   x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

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

As of July 31, 2012, there were 125,493,285 shares of the Registrant’s Class A ordinary shares and Class B ordinary shares outstanding.

 

 

 


Table of Contents

Table of Contents

 

       Page  

PART I – FINANCIAL INFORMATION

  

Item 1. Financial Statements (Unaudited)

     2   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     34   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     49   

Item 4. Controls and Procedures

     49   

PART II – OTHER INFORMATION

  

Item 1. Legal Proceedings

     50   

Item 1A. Risk Factors

     50   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     50   

Item 3. Defaults Upon Senior Securities

     51   

Item 4. Mine Safety Disclosures

     51   

Item 5. Other Information

     51   

Item 6. Exhibits

     51   

Signatures

     52   


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

     Page  

Condensed Consolidated Balance Sheets as of June 30, 2012 (Successor) and December  31, 2011 (Successor)

     3   

Condensed Consolidated Statements of Operations for the Three Months Ended June  30, 2012 and 2011 (Successor) and the Six Months Ended June 30, 2012 (Successor), Five Months Ended June 30, 2011 (Successor) and One Month Ended January 31, 2011 (Predecessor)

     4   

Condensed Consolidated Statements of Comprehensive Income for the Six Months Ended June  30, 2012 (Successor), Five Months Ended June 30, 2011 (Successor) and One Month Ended January 31, 2011 (Predecessor)

     5   

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June  30, 2012 (Successor), Five Months Ended June 30, 2011 (Successor) and One Month Ended January 31, 2011 (Predecessor)

     6   

Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June  30, 2012 (Successor), Five Months Ended June 30, 2011 (Successor) and One Month Ended January 31, 2011 (Predecessor)

     7   

Notes to Condensed Consolidated Financial Statements

     8   

 

* On September 25, 2011, Tronox Incorporated entered into a definitive agreement (the “Transaction Agreement”) with Exxaro Resources Limited (“Exxaro”) and certain of its affiliated companies, to acquire 74% of its South African mineral sands operations, including its Namakwa and KwaZulu-Natal (“KZN”) Sands mines, separation facilities and slag furnaces, along with Exxaro’s 50% share of the Tiwest Joint Venture in Western Australia (together the “mineral sands business”) (the “Transaction”). In anticipation of the consummation of the Transaction, Tronox Incorporated formed an Australian subsidiary, Tronox Limited.

Pursuant to a Registration Statement on Form S-4 (File No. 333-178835) declared effective by the Securities and Exchange Commission (the “SEC”) on May 4, 2012 (the “Registration Statement”), Tronox Limited registered up to 16,445,827 Class A ordinary shares (“Class A Shares”) to be issued to stockholders in Tronox Incorporated in connection with the completion of the Transaction.

On June 15, 2012, the date of the Transaction, the existing business of Tronox Incorporated was combined with the mineral sands business under Tronox Limited. The Transaction was effectuated in two primary steps. In the first step, Tronox Incorporated became a subsidiary of Tronox Limited, with Tronox Incorporated stockholders receiving one Class A Share and $12.50 in cash for each share of Tronox Incorporated common stock. In the second step, Tronox Limited issued 9,950,856 Class B ordinary shares (“Class B Shares”) to Exxaro and one of its subsidiaries in consideration for the mineral sands business. Upon completion of the Transaction, former Tronox Incorporated stockholders held 15,413,083 Class A Shares and Exxaro held 9,950,856 Class B Shares, respectively, representing approximately 60.8% and 39.2%, respectively, of the voting interest in Tronox Limited. On August 6, 2012, Tronox Limited and Tronox Incorporated filed post-effective amendment No. 1 to the Registration Statement to deregister the Class A common stock and exchangeable shares in Tronox Incorporated which were not issued on the date of the Transaction.

These unaudited condensed consolidated financial statements reflect the historical results of operations and financial position of Tronox Incorporated and the mineral sands business for all periods after June 15, 2012. Prior to June 15, 2012, the date of the Transaction, the unaudited condensed consolidated financial statements included herein represent the financial statements of Tronox Incorporated.

 

2


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TRONOX LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Millions of dollars, except share and per share data)

 

     Successor  
     June 30,
2012
    December 31,
2011
 

Current Assets

    

Cash and cash equivalents

   $ 185.9      $ 154.0   

Accounts receivable, net of allowance for doubtful accounts of $1.2 and $0.4

     426.4        277.8   

Inventories

     1,124.0        311.2   

Prepaid and other assets

     39.1        21.7   

Deferred income taxes

     60.2        4.3   
  

 

 

   

 

 

 

Total Current Assets

     1,835.6        769.0   

Noncurrent Assets

    

Property, Plant and Equipment, Net

     1,545.2        504.3   

Mineral Leaseholds, Net

     1,356.6        38.4   

Intangible Assets, Net

     318.4        325.1   

Long-Term Deferred Tax Assets

     80.5        9.0   

Other Long-Term Assets

     45.8        11.6   
  

 

 

   

 

 

 

Total Assets

   $ 5,182.1      $ 1,657.4   
  

 

 

   

 

 

 

Current Liabilities

    

Accounts payable:

    

Third party

   $ 190.5      $ 126.9   

Related party

     1.1        74.8   

Accrued liabilities

     204.5        45.7   

Short-term debt

     24.1        —     

Long-term debt due within one year

     9.1        5.9   

Income taxes payable

     22.8        27.6   

Deferred income taxes

     30.3        —     

Dividends payable

     31.6        —     
  

 

 

   

 

 

 

Total Current Liabilities

     514.0        280.9   
  

 

 

   

 

 

 

Noncurrent Liabilities

    

Long-term debt

     711.6        421.4   

Pension and postretirement healthcare benefits

     126.2        142.7   

Asset retirement obligations

     94.4        29.2   

Deferred income taxes

     220.6        19.1   

Other

     16.3        11.8   
  

 

 

   

 

 

 

Total Noncurrent Liabilities

     1,169.1        624.2   
  

 

 

   

 

 

 

Contingencies and Commitments (Note 14)

    

Stockholders’ Equity

    

Tronox Limited Class A ordinary shares, par value $0.01 — 77,141,250 shares issued and 76,559,650 shares outstanding at June 30, 2012(1)

     0.8        —     

Tronox Limited Class B ordinary shares, par value $0.01 — 49,754,280 shares issued and outstanding at June 30, 2012(1)

     0.5        —     

Tronox Incorporated common stock, par value $0.01 —100,000,000 shares authorized, 15,406,803 shares issued and 15,076,691 shares outstanding at December 31, 2011

     —          0.1   

Capital in excess of par value

     1,763.2        579.2   

Retained earnings

     1,466.5        241.5   

Accumulated other comprehensive loss

     (33.9     (57.0

Tronox Incorporated treasury stock, at cost — 94,513 shares at December 31, 2011

     —          (11.5
  

 

 

   

 

 

 

Total Stockholders’ Equity

     3,197.1        752.3   

Noncontrolling interest

     301.9        —     
  

 

 

   

 

 

 

Total Equity

     3,499.0        752.3   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 5,182.1      $ 1,657.4   
  

 

 

   

 

 

 

  

 

(1) On June 26, 2012, the Board of Directors of Tronox Limited approved a 5-to-1 stock split for holders of its Class A ordinary shares and Class B ordinary shares at the close of business on July 20, 2012, by issuance of four additional shares for each share of the same class by way of bonus issue. All references to number of shares and per share data in the Successor’s unaudited condensed consolidated financial statements have been adjusted to reflect the stock split, unless otherwise noted. See Note 19 for additional information regarding the Company’s stock split.

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Millions of dollars, except share and per share data)

 

     Successor     Predecessor  
     Three Months
Ended
June  30,

2012
    Three Months
Ended
June  30,

2011
    Six Months
Ended
June 30,
2012
    Five Months
Ended
June 30,
2011
    One Month
Ended
January 31,
2011
 

Net Sales

   $ 428.9      $ 428.3      $ 862.5      $ 695.4      $ 107.6   

Cost of goods sold

     (306.1     (309.9     (582.4     (539.7     (82.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Margin

     122.8        118.4        280.1        155.7        25.3   

Selling, general and administrative expenses

     (102.3     (37.9     (146.6     (57.4     (5.4

Provision for environmental remediation and restoration, net of reimbursements

     —          4.3        —          4.3        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from Operations

     20.5        84.8        133.5        102.6        19.9   

Interest and debt expense

     (13.0     (8.2     (20.9     (13.5     (2.9

Other income (expense)

     (3.6     (1.4     (5.0     (0.4     1.6   

Gain on bargain purchase

     1,061.1        —          1,061.1        —          —     

Reorganization income

     —          —          —          —          613.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from Continuing Operations before Income Taxes

     1,065.0        75.2        1,168.7        88.7        632.2   

Income tax benefit (provision)

     106.9        (9.0     89.5        (12.3     (0.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from Continuing Operations

     1,171.9        66.2        1,258.2        76.4        631.5   

Income from discontinued operations, net of income tax benefit

     —          —          —          —          (0.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     1,171.9        66.2        1,258.2        76.4        631.3   

Income attributable to noncontrolling interest

     0.5        —          0.5        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income attributable to Tronox Limited

   $ 1,171.4      $ 66.2      $ 1,257.7      $ 76.4      $ 631.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income per Share, Basic and Diluted(1):

          

Basic —

          

Continuing operations

   $ 13.80      $ 0.89      $ 15.65      $ 1.02      $ 15.29   

Discontinued operations

     —          —          —          —          (0.01
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share

   $ 13.80      $ 0.89      $ 15.65      $ 1.02      $ 15.28   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted —

          

Continuing operations

   $ 13.67      $ 0.85      $ 15.50      $ 0.98      $ 15.25   

Discontinued operations

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share

   $ 13.67      $ 0.85      $ 15.50      $ 0.98      $ 15.25   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Shares Outstanding (in thousands):

          

Basic

     84,528        74,780        79,960        74,715        41,311   

Diluted

     85,286        78,010        80,757        77,945        41,399   

  

 

(1) On June 26, 2012, the Board of Directors of Tronox Limited approved a 5-to-1 stock split for holders of its Class A ordinary shares and Class B ordinary shares at the close of business on July 20, 2012, by issuance of four additional shares for each share of the same class by way of bonus issue. All references to number of shares and per share data in the Successor’s unaudited condensed consolidated financial statements have been adjusted to reflect the stock split, unless otherwise noted. See Note 19 for additional information regarding the Company’s stock split.

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS COMPREHENSIVE INCOME

(Unaudited)

(Millions of dollars)

 

    Successor     Predecessor  
    Three Months
Ended
June  30,

2012
    Three Months
Ended
June  30,

2011
    Six Months
Ended
June 30,
2012
    Five Months
Ended
June 30,
2011
    One Month
Ended
January 31,
2011
 

Net Income:

         

Net Income

  $ 1,171.9      $ 66.2      $ 1,258.2      $ 76.4      $ 631.3   

Other Comprehensive Income:

         

Foreign currency translation adjustments

    26.7        0.9        33.4        2.2        0.9   

Retirement and postretirement plans:

         

Amortization of actuarial gains, net of taxes of nil, nil, nil, nil and nil

    —          —          —          —          0.5   

Amortization of prior service cost, net of taxes of nil, nil, nil, nil and nil

    —          —          —          —          (1.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

    26.7        0.9        33.4        2.2        0.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

  $ 1,198.6      $ 67.1      $ 1,291.6      $ 78.6      $ 631.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to noncontrolling interest:

         

Net income

    0.5        —          0.5        —          —     

Foreign currency translation adjustments

    10.3        —          10.3        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to noncontrolling interest

    10.8        —          10.8        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Tronox Limited

  $ 1,187.8      $ 67.1      $ 1,280.8      $ 78.6      $ 631.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Millions of dollars)

 

     Successor     Predecessor  
     Six Months
Ended
June 30,
2012
    Five Months
Ended
June 30,
2011
    One Month
Ended
January 31,
2011
 

Cash Flows from Operating Activities

      

Net income

   $ 1,258.2      $ 76.4      $ 631.3   

Adjustments to reconcile net income to net cash used in operating activities:

      

Depreciation, depletion and amortization

     52.9        34.2        4.1   

Deferred income taxes

     (108.5     10.9        0.8   

Amortization of debt issuance costs

     6.4        0.3        0.3   

Pension and postretirement healthcare benefit (income) expense, net

     2.4        2.0        (0.4

Stock compensation expense

     27.2        5.8        —     

Gain on bargain purchase, net of cash received

     (1,175.9     —          —     

Other noncash items affecting net income

     61.9        1.1        (0.2

Reorganization items:

      

Noncash reorganization items

     —          —          (636.6

Environmental settlement funding

     —          —          (270.0

Claims paid with cash

     —          (14.2     (18.6

Tort settlement funding

     —          —          (16.5

Professional and legal fees

     —          —          (12.0

Changes in assets and liabilities (net of effects of acquisition):

      

(Increase) decrease in accounts receivable

     (8.7     (41.0     (10.2

(Increase) decrease in inventories

     (214.7     33.2        (15.3

(Increase) decrease in prepaids and other assets

     (1.4     5.6        35.4   

Increase (decrease) in accounts payable and accrued liabilities

     76.5        1.2        23.6   

Increase (decrease) in taxes payable

     0.7        (2.0     0.2   

Other, net

     (23.5     2.4        1.0   
  

 

 

   

 

 

   

 

 

 

Cash used in operating activities

     (46.5     115.9        (283.1
  

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

      

Capital expenditures

     (47.5     (99.1     (5.5

Cash received in acquisition of minerals sands business

     114.8        —          —     
  

 

 

   

 

 

   

 

 

 

Cash used in investing activities

     67.3        (99.1     (5.5
  

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities

      

Reductions of debt

     (554.3     (2.4     —     

Proceeds from borrowings

     777.1        14.0        25.0   

Debt issuance costs and commitment fees

     (20.1     —          (2.4

Merger consideration

     (192.6     —          —     

Class A ordinary share repurchases

     (2.0     —          —     

Proceeds from conversion of warrants

     0.3        —          —     

Proceeds from rights offering

     —          —          185.0   
  

 

 

   

 

 

   

 

 

 

Cash provided by financing activities

     8.4        11.6        207.6   
  

 

 

   

 

 

   

 

 

 

Effects of Exchange Rate Changes on Cash and Cash Equivalents

     2.7        (2.3     0.3   
  

 

 

   

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     31.9        26.1        (80.7

Cash and Cash Equivalents at Beginning of Period

     154.0        61.0        141.7   
  

 

 

   

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 185.9      $ 87.1      $ 61.0   
  

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Millions of dollars)

 

    Tronox
Limited

Class A
Ordinary
Shares
    Tronox
Limited

Class B
Ordinary
Shares
    Tronox
Incorporated
Common
Stock
    Capital
in

Excess
of

par
Value
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Treasury
Stock
    Total
Stockholders’
Equity
    Non-controlling
Interest
    Total
Equity
 

Successor: Six Months Ended June 30, 2012

                   

Balance at December 31, 2011

  $ —        $ —        $ 0.1      $ 579.2      $ 241.5      $ (57.0   $ (11.5   $ 752.3      $ —        $ 752.3   

Fair value of noncontrolling interest on Transaction Date

    —          —          —          —          —          —          —          —          291.1        291.1   

Net income

    —          —          —          —          1,257.7        —          —          1,257.7        0.5        1,258.2   

Other comprehensive income

    —          —          —          —          —          23.1        —          23.1        10.3        33.4   

Merger consideration paid

    —          —          —          (192.6     —          —          —          (192.6     —          (192.6

Issuance of Tronox Limited shares

    0.1        0.1        —          1,370.0        —          —          —          1,370.2        —          1,370.2   

Tronox Limited stock-based compensation

    —          —          —          0.3        —          —          —          0.3        —          0.3   

Issuance of Tronox Limited shares in stock-split

    0.7        0.4        —          —          (1.1     —          —          —          —          —     

Class A and Class B share dividend declared

    —          —          —          —          (31.6     —          —          (31.6     —          (31.6

Tronox Limited Class A shares repurchased

    —          —          —          (2.0     —          —          —          (2.0     —          (2.0

Tronox Incorporated warrants exercised

    —          —          —          0.6        —          —          —          0.6        —          0.6   

Tronox Incorporated stock-based compensation

    —          —          —          27.0        —          —          (7.8     19.2        —          19.2   

Tronox Incorporated common stock vested/cancelled

    —          —          (0.1     (19.3     —          —          19.3        (0.1     —          (0.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

  $ 0.8      $ 0.5      $ —        $ 1,763.2      $ 1,466.5      $ (33.9   $ —        $ 3,197.1      $ 301.9      $ 3,499.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  

 

(1) On June 26, 2012, the Board of Directors of Tronox Limited approved a 5-to-1 stock split for holders of its Class A ordinary shares and Class B ordinary shares at the close of business on July 20, 2012, by issuance of four additional shares for each share of the same class by way of bonus issue. All references to number of shares and per share data in the Successor’s unaudited condensed consolidated financial statements have been adjusted to reflect the stock split, unless otherwise noted. See Note 19 for additional information regarding the Company’s stock split.

 

     Tronox
Incorporated

Common
Stock
     Tronox
Class A
Common
Stock
    Tronox
Class B
Common
Stock
    Capital in
Excess of
par Value
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Treasury
Stock
    Total
Stockholders’
Equity
 

Predecessor: One Month Ended

January 31, 2011

  

  

              

Balance at December 31, 2010

   $       $ 0.2      $ 0.2      $ 496.2      $ (1,128.2   $ 8.8      $ (7.2   $ (630.0

Net income

     —           —          —          —          631.3        —          —          631.3   

Other comprehensive income

     —           —          —          —          —          0.3        —          0.3   

Stock-based compensation

     —           —          —          0.1        —          —          —          0.1   

Fresh-start reporting adjustments:

                 

Elimination of predecessor common stock, capital in excess of par value, and accumulated deficit

     —           (0.2     (0.2     (496.3     496.9        (9.1     7.2        (1.7

Issuance of new common stock

     0.1         —          —          564.1        —          —          —          564.2   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 31, 2011

   $ 0.1       $ —        $ —        $ 564.1      $ —        $ —        $ —        $ 564.2   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Successor: Five Months ended                  
June 30, 2011                  

Balance at February 1, 2011

   $ 0.1       $      $      $ 564.1      $      $      $      $ 564.2   

Net income

     —           —          —          —          76.4        —          —          76.4   

Other comprehensive income

     —           —          —          —          —          2.2        —          2.2   

Shares withheld for claims

     —           —          —          —          —          —          (6.9     (6.9

Warrants exercised

     —           —          —          0.8        —          —          —          0.8   

Stock-based compensation

     —           —          —          5.8        —          —          (1.9     3.9   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ 0.1       $ —        $ —        $ 570.7      $ 76.4      $ 2.2      $ (8.8   $ 640.6   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Millions of dollars, except share and per share data or unless otherwise noted)

1. The Company

Tronox Limited, a public limited company registered under the laws of the State of Western Australia, Australia, and its subsidiaries (collectively referred to as “Tronox” or “the Company”) was formed on September 21, 2011 for the purpose of the Transaction (see below). Prior to the completion of the Transaction, the Company was wholly-owned by Tronox Incorporated, and had no operating assets or operations. On September 25, 2011, Tronox Incorporated, a Delaware corporation formed on May 17, 2005, in preparation for the contribution and transfer by Kerr-McGee Corporation (“Kerr-McGee” or “KM”) of certain entities, including those comprising substantially all of its chemical business (“Tronox Incorporated”), entered into a definitive agreement (as amended, the “Transaction Agreement”) with Exxaro Resources Limited (“Exxaro”) and certain of its affiliated companies, to acquire 74% of its South African mineral sands operations, including its Namakwa and KwaZulu-Natal (“KZN”) Sands mines, separation facilities and slag furnaces, along with its 50% share of the Tiwest Joint Venture in Western Australia (together the “mineral sands business”) (the “Transaction”). On June 15, 2012, the date of the Transaction (the “Transaction Date”), the existing business of Tronox Incorporated was combined with the mineral sands business.

Pursuant to a Registration Statement on Form S-4 (File No. 333-178835) declared effective by the Securities and Exchange Commission (the “SEC”) on May 4, 2012 (the “Registration Statement”), Tronox Limited registered up to 16,445,827 Class A ordinary shares (“Class A Shares”) to be issued to stockholders of Tronox Incorporated in connection with the completion of the Transaction. On the Transaction Date, Tronox Limited issued 15,413,083 Class A Shares to stockholders in Tronox Incorporated. In addition, on the Transaction Date, Tronox Limited issued 9,950,856 Class B ordinary shares (“Class B Shares”) to Exxaro and one of its subsidiaries in consideration for the mineral sands business. As part of the Transaction, Exxaro and its subsidiaries retained a 26.0% ownership interest in each of Exxaro Sands and Exxaro TSA Sands in order to comply with the ownership requirements of the Black Economic Empowerment (“BEE”) legislation in South Africa. Immediately following the Transaction, Tronox Incorporated stockholders and Exxaro held approximately 60.8% and 39.2%, respectively, of the outstanding voting securities of Tronox Limited. On June 26, 2012, the Board of Directors of Tronox Limited (the “Board”) approved a 5-to-1 stock split for holders of its Class A Shares and Class B Shares at the close of business on July 20, 2012, by issuance of four additional shares for each share of the same class by way of bonus issue. On August 6, 2012, Tronox Limited and Tronox Incorporated filed post-effective amendment No. 1 to the Registration Statement to deregister the Class A common stock and exchangeable shares in Tronox Incorporated which were not issued on the date of the Transaction.

Tronox Limited is a global leader in the production and marketing of titanium bearing mineral sands and titanium dioxide pigment (“TiO 2 ”). The Company’s world-class, high performance TiO 2 products are critical components of everyday applications such as coatings, plastics, paper and other applications. Our mineral sands business consists primarily of two product streams-titanium feedstock and zircon. Titanium feedstock is used primarily to manufacture TiO 2 . Zircon, a hard, glossy mineral, is used for the manufacture of ceramics, refractories, TV glass and a range of other industrial and chemical products. Tronox Limited has global operations in North America, Europe, South Africa and the Asia-Pacific region. The Company operates three TiO 2 facilities at the following locations: Hamilton, Mississippi, Botlek, The Netherlands and Kwinana, Western Australia representing approximately 465,000 tonnes of annual TiO 2 production capacity. Additionally, Tronox Limited operates three separate mining operations: KZN Sands located in South Africa, Namakwa Sands located in South Africa and Tiwest located in Western Australia, which have a combined production capacity of approximately 723,000 tonnes of titanium feedstock and approximately 265,000 tonnes of zircon.

2. Acquisition of the Mineral Sands Business

As discussed above, on September 25, 2011, Tronox Incorporated entered into the Transaction Agreement with Exxaro to acquire the mineral sands business.

On June 15, 2012, the existing business of Tronox Incorporated was combined with the mineral sands business under Tronox Limited. The Transaction was effectuated in two primary steps. In the first step, Tronox Incorporated became a subsidiary of Tronox Limited, with Tronox Incorporated stockholders receiving one Class A Share and $12.50 in cash (“Merger Consideration”) for each share of Tronox Incorporated common stock. In the second step, Tronox Limited issued 9,950,856 Class B Shares to Exxaro and one of its subsidiaries in consideration for the mineral sands business. Upon completion of the Transaction, former Tronox Incorporated stockholders held 15,413,083 Class A Shares

 

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and Exxaro held 9,950,856 Class B Shares, representing approximately 60.8% and 39.2%, respectively, of the voting interest in Tronox Limited. Exxaro retained an approximate 26% ownership interest in the South African operations that are part of the mineral sands business in order to comply with the BEE legislation of South Africa. The ownership interest in the South African operations may be exchanged for Class B Shares under certain circumstances.

Prior to the Transaction Date, Tronox Incorporated and Exxaro Australia Sands Pty Ltd., a subsidiary of Exxaro, operated the Tiwest Joint Venture, which operated a chloride process TiO 2 plant located in Kwinana, Western Australia (the “Kwinana Facility”), a mining operation in Cooljarloo, Western Australia, and a mineral separation plant and a synthetic rutile processing facility, both in Chandala, Western Australia. As noted above, in the second step of the Transaction, the Company acquired the mineral sands business, which included Exxaro’s 50.0% interest in the Tiwest Joint Venture. As a result, as of the Transaction Date, the Company owns 100% of the Tiwest Joint Venture.

Purchase price and fair value of assets acquired and liabilities assumed

The Company accounted for the Transaction under Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), which requires recording assets and liabilities at fair value. Under the acquisition method of accounting, the total estimated purchase price was allocated to the tangible assets and separately identifiable intangible assets acquired and liabilities assumed based on their preliminary estimated fair values on the Transaction Date.

The valuations derived from estimated fair value assessments and assumptions used by management are preliminary. While management believes that its preliminary estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different values being assigned to individual assets acquired and liabilities assumed. The final valuations are pending appraisal valuations of certain tangible and intangible assets acquired, such as inventory, property, plant and equipment, deferred taxes and noncontrolling interest, which may result in adjustments to the preliminary amounts recorded and the gain on bargain purchase, which could be material. The preliminary valuation on the Transaction Date was as follows:

 

Consideration:

  

Number of Class B Shares(1)

     9,950,856   

Fair value of Class B Shares on the Transaction Date

   $ 137.70   
  

 

 

 

Fair value of equity issued

   $ 1,370.1   

Noncontrolling interest

     291.1   
  

 

 

 
   $ 1,661.2   
  

 

 

 

Fair Value of Assets Acquired and Liabilities Assumed:

  

Current Assets:

  

Cash

   $ 114.8   

Accounts receivable

     199.0   

Inventories

     621.7   

Prepaid and other assets

     24.1   
  

 

 

 

Total Current Assets

     959.6   

Property, plant and equipment, net, including mineral leaseholds of $1,366.0

     2,319.2   

Deferred tax asset

     26.4   

Other long-term assets

     19.1   
  

 

 

 

Total Assets

   $ 3,324.3   
  

 

 

 

Current Liabilities:

  

Accounts payable

     36.4   

Accrued liabilities

     156.9   

Short-term debt

     76.0   

Current deferred tax liability

     28.3   

Income taxes payable

     2.1   

Other current liabilities

     8.5   
  

 

 

 

Total Current Liabilities

     308.2   

 

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Long-term debt

     18.7   

Deferred tax liability

     211.5   

Pension and postretirement healthcare benefits

     5.4   

Asset retirement obligations

     57.1   

Other

     1.1   
  

 

 

 

Total Liabilities

     602.0   

Net Assets

   $ 2,722.3   
  

 

 

 

Gain on Bargain Purchase

   $ 1,061.1   
  

 

 

 

 

(1) The number of Class B Shares issued in connection with the Transaction has not been restated to affect for the 5-for-1 stock split as discussed in Note 19.

Because the total consideration transferred was less than the fair value of the net asset acquired, the excess of the value of the net assets acquired over the fair value of net assets acquired has been recorded as a bargain purchase gain of approximately $1,061.1 million for the three and six months ended June 30, 2012. The bargain purchase gain is included in “Gain on bargain purchase” on the unaudited Condensed Consolidated Statement of Operations. The bargain purchase gain is not taxable for income tax purposes. See Note 17 for a discussion of the tax impact of the transaction.

Mineral Sands Business Results of Operations

The following table includes the amount of net sales and earnings from the mineral sands business acquired included in the Company’s results since June 15, 2012. The results of the acquired mineral sands business are included in both the minerals segment and the pigment segment.

 

     Mineral      Pigment     Total  

Net Sales

   $ 30.5       $ 9.0      $ 39.5   

Income from Operations

   $ 4.4       $ (1.1   $ 3.3   

Net Income

        $ (8.0

Supplemental Pro forma financial information

The following unaudited pro forma information gives effect to the Transaction as if it had occurred on the first day of the first quarter of fiscal 2011 (January 1, 2011). The unaudited pro forma financial information reflects certain adjustments related to the acquisition, such as (1) converting the mineral sands business financial statements to accounting principles generally accepted in the United States (“U.S. GAAP”), (2) conforming the mineral sands business accounting policies to those applied by Tronox Incorporated, (3) to record certain incremental expenses resulting from purchase accounting adjustments, such as incremental depreciation expense in connection with fair value adjustments to property, plant and equipment, (4) to eliminate intercompany transactions between Tronox Incorporated and the mineral sands business, (5) to record the effect on interest expense related to borrowings in connection with the transaction and (6) to record the related tax effects. The unaudited pro forma financial information also includes the effect of certain non-recurring items as of the first day of the first quarter of fiscal 2011 (January 1, 2011) such as (1) the impact of transaction costs of approximately $84.6 million, (2) the impact of the June 2012 bargain purchase gain of $1,061.1 million and (3) the impact of reorganization income arising from Tronox Incorporation’s emergence from bankruptcy in the one month ended January 31, 2011 of approximately $613.6 million. The unaudited pro forma financial information is for illustrative purposes only and should not be relied upon as being indicative of the historical results that would have been obtained if the Transaction had actually occurred on that date, nor the results of operations in the future.

In accordance with ASC 805, the supplemental pro forma results of operations for the three and six months ended June 30, 2012 and 2011, as if the mineral sands business had been acquired on January 1, 2011, are as follows:

 

     Successor      Successor  
     Three Months
Ended
June 30,
2012
     Three Months
Ended
June 30,
2011
     Six Months
Ended
June 30,
2012
     Six Months
Ended
June 30,
2011
 

Net Sales

   $ 676.1       $ 600.7       $ 1,265.0       $ 1,092.2   

Income from Operations

   $ 193.5       $ 111.8       $ 391.9       $ 67.3   

Net Income

   $ 192.4       $ 96.4       $ 345.0       $ 1,742.7   

Net Income attributable to Tronox Limited

   $ 175.0       $ 94.5       $ 316.7       $ 1,744.5   

Basic Net Income attributable to Tronox Limited per share

   $ 1.39       $ 0.75       $ 2.51       $ 13.85   

Diluted Net Income attributable to Tronox Limited per share

   $ 1.36       $ 0.73       $ 2.46       $ 13.54   

3. Basis of Presentation

The unaudited condensed consolidated balance sheet as of June 30, 2012 relates to Tronox Limited. The unaudited condensed consolidated balance sheet as of December 31, 2011 relates to Tronox Incorporated. The unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2012 and the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2012 reflect the consolidated operating results of Tronox Incorporated prior to June 15, 2012, and, from June 15, 2012 through June 30, 2012, reflect the consolidated operating results of Tronox Limited. The unaudited condensed consolidated statements of operations for the three and five months ended June 30, 2011 and one month ended January 31, 2011 and the unaudited condensed consolidated statements of cash flows for the five months ended June 30, 2011 and one month ended January 31, 2011 reflect the consolidated operating results of Tronox Incorporated.

As stated above, prior to the Transaction Date, Tronox Incorporated operated the Tiwest Joint Venture with Exxaro Australia Sands Pty Ltd. The Tiwest Joint Venture was a contractual relationship between Tronox Incorporated and Exxaro whereby each party held an undivided interest in each asset of the joint venture, and each party was proportionally liable for each of the joint venture’s liabilities. The Tiwest Joint Venture was not a separate legal entity and did not enter into any transactions. Transactions were entered into by the joint venture partners who had the right to sell their own product, collect their proportional share of the revenues and absorb their share of costs. As such, Tronox Incorporated did not account for the Tiwest Joint Venture under the equity method. Instead, Tronox Incorporated accounted for its share of the Tiwest Joint Venture’s assets that were jointly controlled and its share of liabilities for which it was jointly responsible on a proportionate gross basis in its unaudited Consolidated Balance Sheet. Additionally, Tronox Incorporated accounted for the revenues generated from its share of the products sold and its share of the expenses of the joint venture on a gross basis in its unaudited Condensed Consolidated Statements of Operations. As of the Transaction Date, the Company owns 100% of the Tiwest Joint Venture operations. As such, the unaudited condensed consolidated balance sheet as of June 30, 2012 includes 100% of the joint venture assets and liabilities, while the unaudited condensed consolidated balance sheet as of December 31, 2011 includes Tronox Incorporated’s 50% undivided interest in each asset and liability of the joint venture. Additionally, the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2012 reflect Tronox Incorporated’s revenues generated from its share of the products sold and its share of the expenses of the joint venture on a gross basis prior to June 15, 2012, and, from June 15, 2012 through June 30, 2012, reflect 100% of the revenues and expenses of the joint venture. The unaudited condensed consolidated statements of income for the three and five months ended June 30, 2011 and one month ended January 31, 2011 reflect Tronox Incorporated’s revenues generated from its share of the products sold and its share of the expenses of the joint venture on a gross basis.

The accompanying unaudited condensed consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Registration Statement. The December 31, 2011 balance sheet was derived from audited financial statements, but does not include all of the disclosures required by U.S. GAAP for complete financial statements.

The Company’s unaudited condensed consolidated financial statements include the accounts of all majority-owned subsidiary companies. Investments in affiliated companies that are 20% to 50% owned are carried as a component of “Other Long-Term Assets” on the unaudited Condensed Consolidated Balance Sheets at cost adjusted for equity in undistributed earnings. Except for dividends and changes in ownership interest, changes in equity in undistributed earnings are included in “Other income (expense)” on the unaudited Condensed Consolidated Statements of Operations. All intercompany transactions have been eliminated.

In connection with the Transaction, Exxaro and its subsidiaries retained a 26.0% ownership interest in each of Exxaro Sands and Exxaro TSA Sands in order to comply with the ownership requirements of the BEE legislation in South Africa. The Company accounts for such ownership interest as “Noncontrolling interest” on the unaudited Condensed Consolidated Balance Sheets.

 

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On January 26, 2011, material conditions to Tronox Incorporated’s plan of reorganization were resolved and it subsequently emerged from bankruptcy protection (see Note 5). In connection with its emergence from bankruptcy, Tronox Incorporated applied fresh-start accounting under ASC 852, Reorganizations (“ASC 852”) as of January 31, 2011. Tronox Incorporated evaluated the activity between January 26, 2011 and January 31, 2011 and, based upon the immateriality of such activity, concluded that the use of January 31, 2011 to reflect the fresh-start accounting adjustments was appropriate for financial reporting purposes. Accordingly, the financial information of Tronox Incorporated set forth in this report, unless otherwise expressly set forth or as the context otherwise indicates, reflects the consolidated results of operations and financial condition on a fresh-start basis for the period beginning February 1, 2011 (“Successor”), and on a historical basis for the period through January 31, 2011 (“Predecessor”). In applying fresh-start accounting on January 31, 2011, Tronox Incorporated recorded assets and liabilities at estimated fair value, except for deferred income taxes and certain liabilities associated with employee benefits, which were recorded in accordance with ASC 852 and ASC 740, Income Taxes (“ASC 740”), respectively. Additionally, Tronox Incorporated recorded gains relating to executing the Plan, gains related to revaluation of assets and “resetting” retained earnings and accumulated other comprehensive income to zero.

In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation. 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 within one year of the date of the financial statements due to one or more future confirming events could have a material effect on the financial statements. The consolidated results of operations for interim periods are not necessarily indicative of results for the entire year.

Certain prior period amounts have been reclassified to conform to the manner and presentation in the current period. Such reclassifications did not have an impact on the Company’s net income or consolidated results of operations.

Stock Split

On June 26, 2012, the Board approved a 5-to-1 stock split for holders of its Class A Shares and Class B Shares at the close of business on July 20, 2012, by issuance of four additional shares for each share of the same class, unless otherwise noted. All references to number of shares and per share data in the Successor’s condensed consolidated financial statements have been adjusted to reflect the stock split, unless otherwise noted. See Note 19 for additional information regarding the Company’s stock split.

4. Recent Accounting Pronouncements

On January 1, 2012, Tronox Incorporated adopted the required guidance under ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which changed the presentation requirements of comprehensive income by increasing the prominence of items reported in other comprehensive income. The adoption of this guidance did not have a material impact on Tronox Incorporated’s unaudited condensed consolidated financial statements. During 2011, the FASB issued ASU 2011-12, which deferred certain requirements of ASU 2011-05. The Company has not adopted such deferred requirements.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”) (“ASU 2011-04”), which changes certain fair value measurement and disclosure requirements, clarifies the application of existing fair value measurement and disclosure requirements and provides consistency to ensure that U.S. GAAP and IFRS fair value measurement and disclosure requirements are described in the same way. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material impact on the unaudited condensed consolidated financial statements.

 

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5. Bankruptcy Proceedings and Emergence from Chapter 11

On January 12, 2009 (the “Petition Date”), Tronox Incorporated and certain of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions in the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The Debtors’ Chapter 11 cases were consolidated for the purpose of joint administration.

On November 30, 2010 (the “Confirmation Date”), the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Debtors’ First Amended Joint Plan of Reorganization pursuant to Chapter 11 of the Bankruptcy Code, dated November 5, 2010 (as amended and confirmed, the “Plan”). Under Chapter 11 of the Bankruptcy Code, a debtor may reorganize its business for the benefit of its stakeholders with the consummation of a plan of reorganization being the principal objective. Among other things (subject to certain limited exceptions and except as otherwise provided in the Plan or the Confirmation Order), the Confirmation Order discharged the Debtors from any debt arising before the Petition Date, terminated all of the rights and interests of pre-bankruptcy equity security holders and substituted the obligations set forth in the Plan and new common stock for those pre-bankruptcy claims. Under the Plan, claims and equity interests were divided into classes according to their relative priority and other criteria.

Material conditions to the Plan were resolved during the period from the Confirmation Date until January 26, 2011, and subsequently on February 14, 2011 (the “Effective Date”), the Debtors emerged from bankruptcy and continued operations as reorganized Tronox Incorporated.

The Plan was designed to accomplish, and was premised on, a resolution of the Debtor’s legacy environmental (the “Legacy Environmental Liabilities”) and legacy tort liabilities (the “Legacy Tort Liabilities” and collectively, with the Legacy Environmental Liabilities, the “KM Legacy Liabilities”). The Plan ensured that the Debtors emerged from Chapter 11 free of the significant KM Legacy Liabilities and were sufficiently capitalized. A final settlement was reached in November 2010 with respect to the Legacy Environmental Liabilities (the “Environmental Settlement”) and the Legacy Tort Liabilities (the “Tort Settlement” and, together with the Environmental Settlement, the “Settlement”). In exchange, claimants provided the Debtors and the reorganized Tronox Incorporated with discharges and/or covenants not to sue subsequent to the Effective Date with respect to the Debtors’ liability for the Legacy Environmental Liabilities. The Settlement established certain environmental response and tort claims trusts that are now responsible for the KM Legacy Liabilities in exchange for cash, certain non-monetary assets, and the rights to the proceeds of certain ongoing litigation and insurance and other third party reimbursement agreements. The Plan also provided for the creation and funding of a torts claim trust (the “Tort Claims Trust”), which was the sole source of distributions to holders of Legacy Tort Liabilities claims, who were paid in accordance with the terms of such trust’s governing documentation. As a result of the settlement of the Debtors’ pre-petition debt and termination of the rights and interests of pre-bankruptcy equity, the Plan enabled Tronox Incorporated to reorganize around its existing operating locations, including: (a) its headquarters and technical facility at Oklahoma City, Oklahoma; (b) the TiO 2 facilities at Hamilton, Mississippi and Botlek, the Netherlands; (c) the electrolytic chemical businesses at Hamilton, Mississippi and Henderson, Nevada (except that the real property and buildings associated with the Henderson business were transferred to an environmental response trust and reorganized Tronox Incorporated is not responsible for environmental remediation related to historic contamination at such site); and (d) its interest in the Tiwest Joint Venture in Australia.

 

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As part of the Debtor’s emergence from the Chapter 11 proceedings, Tronox Incorporated relied on a combination of debt financing and money from new equity issued to certain existing creditors. Specifically, such funding included: (i) total funded exit financing of no more than $470.0 million; (ii) the proceeds of a $185.0 million rights offering (the “Rights Offering”) open to substantially all unsecured creditors and backstopped by certain groups; (iii) settlement of government claims related to the Legacy Environmental Liabilities through the creation of certain environmental response trusts and a litigation trust; (iv) settlement of claims related to the Legacy Tort Liabilities through the establishment of a torts claim trust; (v) issuance of common stock whereby holders of the allowed general unsecured claims received their pro rata share of 50.9% of the Tronox Incorporated common stock on the Effective Date, and the opportunity to participate in the Rights Offering for an aggregate of 49.1% of the Tronox Incorporated common stock, also issued on the Effective Date; and (vi) issuance of warrants, on the Effective Date, to the holders of equity in the Predecessor to purchase their pro rata share of a combined total of 7.5% of the Tronox Incorporated common stock, after and including the issuance of any Tronox Incorporated common stock upon exercise of such warrants.

6. Accounts Receivable

Accounts receivable, net of allowance for doubtful accounts, consisted of the following:

 

     Successor  
         June 30,    
2012
    December 31,
2011
 

Accounts receivable — trade

   $ 407.2      $ 268.7   

Related parties

     —          6.9   

Other

     20.4        2.6   
  

 

 

   

 

 

 

Total

     427.6        278.2   

Allowance for doubtful accounts

     (1.2     (0.4
  

 

 

   

 

 

 

Net

   $ 426.4      $ 277.8   
  

 

 

   

 

 

 

7. Inventories

Minerals inventories are determined using the weighted-average cost to produce or acquire, while finished goods pigment inventories are determined using the first-in, first-out method.

 

     Successor  
         June 30,    
2012
     December 31,
2011
 

Raw materials

   $ 276.0       $ 123.5   

Work-in-process

     160.9         9.0   

Finished goods(1)

     593.0         130.3   

Materials and supplies, net(2)

     94.1         48.4   
  

 

 

    

 

 

 

Total

   $ 1,124.0       $ 311.2   
  

 

 

    

 

 

 

 

(1) Includes inventory on consignment to others of approximately $39.8 million at June 30, 2012 and $12.0 million at December 31, 2011.
(2) Materials and supplies consist of processing chemicals, maintenance supplies and spare parts, which will be consumed directly and indirectly in the production of the Company’s products.

8. Property, Plant and Equipment and Mineral Leaseholds

 

     Successor  
         June 30,    
2012
    December 31,
2011
 

Land

   $ 92.9      $ 24.2   

Buildings

     205.9        44.9   

Machinery and equipment

     1,210.6        417.1   

Construction-in-progress

     116.1        49.1   

Other

     6.2        21.3   
  

 

 

   

 

 

 

Total

     1,631.7        556.6   

Less accumulated depreciation, depletion and amortization

     (86.5     (52.3
  

 

 

   

 

 

 

Net

   $ 1,545.2      $ 504.3   
  

 

 

   

 

 

 

 

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     Successor  
     June 30,
2012
    December 31,
2011
 

Mineral leaseholds

   $ 1,365.3      $ 42.0   

Less accumulated depreciation, depletion and amortization

     (8.7     (3.6
  

 

 

   

 

 

 

Net

   $ 1,356.6      $ 38.4   
  

 

 

   

 

 

 

Depreciation expense related to property, plant and equipment and mineral leaseholds for the three months ended June 30, 2012 and 2011 was $25.6 million and $14.6 million, respectively. Depreciation expense related to property, plant and equipment and mineral leaseholds for the six months ended June 30, 2012, five months ended June 30, 2011 and one month ended January 31, 2011 was $40.7 million, $23.2 million, and $3.8 million, respectively.

9. Intangible Assets

 

                                       
     Successor  
     June 30,
2012
    December 31,
2011
 

Intangible assets

   $ 352.4      $ 346.9   

Less accumulated amortization

     (34.0     (21.8
  

 

 

   

 

 

 

Intangible assets, net

   $ 318.4      $ 325.1   
  

 

 

   

 

 

 

The gross cost and accumulated amortization of intangible assets, by major intangible asset category, were as follows:

 

     Successor  
     June 30, 2012  
           Gross      
Cost
     Accumulated
Amortization
    Net Carrying
Amount
 

Customer relationships

   $ 293.9       $ (28.7   $ 265.2   

TiO 2 technology

     31.9         (2.3     29.6   

Internal-use software

     17.4         (0.4     17.0   

In-process research and development

     5.0         (1.4     3.6   

Trade names

     3.6         (1.1     2.5   

Other

     0.6         (0.1     0.5   
  

 

 

    

 

 

   

 

 

 

Total

   $ 352.4       $ (34.0   $ 318.4   
  

 

 

    

 

 

   

 

 

 
     Successor  
     December 31, 2011  
     Gross
Cost
     Accumulated
Amortization
    Net Carrying
Amount
 

Customer relationships

   $ 293.9       $ (18.6   $ 275.3   

TiO 2 technology

     31.9         (1.5     30.4   

Internal-use software

     11.8         —          11.8   

In-process research and development

     5.0         (0.9     4.1   

Trade names

     3.6         (0.7     2.9   

Other

     0.7         (0.1     0.6   
  

 

 

    

 

 

   

 

 

 

Total

   $ 346.9       $ (21.8   $ 325.1   
  

 

 

    

 

 

   

 

 

 

Internal-use software relates to internal and external costs incurred during the development stage, which were being capitalized at December 31, 2011. During the second quarter of 2012, the Company began amortizing such costs. Amortization expense related to intangible assets for the three months ended June 30, 2012 and 2011 was $6.3 million and $6.0 million, respectively. Amortization expense related to intangible assets for the six months ended June 30, 2012 and five months ended June 30, 2011 was $12.2 million and $9.9 million, respectively. There was no amortization expense related to intangible assets for the one month ended January 31, 2011.

 

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Estimated future amortization expense related to intangible assets is as follows:

 

     Total
Amortization
 

2012

   $ 12.7   

2013

     25.4   

2014

     24.6   

2015

     24.6   

2016

     23.0   

Thereafter

     208.1   
  

 

 

 

Total

   $ 318.4   
  

 

 

 

10. Accrued Liabilities

 

     Successor  
         June 30,    
2012
     December 31,
2011
 

Unfavorable sales contracts(1)

   $ 85.4       $ —     

Taxes other than income taxes(2)

     49.8         5.2   

Employee-related costs and benefits

     48.1         26.3   

Sales rebates

     9.3         8.2   

Asset retirement obligations

     2.0         0.9   

Interest

     4.4         1.3   

Other

     5.5         3.8   
  

 

 

    

 

 

 

Total

   $ 204.5       $ 45.7   
  

 

 

    

 

 

 

 

(1) Unfavorable contracts acquired in connection with the Transaction. See Note 2.
(2) Includes transfer taxes incurred as a result of the Transaction and recorded in selling, general and administrative expenses on the unaudited Condensed Consolidated Statements of Operation.

11. Debt

Short-term Debt

 

     Successor  
         June 30,    
2012
     December 31,
2011
 

UBS Revolver(1)

   $ —         $ —     

ABSA Revolver(2)

     24.1         —     

Wells Revolver(3)

     —           —     
  

 

 

    

 

 

 

Short-term debt

   $ 24.1       $ —     
  

 

 

    

 

 

 

 

(1) Average effective interest rate of 4.2% in 2012.
(2) Average effective interest rate of 9.2% in 2012.
(3) Average effective interest rate of 4.7% in 2011 and 5.25% in 2012.

UBS Revolver

On June 18, 2012, in connection with the closing of the Transaction, the Company entered into a global senior secured asset-based syndicated revolving credit agreement with UBS AG, Stamford branch (the “UBS Revolver”) with a maturity date of the fifth anniversary of the closing date. The UBS Revolver provides the Company with a committed source of capital with a principal borrowing amount of up to $300.0 million, subject to a borrowing base. The borrowing base is related to certain eligible inventory and accounts receivable held by the Company’s U.S. subsidiaries, Australia subsidiaries and Netherlands subsidiaries. Obligations under the UBS Revolver are secured by a first priority lien on substantially all of the Company’s existing, and future deposit accounts, inventory and receivables and certain related assets, excluding those held by its South African subsidiaries, Netherland’s subsidiaries and Bahamian subsidiary, and a second priority lien on all of the Company’s other assets, including capital stock which serve as security under the Term Facility. At June 30, 2012, the Company’s borrowing base was $329.9 million. Additionally, at June 30, 2012, the Company had a backstop letter of credit of $30.2 million issued under the UBS Revolver in place against the letters of credit under the Wells Revolver.

 

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The UBS Revolver bears interest at the Company’s option at either (i) the administrative agent’s corporate base rate (defined to mean a rate that is the greatest of (a) the lenders’ prime rate, (b) the Federal funds effective rate plus 0.50% and (c) the adjusted LIBOR rate for a one-month period plus 1.00%) or (ii) the adjusted LIBOR rate, in each case plus the applicable margin. The applicable margin ranges from 1.50% to 2.00% for borrowings at the adjusted LIBOR rate, and from 0.50% to 1.00% for borrowings at the alternate base rate, based upon the average daily borrowing availability. For the first six months following the closing date, the applicable margins shall be deemed to be 1.75% for borrowings at the adjusted LIBOR rate and 0.75% for borrowings at the alternate base rate.

ABSA Revolving Credit Facility

In connection with the Transaction, the Company entered into a R900.0 million (approximately $110.0 million on June 30, 2012) revolving credit facility with ABSA Bank Limited acting through its ABSA Capital Division (the “ABSA Revolver”) with a maturity date of June 14, 2017. As of June 30, 2012, the Company had drawn down 200.0 million Rand (approximately $24.1 million) on the ABSA Revolver.

The ABSA Revolver bears interest at (i) the base rate (defined as one month JIBAR, which is the mid-market rate for deposits in South African Rand for a period equal to the relevant period which appears on the Reuters Screen SAFEY Page alongside the caption YLD) as of 11h00 Johannesburg time on the first day of the applicable period, plus (ii) the Margin, which is 3.50%.

Wells Revolver

On February 14, 2011 Tronox Incorporated entered into a $125.0 million senior secured asset-based revolving credit agreement with Wells Fargo Capital Finance, LLC (the “Wells Revolver”). The Wells Revolver had a maturity date of February 14, 2015. The Wells Revolver provided the Company with a committed source of capital with a principal borrowing amount of up to $125.0 million subject to a borrowing base. Borrowing availability under the Wells Revolver was subject to a borrowing base, which was related to certain eligible inventory and receivables held by the Company’s U.S. subsidiaries. On February 8, 2012, the Company amended the Wells Revolver to facilitate the Transaction while keeping the revolver in force. On June 18, 2012, the Company refinanced the Wells Revolver with the UBS Revolver. At June 30, 2012, the Company had letters of credit outstanding of $29.3 million backstopped by a letter of credit issued under the UBS Revolver.

During 2012, the Company had borrowings of $30.0 million against the Wells Revolver, which were repaid with borrowings under the UBS Revolver. During 2011, to facilitate its exit from bankruptcy and help pay for the buy-in of its 50% share of the Kwinana Facility TiO 2 expansion, the Company borrowed $39.0 million against the Wells Revolver, which by December 31, 2011, was fully repaid using cash generated from operations.

Long-Term Debt

 

     Initial             Successor  
     Principal
Amount
     Maturity
Date
         June 30,    
2012
    December 31,
2011
 

Term Facility(1)

   $ 700.0         2/8/18       $ 693.5      $ —     

Exit Financing Facility(2)

   $ 425.0         10/21/15         —          420.8   

Co-generation Unit Financing Arrangement

   $ 16.0         2/1/16         11.6        6.5   

Lease financing

           15.6        —     
        

 

 

   

 

 

 

Total debt

           720.7        427.3   

Less: Long-term debt due in one year

           (9.1     (5.9
        

 

 

   

 

 

 

Long-term debt

         $ 711.6      $ 421.4   
        

 

 

   

 

 

 

 

(1) Average effective interest rate of 5.3% in 2012.
(2) Average effective interest rate of 7.1% and 7.2% in 2012 and 2011, respectively.

The Company’s debt is recorded at historical amounts. At June 30, 2012 and December 31, 2011, the total carrying value of long-term debt approximates its fair value due to the variable interest rates and frequent repricing of such instruments. The fair value hierarchy for long-term debt is a Level 2 input.

 

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At June 30, 2012, the scheduled maturities of the Company’s long-term debt were as follows:

 

     Total Debt  

2012

   $ 3.2   

2013

     9.3   

2014

     9.3   

2015

     9.4   

2016

     6.5   

Thereafter

     683.0   
  

 

 

 

Total debt

   $ 720.7   
  

 

 

 

Term Facility

On February 8, 2012, Tronox Incorporated’s wholly owned subsidiary, Tronox Pigments (Netherlands) B.V., entered into a term loan facility with Goldman Sachs Bank USA comprised of a $550.0 million Senior Secured Term Loan and a $150.0 million Senior Secured Delayed Draw Term Loan (together, the “Term Facility”). The Term Facility has a maturity date of February 8, 2018. The Term Facility was issued net of an original issue discount of $7.0 million, or 1.0% of the initial principal amount, which is being amortized over the life of the Term Facility. At June 30, 2012, the original issue discount was $6.5 million. On June 14, 2012, in connection with the closing of the Transaction, Tronox Pigments (Netherlands) B.V. drew down the $150.00 million Senior Secured Delayed Draw Term.

The Term Facility bears interest at a base rate plus a margin of 2.25% or adjusted Eurodollar rate plus a margin of 3.25% (in each case with a possible 0.25% increase or decrease based on the Company’s public credit rating). The base rate is defined as the greater of (i) the prime lending rate as quoted in the print edition of The Wall Street Journal, (ii) the Federal funds rate plus 0.50%, or (iii) 2%.

The Term Facility is secured by a first priority lien on substantially all of the Company’s and the subsidiary guarantors’ existing and future property and assets. This includes, upon the consummation of the Transaction, certain assets acquired in the Transaction. The terms of the Term Facility provide for customary representations and warranties, affirmative and negative covenants and events of default. The terms of the covenants, subject to certain exceptions, restrict, among other things: (i) debt incurrence; (ii) lien incurrence; (iii) investments, dividends and distributions; (iv) dispositions of assets and subsidiary interests; (v) acquisitions; (vi) sale and leaseback transactions; and (vii) transactions with affiliates and shareholders.

In connection with obtaining the Term Facility, Tronox Incorporated incurred debt issuance costs of $17.5 million, of which $5.5 million was paid in 2011 and $12.0 million was paid in 2012. Such costs are recorded in “Prepaid and other assets” on the unaudited Condensed Consolidated Balance Sheet and are being amortized through the maturity date.

Exit Financing Facility

On February 14, 2011, Tronox Incorporated’s senior secured super-priority DIP and Exit Credit Agreement with Goldman Sachs Lending Partners, in accordance with its terms, converted into a $425.0 million exit facility with a maturity date of October 21, 2015 (the “Exit Financing Facility”).

The Exit Financing Facility bore interest at the greater of a base rate plus a margin of 4.0% or adjusted Eurodollar rate plus a margin of 5.0%. The base rate was defined as the greater of (i) the prime lending rate as quoted in the print edition of The Wall Street Journal , (ii) the Federal Funds Rate plus 0.50%, or (iii) 3%. The adjusted Eurodollar rate is defined as the greater of (i) the LIBOR rate in effect at the beginning of the interest period, or (ii) 2.0%. Interest was payable quarterly or, if the adjusted Eurodollar rate applied, it was payable on the last day of each interest period. On February 8, 2012, Tronox Incorporated refinanced the Exit Facility with the Term Facility, as discussed above.

Co-generation Unit Financing Arrangement

In March 2011, the Tiwest Joint Venture acquired a steam and electricity gas fired co-generation plant, adjacent to its Kwinana pigment plant, through a five year financing arrangement. Tronox Western Australia Pty Ltd, the Company’s wholly owned subsidiary, owned a 50% undivided interest in the co-generation plant through the Tiwest Joint Venture. In order to finance its share of the asset purchase, Tronox Incorporated incurred debt totaling $8.0 million. In connection with the Transaction, the Company acquired the remaining 50% undivided interest in the co-generation plant from Exxaro, along with its debt of $5.8 million. Under the financing arrangement, monthly payments are required and interest accrues on the remaining balance owed at the rate of 6.5% per annum.

 

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Table of Contents

Lease Financing

In connection with the Transaction, the Company acquired capital lease obligations, which are payable through 2032 at a weighted average interest rate of approximately 19.1%. At June 30, 2012, such obligations had a net book value of assets recorded under capital leases aggregating $9.3 million.

Financial Covenants

At June 30, 2012, the Company had financial covenants in the UBS Revolver, the ABSA Revolver and the Term Facility.

The terms of the UBS Revolver provide for customary representations and warranties, affirmative and negative covenants and events of default. The terms of the covenants, subject to certain exceptions, restrict, among other things: (i) debt incurrence; (ii) lien incurrence; (iii) investments, dividends and distributions; (iv) dispositions of assets and subsidiary interests; (v) acquisitions; (vi) sale and leaseback transactions; and (vii) transactions with affiliates and shareholders. The UBS Revolver requires the Company to maintain a Consolidated Fixed Charge Coverage Ratio of not less than 1.0 to 1.0 calculated on a quarterly basis only if excess availability on the UBS Revolver is less than the greater of (A) $20.0 million and (B) 10% of the lesser of (x) the aggregate commitments in effect at such time and (y) the borrowing base at such time. If the Company is required to maintain the Consolidated Fixed Charge Coverage Ratio then it will be required to maintain such ratio until, during the preceding 60 consecutive days, borrowing availability would have been at all times greater than the greater of (i) $20.0 million and (ii) 10% of the aggregate commitments in effect at such time.

The ABSA Revolver requires the ratio of (i) South African Consolidated EBITDA, as defined in the agreement, to South African Net Interest Expense shall not be less than 5.00: 1.00 and (ii) South African Consolidated Net Debt to South African Consolidated EBITDA, as defined in the agreement, shall be less than 2.00:1.00.

The Term Facility requires that a leverage ratio, as defined in the agreement, not exceed, as of the last day of any fiscal quarter, the correlative ratio as follows:

 

Fiscal Quarter Ending

   Total Leverage Ratio  

June 30, 2012 through December 31, 2015

     3.00:1.00   

March 31, 2016 and thereafter

     2.75:1.00   

The Term Facility 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.

The Company was in compliance with its financial covenants at June 30, 2012. A breach of any of the covenants imposed on the Company by the terms of the UBS Revolver or the Term Facility could result in a default under the agreement. In the event of a default, the lenders could terminate their commitments to the Company and could accelerate the repayment of all of the Company’s indebtedness under the agreement. In such case, the Company may not have sufficient funds to pay the total amount of accelerated obligations, and its lenders could proceed against the collateral pledged.

Interest Expense

 

     Successor            Predecessor  
     Three Months
Ended
June  30,

2012
    Three Months
Ended
June  30,

2011
    Six Months
Ended
June 30,
2012
    Five Months
Ended
June 30,
2011
           One Month
Ended
January 31,
2011
 

Interest expense

   $ 7.8      $ 8.0      $ 14.8      $ 13.1           $ 2.6   

Amortization of deferred debt issuance costs

     5.5        0.2        6.3        0.3             0.3   

Other

     —          0.2        0.3        0.4             —     

Capitalized interest

     (0.3     (0.2     (0.5     (0.3          —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Interest and debt expense

   $ 13.0      $ 8.2      $ 20.9      $ 13.5           $ 2.9   
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

For the one month ended January 31, 2011, interest expense excludes $2.8 million, which would have been payable under the terms of the Company’s $350.0 million 9.5% senior unsecured notes.

 

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12. Asset Retirement Obligations

To the extent a legal obligation exists, an asset retirement obligations (“ARO”) is recorded at its estimated fair value and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. Fair value is measured using expected future cash outflows discounted at Tronox’s credit-adjusted risk-free interest rate. The Company’s unaudited condensed consolidated financial statements classify accretion expense related to asset retirement obligations as a production cost, which is included in “Cost of goods sold” on the unaudited Consolidated Statements of Operations.

The Company’s AROs are as follows:

 

   

the KZN mine and the Namakwa Sands mine, both in South Africa;

 

   

mine closure and rehabilitation costs in Western Australia to restore the area that has been disturbed, as required under the mining lease;

 

   

plant closure and exit costs associated with certain industrial sites in Western Australia, whereby the Company is required to return the sites to their original states under licensing conditions:

 

   

plant closure and exit costs associated with the Botlek, the Netherlands facility, whereby the Company is required to return the site back to its original state at the end of its long-term lease; and

 

   

landfill closure costs at the Hamilton, Mississippi facility to address one-time closure costs (cap with liner and cover with soil) and annual monitoring costs of the closed landfill under applicable state environmental laws in Mississippi, which is expected to be completed in 2015.

A summary of the changes in the AROs during the six months ended June 30, 2012 is as follows:

 

Balance, December 31, 2011

   $ 30.1   

AROs acquired in the acquisition of the minerals sands business

     57.1   

Additions

     5.8   

Settlements/payments

     (0.8

Accretion expense

     1.0   

Changes in estimates, including cost and timing of cash flows

     3.2   
  

 

 

 

Balance, June 30, 2012

   $ 96.4   
  

 

 

 

Current portion included in accrued liabilities

   $ 2.0   
  

 

 

 

Noncurrent portion

   $ 94.4   
  

 

 

 

A summary of the AROs by site is included in the table below:

 

Australia

   $ 51.9   

South Africa

     33.6   

Botlek

     9.8   

Hamilton

     1.1   
  

 

 

 

Total AROs

   $ 96.4   
  

 

 

 

13. Other Assets and Other Liabilities

Prepaid and Other Current Assets

 

     Successor  
         June 30,    
2012
     December 31,
2011
 

Prepaid expenses

   $ 15.7       $ 10.2   

Cash collateralized letters of credit and surety bonds

     1.6         4.9   

Other

     21.8         6.6   
  

 

 

    

 

 

 

Total

   $ 39.1       $ 21.7   
  

 

 

    

 

 

 

 

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Other Long-Term Assets

 

     Successor  
         June 30,    
2012
     December 31,
2011
 

Debt issuance costs, net

   $ 23.0       $ 8.4   

Environmental rehab trust(1)

     20.5         —     

Other, net(1)

     2.3         3.2   
  

 

 

    

 

 

 

Total

   $ 45.8       $ 11.6   
  

 

 

    

 

 

 

 

(1) The Company is required to establish a new environmental rehabilitation trust in respect of the prospecting and mining operations in South Africa in accordance with applicable regulations. Subsequent to the Transaction Date, Exxaro will transfer the South African assets of the mineral sands business from its existing environmental rehabilitation trust to the new environmental rehabilitation trust.

Noncurrent Liabilities — Other

 

     Successor  
         June 30,    
2012
     December 31,
2011
 

Reserve for workers’ compensation and general liability claims

   $ 8.7       $ 8.5   

Reserve for uncertain tax positions

     3.3         0.9   

Other

     4.3         2.4   
  

 

 

    

 

 

 

Total

   $ 16.3       $ 11.8   
  

 

 

    

 

 

 

14. Commitments and Contingencies

Letters of Credit— At June 30, 2012, the Company had outstanding letters of credit in the amount of approximately $30.7 million, of which $29.3 million were issued under the Wells Revolver and were backstopped by a letter of credit issued under the UBS Revolver.

Other Commitments – Tronox Incorporated entered into certain agreements prior to the bankruptcy that required it to indemnify third parties for losses related to environmental matters, litigation and other claims. No material obligations are presently known and, thus, no reserve has been recorded in connection with such indemnification agreements.

Environmental Contingencies— In accordance with ASC 450, Contingencies , and ASC 410, Asset Retirement and Environmental Obligations , the Company recognizes a loss and records an undiscounted liability when litigation has commenced or a claim or an assessment has been asserted, or, based on available information commencement of litigation or assertion of a claim or assessment is probable, and the associated costs can be estimated. It is not possible for the Company to reliably estimate the amount and timing of all future expenditures related to environmental matters because, among other reasons, environmental laws and regulations, as well as enforcement policies and clean up levels, are continually changing, and the outcome of court proceedings, alternative dispute resolution proceedings (including mediation) and discussions with regulatory agencies are inherently uncertain.

The Company believes that it has reserved adequately for the probable and reasonably estimable costs of known contingencies. There is no environmental litigation, claim or assessment that has been asserted nor is there any probability of an assessment or a claim for which the Company has not recorded a liability. However, additions to the reserves may be required as additional information is obtained that enables the Company to better estimate its liabilities. The Company cannot reliably estimate the amount of future additions to the reserves at this time. In certain situations, reserves may be probable but not estimable. Additionally, sites may be identified in the future where the Company could have potential liability for environmental related matters. If a site is identified, the Company will evaluate to determine what reserve, if any, should be established.

Legal The Western Australia Office of State Revenue (the “OSR”) continues to review their technical position on the imposition of stamp duty on the transfer of Tronox Incorporated’s shares related to Kerr-McGee’s restructuring in 2002 and from the share transfer related to the spinoff of Tronox Incorporated from Kerr-McGee in 2005. On January 17, 2012, the OSR contacted the Company seeking additional information related to the 2005 spinoff. In addition, the OSR informed the Company that it has made a preliminary determination that the Company was land rich at the time of the 2002 share transfers and, as a result, the Company may be liable for stamp duty and penalties arising from that share transfer. A company is considered “land rich” if the value of its land, goods, wares and merchandise is greater than 60% of the total value of all the property that the entity owns. The OSR has not made an assessment at this time and continues discussions with the Company and its legal advisors. The Company has accrued stamp duty on the 2002 transaction in the amount of $3.2 million based upon its position that the Company was not land rich at the time of the share transfers. The Company intends to exercise all of its legal and administrative remedies in the event that the OSR makes an assessment based upon its claim that it is land rich.

 

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Registration Rights Agreement —On the Effective Date, Tronox Incorporated entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with certain stockholders of Tronox Incorporated party thereto. Pursuant to the Registration Rights Agreement, among other things, Tronox Incorporated was required to file with the SEC, pursuant to Section 13(a) of the Exchange Act, a registration statement for its common stock prior to September 30, 2011. Tronox Incorporated did not meet the September 30, 2011 deadline, and therefore, was subject to liquidation damages of approximately $2.0 million. Tronox Incorporated accrued $2.0 million related to such liability during 2011 and, as of December 31, 2011, Tronox Incorporated received and paid claims in the amount of $0.6 million. The remaining $1.4 million of claims were received and paid during the first quarter of 2012.

Other Matters —From time to time, the Company may be party to a number of legal and administrative proceedings involving environmental and/or other matters in various courts or agencies. These proceedings, individually and in the aggregate, may have a material adverse effect on the Company. These proceedings may be associated with facilities currently or previously owned, operated or used by the Company and/or its predecessors, some of which may include claims for personal injuries, property damages, cleanup costs and other environmental matters. Current and former operations of the Company may also involve management of regulated materials, which are subject to various environmental laws and regulations including the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”), the Resource Conservation and Recovery Act (RCRA) or state equivalents. Similar environmental laws and regulations and other requirements exist in foreign countries in which the Company operates.

15. Noncontrolling Interest

In connection with the Transaction, Exxaro and its subsidiaries retained a 26.0% ownership interest in each of Exxaro Sands and Exxaro TSA Sands in order to comply with the ownership requirements of the BEE legislation in South Africa. Exxaro is entitled to exchange this interest for approximately 3.2% in additional Class B Shares under certain circumstances (i.e., the earlier of the termination of the Empowerment Period or the tenth anniversary of completion of the Transaction).

A reconciliation of the beginning and ending balances of noncontrolling interest on the Company’s unaudited Condensed Consolidated Balance Sheets is presented below.

 

Balance at January 1, 2012

   $ —     

Fair value of noncontrolling interest on the Transaction Date(1)

     291.1   

Earnings attributable to noncontrolling interest

     0.5   

Effect of exchange rate changes

     10.3   
  

 

 

 

Balance at June 30, 2012

   $ 301.9   
  

 

 

 

 

  

(1)    The fair value of noncontrolling interest is preliminary and based upon valuations derived from estimated fair value assessments and assumptions used by management. While management believes that its preliminary estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different values being assigned.

         

16. Other Income (Expense)

 

     Successor            Predecessor  
     Three Months
Ended
June  30,

2012
    Three Months
Ended
June  30,

2011
    Six Months
Ended
June 30,
2012
    Five Months
Ended
June 30,
2011
           One Month
Ended
January 31,
2011
 

Net unrealized and realized foreign currency gain (loss)

   $ (2.5   $ (1.7   $ (4.7   $ (0.8        $ 1.5   

Interest income

     0.2        0.1        0.4        0.2             0.1   

Other

     (1.3     0.2        (0.7     0.2             —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Total

   $ (3.6   $ (1.4   $ (5.0   $ (0.4        $ 1.6   
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

17. Income Taxes

The following table presents the income tax provisions, along with income from continuing operations and the effective tax rates:

 

     Successor            Predecessor  
     Three Months
Ended
June  30,

2012
    Three Months
Ended
June  30,

2011
    Six Months
Ended
June 30,
2012
    Five Months
Ended
June 30,
2011
           One Month
Ended
January 31,
2011
 

Income Tax benefit (provision)

   $ 106.9      $ (9.0   $ 89.5      $ (12.3        $ (0.7

Income (loss) from Continuing Operations Before Income Taxes

     1,065.0        75.2        1,168.7        88.7             632.2   

Effective Tax Rate

     (10.0 %)      12.0     (7.7 %)      13.9          0.1

 

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The negative effective tax rates for the 2012 Successor periods differ from the U.S. statutory rate of 35% primarily as a consequence of the Company re-domiciling in Australia. Because the Australian tax laws provide for a resetting of the tax basis of the business assets to market value, the Company recorded a tax benefit related to this market value basis adjustment. The overall tax benefit from this basis adjustment was partially offset by a valuation allowance established for the portion of the tax benefit which the Company believes will not be realized. Because this basis change did not pertain to an entity acquired in the Transaction, this net tax benefit was recorded through tax expense and did not impact the Company’s gain on bargain purchase.

Additionally, the 2012 Successor periods shown above were impacted by valuation allowances in the United States, income in foreign jurisdictions taxed at rates lower than 35%, and the Company’s gain on the bargain purchase, which was recorded net of the financial tax impact and is not subject to income tax in any jurisdiction.

The effective tax rates for the 2011 Successor periods differ from the U.S. statutory rate of 35% primarily due to valuation allowances in the United States and income in foreign jurisdictions taxed at rates lower than 35%. In the one month ended January 31, 2011, the effective tax rate for the Predecessor period differs from the U.S. statutory rate of 35% primarily due to fresh-start adjustments, which were recorded net of tax. Additionally, the Predecessor period effective tax rate was impacted by valuation allowances in multiple jurisdictions and income in foreign jurisdictions taxed at rates lower than 35%.

The application of business combination accounting on June 15, 2012 resulted in the re-measurement of deferred income taxes associated with recording the assets and liabilities of acquired entities at fair value pursuant to ASC 805. As a result, deferred income taxes were recorded at amounts determined in accordance with ASC 740 of $205.3 million as part of the Company’s gain on bargain purchase.

The application of fresh-start accounting on January 31, 2011, resulted in the re-measurement of deferred income tax liabilities associated with the revaluation of Tronox Incorporated’s assets and liabilities pursuant to ASC 852. As a result, deferred income taxes were recorded at amounts determined in accordance with ASC 740 of $11.8 million as part of reorganization income. Additionally, during 2011, Tronox Incorporated released valuation allowances against certain of its deferred tax assets in the Netherlands and Australia resulting from this re-measurement.

For U.S. federal income tax purposes, typically the amount of cancellation of debt income (“CODI”) recognized, and accordingly the amount of tax attributes that may be reduced, depends in part on the fair market value of non-cash consideration given to creditors. On Tronox Incorporated’s date of emergence, the fair market value of non-cash consideration given was such that the creditors received consideration in excess of their claims. For this reason, Tronox Incorporated did not recognize any CODI and retained all of its U.S. tax attributes. In addition, Tronox Incorporated reflected a tax deduction for the premium paid to the creditors of $1,129.7 million. This deduction will increase the Company’s net operating losses (“NOL’s”) in the United States and in various states where the Company has filing requirements. The resulting federal tax benefit of $395.4 million and the estimated corresponding state tax benefit of $51.0 million, net of the deferred federal effect, have been fully offset by a valuation allowance in accordance with ASC 740, after considering all available positive and negative evidence. Because the financial offset for the consideration given to creditors was recorded through equity, neither the tax benefits nor the offsetting valuation allowance impacts were shown in the effective tax rate calculations. Instead, the excess tax benefit, which netted to zero with the valuation allowance, was reflected as an equity adjustment.

The Company does not believe an ownership change occurred as a result of the Transaction. Upon the Company’s emergence from bankruptcy in the period ended January 31, 2011 the Company experienced an ownership change resulting in a limitation under IRC Sections 382 and 383 related to its U.S. NOL’s generated prior to emergence from bankruptcy. The Company does not expect that the application of these limitations will have any material affect upon its U.S. federal or state income tax liabilities.

Earnings of certain foreign subsidiaries of Tronox Incorporated, which were undistributed to the U.S., totaled $144.0 million at December 31, 2011. Under the new Australian holding company, it is expected that undistributed earnings of certain subsidiaries will continue to increase. At June 30, 2012, no provision for deferred U.S. or Australian income taxes has been made for these earnings because they were considered to be indefinitely reinvested outside of the parent’s taxing jurisdictions. The distribution of these earnings in the form of dividends or otherwise may subject the Company to U.S. federal and state or foreign income taxes and, possibly, foreign withholding taxes. However, because of the complexities of taxation of foreign earnings, it is not practicable to estimate the amount of additional tax that might be payable on the eventual remittance of these earnings to their parent corporations.

The Company continues to maintain a valuation allowance related to the net deferred tax assets in the United States. Future provisions for income taxes will include no tax benefits with respect to losses incurred and tax expense only to the extent of current alternative minimum tax and state tax payments until the valuation allowance in the United States is eliminated. ASC 740 requires that all available positive and negative evidence be weighted to determine whether a valuation allowance should be recorded.

 

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Table of Contents

18. Earnings Per Share

Certain unvested awards issued under the Tronox Limited Management Equity Incentive Plan, as further discussed in Note 20, provide the recipient of the awards with the right to dividends declared on Class A Shares. Any unvested shares that participate in dividends are considered participating securities, and are included in the Company’s computation of basic and diluted earnings per share using the two-class method, unless the effect of including such shares would be antidilutive.

The following table sets forth the number of shares utilized in the computation of basic and diluted earnings per share from continuing operations for the periods indicated. The weighted average shares outstanding, potentially dilutive shares, earnings per share and anti-dilutive shares of the Successor have been restated to affect the 5-for-1 stock split discussed in Note 19.

 

     Successor            Predecessor  
     Three Months
Ended
June  30,

2012
    Three Months
Ended
June  30,

2011
    Six Months
Ended
June 30,
2012
    Five Months
Ended
June 30,
2011
           One Month
Ended
January 31,
2011
 

Numerator – Basic and Diluted:

               

Income from Continuing Operations

   $ 1,171.9      $ 66.2      $ 1,258.2      $ 76.4           $ 631.5   

Less: Dividends declared

     31.6        —          31.6        —               —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Undistributed earnings

     1,140.3        66.2        1,226.6        76.4             631.5   

Percentage allocated to common shares

     99.5     100     99.5     100          100
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 
 

Undistributed earnings allocated to common shares

     1,134.6        66.2        1,220.5        76.4             631.5   

Add: Dividends declared allocated to common shares

     31.6        —          31.6        —               —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Earnings available to common shares

   $ 1,166.2      $ 66.2      $ 1,252.1      $ 76.4           $ 631.5   
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 
 

Denominator – Basic:

               

Weighted-average common shares (In thousands)

     84,528        74,780        79,960        74,715             41,311   

Add: Effect of Dilutive Securities:

               

Restricted stock

     46        65        98        100             88   

Warrants

     589        3,165        590        3,130             —     

Options

     123        —          109        —               —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Denominator – Dilutive

     85,286        78,010        80,757        77,945             41,399   
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 
 

Earnings per Share:

               

Basic Income per Share

   $ 13.80      $ 0.89      $ 15.65      $ 1.02           $ 15.29   
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Diluted Income per Share

   $ 13.67      $ 0.85      $ 15.50      $ 0.98           $ 15.25   
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

In computing diluted earnings per share under the two-class method, the Company considered potentially dilutive shares. For the three and six months ended June 30, 2012, 285,895 stock options with an average exercise price of $28.29 were anti-dilutive because they were not “in the money”. For the one month ended January 31, 2011, 1,152,408 stock options with an average exercise price of $9.54 were anti-dilutive because they were not “in the money.” There were no stock options outstanding during the three and five months ended June 30, 2011.

19. Stockholders’ Equity

Stock Split Declared

On June 29, 2012, the Board approved a 5-to-1 stock split for holders of its Class A Shares and Class B Shares at the close of business on July 20, 2012, by issuance of four additional shares for each share of the same class. As a result of the stock split, the Company recorded an increase to “Tronox Limited Class A ordinary shares” of $0.7 million and an increase to “Tronox Limited Class B ordinary shares” of $0.4 million, with corresponding decreases to “Retained earnings” on the unaudited Condensed Consolidated Balance Sheets.

 

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Table of Contents

Ordinary Shares and Common Stock

The changes in ordinary shares and common stock shares outstanding and treasury shares for the six months ended June 30, 2012 were as follows:

 

Tronox Limited Class A Shares outstanding:

  

Balance at December 31, 2011

     —     

Shares issued in connection with the Transaction

     15,328,930   

Shares repurchased/cancelled(1)

     (17,000

Shares issued in connection with the stock split

     61,247,720   
  

 

 

 

Balance at June 30, 2012

     76,559,650   
  

 

 

 

 

Tronox Limited Class B Shares outstanding:

  

Balance at December 31, 2011

     —     

Shares issued in connection with the Transaction

     9,950,856   

Shares issued in connection with the stock split

     39,803,424   
  

 

 

 

Balance at June 30, 2012

     49,754,280   
  

 

 

 

 

Tronox Incorporated common stock outstanding:

  

Balance at December 31, 2011

     15,076,691   

Shares issued for stock-based compensation

     114,157   

Shares issued for warrants exercised

     138,077   

Shares issued for claims

     5   

Shares exchanged in connection with the Transaction

     (15,328,930
  

 

 

 

Balance at June 30, 2012

     —     
  

 

 

 

Tronox Incorporated common stock held as treasury:

  

Balance at December 31, 2011

     94,513   

Shares issued for stock-based compensation

     47,872   

Shares cancelled in connection with the Transaction(1)

     (142,385
  

 

 

 

Balance at June 30, 2012

     —     
  

 

 

 

 

(1) In accordance with Australian law, the Company is not permitted to hold shares of its own ordinary shares. As such, all Class A Shares that were repurchased by the Company have been cancelled. Additionally, all shares of Tronox Incorporated common stock that were held by Tronox Incorporated on the Transaction date were cancelled in connection with the Transaction.

Warrants

As part of its emergence from bankruptcy, Tronox Incorporated issued to existing holders of its equity, warrants in two tranches, Series A warrants and Series B warrants (collectively, the “Tronox Incorporated Warrants”), to purchase up to an aggregate of 1,216,216 shares, or 7.5%, Tronox Incorporated’s common stock. In connection with the Transaction, and pursuant to the terms of the Tronox Incorporated Warrant Agreement, Tronox Limited entered into an amended and restated warrant agreement, dated as of the Transaction Date, whereby the holders of the Tronox Limited Warrants are entitled to purchase one Class A Share and receive $12.50 in cash at the initial exercise prices of $62.13 for each Series A Warrant (the “Series A Warrants”) and $68.56 for each Series B Warrant (the “Series B Warrants”, collectively with the Series A Warrants, the “Warrants”). On the Transaction Date, there were 841,302 Warrants outstanding. 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 on a cashless basis. The Warrants are freely transferable by the holder thereof.

In connection with the stock split, holders of the Warrants are entitled to purchase five Class A Shares and receive $12.50 in cash at the initial exercise prices of $62.13 for each Series A Warrant and $68.56 for each Series B Warrants. As of June 30, 2012 there were 365,884 Series A Warrants and 475,418 Series B Warrants outstanding.

Registration of Class A Shares

Pursuant to a Registration Statement on Form S-1 (File No. 333-181842), declared effective by the SEC on July 11, 2012, Tronox Limited registered 841,302 Class A Shares, which would be issued upon the exercise of the Warrants.

 

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Table of Contents

On July 5, 2012, pursuant to a Registration Statement on Form S-8 (File No. 333-182556), the Company registered an additional 2,556,245 Class A Shares, which are authorized to be issued under the Tronox Management Equity Incentive Plan.

Dividend Declared

On June 26, 2012, the Board declared a quarterly dividend of $1.25 per share on a pre-split basis to holders of its Class A Shares and Class B Shares, totaling $31.6 million, payable on August 13, 2012 to shareholders of record at the close of business on July 13, 2012. Additionally, the Company announced its intent to continue to pay a regular quarterly dividend.

Share Repurchases

On June 26, 2012, the Board authorized the repurchase of up to 2.5 million Class A Shares in open market transactions, which will subsequently be cancelled in accordance with Australian law. During the second quarter, the Company repurchased 17,000 Class A Shares at an average price of $120.75 per share for a total cost of $2.0 million. Subsequent to June 30, 2012, the Company has repurchased an additional 164,800 Class A Shares at an average price of $115.61 per share for a total cost of $19.1 million.

20. Stock-Based Compensation

Compensation expense related to employee restricted stock awards was $17.0 million and $2.5 million for the three months ended June 30, 2012 and 2011, respectively, and $23.0 million and $5.1 million for the six months ended June 30, 2012 and the five months ended June 30, 2011, respectively. Compensation expense related to restricted stock awards granted to the Board of Directors was $3.1 million and $0.4 million for the three months ended June 30, 2012 and 2011, respectively, and $3.3 million and $0.7 million for the six months ended June 30, 2012 and the five months ended June 30, 2011, respectively. Compensation expense related to the Company’s nonqualified stock option awards for the three and six months ended June 30, 2012 was $0.5 million and $0.9 million, respectively.

Tronox Limited Management Equity Incentive Plan

On the Transaction Date, Tronox Limited adopted the Tronox Limited management equity incentive plan (the “Tronox Limited MEIP”), which permits the grant of awards that constitute incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards, cash payments and other forms such as the compensation committee of the Board in its discretion deems appropriate, including any combination of the above. Subject to further adjustment, the maximum number of shares which may be the subject of awards (inclusive of incentive stock options) is 2,556,245 Class A Shares.

Restricted Stock

On June 26, 2012, the Company granted 32,167 Class A Shares, which have both time requirements and performance requirements. The time provisions are graded vesting, while the performance provisions are cliff vesting and have a variable payout. In accordance with ASC 718, Compensation – Stock Compensation, such restricted stock awards are classified as liability awards and are re-measured to fair value at each reporting date. The following table summarizes restricted stock share activity with employees for the six months ended June 30, 2012.

 

     Number of
Shares
     Fair
Value(1)
 

Balance at December 31, 2011

     —           —     

Awards converted from Tronox Incorporated to Tronox Limited in connection with the Transaction

     84,153         84.93   

Awards granted

     32,167         138.17   

Awards earned

     —           —     

Awards forfeited

     —           —     

Awards granted in connection with the stock split

     465,280         19.93   
  

 

 

    

 

 

 

Balance at June 30, 2012

     581,600       $ 19.93   
  

 

 

    

 

 

 

Outstanding awards expected to vest

     565,517       $ 19.71   
  

 

 

    

 

 

 

 

(1) Represents the weighted-average grant-date fair value. The fair value of awards granted in connection with the stock split has been affected to reflect the estimated fair value of the date of such stock split.

 

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Table of Contents

Stock Options

On June 26, 2012, the Company granted 27,179 stock options to employees to purchase Class A Shares, which vest over a three year period. The following table presents a summary of activity for the Tronox Incorporated options for the six months ended June 30, 2012:

 

     Number of
Options
     Price (1)      Contractual
Life
Years (1)
     Intrinsic
Value(2)
 

Balance at December 31, 2011

     —         $ —           —         $ —     

Options converted to Tronox Limited in connection with the Transaction

     103,466         122.81         9.59         0.7   

Options issued

     27,179         129.50         10.00         —     

Options issued in connection with the stock split

     522,580         24.84         9.67         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding at June 30, 2012

     653,225       $ 24.84         9.67       $ 0.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Represents weighted average exercise price and weighted average remaining contractual life, as applicable. The fair value of awards granted in connection with the stock split has been affected to reflect the estimated fair value on the date of such stock split.
(2) Reflects aggregate intrinsic value based on the difference between the market price of the Company’s stock at June 30, 2012 and the options’ exercise price. Options issued in connection with the stock split had no effect on the intrinsic value of outstanding options.

June 26, 2012 Grant

Valuation and Cost Attribution Methods . Options’ fair value was determined on the date of grant using the Black-Scholes option-pricing model and was recognized in earnings on a straight-line basis over the employee service period of three years necessary to earn the awards, which is the vesting period. The Company ran the Black-Scholes option-pricing model for the 27,179 options granted on June 26, 2012 and used the following assumptions:

 

     2012  

Risk-free interest rate

     0.97

Expected dividend yield

     3.86

Expected volatility

     55

Expected term (years)

     10.0   

Per-unit fair value of options granted

   $ 47.15   

The Company used the fair market value and exercise price of $129.50, which was the adjusted closing price of Class A Shares, New York Stock Exchange symbol TROX, recorded on June 26, 2012.

Expected Volatility  — In setting the volatility assumption, the Company considered the most recent reported volatility of each compensation peer company. For the 2012 valuation, the peer company group included the following companies: Cabot Corporation, Celanese Corporation, Cliffs Natural Resources Inc., Cytec Industries Inc., Eastman Chemical Company, FMC Corporation, Freeport-McMoRan Copper & Gold Inc., Georgia Gulf Corporation, Huntsman Corporation, Kronos Worldwide, Inc., PPG Industries, Inc., Rockwood Holdings, Inc., RPM International Inc., The Sherwin-Williams Company, Southern Copper Corporation, The Valspar Corporation, W.R. Grace & Co, and Westlake Chemical Corporation.

Risk-free interest rate  — The Company used a risk-free interest rate of 0.97%, which was the risk-free interest rate based on U.S. Treasury Strips available with maturity period consistent with expected life assumption.

Tronox Incorporated Management Equity Incentive Plan

On the Effective Date, Tronox Incorporated adopted the Tronox Incorporated management equity incentive plan (the “Tronox Incorporated MEIP”), which permitted the grant of awards that constitute incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards, cash payments and other forms such as the compensation committee of the Tronox Incorporated Board of Directors in its discretion deems appropriate, including any combination of the above. The number of shares available for delivery pursuant to the awards granted under the Tronox Incorporated MEIP was 1.2 million shares.

 

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Table of Contents

On the Transaction Date, 149,796 shares of Tronox Incorporated restricted stock vested in connection with the Transaction. The remaining shares of Tronox Incorporated restricted stock were converted to shares of Tronox Limited restricted stock.

Grants to Tronox Incorporated Board Members

As noted above, the Tronox Incorporated MEIP authorized the issuance of restricted shares to eligible directors who were serving on the Tronox Incorporated Board of Directors on the Effective Date.

The following table summarizes restricted stock share activity with Board of Directors of Tronox Incorporated members for the six months ended June 30, 2012.

 

     Primary Award      Secondary Award  

Restricted Shares

   Number
Of
Shares
    Weighted-Avg.
Grant Date
Fair Value
     Number
of
Shares
    Weighted-Avg.
Grant Date
Fair Value
 

Balance at December 31, 2011

     10,008      $ 122.50         24,497      $ 122.50   

Awards granted

     —          —           —          —     

Awards earned

     (10,008     122.50         (24,497     122.50   
  

 

 

   

 

 

    

 

 

   

 

 

 

Balance at June 30, 2012

     —        $ —           —        $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Outstanding awards expected to vest

     —        $ —           —        $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Grants to employees

During 2012, Tronox Incorporated granted 10,583 shares to employees, which have graded vesting provisions. The plan allows Tronox Incorporated to withhold, for tax purposes, the highest combined maximum rate imposed under all applicable federal, state, local and foreign tax laws on behalf of the employees that have received these awards. In accordance with ASC 718, Compensation – Stock Compensation, such restricted stock awards were classified as liability awards and were re-measured to fair value at each reporting date. The following table summarizes restricted stock share activity with employees for the six months ended June 30, 2012.

 

     Number of
Shares
    Fair
Value(1)
 

Balance at December 31, 2011

     201,094      $ 107.91   

Awards granted

     10,583        121.78   

Awards earned

     (127,524     121.06   

Awards converted to Tronox Limited restricted shares in connection with the Transaction

     (84,153     84.93   
  

 

 

   

 

 

 

Balance at June 30, 2012

     —        $ —     
  

 

 

   

 

 

 

 

(1) Represents the weighted-average grant-date fair value.

Stock Options

The following table presents a summary of activity for the Tronox Incorporated options for the six months ended June 30, 2012:

 

     Number of
Options
    Price (1)      Contractual
Life
Years (1)
     Intrinsic
Value(2)
 

Balance at December 31, 2011

     69,000      $ 110.00         9.95       $ 0.7   

Options issued

     34,466        148.46         9.87         —     

Options converted to Tronox Limited in connection with the Transaction

     (103,466     122.81         9.59         0.7   
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding at June 30, 2012

     —        $ —           —         $ —     
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) Represents weighted average exercise price and weighted average remaining contractual life, as applicable.
(2) Reflects aggregate intrinsic value based on the difference between the market price of the Company’s stock at June 30, 2012 and the options’ exercise price.

 

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Table of Contents

June 6, 2012 Grant

On June 6, 2012, the Company granted 30,000 stock options to employees to purchase shares of Tronox Incorporated common stock, which vest over a three year period.

Valuation and Cost Attribution Methods . Options’ fair value was determined on the date of grant using the Black-Scholes option-pricing model and is recognized in earnings on a straight-line basis over the employee service period of three years necessary to earn the awards, which is the vesting period. On June 6, 2012, Tronox Incorporated ran the Black-Scholes option-pricing model for the 30,000 options granted and used the following assumptions:

 

     2012  

Risk-free interest rate

     0.94

Expected dividend yield

     0.0

Expected volatility

     55

Expected term (years)

     10.0   

Per-unit fair value of options granted

   $ 78.18   

Tronox Incorporated used the fair market value and exercise price of $152.25, which was the closing price of Tronox Incorporated common stock, New York Stock Exchange symbol TROX.PK, recorded on June 6, 2012.

Expected Volatility  — In setting the volatility assumption, Tronox Incorporated considered the most recent reported volatility of each compensation peer company. For the 2012 valuation, the peer company group included the following companies: Cabot Corporation, Celanese Corporation, Cliffs Natural Resources Inc., Cytec Industries Inc., Eastman Chemical Company, FMC Corporation, Freeport-McMoRan Copper & Gold Inc., Georgia Gulf Corporation, Huntsman Corporation, Kronos Worldwide, Inc., PPG Industries, Inc., Rockwood Holdings, Inc., RPM International Inc., The Sherwin-Williams Company, Southern Copper Corporation, The Valspar Corporation, W.R. Grace & Co, and Westlake Chemical Corporation.

Risk-free interest rate  — Tronox Incorporated used a risk-free interest rate of 0.94%, which was the risk-free interest rate based on U.S. Treasury Strips available with maturity period consistent with expected life assumption.

January 2, 2012 Grant

On January 2, 2012, Tronox Incorporated granted 4,466 stock options to employees to purchase shares of Tronox Incorporated common stock, which vest over a three year period.

Valuation and Cost Attribution Methods . Options’ fair value was determined on the date of grant using the Black-Scholes option-pricing model and was recognized in earnings on a straight-line basis over the employee service period of three years necessary to earn the awards, which is the vesting period. On January 3, 2012, Tronox Incorporated ran the Black-Scholes option-pricing model for the 4,466 options granted and used the following assumptions:

 

     2012  

Risk-free interest rate

     1.97

Expected dividend yield

     0.0

Expected volatility

     48.6

Expected term (years)

     10.0   

Per-unit fair value of options granted

   $ 73.89   

Tronox Incorporated used the fair market value and exercise price of $123.00, which was the closing price of TROX.PK recorded on January 3, 2012.

Expected Volatility  — In setting the volatility assumption, Tronox Incorporated considered the most recent reported volatility of each compensation peer company. For the 2012 valuation, the peer company group included the following companies: Cabot Corporation, Celanese Corporation, Chemtura Corporation, Cliffs Natural Resources Inc., Cytec Industries Inc., Eastman Chemical Company, FMC Corporation, Freeport-McMoRan Copper & Gold Inc., Georgia Gulf Corporation, Huntsman Corporation, Kronos Worldwide, Inc., The Lubrizol Corporation, Nalco Holding Company, PPG Industries, Inc., Rockwood Holdings, Inc., RPM International Inc., The Sherwin-Williams Company, Solutia Inc., Southern Copper Corporation, Teck Resources Limited, The Valspar Corporation, W.R. Grace & Co, and Westlake Chemical Corporation.

Risk-free interest rate  — Tronox Incorporated used a risk-free interest rate of 1.97%, which was the yield of the ten year U.S. Treasury Note.

 

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Table of Contents

Predecessor

Upon emergence from bankruptcy, all predecessor common stock equivalents, including but not limited to stock options and restricted stock units of Tronox Incorporated were vested and immediately cancelled with the Plan.

Overview  — Tronox Incorporated’s Long Term Incentive Plan (“LTIP”) authorized the issuance of shares of Tronox Incorporated common stock to certain employees and non-employee directors any time prior to November 16, 2015, in the form of fixed-price stock options, restricted stock, stock appreciation rights or performance awards. As of the Effective Date, all stock-based awards previously issued under the Predecessor’s LTIP plan vested and were immediately cancelled.

For the one month ended January 31, 2011, Tronox Incorporated recognized $0.1 million of compensation expense related to restricted stock-based awards, which was based on the fair value of the awards. During the one month ended January 31, 2011, the tax benefit associated with compensation expense had a corresponding offset to the valuation allowance, yielding no overall income tax benefit.

The following table summarizes information about restricted stock award, performance award and stock option activity for the one month ended January 31, 2011:

 

     Restricted Stock Awards  &
Stock Opportunity Grants
     Performance
Awards
    Stock Options  

Restricted Shares

   Number of
Shares
    Fair
Value(1)
     Number Of
Units
    Number of
Options
    Price(2)      Contractual
Life (Years)(2)
     Intrinsic
Value(3)
 

Balance at December 31, 2010

     148,053      $ 4.92         2,689,150        1,152,408      $ 9.54         5.31       $ 9.54   

Awards vested/cancelled

     (148,053     —           (2,689,150     (1,152,408     —           —           —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Balance at January 31, 2011

     —        $ —           —          —        $ —           —         $ —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) Represents the weighted average grant date fair value.
(2) Represents weighted average exercise price and weighted average remaining contractual life, as applicable.
(3) Reflects aggregate intrinsic value based on the difference between the market price of the Company’s stock and the options’ exercise price.

21. Cash Flows Statement Data

Other noncash items included in the reconciliation of net income to net cash flows from operating activities include the following:

 

     Successor             Predecessor  
       Six Months  
Ended
June 30,

2012
     Five Months
Ended
June 30,
2011
            One Month
Ended
January 31,
2011
 

Accrued transfer taxes

   $ 37.0       $ —              $ —     

Amortization of fair value inventory step-up

     23.6         —                —     

Other net adjustments

     1.3         1.1              (0.2
  

 

 

    

 

 

         

 

 

 

Total

   $ 61.9       $ 1.1            $ (0.2
  

 

 

    

 

 

         

 

 

 

Other, net, included in the reconciliation of net income to net cash flows from operating activities includes the following:

 

     Successor             Predecessor  
       Six Months  
Ended
June 30,

2012
    Five Months
Ended
June  30,

2011
            One Month
Ended
January 31,
2011
 

Pension and postretirement

   $ (25.0   $ —              $ —     

Other net adjustments

     1.6        2.4              1.0   
  

 

 

   

 

 

         

 

 

 

Total

   $ (23.4   $ 2.4            $ 1.0   
  

 

 

   

 

 

         

 

 

 

 

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Table of Contents

22. Pension and Other Postretirement Healthcare Benefits

Defined Benefit Retirement Plans

The Company is the sponsor of noncontributory defined benefit retirement plans in the United States, a contributory defined benefit retirement plan in the Netherlands and a U.S. contributory postretirement plan for health care insurance. Substantially all U.S. employees may become eligible for the postretirement healthcare benefits if they reach retirement age while working for the Company.

The components of net periodic pension and postretirement healthcare cost for the three months ended June 30, 2012 and 2011, and the six months ended June 30, 2012, five months ended June 30, 2011 and one month ended January 31, 2011 were as follows:

 

     Retirement Plans    

 

 
     Successor     Predecessor  
     Three Months
Ended
June  30,

2012
    Three Months
Ended
June  30,

2011
    Six Months
Ended
June 30,
2012
    Five Months
Ended
June 30,
2011
    One Month
Ended
January 31,
2011
 

Net periodic cost:

            

Service cost

   $ 0.1      $ 0.7      $ 1.3      $ 1.2      $ 0.2   

Interest cost

     4.6        5.8        10.9        9.7        1.9   

Expected return on plan assets

     (4.2     (5.5     (10.2     (9.2     (2.0

Net amortization:

            

Net amortization — Actuarial (gain) loss

     —          —          —          —          0.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic cost

   $ 0.5      $ 1.0      $ 2.0      $ 1.7      $ 0.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Postretirement Healthcare Plans     

 

 
     Successor      Predecessor  
     Three Months
Ended
June  30,

2012
     Three Months
Ended
June  30,

2011
     Six Months
Ended
June 30,
2012
     Five Months
Ended
June 30,
2011
     One Month
Ended
January 31,
2011
 

Net periodic cost:

                

Service cost

   $ 0.1       $ 0.1       $ 0.2       $ 0.1       $ —     

Interest cost

     0.1         0.1         0.2         0.2         —     

Net Amortization:

                

Net amortization — Prior service cost (credit)

     —           —           —           —           (1.1

Net amortization — Actuarial (gain) loss

     —           —           —           —           0.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic cost (income)

   $ 0.2       $ 0.2       $ 0.4       $ 0.3       $ (1.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Post-Employment Health Care

In connection with the Transaction, the Company provides post-employment health care benefits to certain Namakwa Sands employees, retired employees and their registered dependants. Members can participate in the Anglo Medical Scheme, Bonitas Medical Fund or Discovery Health Medical Scheme. The Company provides benefits as follow: (i) members employed before March 1, 1994 receive 100% post-retirement and death-in-service benefits, (ii) members employed on or after March 1, 1994 but before January 1, 2002 receive 2% per year of completed service subject to a maximum of 50% post-retirement and death-in-service benefits, and (iii) members employed on or after January 1, 2002 receive 0% post-retirement and death-in-service benefits.

As a result of the Transaction, the Company’s actuaries performed a valuation report as of May 31, 2012.

The post-employment health care liabilities have been valued by the Company’s independent actuaries using the Projected Unit Credit Method, which was used to determine the past-service liabilities at the valuation date and projected annual expense in the year following the valuation date.

The components of net periodic post-employment healthcare cost for the three and six months ended June 30, 2012 was less than $0.1 million.

 

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Table of Contents

The following key assumptions as of May 31, 2012 were used in the Company’s calculations:

 

              
     Rate  

Discount rate assumption

     9.65

Health care cost inflation assumption

     8.15

A 1% increase in the assumed health care cost trend rate for each future year would increase the past-service contractual liability at May 31, 2012 by 23.3%, while the aggregate of the service and interest cost components would increase by 24.3% million. A 1% decrease in the trend rate for each future year would reduce the past-service contractual liability at May 31, 2012 by 18.1%, while the aggregate of the service and interest cost components would decrease by 18.8%.

Expected Benefit Payments —The expected cash benefit payments for the next five years and in the aggregate for the years 2012 through 2017 are estimated to be less than $0.5 million.

23. Related Party Transactions

Prior to the Transaction Date, Tronox Incorporated conducted transactions with Exxaro Australia Sands Pty Ltd, Tronox Incorporated’s 50% partner in the Tiwest Joint Venture. Tronox Incorporated purchased, at open market prices, raw materials used in its production of TiO 2 , as well as Exxaro Australia Sands Pty Ltd’s share of TiO 2 produced by the Tiwest Joint Venture. Tronox Incorporated also provided administrative services and product research and development activities, which were reimbursed by Exxaro. For the three months ended June 30, 2012 and 2011, Tronox Incorporated made payments of $90.0 million and $132.2 million, respectively, and received payments of $2.1 million and $1.7 million, respectively. For the six months ended June 30, 2012, five months ended June 30, 2011 and one month ended January 31, 2011, Tronox Incorporated made payments of $173.0 million, $144.9 million and $44.0 million, respectively, and received payments of $9.2 million, $3.7 million and nil, respectively. Subsequent to the Transaction Date, such transactions are considered intercompany transactions and are eliminated in consolidation.

24. Segment Information

Prior to the Transaction, Tronox Incorporated had one reportable segment representing its pigment business. The pigment segment primarily produced and marketed TiO 2, and included heavy minerals production. The heavy minerals production was integrated with its Australian pigment plant, but also had third-party sales of minerals not utilized by its pigment operations. In connection with the Transaction, the Company acquired 74% of Exxaro’s South African mineral sands operations, including its Namakwa and KZN Sands mines, separation facilities and slag furnaces, along with its 50% share of the Tiwest Joint Venture in Western Australia. As such, the Company evaluated its new operations under ASC 280, Segments , and determined that the mineral sands operations qualify as a separate segment.

Subsequent to the Transaction, the Company has two reportable operating segments, minerals and pigment. The minerals segment includes the exploration, mining and beneficiation of mineral sands deposits, as well as heavy mineral production. These operations produce titanium feedstock, including ilmenite, chloride slag, slag fines and rutile, as well as pig iron and zircon. The pigment segment primarily produces and markets TiO 2, and has production facilities in the United States, Australia, and the Netherlands. The Company’s corporate segment is comprised of corporate activities and businesses that are no longer in operation, as well as its electrolytic manufacturing and marketing operations, all of which are located in the United States.

Segment performance is evaluated based on segment operating profit (loss), which represents the results of segment operations before unallocated costs, such as general corporate expenses not identified to a specific segment, environmental provisions related to sites no longer in operation, income tax expense or benefit and other income (expense).

 

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Table of Contents
     Minerals      Pigment      Corporate
And Other
    Eliminations     Total  

Successor: Three Months Ended June 30, 2012

            

Net Sales

   $ 89.2       $ 348.0       $ 26.8      $ (35.1   $ 428.9   

Income (Loss) from operations

     39.8         41.5         (76.0     15.2        20.5   

Interest and debt expense

               (13.0

Other income (expense)

               (3.6

Gain on bargain purchase

               1,061.1   

Income (Loss) from Continuing Operations before Income Taxes

             $ 1,065.0   

Total Assets

   $ 3,253.9       $ 1,738.9       $ 200.7      $ (11.4   $ 5,182.1   

Depreciation, Depletion and Amortization

     11.5         15.7         3.7        —          30.9   

Capital Expenditures

     14.1         8.7         4.0        —          26.8   

Successor: Three Months Ended June 30, 2011

            

Net Sales

   $ 40.1       $ 371.6       $ 31.6      $ (15.0   $ 428.3   

Income (Loss) from operations

     9.3         86.3         (11.0     0.2        84.8   

Interest and debt expense

               (8.2

Other income

               (1.4

Income from Continuing Operations before Income Taxes

             $ 75.2   

Total Assets

   $ 226.9       $ 1,142.4       $ 186.8      $ (1.9   $ 1,554.2   

Depreciation, Depletion and Amortization

     4.8         13.1         3.2        —          21.1   

Capital Expenditures

     1.9         84.6         4.3        —          90.8   

Successor: Six Months Ended June 30, 2012

            

Net Sales

   $ 171.9       $ 710.3       $ 58.0      $ (77.7   $ 862.5   

Income (Loss) from operations

     91.0         150.6         (104.1     (4.0     133.5   

Interest and debt expense

               (20.9

Other income (expense)

               (5.0

Gain on bargain purchase

               1,061.1