Tronox Limited
Tronox Ltd (Form: 10-Q, Received: 08/08/2013 16:17:47)
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, 2013

OR

 

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

For the transition period from                        to                       

1-35573

(Commission file number)

 

 

TRONOX LIMITED

(ACN 153 348 111)

(Exact Name of Registrant as Specified in its Charter)

 

 

 

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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     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. (Check one):

 

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, 2013, there were 113,458,282 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)

     3   

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

     36   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     44   

Item 4. Controls and Procedures

     44   

PART II – OTHER INFORMATION

  

Item 1. Legal Proceedings

     45   

Item 1A. Risk Factors

     45   

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

     45   

Item 3. Defaults Upon Senior Securities

     45   

Item 4. Mine Safety Disclosures

     45   

Item 5. Other Information

     45   

Item 6. Exhibits

     46   

SIGNATURES

     47   

 

2


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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

 

     Page  

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2013 and 2012

     4   

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2013 and 2012

     5   

Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012

     6   

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012

     7   

Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June  30, 2013 and 2012

     8   

Notes to Condensed Consolidated Financial Statements

     9   

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Millions of U.S. dollars, except share and per share data)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Net Sales

   $ 525      $ 429      $ 995      $ 863   

Cost of goods sold

     475        304        913        581   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Margin

     50        125        82        282   

Selling, general and administrative expenses

     41        103        92        147   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) from Operations

     9        22        (10     135   

Interest and debt expense

     (35     (14     (62     (22

Loss on extinguishment of debt

     —          —          (4     —     

Other income (expense)

     26        (3     32        (4

Gain on bargain purchase

     —          1,055        —          1,055   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) before Income Taxes

     —          1,060        (44     1,164   

Income tax benefit (provision)

     (1     84        (2     66   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

     (1     1,144        (46     1,230   

Income attributable to noncontrolling interest

     12        —          24        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) attributable to Tronox Limited

   $ (13   $ 1,144      $ (70   $ 1,230   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) per Share, Basic and Diluted:

        

Basic

   $ (0.11   $ 13.46      $ (0.62   $ 15.31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.11   $ 13.00      $ (0.62   $ 14.74   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Shares Outstanding (in thousands):

        

Basic

     113,390        84,528        113,354        79,960   

Diluted

     113,390        87,535        113,354        83,021   

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Millions of U.S. dollars)

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2013     2012      2013     2012  

Net Income (Loss):

         

Net Income (Loss)

   $ (1   $ 1,144       $ (46   $ 1,230   

Other Comprehensive Income (Loss):

         

Foreign currency translation adjustments

     (82     26         (201     33   

Amortization of actuarial losses, net of taxes

     (1     —           —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss)

     (83     26         (201     33   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total comprehensive income (loss)

     (84     1,170         (247     1,263   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest:

         

Net income

     12        —           24        —     

Foreign currency translation adjustments

     (23     10         (51     10   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

     (11     10         (27     10   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

   $ (73   $ 1,160       $ (220   $ 1,253   
  

 

 

   

 

 

    

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Millions of U.S. dollars, except share and per share data)

 

     June 30,
2013
    December 31,
2012
 

Current Assets

    

Cash and cash equivalents

   $ 1,389      $ 716   

Accounts receivable, net of allowance for doubtful accounts of $1 million and $3 million, respectively

     425        391   

Inventories

     749        914   

Prepaid and other assets

     37        38   

Deferred income taxes

     54        114   
  

 

 

   

 

 

 

Total Current Assets

     2,654        2,173   

Noncurrent Assets

    

Property, plant and equipment, net

     1,309        1,423   

Mineral leaseholds, net

     1,321        1,439   

Intangible assets, net

     313        326   

Long-term deferred tax assets

     170        91   

Other long-term assets

     80        59   
  

 

 

   

 

 

 

Total Assets

   $ 5,847      $ 5,511   
  

 

 

   

 

 

 

Current Liabilities

    

Accounts payable

   $ 129      $ 189   

Accrued liabilities

     180        209   

Short-term debt

     —          30   

Long-term debt due within one year

     18        10   

Income taxes payable

     8        24   

Current deferred income taxes

     1        5   
  

 

 

   

 

 

 

Total Current Liabilities

     336        467   
  

 

 

   

 

 

 

Noncurrent Liabilities

    

Long-term debt

     2,390        1,605   

Pension and postretirement healthcare benefits

     177        176   

Asset retirement obligations

     96        106   

Deferred income taxes

     209        222   

Other long-term liabilities

     49        53   
  

 

 

   

 

 

 

Total Liabilities

     3,257        2,629   
  

 

 

   

 

 

 

Contingencies and Commitments

    

Shareholders’ Equity

    

Class A ordinary shares, par value $0.01 — 64,307,964 shares issued and 62,301,528 shares outstanding at June 30, 2013 and 63,413,288 shares issued and 62,103,989 shares outstanding at December 31, 2012

     1        1   

Class B ordinary shares, par value $0.01 — 51,154,280 shares issued and outstanding at June 30, 2013 and December 31, 2012

     —          —     

Capital in excess of par value

     1,441        1,429   

Retained earnings

     1,187        1,314   

Accumulated other comprehensive loss

     (245     (95
  

 

 

   

 

 

 

Total Shareholders’ Equity

     2,384        2,649   

Noncontrolling interest

     206        233   
  

 

 

   

 

 

 

Total Equity

     2,590        2,882   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 5,847      $ 5,511   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Millions of U.S. dollars)

 

     Six Months Ended June 30,  
     2013     2012  

Cash Flows from Operating Activities

    

Net income (loss)

   $ (46   $ 1,230   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Depreciation, depletion and amortization

     146        53   

Deferred income taxes

     (6     (85

Share-based compensation expense

     11        27   

Amortization of debt issuance costs

     4        6   

Loss on extinguishment of debt

     4        —     

Pension and postretirement healthcare benefit (income) expense, net

     4        2   

Gain on bargain purchase

     —          (1,055

Other noncash items affecting net income

     (2     60   

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

    

(Increase) decrease in accounts receivable

     (49     50   

(Increase) decrease in inventories

     90        (215

(Increase) decrease in prepaids and other assets

     —          (1

Increase (decrease) in accounts payable and accrued liabilities

     (49     (96

Increase (decrease) in taxes payable

     (19     (2

Other, net

     (9     (21
  

 

 

   

 

 

 

Cash provided by (used in) operating activities

     79        (47
  

 

 

   

 

 

 

Cash Flows from Investing Activities

    

Capital expenditures

     (79     (48

Cash paid in acquisition of minerals sands business

     —          (1

Cash received in acquisition of minerals sands business

     —          115   
  

 

 

   

 

 

 

Cash provided by (used in) investing activities

     (79     66   
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Repayments of debt

     (180     (554

Proceeds from borrowings

     945        777   

Debt issuance costs

     (28     (20

Dividends paid

     (57     —     

Merger consideration

     —          (193

Class A ordinary share repurchases

     —          (2

Proceeds from conversion of warrants

     1        —     
  

 

 

   

 

 

 

Cash provided by financing activities

     681        8   
  

 

 

   

 

 

 

Effects of Exchange Rate Changes on Cash and Cash Equivalents

     (8     5   
  

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     673        32   

Cash and Cash Equivalents at Beginning of Period

     716        154   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 1,389      $ 186   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(Millions of U.S. dollars)

 

     Tronox
Limited
Class A
Ordinary
Shares
     Tronox
Limited
Class B
Ordinary
Shares
     Capital in
Excess of
par Value
     Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Total
Shareholders’
Equity
    Non-
controlling
Interest
    Total
Equity
 

Six Months Ended June 30, 2013

                   

Balance at December 31, 2012

   $ 1       $ —         $ 1,429       $ 1,314      $ (95   $ 2,649      $ 233      $ 2,882   

Net income (loss)

     —           —           —           (70     —          (70     24        (46

Other comprehensive loss

     —           —           —           —          (150     (150     (51     (201

Share-based compensation

     —           —           11         —          —          11        —          11   

Warrants exercised

     —           —           1         —          —          1        —          1   

Class A and Class B dividends declared

     —           —           —           (57     —          (57     —          (57
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 1       $ —         $ 1,441       $ 1,187      $ (245   $ 2,384      $ 206      $ 2,590   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Tronox
Limited
Class A
Ordinary
Shares
     Tronox
Limited
Class B
Ordinary
Shares
     Capital in
Excess  of
par Value
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Treasury
Stock
    Total
Shareholders’
Equity
    Non-
controlling
Interest
     Total
Equity
 

Six Months Ended June 30, 2012

                     

Balance at December 31, 2011

   $ —         $ —         $ 579      $ 242      $ (57   $ (12   $ 752      $ —         $ 752   

Fair value of noncontrolling interest on Transaction Date

     —           —           —          —          —          —          —          233         233   

Net income

     —           —           —          1,230        —          —          1,230        —           1,230   

Other comprehensive income

     —           —           —          —          23        —          23        10         33   

Merger consideration paid

     —           —           (193     —          —          —          (193     —           (193

Issuance of Tronox Limited shares

     —           —           1,370        —          —          —          1,370        —           1,370   

Issuance of Tronox Limited shares in stock-split

     1         —           —          (1     —          —          —          —           —     

Class A and Class B share dividend declared

     —           —           —          (32     —          —          (32     —           (32

Tronox Limited Class A shares repurchased

     —           —           (2     —          —          —          (2     —           (2

Tronox Incorporated warrants exercised

     —           —           1        —          —          —          1        —           1   

Tronox Incorporated stock-based compensation

     —           —           27        —          —          (7     20        —           20   

Tronox Incorporated common stock vested/cancelled

     —           —           (19     —          —          19        —          —           —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at June 30, 2012

   $ 1       $ —          $ 1,763      $ 1,439      $ (34   $ —        $ 3,169      $ 243       $ 3,412   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Millions of U.S. 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”) is a global leader in the production and marketing of high grade titanium feedstock and titanium dioxide pigment (“TiO 2 ”). The Company’s world-class, high performance TiO 2 products are critical components of everyday applications such as paint and other coatings, plastics, paper and other applications. The Company’s mineral sands business consists primarily of two product streams—titanium feedstock and zircon. Titanium feedstock is primarily used to manufacture TiO 2 . Zircon, a hard, glossy mineral, is used for the manufacture of ceramics, refractories, TV screen glass and a range of other industrial and chemical products. Tronox operates three TiO 2  pigment production facilities at the following locations: Hamilton, Mississippi; Botlek, The Netherlands; and Kwinana, Western Australia, and operates three separate mining and beneficiation operations: KwaZulu-Natal (“KZN”) Sands and Namakwa Sands located in South Africa and Cooljarloo Sands located in Western Australia.

Tronox Limited was formed on September 21, 2011 for the purpose of the Transaction (as defined below). Prior to the completion of the Transaction, Tronox Limited 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 (“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 Exxaro’s mineral sands operations, along with its 50% share of the Tiwest Joint Venture (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 in an integrated series of transactions whereby Tronox Limited became the parent company.

On May 4, 2012, Tronox Limited registered the Class A ordinary shares (“Class A Shares”) to be issued to shareholders of Tronox Incorporated in connection with the completion of the Transaction. 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. Under the terms of the Transaction Agreement, Exxaro agreed that for a three-year period after the completion of the Transaction, it would not engage in any transaction or other action, that would result in its beneficial ownership of the voting shares of Tronox Limited to exceed 45% of the total issued shares of Tronox Limited. In addition, the agreement prohibits Exxaro from selling any shares in the same three-year period. At June 30, 2013, Exxaro held approximately 44.4% of the voting securities of Tronox Limited.

2. Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited, and have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The December 31, 2012 balance sheet was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP for complete financial statements.

The unaudited condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012 relate to Tronox Limited. The unaudited condensed consolidated statements of operations and cash flows for the three and six months ended June 30, 2013 reflect the consolidated operating results of Tronox Limited. The unaudited condensed consolidated statements of operations and cash flows for the three and 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 Company accounted for the Transaction under Accounting Standards Codification (“ASC”) 805,  Business Combinations (“ASC 805”). Under the acquisition method of accounting, each tangible and separately identifiable intangible asset acquired and liability assumed was recorded based on its preliminary estimated fair value on the Transaction Date. The excess of the fair value of the net assets acquired over the value of consideration was recorded as an initial bargain purchase gain. Subsequent to the Transaction, the Company made adjustments to its initial valuation. Such adjustments were recorded on the Transaction Date, which has resulted in revised unaudited condensed consolidated financial statements for the three and six months ended June 30, 2012. The measurement period ended in June 2013.

 

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In connection with the Transaction, Exxaro and its subsidiaries retained a 26% ownership interest in each of Tronox KZN Sands Pty Ltd and Tronox Mineral Sands Pty Ltd in order to comply with the ownership requirements of the Black Economic Empowerment (“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). The Company accounts for such ownership as “Noncontrolling Interest” on the unaudited condensed consolidated financial statements.

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 Condensed 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 Sheets at June 30, 2013 and December 31, 2012 includes 100% of the Tiwest operations assets and liabilities. The unaudited Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2013 reflect 100% of the revenue and expenses of the Tiwest operations, while the unaudited Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2012 reflects 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 Tiwest operations.

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.

3. Recent Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (the “FASB”) issued accounting standards update (“ASU”) 2013-5, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-5”), which addresses the treatment of the cumulative translation adjustment into net income when a parent either sells its investment in a foreign entity or no longer holds controlling financial interest in a subsidiary or group of assets within a foreign entity. ASU 2013-5 is effective prospectively for periods beginning after December 15, 2013; however early adoption is permitted. The Company has not yet determined the impact, if any, that ASU 2013-5 will have on the consolidated financial statements.

During 2013, the Company adopted ASU 2013-2,  Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , which requires the presentation of the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, if the item is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The adoption of this guidance did not have a significant impact on the consolidated financial statements.

4. Acquisition of the Mineral Sands Business

On September 25, 2011, Tronox Incorporated entered into the Transaction Agreement with Exxaro to acquire 74% of its 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. On June 15, 2012, the existing business of Tronox Incorporated was combined with the mineral sands business under Tronox Limited. The Transaction was completed in two principal steps. First, Tronox Incorporated became a subsidiary of Tronox Limited, with Tronox Incorporated shareholders receiving one Class A Share and $12.50 in cash (“Merger Consideration”) for each share of Tronox Incorporated common stock. Second, Tronox Limited issued 9,950,856 Class B Shares to Exxaro and one of its subsidiaries in consideration for the mineral sands business.

 

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Mineral Sands Business Results of Operations

The following table includes net sales and income from operations on a segment basis attributable to the acquired mineral sands business for the three and six months ended June 30, 2013.

 

     Mineral
Sands
     Pigment     Eliminations     Total  

Three Months Ended June 30, 2013:

         

Net Sales

   $ 255       $ —       $ (89   $ 166   

Income (Loss) from Operations

   $ 50       $ (16   $ 4      $ 38   

Six Months Ended June 30, 2013:

         

Net Sales

   $ 496       $ —       $ (196   $ 300   

Income (Loss) from Operations

   $ 124       $ (33   $ (14   $ 77   

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 2012. The unaudited pro forma financial information reflects certain adjustments related to the acquisition, such as (1) converting the mineral sands business financial statements to 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 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:

 

     Three Months
Ended

June 30, 2012
     Six Months
Ended
June 30, 2012
 

Net Sales

   $ 588       $ 1,150   

Income from Operations

   $ 196       $ 395   

Net Income

   $ 173       $ 326   

Net Income attributable to Tronox Limited Shareholders

   $ 156       $ 294   

Basic earnings per share attributable to Tronox Limited Shareholders

   $ 2.05       $ 4.07   

Diluted earnings per share attributable to Tronox Limited Shareholders

   $ 1.98       $ 3.92   

5. Accounts Receivable

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

 

     June 30,
2013
    December 31,
2012
 

Trade receivables

   $ 406      $ 371   

Other

     20        23   
  

 

 

   

 

 

 

Total

     426        394   

Allowance for doubtful accounts

     (1     (3
  

 

 

   

 

 

 

Net

   $ 425      $ 391   
  

 

 

   

 

 

 

 

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6. Inventories

Inventories consisted of the follows:

 

     June 30,
2013
     December 31,
2012
 

Raw materials

   $ 225       $ 221   

Work-in-process

     80         99   

Finished goods (1)

     325         477   

Materials and supplies, net (2)

     119         117   
  

 

 

    

 

 

 

Total

   $ 749       $ 914   
  

 

 

    

 

 

 

 

(1) Includes inventory on consignment to others of approximately $49 million and $42 million at June 30, 2013 and December 31, 2012, respectively.
(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.

7. Property, Plant and Equipment, Net

Property, plant and equipment, net of accumulated depreciation and amortization, consisted of the following:

 

     June 30,
2013
    December 31,
2012
 

Land and land improvements

   $ 80      $ 80   

Buildings

     190        194   

Machinery and equipment

     1,136        1,158   

Construction-in-progress

     130        153   

Furniture and fixtures

     21        7   

Other

     6        6   
  

 

 

   

 

 

 

Total

     1,563        1,598   

Less accumulated depreciation and amortization

     (254     (175
  

 

 

   

 

 

 

Net

   $ 1,309      $ 1,423   
  

 

 

   

 

 

 

Depreciation expense related to property, plant and equipment for the three months ended June 30, 2013 and 2012 was $48 million and $20 million, respectively, and for six months ended June 30, 2013 and 2012 was $90 million and $36 million, respectively.

8. Mineral Leaseholds, Net

Mineral leaseholds, net of accumulated depletion, consisted of the following:

 

     June 30,
2013
    December 31,
2012
 

Mineral leaseholds

   $ 1,423      $ 1,502   

Less accumulated depletion

     (102     (63
  

 

 

   

 

 

 

Net

   $ 1,321      $ 1,439   
  

 

 

   

 

 

 

Depletion expense related to mineral leaseholds for the three months ended June 30, 2013 and 2012 was $18 million and $4 million, respectively, and for six months ended June 30, 2013 and 2012 was $42 million and $5 million, respectively.

 

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9. Intangible Assets, Net

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

 

     June 30, 2013  
     Gross
Cost
     Accumulated
Amortization
    Net Carrying
Amount
 

Customer relationships

   $ 294       $ (49   $ 245   

TiO 2 technology

     32         (4     28   

Internal-use software

     39         (4     35   

Other

     9         (4     5   
  

 

 

    

 

 

   

 

 

 

Total

   $ 374       $ (61   $ 313   
  

 

 

    

 

 

   

 

 

 

 

     December 31, 2012  
     Gross
Cost
     Accumulated
Amortization
    Net Carrying
Amount
 

Customer relationships

   $ 294       $ (39   $ 255   

TiO 2 technology

     32         (3     29   

Internal-use software

     38         (2     36   

Other

     9         (3 )     6   
  

 

 

    

 

 

   

 

 

 

Total

   $ 373       $ (47   $ 326   
  

 

 

    

 

 

   

 

 

 

Amortization expense related to intangible assets for the three months ended June 30, 2013 and 2012 was $7 million and $6 million, respectively, and for six months ended June 30, 2013 and 2012 was $14 million and $12 million, respectively.

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

 

     Total
Amortization
 

2013

   $ 14   

2014

     27   

2015

     26   

2016

     25   

2017

     25   

Thereafter

     196   
  

 

 

 

Total

   $ 313   
  

 

 

 

10. Accrued Liabilities

Accrued liabilities consisted of the following:

 

     June 30,
2013
     December 31,
2012
 

Taxes other than income taxes

   $ 56       $ 58   

Employee-related costs and benefits

     44         45   

Unfavorable sales contracts

     36         64   

Interest

     23         22   

Sales rebates

     13         13   

Other

     8         7   
  

 

 

    

 

 

 

Total

   $ 180       $ 209   
  

 

 

    

 

 

 

 

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11. Debt

Short-term Debt

Short-term debt consisted of the following:

 

     Maturity
Date
     June 30,
2013
     December 31,
2012
 

UBS Revolver

     6/18/17       $ —        $ —     

ABSA Revolver (1)

     6/14/17         —          30   
     

 

 

    

 

 

 

Total

      $ —        $ 30   
     

 

 

    

 

 

 

 

(1) Average effective interest rate of 8.5% and 8.5% during 2013 and 2012, respectively.

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 (the “UBS Revolver”). The UBS Revolver provides the Company with a committed source of capital with a principal borrowing amount of up to $300 million, subject to a borrowing base. In connection with its entry into the Amended and Restated Credit Agreement on March 19, 2013, the Company amended the UBS Revolver to allow for the increased size of the Term Loan over the Term Facility (see “ Term Loan ” below). At June 30, 2013, the Company’s available borrowing base was $275 million.

ABSA Revolving Credit Facility

In connection with the Transaction, the Company entered into a R900 million (approximately $92 million as of June 30, 2013) revolving credit facility with ABSA Bank Limited acting through its ABSA Capital Division (the “ABSA Revolver”). At December 31, 2012, the Company had drawn down R250 million (approximately $30 million), which was repaid during the first quarter of 2013. At June 30, 2013, the Company had no amounts drawn on the ABSA Revolver.

Long-Term Debt

Long-term debt consisted of the following:

 

     Principal
Amount
     Maturity
Date
     June 30,
2013
    December 31,
2012
 

Term Loan, net of unamortized discount of $11 million (1)

   $ 1,500         3/19/2020       $ 1,489      $ —    

Senior Notes

   $ 900         8/15/2020         900        900   

Term Facility, net of unamortized discount of $6 million (2)

   $ 700         2/8/2018         —          691   

Co-generation Unit Financing Arrangement

   $ 16         2/1/2016         7        10   

Lease financing

           12        14   
        

 

 

   

 

 

 

Total debt

           2,408        1,615   

Less: Long-term debt due in one year

           (18     (10
        

 

 

   

 

 

 

Long-term debt

         $ 2,390      $ 1,605   
        

 

 

   

 

 

 

 

(1) Average effective interest rate of 4.9% in 2013.
(2) Average effective interest rate of 5.0% and 5.0% in 2013 and 2012, respectively.

 

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Table of Contents

At June 30, 2013, the scheduled maturities of the Company’s long-term debt were as follows:

 

     Total Debt  

2013

   $ 9   

2014

     18   

2015

     18   

2016

     15   

2017

     15   

Thereafter

     2,344   
  

 

 

 

Total

     2,419   

Remaining accretion of discount associated with the Term Loan

     (11
  

 

 

 

Total debt

   $ 2,408   
  

 

 

 

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 million Senior Secured Term Loan (the “Senior Secured Term Loan”) and a $150 million Senior Secured Delayed Draw Term Loan (the “Senior Secured Delayed Draw” together, the “Term Facility”). The Term Facility was issued net of an original issue discount of $7 million, or 1% of the initial principal amount, which was being amortized over the life of the Term Facility. In connection with obtaining the Term Facility, the Company incurred debt issuance costs of $17 million, of which $5 million was paid in 2011 and $12 million was paid in 2012. On June 14, 2012, in connection with the closing of the Transaction, Tronox Pigments (Netherlands) B.V. drew down the $150 million Senior Secured Delayed Draw.

On February 28, 2013, Tronox Pigments (Netherlands) B.V. repaid the outstanding principal balance of $149 million, plus interest, related to the $150 million Senior Secured Delayed Draw. In accordance with ASC 470, Debt (“ASC 470”), the Company accounted for such repayment as an extinguishment of debt. As such, the Company recognized a loss on the early extinguishment of debt of $4 million related to the allocated portion of the unamortized original issue discount and debt issuance costs.

The Company allocated these amounts between the $550 million Senior Secured Term Loan and the $150 million Senior Secured Delayed Draw as follows:

 

     Outstanding
Balance
     Percentage of
Outstanding
Balance
    Allocation of
Unamortized
Costs
     Loss
Extinguishment
of Debt
 

Senior Secured Term Loan

   $ 547         79   $ 16       $ —    

Senior Secured Delayed Draw

     149         21     4         4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 696         100   $ 20       $ 4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Term Loan

On March 19, 2013, Tronox Pigments (Netherlands) B.V., Tronox Limited, and certain subsidiaries of Tronox Limited named as guarantors, entered into an Amended and Restated Credit and Guaranty Agreement with Goldman Sachs Bank USA, as Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, UBS Securities LLC, Credit Suisse Securities (USA) LLC and RBC Capital Markets, as Joint Lead Arrangers, Joint Bookrunners and Co-Syndication Agents. Pursuant to the Amended and Restated Credit Agreement, the Company obtained a $1.5 billion senior secured term loan (the “Term Loan”), which matures in March 2020. The terms of the Amended and Restated Credit Agreement are substantially similar to the Company’s prior Term Facility. The Term Loan was issued net of an original issue discount of $7 million, or 0.5% of the principal balance.

In accordance with ASC 470, the outstanding principal balance of the Senior Secured Term Loan of $547 million, which became part of the Term Loan, was accounted for as a debt modification. As such, the unamortized original issue discount of $5 million and debt issuance costs of $11 million related to the Term Facility are being amortized over the life of the Term Loan.

The Term Loan bears interest at a base rate plus the applicable margin of 2.5% per annum, or adjusted Eurodollar rate plus the applicable margin of 3.5% per annum. 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 or (ii) the Federal Funds Effective rate in effect on such day plus one half of 1%; provided, however, that the Base Rate is not less than 2% per annum. The Adjusted Eurodollar Rate shall at no time be less than 1.00%.

 

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Table of Contents

Senior Notes

On August 20, 2012, Tronox Limited’s wholly-owned subsidiary, Tronox Finance LLC, issued $900 million aggregate principal amount of 6.375% senior notes due 2020 (the “Senior Notes”). The Senior Notes were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.

During the second quarter, the Company filed a Registration Statement on Form S-4 for $900 million aggregate principal amount of senior exchange notes (the “Senior Exchange Notes”), which are substantially identical to the Senior Notes, and which will be issued in exchange for the Senior Notes.

The Senior Notes bear interest semiannually at a rate equal to 6.375% and were sold at par value. The Senior Notes are fully and unconditionally guaranteed on a senior, unsecured basis by Tronox Limited and certain of its subsidiaries. The Senior Notes are redeemable at any time at the Company’s discretion.

Co-generation Unit Financing Arrangement

In March 2011, in order to finance its share of the asset purchase for the Tiwest Joint Venture, Tronox Incorporated incurred debt totaling $8 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 $6 million. Under the financing arrangement, monthly payments are required, and interest accrues on the outstanding balance at the rate of 6.5% per annum. During the three months ended June 30, 2013 and 2012, the Company made principal repayments of approximately $1 million and less than $1 million, respectively, and during the six months ended June 30, 2013 and 2012, $2 million and $1 million, respectively.

Lease Financing

In connection with the Transaction, the Company acquired capital lease obligations in South Africa, which are payable through 2032 at a weighted average interest rate of approximately 17%. At June 30, 2013, such obligations had a net book value of assets recorded under capital leases aggregating $7 million. During both the three and six months ended June 30, 2013, the Company made payments of less than $1 million and $1 million, respectively. The Company did not make payments on capital leases during the three and six months ended June 30, 2012.

Fair Value

The Company’s debt is recorded at historical amounts. At June 30, 2013, the fair value of the Term Loan was $1,513 million. At June 30, 2013 and December 31, 2012, the fair value of the Senior Notes and $852 million and $910 million, respectively. At December 31, 2012, the fair value of the Term Facility was $709 million. The Company determined the fair value of the Term Loan, the Senior Notes and the Term Facility using Bloomberg market prices. The fair value hierarchy for long-term debt is a Level 2 input.

Debt Covenants

At June 30, 2013, the Company had financial covenants in the UBS Revolver, the ABSA Revolver and the Term Loan.

The terms of the Amended and Restated Credit Agreement are substantially similar to the Company’s prior Credit and Guaranty Agreement with Goldman Sachs Bank USA, dated February 8, 2012, except that the Amended and Restated Credit Agreement (i) eliminates financial maintenance covenants (ii) permits, subject to certain conditions, incurrence of additional senior secured debt up to a leverage ratio of 2:1, (iii) increases the Company’s ability to incur debt in connection with permitted acquisitions and its ability to incur unsecured debt, and (iv) allows for the payment of a $0.25 per share dividend each fiscal quarter. Otherwise, the terms of the Amended and Restated Credit Agreement 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) disposition of assets and subsidiary interests; (v) acquisitions; (vi) sale and leaseback transactions; and (vii) transactions with affiliates and shareholders.

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. At June 30, 2013, only the ABSA Revolver had a financial maintenance covenant. The Company was in compliance with its financial covenants at June 30, 2013.

The Company has pledged the majority of our U.S. assets and certain assets of its non-U.S. subsidiaries in support of its outstanding debt.

 

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Table of Contents

Interest and Debt Expense

Interest and debt expense consisted of the following:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Interest expense

   $ 32      $ 8      $ 58      $ 15   

Amortization of deferred debt issuance costs (1)

     2        4        4        5   

Other

     2        3        2        3   

Capitalized interest

     (1     (1     (2     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and debt expense

   $ 35      $ 14      $ 62      $ 22   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) In connection with obtaining debt, the Company incurred debt issuance costs. Such costs are recorded in “Other long-term assets” on the unaudited Condensed Consolidated Balance Sheets,” and are being amortized through the maturity date.

Deferred debt issuance costs and the related amortization expense was as follows:

 

                   Amortization Expense  
     Deferred Debt      Balance at      Three Months Ended June 30,      Six Months Ended June 30,  
     Issuance Cost      June 30, 2013      2013      2012      2013      2012  

Term Loan

   $ 28       $ 27       $ 1       $ —         $ 1       $ —     

Senior Notes

     18         16         1         —           1         —     

Term Facility

     17         10         —           —           1         1   

Other

     8         7         —           4         1         4   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 60       $ 2       $ 4       $ 4       $ 5   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

12. Asset Retirement Obligations

To the extent a legal obligation exists, an asset retirement obligation (“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 the Company’s credit-adjusted risk-free interest rate. The Company classifies accretion expense related to asset retirement obligations as a production cost, which is included in “Cost of goods sold” on the unaudited Condensed Consolidated Statements of Operations.

The changes in AROs during the six months ended June 30, 2013 were as follows:

 

     June 30, 2013     December 31, 2012  

Beginning balance

   $ 113      $ 30   

Additions

     2        7   

Accretion expense

     2        5   

Changes in estimates, including cost and timing of cash flows

     (14     11   

Settlements/payments

     —          (1

AROs acquired in the acquisition of mineral sands business

     —          61   
  

 

 

   

 

 

 

Ending balance

   $ 103      $ 113   
  

 

 

   

 

 

 

Current portion included in accrued liabilities

   $ 7      $ 7   
  

 

 

   

 

 

 

Noncurrent portion

   $ 96      $ 106   
  

 

 

   

 

 

 

AROs, by geographic region, were as follows:

 

     June 30, 2013      December 31, 2012  

Australia

   $ 59       $ 67   

South Africa

     32         34   

The Netherlands

     11         11   

United States

     1         1   
  

 

 

    

 

 

 

Total

   $ 103       $ 113   
  

 

 

    

 

 

 

 

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Table of Contents

Environmental Rehabilitation Trust

The Company has established an environmental rehabilitation trust in respect of the prospecting and mining operations in South Africa in accordance with applicable regulations. The trustees of the fund are appointed by the Company, and consist of sufficiently qualified Tronox Limited employees capable of fulfilling their fiduciary duties. The environmental rehabilitation trust receives, holds, and invests funds for the rehabilitation or management of negative environmental impacts associated with mining and exploration activities. The contributions are aimed at providing sufficient funds at date of estimated closure of mining activities to address the rehabilitation and environmental impacts. Funds accumulated for a specific mine or exploration project can only be utilized for the rehabilitation and environmental impacts of that specific mine or project. Currently, the funds are invested in highly liquid, short-term instruments; however, the investment growth strategy has not been finalized. If a mine or exploration project withdraws from the fund for whatever valid reason, the funds accumulated for such mine or exploration project are transferred to a similar fund approved by management. At June 30, 2013 and December 31, 2012, the environmental rehabilitation trust assets were $19 million and $20 million, respectively, which were recorded in “Other long-term assets” on the unaudited Condensed Consolidated Balance Sheets.

13. Commitments and Contingencies

Purchase Commitments At June 30, 2013, purchase commitments were $67 million for the remainder of 2013, $94 million for 2014, $36 million for 2015, $23 million for 2016, $23 million for 2017 and $104 million thereafter.

Letters of Credit At June 30, 2013, the Company had outstanding letters of credit, bank guarantees and performance bonds of approximately $45 million, of which $25 million in letters of credit were issued under the UBS Revolver and $17 million were bank guarantees issued by ABSA.

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 October 20, 2012, the OSR rendered its assessment of $5 million, comprised of a primary stamp duty liability of $3 million and penalty tax of $2 million. The Company had accrued $3 million at December 31, 2012, which was recorded in “Trade and other payables” in the unaudited Condensed Consolidated Balance Sheets. As required by law, the Company paid the entire amount of the assessment in January 2013; however it has submitted an objection to the interest penalty, setting out the reasons that the Commissioner of State Revenue has erred in the imposition of the interest penalty. The Company expects to resolve the matter by the end of 2013.

Environmental Contingencies In accordance with ASC 450, Contingencies , 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.

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 (the “RCRA”) or state equivalents. Similar environmental laws and regulations and other requirements exist in foreign countries in which the Company operates.

 

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14. Shareholders Equity

The changes in outstanding shares for the six months ended June 30, 2013 were as follows:

 

Tronox Limited Class A Shares outstanding:

  

Balance at December 31, 2012

     62,103,989   

Shares issued for share-based compensation

     66,524   

Shares issued for warrants exercised

     81,015   

Shares issued for options exercised

     50,000   
  

 

 

 

Balance at June 30, 2013

     62,301,528   
  

 

 

 

Tronox Limited Class B Shares outstanding:

  

Balance at December 31, 2012

     51,154,280   
  

 

 

 

Balance at June 30, 2013

     51,154,280   
  

 

 

 

Dividends Declared

On May 7, 2013, the Board declared a quarterly dividend of $0.25 per share which was paid on May 28, 2013 to holders of Class A Shares and Class B Shares at close of business on May 20, 2013. On February 19, 2013, the Board declared a quarterly dividend of $0.25 per share which was paid on March 20, 2013 to holders of our Class A Shares and Class B Shares at close of business on March 6, 2013. During the six months ended June 30, 2013, the Company paid dividends of $57 million.

Warrants

Prior to the Transaction, Tronox Incorporated had issued Series A warrants and Series B warrants (collectively, the “Tronox Incorporated Warrants”). 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 June 30, 2013, the exercise price, adjusted for dividends paid, was $60.39 for each Series A Warrant and $66.65 for each Series B Warrants. At June 30, 2013, there were 357,570 Series A Warrants and 465,465 Series B Warrants outstanding.

Stock Split Declared

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. As a result of the stock split, the Company recorded an increase to “Tronox Limited Class A ordinary shares” of $1 million and an increase to “Tronox Limited Class B ordinary shares” of less than $1 million, with corresponding decreases to “Retained earnings” on the unaudited Condensed Consolidated Balance Sheets.

Share Repurchases

On June 26, 2012, the Board authorized the repurchase of Class A Shares in open market transactions. During the second quarter of 2012, the Company repurchased 17,000 Class A Shares at an average price of $120.75 per share, on a pre-split basis, for a total cost of $2 million. During 2012, the Company repurchased 12,626,400 Class A Shares, affected for the 5-for-1 share split, at an average price of $25.84 per share, inclusive of commissions, for a total cost of $326 million, respectively. Repurchased shares were subsequently cancelled in accordance with Australian law. On September 27, 2012, the Company announced the successful completion of its share repurchase program.

 

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15. Income Taxes

The Company’s operations are conducted through its various subsidiaries in a number of countries throughout the world. The Company has provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned. For the three and six months ended June 30, 2013, Tronox Limited was the public parent registered under the laws of the State of Western Australia. For the three months ended June 30, 2012 and from June 15, 2012 through June 30, 2012, Tronox Limited was the public parent; however, prior to June 15, 2012, Tronox Incorporated was the public parent, a Delaware corporation registered in the United States.

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Income tax benefit (provision)

   $ (1   $ 84      $ (2   $ 66   

Income (Loss) before Income Taxes

   $ —        $ 1,060      $ (44   $ 1,164   

Effective tax rate

     —       (8 )%      (5 )%      (6 )% 

The effective tax rates for the three months and the six months ended June 30, 2013, differ from the Australian statutory rate of 30% primarily due to withholding tax accruals, valuation allowances in the United States, and income in foreign jurisdictions taxed at rates different than 30%.

The negative effective tax rates for 2012 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 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 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, Income Taxes (“ASC 740”), of $205 million as part of the Company’s gain on bargain purchase. The Company does not believe an ownership change occurred as a result of the Transaction.

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.

16. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed utilizing the two-class method, and is calculated based on weighted-average number of ordinary shares outstanding during the periods presented. Diluted earnings (loss) per share is computed using the weighted-average number of ordinary and ordinary equivalent shares outstanding during the periods utilizing the two-class method for nonvested restricted shares, warrants and options.

Certain unvested awards issued under the Tronox Limited Management Equity Incentive Plan and the T-Bucks Employee Participation Plan contain non-forfeitable rights 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 two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of ordinary shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.

 

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

 

     Three Months
Ended
June 30, 2013
    Six Months
Ended
June 30, 2013
 

Numerator – Basic and Diluted:

    

Net Loss

   $ (1   $ (46

Less: Income attributable to noncontrolling interest

     12        24   
  

 

 

   

 

 

 

Undistributed loss

     (13     (70

Percentage allocated to ordinary shares

     100     100
  

 

 

   

 

 

 

Undistributed loss allocated to ordinary shares

     (13     (70
  

 

 

   

 

 

 

Loss available to ordinary shares

   $ (13   $ (70
  

 

 

   

 

 

 

Denominator – Basic and Diluted

    

Weighted-average ordinary shares (in thousands)

     113,390        113,354   
  

 

 

   

 

 

 

Loss per Share (1):

    

Basic loss per Share

   $ (0.11   $ (0.62
  

 

 

   

 

 

 

Diluted loss per Share

   $ (0.11   $ (0.62
  

 

 

   

 

 

 

 

(1) The basic and diluted earnings (loss) per share amounts were computed from exact, not rounded, income and share information.

The computation of basic and diluted earnings per share for the periods indicated is as follows:

 

     Three Months
Ended
June 30, 2012
    Six Month
Ended
June 30, 2012
 

Numerator – Basic and Diluted:

    

Net Income

   $ 1,144      $ 1,230   

Less: Dividends declared

     (32 )     (32 )
  

 

 

   

 

 

 

Undistributed earnings

     1,112        1,198   

Percentage allocated to ordinary shares

     99.5     99.5
  

 

 

   

 

 

 

Undistributed earnings allocated to ordinary shares

     1,106        1,192   

Add: Dividends declared allocated to common shares

     32       32  
  

 

 

   

 

 

 

Earnings available to ordinary shares

   $ 1,138      $ 1,224   
  

 

 

   

 

 

 

Denominator – Basic:

    

Weighted-average ordinary shares (in thousands)

     84,528        79,960   

Add: Effect of Dilutive Securities:

    

Restricted stock

     46        98   

Warrants

     2,956        2,963   

Options

     5        —     
  

 

 

   

 

 

 

Denominator – Dilutive

     87,535        83,021   
  

 

 

   

 

 

 

Earnings per Share(1):

    

Basic earnings per Share

   $ 13.46      $ 15.31   
  

 

 

   

 

 

 

Diluted earnings per Share

   $ 13.00      $ 14.74   
  

 

 

   

 

 

 

 

(1) The basic and diluted earnings (loss) per share amounts were computed from exact, not rounded, income and share information.

In computing diluted earnings (loss) per share under the two-class method, the Company considered potentially dilutive shares. At June 30, 2013, 2,064,523 options with an average exercise price of $20.61, 357,570 Series A Warrants and 465,465 Class B Warrants, with exercise prices of $60.39 and $66.65, respectively, and 295,607 restricted stock units, with an average price of $20.99 were not recognized in the diluted earnings per share calculation as they were anti-dilutive. For the three and six months ended June 30, 2012, 308,255 options and 653,225 options, respectively, with average exercise prices of $28.02 and $24.84, respectively, were not recognized in the diluted earnings per share calculation as they were anti-dilutive.

 

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17. Share-based Compensation

Compensation expense related to restricted share awards was $4 million and $20 million for the three months ended June 30, 2013 and 2012, respectively, and $6 million and $26 million for the six months ended June 30, 2013 and 2012, respectively. Compensation expense related to the Company’s nonqualified option awards was $1 million and less than $1 million for the three months ended June 30, 2013 and 2012, respectively, and $3 million and $1 million for the six months ended June 30, 2013 and 2012, respectively.

At June 30, 2013, unrecognized compensation expense related to the Company’s restricted shares and options, adjusted for estimated forfeitures, was approximately $48 million, with such unrecognized compensation expense expected to be recognized over a weighted-average period of approximately 3 years. The ultimate amount of such expense is dependent upon the actual number of restricted shares and options that vest. The Company periodically assesses the forfeiture rates used for such estimates. A change in estimated forfeiture rates would cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense above.

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 options, nonqualified options, share appreciation rights, restricted shares, restricted share units, performance awards and other share-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 options) is 12,781,225 Class A Shares.

Restricted Shares

During the six months ended June 30, 2013, the Company granted restricted share awards to employees. All restricted share awards vest pursuant to both time requirements and performance requirements. The time provisions are graded vesting, while the performance provisions are cliff vesting and have a variable payout. During the six months ended June 30, 2013, as part of the annual director’s compensation program, the Company granted restricted share awards with graded vesting to members of the Board. In accordance with ASC 718, Compensation – Share-Based Compensation (“ASC 718”), the restricted share awards issued during 2013 are classified as equity awards, and are accounted for using the fair value established at the grant date.

Restricted share activity for the six months ended June 30, 2013 was as follows:

 

     Number of
Shares
    Fair
Value(1)
 

Balance at December 31, 2012

     761,065      $ 20.62   

Awards granted

     780,640        20.96   

Awards earned

     (68,258     24.18   

Awards forfeited

     (15,245     23.86   
  

 

 

   

 

 

 

Balance at June 30, 2013

     1,458,202      $ 20.60   
  

 

 

   

 

 

 

Outstanding awards expected to vest

     1,422,910      $ 20.57   
  

 

 

   

 

 

 

 

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

Restricted share activity for the six months ended June 30, 2012 was as follows:

 

     Number of
Shares
     Fair
Value(1)
 

Balance at December 31, 2011

     —          —    

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

     420,765         16.99   

Awards granted

     160,835         27.39   
  

 

 

    

 

 

 

Balance at June 30, 2012

     581,600       $ 19.86   
  

 

 

    

 

 

 

Outstanding awards expected to vest

     574,716       $ 19.77   
  

 

 

    

 

 

 

 

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

 

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Options

During the six months ended June 30, 2013, the Company granted options to employees to purchase Class A Shares, which have graded vesting provisions over a three year period. Options activity was as follows:

 

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

Balance at December 31, 2012

     612,439      $ 24.81         

Options issued

     1,553,110        19.10         

Options exercised

     (50,000     22.00         

Options expired

     (32,822     25.65         

Options forfeited

     (18,204     20.40         
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding at June 30, 2013

     2,064,523      $ 20.61         9.46       $ 2   
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding and expected to vest at June 30, 2013

     1,801,008      $ 20.20         9.53       $ 2   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2013

     165,012      $ 25.14         8.86       $ —     
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(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 shares at June 30, 2013 and the options’ exercise price. The intrinsic value for shares exercised is based on the market value on the date of exercise.

Valuation and Cost Attribution Methods . Fair value is 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. The Company ran the Black-Scholes option-pricing model using the following assumptions:

 

     February 25,
2013
    March 11,
2013
 

Number of options granted

     1,544,872        8,238   

Fair market value and exercise price (1)

   $ 19.09      $ 21.49   

Risk-free interest rate (2)

     1.04     1.19

Expected dividend yield

     5.24     4.65

Expected volatility

     56     56

Maturity (years)

     10        10   

Expected term (years)

     6        6   

Per-unit fair value of options granted

   $ 6.28      $ 7.48   

 

(1) The adjusted closing price of Class A Shares, New York Stock Exchange symbol TROX, on the grant date.
(2) The risk-free interest rate was based on U.S. Treasury Strips available with maturity period consistent with expected life assumption.

During the six months ended June 30, 2012, the Company granted options to employees to purchase Class A Shares, which have graded vesting provisions over a three year period. Options activity was as follows:

 

     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

     517,330         24.56         

Options issued

     135,895         25.90         
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding at June 30, 2012

     653,225       $ 24.84         9.68       $ 1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding and expected to vest at June 30, 2012

     618,095       $ 24.86         9.68       $ 1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2012

     7,440       $ 24.60         9.52       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Represents weighted average exercise price and weighted average remaining contractual life, as applicable.

 

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(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.

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 options granted and used the following assumptions:

 

     June 26,
2012
 

Number of options granted

     135,895   

Fair market value and exercise price (1)

   $ 25.90   

Risk-free interest rate (2)

     0.97

Expected dividend yield

     3.86

Expected volatility

     55

Maturity (years)

     10   

Expected term (years)

     6   

Per-unit fair value of options granted

   $ 9.43   

 

(1) The adjusted closing price of Class A Shares, New York Stock Exchange symbol TROX, on the grant date.
(2) The risk-free interest rate was based on U.S. Treasury Strips available with maturity period consistent with expected life assumption.

T-Bucks Employee Participation Plan (“T-Bucks EPP”)

During 2012, the Company established the T-Bucks EPP for the benefit of certain qualifying employees (the “Participants”) of Tronox subsidiaries in South Africa (the “Employer Companies”). In accordance with the terms of the Trust Deed of the T-Bucks Trust (the “T-Bucks Trust Deed”), the Employer Companies funded the T-Bucks Trust (the “Trust”) in the amount of R124 million (approximately $15 million), which represents a capital contribution equal to R75,000 for each Participant. The funded amount was used to acquire 548,234 Class A Shares.

On September 3, 2012, the Participants were awarded shares units in the Trust which entitles them to receive shares of Tronox Limited upon completion of the vesting period on May 31, 2017. The Participants are also entitled to receive dividends on the Tronox shares during the vesting period. Forfeited shares are retained by the Trust and are allocated to future participants in accordance with the Trust Deed. Under certain conditions, as outlined in the Trust Deed, Participants may receive share units awarded before May 31, 2017. The fair value of the awards is the fair value of the shares determined at the Grant Date. Compensation costs are recognized over the vesting period using the straight-line method. In accordance with ASC 718, the T-Bucks EPP is classified as an equity-settled shared-based payment plan.

At June 30, 2013 and December 31, 2012, there were 548,234 shares in the trust with a fair value of $25.79, which represents the fair value on the date of purchase by the trust. Compensation expense during the three and six months ended June 30, 2013 was less than $1 million and $2 million, respectively.

Long-Term Incentive Plan

In connection with the Transaction, the Company assumed a long-term incentive plan (the “LTIP”) for the benefit of certain qualifying employees of Tronox subsidiaries in South Africa and Australia. The LTIP is classified as a cash-settled compensation plan, and is remeasured to fair value at each reporting date. At June 30, 2013, the LTlP plan liability was approximately $2 million, which was recorded in “Other long-term liabilities” on the unaudited Condensed Consolidated Balance Sheets. Compensation expense was less than $1 million for all periods presented.

Tronox Incorporated Management Equity Incentive Plan

In connection with its emergence from bankruptcy, Tronox Incorporated adopted the Tronox Incorporated management equity incentive plan (the “Tronox Incorporated MEIP”), which permitted the grant of awards that constitute incentive options, nonqualified options, share appreciation rights, restricted share, restricted share units, performance awards and other share-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. All share and per share data related to the Tronox Incorporated Management Equity Incentive Plan is presented on a pre-split basis.

 

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On the Transaction Date, 420,765 restricted shares of Tronox Incorporated vested in connection with the Transaction. The remaining restricted shares of Tronox Incorporated were converted to Tronox Limited restricted shares. Additionally, on the Transaction Date, 517,330 Tronox Incorporated options were converted to Tronox Limited options.

Restricted Shares

During the six months ended June 30, 2012, the Company granted restricted shares to its employees, which have graded vesting provisions. The Company was withholding the highest combined maximum rate imposed under all applicable federal, state, local and foreign tax laws on behalf of the employees that received these awards. In accordance with ASC 718 ,  such restricted stock awards were classified as liability awards and were remeasured to fair value at each reporting date.

Restricted share activity with employees and directors was as follows:

 

     Number of
Shares
    Fair
Value
 

Balance at December 31, 2011

     1,177,995      $ 21.48   

Awards granted

     52,915        24.36   

Awards earned

     (810,145     32.41   

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

     (420,765     16.99   
  

 

 

   

 

 

 

Balance at June 30, 2012

     —        $ —     
  

 

 

   

 

 

 

 

(1) Represents weighted average fair value. Liability awards are remeasured to fair value at each reporting date and upon vesting, while equity awards are presented at grant date fair value.

Options

Tronox Incorporated options activity was as follows:

 

     Number of
Options
    Price (1)  

Balance at December 31, 2011

     345,000      $ 22.00   

Options issued

     172,330        29.69   

Options converted to Tronox Limited in connection with the Transaction

     (517,330     24.56   
  

 

 

   

 

 

 

Outstanding at June 30, 2012

     —        $ —     
  

 

 

   

 

 

 

 

(1) Represents weighted average exercise price.

Valuation and Cost Attribution Methods . Fair value is 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. The Company ran the Black-Scholes option-pricing model using the following assumptions:

 

     January 2,
2012
    June 6,
2012
 

Number of options granted

     22,330        150,000   

Fair market value and exercise price (1)

   $ 24.60      $ 30.45   

Risk-free interest rate (2)

     1.97     0.94

Expected dividend yield

     0.0     0.0

Expected volatility

     49     55

Expected term (years)

     10        10   

Per-unit fair value of options granted

   $ 14.78      $ 15.64   

 

(3) The adjusted closing price of Class A Shares, New York Stock Exchange symbol TROX, on the grant date.
(4) The risk-free interest rate was based on U.S. Treasury Strips available with maturity period consistent with expected life assumption.

 

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18. Pension and Other Postretirement Healthcare Benefits

The Company sponsors noncontributory defined benefit retirement plans (qualified and nonqualified plans) in the United States, a contributory defined benefit retirement plan in the Netherlands, a U.S. contributory postretirement healthcare plan and a South Africa postretirement healthcare plan.

The components of net periodic cost associated with the U.S. and foreign retirement plans recognized in the unaudited Condensed Consolidated Statement of Operations were as follows:

 

     Retirement Plans  
     Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Net periodic cost:

        

Service cost

   $ 2      $ —        $ 3      $ 1   

Interest cost

     5        5        10        11   

Expected return on plan assets

     (5     (4     (10     (10

Net amortization of actuarial loss

     —          —          1        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net periodic cost

   $ 2      $ 1      $ 4      $ 2   
  

 

 

   

 

 

   

 

 

   

 

 

 

The components of the Company’s net periodic cost for the postretirement healthcare plans recognized in the unaudited Condensed Consolidated Statement of Operations were less than $1 million and $1 million for the three and six months ended June 30, 2013, respectively, and less than $1 million for both the three and six months ended June 30, 2012.

19. Related Party Transactions

At June 30, 2013, Exxaro held approximately 44.4% of the voting securities of Tronox Limited. During the three and six months ended June 30, 2013, the Company purchased transition services from Exxaro, which amounted to $2 million and $4 million, respectively.

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 and six months ended June 30, 2012, the Company made payments of $90 million and $173 million, respectively, and received payments of $2 million and $9 million, respectively, related to these transactions.

20. 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 mineral sands operations, 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 segments, Mineral Sands and Pigment. The Mineral Sands segment includes the exploration, mining and beneficiation of mineral sands deposits, as well as heavy mineral production. These operations produce titanium feedstock, including 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. Corporate and Other is comprised of corporate activities and businesses that are no longer in operation, as well as 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, net of reimbursements, related to sites no longer in operation, interest expense, other income (expense) and income tax expense or benefit.

 

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     Mineral
Sands
     Pigment     Corporate
And Other
    Eliminations     Total  

Three Months Ended June 30, 2013

           

Net Sales (1)

   $ 312       $ 304      $ 35      $ (126   $ 525   

Income (loss) from operations

     68         (56     (11     8        9   

Interest and debt expense

              (35

Other income

              26   

Loss from Continuing Operations before Income Taxes

              —     

Depreciation, Depletion and Amortization

   $ 49       $ 20      $ 4      $ —       $ 73   

Capital Expenditures

   $ 18       $ 12      $ 4      $ —       $ 34   

Three Months Ended June 30, 2012

           

Net Sales (1)

   $ 89       $ 348      $ 27      $ (35   $ 429   

Income (loss) from operations

     46         37        (76     15        22   

Interest and debt expense

              (14

Other expense

              (3

Gain on bargain purchase

              1,055   

Income from Continuing Operations before Income Taxes

              1,060   

Depreciation, Depletion and Amortization

   $ 11       $ 16      $ 4      $ —       $ 31   

Capital Expenditures

   $ 20       $ 3      $ 4      $ —       $ 27   

Six Months Ended June 30, 2013

           

Net Sales (1)

   $ 610       $ 592      $ 62      $ (269   $ 995   

Income (loss) from operations

     164         (124     (35     (15     (10

Interest and debt expense

              (62

Loss on extinguishment of debt

              (4

Other expense

              32   

Income from Continuing Operations before Income Taxes

              (44

Depreciation, Depletion and Amortization

   $ 98       $ 41      $ 7      $ —       $ 146   

Capital Expenditures

   $ 49       $ 25      $ 5      $ —       $ 79   

Six Months Ended June 30, 2012

           

Net Sales (1)

   $ 172       $ 710      $ 58      $ (77   $ 863   

Income (loss) from operations

     97         146        (104     (4     135   

Interest and debt expense

              (22

Other expense

              (4

Gain on bargain purchase

              1,055   

Income from Continuing Operations before Income Taxes

              1,164   

Depreciation, Depletion and Amortization

   $ 15       $ 31      $ 7      $ —       $ 53   

Capital Expenditures

   $ 20       $ 15      $ 13      $ —       $ 48   

 

(1) Net sales by geographic region, based on country of production, were as follows:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2013      2012      2013      2012  

U.S. operations

   $ 216       $ 229       $ 403       $ 459   

International operations:

           

South Africa

     144         24         254         24   

Australia

     113         118         221         243   

The Netherlands

     52         58         117         137   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 525       $ 429       $ 995       $ 863   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets by segment were as follows:

 

     June 30,
2013
     December 31,
2012
 

Mineral Sands

   $ 2,756       $ 3,164   

Pigment

     1,823         1,680   

Corporate and Other

     1,100         725   

Eliminations

     168         (58
  

 

 

    

 

 

 

Total

   $ 5,847       $ 5,511   
  

 

 

    

 

 

 

 

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Property, plant and equipment, net and mineral leaseholds, net, by geographic region, were as follows:

 

     June 30,
2013
     December 31,
2012
 

U.S. operations

   $ 200       $ 196   

International operations:

     

South Africa

     1,082         1,263   

Australia

     1,295         1,348   

The Netherlands

     53         55   
  

 

 

    

 

 

 

Total

   $ 2,630       $ 2,862   
  

 

 

    

 

 

 

21. 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 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”). 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.

On June 13, 2013, the Bankruptcy Court entered a Final Decree and ordered that the bankruptcy cases, other than the adversary proceedings with Anadarko Petroleum Corporation (“Anadarko”), are closed. In May 2009, the Company commenced an adversary proceeding in the Bankruptcy Court against Kerr-McGee and its new parent, Anadarko, related to the 2005 Spin-Off of Tronox (Tronox Inc. v. Anadarko Petroleum Corp. (In re Tronox Inc.), 09-1198, U.S. Bankruptcy Court, Southern District New York (Manhattan)) (the “Anadarko Litigation”). Pursuant the Plan, the Company assigned the rights to any proceeds that may be recovered in the Anadarko Litigation to its creditors.

22. Guarantor Condensed Consolidated Financial Statements

Our obligations under the Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by each current and future U.S. restricted subsidiary, other than excluded subsidiaries that guarantee any indebtedness of Tronox Limited or our restricted subsidiaries. Our subsidiaries that do not guarantee the Senior Notes are referred to as the “Non-Guarantor Subsidiaries.” The Guarantor Condensed Consolidated Financial Data presented below presents the statements of operations, statements of comprehensive income, balance sheets and statements of cash flow data for: (i) Tronox Limited (the “Parent Company”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis (which is derived from Tronox historical reported financial information); (ii) the Parent Company, alone (accounting for our Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on an equity basis under which the investments are recorded by each entity owning a portion of another entity at cost, adjusted for the applicable share of the subsidiary’s cumulative results of operations, capital contributions and distributions, and other equity changes); (iii) the Guarantor Subsidiaries alone; and (iv) the Non-Guarantor Subsidiaries alone.

The guarantor condensed consolidated financial statements are presented on a legal entity basis, not on a business segment basis.

 

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GUARANTOR CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended June 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net Sales

   $ 525      $ (101   $ —        $ 356      $ 270   

Cost of goods sold

     475        (104     —          339        240   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Margin

     50        3        —          17        30   

Selling, general and administrative expenses

     41        (1     4        31        7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from Operations

     9        4        (4     (14     23   

Interest and debt expense

     (35     —          137        (161     (11

Other income (expense)

     26        —          —          13        13   

Equity in earnings of subsidiary

     —          106        (106     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) before Income Taxes

     —          110        27        (162     25   

Income tax benefit (provision)

     (1     —          (40     40        (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

     (1     110        (13     (122     24   

Income attributable to noncontrolling interest

     12        —          —          12        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) attributable to Tronox Limited

   $ (13   $ 110      $ (13   $ (134   $ 24   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GUARANTOR CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Six months ended June 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net Sales

   $ 995      $ (195   $ —        $ 668      $ 522   

Cost of goods sold

     913        (172     —          642        443   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Margin

     82        (23     —          26        79   

Selling, general and administrative expenses

     92        (2     9        66        19   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from Operations

     (10     (21     (9     (40     60   

Interest and debt expense

     (62     —          273        (324     (11

Loss on extinguishment of debt

     (4     —          —          (3     (1

Other income (expense)

     32        —          1        11        20   

Equity in earnings of subsidiary

     —          256        (256     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) before Income Taxes

     (44     235        9        (356     68   

Income tax benefit (provision)

     (2     —          (78     91        (15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

     (46     235        (69     (265     53   

Income attributable to noncontrolling interest

     24        —          —          24        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) attributable to Tronox Limited

   $ (70   $ 235      $ (69   $ (289   $ 53   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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GUARANTOR CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended June 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations      Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net Income (Loss):

           

Net Income (Loss)

   $ (1   $ 110       $ (13   $ (122   $ 24   

Other Comprehensive Income (Loss):

           

Foreign currency translation adjustments

     (82     —           —          —          (82

Amortization of actuarial losses, net of taxes

     (1     —           —          —          (1
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (83     —           —          —          (83
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     (84     110         (13     (122     (59
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest:

           

Net income

     12        —           —          12        —     

Foreign currency translation adjustments

     (23     —           —          (23     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

     (11     —           —          (11     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

   $ (73   $ 110       $ (13   $ (111   $ (59
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

GUARANTOR CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Six months ended June 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations      Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net Income (Loss):

           

Net Income (Loss)

   $ (46   $ 235       $ (69   $ (265   $ 53   

Other Comprehensive Income (Loss):

           

Foreign currency translation adjustments

     (201     —           —          —          (201

Amortization of actuarial losses, net of taxes

     —          —           —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (201     —           —          —          (201
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     (247     235         (69     (265     (148
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest:

           

Net income

     24        —           —          24        —     

Foreign currency translation adjustments

     (51     —           —          (51     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

     (27     —           —          (27     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

   $ (220   $ 235       $ (69   $ (238   $ (148
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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GUARANTOR CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated      Eliminations     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Assets

           

Cash and cash equivalents

   $ 1,389       $ —        $ 398      $ 882      $ 109   

Investment in subsidiaries

     —           (1,132     (878     1,553        457   

Other current assets

     1,265         (9,173     6,285        2,048        2,105   

Property, plant and equipment, net

     1,309         —          —          729        580   

Mineral leaseholds, net

     1,321         —          —          766        555   

Other assets

     563         —          (3     382        184   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 5,847       $ (10,305   $ 5,802      $ 6,360      $ 3,990   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

           

Current liabilities

   $ 336       $ (1,155   $ 473      $ 842      $ 176   

Long-term debt

     2,390         —          —          901        1,489   

Other long-term liabilities

     531         (7,947     933        7,136        409   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     3,257         (9,102     1,406        8,879        2,074   

Total Shareholders’ Equity

     2,590         (1,203     4,396        (2,519     1,916   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 5,847       $ (10,305   $ 5,802      $ 6,360      $ 3,990   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

GUARANTOR CONDENSED CONSOLIDATED BALANCE SHEETS

As of December 31, 2012

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated      Eliminations     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Assets

           

Cash and cash equivalents

   $ 716       $ —        $ 533      $ 82      $ 101   

Investment in subsidiaries

     —           (1,595     (622     1,760        457   

Other current assets

     1,457         (8,300     6,047        2,181        1,529   

Property, plant and equipment, net

     1,423         —          —          747        676   

Mineral leaseholds, net

     1,439         —          —          796        643   

Other assets

     476         —          (3     401        78   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 5,511       $ (9,895   $ 5,955      $ 5,967      $ 3,484   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

           

Current liabilities

   $ 467       $ (539   $ 560      $ 133      $ 313   

Long-term debt

     1,605         —          —          902        703   

Other long-term liabilities

     557         (7,709     882        6,978        406   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     2,629         (8,248     1,442        8,013        1,422   

Total Shareholders’ Equity

     2,882         (1,647     4,513        (2,046     2,062   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 5,511       $ (9,895   $ 5,955      $ 5,967      $ 3,484   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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GUARANTOR CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Cash Flows from Operating Activities

          

Net income (loss)

   $ (46   $ 235      $ (70   $ (265   $ 54   

Other

     125        (235     (9     1,094        (725