Tronox Limited
2016 Annual Report
Brighter
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Tronox Limited Financial and Operating Highlights
(Millions of U.S. dollars, except share and per share amounts)
Sales
Net loss
Basic and diluted earnings per share
Dividend paid per share
Total assets
2016
2,093
(58)
(0.50)
0.385
4,950
2015
2,112
(307)
(2.75)
1.00
5,027
2014
1,737
(417)
(3.74)
1.00
5,024
Class A common stock outstanding
65,165,672
64,521,851
63,968,616
TiO2 Pigment Sales Volume
Distribution by Geography
TiO2 Pigment Sales Volume
Distribution by End Use
Full-time Employees by Region
Figures have been rounded up to the nearest
whole percent
Asia-Pacific 28%
North
America 41%
Plastics 18%
Paper & Specialty 5%
Asia <1%
USA 39%
Australia 13%
EMEA 6%
EMEA 27%
Latin
America 4%
Paints &
Coatings 77%
South
Africa 41%
Alkali Sales Volume Distribution
by Geography
Alkali Sales Volume Distribution
by End Use
Tronox Total Full-Time Employees and
Temporary Employees/Contractors
Asia-Pacific 19%
North
America 54%
Other 24%
Flat Glass 28%
EMEA 7%
Latin
America 20%
Detergents 10%
Chemicals 14%
Container
Glass 22%
Other
Glass 2%
4,185
145
Total: 4,330
Tronox at a Glance. We operate two vertically integrated mining and inorganic chemical businesses. Tronox TiO2 mines and
processes titanium ore, zircon, and other minerals, and manufactures titanium dioxide pigments that add brightness and
durability to paints, plastics, paper, and other everyday products. Tronox Alkali mines trona ore and manufactures natural soda
ash, sodium bicarbonate, caustic soda, and other compounds which are used in the production of glass, detergents, baked
goods, animal nutrition supplements, pharmaceuticals, and other essential products. We operate mines in Australia, South
Africa, and the United States. Our chemical plants are based in Australia, the Netherlands, and the United States. We are a
diverse global workforce of more than 4,300 who are committed to safe and sustainable business practices that bring value
to our shareholders, customers, and business partners. Our two businesses serve more than 1,200 customers worldwide.
For more information, visit www.tronox.com
All currency in U.S. dollars unless otherwise indicated.
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Dear Shareholder,
2016 was an inflection point for Tronox
and the global titanium dioxide (TiO2)
marketplace. Over the course of the
year, worldwide demand strengthened
and prices for TiO2 pigments began to rise.
Sales volume increased by 5.1 percent,
and our company sold more pigment than
at any time in our history. By year’s end, the
average sales price for TiO2 had increased
globally by just under nine percent over
the previous year. We continued our sharp
focus on achieving ever-greater levels of
operational excellence and cost efficiencies,
and, as a result, our consolidated margin
doubled, growing from six percent in 2015
to 12 percent last year.
At year end, customer and producer inven-
tories appeared to be at reasonable levels
and producers across the industry reported
high plant utilization rates. These combined
factors indicate that our market will continue
to strengthen for some time.
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$314 million
For the full-year 2016, adjusted EBITDA was $314 million compared to adjusted EBITDA of $272
million in prior year. Revenue was $2,093 million compared to revenue of $2,112 million in 2015.
Income from operations of $36 million improved significantly from a loss from operations of $118
million in the prior year.
Industry analysts forecast lower production of
TiO2 feedstock (chloride slag, slag fines, ilmenite,
leucoxene, rutile, and synthetic rutile) in 2017,
as this first leg of supply chain inventories
remains high and requires further alignment.
As pigment demand increases, however, we
believe that the global market for feedstock
will tighten. Under such a scenario, our vertical
integration and self-sustainability to supply
our pigment plants with 100 percent of our own
feedstock is a clear advantage.
Demand and pricing for zircon, a valuable
coproduct of the mining of titanium ore, appear
to have stabilized in 2016. Demand in that market
is expected to remain flat in the coming year,
with some upward movement in price as overall
feedstock production tightens.
In 2016, Tronox Alkali overcame a number of
operating and one-time challenges in the first
half of the year to produce a very strong second
half. The business reported $149 million in
adjusted EBITDA for the year, but delivered at an
annualized rate of $172 million in the second half
of 2016. Alkali also faced competitive pressures
from foreign synthetic soda ash manufacturers
that benefit from state-sponsored subsidies and
currency fluctuations. Despite these pressures,
Alkali sold every ton of soda ash that it produced
and is projected to do so in the year ahead.
I am once again proud to report that in 2016,
sustainable business practices and corporate
citizenship remained a priority. Hundreds of acres
of post-mining land have been rehabilitated with
indigenous flora or for agricultural purposes. The
company was recognized for its environmental
stewardship at our production and mining sites
across the globe.
Last year, Tronox made roughly $2 million in
direct and in-kind contributions to non-profit
organizations in the communities in which
we operate. The focus of these programs are
science, technology, engineering, and mathe-
matic (STEM) education; sustainability and
environmental stewardship, empowerment, equal
rights, and diversity; and, health and wellness.
2
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“By year’s end, the average sales price for TiO2 had
increased globally by just under nine percent over
the previous year. We continued our sharp focus
on achieving ever-greater levels of operational
excellence and cost efficiencies, and, as a result,
our consolidated margin doubled, growing from
six percent in 2015 to 12 percent last year.”
As we grow in 2017 and beyond, we remain
committed to our values and corporate citizen-
ship in every aspect of our business and in
every community we operate in, worldwide.
While an Annual Report is, by definition,
a retrospective on the previous fiscal year,
I want to take this opportunity to update you
on the announced Cristal acquisition and
what it will mean for shareholders, customers,
and employees.
In February of this year, Tronox announced that it
has entered into a definitive agreement to acquire
the TiO2 business of Cristal, a vertically integrated
TiO2 mining and manufacturing company. The
combination of these two global enterprises will
create the world’s largest TiO2 pigment company
and consolidate our position as the world’s
second-largest producer of titanium feedstock.
For our customers and shareholders, this
transaction will bring reliable production, best-
in-the-world quality, and a diversity of products.
It will deliver accretive increases in earnings
per share, EBITDA, and free cash flow. It will
also provide the company with expanded
market reach and manufacturing footholds in
new regions, such as Brazil, the Middle East,
and the People’s Republic of China.
Concurrent with the announced definitive
acquisition agreement, the company announced
our intent to begin a process to sell Tronox Alkali.
This divestiture would be a source of cash to
fund the Cristal transaction.
Alkali is a strong business with a solid and
experienced leadership team. It has been an
important part of our business over the last two
years, contributing to our financial performance
and sharing operational best practices.
On behalf of our more than 4,300 employees
worldwide, I want to thank you for your commit-
ment to Tronox. We look forward to a safe and
productive 2017 and your continued interest in
our company.
Warm regards,
Tom Casey
Chairman and Chief Executive Officer
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2016
Highlights
Cash generation at year end reflected the
strong performance by both Tronox TiO2 and
Tronox Alkali. The company closed the fourth
quarter with cash of $248 million and liquidity
of $533 million.
As the year progressed, the company benefitted
from the recovery in global TiO2 pigment markets,
as well as the actions we took to improve our
competitive position as a low-cost producer of
high-quality pigments. A number of factors
drove the performance of our TiO2 business:
• highest fourth quarter pigment sales volumes
on record;
• higher pigment selling prices – which at
year end had increased 8.6 percent above
year-end 2015; and,
• continued cost improvements resulting from
the success of our Operational Excellence
program.
Through the commitment and teamwork of
our employees, we were able to close the year
ahead of schedule in meeting our Operational
Excellence and spending and cash flow targets.
Cumulative cash generated from annual cost
reductions totalled $246 million through the end
of 2016. Cumulative cash generated from
working capital reduction totalled $240 million
through the end of 2016. Therefore, total
aggregate cash generated from our Operational
Excellence program in its first two years was
$486 million.
Alkali delivered a solid 2016 performance with
full-year revenues of $784 million, adjusted
EBITDA of $149 million, and free cash flow of
$111 million.
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Tronox
Limited
2016
2015
Tronox
Alkali
2016
2015
Tronox
TiO2
2016
2015
Tronox
Limited
Global
Footprint
$314
million EBITDA
(adjusted)
$272
million EBITDA
(adjusted)
$533
million Liquidity
$530
million Liquidity
$149
million EBITDA
(adjusted)
$129
million EBITDA
(adjusted)
$236
million EBITDA
(adjusted)
$215
million EBITDA
(adjusted)
$2.1
$248
$66
billion Revenue
million Cash Balance
million Recurring
Cost Savings
$2.1
$229
$90
billion Revenue
million Cash Balance
million Recurring
Cost Savings
0.64
18
Total Recordable
Injury Rate
Consecutive Quarters
of Dividends
0.77
14
Total Recordable
Injury Rate
Consecutive Quarters
of Dividends
4.371
2nd
Ktons of Trona Ore
Mined
Best year on record:
Soda Ash Production
4.426
Ktons of Trona Ore
Mined
#1
#1
Best year ever
TiO2 Production
Best year ever
TiO2 Quality
$(0.50)
Basic Earnings
Per Share
$(2.75)
Basic Earnings
Per Share
$784
million Revenue
$602
million Revenue
$1.31
billion Revenue
$1.51
billion Revenue
Pigment Facilities
Hamilton
Botlek
Kwinana
Electrolytic Facilities
Henderson (EMD)
Henderson (Boron Products)
Mineral Sands Facilities
Cooljarloo/Chandala
Synthetic Rutile
Zircon
Rutile
Leucoxene
Capacity (MT)
Namakwa Sands
225,000
90,000
150,000
Capacity (MT)
27,000
525
Capacity (MT)
220,000
40,000
15,000
20,000
Titanium Slag
Zircon
Pig Iron
Rutile
KZN Sands
Titanium Slag
Pig Iron/Scrap Iron
Zircon
Rutile
Soda Ash Facilities
Green River
Capacity (MT)
190,000
125,000
100,000
31,000
Capacity (MT)
220,000
121,000
55,000
25,000
Capacity (MT)
3,600,000
5
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Operations
Review
Tronox’s finished titanium dioxide (TiO2)
pigments are the foundation of products
that improve people’s lives around the world.
The vertical integration of our TiO2 business is a
key differentiator, giving us unique competitive
advantages. It affords our customers supply and
demand stability and it allows us to compete
in a low-cost market because we have access
to competitively priced high-quality feedstock
at cost.
Tronox operates three separate mine and
beneficiation facilities: KZN Sands and Namakwa
Sands in South Africa, and our Northern
Operations, near Perth in Western Australia,
Australia. These three operations supply
100 percent of the titanium feedstock used in
our three TiO2 pigment manufacturing plants:
Kwinana in Western Australia, Botlek in the
Netherlands, and Hamilton, Mississippi in the
United States of America.
The company’s mining and beneficiation
operations consist of mineral sands mining and
titanium feedstock production. Production
includes ilmenite, natural rutile, titanium slag,
and synthetic rutile; and co-production
products such as zircon, high-purity pig iron
and activated carbon.
Tronox utilizes a proprietary chloride process
to produce TiO2 pigment. The chloride process
produces pigment grades with superior bright-
ness and opacity. Chloride-produced pigments
are generally preferred by manufacturers of
high-grade coatings and plastics.
Tronox TiO2 also operates an electrolytic and
specialty chemicals division which manufactures
innovative products to the energy storage,
automotive, and pharmaceutical industries.
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Our TiO2 business ended 2016 with significant
momentum stemming from higher pigment sales
volumes and higher selling prices, and a continued
strong operating cost performance. Alkali’s 2016
performance included a number of one-off items
impacting results that are now behind us. In 2017,
we expect Alkali to deliver another year of solid
adjusted EBITDA and free cash flow.
Tronox Alkali is the world’s largest vertically
integrated producer of natural soda ash
(sodium carbonate), accounting for approximately
25 percent of global natural soda ash production.
Natural soda ash is made from mined and
beneficiated trona ore.
Tronox Alkali mines and produces soda ash
in Green River, Wyoming, USA, the site of the
world’s largest natural reserve of trona ore.
Alkali’s primary Green River mine has been in
operation since 1947. The company has a history
of sustainable and safe extraction of minerals
and production of soda ash and other inorganic
chemical compounds.
Soda ash demand generally correlates with
overall industrial production and the economic
strength of consumer markets. Globally, approx-
imately 50 percent of soda ash demand is for
manufacturing glass, including windows and
windshields, containers, light bulbs, tableware,
mirrors, fiberglass, and screens for computers
and smart phones. Specialty end uses are also
growing for Alkali’s products, including dairy and
poultry feeds, and hemodialysis-grade sodium
bicarbonate for the healthcare industry.
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Corporate
Citizenship
At Tronox, corporate citizenship is an integral
part of our global business. We believe that
our business can and should play a leadership
role in improving the quality of life in the
areas where we operate. In 2016, we invested
approximately $2 million in programs
and volunteer hours to support our local
communities. Our corporate citizenship
strategy is defined by these key pillars:
1. STEM Education: We are an engineering
and science-based business – we are eager to
share our expertise and resources to advance
education in science, technology, engineering,
and mathematics (STEM)
2. Sustainability/Environment: We understand
that our shareholders, employees and local
communities all win when we build sustainable
business operations – we invest in programs
to advance environmental stewardship and
empower the communities in which we operate
3. Equal Rights & Diversity: We are a global
business with a diverse workforce – we are
advocates for nondiscrimination and social
justice in the workplace and community
4. Health & Wellness: The physical welfare of
our employees and community are a core value
of Tronox – we strive to increase awareness
and sponsor programs that reflect this value
8
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“Tronox’s rehabilitation and protection of wetlands
at its Fairbreeze mine improves the habitat for
biodiversity, including threatened frog populations,
and the functions provided by wetlands in a highly
transformed agricultural landscape. Activities include
the removal of large areas of commercial timber
plantations. It will also improve the state of the
downstream Siyaya Estuary, which has been severely
compromised by a reduction in water inputs.”
Douglas Macfarlane, director and principal scientist, Eco-Pulse Environmental Consulting Services.
We believe that these efforts promote the
long-term interest of all our stakeholders,
including employees, customers, business
partners, investors, local communities,
government officials, and the mining and
minerals industries at large.
KZN Sands has engaged in an effort to restore
swamp forest and wetland functionality within
the Fairbreeze mine. As of November 2016, KZN
Sands’ project focused on removing eucalyptus
plantations, weed control and managing forest
fires to allow the swamp forest to regrow
naturally. KZN also transplanted trees, such as
black bird-berry and large-leaved dragon trees,
at a biodiversity offset (a system used to fully
compensate for environmental impacts associ-
ated with economic development).
For the third year, Tronox’s donation to the
African Leadership Foundation (ALA) enabled
students to enhance their leadership skills and
complete impactful projects. The foundation’s
mission is to play a positive role in the develop-
ment of the next generation of African leaders
and entrepreneurs, as well as to create positive
change on the African continent. The recipient
of the 2016 Tronox sponsorship was Lethabo
Stebele Ntini, or Lettie, as she is known to
friends and family. She remains proud of her
achievements at ALA and had this to say
about her experience:
“My two years at ALA were a combination of
challenges and multiple opportunities. I engaged
with a diverse group of African students which
increased my love and passion for the continent.
The curriculum and experiential learning helped
define my professional aspirations. I am so
grateful to Tronox for having sponsored my
education. The journey has been invaluable.”
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Directors and Executive Management
Tronox Limited Board of Directors
Tronox Limited Executive Management Team
Tom Casey
Chairman & Chief Executive Officer,
Tronox Limited
Tom Casey *
Chairman & Chief Executive Officer
Daniel Blue 1, 2
Attorney
Andrew P. Hines 1 *
Principal,
Hines & Associates
Wayne A. Hinman 2, 3 *, 4
Former V.P. and G.M., Global Merchant Gases,
Air Products & Chemicals, Inc.
Peter Johnston 3, 4 *
Former Head of Global Nickel Assets,
Glencore
Ilan Kaufthal 2 *
Chairman,
East Wind Advisors
Mxolisi Mgojo
Chief Executive Officer,
Exxaro Resources Limited
Sipho Nkosi 3
Former Chief Executive Officer,
Exxaro Resources Limited
Jeffry N. Quinn 1
Chairman, Chief Executive Officer,
The Quinn Group, LLC and
Quinpario Partners, LLC
Committees
1. Audit
2. Human Resources and Compensation
3. Corporate Governance and Nominating
4. Nominating Subcommittee
Jean-François Turgeon *
Executive Vice President and President, Tronox TiO2
Edward Flynn *
Executive Vice President and President,
Tronox Alkali
Timothy C. Carlson *
Senior Vice President & Chief Financial Officer
Richard L. Muglia *
Senior Vice President, General Counsel &
Corporate Secretary
Willem Van Niekerk *
Senior Vice President, Strategic Planning and
Business Development
John D. Romano *
Senior Vice President & Chief Commercial Officer,
Tronox TiO2
Chuck Mancini
Senior Vice President, Chief Integration &
Performance Officer
Brennen Arndt
Vice President, Investor Relations
Bud Grebey
Vice President, Corporate Affairs &
Communications
Jogita Khilnani
Vice President, Corporate Assurance
Kevin V. Mahoney
Vice President & Controller
* Committee Chair
* Tronox Officer
10
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Tronox Financial Section
Tronox Financial Section
Tronox Limited
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Financial Table of Contents
Consolidated Statements of Operations
Consolidated Statements of Comprehensive
Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in
Shareholders’ Equity
Notes to Consolidated Financial Statements
Management’s Report on Internal Controls Over
Financial Reporting
Report of Independent Registered Public
Accounting Firm
12
13
14
15
16
17
62
63
11
Consolidated Statements of Operations
Tronox Limited
(Millions of U.S. dollars, except share and per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Restructuring expense
Income (loss) from operations
Interest and debt expense, net
Net loss on liquidation of non-operating subsidiaries
Gain (loss) on extinguishment of debt
Other income (expense), net
Loss before income taxes
Income tax (provision) benefit
Net loss
Net income attributable to noncontrolling interest
Net loss attributable to Tronox Limited
Loss per share, basic and diluted
Year Ended December 31,
2016
2015
2014
$
2,093
1,846
$
2,112
1,992
$
1,737
1,530
247
(210)
(1)
36
(184)
—
4
(29)
(173)
115
(58)
1
(59)
(0.50)
$
$
$
120
(217)
(21)
(118)
(176)
—
—
28
(266)
(41)
(307)
11
(318)
(2.75)
$
$
$
207
(192)
(15)
—
(133)
(35)
(8)
27
(149)
(268)
(417)
10
(427)
(3.74)
$
$
$
Weighted average shares outstanding, basic and diluted (in thousands)
116,161
115,566
114,281
See notes to consolidated financial statements.
12
Consolidated Statements of Comprehensive Income (Loss)
Tronox Limited
(Millions of U.S. dollars)
(Millions of U.S. dollars)
Net loss
Other comprehensive income (loss):
Foreign currency translation adjustments
Pension and postretirement plans:
Actuarial gains (losses), net of taxes of less than $1 million in 2016, 2015, and 2014
Amortization of unrecognized actuarial losses, net of taxes of less than $1 million in 2016,
2015 and 2014
Prior service credit (no tax impact, see Note 5)
Pension and postretirement benefit curtailments gain (loss) (no tax impact, see Note 5)
Settlement gain on the Netherlands Pension Plan, (no tax impact; See Note 5)
Unrealized gains on derivative financial instruments, (no tax impact; See Note 5)
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling interest:
Net income
Foreign currency translation adjustments
Comprehensive income (loss) attributable to noncontrolling interest
Year Ended December 31,
2016
2015
2014
$ (58)
$ (307)
$ (417)
119
(18)
2
(4)
(1)
31
3
(292)
12
3
—
—
—
—
(95)
(83)
1
(3)
37
—
—
132
$ 74
(277)
$ (584)
(143)
$ (560)
1
31
32
11
(77)
(66)
10
(31)
(21)
Comprehensive income (loss) attributable to Tronox Limited
$ 42
$ (518)
$ (539)
See notes to consolidated financial statements.
13
Consolidated Balance Sheets
Consolidated Balance Sheets
Tronox Limited
(Millions of U.S. dollars, except share and per share data)
ASSETS
Current Assets
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance for doubtful accounts
Inventories, net
Prepaid and other assets
Total current assets
Noncurrent Assets
Property, plant and equipment, net
Mineral leaseholds, net
Intangible assets, net
Inventories, net
Other long-term assets
Total assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accrued liabilities
Short-term debt
Long-term debt due within one year
Income taxes payable
Total current liabilities
Noncurrent Liabilities
Long-term debt
Pension and postretirement healthcare benefits
Asset retirement obligations
Long-term deferred tax liabilities
Other long-term liabilities
Total liabilities
Commitments and Contingencies
Shareholders’ Equity
Tronox Limited Class A ordinary shares, par value $0.01 — 65,998,306 shares issued and
65,165,672 shares outstanding at December 31, 2016 and 65,443,363 shares issued and
64,521,851 shares outstanding at December 31, 2015
Tronox Limited Class B ordinary shares, par value $0.01 — 51,154,280 shares issued and
outstanding at December 31, 2016 and 2015
Capital in excess of par value
(Accumulated deficit) retained earnings
Accumulated other comprehensive loss
Total Tronox Limited shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
See notes to consolidated financial statements.
14
December 31,
2016
2015
$ 248
3
421
532
49
1,253
1,831
1,607
223
14
22
$ 229
5
391
630
46
1,301
1,843
1,604
244
12
23
$4,950
$5,027
$ 181
174
150
16
1
522
2,888
122
73
152
32
3,789
$ 159
180
150
16
43
548
2,910
141
77
143
98
3,917
1
1
—
1,524
(13)
(495)
1,017
144
1,161
$4,950
—
1,500
93
(596)
998
112
1,110
$5,027
Consolidated Statements of Cash Flows
Tronox Limited
(Millions of U.S. dollars)
Cash Flows from Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization
Corporate Reorganization
Deferred income taxes
Share-based compensation expense
Amortization of deferred debt issuance costs and discount on debt
Pension and postretirement healthcare benefit (income) expense
Net loss on liquidation of non-operating subsidiaries
(Gain) loss on extinguishment of debt
Amortization of fair value inventory step-up
Other, net
Contributions to employee pension and postretirement plans
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in inventories
(Increase) decrease in prepaid and other assets
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in taxes payable
Cash provided by operating activities
Cash Flows from Investing Activities:
Capital expenditures
Proceeds from the sale of assets
Acquisition of business
Cash used in investing activities
Cash Flows from Financing Activities:
Repayments of debt
Proceeds from debt
Debt issuance costs
Dividends paid
Proceeds from the exercise of warrants and options
Cash provided by (used in) financing activities
Effects of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid, net
Income taxes paid
See notes to consolidated financial statements.
Year Ended December 31,
2016
2015
2014
$ (58)
$ (307)
$ (417)
236
(107)
(9)
25
11
8
—
(4)
—
55
(25)
(27)
111
(9)
8
(4)
211
(119)
2
—
(117)
(31)
—
—
(46)
—
(77)
2
19
229
$ 248
$ 171
$
2
294
—
—
22
11
5
—
—
9
(4)
(17)
20
157
18
(12)
20
216
(191)
1
(1,650)
(1,840)
(18)
750
(15)
(117)
3
603
(26)
(1,047)
1,276
$
$
$
229
152
23
295
—
237
20
10
(3)
35
8
—
1
(18)
23
(101)
9
22
20
141
(187)
—
—
(187)
(20)
—
(2)
(116)
6
(132)
(21)
(199)
1,475
$1,276
$ 126
$
3
15
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Changes in Shareholders’ Equity
Tronox Limited
(Millions of U.S. dollars)
Tronox
Limited
Class A
Ordinary
Tronox
Limited
Class B
Ordinary
Shares
Shares
Capital
in
Excess
of par
Value
(Accumulated
Deficit)
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Tronox
Limited
Shareholders’
Equity
Non-
controlling
Interest
$— $1,448
—
—
22
—
6
—
—
—
—
—
$— $1,476
—
—
21
—
3
—
—
—
—
—
$— $1,500
—
—
25
—
(1)
—
—
—
—
—
$1,073
(427)
—
—
(117)
—
$ 529
(318)
—
—
(118)
—
$
93
(59)
—
—
(47)
—
(13)
$ (284)
—
(112)
—
—
—
$ (396)
—
(200)
—
—
—
$ (596)
—
101
—
—
—
$ (495)
$2,238
(427)
(112)
22
(117)
6
$1,610
(318)
(200)
21
(118)
3
$ 998
(59)
101
25
(47)
(1)
$1,017
Total
Equity
$2,437
(417)
(143)
22
(117)
6
$1,788
(307)
(277)
21
(118)
3
$1,110
(58)
132
25
(47)
(1)
$ 199
10
(31)
—
—
—
$ 178
11
(77)
—
—
—
$ 112
1
31
—
—
—
$— $1,524
$
$ 144
$1,161
Balance at January 1, 2014
Net income (loss)
Other comprehensive loss
Shares-based compensation
Class A and Class B share dividends
Warrants and options exercised
Balance at December 31, 2014
Net income (loss)
Other comprehensive loss
Shares-based compensation
Class A and Class B share dividends
Warrants and options exercised
Balance at December 31, 2015
Net income (loss)
Other comprehensive income
Shares-based compensation
Class A and Class B share dividends
Shares cancelled
Balance at December 31, 2016
See notes to consolidated financial statements.
$ 1
—
—
—
—
—
$ 1
—
—
—
—
—
$ 1
—
—
—
—
—
$ 1
16
Notes to Consolidated Financial Statements
Tronox Limited
(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.
We are a global leader in the production and marketing of
titanium bearing mineral sands and titanium dioxide (“TiO2”)
pigment, and the world’s largest producer of natural soda
ash. Titanium feedstock is primarily used to manufacture
TiO2. 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. Our TiO2
products are critical components of everyday applications
such as paint and other coatings, plastics, paper, and other
uses and our related mineral sands product streams include
titanium feedstock, zircon, and pig iron. Our soda ash
products are used by customers in the glass, detergent, and
chemicals manufacturing industries.
We have global operations in North America, Europe,
South Africa, and the Asia-Pacific region. Within our TiO2
segment, we operate three pigment production 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.
On April 1, 2015 (the “Alkali Transaction Date”), we
completed the acquisition of 100% of the Alkali Chemicals
business (“Alkali”) from FMC Corporation (“FMC”) for
an aggregate purchase price of $1.65 billion in cash (the
“Alkali Transaction”). See Note 22 for additional information
regarding the Alkali Transaction.
As a result of the Alkali Transaction, we produce natural
soda ash from a mineral called trona, which we mine at
two facilities we own near Green River, Wyoming. Our
Wyoming facilities process the trona ore into chemically
pure soda ash and specialty sodium products such as
sodium bicarbonate (baking soda). We sell soda ash directly
to customers in the United States (“U.S”), Canada and
Europe and to the American Natural Soda Ash Corporation
(“ANSAC”), a non-profit foreign sales association in which
we and two other U.S. soda ash producers are members,
for resale to customers elsewhere around the world. We
use a portion of our soda ash at Green River to produce
specialty sodium products such as sodium bicarbonate and
sodium sesquicarbonate that have uses in food, animal feed,
pharmaceutical, and medical applications.
In June 2012, Tronox Limited issued Class B ordinary
shares (“Class B Shares”) to Exxaro Resources Limited
(“Exxaro”) and one of its subsidiaries in consideration for
74% of Exxaro’s South African mineral sands business, and
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 (the “Exxaro Transaction”). Exxaro has agreed not
to acquire any voting shares of Tronox Limited if, following
such acquisition, Exxaro will have a voting interest in Tronox
Limited of 50% or more unless Exxaro brings any proposal to
make such an acquisition to the Board of Directors of Tronox
Limited on a confidential basis. In the event an agreement
regarding the proposal is not reached, Exxaro is permitted to
make a takeover offer for all the shares of Tronox Limited not
held by affiliates of Exxaro, subject to certain non-waivable
conditions. At both December 31, 2016 and 2015, Exxaro
held approximately 44% of the voting securities of Tronox
Limited. See Note 23 for additional information regarding
Exxaro transactions.
Basis of Presentation
We are considered a domestic company in Australia and, as
such, are required to report in Australia under International
Financial Reporting Standards (“IFRS”). Additionally, as we
are not considered a “foreign private issuer” in the U.S.,
we are required to comply with the reporting and other
requirements imposed by the U.S. securities law on U.S.
domestic issuers, which, among other things, requires
reporting under accounting principles generally accepted
in the United States of America (“U.S. GAAP”). The
consolidated financial statements included in this Form 10-K
are prepared in conformity with U.S. GAAP. We publish our
consolidated financial statements, in both U.S. GAAP and
IFRS, in U.S. dollars.
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 (“BEE”)
legislation in South Africa. We account for such ownership
interest as “Noncontrolling interest” in our consolidated
financial statements. See Note 19.
Our 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.
During the year ended December 31, 2014, we recorded
out-of-period adjustments that should have been recorded
during 2012 that decreased cost of goods sold by $6 million,
decreased loss before income taxes by $6 million, decreased
net loss by $5 million and decreased loss per share by $0.03.
Also during the year ended December 31, 2014, we recorded
out-of-period adjustments that should have been recorded
during 2013 that increased cost of goods sold by $6 million,
increased selling, general and administrative expenses by
$1 million, increased loss before income taxes by $7 million,
increased net loss by $5 million and increased loss per share
by $0.04. After evaluating the quantitative and qualitative
aspects of the adjustments, we concluded that the effect
of these adjustments, individually and in the aggregate,
was not material to our previously issued consolidated
financial statements nor to our 2014 consolidated
financial statements.
During the year ended December 31, 2015, we recorded
out-of-period adjustments that should have been recorded
in 2012 through 2014 that decreased cost of goods sold
by $5 million, decreased loss before income taxes by
$5 million, decreased net loss by $3 million, and decreased
17
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
loss per share by $0.02. After evaluating the quantitative and
qualitative aspects of the adjustments, we concluded the
effect of these adjustments, individually and in the aggregate,
was not material to our previously issued consolidated
financial statements and was not material to our 2015
consolidated financial statements.
Cost of Goods Sold
Cost of goods sold includes costs for purchasing, receiving,
manufacturing, and distributing products, including raw
materials, energy, labor, depreciation, depletion, shipping and
handling, freight, warehousing, and other production costs.
Use of Estimates
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.
2. Significant Accounting Policies
Foreign Currency
The U.S. dollar is the functional currency for our operations,
except for our South African operations, whose functional
currency is the Rand, and our European operations,
whose functional currency is the Euro. We determine
the functional currency of each subsidiary based on a
number of factors, including the predominant currency
for revenues, expenditures and borrowings. Adjustments
from the remeasurement of non-functional currency
monetary assets and liabilities are recorded in “Other
income (expense), net” in the Consolidated Statements of
Operations. When the subsidiary’s functional currency is
not the U.S. dollar, translation adjustments resulting from
translating the functional currency financial statements into
U.S. dollar equivalents are recorded in “Accumulated other
comprehensive loss” in the Consolidated Balance Sheets.
Gains and losses on intercompany foreign currency
transactions that are not expected to be settled in the
foreseeable future are reported in the same manner as
translation adjustments.
Revenue Recognition
Revenue is recognized when risk of loss and title to the
product is transferred to the customer, pricing is fixed or
determinable, and collection is reasonably assured. All
amounts billed to a customer in a sales transaction related
to shipping and handling represent revenues earned and are
reported as “Net sales” in the Consolidated Statements of
Operations. Accruals are made for sales returns, rebates and
other allowances, which are recorded in “Net sales” in the
Consolidated Statements of Operations, and are based on
our historical experience and current business conditions.
Research and Development
Research and development costs, included in “Selling,
general and administrative expenses” in the Consolidated
Statements of Operation comprising of salaries, building
costs, utilities, administrative expenses, and allocations
of corporate costs, were $11 million, $13 million, and
$11 million during 2016, 2015, and 2014, respectively, and
were expensed as incurred.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs
related to marketing, agent commissions, and legal and
administrative functions such as corporate management,
human resources, information technology, investor relations,
accounting, treasury, and tax compliance.
Income Taxes
We use the asset and liability method of accounting for
income taxes. The estimation of the amounts of income
taxes involves the interpretation of complex tax laws and
regulations and how foreign taxes affect domestic taxes, as
well as the analysis of the realizability of deferred tax assets,
tax audit findings, and uncertain tax positions.
Deferred tax assets and liabilities are determined based
on temporary differences between the financial reporting
and tax bases of assets and liabilities using enacted tax
rates expected to apply to taxable income in the years
in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided
against a deferred tax asset when it is more likely than not
that all or some portion of the deferred tax asset will not
be realized. We periodically assess the likelihood that we
will be able to recover our deferred tax assets, and reflect
any changes in our estimates in the valuation allowance,
with a corresponding adjustment to earnings or other
comprehensive income (loss), as appropriate. All available
positive and negative evidence is weighted to determine
whether a valuation allowance should be recorded.
The amount of income taxes we pay is subject to ongoing
audits by federal, state, and foreign tax authorities, which
may result in proposed assessments. Our estimate for
the potential outcome for any uncertain tax issue is highly
judgmental. We assess our income tax positions, and record
tax benefits for all years subject to examination based upon
our evaluation of the facts, circumstances, and information
available at the reporting date. For those tax positions for
which it is more likely than not that a tax benefit will be
18
sustained, we record the amount that has a greater than 50%
likelihood of being realized upon settlement with a taxing
authority that has full knowledge of all relevant information.
Interest and penalties are accrued as part of tax expense,
where applicable. If we do not believe that it is more likely
than not that a tax benefit will be sustained, no tax benefit is
recognized. See Note 5.
Earnings per Share
Basic and diluted earnings per share are calculated using the
two-class method. Under the two-class method, earnings
used to determine basic earnings per share are reduced by
an amount allocated to participating securities. Participating
securities include restricted shares issued under the Tronox
Management Equity Incentive Plan (the “MEIP”) (see Note
20) and the T-Bucks Employee Participation Plan (“T-Bucks
EPP”) (see Note 20), both of which contain non-forfeitable
dividend rights. Our unexercised options, unexercised
Series A and Series B Warrants (see Note 18), and unvested
restricted share units do not contain non-forfeitable rights to
dividends and, as such, are not considered in the calculation
of basic earnings per share. Our unvested restricted shares
do not have a contractual obligation to share in losses;
therefore, when we record a net loss, none of the loss is
allocated to participating securities. Consequently, in periods
of net loss, the two class method does not have an effect on
basic loss per share.
Diluted earnings per share is calculated by dividing net
earnings allocable to ordinary shares by the weighted-
average number of ordinary shares outstanding for the
period, as adjusted for the potential dilutive effect of non-
participating restricted share units, options, and Series A and
Series B Warrants. The options and Series A and Series B
Warrants are included in the calculation of diluted earnings
per ordinary share utilizing the treasury stock method.
See Note 6.
Fair Value Measurement
We measure fair value on a recurring basis utilizing
valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs, to
the extent possible, and consider counterparty credit risk
in our assessment of fair value. The fair value hierarchy is
as follows:
• Level 1 – Quoted prices in active markets for identical
assets and liabilities;
• Level 2 – Quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active or
other inputs that are observable or can be corroborated
by observable market data; and,
• Level 3 – Unobservable inputs that are supported by little
or no market activity and that are significant to the fair
value of the assets and liabilities
See Note 7.
Cash and Cash Equivalents
We consider all investments with original maturities of three
months or less to be cash equivalents. We maintain cash
and cash equivalents in bank deposit and money market
accounts that may exceed federally insured limits. The
financial institutions where our cash and cash equivalents are
held are generally highly rated and geographically dispersed,
and we have a policy to limit the amount of credit exposure
with any one institution. We have not experienced any
losses in such accounts and believe we are not exposed to
significant credit risk.
At December 31, 2016 and 2015, we had restricted cash
in Australia related to outstanding performance bonds of
$3 million and $5 million, respectively.
Accounts Receivable, net of allowance for doubtful
accounts
We perform credit evaluations of our customers, and take
actions deemed appropriate to mitigate credit risk. Only in
certain specific occasions do we require collateral in the
form of bank or parental guarantees or guarantee payments.
We maintain allowances for potential credit losses based on
specific customer review and current financial conditions.
See Note 8.
Inventories, net
Pigment and Alkali inventories are stated at the lower of
actual cost or market (“LOCM”), net of allowances for
obsolete and slow-moving inventory. The cost of inventories
is determined using the first-in, first-out method. Carrying
values include material costs, labor, and associated indirect
manufacturing expenses. Costs for materials and supplies,
excluding titanium ore, are determined by average cost to
acquire. Mineral Sands inventories including titanium ore
are stated at the lower of the weighted-average cost of
production or market. Inventory costs include those costs
directly attributable to products, including all manufacturing
overhead but excluding distribution costs. Raw materials are
carried at actual cost.
We review, annually and at the end of each quarter, the
cost of our inventory in comparison to its net realizable value.
We also periodically review our inventory for obsolescence.
In either case, we record any write-down equal to the
difference between the cost of inventory and its estimated
net realizable value based on assumptions about alternative
uses, market conditions and other factors. Inventories
expected to be sold or consumed within twelve months after
the balance sheet date are classified as current assets and
all other inventories are classified as non-current assets.
See Note 9.
19
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Long Lived Assets
Property, plant and equipment, net is stated at cost less
accumulated depreciation, and is depreciated over its
estimated useful life using the straight-line method as
follows:
Land improvements
Buildings
Machinery and equipment
Furniture and fixtures
10 — 20 years
10 — 40 years
3 — 25 years
10 years
Maintenance and repairs are expensed as incurred, except
for costs of replacements or renewals that improve or
extend the lives of existing properties, which are capitalized.
Upon retirement or sale, the cost and related accumulated
depreciation are removed from the respective account, and
any resulting gain or loss is included in “Cost of goods sold”
or “Selling, general, and administrative expenses” in the
Consolidated Statements of Operations. See Note 10.
We capitalize interest costs on major projects that require
an extended period of time to complete. See Note 14.
Mineral property acquisition costs are capitalized
as tangible assets when management determines that
probable future benefits consisting of a contribution to future
cash inflows have been identified and adequate financial
resources are available or are expected to be available
as required to meet the terms of property acquisition and
anticipated exploration and development expenditures.
Mineral leaseholds are depleted over their useful lives as
determined under the units of production method. Mineral
property exploration costs are expensed as incurred. When
it has been determined that a mineral property can be
economically developed as a result of establishing proven
and probable reserves, the costs incurred to develop such
property through the commencement of production are
capitalized. See Note 11.
Intangible assets are stated at cost less accumulated
amortization, and are amortized on a straight-line basis over
their estimated useful lives, which range from 3 to 20 years.
See Note 12.
We evaluate the recoverability of the carrying value of
long-lived assets that are held and used whenever events
or changes in circumstances indicate that the carrying
value may not be recoverable. Under such circumstances,
we assess whether the projected undiscounted cash
flows of our long-lived assets are sufficient to recover the
carrying amount of the asset group being assessed. If
the undiscounted projected cash flows are not sufficient,
we calculate the impairment amount by discounting the
projected cash flows using our weighted-average cost of
capital. For assets that satisfy the criteria to be classified
as held for sale, an impairment loss, if any, is recognized to
the extent the carrying amount exceeds fair value, less cost
to sell. The amount of the impairment of long-lived assets
is written off against earnings in the period in which the
impairment is determined.
20
Business Acquisitions
Business acquisitions are accounted for using the acquisition
method under Accounting Standards Codification (“ASC”)
805, Business Combinations (“ASC 805”), which requires
recording assets acquired and liabilities assumed at fair
value as of the acquisition date. Under the acquisition
method of accounting, each tangible and separately
identifiable intangible asset acquired and liabilities assumed
is recorded based on their preliminary estimated fair values
on the acquisition date. The initial valuations are derived from
estimated fair value assessments and assumptions used
by management. Acquisition related costs are expensed
as incurred and are included in “Selling, general and
administrative expenses” in the Consolidated Statements of
Operations. See Note 22.
Long-term Debt
Long-term debt is stated net of unamortized original issue
premium or discount. Premiums or discounts are amortized
using the effective interest method with amortization
expense recorded in “Interest and debt expense, net” in
the Consolidated Statements of Operations. Deferred debt
issuance costs related to a recognized debt liability are
presented in the Consolidated Balance Sheets as a direct
deduction from the carrying amount of that debt liability,
consistent with debt discounts and are amortized using the
effective interest method with amortization expense recorded
in “Interest and debt expense, net” in the Consolidated
Statements of Operations. See Note 14.
Asset Retirement Obligations
Asset retirement obligations are recorded at their estimated
fair value, and accretion expense is recognized over time as
the discounted liability is accreted to its expected settlement
value. Fair value is measured using expected future cash
outflows discounted at our credit-adjusted risk-free interest
rate, which are considered Level 3 inputs. We classify
accretion expense related to asset retirement obligations as
a production cost, which is included in “Cost of goods sold”
in the Consolidated Statements of Operations. See Note 15.
Derivative Instruments
Derivative instruments are recorded in the Consolidated
Balance Sheets at their fair values. Changes in the
fair value of derivative instruments not designated for
hedge accounting treatment are recorded in “Other
income (expense), net” in the Consolidated Statements
of Operations. The effective portion of the change in
the fair value of cash flow hedges is deferred in other
comprehensive loss and is subsequently recognized in
the “Cost of goods sold” in the Consolidated Statements
of Operations for commodity hedges, when the hedged
item impacts earnings. Changes in fair value of derivative
assets and liabilities designated as hedging instruments are
shown in “Other noncash items affecting net loss” within
operating activities in the Consolidated Statements of Cash
Flows. Any portion of the change in fair value of derivatives
designated as hedging instruments that is determined to be
ineffective is recorded in “Other income (expense), net” in the
Consolidated Statements of Operations. See Note 16.
Environmental Remediation and Other Contingencies
We recognize a loss and record an undiscounted liability
when litigation has commenced or a claim or assessment
has been asserted, or, based on available information,
commencement of litigation or assertion of a claim or
assessment is probable, and the associated costs can be
reasonably estimated. See Note 17.
Self-Insurance
We are self-insured for certain levels of general and vehicle
liability, property, workers’ compensation and health care
coverage. The cost of these self-insurance programs is
accrued based upon estimated fully developed settlements
for known and anticipated claims. Any resulting adjustments
to previously recorded reserves are reflected in current
operating results. We do not accrue for general or unspecific
business risks.
Share-based Compensation
Equity Restricted Share and Restricted Share Unit Awards
— The fair value of equity instruments is measured based on
the share price on the grant date and is recognized over the
vesting period. These awards contain service, market, and/
or performance conditions. For awards containing only a
service or a market condition, we have elected to recognize
compensation costs using the straight-line method over
the requisite service period for the entire award. For awards
containing a market condition, the fair value of the award is
measured using the Monte Carlo simulation under a lattice
model approach. For awards containing a performance
condition, the fair value is the grant date close price and
compensation expense is not recognized until we conclude
that it is probable that the performance condition will be met.
We reassess the probability at least quarterly. See Note 20.
Liability Restricted Share Awards — Restricted share
awards classified as liability awards contain only a service
condition, and have graded vesting provisions. Liability
awards are re-measured to fair value at each reporting date.
See Note 20.
Option Awards — The Black-Scholes option pricing
model is utilized to measure the fair value of options on the
grant date. The options contain only service conditions,
and have graded vesting provisions. We have elected to
recognize compensation costs using the straight-line method
over the requisite service period for the entire award. See
Note 20.
Recently Adopted Accounting Pronouncements
In September 2015, the Financial Accounting Standards
Board (the “FASB”) issued Accounting Standards
Update (“ASU”) 2015-16, Simplifying the Accounting
for Measurement-Period Adjustments (“ASU 2015-16”).
ASU 2015-16 simplifies the accounting for measurement-
period adjustments by eliminating the requirement to restate
prior period financial statements for measurement period
adjustments. The new guidance requires that the cumulative
impact of a measurement period adjustment (including
the impact on prior periods) be recognized in the reporting
period in which the adjustment is identified. We adopted ASU
2015-16 during the first quarter of 2016. Its adoption did not
have an impact on our consolidated financial statements.
In August 2015, the FASB issued ASU 2015-15, Interest
– Imputation of Interest (“ASU 2015-15”) and in April 2015,
the FASB issued ASU 2015-03, Interest—Imputation of
Interest (“ASU 2015-03”). ASU 2015-15 and ASU 2015-03
change and simplify the presentation of debt issuance costs.
ASU 2015-03 requires that debt issuance costs related to a
recognized debt liability be presented in the balance sheet
as a direct deduction from the carrying amount of that debt
liability, consistent with debt discounts. ASU 2015-15 stated
that it would also be acceptable to present debt issuance
costs related to a line of credit arrangement as a direct
deduction from the carrying amount of debt. The recognition
and measurement guidance for debt issuance costs are not
affected by the amendments in these ASUs. We adopted
these standards retroactively during the first quarter of 2016.
The adoption of ASU 2015-03 resulted in decreases to long-
term debt and other long term assets as of December 31,
2015 of $45 million. The adoption of ASU 2015-15 did not
have an impact on our consolidated financial statements. As
of December 31, 2016, debt issuance costs of $36 million are
presented as a decrease to long-term debt and $4 million are
presented as other long-term assets.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements—Going Concern
(Subtopic 205-40): Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern (“ASU
2014-15”), which requires management of all entities to
evaluate whether there are conditions and events that raise
substantial doubt about the entity’s ability to continue as a
going concern within one year after the financial statements
are issued. The guidance is effective for annual periods
ending after December 15, 2016, and interim periods
thereafter, with early adoption permitted. We adopted ASU
2014-15 during the fourth quarter of 2016. Its adoption did
not have an impact on our consolidated financial statements.
21
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a
Business (“ASU 2017-01”), which clarifies the definition
of a business with the objective of adding guidance to
assist companies and other reporting organizations with
evaluating whether transactions should be accounted for
as acquisitions (or disposals) of assets or businesses.
ASU 2017-01 is effective for annual periods beginning
after December 15, 2017, including interim periods within
those periods. Early application of the amendments in
ASU 2017-01 is allowed under certain circumstances.
The amendments in ASU 2017-01 should be applied
prospectively on or after the effective date. No disclosures
are required at transition. The impact, if any, that ASU
2017-01 will have on our consolidated financial statements
will depend on the nature of future acquisitions of assets
or businesses.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”), which requires that the reconciliation of
the beginning-of-period and end-of period amounts shown
in the statement of cash flows include restricted cash
and restricted cash equivalents. ASU 2016-18 does not
define restricted cash or restricted cash equivalents, but
an entity will need to disclose the nature of the restrictions.
ASU 2016-18 is effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted, including adoption
in an interim period. The guidance should be applied
retrospectively to all periods presented. We do not expect
the adoption of ASU 2016-18 to have a material impact on
our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income
Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory (“ASU 2016-16”), which reduces the complexity
in the accounting standards by allowing the recognition of
current and deferred income taxes for an intra-entity asset
transfer, other than inventory, when the transfer occurs.
Historically, recognition of the income tax consequence
was not recognized until the asset was sold to an outside
party. This amendment should be applied on a modified
retrospective basis through a cumulative-effect adjustment
directly to retained earnings as of the beginning of the
period of adoption. ASU 2016-16 is effective for annual
periods beginning after December 15, 2017, including interim
reporting periods within those annual reporting periods. Early
adoption is permitted for all entities as of the beginning of
an annual reporting period for which financial statements
(interim or annual) have not been issued or made available
for issuance. The impact, if any, that ASU 2016-16 will have
on our consolidated financial statements will depend upon
future intra-entity transfers of assets other than inventory.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments (“ASU 2016-15”)
which provides guidance intended to reduce diversity in
practice in how certain cash receipts and cash payments
are presented and classified in the statement of cash flows.
22
ASU 2016-15 is effective for financial statements issued
for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years with early adoption
permitted, provided that all of the amendments are adopted
in the same period. The guidance requires application
using a retrospective transition method. We have not yet
determined the impact, if any, that ASU 2016-15 will have on
our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments – Credit Losses: Measurement of Credit Losses
on Financial Instruments (“ASU 2016-13”), which requires
that entities use a current expected credit loss model which
is a new impairment model based on expected losses
rather than incurred losses. Under this model, an entity
would recognize an impairment allowance equal to its
current estimate of all contractual cash flows that the entity
does not expect to collect from financial assets measured
at amortized cost. The entity’s estimate would consider
relevant information about past events, current conditions
and reasonable and supportable forecasts that affect the
collectability of the reported amount. ASU 2016-13 is
effective for interim and annual reporting periods beginning
after December 15, 2019 with early adoption permitted for
annual reporting periods beginning after December 15, 2018.
We do not expect the adoption of ASU 2016-13 to have a
material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment
Accounting (“ASU 2016-09”), which amends ASC Topic
718, Compensation – Stock Compensation which simplifies
various aspects related to how share-based payments are
accounted for and presented in the financial statements
including income taxes and forfeitures of awards.
ASU 2016-09 is effective for annual reporting periods
beginning after December 15, 2016, and interim periods
within that reporting period. Early adoption is permitted in
any interim or annual period, with any adjustments reflected
as of the beginning of the fiscal year of adoption. We do
not expect the adoption of ASU 2016-09 to have a material
impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-05, Derivatives
and Hedging: Effect of Derivative Contract Novations on
Existing Hedge Accounting Relationships (“ASU 2016-05”),
which clarifies that a change in the counterparty to a
derivative instrument that has been designated as the
hedging instrument in an existing hedging relationship
would not, in and of itself, be considered a termination of
the derivative instrument or a change in a critical term of the
hedging relationship. As long as all other hedge accounting
criteria in ASC 815, Derivatives and Hedging (“ASC 815”) are
met, a hedging relationship in which the hedging derivative
instrument is novated would not be discontinued or require
redesignation. This clarification applies to both cash flow and
fair value hedging relationships. The standard is effective for
fiscal years beginning after December 15, 2016, and interim
periods within those fiscal years. Early adoption is permitted.
We do not expect the adoption of ASU 2016-05 to have a
material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases
(“ASU 2016-02”) which includes a lessee accounting
model that recognizes two types of leases - finance leases
and operating leases. The standard requires that a lessee
recognize on the balance sheet assets and liabilities for
leases with lease terms of more than 12 months. The
recognition, measurement, and presentation of expenses
and cash flows arising from a lease by a lessee will
depend on its classification as a finance or an operating
lease. The standard is effective for fiscal years, and
interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted. The new
standard must be adopted using a modified retrospective
transition, and provides for certain practical expedients.
Transition will require application of the new guidance at
the beginning of the earliest comparative period presented.
We have developed an implementation plan for adopting
ASU 2016-02, which includes utilizing a software program to
manage our lease obligations. We are evaluating the impact
that ASU 2016-02 will have on our consolidated financial
statements and have concluded that we will not early adopt
ASU 2016-02. Refer to Note 17 regarding current obligations
under operating lease agreements.
In July 2015, as part of its simplification initiative, the
FASB issued ASU 2015-11, Simplifying the Measurement
of Inventory (“ASU 2015-11”). ASU 2015-11 simplifies the
subsequent measurement of inventory by requiring entities
to remeasure inventory at the lower of cost and net realizable
value, which is defined as the estimated selling price in the
ordinary course of business, less reasonably predictable
costs of completion, disposal, and transportation. We are
required to adopt this standard in the first quarter of 2017.
This standard is required to be applied prospectively with
earlier application permitted as of the beginning of an
interim or annual period. The adoption of ASU 2015-11 is
not expected to have a material impact on our consolidated
financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue
from Contracts with Customers (Topic 606) which states that
an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services.
ASU 2014-09 also requires several new disclosures.
This guidance is effective for interim and annual periods
beginning after December 15, 2017, with early adoption
permitted, and may be applied either retrospectively or on a
modified retrospective basis. Subsequent to the issuance of
the May 2014 guidance, several clarifications and updates
have been issued on this topic, the most recent of which
was issued in December 2016. We concluded that we
will not early adopt this guidance. We have developed an
implementation plan for adopting ASU 2014-09 and are
currently operating in line with that plan. We are evaluating
the impact, if any, that ASU 2014-09, and any amendments
thereto, will have on our consolidated financial statements.
We concluded that we will not early adopt this guidance. We
have developed an implementation plan for adopting ASU
2014-09 and are currently operating in line with that plan.
We and have tentatively concluded to apply the modified
retrospective basis approach to ASU 2014-09.
3. Restructuring Expense
During 2014, we initiated a cost improvement initiative.
The initiative resulted in a reduction in our workforce by
approximately 135 employees and outside contractor
positions. At December 31, 2014, the remaining liability was
$4 million. During 2015, we paid $4 million of cash related to
such restructuring.
In 2015, as part of our commitment to reduce operating
costs and working capital, we commenced a global
restructuring of our TiO2 segment, (the “Global TiO2
Restructure”), which we completed in 2016. A portion of this
initiative involved a reduction in our global TiO2 workforce
by approximately 500 employees and outside contractor
positions. The restructuring streamlined the operations of our
TiO2 segment resulting in the creation of a more commercially
and operationally efficient business segment. This action
resulted in a charge, consisting of employee severance
and associated costs, of $14 million, which was recorded
in “Restructuring expense” in the Consolidated Statements
of Operations of which $2 million was paid during 2015.
During 2016, we recorded an additional charge related to our
TiO2 segment, consisting of employee severance costs of
$1 million, which was recorded in “Restructuring expense”
in the Consolidated Statements of Operations. The charge
consisted of employee severance costs and other associated
costs. During 2016, we made cash payments of $13 million.
As part of our cost improvement initiative, in November
2015, we ceased production at our sodium chlorate plant
in Hamilton, Mississippi, (the “Sodium Chlorate Plant
Restructure”), resulting in a reduction in our workforce
of approximately 50 employees. This action resulted in a
charge, consisting primarily of employee severance costs, of
$4 million, which was recorded in “Restructuring expense”
in the Consolidated Statements of Operations for the year
ended December 31, 2015, of which $3 million and $1 million
was paid during 2016 and 2015, respectively.
In line with our goal of aligning production output to
market requirements, during the third quarter of 2015,
we decided that the operation of our Cooljarloo North
Mine in Western Australia would be suspended on
December 31, 2015, resulting in a reduction in our workforce
of approximately 30 employees. This action resulted in a
charge, consisting primarily of employee severance costs, of
$3 million, which was recorded in “Restructuring expense”
in the Consolidated Statements of Operations and paid
during 2015.
23
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
A summary in the changes in the liability established for
restructuring, which is included in “Accrued liabilities” in the
Consolidated Balance Sheets, is as follows:
The income tax (provision) benefit is summarized below:
Balance, January 1,
Restructuring expense
Cash payments
Balance, December 31,
2016
2015
$ 15
1
(16)
$ —
$ 4
21
(10)
Australian:
Current
Deferred
International:
$ 15
Current
Deferred
Year Ended December 31,
2014
2015
2016
$ 65
$(17 )
$ (15 )
—
41
9
—
(183 )
(24 )
—
(15 )
(55 )
Restructuring expense by segment during 2016, 2015 and
2014 was as follows:
Income tax (provision) benefit
$ 115
$(41 )
$ (268 )
TiO2 segment
Corporate
Total
Year Ended December 31,
2014
2015
2016
$ 1
—
$ 1
$ 20
1
$ 21
$12
3
$15
4. Other Income (Expense), Net
Other income (expense), net is comprised of the following:
Year Ended December 31,
2014
2015
2016
Net realized and unrealized foreign currency
gains (losses)
Interest income
Pension and postretirement benefit
curtailment gains/(settlement losses) (1)
Other, net
Total
$ (32)
3
(1)
1
$21
7
—
—
$ 5
13
9
—
$ (29)
$28
$ 27
(1) During 2014, we recognized curtailment gains related to our U.S. postretirement
healthcare plan and our Netherlands pension plan. During 2016, we recognized net
settlement losses related to our Netherlands pension plan. See Note 21.
5. Income Taxes
Our operations are conducted through 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.
Income (loss) before income taxes is comprised of
the following:
Year Ended December 31,
2016
2015
2014
Australia
International
Loss before income taxes
$ (139)
(34)
$ (173)
$ (353 )
$ (242)
87
93
$ (266 )
$ (149)
24
The following table reconciles the applicable statutory
income tax rates to our effective income tax rates for
“Income tax (provision) benefit” as reflected in the
Consolidated Statements of Operations.
Statutory tax rate
Increases (decreases)
resulting from:
Tax rate differences
Disallowable expenditures
Valuation allowances
Corporate Reorganization
Anadarko litigation settlement
State NOL limitations
State rate changes
Withholding taxes
Prior year accruals
Foreign exchange
Tax credits
Branch taxation
Other, net
Effective tax rate
Year Ended December 31,
2016
2015
2014
30%
30%
30%
65
(25)
135
(188)
—
—
(6)
63
(4)
—
—
(4)
—
39
(4)
(89)
—
—
—
17
(15)
3
0
1
1
2
78
(17)
(1,577)
—
1,341
(15)
—
(24)
(2)
1
2
4
(1)
66% (15)%
(180)%
The effective tax rate for each of 2016, 2015, and 2014
differs from the Australian statutory rate of 30%. Historically,
the differences were primarily due to valuation allowances,
income in foreign jurisdictions taxed at rates lower than 30%,
and withholding tax accruals on interest income. Additionally,
the effective tax rate for 2014 is impacted by $58 million and
$255 million, respectively, due to increases to full valuation
allowances in the Netherlands and Australia. During 2014,
the Anadarko Litigation settlement of $5.2 billion provided
us with additional deferred tax assets of $2.0 billion, which
were offset by full valuation allowances in the United
States of $2.0 billion. As a result of an ownership change
on June 15, 2012, our ability to use federal losses was not
impacted; however, due to state apportionment impacts
and carryforward periods, our state losses were limited. This
limitation which was recorded in 2014 resulted in the loss of
$23 million of deferred tax assets but was fully offset by a
reduction of the related valuation allowances.
During the fourth quarter of 2016, we implemented various
Net deferred tax assets (liabilities) at December 31, 2016
steps of an internal corporate restructuring plan to simplify
our corporate structure and thereby improve operational,
administrative, and commercial synergies within each of
our operating segments (the “Corporate Reorganization”).
As a result of the Corporate Reorganization, we reduced
our cross jurisdictional financing arrangements and
consequently reversed the deferred tax assets related to
intercompany interest deductions. The related withholding
tax amounts were also reversed as a result of the Corporate
Reorganization. Additionally, we reduced our deferred tax
assets related to loss carryforwards which will no longer
be available to utilize. The changes to deferred taxes are
offset by valuation allowances and result in no impact to the
consolidated provision for income taxes for the year ended
December 31, 2016. The net income impact of the Corporate
Reorganization was a benefit of $137 million in the fourth
quarter of 2016, reflecting the reversal of $139 million of
withholding tax accruals, offset by a foreign currency loss of
$2 million. For the year ended December 31, 2016, the net
income impact was $107 million, reflecting a net reduction in
withholding tax accruals of $110 million, offset by of a foreign
currency loss of $3 million.
Changes in our state apportionment factors, state
statutory rate changes, and the acquisition of the Alkali
entities, caused our overall effective state tax rates to
change. Due to the large deferred tax asset created by the
Anadarko litigation settlement in 2014, these state rate
changes have a material impact on deferred taxes for 2015
and 2016. These are reflected within the State rate changes
line above. The changes to deferred tax are offset by
valuation allowances.
and 2015 were comprised of the following:
Deferred tax assets:
Net operating loss and other carryforwards
Property, plant and equipment, net
Reserves for environmental remediation and
restoration
Obligations for pension and other employee
benefits
Investments
Grantor trusts
Inventories, net
Interest
Other accrued liabilities
Unrealized foreign exchange losses
Other
Total deferred tax assets
Valuation allowance associated with deferred
tax assets
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment, net
Intangible assets, net
Inventories, net
Unrealized foreign exchange gains
The statutory tax rates on income earned in South
Other
Africa (28% for limited liability companies), the Netherlands
(25% for corporations), and the United Kingdom (20%
for corporations and limited liability companies and not
applicable for certain limited liability partners) are lower
than the Australian statutory rate of 30%. The statutory tax
rate, applied against losses in the United States (35% for
corporations), is higher than the Australian statutory rate of
30%. Also, we continue to maintain a full valuation allowance
in Australia, the Netherlands, and the United States.
As a result of the Alkali Transaction, we expect to offset
a portion of our previously existing U.S. tax attributes with
income generated by the Alkali entities. This expectation,
however, does not change our overall judgement regarding
the utilization of existing deferred tax assets.
Total deferred tax liabilities
Net deferred tax liability
Balance sheet classifications:
Deferred tax assets — long-term
Deferred tax liabilities — long-term
Net deferred tax liability
December 31,
2016
2015
$ 1,900 $ 1,614
106
343
25
23
86
78
25
25
1,055 1,231
11
6
326
9
1
13
445
11
15
3
3,549 3,802
(3,338 ) (3,576 )
211
226
(270 )
(85 )
(1 )
(2 )
(5 )
(222 )
(96 )
(8 )
(40 )
(3 )
(363 )
(369 )
$ (152 ) $ (143 )
—
(152 )
—
(143 )
$ (152 ) $ (143 )
The net deferred tax liabilities reflected in the above table
include deferred tax assets related to grantor trusts, which
were established as Tronox Incorporated emerged from
bankruptcy during 2011. The balances relate to the assets
contributed to such grantor trusts by Tronox Incorporated.
Additionally, as a result of the resolution of the Anadarko
Litigation of $5.2 billion during 2014, we recorded additional
deferred tax assets of $2.0 billion. This increase was fully
offset by valuation allowances. During 2015 and 2016, the
U.S. net operating loss increased as the grantor trusts spent
a portion of the funds received from the litigation.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification
of Deferred Taxes. The standard requires that deferred
tax assets and liabilities be classified as noncurrent
on the balance sheet rather than being separated into
current and noncurrent. We early adopted ASU 2015-17
during the fourth quarter of 2015 on a prospective basis.
25
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Accordingly, we classified all deferred taxes as noncurrent
at December 31, 2015. The adoption did not have a material
effect on our consolidated financial statements.
There was a decrease to our valuation allowance of
$238 million during 2016 and an increase of $231 million in
2015. The table below sets forth the changes, by jurisdiction:
The deferred tax assets generated by tax loss
carryforwards in Australia, the United States, and the
Netherlands have been fully offset by valuation allowances.
The expiration of these carryforwards at December 31, 2016
is shown below. The Australian and South African tax loss
carryforwards do not expire.
Australia
United States
The Netherlands
South Africa
Total increase (decrease) in
valuation allowances
December 31,
2016
2015
$ (258)
20
—
—
$ 112
114
6
(1 )
$ (238)
$ 231
The decrease to our valuation allowance in Australia during
2016 is primarily the result of the Corporate Reorganization.
When we reduced our deferred tax assets related to
intercompany interest deductions and loss carryforwards
which will no longer be available to utilize, it caused a
corresponding reduction to the valuation allowance and
resulted in no impact to the consolidated provision for
income taxes for the year ended December 31, 2016. The
increase to our valuation allowances in both Australia and the
United States during 2015 was to offset deferred tax assets
generated from deferred intercompany interest deductions.
At December 31, 2016, we maintain full valuation
allowances related to the total net deferred tax assets in
Australia, the United States, and 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. Additionally, we have valuation allowances
against specific tax assets in South Africa.
These conclusions were reached by the application of
ASC 740, Income Taxes, and require that all available positive
and negative evidence be weighted to determine whether a
valuation allowance should be recorded. The more significant
evidential matter in Australia, the United States, and the
Netherlands relates to recent book losses and the lack of
sufficient projected taxable income. The more significant
evidential matter for South Africa relates to assets that
cannot be depleted or depreciated for tax purposes.
An ownership change occurred during 2012, as a result
of the Exxaro Transaction. These ownership changes
resulted in a limitation under IRC Sections 382 and 383
related to U.S. net operating losses. We do not expect
that the application of these net limitations will have any
material effect on our U.S. federal income tax liabilities;
however, for 2014, we reduced our state net operating loss
carryforwards and the related deferred tax benefits. The loss
of these benefits is offset by a corresponding reduction in the
valuation allowances.
26
Australia
U.S.
Federal
U.S.
State Other
Tax Loss
Carryforwards
Total
$ — $ — $ — $ —
21 —
— —
1 —
— —
16 —
— —
— —
3 17
— 3,880 3,942 199
542 — — 17
$ —
21
1
16
20
8,021
559
2017
2018
2019
2020
2021
Thereafter
No Expiration
Total tax loss
carryforwards
$ 542 $3,880 $3,983 $233
$8,638
At December 31, 2016, Tronox Limited had foreign
subsidiaries with undistributed earnings. Although we would
not be subject to income tax on these earnings, amounts
totaling $135 million could be subject to withholding tax
if distributed. Tronox Incorporated no longer has foreign
subsidiaries. We have made no provision for deferred taxes
for Tronox Limited related to these undistributed earnings
because they are considered to be indefinitely reinvested
outside of the parents’ taxing jurisdictions.
A reconciliation of the beginning and ending amounts of
unrecognized tax benefits for 2016 and 2015 is as follows:
Balance at January 1
Reductions for tax positions
related to prior years
Balance at December 31
Year Ended December 31,
2016
2015
$ 1
(1)
$—
$ 1
—
$ 1
The noncurrent liabilities section of our Consolidated
Balance Sheet does not reflect a reserve for uncertain tax
positions at December 31, 2016 and reflects $1 million for
December 31, 2015.
Our Australian returns are closed through 2011. However,
under Australian tax laws, transfer pricing issues have no
limitation period. Our U.S. returns are closed for years
through 2012, with the exception of an amendment filed
for the 2007 tax year. Our Netherlands returns are closed
through 2012. In accordance with the Alkali Transaction, we
are not liable for income taxes of the acquired companies
with respect to periods prior to the Alkali Transaction Date.
We believe that we have made adequate provision for
income taxes that may be payable with respect to years
open for examination; however, the ultimate outcome is
not presently known and, accordingly, additional provisions
may be necessary and/or reclassifications of noncurrent tax
liabilities to current may occur in the future.
Anadarko Litigation
On January 23, 2015, Anadarko Petroleum Corp.
(“Anadarko”) paid $5.2 billion, including approximately
$65 million of accrued interest, pursuant to the terms of a
settlement agreement with Tronox Incorporated. We did not
receive any portion of the settlement amount. Instead, 88%
of the $5.2 billion went to trusts and other governmental
entities for the remediation of polluted sites by Kerr-McGee
Corporation (“Kerr-McGee”). The remaining 12% was
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 are 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 $5.2
billion is spent. We believe that these expenditures and the
accompanying tax deductions may continue for years. At
December 31, 2014, we had recorded deferred tax assets
of $2.0 billion related to the $5.2 billion of expected future
tax deductions from trust expenditures. These deferred
tax assets were fully offset by valuation allowances. At
December 31, 2016, approximately $2 billion of the trust
from the litigation proceeds have been incurred.
6. Loss Per Share
The computation of basic and diluted loss per share for the periods indicated is as follows:
Numerator – Basic and Diluted:
Net loss
Less: Net income attributable to noncontrolling interest
Undistributed net loss
Percentage allocated to ordinary shares (1)
Net loss available to ordinary shares
Denominator – Basic and Diluted:
Weighted-average ordinary shares (in thousands)
Net loss per Ordinary Share (2):
Basic and diluted net loss per ordinary share
Year Ended December 31,
2016
2015
2014
$
(58)
1
(59)
$
(307)
$
(417)
11
(318)
10
(427)
100%
100%
100%
$
(59)
$
(318)
$
(427)
116,161
115,566
114,281
$
(0.50)
$
(2.75)
$
(3.74)
(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 2016, 2015, and 2014, the two-class method did not have an effect on our net loss per ordinary share calculation, and as such, dividends paid during the year did not
impact this calculation.
(2) Net loss per ordinary share amounts were calculated from exact, not rounded net loss and share information.
In computing diluted net loss per share under the two-class method, we considered potentially dilutive shares. Anti-dilutive
shares not recognized in the diluted net loss per share calculation were as follows:
Options
Series A Warrants
Series B Warrants
Restricted share units
December 31, 2016
December 31, 2015
December 31, 2014
Average
Exercise
Price
Shares
Average
Exercise
Price
Shares
Average
Exercise
Price
Shares
1,970,481
$ 21.19
1,440,662
$ 8.51
1,953,207
$ 9.37
5,587,331
$ 7.19
2,189,967
1,354,529
1,833,834
1,494,027
$ 21.15
2,560,875
$ 21.14
$ 9.63
1,273,917
$ 11.04
$ 10.63
1,715,986
$ 12.19
$ 23.04
875,776
$ 22.17
27
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
7. Fair Value Measurement
For financial instruments that are subsequently measured at
fair value, the fair value measurement is grouped into levels.
See Note 2.
At December 31, 2016, our financial instruments
measured at fair value were our natural gas commodity
price swap contracts and environmental rehabilitation trust,
which amounted to $3 million and $13 million, respectively,
and were categorized as Level 2. At December 31, 2015,
the only financial instrument measured at fair value was
the environmental rehabilitation trust, which amounted
to $12 million and was categorized as Level 2 as it was
recorded at amortized cost which approximates fair value.
See Notes 15 and 16.
The carrying amounts for cash and cash equivalents,
accounts receivable, other current assets, accounts payable,
short-term debt, and other current liabilities approximate
their fair value because of the short-term nature of
these instruments.
Our debt is recorded at historical amounts. At
December 31, 2016 and 2015, the fair value of the Term
Loan, defined below, was $1.5 billion and $1.3 billion,
respectively. At December 31, 2016 and 2015, the fair
value of the Senior Notes due 2020, defined below, was
$841 million and $520 million, respectively. At December 31,
2016 and 2015, the fair value of the Senior Notes due
2022, defined below, was $544 million and $347 million,
respectively. We determined the fair value of the Term Loan,
the Senior Notes due 2020 and the Senior Notes due 2022
using quoted market prices. The fair value hierarchy for
the Term Loan, the Senior Notes due 2020 and the Senior
Notes due 2022 is a Level 1 input. Balances outstanding
under our UBS Revolver are carried at contracted amounts,
which approximate fair value based on the short term nature
of the borrowing and the variable interest rate. The fair
value hierarchy for our UBS Revolver is a Level 2 input. See
Note 14.
8. Accounts Receivable, Net of
Allowance for Doubtful Accounts
Accounts receivable, net of allowance for doubtful accounts,
consisted of the following:
Trade receivables
Other
Subtotal
Allowance for doubtful accounts
December 31,
2016
2015
$ 408
15
423
(2)
$ 367
25
392
(1 )
Accounts receivable, net of allowance for
doubtful accounts
$ 421
$ 391
Bad debt expense was $2 million for the year ended
2016, and less than $1 million for each of the years ended
2015 and 2014. Bad debt expense was recorded in “Selling,
general and administrative expenses” in the Consolidated
Statements of Operations.
28
9. Inventories, net
Inventories, net consisted of the following:
Raw materials
Work-in-process
Finished goods, net
Materials and supplies, net (1)
Total
Less: Inventories, net – non-current
Inventories, net – current
December 31,
2016
2015
$ 194
41
204
107
546
(14)
$ 248
43
245
106
642
(12 )
$ 532
$ 630
(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 $24
million and $30 million at December 31, 2016 and 2015,
respectively. At December 31, 2016 and 2015, inventory
obsolescence reserves were $17 million and $18 million,
respectively. At December 31, 2016 and December 31, 2015,
reserves for lower of cost or market were $26 million and $63
million, respectively.
10. Property, Plant and Equipment
Property, plant and equipment, net of accumulated
depreciation, consisted of the following:
Land and land improvements
Buildings
Machinery and equipment
Construction-in-progress
Other
Total
Less: accumulated depreciation
Property, plant and equipment, net (1)
December 31,
2016
2015
$
159
$
143
309
1,888
146
189
1,765
261
50
44
2,552
(721)
2,402
(559 )
$ 1,831
$ 1,843
(1) Substantially all of these assets are pledged as collateral for our debt. See Note 14.
Depreciation expense related to property, plant and
equipment during 2016, 2015, and 2014 was $171 million,
$187 million, and $158 million, respectively, of which
$167 million, $183 million, and $155 million, respectively,
was recorded in “Cost of goods sold” in the Consolidated
Statements of Operations. Depreciation expense of $4 million
each for 2016 and 2015 and $3 million for 2014 was
recorded in “Selling, general and administrative expenses”
in the Consolidated Statements of Operations. In April 2016,
we commissioned our Fairbreeze mine in KZN and began
depreciating related assets placed in service.
11. Mineral Leaseholds, net
Mineral leaseholds, net of accumulated depletion, consisted
of the following:
Mineral leaseholds
Less accumulated depletion
Mineral leaseholds, net
December 31,
2016
2015
$ 1,996
(389)
$ 1,948
(344 )
$ 1,607
$ 1,604
Depletion expense related to mineral leaseholds during
2016, 2015, and 2014 was $40 million, $81 million, and $110
million, respectively, and was recorded in “Cost of goods
sold” in the Consolidated Statements of Operations.
12. Intangible Assets, net
Intangible assets, net of accumulated amortization, consisted of the following:
Customer relationships
TiO2 technology
Internal-use software
Other
Intangible assets, net
December 31, 2016
December 31, 2015
Gross
Cost
Accumulated
Amortization
Net
Carrying
Amount
Gross
Cost
Accumulated
Amortization
Net
Carrying
Amount
$ 291
$ (115)
$ 176
$ 294
$ (98 )
$ 196
32
45
—
(9)
(21)
—
23
24
—
32
37
9
(8 )
(13 )
(9 )
24
24
—
$ 368
$ (145)
$ 223
$ 372
$ (128 )
$ 244
Amortization expense related to intangible assets was
$25 million, $26 million and $27 million during 2016, 2015
and 2014, respectively, of which $24 million, $25 million
and $26 million was recorded during 2016, 2015 and 2014,
respectively, in “Selling general and administrative expenses”
in the Consolidated Statements of Operations. During 2016,
2015 and 2014, $1 million each of amortization expense
was recorded in “Cost of goods sold” in the Consolidated
Statements of Operations. Estimated future amortization
expense related to intangible assets is $25 million for each of
the years from 2017 through 2021, and $98 million thereafter.
13. Accrued Liabilities
Accrued liabilities consisted of the following:
Employee-related costs and benefits
Restructuring costs
Interest
Sales rebates
Taxes other than income taxes
Other
Accrued liabilities
December 31,
2016
2015
$ 83
—
35
25
10
21
$ 69
15
35
28
11
22
$ 174
$ 180
14. Debt
Our short-term debt consisted of a UBS Revolver, defined
below, and was $150 million at both December 31, 2016 and
December 31, 2015. The average effective interest rates of
our UBS Revolver were 4.2% and 3.5% during 2016 and
2015, respectively.
UBS Revolver
We have a global senior secured asset-based syndicated
revolving credit facility with UBS AG (“UBS”) with a maturity
date of June 18, 2017 (the “UBS Revolver”). Through
March 31, 2015, the UBS Revolver provided us with a
committed source of capital with a principal borrowing
amount of up to $300 million, subject to a borrowing
base. Balances due under the UBS Revolver are carried at
contracted amounts, which approximate fair value based
on the short-term nature of the borrowing and the variable
interest rate.
On April 1, 2015, in connection with the Alkali Transaction,
we entered into an amended and restated asset-based
revolving syndicated facility agreement with UBS, which
provides for up to $500 million of revolving credit lines,
with a $85 million sublimit for letters of credit with a new
maturity that is the earlier of the date which is five years after
the closing date and the date which is three months prior
to the maturity of the Term Loan, defined below; provided
that in no event shall the Revolving Maturity be earlier than
June 18, 2017. Availability of revolving credit loans and
29
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
letters of credit are subject to a borrowing base. Borrowings
bear interest at our option, at either a base rate or an
adjusted London Interbank Offered Rate (“LIBOR”) as the
greatest of (a) the Administrative Agent’s prime rate, (b) the
Federal funds effective rate plus 0.50% and (c) the adjusted
LIBOR for a one-month period plus 1.00%. The applicable
margin ranges from 0.50% to 1.00% for borrowings at the
base rate and from 1.50% to 2.00% for borrowings at the
adjusted LIBOR, in each case, based on the average daily
borrowing availability.
On April 1, 2015, we borrowed $150 million against
the UBS Revolver, which was outstanding at both
December 31, 2016 and 2015. During 2016, we had no
additional drawdowns or repayments on the UBS Revolver.
There are $2 million of deferred debt issuance costs related
to the UBS Revolver included in “Other long-term assets”
in the Consolidated Balance Sheets at December 31, 2015.
At December 31, 2016 and 2015, our amount available to
borrow was $190 million and $217 million, respectively.
ABSA Revolving Credit Facility
We have a R1.3 billion (approximately $95 million at
December 31, 2016) revolving credit facility with ABSA Bank
Limited (“ABSA”) acting through its ABSA Capital Division
with a maturity date of June 14, 2017 (the “ABSA Revolver”).
The ABSA Revolver bears interest at (i) the base rate (defined
as one month Johannesburg Interbank Agreed Rate, which
is the mid-market rate for deposits in South African Rand
for a period equal to the relevant period which appears
on the Reuters Screen SAFEY Page alongside the caption
YLD) as of 11h00 Johannesburg time on the first day of the
applicable period, plus (ii) the Margin, which is 3.9%.
During 2016, 2015 and 2014, we had no drawdowns or
repayments on the ABSA Revolver. At both December 31,
2016 and 2015, there were no outstanding borrowings on the
ABSA Revolver.
Long-term debt, net of an unamortized discount and debt
issuance costs, consisted of the following:
Term Loan, net of unamortized discount (1)
Senior Notes due 2020
Senior Notes due 2022
Co-generation Unit Financing Arrangement
Lease financing
Total borrowings
Less: Long-term debt due within one year
Debt issuance costs
Long-term debt
Original
Principal
Annual
Interest
Rate
Maturity
Date
December 31,
2016
December 31,
2015
3/19/2020
$ 1,500 Variable
$ 900 6.375% 8/15/2020
7.50% 3/15/2022
$ 600
2/1/2016
6.50%
16
$
$1,441
896
584
—
19
2,940
(16)
(36)
$2,888
$1,454
900
600
1
16
2,971
(16)
(45)
$2,910
(1) Average effective interest rate of 4.9%, 4.7% and 4.6% during 2016, 2015 and 2014, respectively.
At December 31, 2016, the scheduled maturities of our
long-term debt were as follows:
Total Borrowings
2017
2018
2019
2020
2021
Thereafter
Total
Remaining accretion associated with the Term Loan
Total borrowings
$
16
16
16
2,298
1
598
2,945
(5 )
$ 2,940
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
30
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-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
December 31, 2016 and 2015, the unamortized discount was
$5 million and $6 million, respectively. We made principal
repayments during 2016 and 2015 of $15 million each.
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 350 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. Debt issuance cost
related to the Term Loan of $17 million was recorded as a
direct reduction to the carrying value of the long-term debt
as described below.
Senior Notes due 2020
On August 20, 2012, our wholly owned subsidiary, Tronox
Finance LLC (“Tronox Finance”), completed a private
placement offering of $900 million aggregate principal
amount of senior notes at par value (the “Senior Notes
due 2020”). The Senior Notes due 2020 bear interest
semiannually at a rate equal to 6.375%, and are fully and
unconditionally guaranteed on a senior, unsecured basis
by us and certain of our subsidiaries. The Senior Notes due
2020 were initially offered to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933,
as amended (the “Securities Act”), and outside the United
States to non-U.S. persons pursuant to Regulation S under
the Securities Act. Debt issuance costs related to the Senior
Notes Due 2020 of $9 million were recorded as a direct
reduction to the carrying value of the long-term debt as
described below.
On September 17, 2013, Tronox Finance issued
$900 million in aggregate principal amount of registered
6.375% Senior Notes due 2020 in exchange for its then
existing $900 million in aggregate principal amount of its
6.375% Senior Notes due 2020. The Senior Notes due 2020
are guaranteed by Tronox and certain of its subsidiaries.
See Note 25. There were no repayments during 2016 and
2015. During 2016, we repurchased $4 million of face value
of notes at a price of 77% of par, resulting in a net gain of
approximately $1 million which was included in “Gain (loss)
on extinguishment of debt” in the Consolidated Statements
of Operations.
Senior Notes due 2022
On March 6, 2015, Evolution Escrow Issuer LLC (“Evolution”),
a special purpose limited liability company organized under
the laws of Delaware, was formed. Evolution was wholly
owned by Stichting Evolution Escrow, a Dutch foundation not
affiliated with the Company.
On March 19, 2015, Evolution closed an offering of
$600 million aggregate principal amount of its 7.50%
Senior Notes due 2022 (the “Senior Notes due 2022”). The
Senior Notes due 2022 were offered and sold by Evolution
in reliance on an exemption pursuant to Rule 144A and
Regulation S under the Securities Act. The Senior Notes due
2022 were issued under an Indenture, dated as of March 19,
2015 (the “Indenture”), between Evolution and Wilmington
Trust, National Association (the “Trustee”).
On April 1, 2015, in connection with the Alkali Transaction,
Evolution merged with and into Tronox Finance, Tronox
Finance assumed the obligations of Evolution under the
Indenture and the Senior Notes due 2022, and the proceeds
from the offering were released to us to partially pay the
purchase price for the Alkali Transaction. We and certain
of our subsidiaries entered into a supplemental indenture
(the “First Supplemental Indenture”), by and among us,
Tronox Finance, the guarantors party thereto, and the
Trustee, pursuant to which we and such subsidiaries
became guarantors of the Senior Notes due 2022 under
the Indenture. The Senior Notes due 2022 have not been
registered under the Securities Act, and may not be offered
or sold in the U.S. absent registration or an applicable
exemption from registration requirements. There were no
repayments during the 2016 and 2015. During 2016, we
repurchased $16 million of face value of notes at a weighted
average price of 76% of par, resulting in a net gain of
approximately $3 million which was included in “Gain (loss)
on extinguishment of debt” in the Consolidated Statements
of Operations. Debt issuance costs related to the Senior
Notes due 2022 of $10 million were recorded as a direct
reduction of the carrying value of the long-term debt as
described below.
The Indenture and the Senior Notes due 2022 provide,
among other things, that the Senior Notes due 2022 are
senior unsecured obligations of Tronox Finance. Interest
is payable on March 15 and September 15 of each year
beginning on September 15, 2015 until their maturity date
of March 15, 2022. The terms of the Indenture, among other
things, limit, in certain circumstances, the ability of us to:
incur certain additional indebtedness and issue preferred
stock; make certain dividends, distributions, investments
and other restricted payments; sell certain assets; incur liens;
agree to any restrictions on the ability of certain subsidiaries
to make payments to the Company; consolidate or merge
with or into, or sell substantially all of our assets to, another
person; enter into transactions with affiliates; and enter into
new lines of business.
Liquidity and Capital Resources
As of December 31, 2016 we had $190 million available
under the $500 million UBS Revolver, $95 million available
under the ABSA Revolver and $248 million in cash and cash
equivalents.
Lease Financing
We have capital lease obligations in South Africa, which are
payable through 2031 at a weighted average interest rate of
approximately 14%. At December 31, 2016 and 2015, assets
recorded under capital lease obligations were $21 million and
$18 million, respectively. Related accumulated amortization
was $6 million and $5 million at December 31, 2016 and
31
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
2015, respectively. During 2016, 2015, and 2014 we made
principal payments of less than $1 million for all periods.
At December 31, 2016, future minimum lease payments,
including interest, were as follows:
2017
2018
2019
2020
2021
Thereafter
Total
Principal
Repayments
Interest
Total
Payments
$ 1
$ 2
$ 3
1
1
1
1
2
2
2
2
14
$ 19
11
$ 21
3
3
3
3
25
$ 40
Bridge Facility
In connection with the Alkali Transaction, we entered into
a $600 million senior unsecured bridge facility (the “Bridge
Facility”). The Bridge Facility was not utilized and terminated
with the completion of the Alkali Transaction. During 2015,
we incurred $8 million of financing fees related to the Bridge
Facility, which were included in “Interest and debt expense,
net” in the Consolidated Statements of Operations.
Debt Covenants
At December 31, 2016, 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
year ended December 31, 2016.
Interest and Debt Expense, Net
Interest and debt expense, net in the Consolidated
Statements of Operations consisted of the following:
Interest on debt
Amortization of deferred debt issuance
costs and discounts on debt
Bridge Facility
Capitalized interest
Other
Year Ended December 31,
2015
2016
2014
$ 174
$ 160
$ 124
11
—
(4)
3
11
8
10
—
(6 )
3
(3 )
2
Revolver and ABSA Revolver which are recorded in “Other
long-term assets” in the Consolidated Balance Sheets and
$36 million and $45 million at December 31, 2016 and 2015,
respectively, of Term Loan, Senior Notes due 2020 and
Senior Notes due 2022, as a direct reduction of the carrying
value of the long-term debt.
15. Asset Retirement Obligations
Asset retirement obligations consist primarily of
rehabilitation and restoration costs, landfill capping costs,
decommissioning costs, and closure and post-closure
costs. Activity related to asset retirement obligations was
as follows:
Year Ended December 31,
2015
2016
Balance, January 1,
Additions
Accretion expense
Remeasurement/translation
Changes in estimates, including cost
and timing of cash flows
Settlements/payments
Balance, December 31,
Asset retirement obligations were classified as
follows:
Current portion included in “Accrued liabilities”
Noncurrent portion included in “Asset retirement
obligations”
Asset retirement obligations
$ 81
1
5
1
(11)
(1)
$ 76
$ 90
3
5
(12)
(3)
(2)
$ 81
December 31,
2015
2016
$ 3
$ 4
73
$ 76
77
$ 81
We used the following assumptions in determining asset
retirement obligations at December 31, 2016: inflation rates
between 2.5% - 5.1% per year; credit adjusted risk-free
interest rates between 7.0% -16.1%; the life of mines
between 12-28 years and the useful life of assets of between
5-34 years.
During 2016, we amended our lease agreement for
our TiO2 pigment facility in Botlek, the Netherlands, which
included an option to extend the lease term for an additional
25 years. This amendment increased the estimated useful
life used in determining the asset retirement obligation and
consequently, we recognized a $10 million reduction to
this liability.
Total interest and debt expense, net
$ 184
$ 176
$ 133
In connection with obtaining debt, we incurred debt
issuance costs, which are being amortized through the
respective maturity dates using the effective interest
method. At both December 31, 2016 and 2015, we had
deferred debt issuance costs of $4 million related to the UBS
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
32
of the fund are appointed by us, and consist of sufficiently
qualified employees capable of fulfilling their fiduciary
duties. At December 31, 2016 and 2015, the environmental
rehabilitation trust assets were $13 million and $12 million,
respectively, which were recorded in “Other long-term
assets” in the Consolidated Balance Sheets.
16. Derivative Instruments
We manufacture and market our products in a number of
countries throughout the world and, as a result, are exposed
to changes in foreign currency exchange rates, particularly in
South Africa, Australia, and the Netherlands. Costs in South
Africa and Australia are primarily incurred in local currencies,
while the majority of revenues are in U.S. dollars. In Europe,
the majority of revenues and costs are in the local currency.
This leaves us exposed to movements in the South African
Rand and the Australian dollar versus the U.S. dollar.
Our businesses rely on natural gas as one of the main
fuel sources in our production process. Natural gas prices
have historically been volatile. Natural gas prices could
increase as a result of reduced domestic drilling and
production activity. Drilling and production operations are
subject to extensive federal, state, local and foreign laws and
government regulations, which could directly curtail such
activity or increase the cost of drilling, resulting in reduced
levels of drilling activity and therefore increased natural gas
prices. This exposes us to commodity price risk.
We mitigate our exposures to currency risks and
commodity price risks, through a controlled program of risk
management that includes the use of derivative financial
instruments. We enter into foreign exchange forward
contracts to reduce the effects of fluctuating foreign
currency exchange rates. We also use commodity price
swap contracts and forward purchase contracts to manage
forecasted energy exposure.
We formally document all relationships between
hedging instruments and hedged items, as well as the
risk management objective and strategy for undertaking
our hedge transactions. This process includes relating
derivatives that are designated as cash flow hedges to
specific assets and liabilities on the balance sheet or to
specific firm commitments or forecasted transactions. We
also formally assess both at the inception of the hedge
and throughout its term, whether each derivative is highly
effective in offsetting changes in cash flows of the hedged
item. If we determine that a derivative is not highly effective
as a hedge, or if a derivative ceases to be a highly effective
hedge, we discontinue hedge accounting with respect to
that derivative prospectively. On the date the derivative
instrument is entered into, we assess whether to designate
the derivative a hedge of the variability of cash flows to be
received or paid related to a forecasted transaction (cash
flow hedge) or not. We recognize all derivatives in the
Consolidated Balance Sheets at fair value.
Our currency forward contracts are not designated for
hedge accounting treatment under ASC 815. As such,
changes in the fair value are recorded in “Other income
(expense), net” in Consolidated Statements of Operations.
We did not record any gains or losses during 2016, 2015 and
2014 related to forward contracts. At both December 31,
2016 and 2015, we did not have any currency forward
contracts in place.
We have designated our natural gas commodity price
swap contracts, which qualify as cash flow hedges, for
hedge accounting treatment under ASC 815. Our current
natural gas derivative contracts matured on December 31,
2016. We perform an analysis for effectiveness of the
derivatives at the end of each quarter based on the terms
of the contract and the underlying item being hedged. The
effective portion of the change in the fair value of cash
flow hedges is deferred in other comprehensive loss and
is subsequently recognized in “Cost of goods sold” in the
Consolidated Statements of Operations for commodity
hedges, when the hedged item impacts earnings. Changes
in fair value of derivative assets and liabilities designated
as hedging instruments are shown in “Other noncash
items affecting net loss” within operating activities in the
Consolidated Statements of Cash Flows. Any portion of the
change in fair value of derivatives designated as hedging
instruments that is determined to be ineffective is recorded
in “Other income (expense), net” in the Consolidated
Statements of Operations.
At December 31, 2016, we recorded the fair value of
the natural gas hedge of $3 million in “Prepaid and other
assets” in the Consolidated Balance Sheets, with the offset
of $3 million unrealized gain recognized in accumulated other
comprehensive loss with no tax impact which is expected
to be reclassified as earnings within the next twelve months.
See Note 5 to the consolidated financial statements. The
current open commodity contract hedges forecasted
transactions until December 31, 2017. At December 31,
2016, we had an equivalent of 4.8 MMBTUs (millions of
British Thermal Units) in aggregate notional volume of
outstanding natural gas commodity forward contract to
hedge forecasted purchases. The fair value of the natural
gas commodity price contract was based on market price
quotations and the use of a pricing model. The contract
was considered a level 2 input in the fair value hierarchy at
December 31, 2016. We did not have any natural gas hedge
positions at December 31, 2015.
17. Commitments and Contingencies
Leases—We lease office space, railcars, storage, and
equipment under non-cancelable lease agreements,
which expire on various dates through 2030. Total rental
expense related to operating leases recorded in “Cost of
goods sold” in the Consolidated Statements of Operations
was $39 million, $38 million and $24 million during 2016,
2015 and 2014, respectively. Total rental expense related
to operating leases recorded in “Selling, general and
administrative expense” in the Consolidated Statements of
Operations, was $3 million each during 2016 and 2015 and
$2 million during 2014.
33
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
At December 31, 2016, minimum rental commitments
under non-cancelable operating leases were as follows:
2017
2018
2019
2020
2021
Thereafter
Total
Operating
$ 33
25
19
18
18
71
$ 184
Purchase Commitments—At December 31, 2016,
purchase commitments were $124 million for 2017,
$73 million for 2018, $50 million for 2019, $36 million for
2020, $25 million for 2021, and $132 million thereafter.
Letters of Credit—At December 31, 2016, we had
outstanding letters of credit, bank guarantees, and
performance bonds of $69 million, of which $42 million were
letters of credit issued under the UBS Revolver, $20 million
were bank guarantees and letters of credit issued by ABSA,
$5 million were bank guarantees issued by Standard Bank
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. Currently, we are not party
to any pending legal or administrative proceedings that may
have a material adverse effect, either individually or in the
aggregate, on our business, financial condition or results
of operations.
18. Shareholders’ Equity
The changes in outstanding Class A ordinary shares (“Class
A Shares”) and Class B Shares for 2015 and 2016 were
as follows:
Class A Shares:
Balance, January 1, 2015
Shares issued for share-based compensation
Shares issued upon warrants exercised
Shares issued upon options exercised
Balance, December 31, 2015
Shares issued for share-based compensation
Shares cancelled for share-based compensation
Shares issued upon warrants exercised
Balance, December 31, 2016
Class B Shares:
63,968,616
403,213
8,549
141,473
64,521,851
732,724
(89,062)
159
65,165,672
Balance at December 31, 2016 and 2015
51,154,280
Warrants
We have outstanding Series A Warrants (the “Series A
Warrants”) and Series B Warrants (the “Series B Warrants”),
together (the “Warrants”). At December 31, 2016, holders
of the Series A Warrants and the Series B Warrants were
entitled to purchase 6.02 and 6.03 of Class A Shares,
respectively, and receive $12.50 in cash at an exercise
price of $51.21 for each Series A Warrant and $56.51
for each Series B Warrant. The Warrants have a seven-
year term from the date initially issued and will expire on
February 14, 2018. A holder may exercise the Warrants by
paying the applicable exercise price in cash or exercising
on a cashless basis. The Warrants are freely transferable
by the holder. At December 31, 2016 and 2015, there
were 239,306 and 239,316 Series A Warrants outstanding,
respectively, and 323,915 and 323,999 Series B Warrants
outstanding, respectively.
34
Dividends
During 2016 and 2015, we declared and paid quarterly dividends to holders of our Class A Shares and Class B Shares
as follows:
Dividend per share
Total dividend
Record date (close of business)
Dividend per share
Total dividend
Record date (close of business)
Q1 2016
Q2 2016
Q3 2016
Q4 2016
$ 0.25
$
30
March 4
$ 0.045
$
5
$ 0.045
$
5
$ 0.045
$
6
May 16
August 17
November 16
Q1 2015
Q2 2015
Q3 2015
Q4 2015
$ 0.25
29
$
March 9
$
$
0.25
30
$
$
0.25
30
$ 0.25
$
29
May 18
August 19
November 16
Accumulated Other Comprehensive Loss Attributable to Tronox Limited
The tables below present changes in accumulated other comprehensive loss by component for 2016, 2015 and 2014.
Cumulative
Translation
Adjustment
Pension
Liability
Adjustment
Unrealized
Gains on
Derivatives
Balance, January 1, 2014
Other comprehensive loss
Amounts reclassified from accumulated other comprehensive loss (1)
Balance, December 31, 2014
Other comprehensive income (loss)
Amounts reclassified from accumulated other comprehensive loss
Balance, December 31, 2015
Other comprehensive income
Amounts reclassified from accumulated other comprehensive loss
Balance, December 31, 2016
$ (215 )
$ (69 )
(99 )
35
$ (279 )
(215 )
—
$ (494 )
88
—
$(406)
(46 )
(2 )
$ (117 )
12
3
$ (102 )
8
2
Total
$ (284 )
(145 )
33
$ (396 )
(203 )
3
$ (596 )
100
1
$ —
—
—
$ —
—
—
$ —
4
(1 )
$ (92)
$ 3
$ (495)
(1) During 2014, we completed the liquidation of a non-operating subsidiary, Tronox Pigments International GmbH, for which we recognized a noncash loss from the realization of cumulative
translation adjustment of $35 million, which was recorded in “Net gain (loss) on liquidation of non-operating subsidiaries” in the Consolidated Statements of Operations
35
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Restricted Shares
During 2016, we granted 244,362 restricted shares which
vest ratably over a three-year period and 62,283 shares
which vested immediately. The 62,283 restricted shares
that vested immediately were granted to certain members
of the Board in lieu of cash fees earned during the first and
second quarters of 2016. 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 2016:
Outstanding, January 1, 2016
Granted
Vested
Forfeited
Number
of Shares
373,278
306,645
(184,386 )
(211,137 )
Weighted
Average
Grant Date
Fair Value
$ 22.02
4.16
16.31
22.37
Outstanding, December 31, 2016
284,400
$ 6.09
Expected to vest, December 31, 2016
284,400
$ 6.09
At December 31, 2016, there was $1 million of unrecognized
compensation expense related to nonvested restricted
shares which is expected to be recognized over a weighted-
average period of 1.7 years. Since the restricted shares were
granted to certain members of our Board as indicated above,
the unrecognized compensation expense was not adjusted
for estimated forfeitures. The weighted-average grant-date
fair value of restricted shares granted during 2016, 2015 and
2014 was $4.16 per share, $22.60 per share, and $22.17 per
share, respectively. The total fair value of restricted shares
that vested during 2016, 2015 and 2014 was $3 million,
$4 million, and $8 million, respectively.
Restricted Share Units (“RSUs”)
During 2016, 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.
19. 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 BEE legislation in South Africa. Exxaro
is entitled to exchange this interest for approximately 3.2%
in additional Class B Shares under certain circumstances.
Exxaro also has a 26% ownership interest in certain of
our other non-operating subsidiaries. We account for
such ownership interest as “Noncontrolling interest” in the
consolidated financial statements.
Noncontrolling interest activity was as follows:
Balance, January 1, 2014
Net income attributable to noncontrolling interest
Effect of exchange rate changes
Balance, December 31, 2014
Net income attributable to noncontrolling interest
Effect of exchange rate changes
Balance, December 31, 2015
Net income attributable to noncontrolling interest
Effect of exchange rate changes
Balance, December 31, 2016
$ 199
10
(31)
$ 178
11
(77)
$ 112
1
31
$ 144
20. Share-based Compensation
Share-based compensation expense consisted of
the following:
Restricted shares and restricted
share units
Options
T-Bucks Employee Participation Plan
Long-term incentive plan
Year Ended December 31,
2014
2015
2016
$ 21
2
2
—
$ 15
5
2
—
$ 13
7
2
(2 )
Total share-based compensation expense
$ 25
$ 22
$ 20
Tronox Limited Management Equity Incentive Plan
On June 15, 2012, we adopted 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 of Directors
(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 20,781,225 Class
A Shares. These shares were increased by 8,000,000 on the
affirmative vote of our shareholders on May 25, 2016.
36
The following table presents a summary of activity
for 2016:
Outstanding, January 1, 2016
Granted
Vested
Forfeited
Number
of Shares
1,494,027
4,906,660
(548,338 )
(265,018 )
Outstanding, December 31, 2016
5,587,331
Expected to vest, December 31, 2016
6,211,035
Weighted
Average
Grant Date
Fair Value
$ 23.04
4.07
17.49
17.31
$ 7.19
$ 6.81
Options
The following table presents a summary of activity for 2016:
Outstanding, January 1, 2016
Forfeited
Expired
Outstanding, December 31, 2016
Expected to vest, December 31, 2016
Exercisable, December 31, 2016
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 year. The amount will change based on the fair
market value of our stock. No options were exercised during
2016 and consequently, there was no related intrinsic value.
Total intrinsic value of options exercised during 2015 and
2014 was less than $1 million and $2 million, respectively.
We issue new shares upon the exercise of options. Since
no stock options were exercised during 2016, no cash was
received. During 2015 and 2014, we received $3 million
and $6 million, respectively, in cash for the exercise of
stock options.
At December 31, 2016 and 2015, unrecognized
compensation expense related to options, adjusted for
estimated forfeitures, was less than $1 million and $3 million,
respectively, which is expected to be recognized over a
weighted-average period of 1 year.
At December 31, 2016, there was $18 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
1.8 years. The weighted-average grant-date fair value of
RSUs granted during 2016, 2015 and 2014 was $4.07 per
share, $23.47 per share, and $22.37 per share, respectively.
The total fair value of RSUs that vested during 2016,
2015 and 2014 was $10 million, $6 million and $3 million,
respectively.
Number of
Options
Weighted
Average
Exercise Price
2,189,967
(46,149)
(173,337)
1,970,481
224,369
1,745,575
$ 21.15
20.98
20.76
$ 21.19
$ 22.04
$ 21.08
Weighted
Average
Contractual
Life (years)
Intrinsic
Value
7.39
$ —
6.38
7.12
6.29
$ —
$ —
$ —
We did not issue any options during 2016. During
2015 and 2014, we granted 2,380 and 915,988 options,
respectively, with a weighted average grant date fair value of
$7.04 and $8.19, respectively.
Fair value of options granted 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 on the grant date were as follows:
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. Dividend yield is determined based on the
Company’s expected dividend payouts.
37
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
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 December 31, 2016 and 2015 was
548,234 shares.
Long-Term Incentive Plan
We have a long-term incentive plan (the “LTIP”) for the
benefit of certain qualifying employees of Tronox subsidiaries
in South Africa and Australia. The LTIP is classified as a cash
settled compensation plan, and is re-measured to fair value
at each reporting date. At both December 31, 2016 and
2015, the LTIP plan liability was less than $1 million.
21. Pension and Other Postretirement
Healthcare Benefits
We sponsor two noncontributory defined benefit retirement
plans, the qualified retirement plan and Alkali qualified
retirement plan in the United States, a defined benefit
retirement plan in the Netherlands, a collective defined
contribution plan in the Netherlands, and a South Africa
postretirement healthcare plan.
U.S. Plans
Qualified Retirement Plan — We sponsor a noncontributory
qualified defined benefit plan (funded) (the “U.S. Qualified
Plan”) in accordance with the Employee Retirement Income
Security Act of 1974 (“ERISA”) and the Internal Revenue
Code. We made contributions into funds managed by a third-
party, and those funds are held exclusively for the benefit of
the plan participants. Benefits under the U.S. Qualified Plan
were generally calculated based on years of service and final
average pay. The U.S. Qualified Plan was frozen and closed
to new participants on June 1, 2009.
Postretirement Healthcare Plan — We sponsored an
unfunded U.S. postretirement healthcare plan. Effective
January 1, 2015, we eliminated the pre-65 retiree medical
programs. Participants who retired prior to January 1, 2015
received a one-time subsidy aggregating to less than $1
million towards medical cost through a health reimbursement
arrangement that we established for them. Benefits under
this plan for participants who have not retired by January 1,
2015 were eliminated. As a result of this action, we recorded
a curtailment gain of $6 million, which was included in “Other
income (expense), net” in the Consolidated Statements of
Operations during 2014. Additionally, this action resulted in
an unrecognized settlement gain of $3 million, which was
recorded in “Accumulated other comprehensive income
(loss)” in the Consolidated Balance Sheets during 2014.
Tronox Alkali Qualified Retirement Plan — As part of the
Alkali Transaction, we established the Alkali Corporation
Union Retirement Plan (the “Alkali Qualified Plan”) to cover
eligible employees of Tronox Alkali Corporation effective
April 1, 2015. The plan is open to union employees of Alkali.
The Alkali Qualified Plan is the same as the FMC Corporation
Employees’ Retirement Program Part II Union Hourly
Employees’ Retirement Plan provided to eligible participants
for services prior to the Alkali Transaction Date. These two
plans are aggregated to form the full pension for eligible
participants. Under the Tronox Alkali Qualified Plan, each
eligible employee will automatically become a participant
upon completion of one year of credited services. Retirement
benefits under this plan are calculated based on the total
years of service of an eligible participant, multiplied by a
specified benefit rate in effect at the termination of the plan
participant’s years of service. FMC will be responsible for the
portion of this total benefit accrued to eligible participants
for all the years of service up to March 31, 2015, and we will
be responsible for the portion of the total benefit accrued to
participants from April 1, 2015 up to the date of termination
of a participant’s years of service.
Foreign Plans
The Netherlands Plan — On January 1, 2007, we established
the TDF-Botlek Pension Fund Foundation (the “Netherlands
Plan”) to provide defined pension benefits to qualifying
employees of Tronox Pigments (Holland) B.V. and its related
companies. During the fourth quarter of 2014, in response to
the tax and pension legislation changes in the Netherlands,
our benefit committee approved to end future benefit
accruals under the Netherlands Plan and replaced it with
a multiemployer plan effective January 1, 2015 (the “TDF-
Botlek Pension Plan”). As a result of this decision, effective
from January 1, 2015, benefit contributions commenced
under the multiemployer plan while the Netherlands Plan
became effectively “frozen”. This action ended future benefit
accrual for participants under the current plan, resulting
in a curtailment gain of $3 million, which was recognized
in “Other income (expense), net” in the Consolidated
Statements of Operations during 2014. Such amounts had
previously been recognized as unamortized prior service
costs in “Accumulated other comprehensive loss” in the
Consolidated Balance Sheets.
In August 2016, we agreed with the Board of Trustees of
the Netherlands Pension Plan to settle the VPL portion of
the plan. The VPL Plan was a small transition arrangement
established in 2005 for the benefit of certain of our Botlek
employees, which was added to the Netherlands Pension
Plan when it was established in 2007. Under the settlement
agreement, we transferred $1 million into accounts
38
established with industrywide Pension Fund for the Graphical
Industry (“PGB”) for the benefit of the participants as a full
settlement of our obligation under the VPL Plan. Accordingly,
during the third quarter of 2016, we recognized a curtailment
gain of $1 million included in “Other income (expense), net”
in the Consolidated Statement of Operations. This amount
had previously been recognized in “Accumulated other
comprehensive loss” in the Consolidated Balance Sheet as
prior service credits. Consequently, as of August 31, 2016,
we remeasured the plan assets and the projected benefit
obligation of the Netherlands Pension Plan which resulted
in €19 million (approximately $21 million) of actuarial losses
which was recognized in “Accumulated other comprehensive
loss” during the third quarter of 2016.
On November 1, 2016 (the “Settlement Date”), we agreed
with the Board of Trustees to settle the remaining portion
of the Netherlands Pension Plan. Under the settlement
agreement, we transferred the Netherlands Botlek Pension
Plan assets of $126 million to the Pension Fund for Graphical
Industry (the “PGB”) for the benefit of the participants as
a full settlement of our obligation under the Pension Plan.
Consequently, we derecognized the pension liability from our
Consolidated Balance Sheet, resulting in a settlement gain
of $31 million, which was recorded in “Accumulated other
comprehensive loss” in the Consolidated Balance Sheet
at December 31, 2016 and a settlement loss of $2 million,
which was recorded in the “Other income (expense) in the
Consolidated Statement of Operations for the year ended
December 31, 2016.
Netherlands Collective Contribution Plan — Effective
January 1, 2015, we ceased offering benefits under the
Netherlands Plan to qualifying employees and established a
multiemployer plan, the collective contribution plan (“CDC
Plan”). Under the CDC plan, employees earn benefits based
on their pensionable salaries each year determined using
a career average benefit formula. The collective bargaining
agreement between us and the participants require us to
contribute 20.6% of the participants’ pensionable salaries
into a pooled fund administered by the industrywide PGB.
The pensionable salary is the annual income of employees
subject to a cap, which is adjusted each year to reflect
the current requirements of the Netherlands’ Wages and
Salaries Tax Act of 1964. Our obligation under this new
plan is limited to the fixed percentage contribution we
make each year. That is, investment risks, mortality risks
and other actuarial risks typically associated with a defined
benefit plan are borne by the employees. Additionally, the
employees are entitled to any returns generated from the
investment activities of the fund.
The following table outlines the details of our participation
in the CDC Plan for the year ended December 31, 2016. The
CDC disclosures provided herein are based on the fund’s
2015 annual report, which is the most recently available public
information. Based on the total plan assets and accumulated
benefit obligation information in the plan’s annual report, the
zone status was green as of December 31, 2015. A green zone
status indicates that the plan was at least 80 percent funded.
The “FIP/RP Status Pending/Implemented” column indicates
whether a financial improvement plan (FIP) or a rehabilitation
plan (RP) is either pending or has been implemented. As
of December 31, 2016, we are not aware of any financial
improvement or rehabilitation plan being implemented or
pending. The last column lists the expiration date of the
collective-bargaining agreement to which the plan is subject.
Pension Protection Act
Zone Status
Tronox
Contributions
Pension
Fund
PGB
EIN/Pension
Plan
Number
NA
2016
N/A
2015
Green
FIP/RP
Pending/
Implemented
No
2016
4
2015
4
Surcharge
Imposed
No
Expiration
date of
Collective-
Bargaining
Agreement
12/31/2019
On the basis of the information available in the CDC Plan
2015 annual report, our contribution does not constitute
more than 5 percent of the total contribution to the plan by
all participants. During 2016, the fund did not impose any
surcharge on us.
South Africa Postretirement Healthcare Plan — As part of
the Exxaro Transaction, we established a post-employment
healthcare plan, which provides medical and dental
benefits to certain Namakwa Sands employees, retired
employees and their registered dependents (the “South
African Plan”). The South African Plan provides benefits
as follows: (i) members employed before March 1, 1994
receive 100% post-retirement and death-in-service benefits;
(ii) members employed on or after March 1, 1994 but
before January 1, 2002 receive 2% per year of completed
service subject to a maximum of 50% post-retirement and
death-in-service benefits; and, (iii) members employed on or
after January 1, 2002 receive no post-retirement and death-
in-service benefits.
Benefit Obligations and Funded Status — The following
provides a reconciliation of beginning and ending benefit
obligations, beginning and ending plan assets, funded
status, and balance sheet classification of our pension and
postretirement healthcare plans as of and for the years
ended December 31, 2016 and 2015. The benefit obligations
and plan assets associated with our principal benefit plans
are measured on December 31.
39
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Retirement Plans
Postretirement Healthcare Plans
Year Ended December
Year Ended December
2016
2015
2016
2015
Change in benefit obligations:
Benefit obligation, beginning of year
Service cost
Interest cost
Net actuarial (gains) losses
Foreign currency rate changes
Contributions by plan participants
Curtailment
Settlement
Plan amendments
Benefits paid
Administrative expenses
Benefit obligation, end of year
Change in plan assets:
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contributions (1)
Settlement
Foreign currency rate changes
Benefits paid (1)
Administrative expenses
Fair value of plan assets, end of year
Net over (under) funded status of plans
$ 511
$ 581
$ 7
5
20
43
(5)
—
—
(155)
4
(34)
(5)
384
377
41
21
(126)
(4)
(34)
(5)
270
$ (114)
4
19
(42)
(16)
—
—
—
—
(31)
(4)
511
417
(8)
17
—
(14)
(31)
(4)
377
$ (134)
—
1
—
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
—
$ 8
—
1
—
(2)
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
$ (8)
$ (7)
Classification of amounts recognized in the Consolidated
Balance Sheets:
Accrued liabilities
Pension and postretirement healthcare benefits
Total liabilities
Accumulated other comprehensive (income) loss
Total
$ —
$ —
(114)
(114)
94
(134)
(134)
104
$ —
$ (8)
(8)
(2)
$ (20)
$ (30)
$ (10)
$—
(7)
(7)
(2)
$ (9)
(1) We expect 2017 contributions to be $18 million and $3 million for the qualified retirement plan and Alkali qualified retirement plan, respectively.
At December 31, 2016, our qualified retirement plan was in an underfunded status of $107 million. As a result, we have a
projected minimum funding requirement of $17 million for 2016, which will be payable in 2017.
December 31, 2016
December 31, 2015
U.S.
Qualified
Plan
$ 369
(369)
262
$ (107)
Alkali
Qualified
Plan
The
Netherlands
Plan
$ 15
(15)
8
$ (7)
$—
—
—
$—
U.S.
Qualified
Plan
$ 370
(370)
254
$ (116)
Alkali
Qualified
Plan
The
Netherlands
Plan
$ 5
(5)
2
$(3)
$ 135
(135)
121
$ (14)
Accumulated benefit obligation
Projected benefit obligation
Fair value of plan assets
Funded status - underfunded
40
Expected Benefit Payments — The following table shows the expected cash benefit payments for the next five years and in the
aggregate for the years 2022 through 2026:
Retirement Plans
Postretirement Healthcare Plan
2017
$ 28
$ —
2018
$ 27
$ —
2019
$ 27
$ —
2020
$ 27
$ —
2021
2022-2026
$ 27
$ —
$ 131
$
2
Retirement and Postretirement Healthcare Expense — The table below presents the components of net periodic cost (income)
associated with the U.S. and foreign plans recognized in the Consolidated Statements of Operations for 2016, 2015, and 2014:
Net periodic cost:
Service cost
Interest cost
Expected return on plan assets
Net amortization of actuarial loss
Curtailment gains
Settlement losses
Retirement Plans
Postretirement Healthcare Plans
Year Ended December 31,
Year Ended December 31,
2016
2015
2014
2016
2015
2014
$ 5
$ 4
$ 4
$—
$—
$ 1
20
(20)
2
(1)
2
19
(22)
3
—
—
21
(23)
1
(3)
—
1
—
—
—
—
1
—
—
—
—
1
—
1
(6)
—
Total net periodic cost (income)
$ 8
$ 4
$ —
$ 1
$ 1
$ (3)
Pretax amounts that are expected to be reclassified from “Accumulated other comprehensive loss” in the Consolidated
Balance Sheets to retirement expense during 2017 related to unrecognized actuarial losses are $3 million for the U.S.
retirement plans and unrecognized settlement gain of $3 million for the U.S. postretirement healthcare plan.
Assumptions — The following weighted average assumptions were used to determine net periodic cost:
U.S.
Qualified
Plan
2016
Alkali
Qualified
Plan
Netherlands
Plan
U.S.
Qualified
Plan
2015
Alkali
Qualified
Plan
Netherlands
Plan
U.S.
Qualified
Plan
2014
Alkali
Qualified
Plan
Netherlands
Plan
Discount rate
Expected return on plan
4.75%
5.00%
2.25%
3.75%
4.15%
2.25%
4.50%
assets
5.64%
4.23%
4.25%
5.95%
4.46%
4.75%
6.50%
Rate of compensation
increases
—
—
—
—
—
—
—
—
—
—
3.50%
4.75%
3.25%
The following weighted average assumptions were used in estimating the actuarial present value of the plans’
benefit obligations:
U.S.
Qualified
Plan
2016
Alkali
Qualified
Plan
Netherlands
Plan(1)
U.S.
Qualified
Plan
2015
Alkali
Qualified
Plan
Netherlands
Plan
U.S.
Qualified
Plan
2014
Alkali
Qualified
Plan
Netherlands
Plan
Discount rate
4.25%
4.50%
1.50%
4.75%
5.00%
2.25%
3.75%
—
2.25%
(1) This reflects the rate used to calculate the final Netherlands Plan benefit obligation immediately before the Settlement Date.
During 2014, the Society of Actuaries issued an updated
mortality table and improvement scale that indicated
significant mortality improvement over the prior table. We
concluded that the updated table represented our best
estimate of mortality. In 2016, the mortality improvement
scale that had been used in the 2015 was updated by the
Society of Actuaries to reflect actual experience in mortality
rates. We updated our mortality assumption accordingly
resulting in a decrease of $6 million to our projected benefit
obligation as compared to December 31, 2015.
41
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
The following weighted-average assumptions were used
in determining the actuarial present value of the South
African Plan:
2016
2015
2014
Discount rate
10.87%
10.94%
9.16%
Expected Return on Plan Assets — In forming the
assumption of the U.S. long-term rate of return on plan
assets, we took into account the expected earnings on funds
already invested, earnings on contributions expected to
be received in the current year, and earnings on reinvested
returns. The long-term rate of return estimation methodology
for U.S. plans is based on a capital asset pricing model
using historical data and a forecasted earnings model.
An expected return on plan assets analysis is performed
which incorporates the current portfolio allocation, historical
asset-class returns, and an assessment of expected future
performance using asset-class risk factors. Our assumption
of the long-term rate of return for the Netherlands Plan was
developed considering the portfolio mix and country-specific
economic data that includes the rates of return on local
government and corporate bonds.
Discount Rate — The discount rate selected for estimation
of the actuarial present value of the benefit obligations of
the qualified plan were 4.25% and 4.75% at December 31,
2016 and 2015, respectively. The 2016 and 2015 rates
were selected based on the results of a cash flow matching
analysis, which projected the expected cash flows of the
plans using a yield curves model developed from a universe
of Aa-graded U.S. currency corporate bonds (obtained from
Bloomberg) with at least $50 million outstanding. Bonds with
features that imply unreliable pricing, a less than certain cash
flow, or other indicators of optionality are filtered out of the
universe. The remaining universe is categorized into maturity
groups, and within each of the maturity groups yields are
ranked into percentiles.
The discount rates selected for estimating the actuarial
present value of the benefit obligation of Alkali Qualified
Plan were 4.50% and 5.0% as of December 31, 2016
and 2015, respectively. The 2016 and 2015 rates were
selected based on the results of a cash flow matching
analysis, which projected the expected cash flows of
the plan using Aon Hewitt AA Above Median yield curve
developed from U.S. currency corporate bonds with at least
$250 million outstanding.
The discount rates selected for estimating the actuarial
present value of the benefit obligation of the Netherlands
Plan was 1.50% as the Settlement Date and 2.25%
as of December 31, 2015. These rates were based on
long-term Euro corporate bond index rates that correlate
with anticipated cash flows associated with future
benefit payments.
Plan Assets — Asset categories and associated asset
allocations for our funded retirement plans at December 31,
2016 and 2015:
Qualified Plan:
Comingled equity funds
Debt securities
Cash and cash equivalents
Total
Alkali Qualified Plan:
Debt securities
Total
Netherlands:
Equity securities
Debt securities
Real estate
Cash and cash equivalents
Total
December 31,
2016
2015
Actual
Target
Actual
Target
36%
61
3
38%
62
—
37%
61
2
38%
62
—
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
—%
—%
24%
25%
—
—
—
—
—
—
64
11
1
62
10
3
—%
—%
100%
100%
The U.S. Qualified Plan is administered by a board-appointed
committee that has fiduciary responsibility for the plan’s
management. The committee maintains an investment policy
stating the guidelines for the performance and allocation of
plan assets, performance review procedures and updating
of the policy. At least annually, the U.S. plan’s asset
allocation guidelines are reviewed in light of evolving risk and
return expectations.
Substantially all of the plan’s assets are invested with nine
equity fund managers, three fixed-income fund managers
and one money-market fund manager. To control risk, equity
fund managers are prohibited from entering into the following
transactions, (i) investing in commodities, including all futures
contracts, (ii) purchasing letter stock, (iii) short selling, and
(iv) option trading. In addition, equity fund managers are
prohibited from purchasing on margin and are prohibited
42
from purchasing Tronox securities. Equity managers are
monitored to ensure investments are in line with their style
and are generally permitted to invest in U.S. common stock,
U.S. preferred stock, U.S. securities convertible into common
stock, common stock of foreign companies listed on major
U.S. exchanges, common stock of foreign companies listed
on foreign exchanges, covered call writing, and cash and
cash equivalents.
Fixed-income fund managers are prohibited from
investing in (i) direct real estate mortgages or commingled
real estate funds, (ii) private placements above certain
portfolio thresholds, (iii) tax exempt debt of state and local
governments above certain portfolio thresholds, (iv) fixed
income derivatives that would cause leverage, (v) guaranteed
investment contracts, and (vi) Tronox securities. They are
permitted to invest in debt securities issued by the U.S.
government, its agencies or instrumentalities, commercial
paper rated A3/P3, Federal Deposit Insurance Corporation
insured certificates of deposit or bankers’ acceptances and
corporate debt obligations. Each fund manager’s portfolio
has an average credit rating of A or better.
The Alkali Qualified Plan is administered by a
board-appointed committee that has fiduciary responsibility
for the plan’s management. The committee is responsible
for the oversight and management of the plan’s
investments. The committee maintains an investment
policy that provides guidelines for selection and retention
of investment managers or funds, allocation of plan assets
and performance review procedures and updating of the
policy. At least annually, the Alkali Qualified Plan’s asset
allocation guidelines are reviewed in light of evolving risk and
return expectations.
The objective of the committee’s investment policy is
to manage the plan assets in such a way that will allow
for the on-going payment of the Company’s obligation to
the beneficiaries. To meet this objective, the committee
has structured a portfolio that will provide liquidity to meet
the plan benefit payments and expense payable from the
plan under ERISA and manage the plan asset in a liability
framework. To provide adequate liquidity and control risk,
the investment policy sets our broad investment guidelines
that permit investment managers and funds to invest in
liability-hedging assets to control the plan’s surplus volatility.
This includes investment in high-quality, investment grade
bonds with durations that approximate the durations
of the liabilities.
Fixed income portfolio managers are permitted to use
fixed income derivative contracts to achieve general portfolio
objectives in accordance with the risk management and
internal control procedures agreed between the manager
and the committee’s advisor. The overall performance of
the liability-hedging assets will be determined primarily
by how they track the investable custom liability-hedging
mandate they are designed to hedge. Cash equivalents can
he held to meet the benefits obligations of the plan and to
pay fees. The plan’s cash equivalents investments could be
invested in a diversified mix of high-quality, short-term debt
securities, including commercial paper, bankers’ acceptance,
certificates of deposits and US government obligations.
Investment in return seeking assets is prohibited.
The Netherlands plan is administered by a pension
committee representing the employer, the employees, and
the pensioners. The pension committee has six members,
whereby three members are elected by the employer, two
members are elected by the employees and one member
is elected by the pensioners, and each member has one
vote. The pension committee meets at least quarterly to
discuss regulatory changes, asset performance, and asset
allocation. The plan assets are managed by one Dutch fund
manager against a mandate set at least annually by the
pension committee. The plan assets are evaluated annually
by a multinational benefits consultant against state defined
actuarial tests to determine funding requirements.
The fair values of pension investments as of December 31,
2016 are summarized below:
Asset category:
Commingled Equity Funds
Debt securities:
Corporate
Government
Cash & cash equivalents:
Commingled cash equivalents fund
Total at fair value
(1) For commingled equity funds owned by the funds, fair value is based on observable quoted prices on active exchanges, which are level 1 inputs.
(2) For corporate related debt securities, the fair value is based on observable inputs of comparable market transactions, which are level 2 inputs.
(3) For government related debt securities, the fair value is based on observable quoted prices on active exchanges, which are level 1 inputs.
(4) For commingled cash equivalents funds, fair value is based on observable quoted prices on active exchanges, which are level 1 inputs.
U.S. Qualified Plan
Fair Value Measurement at December 31, 2016, Using:
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$ 95 (1)
$ —
$ — $ 95
—
81 (3)
8 (4)
$ 184
78 (2)
—
—
$ 78
—
—
—
78
81
8
$ — $ 262
43
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Asset category:
Debt securities:
Fixed income funds
Total at fair value
Alkali Qualified Plan
Fair Value Measurement at December 31, 2016, Using:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$8 (1)
$8
$ —
$ —
$ —
$ —
$8
$8
(1) For commingled fixed income funds, fair value is based on observable quoted prices on active exchanges, which are Level 1 inputs.
The fair values of pension investments for the U.S. Qualified Plan as of December 31, 2015 are summarized below:
Asset category:
Commingled Equity Funds
Debt securities:
Commingled Fixed Income Funds
Cash & cash equivalents:
Commingled Cash Equivalents Fund
Total at fair value
(1) The fair values were measured at net asset value under ASC 820, Fair Value Measurement, as a practical expedient.
Fair Value Measurement
at December 31, 2015 (1)
$ 93
155
6
$254
Asset category:
Debt securities:
U.S. Fixed Income Funds
Commingled Fixed Income Funds
Total at fair value
Alkali Qualified Plan
Fair Value Measurement at December 31, 2015, Using:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$ 1 (1)
—
$ 1
$ —
1 (2)
$ 1
$ —
—
$ —
$1
1
$2
(1) For U.S. fixed income funds owned by the funds, fair value is based on observable quoted prices on active exchanges, which are Level 1.
(2) For commingled fixed income funds, fair value is based on observable inputs of comparable market transactions, which are Level 2 inputs.
44
Asset category:
Equity securities — Non-U.S. Pooled Funds
Debt securities — Non-U.S. Pooled Funds
Real Estate Pooled Funds
Cash equivalents
Total at fair value
Netherlands Pension
Fair Value Measurement at December 31, 2015, Using:
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$ —
—
—
—
$ —
$ 29 (1)
77 (2)
13 (3)
2 (4)
$121
$ — $ 29
77
13
2
—
—
—
$ — $121
(1) For equity securities in the form of fund units that are redeemable at the measurement date, the unit value is deemed a Level 2 input.
(2) For pooled fund debt securities, the fair value is based on observable inputs, but do not solely rely on quoted market prices, and are therefore deemed Level 2 inputs.
(3) For real estate pooled funds, the fair value is based on observable inputs, but do not solely rely on quoted market prices, and are therefore deemed Level 2 inputs.
(4) For cash equivalents, the fair value is based on observable inputs but do not solely rely on quoted market prices and are therefore deemed level 2 inputs.
Defined Contribution Plans
U.S. Savings Investment Plan
In 2006, we established the U.S. Savings Investment Plan
(the “SIP”), a qualified defined contribution plan under
section 401(k) of the Internal Revenue Code. Under the SIP,
our regular full-time and part-time employees contribute a
portion of their earnings, and we match these contributions
up to a predefined threshold. Our matching contribution
was 100% of the first 6% of employee contributions.
Effective January 1, 2013, we established a profit sharing
contribution at 6% of employees’ pay (“discretionary
contribution”). The discretionary contribution is subject
to our Board of Directors’ approval each year. The Board
approved discretionary contribution of 6% of pay for 2016,
2015 and 2014. Our matching contribution to the SIP
vests immediately; however, our discretionary contribution
is subject to vesting conditions that must be satisfied
over a three year vesting period. Contributions under
the SIP, including our match, are invested in accordance
with the investment options elected by plan participants.
Compensation expenses associated with our matching
contribution to the SIP was $5 million each during 2016
and 2015, and $4 million during 2014, which was included
in “Selling, general and administrative expenses” in the
Consolidated Statements of Operations. Compensation
expense associated with our discretionary contribution was
$6 million, $5 million and $4 million in 2016 2015 and 2014,
respectively, which was included in “Selling, general and
administrative expenses” in the Consolidated Statements
of Operations.
U.S. Benefit Restoration Plan
In 2006, we established the U.S. Benefit Restoration Plan
(the “BRP”), a nonqualified defined contribution plan, for
employees whose eligible compensation is expected to
exceed the IRS compensation limits for qualified plans.
Under the BRP, participants can contribute up to 20% of
their annual compensation and incentive. Our matching
contribution under the BRP is the same as the SIP. Our
matching contribution under this plan vests immediately to
plan participants. Contributions under the BRP, including
our match, are invested in accordance with the investment
options elected by plan participants. Compensation expense
associated with our matching contribution to the BRP was
$1 million each during 2016, 2015 and 2014 which was
included in “Selling, general and administrative expenses” in
the Consolidated Statements of Operations.
22. Acquisition of Alkali
Chemicals Group
On April 1, 2015, we acquired Alkali because it diversifies
our end markets and revenue base, and increases our
participation in faster growing emerging market economies.
We believe it also provides us greater opportunity to utilize a
portion of our U.S. tax attributes in future periods. See Note
5 for a discussion of the tax impact of the Alkali Transaction.
We accounted for the Alkali Transaction using the acquisition
method under ASC 805 which requires recording assets
acquired and liabilities assumed at fair value. Under the
acquisition method of accounting, the assets acquired and
liabilities assumed were recorded based on their preliminary
estimated fair values on the Alkali Transaction Date. The
results of the Alkali chemical business are included in
the Alkali segment. The results of the Alkali chemical
business are included in the Alkali segment. The valuations
were derived from estimated fair value assessments and
assumptions used by management.
We funded the Alkali Transaction through existing cash
and new debt. See Note 14 for further details of the Alkali
Transaction financing.
45
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Purchase Price Allocation
Consideration:
Purchase price
Fair Value of Assets Acquired and Liabilities Assumed:
Current Assets:
Accounts receivable
Inventories
Prepaid and other assets
Total Current Assets
Property, plant and equipment (1)
Mineral leaseholds (2)
Other long-term assets
Total Assets
Current Liabilities:
Accounts payable
Accrued liabilities
Total Current Liabilities
Noncurrent Liabilities:
Other
Total Liabilities
Net Assets
Valuation
$ 1,650
$ 147
48
32
227
767
739
3
$ 1,736
46
28
74
12
86
$ 1,650
(1) The fair value of property, plant and equipment was determined using the cost
approach, which estimates the replacement cost of each asset using current prices and
labor costs, less estimates for physical, functional and technological obsolescence, based
on the estimated useful life ranging from 5 to 38 years.
(2) The fair value of mineral rights was determined using the Discounted Cash Flow
method, which was based upon the present value of the estimated future cash flows for the
expected life of the asset taking into account the relative risk of achieving those cash flows
and the time value of money. A discount rate of 10.4% was used taking into account the
risks associated with such assets.
There were no contingent liabilities currently recorded in the
fair value of net assets acquired as of the Alkali Transaction
Date, and the fair value of net assets acquired includes
accounts receivables with book value that approximates
fair value.
Condensed Combined Financial Information
The following condensed financial information presents the
resulting operations of Alkali from the Alkali Transaction Date
to December 31, 2015:
For the period
April 1, 2015 through
December 31, 2015
$ 602
$ 69
$ 52
Net sales
Income from operations
Net income
46
Supplemental Pro forma financial information
The following unaudited pro forma information gives effect
to the Alkali Transaction as if it had occurred on January 1,
2014. The unaudited pro forma financial information reflects
certain adjustments related to the acquisition, such as (1)
conforming the accounting policies of Alkali to those applied
by Tronox, (2) recording certain incremental expenses
resulting from purchase accounting adjustments, such as
incremental depreciation expense in connection with fair
value adjustments to property, plant and equipment, and
depletion expense in connection with fair value adjustments
to mineral leaseholds, (3) to record the effect on interest
expense related to borrowings in connection with the Alkali
Transaction and (4) to record the related tax effects. The
unaudited pro forma financial information was adjusted
to include the effect of certain non-recurring items as of
January 1, 2014 such as the impact of transaction costs
related to the Alkali Transaction of approximately $29 million,
inventory step-up amortization of $9 million and $8 million
of interest expense incurred on the Bridge Facility (see Note
14). All of these non-recurring costs were excluded from the
2015 supplemental pro forma information. The unaudited
pro forma financial information is for illustrative purposes
only and should not be relied upon as being indicative of
the historical results that would have been obtained if the
Alkali Transaction had actually occurred on that date, nor the
results of operations in the future.
In accordance with ASC 805, the supplemental pro forma
results of operations for 2015 and 2014, as if the Alkali
Transaction had occurred on January 1, 2014, are as follows:
Net sales
Income (loss) from operations
Net loss
Loss per share, basic and diluted
Year Ended December 31,
2015
2014
$ 2,307
$
(67)
$ (260)
$ (2.25)
$ 2,520
$
67
$ (405)
$ (3.54)
23. Related Party Transactions
Exxaro
We have service level agreements with Exxaro for research
and development that expire in 2017. We also had service
level agreements with Exxaro for services such as tax
preparation and information technology which expired during
2015. Such service level agreements amounted to expenses
of $1 million, $2 million, and $3 million during 2016, 2015 and
2014, respectively, which was included in “Selling general
and administrative expense” in the Consolidated Statements
of Operations. Additionally, we have a professional service
agreement with Exxaro related to the Fairbreeze construction
project. We made payments to Exxaro of $2 million during
2016 and $3 million each in 2015, and 2014, which was
capitalized in “Property, plant and equipment, net” in our
Consolidated Balance Sheets. At December 31, 2016
and 2015, we had less than $1 million and $1 million,
respectively, of related party payables, which were recorded
in “Accounts payable” in our Consolidated Balance Sheets.
ANSAC
We hold a membership in ANSAC, which is responsible for
promoting exports of U.S.-produced soda ash. Under the
ANSAC membership agreement, Alkali’s exports of soda ash
to all markets except Canada, the European community, the
European Free Trade Association and the Southern African
Customs Union are exclusively through ANSAC. Certain
sales and marketing costs incurred by ANSAC are charged
directly to us. Selling, general and administrative expenses in
the Consolidated Statement of Operations include amounts
charged to us by ANSAC principally consisting of salaries,
benefits, office supplies, professional fees, travel, rent and
certain other costs, which amounted to $4 million and $3
million for 2016 and 2015, respectively. During 2016 and
2015, we recorded net sales to ANSAC of $276 million and
$210 million, respectively, which was included in “Net sales”
in the Consolidated Statements of Operations. At December
31, 2016 and 2015, we had $60 million and $47 million,
respectively, of related party receivables from ANSAC which
were recorded in “Accounts receivable, net of allowance for
doubtful accounts” in our Consolidated Balance Sheets. At
December 31, 2016 and 2015, we had related party payables
due to ANSAC of $1 million and $2 million, respectively,
recorded in “Accounts payable” in our Consolidated Balance
Sheets. Additionally, during 2016 and 2015, “Cost of goods
sold” in the Consolidated Statements of Operations included
$4 million each of charges to us by ANSAC for freight costs
incurred on our behalf. We did not have a liability to ANSAC
at December 31, 2016 and $1 million of liabilities in 2015 for
freight costs incurred on our behalf, included in “Accounts
payable” in the Consolidated Balance Sheets.
Natronx Technologies LLC
In connection with the Alkali Transaction, we acquired FMC’s
one-third ownership interest in a joint venture, Natronx
Technologies LLC (“Natronx”). Natronx manufactured and
marketed sodium-based, dry sorbents for air pollution
control in electric utility and industrial boiler operations.
Pursuant to an agreement with Natronx, we purchased
ground trona from a third-party vendor as an agent on its
behalf (the “Supply Agreement”). We also provided certain
administrative services such as accounting, technology
and customer services to Natronx under a service level
agreement (the “SLA”). We are reimbursed by Natronx for
the related costs incurred under the Supply Agreement and
the SLA. At December 31, 2016 and 2015, we had less
than $1 million and $1 million of receivables related to these
agreements, which were recorded in “Accounts receivable,
net of allowance for doubtful accounts” in the Consolidated
Balance Sheets.
During April 2016, Natronx notified its customers of its
intent to cease operations and end deliveries of product
on June 30, 2016. On September 1, 2016, the Board
of Directors of Natronx approved the demolition of the
plant located at Alkali’s Westvaco facility and other costs
associated with dissolving the joint venture. During the
second half of 2016, a reserve of $1 million, representing
our one-third share of the estimated expenses related to the
termination of the Natronx business, including severance and
other exit activities, was recognized and included in “Selling,
general and administrative expenses” in our Consolidated
Statements of Operations and in “Accrued liabilities” in our
Consolidated Balance Sheets as of December 31, 2016. We
do not expect to incur any additional future expenses related
to the termination of the Natronx business.
24. Segment Information
The reportable segments presented below represent our
operating segments for which separate financial information
is available and which is utilized on a regular basis by our
Chief Executive Officer, who is our chief operating decision
maker (“CODM”), to assess performance and to allocate
resources.
Prior to the Alkali Transaction, we had two operating
and reportable segments, Mineral Sands and Pigment,
based on the way the management team was organized
and our CODM monitored performance, aligned strategies,
and allocated resources. As a result of the increased
interdependency between the Mineral Sands and Pigment
businesses and related organizational changes, our CODM
determined that it was better to review the Mineral Sands
and Pigment businesses, along with our electrolytic
business, as a combined one, TiO2, and to assess
performance and allocate resources at that level. Following
the Alkali Transaction, we restructured our organization to
reflect two business segments, TiO2 and Alkali. The change
in reportable segments for financial reporting purposes
that occurred in the second quarter of 2015 has been
retrospectively applied.
Our TiO2 operating segment includes the following:
• exploration, mining, and beneficiation of mineral sands
deposits;
• production of titanium feedstock (including chloride slag,
slag fines, and rutile), pig iron, and zircon;
• production and marketing of TiO2; and
• electrolytic manganese dioxide manufacturing and
marketing.
Our Alkali operating segment includes the mining of
trona ore for the production from trona of natural soda
ash and its derivatives: sodium bicarbonate, sodium
sesquicarbonate and caustic soda (collectively referred to as
“alkali-products”).
Segment performance is evaluated based on segment
operating income (loss), which represents the results of
segment operations before unallocated costs, such as
general corporate expenses not identified to a specific
segment, interest expense, other income (expense), and
income tax expense or benefit.
47
Notes to Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Year Ended December 31,
2016
2015
2014
$ 84
33
2
$164
$184
26
1
—
3
Net sales and income (loss) from operations by segment
were as follows:
TiO2 segment
Alkali segment
Net sales
TiO2 segment
Alkali segment
Corporate
Income (loss) from operations
Interest and debt expense, net
Net loss on liquidation of
non-operating subsidiaries
Gain (loss) on extinguishment of debt
Other income, net
Loss before income taxes
Income tax (provision) benefit
Year Ended December 31,
2016
2015
2014
$ 1,309
$ 1,510
$ 1,737
784
602
—
$ 2,093
$ 2,112
$ 1,737
$
6
84
(54)
36
(184)
—
4
(29)
(173)
115
$ (123) $
69
(64)
(118)
(176)
—
—
28
(266)
(41)
78
—
(78)
—
(133)
(35)
(8)
27
(149)
(268)
ten largest third-party Alkali customers represented 24%
and 18%, respectively, of our consolidated net sales. During
2016 and 2015, ANSAC accounted for 13% and 10% of our
consolidated net sales. No single customer accounted for
10% of our consolidated net sales in 2014. See Note 23 for
further details.
Depreciation, amortization and depletion by segment
were as follows:
TiO2 segment
Alkali segment
Corporate
Total depreciation, amortization
and depletion
Year Ended December 31,
2016
2015
2014
$171
$246
$289
59
6
42
6
—
6
$236
$294
$295
Capital expenditures by segment were as follows:
Net loss
$
(58) $ (307) $ (417)
Net sales to external customers, by geographic region,
based on country of production, were as follows:
TiO2 segment
Alkali segment
Corporate
U.S. operations
International operations:
Australia
South Africa
The Netherlands
Total net sales
Year Ended December 31,
2016
2015
2014
$ 1,354 $ 1,223
$ 749
352
200
187
380
313
196
426
329
233
$ 2,093 $ 2,112
$ 1,737
Total capital expenditures
$ 119
$191
$187
Total assets by segment were as follows:
TiO2 segment
Alkali segment
Corporate
Total
Year Ended December 31,
2015
2016
$ 2,990
$ 3,055
1,669
291
1,690
282
$ 4,950
$ 5,027
Net sales from external customers for each similar product
were as follows:
Property, plant and equipment, net and mineral leaseholds,
net, by geographic region, were as follows:
Pigment
Alkali
Titanium feedstock and co-products
Electrolytic
Total net sales
Year Ended December 31,
2016
2015
2014
$ 966 $ 976 $ 1,179
784
286
57
602
426
108
—
445
113
$ 2,093 $ 2,112 $ 1,737
During 2016, 2015 and 2014 our ten largest third-party TiO2
customers represented 22%, 29% and 34%, respectively,
of our consolidated net sales. During 2016 and 2015, our
U.S. operations
International operations:
South Africa
Australia
The Netherlands
Total
Year Ended December 31,
2015
2016
$ 1,663
$ 1,687
844
896
35
747
968
45
$3,438
$3,447
48
25. Guarantor Condensed
Consolidating Financial Statements
The obligations of Tronox Finance, our wholly owned
subsidiary, under the Senior Notes due 2020 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, 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 due
2020 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 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.
The guarantor condensed consolidating financial
statements are presented on a legal entity basis, not on
a business segment basis. The indentures governing the
Senior Notes due 2020 provide 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 due 2020 and all other
obligations under the indenture; or
• Release or discharge of the Guarantor Subsidiary’s
guarantee of certain other indebtedness.
At December 31, 2016, certain entities which were
created as part of the Corporate Reorganization were
designated as non-guarantor entities. Pursuant to the
Seventh Supplemental Indenture, dated as of February
14, 2017, to the Indenture, dated August 20, 2012 among
Tronox Finance LLC, as Issuer, Tronox Limited as Parent, the
guarantors named therein and Wilmington Trust, National
Association, as trustee, these entities have been designated
as guarantor entities, effective prospectively.
49
Guarantor Condensed Consolidating Statements of Operations
Year Ended December 31, 2016
(Millions of U.S. dollars)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative
expenses
Restructuring expenses
Income (loss) from operations
Interest and debt expense, net
Gain on extinguishment of debt
Other income (expense), net
Intercompany interest income (expense)
Equity in earnings of subsidiary
Income (loss) before income taxes
Income tax benefit (provision)
Net income (loss)
Net income attributable to
noncontrolling interest
Net income (loss) attributable to
Tronox Limited
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$2,093
1,846
247
(210)
(1)
36
(184)
4
(29)
—
—
(173)
115
(58)
1
$(199)
(206)
$ —
—
7
3
—
10
—
—
—
—
55
65
—
65
1
—
—
—
—
(105)
4
—
—
—
(101)
30
(71)
—
$ —
—
—
$1,742
1,550
192
(27)
—
(27)
—
—
45
509
(281)
246
(305)
(59)
—
(142)
1
51
(4)
—
64
(562)
(195)
(646)
374
(272)
—
$ 550
502
48
(44)
(2)
2
(75)
—
(138)
53
421
263
16
279
—
$ (59)
$ 64
$ (71)
$ (59)
$ (272)
$ 279
50
Guarantor Condensed Consolidating Statements of
Comprehensive Income (Loss)
Year Ended December 31, 2016
(Millions of U.S. dollars)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
Pension and postretirement plans
Unrealized gain (loss) on derivative financial
instruments
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income attributable to
noncontrolling interest:
Net income
Foreign currency translation adjustments
Comprehensive income attributable to
noncontrolling interest
Comprehensive income (loss)
attributable to Tronox Limited
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$ (58)
$ 65
$(71)
$ (59)
$(272)
$ 279
119
10
3
132
$ 74
1
31
32
(228)
(18)
(3)
(249)
$(184)
1
31
32
—
—
—
—
$(71)
—
—
—
88
10
3
101
42
—
—
—
137
1
3
141
$(131)
—
—
—
122
17
—
139
418
—
—
—
$ 42
$(216)
$(71)
$ 42
$(131)
$ 418
51
Consolidated
Eliminations
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$ 181
3
322
363
277
4,069
1,322
1,236
37
228
$8,038
$ 150
491
—
6,328
199
7,168
870
$8,038
$
64
—
99
182
461
3,715
509
371
4,723
31
$10,155
$
—
196
1,426
37
178
1,837
8,318
$10,155
Guarantor Condensed Consolidating Balance Sheets
As of December 31, 2016
(Millions of U.S. dollars)
Assets
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories, net
Other current assets
Investment in subsidiaries
Property, plant and equipment, net
Mineral leaseholds, net
Intercompany loans receivable
Other long-term assets
Total assets
Liabilities and Equity
Short-term debt
Other current liabilities
Long-term debt
Intercompany loans payable
Other long-term liabilities
Total liabilities
Total equity
$ 248
3
421
532
49
—
1,831
1,607
—
259
$4,950
$ 150
372
2,888
—
379
3,789
1,161
Tronox
Finance
LLC
$
1
—
—
—
62
—
—
—
1,200
—
$
—
—
—
(13)
(842)
(8,789)
—
—
(6,365)
—
$
2
—
—
—
91
1,005
—
—
405
—
$ (16,009)
$1,263
$1,503
$
—
(842)
—
(6,365)
—
(7,207)
(8,802)
$ —
43
1,462
—
—
1,505
(242)
$ —
484
—
—
2
486
1,017
Total liabilities and equity
$4,950
$ (16,009)
$1,263
$1,503
52
Guarantor Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2016
(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)
Depreciation, depletion and amortization
Other
Cash provided by (used in)
operating activities
Cash Flows from Investing Activities:
Capital expenditures
Proceeds on sale of assets
Collections of intercompany loans
Intercompany loans
Cash provided by (used in)
investing activities
Cash Flows from Financing Activities:
Repayments of debt
Repayments of intercompany loans
Proceeds from intercompany loans
Dividends paid
Cash provided by (used in)
financing activities
Effects of exchange rate changes on
cash and cash equivalents
Net increase in cash and
cash equivalents
Cash and cash equivalents at
beginning of period
Cash and cash equivalents at
end of period
$ (58)
236
33
211
(119)
2
—
—
(117)
(31)
—
—
(46)
(77)
2
19
$ 65
—
(65)
$ (71)
—
(34)
$ (59)
—
124
—
(105)
—
—
(209)
100
—
—
126
(5)
(109)
121
—
209
(100)
—
109
—
—
(15)
—
—
—
(15)
—
1
65
—
—
8
—
8
—
(126)
100
(46)
(72)
—
1
1
2
$
$
$ 229
$ —
$ —
$ 248
$ —
$
1
$(272)
185
357
270
(77)
1
—
(95)
(171)
—
(83)
—
—
(83)
—
16
$ 279
51
(349)
(19)
(42)
1
75
—
34
(16)
—
—
—
(16)
2
1
$ 165
$ 63
$ 181
$ 64
53
Guarantor Condensed Consolidating Statements of Operations
Year Ended December 31, 2015
(Millions of U.S. dollars)
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Net sales
Cost of goods sold
$2,112
1,992
$(178)
(165)
$ —
—
$ —
—
$1,636
1,527
$654
630
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Income (loss) from operations
Interest and debt expense, net
Intercompany interest income (expense)
Other income (expense), net
Equity in earnings of subsidiary
Income (loss) before income taxes
Income tax benefit (provision)
Net income (loss)
Net income attributable to
noncontrolling interest
Net income (loss) attributable to
Tronox Limited
120
(217)
(21)
(118)
(176)
—
28
—
(266)
(41)
(307)
11
(13)
3
—
(10)
—
—
(1)
672
661
—
661
11
—
(1)
—
(1)
(103)
—
—
—
(104)
31
(73)
—
—
(23)
—
(23)
—
518
4
(616)
(117)
(201)
(318)
—
109
(155)
(15)
(61)
(7)
(568)
(2)
(56)
(694)
133
(561)
—
24
(41)
(6)
(23)
(66)
50
27
—
(12)
(4)
(16)
—
$ (318)
$ 650
$ (73)
$ (318)
$ (561)
$ (16)
54
Guarantor Condensed Consolidating Statements of
Comprehensive Income (Loss)
Year Ended December 31, 2015
(Millions of U.S. dollars)
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
Pension and postretirement plans
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss)
attributable to noncontrolling interest:
Net income
Foreign currency translation adjustments
Comprehensive income (loss) attributable to
noncontrolling interest
Comprehensive income (loss) attributable
to Tronox Limited
$(307)
$ 661
$ (73)
$ (318)
$(561)
$ (16)
(292)
15
(277)
(584)
11
(77)
(66)
508
(14)
494
1,155
11
(77)
(66)
—
—
—
(73)
—
—
—
(215)
15
(200)
(518)
—
—
—
(293)
18
(275)
(836)
—
—
—
(292)
(4)
(296)
(312)
—
—
—
$(518)
$1,221
$
(73)
$ (518)
$(836)
$ (312)
55
Guarantor Condensed Consolidating Balance Sheets
As of December 31, 2015
(Millions of U.S. dollars)
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable
Inventories, net
Other current assets
Investment in subsidiaries
Property, plant and equipment, net
Mineral leaseholds, net
Intercompany loans receivable
Other long-term assets
Total assets
LIABILITIES AND EQUITY
Short-term debt
Other current liabilities
Long-term debt
Intercompany loans payable
Other long-term liabilities
Total liabilities
Total equity
$ 229
5
391
630
46
—
1,843
1,604
—
279
$5,027
$ 150
398
2,910
—
459
3,917
1,110
$
— $ —
—
—
—
—
—
(24)
657
(4,345)
—
2,596
—
—
—
—
688
(7,106)
4
—
$
1
—
—
—
1,473
(3,274)
—
—
5,936
—
$ (8,879)
$1,349
$ 4,136
$
— $ —
45
1,470
5
—
(4,345)
—
(7,106)
—
(11,451)
2,572
1,520
(171)
$ —
2,443
—
694
1
3,138
998
$ 165
5
303
439
1,149
678
1,388
1,266
76
258
$ 5,727
$ 150
2,081
—
6,338
267
8,836
(3,109)
Total liabilities and equity
$5,027
$ (8,879)
$1,349
$ 4,136
$ 5,727
$
63
—
88
215
1,112
—
455
338
406
17
$2,694
$ —
174
1,440
69
191
1,874
820
$2,694
56
Guarantor Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015
(Millions of U.S. dollars)
Cash Flows from Operating Activities:
Net income (loss)
Depreciation, depletion and amortization
Other
Cash provided by (used in) operating
activities
Cash Flows from Investing Activities:
Capital expenditures
Proceeds on sale of assets
Acquisition of business
Investment in subsidiaries
Return of capital from subsidiaries
Collections of intercompany loans
Intercompany loans
Cash provided by (used in) investing
activities
Cash Flows from Financing Activities:
Repayments of debt
Repayments of intercompany loans
Proceeds from debt
Proceeds from intercompany loans
Contribution from parent
Return of capital to parent
Partnership distribution to parent
Debt issuance costs
Dividends paid
Proceeds from the exercise of warrants
and options
Cash provided by (used in) financing
activities
Effects of exchange rate changes on
cash and cash equivalents
Net increase (decrease) in cash and
cash equivalents
Cash and cash equivalents at
beginning of period
Cash and cash equivalents at
end of period
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$ (307)
294
229
$ 661
—
(662)
$ (73)
—
596
$ (318)
—
352
$ (561)
232
542
$ (16)
62
(599)
216
(1)
523
34
213
(191)
1
(1,650)
—
—
—
—
—
—
—
1,526
(24)
(725)
1,386
—
—
—
—
—
79
(589)
—
—
—
(1,526)
24
26
(3)
(68)
1
(1,650)
—
—
43
(237)
(1,840)
2,163
(510)
(1,479)
(1,911)
(18)
—
750
—
—
—
—
(15)
(117)
3
—
725
—
(1,386)
(1,526)
24
1
—
—
—
—
—
—
—
—
—
—
(13)
—
—
—
(103)
—
1,380
—
—
—
—
(117)
(2)
(602)
150
3
1,526
(24)
(1)
(2)
—
3
—
603
(2,162)
(13)
1,163
1,048
(553)
(123)
—
—
—
—
577
(557)
(103)
(16)
(20)
600
3
—
—
—
—
—
—
567
(26)
(26)
(1,047)
—
—
—
—
—
—
(282)
(650)
(115)
$ 1,276
$ —
$ —
$ 283
$ 815
$ 178
$ 229
$ —
$ —
$
1
$ 165
$ 63
57
Guarantor Condensed Consolidating Statement of Operations
As of December 31, 2014
(Millions of U.S. dollars)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative
expenses
Restructuring expenses
Income (loss) from operations
Interest and debt expense, net
Intercompany interest income (expense)
Net loss on liquidation of non-operating
subsidiaries
Loss on extinguishment of debt
Other income (expense), net
Equity in earnings of subsidiary
Income (loss) before income taxes
Income tax benefit (provision)
Net income (loss)
Net income attributable to noncontrolling
interest
Net income (loss) attributable to Tronox
Limited
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$1,737
1,530
207
(192)
(15)
—
(133)
—
(35)
(8)
27
—
(149)
(268)
(417)
10
$(211)
(238)
$ —
—
27
3
—
30
—
—
—
—
53
759
842
—
842
10
—
—
—
—
(59)
—
—
—
—
—
(59)
18
(41)
—
$ —
—
—
$1,224
1,113
111
$724
655
69
(13)
—
(13)
—
546
—
—
1
(706)
(172)
(255)
(427)
—
(140)
(6)
(35)
(4)
(578)
(33)
(2)
(15)
(53)
(720)
20
(700)
—
(42)
(9)
18
(70)
32
(2)
(6)
(12)
—
(40)
(51)
(91)
—
$ (427)
$ 832
$(41)
$ (427)
$ (700)
$ (91)
58
Guarantor Condensed Consolidating Statements of
Comprehensive Income (Loss)
Year Ended December 31, 2014
(Millions of U.S. Dollars)
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
Pension and postretirement plans
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss)
attributable to noncontrolling interest:
Net income
Foreign currency translation adjustments
Comprehensive income (loss) attributable
to noncontrolling interest
Comprehensive income (loss)
attributable to Tronox Limited
$(417)
$ 842
$(41)
$(427)
$(700)
$ (91)
(95)
(48)
(143)
(560)
10
(31)
(21)
186
50
236
1,078
10
(31)
(21)
—
—
—
(41)
—
—
—
(64)
(48)
(112)
(539)
—
—
—
(85)
(47)
(132)
(832)
—
—
—
(132)
(3)
(135)
(226)
—
—
—
$(539)
$1,099
$(41)
$(539)
$(832)
$(226)
59
Guarantor Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2014
(Millions of U.S. dollars)
Cash Flows from Operating Activities:
Net income (loss)
Depreciation, depletion and amortization
Other
Cash provided by (used in) operating
activities
Cash Flows from Investing Activities:
Capital expenditures
Collections of intercompany loans
Cash provided by (used in) investing
activities
Cash Flows from Financing Activities:
Repayments of debt
Repayments of intercompany loans
Debt issuance costs
Dividends paid
Proceeds from the exercise of warrants
and options
Cash provided by (used in) financing
activities
Effects of exchange rate changes on
cash and cash equivalents
Net increase (decrease) in cash and
cash equivalents
Cash and cash equivalents at
beginning of period
Cash and cash equivalents at
end of period
Consolidated
Eliminations
Tronox
Finance
LLC
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$ (417)
295
263
$ 842
—
(842)
$(41)
—
(10)
$(427)
—
692
$ (700)
217
286
141
(187)
—
(187)
(20)
—
(2)
(116)
6
(132)
(21)
(199)
—
—
(51)
(51)
—
51
—
—
—
51
—
—
(51)
265
(197)
—
51
51
—
—
—
—
—
—
—
—
—
—
—
—
(51)
—
(116)
6
(161)
—
104
(76)
—
(76)
(3)
—
—
—
—
(3)
—
(276)
$ (91)
78
137
124
(111)
—
(111)
(17)
—
(2)
—
—
(19)
(21)
(27)
$1,475
$ —
$ —
$ 179
$1,091
$ 205
$1,276
$ —
$ —
$ 283
$ 815
$ 178
60
Notes To Consolidated Financial Statements
Tronox Limited
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
26. Quarterly Results of Operations
(Unaudited)
The following represents our unaudited quarterly results
for the years ended December 31, 2016 and 2015. These
quarterly results were prepared in conformity with generally
accepted accounting principles and reflect all adjustments
that are, in the opinion of management, necessary for a fair
statement of the results, and were of a normal recurring
nature.
Unaudited quarterly results for 2016:
Net sales
Cost of goods sold
Gross profit
Net income (loss)
Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Tronox Limited
Income (loss) per share, basic
Income (loss) per share, diluted
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$ 475
455
20
(92)
(1)
$ (91)
$(0.78)
$(0.78)
$ 537
480
57
(48)
2
$ (50)
$(0.42)
$(0.42)
$ 533
453
80
(42)
(2)
$ (40)
$(0.35)
$(0.35)
$ 548
458
90
124(1)
2
$ 122
$1.04
$1.00
(1)
Includes the net impact of the Corporate Reorganization of a benefit of $137 million in the fourth quarter of 2016, reflecting the reversal of $139 million of withholding tax accruals, offset
by a foreign currency loss of $2 million. For the year ended December 31, 2016, the net income impact was $107 million, reflecting a net reduction in withholding tax accruals of $110 million,
offset by a foreign currency loss of $3 million.
Unaudited quarterly results for 2015:
Net sales
Cost of goods sold
Gross profit
Net loss
Net income attributable to noncontrolling interest
Net loss attributable to Tronox Limited
Loss per share, basic and diluted
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$ 385
350
35
(46)
3
$ (49)
$(0.42)
$ 617
593
24
(118)
1
$ (119)
$(1.03)
$ 575
536
39
(54)
6
$ (60)
$(0.52)
$ 535
513
22
(89)
1
$ (90)
$(0.78)
27. Subsequent Event
On February 21, 2017, the Company, The National Titanium
Dioxide Company Ltd., a limited company organized under
the laws of the Kingdom of Saudi Arabia (“Cristal”), and
Cristal Inorganic Chemicals Netherlands Coöperatief W.A.,
a cooperative organized under the laws of the Netherlands
and a wholly owned subsidiary of Cristal (“Seller”), entered
into a Transaction Agreement (the “Transaction Agreement”),
pursuant to which the Company agreed to acquire Cristal’s
titanium dioxide business for $1.673 billion in cash,
subject to a working capital adjustment at closing (the
“Cash Consideration”), plus 37,580,000 Class A ordinary
shares, par value $0.01 per share, of the Company (the
“Transaction”). Following the closing of the Transaction,
the Seller will own approximately 24% of the outstanding
ordinary shares (including both Class A and Class B) of
the Company. Concurrently with this announcement, the
Company announced its intent to begin a process to sell
its Alkali business. The Cash Consideration is expected to
be funded through proceeds from asset sales, including
the Company’s Alkali business and selected other non-core
assets if appropriate, and cash on hand. The Transaction is
conditioned on the Company obtaining financing sufficient to
fund the cash consideration, and the Transaction Agreement
provides that the Company must pay to Cristal a termination
fee of $100 million if all conditions to closing, other than the
financing condition, have been satisfied and the Transaction
Agreement is terminated because closing of the Transaction
has not occurred by May 21, 2018. The Transaction, which
has been unanimously approved by our board of directors,
is expected to close before the first quarter 2018, subject to
regulatory approvals and satisfaction of customary closing
conditions, including the favorable vote of a majority of our
outstanding shares.
61
Management’s Report on Internal Controls Over Financial Reporting
Management of Tronox Limited and its subsidiaries is responsible for establishing and maintaining adequate internal controls
over financial reporting. Internal controls over financial reporting is a process designed under the supervision of our principal
executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted
accounting principles.
Our internal controls over financial reporting include those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of the Company’s management and directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on the financial statements.
Management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2016. In
making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment using those criteria,
management concluded that our internal control over financial reporting as of December 31, 2016 was effective.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
62
Report of Independent Registered Public Accounting Firm
To the Board of Directors
and Shareholders of Tronox Limited
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of
comprehensive income (loss), of changes in shareholders’ equity, and of cash flows present fairly, in all material respects, the
financial position of Tronox Limited and its subsidiaries at December 31, 2016 and 2015, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial
statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Stamford, Connecticut
February 23, 2017
63
Comparison of 54-Month Cumulative Total Return*
Tronox Limited
Among Tronox Limited, the S&P 500 Index, the S&P Diversified Chemicals
Index and the S&P Materials Index
200
150
100
50
0
6/18/12
10/12
3/13
8/13
1/14
6/14
11/14
4/15
9/15
2/16
7/16
12/16
Tronox Limited
S&P 500
S&P Diversified Chemicals
S&P Materials
* (Unaudited) $100 invested on 6/18/12 in stock or 5/31/12 in index, including
reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2017 Standard & Poor’s, a division of S&P Global.
All rights reserved.
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Shareholder Information
Shareholder Information
Tronox Limited is a public company registered
under the laws of the State of Western Australia,
Australia. We have global operations in
North America, Europe, Africa, and Australia.
Overnight Mail
Broadridge Corporate Issuer Solutions
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Corporate Offices
Australia:
Tronox Limited
Lot 22, Mason Road, Kwinana Beach,
Western Australia 6167
Postal address: P.O. Box 305, Kwinana,
Western Australia 6966
+61.(0)8.9365.1333
United States:
Tronox Limited
263 Tresser Boulevard
Suite 1100
Stamford, Connecticut 06901
+1.203.705.3800
This report is made available to shareholders in
advance of the annual meeting of shareholders
to be held at 9 a.m. EDT, April 21, 2017, in
Stamford, Connecticut. The proxy will be made
available to shareholders on or about March
13, 2017, at which time proxies for the meeting
will be requested.
Information about Tronox, including financial
information, can be found on our website:
www.tronox.com.
Stock Listing
New York Stock Exchange
Ticker Symbol
TROX
Transfer Agent and Registrar
Broadridge Corporate Issuer Solutions
Shareholder Services Telephone
+1.855.449.0975
Shareholder correspondence should be
mailed to
Regular Mail
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
Shareholder website
https://investor.broadridge.com
Shareholder email inquiries
shareholder@broadridge.com
Electronic Access
https://materials.proxyvote.com/Q9235V
Copies of the Tronox 2016 Annual Report,
the proxy, and the 2016 International Financial
Report Standards (IFRS) statement are available
at https://materials.proxyvote.com/Q9235V. The
company’s IFRS statement will be available to
shareholders no later than April 20, 2017. A copy
of the company’s Form 10-K and other filings with
the U.S. Securities and Exchange Commission
are available at investor.tronox.com/sec.cfm.
Certifications
Tronox has included as Exhibits 31.1, 31.2, 32.1,
and 32.2 to its Annual Report on Form 10-K for
fiscal year 2016 filed with the Securities and
Exchange Commission certificates of its Chief
Executive Officer and Chief Financial Officer
certifying, among other things, the information
contained in the Form 10-K.
Annually, Tronox submits to the New York Stock
Exchange (NYSE) a certificate of Tronox’s Chief
Executive Officer certifying that he was not aware
of any violation by Tronox of NYSE corporate
governance listing standards as of the date of
the certification.
Shareholder Information
Our Internet site www.tronox.com provides
shareholders easy access to Tronox’s financial
results. Shareholders may also contact Brennen
Arndt, Vice President, Investor Relations at
+1.203.705.3800.
Tronox and its operating unit names, logos, and product service
designators are either the registered or unregistered trademarks or
trade names of Tronox Limited and its subsidiaries.
This paper has been certified
to meet the environmental and
social standards of the Forest
Stewardship Council® (FSC®)
and from well-managed forests
and other responsible sources.
Design: SVP Partners, Wilton, CT
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A Brighter Future – From the Ground Up
Tronox Limited Corporate Offices
Australia
Lot 22, Mason Road, Kwinana Beach,
Western Australia 6167
Postal address: P.O. Box 305
Kwinana, Western Australia 6966
+61.(0)8.9365.1333
United States
263 Tresser Boulevard
Suite 1100
Stamford, Connecticut 06901
+1.203.705.3800
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