Tronox Limited
Tronox Ltd (Form: 10-Q, Received: 11/07/2013 16:07:02)

      

      

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, 2013

OR

 

¨

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

For the transition period from                  to                 

1-35573

(Commission file number)

      

TRONOX LIMITED

(ACN 153 348 111)

(Exact Name of Registrant as Specified in its Charter)

      

   

 

Western Australia, Australia

   

98-1026700

(State or Other Jurisdiction of

Incorporation or Organization)

   

(I.R.S. Employer

Identification Number)

One Stamford Plaza

263 Tresser Boulevard, Suite 1100

Stamford, Connecticut 06901

(Address of principal executive offices)

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

      

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

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

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

   

 

Large accelerated filer

   

¨

   

Accelerated filer

   

¨

Non-accelerated filer

   

x

      

Smaller reporting company

   

¨

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

As of October 31, 2013, there were 113,494,096 shares of the Registrant’s Class A ordinary shares and Class B ordinary shares outstanding.

      

      

   

   

   


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  

 

  41

   

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk  

 

  50

   

   

Item 4. Controls and Procedures  

 

  51

   

   

PART II – OTHER INFORMATION  

   

   

   

Item 1. Legal Proceedings  

 

  52

   

   

Item 1A. Risk Factors  

 

  52

   

   

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

 

  52

   

   

Item 3. Defaults Upon Senior Securities  

 

  52

   

   

Item 4. Mine Safety Disclosures  

 

  52

   

   

Item 5. Other Information  

 

  52

   

   

Item 6. Exhibits  

 

  53

   

   

SIGNATURES  

 

  54

   

   

   

   

 

 2 


PART I. F INANCIAL INFORMATION

Item 1. F inancial Statements (Unaudited)

   

 

   

Page

   

   

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012  

 

  4

   

   

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

 

  5

   

   

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

 

  6

   

   

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012  

 

  7

   

   

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

 

  8

   

   

Notes to Condensed Consolidated Financial Statements  

 

  9

   

   

   

 

 3 


TRONO X 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,

   

   

2013

   

   

2012

   

   

2013

   

   

2012

   

Net Sales

$

491

   

   

$

487

   

   

$

1,486

   

   

$

1,350

   

Cost of goods sold

   

437

   

   

   

444

   

   

   

1,350

   

   

   

1,025

   

Gross Margin

   

54

   

   

   

43

   

   

   

136

   

   

   

325

   

Selling, general and administrative expenses

   

45

   

   

   

60

   

   

   

137

   

   

   

207

   

Income (Loss) from Operations

   

9

   

   

   

(17

)

   

   

(1

)

   

   

118

   

Interest and debt expense

   

(32

)

   

   

(18

)

   

   

(94

)

   

   

(40

)

Other income (expense)

   

(10

)

   

   

—  

   

   

   

18

   

   

   

(4

)

Gain on bargain purchase

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

1,055

   

Income (Loss) before Income Taxes

   

(33

)

   

   

(35

)

   

   

(77

)

   

   

1,129

   

Income tax benefit (provision)

   

(8

)

   

   

34

   

   

   

(10

)

   

   

100

   

Net Income (Loss)

$

(41

)

   

$

(1

)

   

$

(87

)

   

$

1,229

   

Net income attributable to noncontrolling interest

   

8

   

   

   

2

   

   

   

32

   

   

   

2

   

Net Income (Loss) attributable to Tronox Limited

$

(49

)

   

$

(3

)

   

$

(119

)

   

$

1,227

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Income (Loss) per Share, Basic and Diluted:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Basic

$

(0.43

)

   

$

(0.03

)

   

$

(1.05

)

   

$

12.95

   

Diluted

$

(0.43

)

   

$

(0.03

)

   

$

(1.05

)

   

$

12.59

   

Weighted Average Shares Outstanding (in thousands):

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Basic

   

113,459

   

   

   

122,352

   

   

   

113,389

   

   

   

94,193

   

Diluted

   

113,459

   

   

   

122,352

   

   

   

113,389

   

   

   

96,903

   

   

   

   

   

   

   

   

   

See notes to unaudited condensed consolidated financial statements.

   

   

 

 4 


TRONO X LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Millions of U.S. dollars)

   

 

   

Three Months Ended September 30,

   

   

Nine Months Ended  September 30,  

   

2013

   

   

2012

   

   

2013

   

   

2012

   

Net Income (Loss):

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net Income (Loss)

$

(41

)

   

$

(1

)

   

$

(87

)

   

$

1,229

   

Other Comprehensive Income (Loss):

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Foreign currency translation adjustments

   

(5

)

   

   

14

   

   

   

(206

)

   

   

47

   

Amortization of actuarial gain, net of taxes

   

1

   

   

   

—  

   

   

   

1

   

   

   

—  

   

Other comprehensive income (loss)

   

(4

)

   

   

14

   

   

   

(205

)

   

   

47

   

Total comprehensive income (loss)

   

(45

)

   

   

13

   

   

   

(292

)

   

   

1,276

   

Comprehensive income (loss) attributable to noncontrolling interest:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net income

   

8

   

   

   

2

   

   

   

32

   

   

   

2

   

Foreign currency translation adjustments

   

(6

)

   

   

3

   

   

   

(57

)

   

   

13

   

Comprehensive income (loss) attributable to noncontrolling interest

   

2

   

   

   

5

   

   

   

(25

)

   

   

15

   

Comprehensive income (loss) attributable to Tronox Limited

$

(47

)

   

$

8

   

   

$

(267

)

   

$

1,261

   

   

   

   

   

   

   

   

   

   

   

   

   

   

See notes to unaudited condensed consolidated financial statements.

   

   

 

 5 


TRONO X LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

   

 

   

September 30,
2013

   

   

December 31,
2012

   

Current Assets

   

   

   

   

   

   

   

Cash and cash equivalents

$

1,457

   

   

$

716

   

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

   

373

   

   

   

391

   

Inventories

   

734

   

   

   

914

   

Prepaid and other assets

   

44

   

   

   

38

   

Deferred tax assets

   

96

   

   

   

114

   

Total Current Assets

   

2,704

   

   

   

2,173

   

Noncurrent Assets

   

   

   

   

   

   

   

Property, plant and equipment, net

   

1,276

   

   

   

1,423

   

Mineral leaseholds, net

   

1,269

   

   

   

1,439

   

Intangible assets, net

   

306

   

   

   

326

   

Long-term deferred tax assets

   

148

   

   

   

91

   

Other long-term assets, net

   

82

   

   

   

59

   

Total Assets

$

5,785

   

   

$

5,511

   

Current Liabilities

   

   

   

   

   

   

   

Accounts payable

$

141

   

   

$

189

   

Accrued liabilities

   

149

   

   

   

209

   

Short-term debt

   

—  

   

   

   

30

   

Long-term debt due within one year

   

18

   

   

   

10

   

Income taxes payable

   

14

   

   

   

24

   

Deferred tax liabilities

   

1

   

   

   

5

   

Total Current Liabilities

   

323

   

   

   

467

   

Noncurrent Liabilities

   

   

   

   

   

   

   

Long-term debt

   

2,386

   

   

   

1,605

   

Pension and postretirement healthcare benefits

   

178

   

   

   

176

   

Asset retirement obligations

   

99

   

   

   

106

   

Long-term deferred tax liabilities

   

220

   

   

   

222

   

Other long-term liabilities

   

58

   

   

   

53

   

Total Liabilities

   

3,264

   

   

   

2,629

   

Contingencies and Commitments

   

   

   

   

   

   

   

Shareholders’ Equity

   

   

   

   

   

   

   

Class A ordinary shares, par value $0.01 — 64,349,504 shares issued and 62,308,497 shares outstanding at September 30, 2013 and 63,413,288 shares issued and 62,103,989 shares outstanding at December 31, 2012

   

1

   

   

   

1

   

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

   

—  

   

   

   

—  

   

Capital in excess of par value

   

1,446

   

   

   

1,429

   

Retained earnings

   

1,109

   

   

   

1,314

   

Accumulated other comprehensive loss

   

(243

)

   

   

(95

)

Total Shareholders’ Equity

   

2,313

   

   

   

2,649

   

Noncontrolling interest

   

208

   

   

   

233

   

Total Equity

   

2,521

   

   

   

2,882

   

Total Liabilities and Equity

$

5,785

   

   

$

5,511

   

See notes to unaudited condensed consolidated financial statements.

   

   

 

 6 


TRONOX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Millions of U.S. dollars)

   

 

   

Nine Months Ended September30,

   

   

2013

   

   

2012

   

Cash Flows from Operating Activities

   

   

   

   

   

   

   

Net income (loss)

$

(87

)

   

$

1,229

   

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

   

   

   

   

   

   

   

Depreciation, depletion and amortization

   

238

   

   

   

124

   

Deferred income taxes

   

14

   

   

   

(105

)

Share-based compensation expense

   

16

   

   

   

29

   

Amortization of debt issuance costs and debt discounts

   

7

   

   

   

7

   

Pension and postretirement healthcare benefit expense, net

   

7

   

   

   

4

   

Gain on bargain purchase

   

—  

   

   

   

(1,055

)

Other noncash items affecting net income (loss)

   

(5

)

   

   

131

   

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

   

   

   

   

   

   

   

(Increase) decrease in accounts receivable

   

—  

   

   

   

117

   

(Increase) decrease in inventories

   

106

   

   

   

(217

)

(Increase) decrease in prepaid and other assets

   

(7

)

   

   

7

   

Increase (decrease) in accounts payable and accrued liabilities

   

(42

)

   

   

(140

)

Increase (decrease) in income taxes payable

   

(23

)

   

   

(24

)

Other, net

   

(14

)

   

   

(32

)

Cash provided by operating activities

   

210

   

   

   

75

   

Cash Flows from Investing Activities

   

   

   

   

   

   

   

Capital expenditures

   

(104

)

   

   

(91

)

Cash received in acquisition of minerals sands business, net of cash paid

   

—  

   

   

   

114

   

Cash (used in) provided by investing activities

   

(104

)

   

   

23

   

Cash Flows from Financing Activities

   

   

   

   

   

   

   

Repayments of debt

   

(185

)

   

   

(583

)

Proceeds from borrowings

   

945

   

   

   

1,690

   

Debt issuance costs

   

(29

)

   

   

(20

)

Dividends paid

   

(86

)

   

   

(32

)

Merger consideration

   

—  

   

   

   

(193

)

Class A ordinary share repurchases, including commissions paid

   

—  

   

   

   

(326

)

Shares purchased for the Employee Participation Program

   

—  

   

   

   

(15

)

Proceeds from conversion of warrants

   

1

   

   

   

1

   

Cash provided by financing activities

   

646

   

   

   

522

   

Effects of Exchange Rate Changes on Cash and Cash Equivalents

   

(11

)

   

   

—  

   

Net Increase in Cash and Cash Equivalents

   

741

   

   

   

620

   

Cash and Cash Equivalents at Beginning of Period

   

716

   

   

   

154

   

Cash and Cash Equivalents at End of Period

$

1,457

   

   

$

774

   

See notes to unaudited condensed consolidated financial statements.

   

 

 7 


TRONO X LIMITED

CONDENSED CONSOLIDATED STATEMENTS 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, 2012

$

1

   

   

$

—  

   

   

$

1,429

   

   

$

1,314

   

   

$

(95

)

   

$

2,649

   

   

$

233

   

   

$

2,882

   

Net income (loss)

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(119

)

   

   

—  

   

   

   

(119

)

   

   

32

   

   

   

(87

)

Other comprehensive loss

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(148

)

   

   

(148

)

   

   

(57

)

   

   

(205

)

Share-based compensation

   

—  

   

   

   

—  

   

   

   

16

   

   

   

—  

   

   

   

—  

   

   

   

16

   

   

   

—  

   

   

   

16

   

Warrants exercised

   

—  

   

   

   

—  

   

   

   

1

   

   

   

—  

   

   

   

—  

   

   

   

1

   

   

   

—  

   

   

   

1

   

Class A and Class B dividends declared

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(86

)

   

   

—  

   

   

   

(86

)

   

   

—  

   

   

   

(86

)

Balance at September 30, 2013

$

1

   

   

$

0

   

   

$

1,446

   

   

$

1,109

   

   

$

(243

)

   

$

2,313

   

   

$

208

   

   

$

2,521

   

   

 

   

Tronox
Limited
Class A
Ordinary
Shares

   

   

Tronox
Limited
Class B
Ordinary
Shares

   

   

Capital in
Excess of
par Value

   

   

Retained
Earnings

   

   

Accumulated
Other
Comprehensive
Income (Loss)

   

   

Treasury
Shares

   

   

Total
Shareholders’
Equity

   

   

Non-
controlling
Interest

   

   

Total
Equity

   

Balance at December 31, 2011

$

—  

   

   

$

—  

   

   

$

579

   

   

$

242

   

   

$

(57

)

   

$

(12

)

   

$

752

   

   

$

—  

   

   

$

752

   

Fair value of noncontrolling interest on Transaction Date

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

233

   

   

   

233

   

Net income(loss)

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

1,227

   

   

   

—  

   

   

   

—  

   

   

   

1,227

   

   

   

2

   

   

   

1,229

   

Other comprehensive income (loss)

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

34

   

   

   

—  

   

   

   

34

   

   

   

13

   

   

   

47

   

Share-based compensation

   

—  

   

   

   

—  

   

   

   

2

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

2

   

   

   

—  

   

   

   

2

   

Merger consideration paid

   

—  

   

   

   

—  

   

   

   

(193

)

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(193

)

   

   

—  

   

   

   

(193

)

Issuance of Tronox Limited shares

   

—  

   

   

   

—  

   

   

   

1,370

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

1,370

   

   

   

—  

   

   

   

1,370

   

Class A Shares repurchased

   

—  

   

   

   

—  

   

   

   

(326

)

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(326

)

   

   

—  

   

   

   

(326

)

Shares purchased for the Employee Participation Plan

   

—  

   

   

   

—  

   

   

   

(15

)

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(15

)

   

   

—  

   

   

   

(15

)

Issuance of Tronox Limited shares in share-split

   

1

   

   

   

—  

   

   

   

—  

   

   

   

(1

)

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

ClassA and Class B dividends declared

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(32

)

   

   

—  

   

   

   

—  

   

   

   

(32

)

   

   

—  

   

   

   

(32

)

Tronox Incorporated warrants exercised

   

—  

   

   

   

—  

   

   

   

1

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

1

   

   

   

—  

   

   

   

1

   

Tronox Incorporated share-based compensation

   

—  

   

   

   

—  

   

   

   

27

   

   

   

—  

   

   

   

—  

   

   

   

(7

)

   

   

20

   

   

   

—  

   

   

   

20

   

Tronox Incorporated shares vested/cancelled

   

—  

   

   

   

—  

   

   

   

(19

)

   

   

—  

   

   

   

—  

   

   

   

19

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

Balance at September 30, 2012

$

1

   

   

$

—  

   

   

$

1,426

   

   

$

1,436

   

   

$

(23

)

   

$

—  

   

   

$

2,840

   

   

$

248

   

   

$

3,088

   

   

   

   

   

See notes to unaudited condensed consolidated financial statements.

   

   

 

 8 


TRONOX LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

   

1. The Company

Tronox Limited, a public limited company registered under the laws of the State of Western Australia, Australia, and its subsidiaries (collectively referred to as “Tronox” or the “Company”) is a global leader in the production and marketing of high grade titanium feedstock and titanium dioxide pigment (“TiO 2 ”). The Company’s world-class, high performance TiO 2 products are critical components of everyday applications such as paint and other coatings, plastics, paper and other applications. The Company’s mineral sands business consists primarily of 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. Tronox operates three TiO pigment production facilities at the following locations: Hamilton, Mississippi; Botlek, The Netherlands; and Kwinana, Western Australia, and operates three separate mining and beneficiation operations: KwaZulu-Natal (“KZN”) Sands and Namakwa Sands located in South Africa, and Cooljarloo Sands located in Western Australia.

Tronox Limited was formed on September 21, 2011 for the purpose of the Transaction (as defined below). Prior to the completion of the Transaction, Tronox Limited was wholly-owned by Tronox Incorporated, and had no operating assets or operations. On September 25, 2011, Tronox Incorporated, a Delaware corporation formed on May 17, 2005 (“Tronox Incorporated”), entered into a definitive agreement (as amended, the “Transaction Agreement”) with Exxaro Resources Limited (“Exxaro”) and certain of its affiliated companies, to acquire 74% of Exxaro’s mineral sands operations, along with its 50% share of the Tiwest Joint Venture (the “Transaction”). On June 15, 2012, the date of the Transaction (the “Transaction Date”), the existing business of Tronox Incorporated was combined with the mineral sands business in an integrated series of transactions whereby Tronox Limited became the parent company.

   

2. Basis of Presentation

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

The unaudited condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012 relate to Tronox Limited. The unaudited condensed consolidated statements of operations and cash flows for the three and nine months ended September 30, 2013 and three months ended September 30, 2012 reflect the consolidated operating results of Tronox Limited. The unaudited condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2012, reflect the consolidated operating results of Tronox Incorporated prior to June 15, 2012, and, from June 15, 2012 through September 30, 2012, reflect the consolidated operating results of Tronox Limited.

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

 

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Prior to the Transaction Date, Tronox Incorporated operated the Tiwest Joint Venture with Exxaro Australia Sands Pty Ltd. Tronox Incorporated accounted for its share of the Tiwest Joint Venture’s assets that were jointly controlled and its share of liabilities for which it was jointly responsible on a proportionate gross basis in its unaudited Condensed Consolidated Balance Sheet. Additionally, Tronox Incorporated accounted for the revenues generated from its share of the products sold and its share of the expenses of the joint venture on a gross basis in its unaudited Condensed Consolidated Statements of Operations. As of the Transaction Date, the Company owns 100% of the Tiwest Joint Venture operations. As such, the unaudited Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012 include 100% of the Tiwest operations assets and liabilities. The unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and three months ended September 30, 2012 reflect 100% of the revenue and expenses of the Tiwest operations, while the unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2012 reflects Tronox Incorporated’s revenues generated from its share of the products sold and its share of the expenses of the joint venture on a gross basis prior to June 15, 2012, and, from June 15, 2012 through September 30, 2012 reflect 100% of the revenues and expenses of the Tiwest operations.

In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. It is at least reasonably possible that the effect on the financial statements of a change in estimate within one year of the date of the financial statements due to one or more future confirming events could have a material effect on the financial statements. The consolidated results of operations for interim periods are not necessarily indicative of results for the entire year.

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

   

3. Recent Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (the “FASB”) issued accounting standards update (“ASU”) 2013-5, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-5”), which addresses the treatment of the cumulative translation adjustment into net income when a parent either sells 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. ASU 2013-5 is effective prospectively for periods beginning after December 15, 2013; however early adoption is permitted. The adoption of this guidance is not anticipated to have a significant impact on the consolidated financial statements.

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

During 2013, the Company adopted ASU 2013-01,  Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities , to clarify previously issued guidance related to derivatives that are either offset or subject to an enforceable master netting arrangement or similar agreement. The adoption of this guidance did not have a significant impact on the consolidated financial statements.

   

 

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4. Acquisition of the Mineral Sands Business

On September 25, 2011, Tronox Incorporated entered into the Transaction Agreement with Exxaro to acquire 74% of its South African mineral sands operations, including its Namakwa Sands and KZN Sands mines, separation facilities and slag furnaces, along with its 50% share of the Tiwest Joint Venture. On the Transaction Date, the existing business of Tronox Incorporated was combined with the mineral sands business under Tronox Limited. The Transaction was completed in two principal steps. First, Tronox Incorporated became a subsidiary of Tronox Limited, with Tronox Incorporated shareholders receiving one Class A ordinary share (“Class A Share”) and $12.50 in cash (“Merger Consideration”) for each Tronox Incorporated common share. Second, Tronox Limited issued 9,950,856 Class B ordinary shares (“Class B Shares”) to Exxaro and one of its subsidiaries in consideration for the mineral sands business.

   

Under the terms of the Transaction Agreement, Exxaro agreed that for a three-year period after the completion of the Transaction, it would not engage in any transaction or other action, that would result in its beneficial ownership of the voting shares of Tronox Limited to exceed 45% of the total issued shares of Tronox Limited. In addition, the agreement prohibits Exxaro from selling any shares in the same three-year period. At September 30, 2013, Exxaro held approximately 44.4% of the voting securities of Tronox Limited.

In connection with the Transaction, Exxaro and its subsidiaries retained a 26% ownership interest in each of Tronox KZN Sands Pty Ltd and Tronox Mineral Sands Pty Ltd in order to comply with the ownership requirements of the Black Economic Empowerment legislation in South Africa. Exxaro is entitled to exchange this interest for approximately 3.2% in additional Class B Shares under certain circumstances (i.e., the earlier of the termination of the Empowerment Period or the tenth anniversary of completion of the Transaction). The Company accounts for such ownership as “Noncontrolling Interest” on the unaudited condensed consolidated financial statements.

   

   

5. Accounts Receivable

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

   

 

   

September 30,
2013

   

   

December 31,
2012

   

Trade receivables

$

358

   

   

$

371

   

Other

   

16

   

   

   

23

   

Gross

   

374

   

   

   

394

   

Allowance for doubtful accounts

   

(1

)

   

   

(3

)

Net

$

373

   

   

$

391

   

   

   

6. Inventories

Inventories consisted of the follows:

   

 

   

September 30,
2013

   

      

December 31,
2012

   

Raw materials

$

184

   

   

$

221

   

Work-in-process

   

68

   

   

   

99

   

Finished goods (1)

   

344

   

   

   

477

   

Materials and supplies, net (2)

   

138

   

   

   

117

   

Total

$

734

   

   

$

914

   

   

 

   

   

(1)

Includes inventory on consignment to others of approximately $47 million and $42 million at September 30, 2013 and December 31, 2012, respectively.

(2)

Materials and supplies consist of processing chemicals, maintenance supplies and spare parts, which will be consumed directly and indirectly in the production of the Company’s products.

   

   

 

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7. Property, Plant and Equipment, Net

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

   

 

   

September 30,
2013

   

         

December 31,
2012

   

Land and land improvements

$

80

   

   

$

80

   

Buildings

   

188

   

   

   

194

   

Machinery and equipment

   

1,143

   

   

   

1,158

   

Construction-in-progress

   

128

   

   

   

153

   

Furniture and fixtures

   

23

   

   

   

7

   

Other

   

9

   

   

   

6

   

Gross

   

1,571

   

   

   

1,598

   

Less accumulated depreciation and amortization

   

(295

)

   

   

(175

)

Net

$

1,276

   

   

$

1,423

   

Depreciation expense related to property, plant and equipment for the three months ended September 30, 2013 and 2012 was $44 million and $45 million, respectively, and for nine months ended September 30, 2013 and 2012 was $134 million and $81 million, respectively.

   

8. Mineral Leaseholds, Net

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

   

 

   

September 30,
2013

   

   

December 31,
2012

   

Mineral leaseholds

$

1,412

   

   

$

1,502

   

Less accumulated depletion

   

(143

)

   

   

(63

)

Net

$

1,269

   

   

$

1,439

   

Depletion expense related to mineral leaseholds for the three months ended September 30, 2013 and 2012 was $42 million and $19 million, respectively, and for nine months ended September 30, 2013 and 2012 was $84 million and $24 million, respectively.

   

9. Intangible Assets, Net

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

   

 

   

September 30, 2013

   

   

Gross
Cost

   

      

Accumulated
Amortization

   

   

Net

   

Customer relationships

$

294

   

   

$

(54

)

   

$

240

   

TiO 2 technology

   

32

   

   

   

(4

)

   

   

28

   

Internal-use software

   

39

   

   

   

(5

)

   

   

34

   

Other

   

9

   

   

   

(5

)

   

   

4

   

Total

$

374

   

   

$

(68

)

   

$

306

   

   

 

 12 


   

 

 

December 31, 2012

   

   

Gross
Cost

   

      

Accumulated
Amortization

   

   

Net

   

Customer relationships

$

294

   

   

$

(39

)

   

$

255

   

TiO 2 technology

   

32

   

   

   

(3

)

   

   

29

   

Internal-use software

   

38

   

   

   

(2

)

   

   

36

   

Other

   

9

   

   

   

(3

)

   

   

6

   

Total

$

373

   

   

$

(47

)

   

$

326

   

Amortization expense related to intangible assets for the three months ended September 30, 2013 and 2012 was $6 million and $7 million, respectively, and for nine months ended September 30, 2013 and 2012 was $20 million and $19 million, respectively.

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

   

 

   

Future
Amortization

   

2013

$

7

      

2014

   

27

      

2015

   

26

      

2016

   

25

      

2017

   

25

      

Thereafter

   

196

      

Total

$

306

      

   

   

10. Accrued Liabilities

Accrued liabilities consisted of the following:

   

 

   

September 30,
2013

   

      

December 31,
2012

   

Taxes other than income taxes

$

57

      

      

$

58

      

Employee-related costs and benefits

   

47

   

      

   

45

      

Sales rebates

   

19

   

      

   

13

   

Unfavorable sales contracts

   

12

   

      

   

64

      

Interest

   

7

   

      

   

22

      

Other

   

7

   

      

   

7

      

Total

$

149

      

      

$

209

      

   

   

11. Debt

Short-term Debt

Short-term debt consisted of the following:

   

 

   

Maturity
Date

   

      

September 30,
2013

   

      

December 31,
2012

   

UBS Revolver

   

6/18/17

   

   

$

—  

   

   

$

—  

   

ABSA Revolver (1)

   

6/14/17

   

   

   

—  

   

   

   

30

   

Total

   

   

   

   

$

—  

   

   

$

30

   

   

 

   

   

(1)

Average effective interest rate of 8.5% during both 2013 and 2012.

   

 

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UBS Revolver

On June 18, 2012, in connection with the closing of the Transaction, the Company entered into a global senior secured asset-based syndicated revolving credit agreement with UBS AG (the “UBS Revolver”). The UBS Revolver provides the Company with a committed source of capital with a principal borrowing amount of up to $300 million, subject to a borrowing base. In connection with its entry into the Amended and Restated Credit Agreement on March 19, 2013, the Company amended the UBS Revolver to allow for the increased size of the Term Loan over the Term Facility (see “ Term Facility ” and “ Term Loan ” below). At September 30, 2013, the Company had no amounts drawn on the UBS Revolver, and its available borrowing base was $267 million.

ABSA Revolving Credit Facility

In connection with the Transaction, the Company entered into a R900 million (approximately $90 million as of September 30, 2013) revolving credit facility with ABSA Bank Limited acting through its ABSA Capital Division (the “ABSA Revolver”). At December 31, 2012, the Company had drawn down R250 million (approximately $30 million), which was repaid during the first quarter of 2013. At September 30, 2013, the Company had no amounts drawn on the ABSA Revolver.

Long-Term Debt

Long-term debt consisted of the following:

   

 

   

Original Principal

   

      

Maturity
Date

   

      

September 30,
2013

   

   

December 31,
2012

   

Term Loan, net of unamortized discount of $11 million at September 30, 2013 (1)

$

1,500

   

   

   

3/19/2020

   

   

$

1,485

   

   

$

—  

   

Notes

$

900

   

   

   

8/15/2020

   

   

   

900

   

   

   

900

   

Term Facility, net of unamortized discount of $6 million at December 30, 2012 (2)

$

700

   

   

   

2/8/2018

   

   

   

—  

   

   

   

691

   

Co-generation Unit Financing Arrangement

$

16

   

   

   

2/1/2016

   

   

   

7