Tronox Limited
Tronox Ltd (Form: 10-Q, Received: 11/06/2014 16:21:41)
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 September 30, 2014

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)

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   x    Accelerated filer   ¨
Non-accelerated filer   ¨    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

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes   x     No   ¨

As of October 31, 2014, the Registrant had 63,629,755 Class A ordinary shares and 51,154,280 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

     45   

Item 4. Controls and Procedures

     46   

PART II – OTHER INFORMATION

  

Item 1. Legal Proceedings

     46   

Item 1A. Risk Factors

     46   

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

     46   

Item 3. Defaults Upon Senior Securities

     46   

Item 4. Mine Safety Disclosures

     46   

Item 5. Other Information

     46   

Item 6. Exhibits

     47   

SIGNATURES

     48   

 

2


Table of Contents

Item 1. Financial Statements (Unaudited)

 

     Page
No.
 

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September  30, 2014 and 2013

     4   

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2014 and 2013

     5   

Unaudited Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013

     6   

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September  30, 2014 and 2013

     7   

Unaudited Condensed Consolidated Statement of Equity for the Nine Months Ended September 30, 2014

     8   

Notes to Unaudited 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 September 30,

   

Nine Months

Ended September 30,

 
     2014     2013     2014     2013  

Net sales

   $ 429      $ 491      $ 1,337      $ 1,486   

Cost of goods sold

     361        437        1,184        1,350   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     68        54        153        136   

Selling, general and administrative expenses

     (47     (45     (138     (137

Restructuring expense

     (10     —          (10     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     11        9        5        (1

Interest and debt expense, net

     (34     (32     (101     (94

Net loss on liquidation of non-operating subsidiaries

     (35     (10     (35     (10

Loss on extinguishment of debt

     —          —          (8     (4

Other income, net

     9        —          12        32   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (49     (33     (127     (77

Income tax provision

     (41     (8     (15     (10
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (90     (41     (142     (87

Net income attributable to noncontrolling interest

     3        8        9        32   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Tronox Limited

   $ (93   $ (49 )   $ (151   $ (119
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share, basic and diluted

   $ (0.82 )   $ (0.43 )   $ (1.33 )   $ (1.05 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding, basic and diluted (in thousands)

     114,530        113,459        114,026        113,389   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(Millions of U.S. dollars)

 

    

Three Months

Ended September 30,

    

Nine Months

Ended September 30,

 
     2014     2013      2014      2013  

Net loss

   $ (90   $ (41    $ (142    $ (87

Other comprehensive income (loss):

          

Foreign currency translation adjustments

     (47     (5      (68      (206

Retirement and postretirement plans, net of taxes of less than $1 million in each of the three and nine months ended September 30, 2014 and 2013

     —         1         3         1   
  

 

 

   

 

 

    

 

 

    

 

 

 

Other comprehensive loss

     (47     (4      (65      (205
  

 

 

   

 

 

    

 

 

    

 

 

 

Total comprehensive loss

     (137     (45      (207      (292
  

 

 

   

 

 

    

 

 

    

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest:

          

Net income

     3        8         9         32   

Foreign currency translation adjustments

     (18     (6      (24      (57
  

 

 

   

 

 

    

 

 

    

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

     (15     2         (15      (25
  

 

 

   

 

 

    

 

 

    

 

 

 

Comprehensive loss attributable to Tronox Limited

   $ (122   $ (47    $ (192    $ (267
  

 

 

   

 

 

    

 

 

    

 

 

 

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)

 

     September 30,     December 31,  
     2014     2013  

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 1,345      $ 1,478   

Accounts receivable, net of allowance for doubtful accounts

     304        308   

Inventories, net

     778        759   

Prepaid and other assets

     52        61   

Deferred tax assets

     29        47   
  

 

 

   

 

 

 

Total current assets

     2,508        2,653   

Noncurrent Assets

    

Property, plant and equipment, net

     1,201        1,258   

Mineral leaseholds, net

     1,092        1,216   

Intangible assets, net

     279        300   

Long-term deferred tax assets

     203        192   

Other long-term assets

     64        80   
  

 

 

   

 

 

 

Total assets

   $ 5,347      $ 5,699   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current Liabilities

    

Accounts payable

   $ 139      $ 164   

Accrued liabilities

     142        146   

Long-term debt due within one year

     18        18   

Income taxes payable

     31        28   

Deferred tax liabilities

            7   
  

 

 

   

 

 

 

Total current liabilities

     330        363   

Noncurrent Liabilities

    

Long-term debt

     2,380        2,395   

Pension and postretirement healthcare benefits

     132        148   

Asset retirement obligations

     89        90   

Long-term deferred tax liabilities

     177        204   

Other long-term liabilities

     73        62   
  

 

 

   

 

 

 

Total liabilities

     3,181        3,262   
  

 

 

   

 

 

 

Contingencies and Commitments

    

Shareholders’ Equity

    

Tronox Limited Class A ordinary shares, par value $0.01 — 65,088,376 shares issued and 63,516,207 shares outstanding at September 30, 2014 and 64,046,647 shares issued and 62,349,618 shares outstanding at December 31, 2013

     1        1   

Tronox Limited Class B ordinary shares, par value $0.01 — 51,154,280 shares issued and outstanding at September 30, 2014 and December 31, 2013

            

Capital in excess of par value

     1,471        1,448   

Retained earnings

     835        1,073   

Accumulated other comprehensive loss

     (325     (284
  

 

 

   

 

 

 

Total shareholders’ equity

     1,982        2,238   

Noncontrolling interest

     184        199   
  

 

 

   

 

 

 

Total equity

     2,166        2,437   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 5,347      $ 5,699   
  

 

 

   

 

 

 

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)

 

    

Nine Months

Ended September 30,

 
     2014     2013  

Cash Flows from Operating Activities:

    

Net loss

   $ (142   $ (87

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

    

Depreciation, depletion and amortization

     225        238   

Deferred income taxes

     (13     14   

Share-based compensation expense

     17        16   

Amortization of deferred debt issuance costs and discount on debt

     7        7   

Pension and postretirement healthcare benefit expense

     4        7   

Net loss on liquidation of non-operating subsidiaries

     35        10   

Loss on extinguishment of debt

     8        4   

Other noncash items affecting net loss

     4        (14

Contributions to employee pension and postretirement plans

     (15     (4

Changes in assets and liabilities:

    

(Increase) decrease in accounts receivable

     (4     —     

(Increase) decrease in inventories

     (42     106   

(Increase) decrease in prepaid and other assets

     6        (7

Increase (decrease) in accounts payable and accrued liabilities

     (16     (42

Increase (decrease) in taxes payable

     18        (23

Other, net

     (3     (15
  

 

 

   

 

 

 

Cash provided by operating activities

     89        210   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Capital expenditures

     (106     (104
  

 

 

   

 

 

 

Cash used in investing activities

     (106     (104
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Repayments of debt

     (16     (185

Proceeds from debt

            945   

Debt issuance costs

     (2     (29

Dividends paid

     (87     (86

Proceeds from the exercise of warrants and options

     5        1   
  

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (100     646   
  

 

 

   

 

 

 

Effects of exchange rate changes on cash and cash equivalents

     (16     (11
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (133     741   

Cash and cash equivalents at beginning of period

     1,478        716   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,345      $ 1,457   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Millions of U.S. dollars)

 

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

Balance at December 31, 2013

  $ 1      $ —        $ 1,448      $ 1,073      $ (284   $ 2,238      $ 199      $ 2,437   

Net income (loss)

    —          —          —          (151     —          (151     9        (142

Other comprehensive loss

    —          —          —          —          (41     (41     (24     (65

Share-based compensation

    —          —          18        —          —          18        —          18   

Class A and Class B share dividends

    —          —          —          (87     —          (87     —          (87

Warrants and options exercised

    —          —          5        —          —          5        —          5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

  $ 1      $ —       $ 1,471      $ 835      $ (325   $ 1,982      $ 184      $ 2,166   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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, per share and metric tons data or unless otherwise noted)

1. The Company

Tronox Limited and its subsidiaries (collectively referred to as “Tronox,” “we,” “us,” or “our”) is a public limited company registered under the laws of the State of Western Australia, Australia. We are a global leader in the production and marketing of titanium bearing mineral sands and titanium dioxide (“TiO 2 ”) pigment. Our world-class, high performance TiO 2 products are critical components of everyday applications such as paint and other coatings, plastics, paper and other applications. Our mineral sands business consists primarily of three product streams—titanium feedstock, zircon and pig iron. 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. Pig iron is a metal material used in the steel and metal casting industries to create wrought iron, cast iron and steel. We have global operations in North America, Europe, South Africa, and the Asia-Pacific region. We operate three TiO 2 facilities at the following locations: Hamilton, Mississippi; Botlek, The Netherlands; and Kwinana, Western Australia, and we operate three separate mining operations: KwaZulu-Natal (“KZN”) Sands and Namakwa Sands both located in South Africa, and Cooljarloo located in Western Australia.

At September 30, 2014, Exxaro Resources Limited (“Exxaro”) held approximately 44% of the voting securities of Tronox Limited. Exxaro has agreed that, through June 15, 2015, it would not engage in any transaction or other action, that would result in its beneficial ownership of the voting shares of Tronox Limited exceeding 45% of the total issued shares of Tronox Limited. We had service level agreements with Exxaro for services such as tax preparation, information technology services, and research and development, which amounted to less than $1 million and $1 million of expense during the three months ended September 30, 2014 and 2013, respectively, and $2 million and $5 million of expense during the nine months ended September 30, 2014 and 2013, respectively.

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 our Annual Report on Form 10-K for the year ended December 31, 2013. The Condensed Consolidated Balance Sheet as of December 31, 2013 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

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

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

Recent Accounting Pronouncements

During 2014, we adopted 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 , which addresses the treatment of the cumulative translation adjustment into net income when a parent either sells or liquidates a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The adoption of this guidance did not have an impact on our consolidated financial statements, as we had previously accounted for the liquidation of our non-operating subsidiaries in this manner.

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-9, Revenue from Contracts with Customers (“ASU 2014-9”) , which states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for periods beginning after December 31, 2016, and will be applied either retrospectively or on a modified retrospective basis. We have not yet determined the impact, if any, that ASU 2014-9 will have on our consolidated financial statements.

 

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2. Anadarko Litigation

In May 2009, we commenced an adversary proceeding in the U.S. Bankruptcy Court for the Southern District of New York (Manhattan) (the “Bankruptcy Court”) against Kerr-McGee Corp. (“Kerr-McGee”) and its parent, Anadarko Petroleum Corp. (“Anadarko”), related to the 2005 Spin-Off of Tronox Incorporated (Tronox Incorporated v. Anadarko (In re Tronox Inc.)), 09-1198 (the “Anadarko Litigation”). Pursuant to the plan of reorganization, we assigned the rights to any pre-tax proceeds that may be recovered in the Anadarko Litigation.

On December 12, 2013, the Bankruptcy Court ruled in favor of the plaintiff, and found that Kerr-McGee acted with intent to delay, and hindered Tronox Incorporated’s creditors when it spun off Tronox Incorporated. The court held Anadarko liable, and indicated damages in the range of $5 billion to $14 billion, subject to a set off against claims that Anadarko filed as a creditor in Tronox Incorporated’s 2009 bankruptcy filing.

On May 29, 2014, the Bankruptcy Court approved a settlement with Anadarko for $5.15 billion. We will not receive any portion of the settlement amount. Instead, 88% of the $5.15 billion will go to trusts and other governmental entities for the remediation of polluted sites by Kerr-McGee. The remaining 12% will be distributed to a tort trust to compensate individuals injured as a result of Kerr-McGee’s environmental failures.

We received a private letter ruling from the U.S. Internal Revenue Service confirming that the trusts that held the claims against Anadarko are grantor trusts of Tronox Incorporated solely for federal income tax purposes. As a result, we believe we will be entitled to tax deductions equal to the amount spent by the trusts to remediate environmental matters and to compensate the injured individuals. These deductions will accrue over the life of the trusts as the $5.15 billion is spent. We believe that these expenditures and the accompanying tax deductions may continue for decades.

3. Restructuring Expense

On September 23, 2014, we commenced a cost reduction initiative which we expect to complete during the fourth quarter of 2014. The initiative involves an expected reduction in our workforce by approximately 80 employees, as well as the expected elimination of approximately 65 outside contractor positions. We estimate that the pre-tax charge resulting from this initiative will be approximately $16 million, of which $10 million was recorded in the third quarter of 2014. We expect the remaining $6 million to be recorded in the fourth quarter of 2014. The charge will consist of employee severance costs of approximately $14 million, as well as outplacement services and other associated costs and expenses of approximately $2 million. Of the aggregate pre-tax charge, we expect to incur approximately $14 million in cash expenditures, of which $1 million has been paid during the third quarter of 2014. We expect to pay the remaining $13 million during the fourth quarter of 2014 and the first quarter of 2015. As a result of this initiative, we expect annual cost savings of approximately $25 million in 2015.

Restructuring expense by segment for the three and nine months ended September 30, 2014 was as follows:

 

     Restructuring
Expense
 

Mineral Sands segment

   $ 3   

Pigment segment

     1   

Corporate and Other

     6   
  

 

 

 

Total

   $ 10   
  

 

 

 

A summary in the changes in the liability established for restructuring is as follows:

 

     Restructuring
Liability
 

Balance, January 1, 2014

   $ —     

Severance, outplacement services and other related costs

     10   

Cash payments

     (1
  

 

 

 

Balance, September 30, 2014

   $ 9   
  

 

 

 

 

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4. Liquidation of Non-Operating Subsidiaries

During the third quarter of 2014, we completed the liquidation of our non-operating subsidiary, Tronox Pigments International GmbH. In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters (“ASC 830”) , we recognized a non-cash loss from the realization of cumulative translation adjustments of $35 million.

On September 12, 2013, we completed the liquidation of our non-operating subsidiary, the Zurich branch of Tronox Luxembourg S.a.r.l. In accordance with ASC 830, we recognized a non-cash loss from the realization of cumulative translation adjustments of $10 million.

5. Income Taxes

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

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2014     2013     2014     2013  

Income tax provision

   $ (41   $ (8   $ (15   $ (10

Loss before income taxes

   $ (49   $ (33   $ (127   $ (77

Effective tax rate

     (84 )%      (24 )%      (12 )%      (13 )% 

The effective tax rate for each of the three and nine months ended September 30, 2014 and 2013, differs from the Australian statutory rate of 30% primarily due to valuation allowances, income in foreign jurisdictions taxed at rates lower than 30%, and withholding tax accruals. Additionally, the effective tax rate for the three and nine months ended September 30, 2014 is impacted by a third quarter increase of $56 million to the valuation allowance in the Netherlands.

We have valuation allowances against specific tax assets in Australia and South Africa where, based on the tax laws of each relevant country, we cannot objectively assert that the deferred tax assets are more likely than not to be realized.

We now maintain full valuation allowances related to the total net deferred tax assets in the United States and in the Netherlands, as we cannot objectively assert that these deferred tax assets are more likely than not to be realized. Future provisions for income taxes will include no tax benefits with respect to losses incurred and tax expense only to the extent of current state tax payments until the valuation allowances are eliminated. This conclusion was reached by the application of ASC 740, Income Taxes , which requires that all available positive and negative evidence be weighted to determine whether a valuation allowance should be recorded.

6. Loss Per Share

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2014     2013     2014     2013  

Numerator – Basic and Diluted:

        

Net loss

   $ (90   $ (41   $ (142   $ (87

Less: Net income attributable to noncontrolling interest

     3        8        9        32   
  

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed net loss

     (93     (49     (151 )     (119

Percentage allocated to ordinary shares (1)

     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss available to ordinary shares

   $ (93   $ (49   $ (151 )   $ (119
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator – Basic and Diluted:

        

Weighted-average ordinary shares (in thousands)

     114,530        113,459        114,026        113,389   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per Ordinary Share (2):

        

Basic and diluted loss per ordinary share

   $ (0.82   $ (0.43   $ (1.33   $ (1.05
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Our participating securities do not have a contractual obligation to share in losses; therefore, when we have a net loss, none of the loss is allocated to participating securities. Consequently, for the three and nine months ended September 30, 2014 and 2013, the two class method did not have an effect on our loss per ordinary share calculation, and as such, dividends paid during the year did not impact this calculation.

 

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(2) Loss per ordinary share amounts were calculated from exact, not rounded income (loss) and share information.

In computing diluted loss per share under the two-class method, we considered potentially dilutive shares. Anti-dilutive shares not recognized in the diluted earnings per share calculation were as follows:

 

     September 30, 2014      September 30, 2013  
     Shares      Average
Exercise Price
     Shares      Average
Exercise Price
 

Options

     2,691,444       $ 21.12         2,100,611       $ 20.63   

Series A Warrants (1)

     1,273,399       $ 11.17         1,841,455       $ 11.65   

Series B Warrants (1)

     1,858,353       $ 12.33         2,397,124       $ 12.86   

Restricted share units

     978,035       $ 22.10         304,770       $ 21.08   

 

(1) Series A Warrants and Series B Warrants were converted into Class A Shares at September 30, 2014 and 2013 using a rate of 5.26 and 5.15, respectively. See Note 16.

7. Accounts Receivable

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

 

     September 30,     December 31,  
     2014     2013  

Trade receivables

   $ 301      $ 304   

Other

     5        6   
  

 

 

   

 

 

 

Gross

     306        310   

Allowance for doubtful accounts

     (2     (2
  

 

 

   

 

 

 

Net

   $ 304      $ 308   
  

 

 

   

 

 

 

Bad debt expense recorded in the unaudited Condensed Consolidated Statements of Operations was less than $1 million for each of the three and nine months ended September 30, 2014 and 2013.

8. Inventories

Inventories consisted of the following:

 

     September 30,      December 31,  
     2014      2013  

Raw materials

   $ 281       $ 235   

Work-in-process

     76         45   

Finished goods, net

     309         373   

Materials and supplies, net (1)

     112         106   
  

 

 

    

 

 

 

Total

   $ 778       $ 759   
  

 

 

    

 

 

 

 

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

Finished goods includes inventory on consignment of $43 million and $48 million at September 30, 2014 and December 31, 2013, respectively. At both September 30, 2014 and December 31, 2013, inventory obsolescence reserves were $13 million. During the three months ended September 30, 2014 and 2013, we recognized a net lower of cost or market charge of $1 million and a net lower of cost or market benefit of $21 million, respectively, which was included in “Cost of goods sold” on the unaudited Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2014 and 2013, we recognized a net lower of cost or market charge of $8 million and a net lower of cost or market benefit of $27 million, respectively, which was included in “Cost of goods sold” on the unaudited Condensed Consolidated Statements of Operations.

 

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9. Property, Plant and Equipment

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

 

     September 30,     December 31,  
     2014     2013  

Land and land improvements

   $ 80      $ 79   

Buildings

     186        181   

Machinery and equipment

     1,201        1,156   

Construction-in-progress

     123        133   

Other

     32        28   
  

 

 

   

 

 

 

Total

     1,622        1,577   

Less accumulated depreciation and amortization

     (421     (319
  

 

 

   

 

 

 

Net

   $ 1,201      $ 1,258   
  

 

 

   

 

 

 

Depreciation expense related to property, plant and equipment during the three months ended September 30, 2014 and 2013 was $38 million and $44 million, respectively, and during the nine months ended September 30, 2014 and 2013 was $120 million and $134 million, respectively.

10. Mineral Leaseholds

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

 

     September 30,     December 31,  
     2014     2013  

Mineral leaseholds

   $ 1,347      $ 1,388   

Less accumulated depletion

     (255     (172
  

 

 

   

 

 

 

Net

   $ 1,092      $ 1,216   
  

 

 

   

 

 

 

Depletion expense related to mineral leaseholds during the three months ended September 30, 2014 and 2013 was $23 million and $42 million, respectively, and during the nine months ended September 30, 2014 and 2013 was $85 million and $84 million, respectively.

11. Intangible Assets

Intangible assets, net of accumulated amortization, consisted of the following:

 

     September 30, 2014      December 31, 2013  
     Gross
Cost
     Accumulated
Amortization
    Net Carrying
Amount
     Gross
Cost
     Accumulated
Amortization
    Net Carrying
Amount
 

Customer relationships

   $ 294       $ (74   $ 220       $ 294       $ (59   $ 235   

TiO 2 technology

     32         (6     26         32         (5     27   

Internal-use software

     42         (9     33         42         (6     36   

Other

     6         (6             7         (5     2   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 374       $ (95   $ 279       $ 375       $ (75   $ 300   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Amortization expense related to intangible assets during the three months ended September 30, 2014 and 2013 was $7 million and $6 million, respectively, and during the nine months ended September 30, 2014 and 2013 was $20 million and $20 million, respectively. Estimated future amortization expense related to intangible assets is $6 million for the remainder of 2014, $27 million for 2015, $25 million for 2016, $25 million for 2017, $25 million for 2018, and $171 million thereafter.

 

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12. Accrued Liabilities

Accrued liabilities consisted of the following:

 

     September 30,      December 31,  
     2014      2013  

Employee-related costs and benefits

   $ 66       $ 55   

Taxes other than income taxes

     42         44   

Interest

     8         22   

Sales rebates

     20         18   

Other

     6         7   
  

 

 

    

 

 

 

Total

   $ 142       $ 146   
  

 

 

    

 

 

 

13. Debt

Short-term Debt

UBS Revolver

We have a global senior secured asset-based syndicated revolving credit facility with UBS AG (the “UBS Revolver”) with a maturity date of June 18, 2017. The UBS Revolver provides us with a committed source of capital with a principal borrowing amount of up to $300 million, subject to a borrowing base. At September 30, 2014 and December 31, 2013, our borrowing base was $279 million and $210 million, respectively. During each of the three and nine months ended September 30, 2014 and 2013, we had no drawdowns or repayments on the UBS Revolver. At September 30, 2014 and December 31, 2013, there were no outstanding borrowings on the UBS Revolver.

ABSA Revolving Credit Facility

We have a R900 million (approximately $80 million at September 30, 2014) revolving credit facility with ABSA Bank Limited (“ABSA”) acting through its ABSA Capital Division (the “ABSA Revolver”) with a maturity date of June 14, 2017. During the three and nine months ended September 30, 2014 and the three months ended September 30, 2013, we had no drawdowns or repayments on the ABSA Revolver. During the nine months ended September 30, 2013, we had repayments of $30 million and no drawdowns on the ABSA Revolver. The average effective interest rate was 8.5% during the nine months ended September 30, 2013. At September 30, 2014 and December 31, 2013, there were no outstanding borrowings on the ABSA Revolver.

Long-term Debt

Long-term debt, net of an unamortized discount, consisted of the following:

 

     Original
Principal
     Annual
Interest Rate
    Maturity
Date
     September 30,
2014
    December 31,
2013
 

Term Loan, net of unamortized discount (1)

   $ 1,500         Variable        3/19/2020       $ 1,471      $ 1,482   

Senior Notes

   $ 900         6.375     8/15/2020         900        900   

Co-generation Unit Financing Arrangement

   $ 16         6.5     2/1/2016         4        6   

Capital leases

             23        25   
          

 

 

   

 

 

 

Total debt

             2,398        2,413   

Less: Long-term debt due within one year

             (18     (18
          

 

 

   

 

 

 

Long-term debt

           $ 2,380      $ 2,395   
          

 

 

   

 

 

 

 

(1) Average effective interest rate of 4.6% and 4.9% during 2014 and 2013, respectively.

Term Loan

On March 19, 2013, we, along with our wholly-owned subsidiary, Tronox Pigments (Netherlands) B.V., and certain of our subsidiaries named as guarantors, entered into a Second Amended and Restated Credit and Guaranty Agreement (the “Second 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-

 

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syndication agents. Pursuant to the Second Agreement, we obtained a $1.5 billion senior secured term loan (the “Term Loan”). The Term Loan was issued net of an original issue discount. At September 30, 2014 and December 31, 2013, the unamortized discount was $8 million and $11 million, respectively. We made principal repayments during the three months ended September 30, 2014 and 2013 of $4 million and $4 million, respectively, and during the nine months ended September 30, 2014 and 2013 of $14 million and $4 million, respectively.

On April 23, 2014, we, along with our wholly-owned subsidiary, Tronox Pigments (Netherlands) B.V., and certain of our subsidiaries named as guarantors, entered into a Third Amendment to the Credit and Guaranty Agreement (the “Third Agreement”) with the lender parties thereto and Goldman Sachs Bank USA, as administrative agent, which amends the Second Agreement. The Third Agreement provides for the re-pricing of the Term Loan by replacing the existing definition of “Applicable Margin” with a grid pricing matrix dependent upon our public corporate family rating as determined by Moody’s and Standard & Poor’s (with the interest rate under the Third Agreement remaining subject to Eurodollar Rate and Base Rate floors, as defined in the Third Agreement). Pursuant to the Third Agreement, based upon our current public corporate family rating by Moody’s and Standard & Poor’s, the current interest rate per annum is 300 basis points plus LIBOR (subject to a LIBOR floor of 1% per annum) compared to 350 basis points plus LIBOR (subject to a LIBOR floor of 1% per annum) in the Second Agreement. The Third Agreement also amended certain provisions of the Second Agreement to permit us and certain of our subsidiaries to obtain new cash flow revolving credit facilities in place of our existing asset based revolving credit facility. The maturity date under the Second Agreement and all other material terms of the Second Agreement remain the same under the Third Agreement.

The Third Agreement resulted in a modification for certain lenders and an extinguishment for other lenders. Accordingly, we recognized an $8 million charge during 2014 for the early extinguishment of debt resulting from the write-off of deferred debt issuance costs and discount on debt associated with the Second Agreement. We also paid $2 million of new debt issuance costs related to the Third Agreement during 2014.

Senior Notes

On August 20, 2012, our wholly-owned subsidiary, Tronox Finance LLC, completed a private placement offering of $900 million aggregate principal amount of senior notes at par value (the “Senior Notes”). The Senior Notes bear interest semiannually at a rate equal to 6.375%, and are fully and unconditionally guaranteed on a senior, unsecured basis by us and certain of our subsidiaries. The Senior Notes were initially offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.

On September 17, 2013, Tronox Finance LLC issued $900 million in aggregate principal amount of registered 6.375% Senior Notes due 2020 in exchange for its then existing $900 million in aggregate principal amount of its 6.375% Senior Notes due 2020. The Senior Notes are guaranteed by Tronox and certain of its subsidiaries. See Note 21.

Capital Leases

We have capital lease obligations in South Africa, which are payable through 2031 at a weighted average interest rate of approximately 14%. At both September 30, 2014 and December 31, 2013, such obligations had a net book value of assets recorded under capital leases aggregating $23 million. We made principal payments of less than $1 million and $2 million, respectively, for the three and nine months ended September 30, 2014 and 2013.

Fair Value

Our debt is recorded at historical amounts. At September 30, 2014 and December 31, 2013, the fair value of the Term Loan was $1,470 million and $1,524 million, respectively. At September 30, 2014 and December 31, 2013, the fair value of the Senior Notes was $901 million and $924 million, respectively. We determined the fair value of the Term Loan and the Senior Notes using Bloomberg market prices. The fair value hierarchy for the Term Loan and the Senior Notes is a Level 1 input.

Debt Covenants

At September 30, 2014, we had financial covenants in the UBS Revolver, the ABSA Revolver and the Term Loan; however, only the ABSA Revolver had a financial maintenance covenant that applies to local operations and only when the ABSA Revolver is drawn upon. The Term Loan and the UBS Revolver are subject to an intercreditor agreement pursuant to which the lenders’ respective rights and interests in the security are set forth. We were in compliance with all our financial covenants as of and for the three and nine months ended September 30, 2014.

 

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Security

We have pledged the majority of our U.S. assets and certain assets of our non-U.S. subsidiaries in support of our outstanding debt.

Interest and Debt Expense, Net

Interest and debt expense, net consisted of the following:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2014     2013     2014     2013  

Interest on debt

  $ 30      $ 32      $ 93      $ 88   

Amortization of deferred debt issuance costs and discounts on debt

    2        1        7        7   

Other

    2        —          3        2   

Capitalized interest

    —          (1     (2     (3
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and debt expense, net

  $ 34      $ 32      $ 101      $ 94   
 

 

 

   

 

 

   

 

 

   

 

 

 

Debt issuance costs are being amortized through the respective maturity dates of our debt using the effective interest method. At September 30, 2014 and December 31, 2013, we had $46 million and $57 million, respectively, of deferred debt issuance costs, which are recorded in “Other long-term assets” on the unaudited Condensed Consolidated Balance Sheets.

14. Asset Retirement Obligations

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

 

    

Three Months

Ended September 30,

    

Nine Months

Ended September 30,

 
     2014     2013      2014     2013  

Beginning balance

   $ 100      $ 103       $ 96      $ 113   

Additions

     4        —           5        2   

Accretion expense

     —          1         3        5   

Remeasurement/translation

     (6     1         (4     (12

Changes in estimates, including cost and timing of cash flows

     (2     1         (1     —     

Settlements/payments

     (1     —           (4     (2
  

 

 

   

 

 

    

 

 

   

 

 

 

Ending balance

   $ 95      $ 106       $ 95      $ 106   
  

 

 

   

 

 

    

 

 

   

 

 

 

Current portion included in accrued liabilities

   $ 6      $ 7       $ 6      $ 7   
  

 

 

   

 

 

    

 

 

   

 

 

 

Noncurrent portion

   $ 89      $ 99       $ 89      $ 99   
  

 

 

   

 

 

    

 

 

   

 

 

 

Environmental Rehabilitation Trust

In accordance with applicable regulations, we have established an environmental rehabilitation trust for the prospecting and mining operations in South Africa, which receives, holds, and invests funds for the rehabilitation or management of asset retirement obligations. The trustees of the fund are appointed by us, and consist of sufficiently qualified employees capable of fulfilling their fiduciary duties. At September 30, 2014 and December 31, 2013, the environmental rehabilitation trust assets were $18 million and $22 million, respectively, which were recorded in “Other long-term assets” on the unaudited Condensed Consolidated Balance Sheets.

 

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15. Commitments and Contingencies

Purchase Commitments At September 30, 2014, purchase commitments were $63 million for the remainder of 2014, $217 million for 2015, $110 million for 2016, $98 million for 2017, $61 million for 2018, and $320 million thereafter.

Letters of Credit —At September 30, 2014, we had outstanding letters of credit, bank guarantees, and performance bonds of $44 million, of which $25 million were letters of credit issued under the UBS Revolver, $17 million were bank guarantees issued by ABSA and $2 million were performance bonds issued by Westpac Banking Corporation.

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

16. Shareholders’ Equity

The changes in outstanding Class A ordinary shares (“Class A Shares”) and Class B ordinary shares (“Class B Shares”) for the nine months ended September 30, 2014 were as follows:

 

Class A Shares:

  

Balance at December 31, 2013

     62,349,618   

Shares issued for share-based compensation

     189,445   

Shares issued upon warrants exercised

     739,090   

Shares issued upon options exercised

     238,054   
  

 

 

 

Balance at September 30, 2014

     63,516,207   
  

 

 

 

Class B Shares:

  

Balance at December 31, 2013

     51,154,280   
  

 

 

 

Balance at September 30, 2014

     51,154,280   
  

 

 

 

Warrants

Tronox Limited has outstanding Series A Warrants (the “Series A Warrants”) and Series B Warrants (the “Series B Warrants,” and together with the Series A Warrants, the “Warrants”). At September 30, 2014, holders of the Warrants were entitled to purchase 5.26 Class A Shares and receive $12.50 in cash at an exercise price of $58.74 for each Series A Warrant and $64.83 for each Series B Warrant. The Warrants have a seven-year term from the date initially issued and will expire on February 14, 2018. A holder may exercise the Warrants by paying the applicable exercise price in cash or exercising on a cashless basis. The Warrants are freely transferable by the holder. At September 30, 2014 there were 242,091 Series A Warrants and 353,299 Series B Warrants outstanding.

Dividends

During 2014, we declared and paid quarterly dividends to holders of our Class A Shares and Class B Shares as follows:

 

     Q1 2014      Q2 2014      Q3 2014  

Dividend per share

   $ 0.25       $ 0.25       $ 0.25   

Total dividend

   $ 29       $ 29       $ 29   

Record date (close of business)

     March 10         May 19         August 18   

 

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Accumulated Other Comprehensive Loss Attributable to Tronox Limited

The tables below present changes in accumulated other comprehensive loss by component for the three and nine months ended September 30, 2014 and 2013.

 

    Cumulative
Translation
Adjustment
    Pension
Liability
Adjustment
    Total  

Balance, December 31, 2013

  $ (215   $ (69   $ (284

Other comprehensive income (loss)

    (5     3        (2
 

 

 

   

 

 

   

 

 

 

Balance, March 31, 2014

    (220     (66     (286

Other comprehensive loss

    (10     —          (10
 

 

 

   

 

 

   

 

 

 

Balance, June 30, 2014

    (230     (66     (296

Other comprehensive income

    (64     —          (64

Amounts reclassified from accumulated other comprehensive loss

    35        —          35   
 

 

 

   

 

 

   

 

 

 

Balance, September 30, 2014

  $ (259   $ (66   $ (325
 

 

 

   

 

 

   

 

 

 
    Cumulative
Translation
Adjustment
    Pension
Liability
Adjustment
    Total  

Balance, December 31, 2012

  $ 4      $ (99   $ (95

Other comprehensive loss

    (91     —          (91

Amounts reclassified from accumulated other comprehensive loss

    —          1        1   
 

 

 

   

 

 

   

 

 

 

Balance, March 31, 2013

    (87     (98     (185

Other comprehensive loss

    (60     —          (60
 

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

    (147     (98     (245

Other comprehensive income

    (8     —          (8

Amounts reclassified from accumulated other comprehensive loss

    10        —          10   
 

 

 

   

 

 

   

 

 

 

Balance, September 30, 2013

  $ (145   $ (98   $ (243
 

 

 

   

 

 

   

 

 

 

17. Noncontrolling Interest

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

Noncontrolling interest activity was as follows:

 

     2014     2013  

Balance, January 1

   $ 199      $ 233   

Net income attributable to noncontrolling interest

     4        12   

Effect of exchange rate changes

     (3     (28
  

 

 

   

 

 

 

Balance, March 31

     200        217   

Net income attributable to noncontrolling interest

     2        12   

Effect of exchange rate changes

     (3     (23
  

 

 

   

 

 

 

Balance, June 30

     199        206   

Net income attributable to noncontrolling interest

     3        8   

Effect of exchange rate changes

     (18     (6
  

 

 

   

 

 

 

Balance, September 30

   $ 184      $ 208   
  

 

 

   

 

 

 

 

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18. Share-Based Compensation

Compensation expense consisted of the following:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2014     2013     2014     2013  

Restricted shares and restricted share units

  $ 3      $ 3      $ 10      $ 9   

Options

    2        2        6        5   

T-Bucks Employee Participation Plan

    —          —          1        2   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation expense

  $ 5      $ 5      $ 17      $ 16   
 

 

 

   

 

 

   

 

 

   

 

 

 

Tronox Limited Management Equity Incentive Plan

On June 15, 2012, we adopted the Tronox Limited Management Equity Incentive Plan (the “MEIP”), which permits the grant of awards that are comprised of incentive options, nonqualified options, share appreciation rights, restricted shares, restricted share units, performance awards, and other share-based awards, cash payments, and other forms 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 nine months ended September 30, 2014, we granted restricted shares which vest ratably over a three-year period. These awards are classified as equity awards, and are accounted for using the fair value established at the grant date.

The following table presents a summary of activity for the nine months ended September 30, 2014:

 

     Number of
Shares
    Weighted Average
Grant Date
Fair Value
 

Outstanding, January 1, 2014

     1,148,795      $ 20.61   

Granted

     38,766        22.17   

Vested

     (126,357     21.08   

Forfeited

     (37,269     23.78   
  

 

 

   

 

 

 

Outstanding, September 30, 2014

     1,023,935      $ 20.51   
  

 

 

   

 

 

 

Expected to vest, September 30, 2014

     1,020,870      $ 20.51   
  

 

 

   

 

 

 

At September 30, 2014, there was $6 million of unrecognized compensation expense related to nonvested restricted shares, adjusted for estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.4 years. The total fair value of restricted shares that vested during the nine months ended September 30, 2014 was $3 million.

 

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Restricted Share Units (“RSUs”)

During the nine months ended September 30, 2014, we granted RSUs which have time and/or performance conditions. Both the time-based awards and the performance-based awards are classified as equity awards. The time-based awards vest ratably over a three-year period, and are valued at the weighted average grant date fair value. The performance-based awards cliff vest at the end of the three years. Included in the performance-based awards are RSUs for which vesting is determined by a Total Stockholder Return (“TSR”) calculation over the applicable measurement period. The TSR metric is considered a market condition for which we use a Monte Carlo simulation to determine the grant date fair value.

 

     Number of
Shares
    Weighted Average
Grant Date
Fair Value
 

Outstanding, January 1, 2014

     303,324      $ 21.08   

Granted

     762,493        22.36   

Vested

     (62,191     20.33   

Forfeited

     (25,591     22.01   
  

 

 

   

 

 

 

Outstanding, September 30, 2014

     978,035      $ 22.10   
  

 

 

   

 

 

 

Expected to vest, September 30, 2014

     957,235      $ 22.09   
  

 

 

   

 

 

 

At September 30, 2014, there was $14 million of unrecognized compensation expense related to nonvested RSUs, adjusted for estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years. The total fair value of RSUs that vested during the nine months ended September 30, 2014 was $1 million.

Options

During the nine months ended September 30, 2014, we granted options to purchase Class A Shares, which vest ratably over a three-year period and have a ten-year term. The following table presents a summary of activity for the nine months ended September 30, 2014:

 

     Number of
Options
    Weighted
Average
Exercise
Price
     Weighted
Average
Contractual
Life (years)
     Intrinsic
Value
 

Outstanding, January 1, 2014

     2,094,771      $ 20.63         8.97       $ 7   

Granted

     915,988        22.02         

Exercised

     (238,054     20.63         

Forfeited

     (81,101     20.17         

Expired

     (160     25.90         
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding, September 30, 2014

     2,691,444      $ 21.12         8.60       $ 14   
  

 

 

   

 

 

    

 

 

    

 

 

 

Expected to vest, September 30, 2014

     2,005,059      $ 20.88         8.76       $ 11   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable, September 30, 2014

     645,025      $ 21.85         8.08       $ 3   
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic values in the table represent the total pre-tax intrinsic value (the difference between our share price at the indicated dates and the options’ exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at the end of the second quarter. The amount will change based on the fair market value of our stock. Total intrinsic value of options exercised during the nine months ended September 30, 2014 was $1 million. We issue new shares upon the exercise of options. During the nine months ended September 30, 2014, we received $5 million in cash for the exercise of stock options.

At September 30, 2014, unrecognized compensation expense related to options, adjusted for estimated forfeitures, was $11 million, which is expected to be recognized over a weighted-average period of 1.8 years.

 

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Fair value is determined on the grant date 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, which is the vesting period. The assumptions used in the Black-Scholes option-pricing model were as follows:

 

     February 10,
2014
    June 19,
2014
    August 15,
2014
 

Number of options granted

     910,375        1,155        4,458   

Fair market value and exercise price

   $ 21.98      $ 27.25      $ 29.68   

Risk-free interest rate

     1.88     2.07     1.86

Expected dividend yield

     4.55     3.67     3.37

Expected volatility

     58     57     57

Maturity (years)

     10        10        10   

Expected term (years)

     6        6        6   

Per-unit fair value of options granted

   $ 8.17      $ 10.80      $ 12.00   

The fair value is based on the closing price of our Class A Shares on the grant date. The risk-free interest rate is based on U.S. Treasury Strips available with a maturity period consistent with the expected life assumption. The expected volatility assumption is based on historical price movements of our peer group.

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

During 2012, we established the T-Bucks EPP for the benefit of certain qualifying employees of our South African subsidiaries. We funded the T-Bucks Trust (the “Trust”) with R124 million (approximately $15 million), which was used to acquire Class A Shares. Additional contributions may be made in the future at the discretion of the Board. The T-Bucks EPP is classified as an equity-settled shared-based payment plan, whereby participants were awarded share units in the Trust, which entitles them to receive Class A Shares upon completion of the vesting period on May 31, 2017. Participants are entitled to receive dividends on the shares during the vesting period. Forfeited shares are retained by the Trust, and are allocated to future participants. Compensation costs are recognized over the vesting period using the straight-line method. During 2012, the Trust purchased 548,234 Class A Shares at $25.79 per share, which was the fair value on the date of purchase. The balance at both September 30, 2014 and December 31, 2013 was 548,234 shares.

19. Pension and Other Postretirement Healthcare Benefits

We sponsor a noncontributory defined benefit retirement plan (qualified) 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 Statements of Operations were as follows:

 

    

Three Months

Ended September 30,

   

Nine Months

Ended September 30,

 
     2014     2013     2014     2013  

Net periodic cost:

        

Service cost

   $ 1      $ 1      $ 4      $ 4   

Interest cost

     5        5        16        15   

Expected return on plan assets

     (6     (5     (18     (15

Net amortization of actuarial loss

     —          1        —          2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net periodic cost

   $ —        $ 2      $ 2      $ 6   
  

 

 

   

 

 

   

 

 

   

 

 

 

The components of net periodic cost associated with the postretirement healthcare plans for each of the three months ended September 30, 2014 and 2013 were less than $1 million, and for the nine months ended September 30, 2014 and 2013 were $2 million and $1 million, respectively.

20. Segment Information

The reportable segments presented below represent our operating segments for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also considered the nature of services provided by our operating segments. We have two

 

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reportable segments, Mineral Sands and Pigment. Our Mineral Sands segment includes the exploration, mining, and beneficiation of mineral sands deposits, as well as heavy mineral production, and produces titanium feedstock, including chloride slag, slag fines, and rutile, as well as pig iron and zircon. Our Pigment segment primarily produces and markets TiO 2 . Corporate and Other is comprised of our electrolytic operations, all of which are located in the United States, as well as our corporate activities.

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, interest expense, other income (expense), and income tax expense or benefit.

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

 

    

Three Months

Ended September 30,

   

Nine Months

Ended September 30,

 
     2014     2013     2014     2013  

Mineral Sands segment

   $ 206      $ 245      $ 611      $ 855   

Pigment segment

     296        300        915        892   

Corporate and Other

     31        35        83        97   

Eliminations

     (104     (89     (272     (358
  

 

 

   

 

 

   

 

 

   

 

 

 

Net sales (1)

   $ 429      $ 491      $ 1,337      $ 1,486   
  

 

 

   

 

 

   

 

 

   

 

 

 

Mineral Sands segment

   $ 8      $ 41      $ 9      $ 205   

Pigment segment

     35        (29     30        (153

Corporate and Other

     (26     (20     (63     (55

Eliminations

     (6     17        29        2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     11        9        5        (1

Interest and debt expense, net

     (34     (32     (101     (94

Net loss on liquidation of non-operating subsidiaries

     (35     (10     (35     (10

Loss on extinguishment of debt

     —          —          (8     (4

Other income, net

     9        —          12        32   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (49     (33     (127     (77

Income provision

     (41     (8     (15     (10
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (90   $ (41   $ (142   $ (87
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

    

Three Months

Ended September 30,

    

Nine Months

Ended September 30,

 
     2014      2013      2014      2013  

U.S. operations

   $ 199       $ 219       $ 582       $ 622   

International operations:

           

Australia

     111         90         320         311   

South Africa

     69         129         253         383   

The Netherlands

     50         53         182         170   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 429       $ 491       $ 1,337       $ 1,486   
  

 

 

    

 

 

    

 

 

    

 

 

 

During the nine months ended September 30, 2014, our ten largest pigment customers and our ten largest third-party mineral sands customers represented approximately 33% and 13%, respectively, of net sales; however, no single customer accounted for more than 10% of total net sales.

 

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Table of Contents

Capital expenditures by segment were as follows:

 

    

Three Months

Ended September 30,

    

Nine Months

Ended September 30,

 
     2014      2013      2014      2013  

Mineral Sands segment

   $ 27       $ 10       $ 64       $ 59   

Pigment segment

     10         14         31         39   

Corporate and Other

     2         1         6         6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39       $ 25       $ 101       $ 104   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets by segment were as follows:

 

     September 30,     December 31,  
     2014     2013  

Mineral Sands segment

   $ 2,634      $ 2,957   

Pigment segment

     1,324        1,559   

Corporate and Other

     1,404        1,227   

Eliminations

     (15     (44
  

 

 

   

 

 

 

Total

   $ 5,347      $ 5,699   
  

 

 

   

 

 

 

21. Guarantor Condensed Consolidating Financial Statements

The obligations of Tronox Finance LLC, our wholly-owned subsidiary, under the Senior Notes are fully and unconditionally (subject to certain customary circumstances providing for the release of a guarantor subsidiary) guaranteed on a senior unsecured basis, jointly and severally, by Tronox Limited (referred to for purposes of this note only as the “Parent Company”) and each of its current and future restricted subsidiaries, other than excluded subsidiaries, that guarantee any indebtedness of the Parent Company or its restricted subsidiaries (collectively, the “Guarantor Subsidiaries”). The Subsidiary Issuer, Tronox Finance LLC, and each of the Guarantor Subsidiaries are 100% owned, directly or indirectly, by the Parent Company. Our subsidiaries that do not guarantee the Senior Notes are referred to as the “Non-Guarantor Subsidiaries.” The guarantor condensed consolidating financial statements presented below presents the statements of operations, statements of comprehensive income (loss), balance sheets and statements of cash flow data for: (i) the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and the subsidiary issuer, on a consolidated basis (which is derived from Tronox historical reported financial information); (ii) the Parent Company, alone (accounting for our Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and Tronox Finance LLC 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; (iv) the Non-Guarantor Subsidiaries alone; and (v) the subsidiary issuer, Tronox Finance LLC.

The guarantor condensed consolidating financial statements are presented on a legal entity basis, not on a business segment basis. The indenture governing the Senior Notes provides for a Guarantor Subsidiary to be automatically and unconditionally released and discharged from its guarantee obligations in certain customary circumstances, including:

 

    Sale or other disposition of such Guarantor Subsidiary’s capital stock or all or substantially all of its assets and all of the indenture obligations (other than contingent obligations) of such Subsidiary Guarantor in respect of all other indebtedness of the Subsidiary Guarantors terminate upon the consummation of such transaction;

 

    Designation of such Guarantor Subsidiary as an “unrestricted subsidiary” under the indenture;

 

    In the case of certain Guarantor Subsidiaries that incur or guarantee indebtedness under certain credit facilities, upon the release or discharge of such Guarantor Subsidiary’s guarantee or incurrence of indebtedness that resulted in the creation of such guarantee, except a discharge or release as a result of payment under such guarantee;

 

    Legal defeasance, covenant defeasance, or satisfaction and discharge of the indenture obligations;

 

    Payment in full of the aggregate principal amount of all outstanding Senior Notes and all other obligations under the indenture; or

 

    Release or discharge of the Guarantor Subsidiary’s guarantee of certain other indebtedness.

 

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Table of Contents

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2014

(Unaudited)

(Millions of U.S. dollars)

 

    Consolidated     Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net sales

  $ 429      $ (61   $ —        $ —        $ 325      $ 165   

Cost of goods sold

    (361     51        —          —          (269     (143
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    68        (10     —          —          56        22   

Selling, general and administrative expenses

    (47     3        —          (3     (35     (12

Restructuring expense

    (10     —          —          —          (9     (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    11        (7     —          (3     12        9   

Interest and debt expense, net

    (34     —          (15     —          (1     (18

Intercompany interest income (expense)

    —          —          —          137        (145     8   

Net loss on liquidation of non-operating subsidiaries

    (35     —          —          —          (33     (2

Other income (expense)

    9        (3     —          —          —          12   

Equity in earnings of subsidiary

    —          179        —          (185     6        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (49     169        (15     (51     (161     9   

Income tax benefit (provision)

    (41     —          4        (42     27        (30
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (90     169        (11     (93     (134     (21

Net income attributable to noncontrolling interest

    3        3        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Tronox Limited

  $ (93   $ 166      $ (11   $ (93   $ (134   $ (21
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2014

(Unaudited)

(Millions of U.S. dollars)

 

    Consolidated     Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net sales

  $ 1,337      $ (186   $ —        $ —        $ 945      $ 578   

Cost of goods sold

    (1,184     203        —          —          (858     (529
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    153        17        —          —          87        49   

Selling, general and administrative expenses

    (138     11        —          (8     (102     (39

Restructuring expense

    (10     —          —          —          (9     (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    5        28        —          (8     (24     9   

Interest and debt expense, net

    (101     —          (45     —          (3     (53

Intercompany interest income (expense)

    —          —          —          410        (434     24   

Net loss on liquidation of non-operating subsidiaries

    (35     —          —          —          (33     (2

Loss on extinguishment of debt

    (8     —          —          —          (2     (6

Other income (expense)

    12        29        —          —          (14     (3

Equity in earnings of subsidiary

    —          448        —          (430     (18     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (127     505        (45     (28     (528     (31

Income tax benefit (provision)

    (15     —          13        (123     122        (27
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (142     505        (32     (151     (406     (58

Net income attributable to noncontrolling interest

    9        9        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Tronox Limited

  $ (151   $ 496      $ (32   $ (151   $ (406   $ (58
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, 2014

(Unaudited)

(Millions of U.S. dollars)

 

    Consolidated     Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net income (loss)

  $ (90   $ 169      $ (11   $ (93   $ (134   $ (21

Other comprehensive income (loss):

           

Foreign currency translation adjustments

    (47     126        —          (47     (37     (89
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

    (47     126        —          (47     (37     (89
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

    (137     295        (11     (140     (171     (110
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest:

           

Net income

    3        3        —          —          —          —     

Foreign currency translation adjustments

    (18     —          —          (18     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

    (15     3        —          (18     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

  $ (122   $ 292      $ (11   $ (122   $ (171   $ (110
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Nine Months Ended September 30, 2014

(Unaudited)

(Millions of U.S. dollars)

 

    Consolidated     Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net income (loss)

  $ (142   $ 505      $ (32   $ (151   $ (406   $ (58

Other comprehensive income (loss):

           

Foreign currency translation adjustments

    (68     164        —          (67     (59     (106

Pension and postretirement plans

    3        (1     —          2        2        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

    (65     163        —          (65     (57     (106
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

    (207     668        (32     (216     (463     (164
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest:

           

Net income

    9        9        —          —          —          —     

Foreign currency translation adjustments

    (24     —          —          (24     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

    (15     9        —          (24     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

  $ (192   $ 659      $ (32   $ (192   $ (463   $ (164
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GUARANTOR CONDENSED CONSOLIDATING BALANCE SHEETS

As of September 30, 2014

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated      Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

ASSETS

             

Cash and cash equivalents

   $ 1,345       $ —        $ —        $ 29      $ 408      $ 908   

Inventories, net

     778         (15     —          —          489        304   

Other current assets

     385         (2,091     31        985        712        748   

Investment in subsidiaries

     —           2,418        —          (3,613     1,195        —     

Property, plant and equipment, net

     1,201         —          —          —          698        503   

Mineral leaseholds, net

     1,092         —          —          —          625        467   

Intercompany loans receivable

     —           (7,287     772        6,043        144        328   

Other long-term assets

     546         —          23        102        372        49   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,347       $ (6,975   $ 826      $ 3,546      $ 4,643      $ 3,307   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

Total current liabilities

   $ 330       $ (2,091   $ 7      $ 789      $ 1,446      $ 179   

Long-term debt

     2,380         —          898        —          1        1,481   

Intercompany loans payable

     —           (7,287     9        775        6,362        141   

Other long-term liabilities

     471         —          —          —          246        225   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     3,181         (9,378     914        1,564        8,055        2,026   

Total equity

     2,166         2,403        (88     1,982        (3,412     1,281   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 5,347       $ (6,975   $ 826      $ 3,546      $ 4,643      $ 3,307   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2014

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Cash Flows from Operating Activities:

            

Net income (loss)

   $ (142   $ 505      $ (32   $ (151   $ (406   $ (58

Depreciation, depletion and amortization

     225        —          —          —          163        62   

Other

     6        (482     (19     207        370        (70
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) operating activities

     89        23        (51     56        127        (66
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

            

Capital expenditures

     (106     —          —          —          (54     (52

Collections of intercompany debt

     —          (51     51        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash used in investing activities

     (106     (51     51        —          (54     (52
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

            

Repayments of debt

     (16     —          —          —          (2     (14

Repayments of intercompany debt

     —          51        —          (51     —          —     

Debt issuance costs

     (2     —          —          —          —          (2

Dividends paid

     (87     —          —          (87     —          —     

Proceeds from the exercise of warrants and options

     5        —          —          5        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (100     51        —          (133     (2     (16
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effects of exchange rate changes on cash and cash equivalents

     (16     (23     —          (73     (37     117   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (133     —          —          (150     34        (17

Cash and cash equivalents at beginning of period

   $ 1,478      $ —        $ —        $ 179      $ 374      $ 925   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,345      $ —        $ —        $ 29      $ 408      $ 908   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We revised each of our guarantor condensed consolidating financial statements as of December 31, 2013 and for each of the three and nine months ended September 30, 2013 regarding the presentation of intercompany activities between the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and the subsidiary issuer. These revisions, which we determined are not material to our prior year condensed financial statements or consolidated financial statements based on quantitative and qualitative considerations, did not affect our consolidated financial position, consolidated results of operations or consolidated cash flows. The revisions were as follows:

 

    The condensed consolidating financial statements previously issued were not prepared under the equity method of accounting. In accordance with Rule 3-10 of Regulation S-X, we have properly prepared our revised condensed consolidating financial statements under the equity method of accounting.

 

    In the condensed consolidating financial statements previously issued, Tronox Finance LLC, the subsidiary issuer, was included in the “Parent Company” column. In the revised condensed consolidating financial statements, we have properly included Tronox Finance LLC in a separate column.

 

    Two subsidiaries which were incorrectly classified as “Guarantor Subsidiaries” have been reclassified to “Non-Guarantor Subsidiaries” in the revised condensed consolidating financial statements.

 

    Certain financial statement line items have been expanded and reclassifications were made to enhance transparency.

 

28


Table of Contents

REVISED GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

    Consolidated     Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net sales

  $ 491      $ (49   $ —        $ —        $ 330      $ 210   

Cost of goods sold

    437        (68     —          —          326        179   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    54        19        —          —          4        31   

Selling, general and administrative expenses

    (45     4        —          (2     (32     (15
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    9        23        —          (2     (28     16   

Interest and debt expense, net

    (32     —          (14     —          (1     (17

Intercompany interest income (expense)

    —          —          —          137        (144     7   

Loss on extinguishment of debt

    —          —          —          —          —          —     

Other income (expense)

    (10     1        —          —          (8     (3

Equity in earnings of subsidiary

    —          116        —          (135     19        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (33     140        (14     —          (162     3   

Income tax benefit (provision)

    (8     —          4        (49     48        (11
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (41     140        (10     (49     (114     (8

Net income attributable to noncontrolling interest

    8        8        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Tronox Limited

  $ (49   $ 132      $ (10   $ (49   $ (114   $ (8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AS PREVIOUSLY FILED

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three months ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net sales

   $ 491      $ (61   $ —        $ 326      $ 226   

Cost of goods sold

     437        (84     —          326        195   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     54        23        —          —          31   

Selling, general and administrative expenses

     (45     1        (2     (32     (12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     9        24        (2     (32     19   

Interest and debt expense, net

     (32     —          137        (159     (10

Other income (expense)

     (10     (44     —          (3     37   

Equity in earnings of subsidiary

     —          135        (135     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (33     115        —          (194     46   

Income tax benefit (provision)

     (8     —          (50     52        (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (41     115        (50     (142     36   

Net income attributable to noncontrolling interest

     8        —          —          8        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Tronox Limited

   $ (49   $ 115      $ (50   $ (150   $ 36   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

REVISED GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net sales

   $ 1,486      $ (228   $ —        $ —        $ 1,008      $ 706   

Cost of goods sold

     1,350        (214     —          —          968        596   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     136        (14     —          —          40        110   

Selling, general and administrative expenses

     (137     16        —          (11     (97     (45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (1     2        —          (11     (57     65   

Interest and debt expense, net

     (94     —          (44     —          (5     (45

Intercompany interest income (expense)

     —          —          —          410        (432     22   

Loss on extinguishment of debt

     (4     —          —          —          (3     (1

Other income (expense)

     22        1        —          1        (16     36   

Equity in earnings of subsidiary

     —          317        —          (391     74        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (77     320        (44     9        (439     77   

Income tax benefit (provision)

     (10     —          13        (128     132        (27
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (87     320        (31     (119     (307     50   

Net income attributable to noncontrolling interest

     32        32        —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Tronox Limited

   $ (119   $ 288      $ (31   $ (119   $ (307   $ 50   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AS PREVIOUSLY FILED

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Nine Months ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

    Consolidated     Eliminations     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net sales

  $ 1,486      $ (256   $ —        $ 994      $ 748   

Cost of goods sold

    1,350        (256     —          968        638   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    136        —          —          26        110   

Selling, general and administrative expenses

    (137     3        (11     (98     (31
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (1     3        (11     (72     79   

Interest and debt expense, net

    (94     —          410        (483     (21

Other income (expense)

    18        (44     1        5        56   

Equity in earnings of subsidiary

    —          391        (391     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (77     350        9        (550     114   

Income tax benefit (provision)

    (10     —          (128     143        (25
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (87     350        (119     (407     89   

Net income attributable to noncontrolling interest

    32        —          —          32        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Tronox Limited

  $ (119   $ 350      $ (119   $ (439   $ 89   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

REVISED GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations      Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net income (loss)

   $ (41   $ 140       $ (10   $ (49   $ (114   $ (8

Other comprehensive income (loss):

             

Foreign currency translation adjustments

     (5     19         —          (5     (16     (3

Pension and postretirement plans

     1        —           —          1        —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (4     19         —          (4     (16     (3
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     (45     159         (10     (53     (130     (11
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest:

             

Net income

     8        8         —          —          —          —     

Foreign currency translation adjustments

     (6     —           —          (6     —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

     2        8         —          (6     —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

   $ (47   $ 151       $ (10   $ (47   $ (130   $ (11
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

AS PREVIOUSLY FILED

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations      Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net income (loss)

   $ (41   $ 115       $ (50   $ (142   $ 36   

Other comprehensive income (loss):

           

Foreign currency translation adjustments

     (5     —           —          —          (5

Pension and postretirement plans

     1        —           —          2        (1
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (4     —           —          2        (6
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     (45     115         (50     (140     30   

Comprehensive income (loss) attributable to noncontrolling interest:

           

Net income

     8        —           —          8        —     

Foreign currency translation adjustments

     (6     —           —          (6     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

     2        —           —          2        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

   $ (47   $ 115       $ (50   $ (142   $ 30   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

REVISED GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Nine Months Ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations      Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net income (loss)

   $ (87   $ 320       $ (31   $ (119   $ (307   $ 50   

Other comprehensive income (loss):

             

Foreign currency translation adjustments

     (206     416         —          (206     (213     (203

Pension and postretirement plans

     1        1         —          1        —          (1
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (205     417         —          (205     (213     (204
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     (292     737         (31     (324     (520     (154
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest:

             

Net income

     32        32         —          —          —          —     

Foreign currency translation adjustments

     (57     —           —          (57     —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

     (25     32         —          (57     —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

   $ (267   $ 705       $ (31   $ (267   $ (520   $ (154
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

AS PREVIOUSLY FILED

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Nine Months ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated     Eliminations      Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Net income (loss)

   $ (87   $ 350       $ (119   $ (407   $ 89   

Other comprehensive income (loss):

           

Foreign currency translation adjustments

     (206     —           —          —          (206

Pension and postretirement plans

     1        —           —          2        (1
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (205     —           —          2        (207
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     (292     350         (119     (405     (118

Comprehensive income (loss) attributable to noncontrolling interest:

           

Net income

     32        —           —          32        —     

Foreign currency translation adjustments

     (57     —           —          (57     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interest

     (25     —           —          (25     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Tronox Limited

   $ (267   $ 350       $ (119   $ (380   $ (118
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

REVISED GUARANTOR CONDENSED CONSOLIDATING BALANCE SHEETS

As of December 31, 2013

(Unaudited)

(Millions of U.S. dollars)

 

     Consolidated      Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

ASSETS

             

Cash and cash equivalents

   $ 1,478       $ —        $ —        $ 179      $ 374      $ 925   

Inventory

     759         (44     —          —          474        329   

Other current assets

     416         (1,605     25        556        721        719   

Investment in subsidiaries

     —           1,849        —          (3,145     1,296        —     

Property, plant and equipment, net

     1,258         —          —          —          710        548   

Mineral leaseholds, net

     1,216         —          —          —          700        516   

Intercompany loans receivable

     —           (7,302     825        6,043        105        329   

Other long-term assets

     572         —          12        88        364        108   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,699       $ (7,102   $ 862      $ 3,721      $ 4,744      $ 3,474   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

Total current liabilities

   $ 363       $ (1,605   $ 22      $ 658      $ 1,091      $ 197   

Long-term debt

     2,395         —          897        —          3        1,495   

Intercompany loans payable

     —           (7,302     —          825        6,372        105   

Other long-term liabilities

     504         —          —          —          235        269   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     3,262         (8,907     919        1,483        7,701        2,066   

Total equity

     2,437         1,805        (57     2,238        (2,957     1,408   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 5,699       $ (7,102   $ 862      $ 3,721      $ 4,744      $ 3,474   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AS PREVIOUSLY FILED

GUARANTOR CONDENSED CONSOLIDATING BALANCE SHEETS

As of December 31, 2013

(Millions of U.S. dollars)

 

     Consolidated      Eliminations     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

ASSETS

           

Cash and cash equivalents

   $ 1,478       $ —        $ 179      $ 1,094      $ 205   

Investment in subsidiaries

     —           (952     (1,095     1,590        457   

Other current assets

     1,175         (9,645     6,599        2,125        2,096   

Property, plant and equipment, net

     1,258         —          —          710        548   

Mineral leaseholds, net

     1,216         —          —          701        515   

Other long-term assets

     572         —          88        376        108   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,699       $ (10,597   $ 5,771      $ 6,596      $ 3,929   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

           

Total current liabilities

   $ 363       $ (2,333   $ 658      $ 1,801      $ 237   

Long-term debt

     2,395         (7,268     825        7,272        1,566   

Other long-term liabilities

     504         —          —          236        268   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     3,262         (9,601     1,483        9,309        2,071   

Total equity

     2,437         (996     4,288        (2,713     1,858   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 5,699       $ (10,597   $ 5,771      $ 6,596      $ 3,929   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

REVISED GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2013

(Unaudited)

(Millions of U.S. dollars)

 

    Consolidated     Eliminations     Tronox
Finance LLC
    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
 

Cash Flows from Operating Activities:

           

Net income (loss)

  $ (87   $ 320      $ (31   $ (119   $ (307   $ 50   

Depreciation, depletion and amortization

    238        —          —          —          158        80   

Other

    59        (263     (26     215        321        (188
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) operating activities

    210        57        (57     96        172        (58
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

           

Capital expenditures

    (104     —          —          —          (44     (60

Collections of intercompany debt

    —          (57     57        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investing activities

    (104     (57     57        —          (44     (60
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

           

Repayments of debt

    (185     —          —          —          (3     (182

Repayments of intercompany debt

    —          57        —          (57     —          —     

Proceeds from debt

    945        —          —          —          —          945   

Debt issuance costs

    (29     —          —          —          —          (29

Dividends paid

    (86     —          —          (86     —          —     

Proceeds from the exercise of warrants and options

    1        —          —          1        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

    646        57        —          (142     (3     734   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effects of exchange rate changes on cash and cash equivalents

    (11     (57     —          (148     —          194   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    741        —          —          (194     125        810   

Cash and cash equivalents at beginning of period

  $ 716      $ —        $ —        $ 533      $ 78      $ 105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ 1,457      $ —        $ —&nb