TABLE OF CONTENTSSECURITIES AND EXCHANGE COMMISSION
(Mark One) | | | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Year ended December 31, 2017
2022
OR | o | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
1-35573
TRONOX LIMITED
(ACN 153 348 111)
HOLDINGS PLC
(Exact name of registrant as specified in its charter)Western Australia, Australia
| 98-1026700
| | | | | | | |
England and Wales | | 98-1467236 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | | | | | | | |
| |
263 Tresser Boulevard, Suite 1100
| | Laporte Road, Stallingborough |
| Stamford, Connecticut 06901 | Lot 22 Mason Road
Kwinana Beach WA 6167
Australia
| Grimsby, North East Lincolnshire, DN40 2PR |
| | United Kingdom |
Registrant’s telephone number, including area code: (203) 705-3800
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | | Name of each exchange on which registered |
Class A Ordinary Shares, par value $0.01 per share
| | New York Stock Exchange |
Trading Symbol: TROX
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No o☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): | | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | | Accelerated filer | o
☐ |
Non-accelerated filer | o
☐ | | Smaller reporting company | o
☐ |
Emerging growth company | o
☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements
of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant
to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No ☒ The aggregate market value of the ordinary shares held by non-affiliates of the registrant as of June 30,
20172022 was approximately
$1,797,488,386.$1,963,135,524.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No o☐ As of January 31, 2018,2023, the registrant had 92,660,776 shares of Class A 154,496,923 ordinary shares and 28,729,280 shares of Class B ordinary shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for its 20182022 annual general meeting of shareholders are incorporated by reference in this Form 10-K in response to Part III Items 10, 11, 12, 13 and 14.
TRONOX LIMITED
HOLDINGS PLC
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
2022
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and in other sections of this Form 10-K that are forward-looking statements. Forward-looking statements also can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties outlined in “Risk Factors.”
These risks and uncertainties are not exhaustive. Other sections of this Form 10-K may include additional factors, which could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events.
WeUnless otherwise required by applicable law, we are under no duty to update any of these forward-looking statements after the date of this Form 10-K to conform our prior statements to actual results or revised expectations and we do not intend to do so.
When considering forward-looking statements, you should keep in mind the risks, uncertainties and other cautionary statements made in this Form 10-K and the documents incorporated by reference, including, in particular, the factors discussed below. These factors may be revised or supplemented in subsequent reports on Forms 10-Q and 8-K.
Factors that may affect future results include, but are not limited to:
•the risk that our customers might reduce demand for our products;
•market conditions and price volatility for titanium dioxide (“TiO2”), zircon and other feedstock products, as well as global and regional economic downturns, that adversely affect the demand for our end-use products;
•the possibility that Chinese production of chloride technology, improvements in product quality and expansion of their TiO2 production capacity, including via chloride technology, may occur more quickly than anticipated;
•changes in prices or supply availability of energy or other raw materials;
•liability, production delays and additional expenses from environmental and industrial accidents;
•production curtailments, shutdowns or additional expenditures resulting from equipment upgrades, industrial accidents, equipment failures and deterioration of assets;
•the possibility that cybersecurity incidents or other security breaches may seriously impact our results of operations and financial condition;
•risks of operating a global business;
•political and social instability, and unrest, in the regions in which we operate, including the European Union, South Africa and the Middle East region;
•fluctuations in currency exchange rates;
•the risk that the agreements governing our debt may restrict our ability to operate our business in certain ways, as well as impact our liquidity;
•our inability to obtain additional capital on favorable terms;
•the risk that we may not realize expected returns or there may be a delay in realizing expected returns on our capital projects, including Project newTRON and our Atlas Campaspe mining investment;
•an unpredictable regulatory environment in South Africa where we have significant mining and beneficiation operations, including amendments by the South African Department of Mineral Resources and Energy to the Mining Charter (as defined elsewhere herein);
•the risk that our TiO2 products are subject to increased regulatory scrutiny that may impede or inhibit widespread usage of TiO2 and/or diminish the Company's ability to sustain or grow its business or may add significant costs of doing business;
•ESG issues, including those related to climate change and sustainability, may subject us to additional costs and restrictions;
•extreme weather conditions could pose physical risks to our facilities and disrupt the operations of our supply chain and increase operational costs;
•the risk that our ability to use our tax attributes to offset future income may be limited;
•concentrated share ownership in the hands of Cristal may result in conflicts of interest and/or prevent minority shareholders from influencing the Company;
•the risk that we are dependent on, and compete with other mining and chemical businesses for, key human resources in the countries in which we operate; and
•impact of English law and our articles of association on our ability to manage our capital structure flexibly and the anti-takeover protections incorporated into our articles of association.
We are committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, we use our website to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial and statistical and business-related information. Investors can link toaccess announcements about the Tronox LimitedCompany through our website through available at http://www.tronox.com. Our website is included as an inactive textual reference only and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-K.
For the purposes of this discussion, references to “we,” “us,” and, “our” refer to Tronox
Limited,Holdings plc, together
with its consolidated subsidiaries (collectively referred to as “Tronox”), when discussing or the business following the completion of the Exxaro Transaction, and to Tronox Incorporated, together with its consolidated subsidiaries (collectively referred to as “Tronox Incorporated”"Company”), when discussing the business prior to the completion of the Exxaro Transaction.Item 1. Business
Tronox is. We are a public limited company registeredformed under the laws of the State of Western Australia.England and Wales. We are considered a global leaderdomestic company in the United Kingdom and, as such, are required to comply with filing requirements in the United Kingdom. Additionally, we are not considered a “foreign private issuer” in the U.S.; therefore, 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”).
Item 1. Business
Overview
Tronox is the world’s leading vertically integrated manufacturer of TiO2 pigment. We operate titanium-bearing mineral sand mines and beneficiation and smelting operations in Australia and South Africa to produce feedstock materials that can be processed into TiO2 for pigment, high purity titanium chemicals, including titanium tetrachloride, and ultrafine TiO2 used in certain specialty applications. Our strategy is to be vertically integrated and produce enough feedstock materials to be as self-sufficient as possible in the production of TiO2 at our 9 pigment facilities located in the United States, Australia, Brazil, UK, France, the Netherlands, China and the Kingdom of Saudi Arabia ("KSA"). We believe that vertical integration is the best way to achieve our ultimate goal of delivering low cost, high-quality pigment to our approximately 1,200 TiO2 customers throughout the world. The mining, beneficiation and smelting of titanium bearing mineral sands also creates meaningful quantities of co-products including zircon, pig iron and the rare-earth bearing mineral, monazite, which we also supply to customers around the world.
The following chart highlights the TiO2 value chain we participate in.
The following sets forth the percentage of our revenue derived from sales of our products by geographic region for the year ended December 31, 2022.
The below sets forth the percentage of our revenue derived from sales of our products for the year ended December 31, 2022.
For further financial information regarding our products and geographic regions, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as Notes 3 and 23 of notes to our consolidated financial statements, each included elsewhere in this Form 10-K.
2022 Key Strategic Initiatives
The following sets forth the key strategic initiatives underway in 2022:
Become the Low Cost TiO2 Producer by Investing in our Business Processes and Strengthening Vertical Integration
Our ability to compete effectively in the TiO2 industry is determined by many factors, including innovation, reliability, product quality, customer service and price. The business processes that allow us to maximize the benefit of our vertical integration and global footprint --- the so-called “hidden factory” --- needs to be optimized if we are to successfully meet the pricing and other competitive pressures that characterize our industry. One of the largest investment projects that we continued to pursue in 2022 to improve our global business processes is what we call “Project newTRON”, a multi-year IT-enabled transformation program that includes both operational and business transformation.
In terms of strengthening vertical integration, in 2022, we have progressed the construction of a new significant mine in Eastern Australia called Atlas Campaspe. Atlas Campaspe is intended to replace feedstock supply from our Snapper / Ginkgo mines in Eastern Australia which are largely depleted. Our pre-mining feasibility work indicates that Atlas Campaspe is abundant
in natural rutile and high-value zircon, and will be a significant source of high grade ilmenite suitable for direct use, synthetic rutile production, or slag processing. In addition, in 2022, we invested in expanding our Fairbreeze and Namakwa mines in South Africa. Like Atlas Campaspe, we believe these expansions are extremely attractive mine development projects, rich in ilmenite, rutile and zircon that are expected to replace existing mines which would otherwise deplete in early 2024. We have numerous other mine development projects in earlier stages of development in Western Australia and on the Eastern and Western Capes of South Africa, all of which are intended to maintain or expand our level of feedstock vertical integration.
Our vertical integration strategy may also benefit from the titanium slag smelter facility (the “Slagger”) located in The Jazan City for Primary and Downstream Industries in KSA currently owned and operated by Advanced Smelting Industries Co. Ltd. ("ASIC"), an indirect, wholly-owned subsidiary of Tasnee and Cristal. Under the terms of a May 2018 Option Agreement between Tronox and Advanced Metals Industries Cluster Company Limited (“AMIC”), the direct shareholder of ASIC, we are required to purchase 100% of the feedstock material produced at the Slagger, a significant portion of which we consume at our TiO2 pigment facility in Yanbu, Saudi Arabia. In addition, pursuant to the Option Agreement, AMIC granted us an option (the “Option”) to acquire 90% of ASIC. The Option may be exercised if the Slagger achieves certain production criteria related to sustained quality and tonnage of slag produced. The Option Agreement expires in May 2023.
Capital Allocation
In 2022, we continued to generate sufficient cash to return cash to shareholders in the form of dividends and share repurchases. During 2022, we paid a total of $87 million to shareholders in the form of dividends and repurchased approximately $50 million in shares. We also continued to strengthen our balance sheet. From the end of 2021 to the end of 2022, our annual interest expense decreased from $157 million to $125 million, and our outstanding indebtedness decreased from $2.6 billion to $2.5 billion.
Develop Our Position as a Significant Supplier of Rare Earth Oxides
Tronox’s existing mining operations and tailing piles in South Africa and Australia contain significant quantities of monazite, a mineral containing rare earth elements (REEs) widely recognized as a critical mineral for the energy transformation underway to decarbonize the world’s economy. For these applications, REE must first be processed into an oxide form --- rare earth oxides or “REO” --- that can then be metallized for the production of
titanium dioxide (“TiO2”) pigment. Our TiO2 products are critical components of everyday applications such as paint and other coatings, plastics, paper, and other uses. Products we derive from mineral sands include titanium feedstock, zircon, and pig iron. 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. Titanium feedstock is primarily used to manufacture TiO2 pigment.On February 21, 2017, Tronox Limited, The National Titanium Dioxide Company Ltd., a limited company organized under the lawspermanent magnets. Every step of the Kingdom of Saudi Arabia (“Cristal”), and Cristal Inorganic Chemicals Netherlands Coöperatief W.A., a cooperative organized under the lawsREE supply chain today is dominated by China. China’s dominance of the Netherlandsprocessing of REO and production of permanent magnets is widely recognized as a wholly owned subsidiary of Cristal (“Seller”), enteredserious strategic challenge by democratic governments around the world.
The separation, beneficiation and processing technologies that Tronox uses to turn titanium-bearing ores into TiO2 are applicable for turning monazite into REO. In the past, we sold our monazite in unconcentrated form as a Transaction Agreement (the “Transaction Agreement”), pursuantwaste product but given the increased value associated with REE, we are now seeking to which we 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 (“Class A Shares”), parmaximize the value $0.01 per share, of Tronox Limited (the “Cristal Transaction”). Following the closing of the Cristal Transaction, the Seller will own approximately 24% of the outstanding ordinary shares (including both Class A and Class B) of Tronox Limited. On March 1, 2018, Tronox, Cristal and Seller entered into an Amendment to the Transaction Agreement (the “Amendment”) that extends the termination date under the Transaction Agreement to June 30, 2018, with automatic 3-month extensions to March 31, 2019, if necessary based on the status of outstanding regulatory approvals.In 2012, our Class B ordinary shares (“Class B Shares”) were issued to Exxaro Resources Limited (“Exxaro”) and one of its subsidiaries in consideration for 74% of Exxaro’s South African mineral sands business (the “Exxaro Transaction”). On March 8, 2017, Exxaro announced its intention to begin pursuing a path to monetize its ownership stake in Tronox over time. On October 10, 2017, Exxaro sold 22,425,000 Class A ordinary shares (“Class A Shares”) in an underwritten registered offering (the “Exxaro Share Transaction”). At December 31, 2017 and December 31, 2016, Exxaro held approximately 24% and 44%, respectively, of the voting securities of Tronox Limited. Presently, Exxaro intends to sell the remainder of its Tronox shares in a staged process over time pursuant to the existing registration statement, subject to market conditions. Exxaro’s sale of Class A Shares does not impact its 26% ownership interest in each of our Tronox KZN Sands (Pty) Ltd.existing geologic resources and Tronox Mineral Sands (Pty) Ltd. subsidiaries. See Notes 1deploy our substantial technical know how and 21human capital to become a significant supplier of notesREO to the consolidated financial statements for additional information regarding Exxaro transactions.
non-Chinese producers of metals and permanent magnets.
Our Principal
Business SegmentOn September 1, 2017, we completed the previously announced sale of our wholly owned subsidiary Tronox Alkali Corporation (“Alkali”) to Genesis Energy, L.P. for proceeds of $1.325 billion in cash (the “Alkali Sale”). As a result of the Alkali Sale, Alkali’s results of operations have been reported as discontinued operations and we now operate under one operating and reportable segment, Products
TiO2. See Notes 3 and 22 of notes to consolidated financial statements for additional information.
TiO2 Pigment
TiO2 pigment is used in a wide range of products due to its ability to impart whiteness, brightness, and opacity. TiO2 pigment is used extensively in the manufacture of paint and other coatings, plastics and paper, and in a wide range of other applications, including inks, fibers, rubber, food, cosmetics, and pharmaceuticals.applications. Moreover, it is a critical component of everyday consumer applications due to its superior ability to cover or mask other materials effectively and efficiently relative to alternative white pigments and extenders. TiO2 pigment is considered to be a quality TABLE OF CONTENTS
of life product, and some research indicates that consumption generally increases as disposable income increases.product. At present, it is our belief that there is no effective mineral substitute for TiO2 pigment because no other white pigment has the physical properties for achieving comparable opacity and brightness or can be incorporated as cost effectively.
Our
Ultrafine Specialty TiO2 business includes
We produce ultrafine TiO2 at our manufacturing facility in Thann, France. We market ultrafine TiO2 products under the following:exploration, mining,CristalActiv® trademark. Ultrafine TiO2 has highly catalytic properties due to the relatively high surface area of each TiO2 molecule. The principal use of ultrafine TiO2 products is in NOx emission control products utilized in stationary, mobile and beneficiationmarine applications.
In 2022, we generated $2.7 billion in revenue from sales of mineral sands deposits;TiO2.
production of titanium feedstock (including chloride slag, slag fines, rutile, synthetic rutile and leucoxene), pig iron, and zircon;
| • | production and marketing of TiO2; and |
electrolytic manganese dioxide manufacturing and marketing, which is primarily focused on advanced battery materials and specialty boron products.
Exploration, Mining and Beneficiation of Mineral Sands Deposits
“Mineral sands” refers to concentrations of heavy minerals in an alluvial environment (sandy or sedimentary deposits near a sea, river or other water source). Mineral sands are the most important source of raw material for manufacture of pigment-grade TiO2. Our exploration, mining and beneficiation of mineral sands deposits are comprised of the following:
Our KwaZulu-Natal (“KZN”) Sands operations located in South Africa consist of the Fairbreeze mine, a concentration plant, a mineral separation plant, and a smelter complex with two furnaces;
Our Namakwa Sands operations located in South Africa include the Namakwa Sands mine, a primary concentration plant, a secondary concentration plant, a mineral separation plant, and a smelter complex with two furnaces; and
Our Western Australia operations, which consist of the Cooljarloo mine and concentration plant and the Chandala processing plant, which includes a mineral separation plant, and a synthetic rutile plant.
Exploration
Ilmenite - Ilmenite is the most abundant titanium mineral, with naturally occurring ilmenite having a titanium dioxide content ranging from approximately 45% to 65%, depending on its geological history. The weathering of ilmenite in its natural environment results in oxidation of the iron, which increases titanium content.
Rutile - Rutile is essentially composed of crystalline titanium dioxide and, in its pure state, would contain close to 100% titanium dioxide. Naturally occurring rutile, however, usually contains minor impurities and therefore, commercial concentrates of this mineral typically contain approximately 94% to 96% titanium dioxide.
Leucoxene - Leucoxene is a natural alteration of ilmenite with a titanium dioxide content ranging from approximately 65% to 90%. The weathering process is responsible for the alteration of ilmenite to leucoxene, which results in the removal of iron, leading to an upgrade in titanium dioxide content.
Titanium Slag - The production of titanium slag involves smelting ilmenite in an electric arc furnace under reducing conditions, normally with anthracite (coal) used as a reducing agent. Slag, containing the bulk of the titanium and impurities other than iron, and a high purity pig iron are both produced in this process. The final quality of the slag is highly dependent on the quality of the original ilmenite and the ash composition of the anthracite used in the furnace. Titanium slag has a titanium dioxide content of approximately 75% to 91%. Our slag typically contains 86% to 89% titanium dioxide.
Titanium Slag Fines - For titanium slag to be suitable for use in the chloride process, it needs to be milled down to a particle size range, which allows it to be processed effectively during the chlorination step of the chloride process. The milling of titanium slag results in the generation of a smaller size than can readily be used by chloride producers, which is separated and sold as a separate product, mostly to pigment producers who operate the sulfate process.
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Synthetic Rutile - A number of processes have been developed for the beneficiation of ilmenite into products containing between approximately 90% and 95% titanium dioxide. These products are known as synthetic rutile or upgraded ilmenite. The processes employed vary in terms of the extent to which the ilmenite grain is reduced, and the precise nature of the reducing reaction and the conditions used in the subsequent removal of iron. All of the existing commercial processes are based on the reduction of ilmenite in a rotary kiln, followed by leaching under various conditions to remove the iron from the reduced ilmenite grains. Our synthetic rutile has a titanium dioxide content of approximately 90% to 93%.
Zircon - Zircon is often, but not always, found in the mineral sands deposits containing ilmenite. It is extracted, alongside ilmenite and rutile, as part of the initial mineral sands beneficiation process.
Mining
The mining of mineral sands deposits is conducted either “wet,” by dredging or hydraulic water jets, or “dry,” using earth-moving equipment to excavate and transport the sands. Dredging, as used at the Cooljarloo mine, is generally the favored method of mining mineral sands, provided that the ground conditions are suitable and water is readily available. In situations involving hard ground, discontinuous ore bodies, small tonnage, high slimes contents or very high grades, dry mining techniques are generally preferred.
Dredge Mining - Dredge mining, or wet mining, is best suited to ore reserves located below the water table. A floating dredge removes the ore from the bottom of an artificial pond through a large suction pipe. The bulk sand material is fed as slurry through a primary, or “wet,” concentrator that is typically towed behind the dredge unit. The dredge slowly advances across the pond and deposits clean sand tailings behind the pond for subsequent revegetation and rehabilitation. Because of the high capital cost involved in the manufacturing and location, dredge mining is most suitable for large, long-life deposits. The dredging operations at Cooljarloo use two large floating dredges in a purpose-built pond. The slurry is pumped to a floating concentrator, which recovers heavy minerals from the sand and clay.
Hydraulic Mining - At our Fairbreeze mine in KZN, we employ a hydraulic mining method for mineral sands due to the topography of the ore body and the ore characteristics. A jet of high-pressure water is aimed at the mining face, thereby cutting into and loosening the sand so that it collapses on the floor. The water acts as a carrier medium for the sand, due to the high fines (mineral particles that are too fine to be economically extracted and other materials that remain after the valuable fraction of an ore has been separated from the uneconomic fraction) content contained in the ore body. The slurry generated by the hydraulic monitors flows to a collection sump where oversize material is removed and the slurry is then pumped to the primary concentration plant.
Dry Mining - Dry mining is suitable where mineral deposits are shallow, contain hard bands of rock, or are in a series of unconnected ore bodies. Dry mining is performed at Namakwa Sands, which is located in an arid region on the west coast of South Africa. The ore is mined with front end loaders in a load and carry operation, dumping the mineral bearing sands onto a conveyor belt system that follows behind the mining face. The harder layers are mined using hydraulic excavators in a backhoe configuration or by bulldozer. Namakwa Sands does not use blasting in its operations. The mined material is transported by trucks to the mineral sizers where primary reduction takes place.
Processing and Mineral Separation
Processing - Both wet and dry mining techniques utilize wet concentrator plants to produce a high grade of heavy mineral concentrate (typically approximately 90% to 98% heavy mineral content). Screened ore is first deslimed, a process by which slimes are separated from larger particles of minerals, and then washed through a series of spiral separators that use gravity to separate the heavy mineral sands from lighter materials, such as quartz. Residue from the concentration process is pumped back into either the open pits or slimes dams for rehabilitation and water recovery. Water used in the process is recycled into a clean water dam with any additional water requirements made up from pit dewatering or rainfall.
Mineral Separation - The non-magnetic (zircon and rutile) and magnetic (ilmenite) concentrates are passed through a dry separation process, known as the “dry mill” to separate out the minerals. Electrostatic and dry magnetic methods are used to further separate the ilmenite, rutile and zircon. Electrostatic separation relies on the difference in surface conductivity of the materials to be separated. Conductive minerals (such as ilmenite, rutile
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and leucoxene) behave differently from non-conductive minerals (such as zircon) when subjected to electrical forces. Magnetic separation techniques are dependent on the iron content of a mineral. Magnetic minerals (such as ilmenite) will separate from non-magnetic minerals (such as rutile and leucoxene) when subjected to a magnetic field. A combination of gravity and magnetic separation is used to separate zircon from the non-magnetic portion of the heavy mineral concentrate. The heavy mineral concentrate at KZN Sands and Namakwa Sands is passed through wet high-intensity magnetic separation to produce a non-magnetic fraction and a magnetic fraction.
Production of titanium feedstock, pig iron, and zircon
Our TiO2 operations have a combined annual production capacity of approximately 721,000 metric tons (“MT”) of titanium feedstock, which is comprised of 91,000 MT of rutile and leucoxene, 220,000 MT of synthetic rutile, and 410,000 MT of titanium slag. Our TiO2 operations also have the capability to produce approximately 220,000 MT of zircon and 221,000 MT of pig iron.
Synthetic Rutile Production - Ilmenite may also be upgraded into synthetic rutile. Synthetic rutile, or upgraded ilmenite, is a chemically modified form of ilmenite that has the majority of the ferrous, non-titanium components removed, and is also suitable for use in the production of titanium metal or TiO2 using the chloride process. Ilmenite is converted to synthetic rutile in a two-stage pyrometallurgical and chemical process. The first stage involves heating ilmenite in a large rotary kiln. Coal is used as a heat source and, when burned in an oxygen deficient environment, it produces carbon monoxide, which promotes a reducing environment that converts the iron oxide contained in the ilmenite to metallic iron. The intermediate product, called reduced ilmenite, is a highly magnetic sand grain due to the presence of the metallic iron. The second stage involves the conversion of reduced ilmenite to synthetic rutile by removing the metallic iron from the reduced ilmenite grain. This conversion is achieved through aeration (oxidation), accelerated through the use of ammonium chloride as a catalyst, and acid leaching of the iron to dissolve it out of the reduced ilmenite. Activated carbon is also produced as a co-product of the synthetic rutile production process.
Titanium Feedstock - Ilmenite, rutile, leucoxene, titanium slag and synthetic rutile are all used primarily as feedstock for the production of TiO2. Titanium feedstock can be segmented based on the level of titanium contained within the feedstock, with substantial overlap between each segment. Different grades of titanium feedstock have similar characteristics. As such, TiO2 producers generally source and supply a variety of feedstock grades, and often blend them into one feedstock. The lower amount of titanium used in the TiO2 manufacturing process, the more feedstock required and waste material produced. Naturally occurring high-grade titanium minerals required for the production of TiO2 are limited in supply. Two processes have been developed commercially: one for the production of titanium slag and the other for the production of synthetic rutile. Both processes use ilmenite as a raw material, and involve the removal of iron oxides and other non-titanium material.
Titanium Slag - Ilmenite at KZN Sands and Namakwa Sands is processed further through direct current arc furnaces to produce titanium slag with a titanium content of approximately 86% to 89%. The smelting process comprises the reduction of ilmenite to produce titanium slag and pig iron. Ilmenite and anthracite are fed in a tightly controlled ratio into an operating furnace where the endothermic reduction of ilmenite occurs. The resultant titanium slag has a lower density than the iron, and separation of the two liquid products occurs inside the furnace. The slag and iron are tapped periodically from separate sets of tapholes located around the circumference of the furnace. Slag is tapped into steel pots and cooled for several hours in the pots before the slag blocks are tipped out. The blocks are subsequently transported to the blockyard where they are cooled under water sprays for a number of days. They are then crushed, milled, and separated according to size fractions, as required by the customers. The tapped pig iron is re-carburized, de-sulfurized, and cast into ingots or “pigs”.
High Purity Pig Iron - The process by which ilmenite is converted into titanium slag results in the production of high purity iron containing low levels of manganese. When iron is produced in this manner, the molten iron is tapped from the ilmenite furnace during the smelting process, alloyed by adding carbon and silicon and treated to reduce the sulfur content, and is then cast into pigs. The pig iron produced as a co-product of our titanium slag production is known as low manganese pig iron.
Zircon - Zircon (ZrSiO4) is a co-product of mining mineral sands deposits for titanium feedstock. Zircon is primarily used as an additive in ceramic glazes, to add hardness, which makes the ceramic glaze more water, chemical and abrasion resistant. It is also used for the production of zirconium metal and zirconium chemicals, in refractories, as molding sand in foundries, and for TV screen glass, where it is noted foradds its structural stability at
TABLE OF CONTENTS
high temperatures and resistance to abrasive and corrosive conditions. Zircon typically represents a relatively low proportion of the in-situ heavy mineral sands deposits we mine, but has a relatively higherhigh value compared to other heavy mineral products. Refractories containing zircon are expensive and are only used in demanding, high-wear and corrosive applications in the glass, steel and cement industries. Foundry applications use zircon when casting articles of high quality and value where accurate sizing is crucial, such as aerospace, automotive, medical, and other high-end applications.
In 2022, we generated $438 million in revenue from sales of zircon.
Other Products
High Purity Pig Iron
During the process of smelting ilmenite at our smelters to increase the concentration of titanium and produce titanium slag, high purity pig iron is produced as a co-product. High purity pig iron is used as a raw material in foundries for the production of high-quality ductile iron castings. Ductile iron is used extensively throughout the world for the production of safety critical automotive parts, such as engine blocks, brake calipers and steering knuckles in cars and trucks.
Monazite
Like zircon, monazite is a co-product of mining mineral sands deposits for titanium feedstock. Monazite is concentrated and processed to remove contaminants, such as uranium and thorium, before being separated into specific rare earth oxides (REOs) such as neodymium (Nd), praseodymium (Pr), terbium (Tb), and dysprosium (Dy). These REOs can then be metallized and formed into permanent magnets, particularly NdFeB magnets, that are needed to manufacture electric vehicle motors, wind turbines and other green economy applications.
Feedstock
Most TiO2 products are derived from three naturally occurring minerals which are commonly referred to as heavy minerals or mineral sands: ilmenite, leucoxene and rutile. Ilmenite, rutile, leucoxene, as well as titanium slag and synthetic rutile which are processed from ilmenite, are the primary feedstock materials that we use for the production of TiO2 pigment. Titanium slag is produced by smelting ilmenite in an electric arc furnace to separate titanium-oxide from the iron and other impurities. Synthetic rutile is produced by reducing ilmenite in a rotary kiln, followed by leaching under various conditions to remove the metallic iron from the reduced ilmenite grains. The purpose of both processes is to increase the titanium concentration of the ilmenite. There is substantial overlap amongst each of the aforementioned with the primary differentiating factor being the level of titanium content. For instance, rutile has the highest titanium dioxide content of approximately 94% to 96%, while ilmenite has the lowest of approximately 45% to 65%. As a result of our continued pursuit of our vertical integration strategy, we currently do not expect to actively sell feedstock going forward.
Titanium Tetrachloride
We sell titanium tetrachloride (“TiCl4”) from our facilities in Thann, France and Yanbu, KSA. At our Thann facility in France, we produce TiCl4 dedicated for sale to customers for use mainly in the production of various types of pigments and catalyst products. At our Yanbu facility, we produce excess TiCl4 which we sell directly to a joint venture between Advanced Metal Industries Cluster and Toho Titanium Metal Co. Ltd. ("ATTM") for use at a titanium sponge plant facility that is adjacent to our Yanbu facility.
In 2022, we generated $323 million in revenue from the sale of high purity pig iron, monazite, titanium tetrachloride and other products. This amount also includes revenue generated from the 8120 paper laminate grade to Venator Materials plc ("Venator"). In 2019, as part of the Cristal transaction and in order to obtain approval by regulators in the European Union, we sold the 8120 paper laminate grade to Venator and entered into a three-year transitional supply agreement which terminated in April 2022. Revenue from 8120 paper laminate grade sales to Venator are included within Other products until the expiration date of the supply agreement with Venator.
The demand for certain of our products during a given year is subject to seasonal fluctuations. See “Risk Factors –
Risks Relating to our Business - The markets for many of our products have seasonally affected sales patterns”.
Mining and Beneficiation of Mineral Sands Deposits
Our current operational mining and beneficiation of mineral sands deposits are comprised of the following:
•KwaZulu-Natal (“KZN”) Sands operations located on the eastern coast of South Africa consisting of the Fairbreeze mine, a concentration plant, a mineral separation plant and two smelting furnaces that produce titanium slag;
•Our Namakwa Sands operations located on the western coast of South Africa consisting of the Namakwa mine, two concentration plants, a mineral separation plant, as well as two smelting furnaces that produce titanium slag;
•Our Northern Operations complex in Western Australia consisting of the Cooljarloo dredge mine and floating heavy mineral concentration plant and the Chandala metallurgical site which includes a mineral separation plant and a synthetic rutile plant that produces synthetic rutile;
•Eastern Australia operations consisting of the Ginkgo mine, a floating heavy mineral concentration plant located there, the Atlas mine and a heavy mineral concentration plant located there and a mineral separation plant located at Broken Hill, New South Wales;
•Perth Basin operations in Western Australia consisting of the Wonnerup mine and a mineral separation plant; and
•Our Paraiba, Brazil mining operations ceased during 2020 in line with our life of mine plan; however, we believe there is enough feedstock to supply the Brazil pigment plant through 2023.
Zircon and monazite are often, but not always, found in mineral sands deposits containing ilmenite. They are extracted, alongside ilmenite and rutile, as part of the initial mineral sands separation process.
The mining of mineral sands deposits is conducted either “wet,” by dredging or hydraulic water jets, or “dry,” by using earth-moving equipment to excavate and transport the sands. The type of mining operation we deploy is dependent upon the characteristics of the ore body. Dredge mining is generally the favored method of mining mineral sands, provided that the ground conditions are suitable, water is readily available and the deposit is low in slime content. Dry mining techniques are generally preferred in situations involving hard ground, discontinuous ore bodies, small tonnage, high slimes contents and/or very high grades.
Regardless of the type of mining technique, the first step in the beneficiation process after the mineral sands have been mined is to utilize wet concentrator plants to produce a high grade of heavy mineral concentrate (typically approximately 90% to 98% heavy mineral content). Screened ore is first de-slimed, a process by which slimes are separated from larger particles of minerals, and then processed through a series of spiral separators that use gravity to separate the heavy mineral sands from lighter materials, such as quartz. Residue from the concentration process is pumped back into either the open pits or slimes dams for rehabilitation and water recovery.
After producing heavy mineral concentrate in our wet concentrator plants, we separate the non-magnetic (rutile, zircon and monazite) and magnetic (ilmenite) fractions utilizing a variety of techniques. Through the separation process, we produce zircon which is sold directly to customers, rutile and leucoxene which can immediately be used as feedstock material to make TiO2 pigment, and monazite which we currently sell in a relatively unconcentrated form but which we plan on further processing before sale to extract greater value.
Ilmenite is generally further refined for use in our TiO2 pigment manufacturing processes. Depending on the characteristics of the ilmenite we use two fundamental processes to refine ilmenite. Both processes involve the removal of iron and other non-titanium material.
•Titanium slag is made by smelting ilmenite in an electric arc furnace to separate titanium-oxide from the iron and other impurities. The result is two products: “slag” which contains 86% to 89% titanium dioxide and is considered a TiO2 feedstock material, and high purity pig iron which is ready for sale to end-use customers.
•Synthetic rutile is made by reducing ilmenite in a rotary kiln, followed by leaching under various conditions to remove the iron from the reduced ilmenite grains. Activated carbon is a byproduct of this process. Our synthetic rutile has a titanium dioxide content of approximately 89% to 92% and is also considered a TiO2 feedstock material.
Our current mining and beneficiation operations have an annual production capacity of approximately 832,000 metric tons (“MT”) of titanium feedstock, which is comprised of 182,000 MT of rutile and leucoxene, 240,000 MT of synthetic rutile and 410,000 MT of titanium slag. We currently have the capability to produce approximately 297,000 MT of zircon and 250,000 MT of pig iron per year.
Competitive Conditions
of Mining and Feedstock Production
Globally, there are a smalllarge number of large mining companies or groupsthat mine mineral sand deposits containing ilmenite, as well as zircon. However, there is a smaller number of mining companies that are also involved in upgrading the underlying ilmenite to produce feedstock typically utilized by TiO2 producers.
Pigment producers procure a range of types of feedstocks from multiple feedstock producers to create varying blends of feedstock materials that maximize the efficiency and economic returns of their unique production
technique under conditions applicable at the time of
production. Pigment producers frequently switch the relative amount of each feedstock they procure based on a number of factors including: the relative cost of feedstocks, feedstock logistics costs, the cost of, and availability of, chemicals used to process feedstocks, as well as waste management costs. Hence, there is a high degree of substitutability between and among titanium
feedstock and these are dominated by close relationships between miners and consumers (predominately pigment producers).feedstocks.
Production and Marketing of TiO2We operate three
Pigment
TiO2 pigment facilities at the following locations: Hamilton, Mississippi; Botlek, the Netherlands; and Kwinana, Western Australia, representing an aggregate annual TiO2 production capacity of 465,000 MT.Production
TiO2 is produced using a combination of processes involving the manufacture of base pigment particles through either the chloride or sulfate process followed by surface treatment, drying and milling (collectively known as finishing). Two commercial production processes are used by manufacturers: the chloride process and the sulphate process. AllCurrently, approximately 87% of our TiO
2 pigment production capacity is produced using the chloride process. We are oneprocess and approximately 13% of a limited number ofour TiO2 producers in the world with chloride production technology. We believe that we are one of the largest global producers and marketers of TiO2 manufactured via chloride technology. TiO2capacity is produced using the chloridesulfate process.
We use the sulfate process is preferred for some of the largest end-use applications.at our manufacturing facility in Thann, France to produce ultrafine TiO
2 products.
In the chloride process, high quality feedstock (slag, synthetic rutile, natural rutile or in limited cases, high titanium content ilmenite ores) are reacted with chlorine (the chlorination step) and carbon to form titanium tetrachloride (“TiCl4”)TiCl4 in a continuous fluid bed reactor. Purification of TiCl4TiCl4 to remove other chlorinated productsimpurities is accomplished using aselective condensation and distillation process.processes. The purified TiCl4TiCl4 is then oxidized in a vapor phase form to produce raw pigment particles and chlorine gas. The latter is recycled back to the chlorination step for reuse. Raw pigment is then typically slurried with water and dispersants prior to entering the finishing step. Due to the nature of the production process, the final pigment product is not sensitive to the feedstocks used to create it, as substantially all substances other than TiO2 are removed during the process. The chloride process currently accounts for substantially all of the industry-wide TiO2 production capacity in North America, and approximately 46%44% of industry-wide capacity globally.
In the sulfate process, ilmenite and/or slag are dissolved in concentrated sulfuric acid. After removing impurities, dissolved titanium is hydrolyzed and separated from the remaining sulfuric acid. The titanium hydrolysate is subsequently calcined in a rotary kiln to produce a raw TiO2. The product is then further finished in a similar way to TiO2 produced through the chloride process.
Commercial production of TiO2 pigment results in one of two different crystal forms: rutile, which is manufactured using either the chloride process or the sulphatesulfate process, or anatase, which is only produced using the sulfate process. All of our global production capacity utilizes the chloride process to produce rutile TiO2. Rutile TiO2 is preferred over anatase TiO2 for many of the largest end-use applications, such as coatings and plastics, because its higher refractive index imparts better hiding power at lower quantities than the anatase crystal form and it is more suitable for outdoor use because it is more durable. Although rutile TiO2 can be produced using either the chloride process or the sulphate process, some customers prefer rutile produced using the chloride process because it typically has a bluer undertone and greater durability.
The primary raw materials used in the production of chloride TiO2pigment include titanium feedstock, chlorine and coke. Chemicals usedAs discussed above, we believe we are unique in the production of TiO2 include oxygen and nitrogen.degree to which we produce our own high-grade titanium feedstock. Other chemicals used in the production of TiO2 are purchased from various companies under short and long-term supply contracts. In the past, we have been, and we expect that we will continue to be, successful in obtaining short-term and long-term extensions to these and other existing supply contracts prior to their expiration. We expect the raw materials purchased under these contracts, and contracts that we may enter into in the near term, to meet our requirements over the next several years.
We supply and market TiO2 under the brand name TRONOX®TIONA® and CristalActiv® to approximately 7001,200 customers in approximately 100120 countries, including market leaders in each of the key end-use markets for TiO2, and we have supplied each of our top ten customers with TiO2 for more than 10 years. For information regarding 2017We have implemented a margin stabilization program which we believe provides relative certainty over availability of product and price stability to customers who choose to participate, and have also initiated a long-term partnership strategy that we believe will strengthen the commitments from our customers across all regions and products. The long-term partnership strategy and margin stabilization programs are key parts of our TiO2 marketing and sales strategy, enabling us to focus on predictability and reliability of TiO2 delivery across the supply and demand cycle.
The following sets forth the percentage of our TiO2 sales volume by geography and end-use market see section “Segment and Geographic Revenue Information”.for the year ended December 31, 2022:
In addition to price and product quality, we compete on the basis of technical support and customer service. We sell our products through both a direct sales force and third-party agents and distributors. Our direct sales, marketing and technical service organizations execute our sales and marketing strategy and work together to provide quality customer service. Our direct sales staff is trained in all of our products and applications.on a global basis. Due to the technical requirements of TiO2 applications, our technical service organization and direct sales offices are supported by a regional customer service staff located in each of our major geographic markets.Our three TiO2 production facilities are strategically positioned in key geographies. The Hamilton facility located in Mississippi USA, is one of the largest TiO2 production facilities in the world, and has the size and scale to service customers in North America and around the globe. Our Kwinana plant, located in Australia, is well positioned to service the growing demand from Asia. Our Botlek facility, located in the Netherlands, services our European customers and certain specialized applications globally.
Our sales and marketing strategy focuses on
aligning ourselves with customers growing faster than the market and effective customer management through the development
and maintenance of strong relationships. We develop customer relationships and manage customer contact
throughacross multiple contact points within the organization including our sales,
team, technical service
organization,and marketing, research and development,
team,and customer service
team,teams. These primary points of contact are supplemented by direct contact with plant operations personnel, supply chain specialists, and senior
management visits.management. We believe that multiple points of customer contact facilitate efficient problem solving, supply chain support, formula optimization and co-development of products.
Competitive Conditions of TiO2 Pigment
The global market in which our TiO2 pigment business operates is highly competitive. Competition is based on a number of factors such as price, product quality and service. We face competition not only from both chloride process pigment producers but fromand sulfate process pigment producers as well.producers. Moreover, because transportation costs are minor relative to the cost of our product, there is also competition between products produced in one region versus products produced in another region.
We face competition from
global competitors with
facilitiesheadquarters in
multiple regions,Europe, the United States and China, including Chemours,
Cristal Global, Venator andLB Group, Kronos Worldwide Inc.
, INEOS, and Venator. In addition,
to the major competitors discussed above, we compete with numerous regional producers
including producersparticularly in
China such as Lomon Billions, CNNCEastern Europe and
Blue Star.Electrolytic Manganese Dioxide Manufacturing and Marketing
Our electrolytic and other chemical products operations are primarily focused on advanced battery materials and specialty boron products.
Electrolytic manganese dioxide (“EMD”) - EMD is the active cathode material for alkaline batteries used in flashlights, electronic games, and medical and industrial devices. We believe that we are one of the largest producers of EMD for the global alkaline battery industry. EMD quality requirements for alkaline technology are much more demanding than for zinc carbon technology and, as a result, alkaline-grade EMD commands a higher price than zinc carbon-grade EMD. The United States (“U.S.”) primary battery market, predominantly based on alkaline-grade EMD, is the largest in the world followed by China and Japan according to publicly available industry reports. As such, we expect demand for alkaline-grade EMD to be flat as the demand stabilizes for devices using primary batteries.
Boron - Specialty boron product end-use applications include semiconductors, pharmaceuticals, high-performance fibers, specialty ceramics and epoxies, as well as igniter formulations. According to publicly available industry reports, we are one of the leading suppliers of boron trichloride, along with JSC Aviabor, Sigma-Aldrich Corporation, and several Asian manufacturers. We anticipate demand for boron trichloride will remain positive, driven primarily by the growth of the semiconductor industry.
China.
We have research and development facilities that aim to develop new products, service our products, and focus on applied research and development of both new and existing processes. Our research and development facilitiesThe majority of scientists supporting our mineral sands businessTiO2 pigment product development and testing are located in South Africa,Oklahoma City, Oklahoma, USA and Stallingborough, UK, while the majority of scientists supporting our pigment and electrolyticTiO2 ultrafine specialty business are located in Thann, France. In addition, the research and development effortspersonnel relating to our mineral sands operations are located in Oklahoma City, Oklahoma, USA.Australia and South Africa. Our research and development initiatives for concentration and separation of REOs is centered in Perth, Australia.
New process developments are focused on increased throughput, efficiency gains and general processing equipment-related improvements.processing-related improvements for our customers. Ongoing development of process technology contributes to cost reduction, enhanced production flexibility, increased capacity, and improved consistency of product quality. In 2017, our productProcess technology research also pertains to concentration and separation of monazite into neodymium (Nd), praseodymium (Pr), terbium (Tb), and dysprosium (Dy), the types of REOs that are most in demand for EV and wind turbine applications.
Product development activities in paints and commercialization effortscoatings were focused on severalproduct stewardship and sustainability improvements of the product line. In order to enhance production flexibility, technology transfer activities were focused on the décor paper segment in Europe, upgrading our sulfate offering from our Fuzhou facility, and further harmonizing the product line at Yanbu TiO2 products that deliver added value production facility with other sites. Specialty product development in plastics is expected to customers acrossdrive further growth in this segment in the coming years. In line with Tronox’s sustainability goals, the process and product development teams are collaborating on more sustainable, lower carbon footprint technologies for all end use segments by waysegments. With regard to our TiO2 ultrafine specialty business, research and development activities are focused on a broad array of enhanced properties of the pigment.areas including direct lithium extraction, carbon direct air capture and developing more effective catalysts for use in selective catalytic reduction. TABLE OF CONTENTS
Patents, Trademarks, Trade Secrets and Other Intellectual Property Rights
Protection of our proprietary intellectual property is important to our business. At December 31,
2017,2022, we held
38 U.S.99 patents
6and 5 patent applications
in the U.S., and approximately
217625 in foreign counterparts, including both issued patents and pending patent applications. Our U.S. patents have expiration dates ranging through
2035.2039. Additionally, we have
511 trademark registrations in the U.S., as well as
54280 trademark counterpart registrations
and applications in foreign jurisdictions.
We
also rely upon
and have taken steps to secure our unpatented proprietary technology, know-how and other trade secrets. The substantial majority of
businessour patents
and trade secrets relate to our chloride products,
surface treatments, chlorination expertise, and
production technology. Ouroxidation process technology, and this proprietary chloride production technology is an important part of our overall technology position. However, much of the fundamental intellectual property associated with both chloride and sulfate pigment production is no longer subject to patent protection. At Namakwa Sands, we rely on intellectual property for our smelting technology, which was granted to us in perpetuity by Anglo American South Africa Limited for use on a worldwide basis, pursuant to a non-exclusive license.
We protect the trademarks that we use in connection with the
While certain of our patents relating to our products we manufacture and sell, and have developed value in connection withproduction processes are important to our long-term use of our trademarks; however, there can be no assurance thatsuccess, more important is the trademark registrations will provide meaningful protection against the use of similar trademarks by competitors, or that the value of our trademarks will not be diluted. The same can be said for our patents and patent applications, which may in the future be the subject of a challenge regarding validity as well as ownership, requiring a defense of the patent/application through legal proceedings, which inherently introduce a degree of business uncertainty and risk.operational knowledge we possess. We also use and rely upon unpatented proprietary knowledge, continuing technological innovation and other trade secrets to develop and maintain our competitive position. We conduct research activities and protect the confidentiality of our trade secrets through reasonable measures, including confidentiality agreements and security procedures. While certain patents held forWe protect the trademarks that we use in connection with the products we manufacture and sell, and have developed value in connection with our productslong-term use of our trademarks. See “Risk Factors—If our intellectual property were compromised or copied by competitors, or if competitors were to develop similar intellectual property, our results of operations could be negatively affected. Further, third parties may claim that we infringe on their intellectual property rights which could result in costly litigation."
Human Capital
Tronox employs approximately 6,500 people across six continents, and production processeswe believe it is our rich diversity and exceptional operational and technical expertise that, combined with our vertical integration model, position Tronox as the world's leading vertically integrated manufacturer of titanium dioxide pigment. Recognizing the importance of our human capital, we have made People, Culture and Capabilities one of our five strategic pillars, and placed a priority around developing leaders who will help us effectively (i) acquire, develop and nurture our talent, and (ii) foster a culture that embodies the values that are important to us, starting with safety and operating our long-term success, more important isbusiness responsibly.
People
Because we operate both titanium ore mines and titanium dioxide pigment plants, and because our operations span the operational knowledgeworld, we possess.Employees
Asrequire specialty skills in mining and TiO
2 pigment manufacturing. We also need people who are willing to learn skills across both mining and chemicals operations and who can help us extract value from our integrated model. The below map sets forth the approximate number of employees as of December 31, 2017, Tronox had approximately 3,4002022, in each of the global regions in which we operate.
Accordingly, we place a high priority on knowledge transfer (including by relocating skilled leaders across countries and between mining and TiO2 pigment operations, by staffing high-potential employees worldwide,in regions on global projects, and by enabling collaboration in global centers of excellence), and we place a high priority on fostering diversity, equity and inclusion. We are committed to creating an organization where leaders encourage a diverse workforce, where people feel valued and respected, have access to opportunities, and in which 700a variety of different voices are locatedencouraged and heard. For instance, during 2022, we created and launched an educational series dedicated to Diversity and Inclusion (D&I). This educational series utilized by our employees discussing topics such as bias, micro-inequities, and Tronox's role in supporting D&I. In addition, in 2022, our D&I regional chapters implemented initiatives that reflected our focus on D&I. For instance, we believe a significant achievement was the uniform initiative which provided means by which employees have access to work uniforms that are more inclusive.
We also place an uncompromising focus on operating safe, reliable, and responsible facilities, and we measure our progress with both safety metrics and leading indicators. We believe every employee and contractor has a responsibility for safety, and we proactively identify and manage risk, conduct ourselves responsibly, exercise good judgement, and take accountability for our actions. In 2022, our employees worked more than 12 million hours with 22 recordable injuries and no fatalities from our operations, and our contractors worked more than 9 million hours with 20 recordable injuries and no fatalities from our operations.
Culture
We aim to create an organizational culture where employees unleash their full value through living our values, and fostering a high-performance culture. We apply an "outward mindset" by which we mean that each employee should be highly aware of the organization's goals and how his or her individual actions affect the entire organization.
Nearly all of our employees have been through training and development courses which instill the principles of working with an outward mindset. The consistent training and reinforcement of the importance of acting with an outward mindset has enabled us to transform our culture. We believe this cultural transformation is reflected in our results, starting with safety: our people truly care for one another, and not only other employees, but also our contractors, visitors and communities. Shaped by an outward mindset, our people have embraced our global diversity and are naturally inclusive.
Today, we are a collaborative group of people who naturally want to be helpful to others, and we adjust our own efforts to make our colleagues’ work easier, however we can.
Building on the foundation of applying an outward mindset, we have adopted a set of core values that describes our expectations of one another, starting with safety. Every performance review starts with a self-assessment and manager’s assessment of our consistency in living our values. Employees are encouraged – and provided a toolkit – to develop in the U.S.values where they are weak, and to help coach others in the values where they are strong.
Tronox Core Values
•We have an uncompromising focus on operating safe, reliable and responsible facilities.
•We honor our responsibility to create value for stakeholders.
•We treat others with respect, and act with personal and organizational integrity.
•We build our organization with diverse, talented people who make a positive difference and we invest in their success.
•We are adaptable, decisive and effective.
•We are trustworthy and reliable, and we build mutually rewarding relationships.
•We share accountability, and have high expectations for ourselves and one another.
•We do the right work the right way in every aspect of our business.
•We celebrate the joy of working together to accomplish great things.
Capabilities
At Tronox we lead with safety. To ensure we live this value with impact, a key focus of our strategy is to enhance the leadership capabilities of our workforce. In 2021, we launched a program in which approximately 100 of our leaders were trained in contemporary safety leadership practices. Further in 2022, an additional 350 supervisors and managers across all of our operating regions completed this hands-on leadership training. In 2023, we intend to provide such training to more of our regional leaders as well as continuing to educate the broader workforce.
In addition, our employees are further guided by our code of conduct and business ethics and we conduct annual global training to help them fully understand and comply with our code of conduct.
We also have a rigorous succession planning process with respect to key positions throughout the organization. We believe such process allows us to proactively develop the talent of the future and allows us to move with speed and agility when leadership changes are required. As part of the succession planning process, high potential leaders are identified and development plans are completed for each candidate.
Sustainability
Our business requires an unwavering focus on sustainable operating practices, and our commitment to sustainability supports our overall vision and strategy to be the world’s leading vertically integrated TiO2 producer. As such, we integrate sustainability into every aspect of our business—from our culture and our strategy to our operating practices. We believe sustainable operations enable us to better control costs and manage our environmental footprint. Sustainability also encompasses providing our employees with a safe, diverse workplace and offering them opportunities to grow and develop. Ultimately, safe, environmentally sustainable operations demonstrates our respect for our communities and supports our continued privilege to operate.
Our sustainability efforts are also focused on reducing Tronox’s carbon footprint. In 2022 we updated our carbon reduction roadmap first disclosed in 2021 that details our plans for reducing carbon emissions in the short-, 600 in Australia, 1,800medium- and long-term. Our roadmap covers 100% of our operations and is based on a detailed analysis of our carbon footprint and ways to reduce it. The roadmap is supported by well-resourced projects and initiatives. The majority of our GHG emissions are generated from our TiO2 slag furnaces in South Africa, synthetic rutile kiln in Western Australia, and 300TiO2 pigment plants in the United States, United Kingdom, France, Brazil, China, Netherlands, Australia, and other international locations. Our TiO2 segment employeesSaudi Arabia.
Based on actions taken in 2021 and 2022, we are now targeting a 35% reduction in emissions intensity by 2025 and a 50% reduction in emissions intensity by 2030. It is our long-term goal to achieve “net zero” carbon emissions by 2050.
In 2023, we received a Gold Rating by EcoVadis in recognition of our sustainability efforts. This Gold Rating places Tronox in the U.S. are not representedTop 5% of the 85,000 companies evaluated around the world by EcoVadis on their sustainability performance. The EcoVadis assessment focuses on four themes: the environment, labor and human rights, ethics, and sustainable procurement.
EcoVadis is a
union or collective bargaining agreement. In South Africa, approximately 73% of our workforce belongs to a union. In Australia, most employees are not currently represented by a union, but approximately 46% are represented by a collective bargaining agreement. Inleading third-party independent assessment organization that evaluates companies' sustainability performance. Their methodology is based on international sustainability standards including the
Netherlands, approximately 49% of our employees are represented by a collective bargaining agreementGlobal Reporting Initiative (GRI), United Nations Global Compact (UNGC) and
27% are members of a union. We consider relations with our employees and labor organizations to be good.ISO 26000.
Environmental, Health and Safety Authorizations
Our facilities and operations are subject to extensive general and industry-specific environmental, health and safety regulations in
jurisdictions where we operate, but particularly South Africa and Australia. These regulations include those relating to mine rehabilitation, liability provision, water management, the handling and disposal of hazardous and non-hazardous materials, and occupational health and safety. The various legislation and regulations are subject to a number of internal and external audits. We believe our mineral sands operations are in compliance, in all material respects, with existing health, safety and environmental legislation and regulations.
Regulation of the Mining Industry in South Africa
There are numerous mining-related laws and regulatory authorizations that may impact the performance of our business. These include but are not limited to: the Mineral and Petroleum Resources Royalty Act, which imposes a royalty on refined and unrefined minerals payable to the
The South African government;mining regulatory regime is comprehensive and requires regular reporting to applicable government departments. A failure to, among other things, comply with any such reporting requirements or the conditions of any mining license could result in extended mandatory shutdown periods, license and/or mining right suspensions or revocations all of which could impact our business.
In South Africa, the primary legislative enactments with which our mines are required to comply are the Mineral and Petroleum Resources Development
ACT (the “MPRDA”Act (“MPRDA”)
, which governs the acquisition
use and
disposalretention of
mineral rights;prospecting and mining rights. In addition, the
Mine Health and Safety Act governs the manner in which mining must be conducted from a health and safety perspective, while the National Environmental Management Act (and its subsidiary legislation) provides the underlying framework with respect to environmental rules and regulation for which our operations must comply. For additional details regarding other South African
Minerals Act, which requires each new mine to prepare an Environmental Management Program Report for approval bylegislative enactments that govern our mining licenses please see the
South African Department of Mineral Reserves (DMR); the Revised South African Mining Charter, effective September 2010, which requires, among other conditions, that mining entities achieve a 26% historically disadvantaged persons ownership of mining assets and the Blacksection entitled “Risk Factors” set forth elsewhere in this Form 10-K. TABLE OF CONTENTS
Economic Empowerment (“BEE”) legislation in South Africa. The DMR has proposed changes to the mining charter that would make requirements more stringent. These changes are being challenged by the Chamber of Mines, an industry employers’ organization representing South African mining companies, the outcome of which is uncertain. See Item 1A. Risk Factors.
Regulation of the Mining Industry in Australia
Mining operations in Western Australia are subject to a variety of environmental protection regulations including but not limited to: the Environmental Protection Act (the “EPA”), the primary source of environmental regulation in Western Australia, and, the Environment Protection and Biodiversity Conservation Act 1999 (Cth), which established the federal environment protection regime and prohibits the carrying out of a “controlled action” that may have a significant impact on a “matter of national environmental significance.”
Prescriptive legislation regulates health and safety at mining workplaces in Western Australia. The principal general occupational health and safety legislation and regulations are the Occupational Safety and Health Act 1984 (WA), the Occupational Health and Safety Regulations 1996 (WA) and the guidelines. The Mines Safety and Inspection Act 1994 (WA) and Mines Safety and Inspection Regulations 1995 (WA) and guidelines provide the relevant legislation for mining operations in Western Australia. The Dangerous Goods Act 2004 (WA) applies to the safe storage, handling and transport of dangerous goods.
Each Australian state and territory has its own legislation regulating the exploration for and mining of minerals. Our
key exploration and mining operations are
principally regulated by the
Western Australian Mining Act 1978 (WA)
and, the Mining
Regulations 1981 (WA).Act 1992 (NSW) and their related regulations.
In Western Australia, State Agreements are contracts between the State
of Western Australia and the proponents of major resources projects
within Western Australia, and are intended to foster resource development and related infrastructure investments. These agreements are approved and ratified by the Parliament of Western Australia. The State Agreement relevant to
the development of certain of our
Western Australian operations
and our production of mineral sands is the agreement authorized by the Mineral Sands (Cooljarloo) Mining and Processing Agreement Act 1988 (WA).
State Agreements may only be amendedThis agreement concluded in March 2020 and Tronox's rights and obligations are now covered by
mutual consent, which reduces the
sovereign risk and increases the security of tenure, however Parliament may enact legislation that overrules or amends the particular State Agreement.Western Australian Mining Act.
Regulation of Finished Product Manufacturing
Our business is subject to extensive regulation by federal, state, local and foreign governments. Governmental authorities regulate the generation and treatment of waste and air emissions at our operations and facilities. At many of our operations, we also comply with worldwide, voluntary standards developed by the International Organization for Standardization (“ISO”), a nongovernmental organization that promotes the development of standards and serves as a bridging organization for quality and environmental standards, such as ISO 9002 for quality management and ISO 14001 for environmental management.
Chemical Registration
The European Union (the “EU”) adopted
As a regulatory framework for chemicalschemical manufacturer with global operations, we are subject to a wide array of regulations regarding the import, export, labelling, use, storage and disposal of our products. We are obliged to comply with the regulation of chemical substances and inventories under the Toxic Substances Control Act in 2006 known asthe United States and the Registration, Evaluation and Authorization of Chemicals (“REACH”). regulation in Europe, as well as a growing list of analogous regimes in other parts of the world, including China, South Korea and Taiwan. Manufacturers and importers of chemical substances must register information regarding the properties of their existing chemical substances with the European Chemicals Agency. The timeline for existing chemical substances to be registered is based on volume and toxicity. The first group of chemical substances was required to be registered in 2010, with additional registrations due in 2013 and 2018. We registered those products requiring registration by the 2010 and 2013 deadlines. TheAgency (“ECHA”). REACH regulations also require chemical substances which are newly imported or manufactured in the EU to be registered before being placed on the market. We are now focused onmarket, assessed for human health or environmental risk and for registrations to be updated periodically such as when new information emerges relevant to human health or environmental risks associated with the authorization phaseproduction or use of the REACH process,substance. For additional information on this topic, see section entitled "Risk Factors - Risks Relating to our Legal and Regulatory Environment - Our TiO2 products are making effortssubject to address “Substances of Very High Concern” and evaluating potential business implications. As a chemical manufacturer with global operations, we are also actively monitoring and addressing analogous regulatory regimes being considered or implemented outside of the EU, for example, in Korea and Taiwan. TABLE OF CONTENTS
In May 2016, France’s competent authority under REACH submitted a proposal to the European Chemicals Agency (“ECHA”) that would classify TiO2 as carcinogenic to humans by inhalation. The Company together with other companies and trade associations representing the TiO2 industry and industries consuming our products, submitted comments opposing the classification, based on evidence from epidemiological and other scientific studies. On October 12, 2017, ECHA’s Committee for Risk Assessment (“RAC”) released a written opinion dated September 14, 2017 stating that based on the scientific evidence it reviewed, there is sufficient grounds to classify TiO2 under the EU’s Classification, Labelling and Packaging Regulation (“CLP”) as a Category 2 Carcinogen, but only with a hazard statement describing the risk by inhalation. The European Commission will review the RAC’s formal recommendation to determine what regulatory measures, if any, should be taken. If the European Commission decides to adopt this classification, it could require that products manufactured with TiO2 be classified as containing carcinogenic materials, which could impact our business by inhibiting the marketing of products containing TiO2 to consumers, and subject our manufacturing operations to new regulations that could increase costs. Any classification, use restriction or authorized requirement for use imposed by the ECHA could have additional effects under other EU laws (e.g., those affecting medical and pharmaceutical applications, cosmetics, food packaging and food additives) and/or trigger heightenedincreased regulatory scrutiny in countries that may impede or inhibit widespread usage of TiO2 and local jurisdictions outside/ or diminish the EU based on health and safety grounds. It is also possible that heightened regulatory scrutiny would leadCompany's ability to claims by consumerssustain or those involved in the productiongrow its business or may add significant costs of such products alleging adverse health impacts. See Item 1A. Risk Factors.
doing business."
Greenhouse Gas Regulation
Globally, our operations are subject to regulations that seek to reduce emissions of “greenhouse gases” (“GHGs”). We currently report and manage GHG emissions as required by law for sites located in
areasjurisdictions requiring such managing and reporting
(EU/Australia). Whileof GHGs, primarily the
U.S. has not adopted any federalEuropean Union and Australia. For additional information on this topic, see section entitled “Risk Factors – Risks Relating to our Legal and Regulatory Environment - ESG issues, including those related to climate change
legislation, the U.S. Environmental Protection Agency (“EPA”) has introduced some GHG programs. For example, under the EPA’s GHG “Tailoring Rule,” expansions or new constructionand sustainability, may subject us to additional costs and restrictions, including increased energy and raw material costs, which could
be subject to the Clean Air Act’s Preventionhave an adverse effect on our business, financial condition and results of
Significant Deterioration requirements. Some ofoperations, as well as damage our
facilities are currently subject to GHG emissions monitoring and reporting. Changes or additional requirements due to GHG regulations could impact our capital and operating costs; however, it is not possible at the present time to estimate any financial impact to these U.S. operating sites. Also, some in the scientific community believe that increasing concentrations of GHGs in the atmosphere may result in climatic changes. Depending on the severity of climatic changes, our operations could be adversely affected. See Item 1A. Risk Factors.Segment and Geographic Revenue Information
The tables below summarize Tronox Limited 2017 sales volume by geography and end-use market:
| reputation.”
2017 Sales Volume by Geography
| | | |
North America
| | 40
| %
|
Latin America
| | 5
| %
|
Europe
| | 28
| %
|
Asia-Pacific
| | 27
| %
|
| | | |
2017 Sales Volume by End-Use Market
| | | |
Paints and Coatings
| | 79
| %
|
Plastics
| | 17
| %
|
Paper and Specialty
| | 4
| %
|
Financial information by segment and geographic region is set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 22 of Notes to consolidated financial statements.
Available Information
Our public internet site is
http://www.tronox.com. The content of our internet site is available for information purposes
only.only and is included as an inactive textual reference. It should not be relied upon for investment purposes, nor is it incorporated by reference into this annual report
on Form 10-K unless expressly noted. We make available, free of charge, on or through the investor relations section of our internet site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
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Form 8-K, proxy statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the U.S. Securities and Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (the “SEC”).
We file current, annual and quarterly reports, proxy statements and other information required by the Exchange Act with the SEC.
You may read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549, USA, or by calling +1-800-SEC-0330. Our SEC filings are also available to the public from the SEC’s internet site at
http://www.sec.gov.www.sec.gov. The content of the SEC's internet site is available for informational purposes only and is included as an inactive textual reference. It should not be relied upon for investment purposes, nor is it incorporated by reference into this annual report on Form 10-K unless expressly noted.TABLE OF CONTENTS
Item 1A.Risk Factors
You should carefully consider the risk factors set forth below, as well as the other information contained in this
Form 10-K, including our consolidated financial statements and related notes. This Form 10-K contains forward-looking statements that involve risks and uncertainties. Any of the following risks could materially and adversely affect our business, financial condition orand results of operations. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition orand results of operations.Our pending acquisition The following risk factors are not necessarily presented in order of the Cristal TiO2 Business mayrelative importance and should not be consummated, and failureconsidered to represent a complete the Cristal TiO2 Business acquisitionset of all potential risks that could impact our stock price and financial results.
On February 21, 2017, we entered into a transaction agreement to acquire the titanium dioxide business of The National Titanium Dioxide Co. Limited (“Cristal”) and on March 1, 2018, we amended the Transaction Agreement to provide for revised terms with respect to such acquisition in certain respects (the “Cristal Transaction”). Completion of the Cristal Transaction is subject to certain closing conditions, including certain regulatory approvals.
On December 5, 2017, the U.S. Federal Trade Commission (“FTC”) announced that it would not approve the Cristal Transaction as proposed and filed an administrative action to prevent the parties from consummating the transaction. On December 21, 2017, the European Commission announced that after its initial review, it would pursue a more in-depth investigation (commonly called a “Phase II investigation”) of the Cristal Transaction before reaching a decision to approve it, with or without conditions. The transaction agreement provides for customary representations, warranties and covenants that are subject, in some cases, to specified exceptions and qualifications contained in the transaction agreement. There can be no assurance, however, that all closing conditions for the Cristal Transaction will be satisfied and, if they are satisfied, that they will be satisfied in time for the closing to occur by June 30, 2018 (subject to automatic 3-month extensions to March 31, 2019 if necessary based on the status of outstanding regulatory approvals), at which time either party to the transaction agreement may mutually agree to extend the closing date or terminate the transaction agreement if the Cristal Transaction has not closed by such time.
The Cristal 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 Cristal Transaction has not occurred by June 30, 2018 (subject to automatic 3-month extensions to March 31, 2019 if necessary based on the status of outstanding regulatory approvals). In the event that such termination by Tronox is (i) on or after January 1, 2019, and Tronox elects to terminate the Transaction Agreement if it determines that the outstanding regulatory approvals are not reasonably likely to be obtained; or (ii) if regulatory approval has not been obtained by March 31, 2019 and Tronox or Cristal elects to terminate the Transaction Agreement; then Tronox is required to pay Cristal a $60 million termination fee. Tronox completed its refinancing during the third quarter of 2017. See Note 15 of notes of consolidated financial statements.
The cash portion of the consideration in the Cristal Transaction will be funded through a combination of proceeds from the Alkali Sale, which was completed on September 1, 2017, the refinancing of our debt, including the Blocked Term Loan and cash on hand. See Note 15 of notes to the consolidated financial statements.
If the acquisition of the Cristal TiO2 business is not completed, our ongoing business and financial results may be adversely affected and we will be subject to a number of risks, including the following:
depending on the reasons for the failure to complete the Cristal Transaction we could be liable to Cristal for a termination fee or other damages in connection with the termination or breach of the transaction agreement;
we have dedicated and we expect we will continue to commit significant time and resources, financial and otherwise, in planning for the acquisition and the associated integration; and
while the transaction agreement is in effect prior to closing the Cristal Transaction, we are subject to certain restrictions on the conduct of our business, which may adversely affect our ability to execute certain of our business strategies.
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In addition, if the Cristal Transaction is not completed or is completed subject to conditions or remedies, we may experience negative reactions from the financial markets and from our customers and employees and/or lose the anticipated benefits of owning all or portions of Cristal’s TiO2 business. If the acquisition is not completed, these risks may materialize and may adversely affect our business, financial condition and results of operations, cash flows, as well as the price of our Class A Shares.
Concentrated ownership of our ordinary shares by Cristal and Exxaro may prevent minority shareholders from influencing significant corporate decisions and may result in conflicts of interest.
Following the closing of the Cristal Transaction, Cristal Inorganic Chemicals Netherlands Coöperatief W.A. (“Cristal Inorganic”), a wholly-owned subsidiary of Cristal, will own approximately 24% of the outstanding ordinary shares (including both our Class A Shares and Class B Shares) of the Company. Following the closing of the Cristal Transaction and assuming that Exxaro does not engage in additional sales of its Class B Shares, Exxaro will own approximately 18% of the Company’s outstanding ordinary shares (including both our Class A Shares and Class B Shares).
Cristal Inorganic and Exxaro may be able to influence fundamental corporate matters and transactions, including mergers or acquisitions (subject to prior board approval); the sale of all or substantially all of our assets; in certain circumstances, the amendment of our Constitution; and our winding up and dissolution. This concentration of ownership, may delay, deter or prevent acts that would be favored by our other shareholders. The interests of Cristal Inorganic and Exxaro may not always coincide with our interests or the interests of our other shareholders. Also, Cristal Inorganic and Exxaro may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other shareholders or adversely affect us or our other shareholders.
In addition, under the shareholders agreement, to be entered into upon the closing of the Cristal Transaction (the “Cristal Shareholders Agreement”), among the Company, on the one hand, and Cristal, Cristal Inorganic and the three shareholders of Cristal, on the other hand (collectively, the “Cristal Shareholders”), as long as the Cristal Shareholders, collectively, beneficially own at least 24,900,000 or more of Class A Shares, they will have the right to designate for nomination two Class A Directors of the Board (defined below) and, as long as they beneficially own at least 12,450,000 Class A Shares but less than 24,900,000 Class A Shares, they will have the right to designate for nomination one Class A director of the Board. The Cristal Shareholders Agreement also will provide that as long as the Cristal Shareholders own at least 11,743,750 Class A Shares, they will be granted certain preemptive rights. Also under the Cristal Shareholders Agreement, the Company has agreed to file promptly after the closing of the acquisition a registration statement covering approximately four percent of the then-outstanding ordinary shares of the Company, which may be sold as soon as such registration statement is effective. Other than with respect to those shares, the Cristal Shareholders Agreement will include restrictions on Cristal Inorganic’s ability to transfer any of its Class A Shares for a period of two years after the closing of the acquisition other than to certain permitted transferees after the later of eighteen months and the resolution of all indemnification claims under the Transaction Agreement subject to certain further limitations. The Cristal Shareholders Agreement will also contain certain demand and piggyback registration rights, which commence after the transfer restriction period expires. Exxaro’s rights under our Constitution and Shareholder’s Deed will remain unchanged following the Cristal Transaction.
As a result of these or other factors, the market price of our Class A Shares could decline. In addition, this concentration of share ownership may adversely affect the trading price of our Class A Shares because investors may perceive disadvantages in owning shares in a company with significant shareholders.
We may not be able to realize anticipated benefits of the Cristal Transaction, including expected synergies, earnings per share accretion or earnings before interest, taxes, depreciation and amortization (“EBITDA”) and free cash flow growth and we will be subject to business uncertainties that could adversely affect our business.
The success of the pending Cristal Transaction will depend, in part, on our ability to realize anticipated cost synergies, earnings per share accretion or EBITDA and free cash flow growth. Our success in realizing these benefits, and the timing of this realization, depends on the successful integration of our business and operations with the acquired business and operations. Even if we are able to integrate the acquired businesses and operations successfully, this integration may not result in the realization of the full benefits of the pending Cristal Transaction that we currently expect within the anticipated time frame or at all.
12
RISKS RELATING TO OUR BUSINESS
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There is also the possibility that:
the acquisition may result in our assuming unexpected liabilities;
we may experience difficulties integrating operations and systems, as well as company policies and cultures;
we may fail to retain and assimilate employees of the acquired business; and
problems may arise in entering new markets in which we have little or no experience.
Uncertainty about the effect of the Cristal Transaction on employees, customers and suppliers may have an adverse effect on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Cristal Transaction is consummated and for a period of time thereafter, and could cause our customers, suppliers and other business partners to delay or defer certain business decisions or to seek to change existing business relationships with us. The occurrence of any of these events could have a material adverse effect on our operating results, particularly during the period immediately following the closing of the Cristal Transaction.
Market conditions, as well as global and regional economic downturns that adversely affect the demand for our end-use products, could adversely affect the profitabilityresults of our operations and the prices at which we can sell our products, thus, negatively impacting our financial results.
Our TiO2 revenue and profitability isresults of operations are significantly dependent on direct sales of TiO2 to end user customers products and sales of TiO2 feedstock to TiO2 producers. TiO2 is a chemical used in many “quality of life”zircon. Demand for these products for which demand historically hashave been linked to global, regional and local GDP and discretionary spending, which can be negatively impacted by regional and world events or economic and market conditions. Such events can cause a decrease in demand for our products and market prices to fall, which may have an adverse effect on our results of operations and financial condition. A substantial portion of our products and raw materials are commodities that reprice as market supply and demand fundamentals change. Accordingly, product margins and the levelresults of our profitabilityoperations tend to vary with changes in the business cycle. Our TiO2 prices may do so in the near term as ore prices and pigment prices are expected to fluctuate in the short term and over the next few years.
A significant portion of the demand for our TiO2 products comes from manufacturers of paint and plastics,plastics. A significant portion of the demand for zircon comes from the construction and other industrial customers. Companies that operate in the industries that these industries serve, including the automotive and construction,end markets. Our customers may experience significant fluctuations in demand for their own end products because of economic conditions, changes in consumer demand, or increases in raw material and energy costs. In addition, many large end userswith respect to the zircon market, we believe that China currently accounts for approximately 50% of our products depend upon the availability of credit on favorable terms to make purchases of raw materialsworld’s demand for zircon. As such, as TiO2. As interest rates increase or if our customers’ creditworthiness deteriorates, this credit may be expensive or difficult to obtain. If these customers cannot obtain credit on favorable terms, they may be forced to reduce their purchases. These and other factors may lead some customers to seek renegotiation or cancellation of their arrangements with our businesses, whichany prolonged downturn in China could have a material adverse effect on our resultsbusiness and financial results.
The price of operations. Additionally, Chinese producers are significant participantsour products, in theparticular, TiO2 market, zircon, and Chinese exports can also affect demand and the price for our products.TiO2 pigment and feedstock pricespig iron, have been, and in the future may be, volatile. Price declines for our products will negatively affect our financial position and results of operations.
Additionally, historically,
Historically, the global market and, to a lesser extent, the domestic market for TiO2, pigment zircon and feedstockpig iron have been volatile, and those markets are likely to remain volatile in the future. Prices for TiO2, pigment zircon and feedstockpig iron may fluctuate in response to relatively minor changes in the supply of, and demand for, these products, market uncertainty and other factors beyond our control.Factors that affect the price of our products include, among other things:
•overall economic conditions;
•the level of customer demand includingparticularly in the paint, paperplastics and plasticsconstruction industries;
•the level of production and exports of our products globally;
| • | the level of production and cost of materials used to produce TiO2,globally, including synthetic materials, globally; |
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| • | the cost of energy consumed in the production of TiO2, including the price of natural gas, electricity and coal; |
the impact of competitors increasing their capacity and exports;
•the level of production and cost of materials, such as chlorine, sulfuric acid and anthracite, used to produce our products, including rising prices of raw materials due to inflation;
•the cost of energy consumed in the production of TiO2 and zircon, including the price of natural gas, electricity and pet coke;
•domestic and foreign governmental relations, tariffs or other trade disputes, regulations and taxes;
•political conditions or hostilities and unrest in regions where we manufacture and/or export our TiO2, zircon and feedstock/other products; and
•major public health issues, such as COVID-19, which could cause, among other things, macroeconomic disruptions.
| • | political conditions or hostilities and unrest in regions where we export our TiO2 products. |
Pricing pressure with respect to our TiO2 pigment pricing pressure products, zircon and pig iron can make it difficult to predict the cash we may have on hand at any given time, and a prolonged period of price declines may materially and adversely affect our financial position, liquidity, ability to finance planned capital expenditures and results of operations.
Our industry and the end-use markets in which we compete are highly competitive. This competition may adversely affect our results of operations and operating cash flows.
Each of our markets is highly competitive. Competition in the TiO2 industry is based on a number of factors such as price, product quality, and service. We face significant competition from major international and smaller regional competitors, especially producers in China. Chinese producers have significantly expanded their production capacity in recent years and have also commenced the commercial production of TiO2 via chloride technology. In addition, Chinese producers have publicly announced their intention to continue to expand their TiO2 production capacity, including via chloride technology. The risk of substitution from these Chinese producers by our customers could increase as these Chinese producers expand their use of chloride technology, improve the quality of their chloride technology, and continue to improve the quality of their sulfate products. Moreover, we compete with a large number of mining companies with respect to zircon. Zircon producers generally compete on the basis of price, quality, logistics, delivery, payment terms and consistency of supply.
Within the end-use markets in which we compete, competition between products is intense. We face substantial risk that our customers could switch to our competitors’ products in response to any number of developments including lower price offerings by our competitors for substantially the same products, new product development by competitors, increased commercial production of TiO2 via chloride technology by Chinese producers, greater acceptance of TiO2 produced via sulfate technology in end-market applications previously characterized by TiO2 produced via chloride technology, or with respect to zircon customers, switching to lower priced substitute products. Our inability to develop, produce or market our products to compete effectively against our competitors could have a material adverse effect on our business, financial condition, results of operations and cash flow.
An increase in the price of energy or other raw materials, or an interruption in our energy or other raw material supply, could have a material adverse effect on our business, financial condition and results of operations.
Our mining, beneficiation, smelting and production processes consume significant amounts of energy and raw materials, the costs of which can be subject to worldwide, as well as, local supply and demand, as well as other factors beyond our control. Fuel and energy linked to commodities, such as diesel, natural gas, heavy fuel oil and pet coke, and other consumables, such as chlorine, sulfuric acid, illuminating paraffin, electrodes, sulfur and anthracite, consumed in our TiO2 manufacturing and mining operations form an important part of our TiO2 operating costs. We have no control over the costs of these consumables, many of which are linked to some degree to the price of oil, and the costs of many of these raw materials may fluctuate widely for a variety of reasons, including changes in availability, major capacity additions or reductions, or significant facility operating problems. Moreover, the ongoing Russia and Ukraine conflict has resulted in, and may continue to result in, increased uncertainty with respect to the supply of energy and other energy-dependent commodities for our TiO2 production facilities located in the European Union and the United Kingdom, as well as other raw materials, such as anthracite, for our slag furnaces located in South Africa. Increased costs of electricity and disruptions in the supply of electricity due to long-standing operational issues at the sole, state-owned energy supplier in the Republic of South Africa, Eskom, could increase the costs of production, or disrupt operations, at our mines and beneficiation operations in that country. Availability of such consumables could also be impacted by transportation capacity constraints or other interruptions. These fluctuations could negatively affect our operating margins, our results of operations or planned capital expenditures. As the costs of raw materials, utilities, transportation and similar costs rise,
our operating expenses will increase and could adversely affect our business, especially if we are unable to pass price increases relating to raw materials, utilities, transportation and similar costs through to our customers.
The markets for many of our
TiO2products have seasonally affected sales patterns.The
Historically, the demand for TiO2 during a given yearour products is subject to seasonal fluctuations. Because TiO2 is widely used in paint and other coatings titanium feedstocks are in higherwhere demand increases prior to the painting season in the Northern Hemisphere (spring and summer), and pig iron. Additionally, although zircon is in lower demand during the European summer holidays, when many steel plants and foundries undergo maintenance. Zircon generally is a non-seasonal product; however,product, it is negatively impacted by the winter and Chinese New Year celebrations due to reduced zircon demand from China. We may be adversely affected by existing or future cyclical changes, and such conditions may be sustained or further aggravated by anticipated or unanticipated changes in regional weather conditions. For example, poor weather conditions in a region can lead to an abbreviated painting season, which can depress consumer sales of paint products that use TiO2.
We are dependent on, and compete with other mining and chemical businesses for, key human resources in the countries in which we operate, and our business will suffer if we are unable to hire or deploy highly skilled employees.
We compete with other chemical and mining companies, and other companies generally, in the countries in which we operate to attract and retain key human resources at all levels with the appropriate technical skills and operating and managerial experience necessary to continue operating and expanding our businesses. These operations use modern techniques and equipment and accordingly require various types of skilled workers. The success of our business will be materially dependent upon the skills, experience and efforts of our key officers and skilled employees. Competition for skilled employees may cost us in terms of higher labor costs or reduced productivity. In addition, certain of our production facilities and mining operations are situated in remote locations which may make it more difficult to attract and retain the skilled workers required. As a result, we may not be able to attract, retain and deploy skilled and experienced employees. Should we lose any of our key personnel or fail to attract, retain and deploy key qualified personnel or other skilled employees, our business may be harmed and our operational results and financial condition could be affected.
Given the nature of our chemical, mining and smelting operations, we face a material risk of liability, production delays and additional expenditures from industrial accidents.
Our business is exposed to, among other things, industrial accidents the occurrence of which could delay production, suspend operations, increase repair, maintenance or medical costs and, due to the vertical integration of our operations, could have an adverse effect on the productivity and results of operations of a particular manufacturing facility or on our business as a whole. Furthermore, during operational breakdowns resulting from any such industrial accident, the relevant facility may not be restored to full operations within the anticipated timeframe, which could result in further business losses. Over our operating history, we have incurred incidents of this nature. For instance, in 2022, we experienced a fire at the mineral separation facility at our KZN operations in South Africa which impacted our financial results. If any of the equipment on which we depend were severely damaged or were destroyed by fire or otherwise, we may be unable to replace or repair it in a timely manner or at a reasonable cost, which would impact our ability to produce and ship our products, which would have a material adverse effect on our business, financial condition and results of operations.
Equipment failures and deterioration of assets may lead to production curtailments, shutdowns or additional expenditures.
Our operations depend upon critical equipment that must be periodically maintained and upgraded in order to avoid suffering unanticipated breakdowns or failures. The occurrence of equipment failures or deterioration of assets could delay production, suspend operations, increase repair, maintenance or medical costs and, due to the vertical integration of our operations, could have an adverse effect on the productivity and results of operations of a particular manufacturing facility or on our business as a whole. In addition, assets critical to our mining and chemical processing operations may deteriorate due to wear and tear or otherwise sooner than we currently estimate. Such deterioration may result in additional maintenance spending and additional capital expenditures. If these assets do not generate the amount of future cash flows that we expect, and we are not able to refurbish them or procure replacement assets in an economically feasible manner, our future results of operations may be materially and adversely affectedaffected.
Our results of operations and financial condition could be seriously impacted by fluctuationssecurity breaches, including cybersecurity incidents.
We rely on information technology systems across our operations to manage our business including, but not limited to, our accounting, finance, and supply chain functions. Our information technology is provided by a combination of internal and
external services and service providers. Further, our business involves the use, processing, storage and transmission of information about customers, suppliers and employees using such information technology systems. Our ability to effectively operate our business depends on the security, reliability and capacity of these systems.
Like most major corporations, during the normal course of business, we have been the target of cyberattacks, including phishing or ransomware attacks, from time to time, and we expect to be the target of such cyberattacks in
currency exchange rates.the future. For instance, the Cristal business we acquired in April 2019 was subject to a significant cybersecurity attack in 2017. Failure to effectively prevent, detect and recover from security breaches, including attacks on information technology and infrastructure by hackers; viruses; breaches due to employee error or actions; or other disruptions could seriously harm our operations as well as the operations of our customers and suppliers. Such serious harm can involve, among other things, misuse of our assets, business disruptions, loss of data, unauthorized access to trade secrets and confidential business information, unauthorized access to personal information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, reputational harm, loss of sales, remediation and increased insurance costs, and interference with regulatory compliance. We have experienced, and expect to continue to experience, these types of cybersecurity threats and incidents, which may be material.
We have put in place training and security measures designed to protect against cyberattacks, phishing, security breaches and misappropriation or corruption of our systems, intentional or unintentional disclosure of confidential information, or disruption of our operations. As these threats continue to evolve, particularly around cybersecurity, we may be required to expend significant resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, we may not be able to prevent cyberattacks and other security breaches and such events could materially adversely affect our business, financial condition and results of operations.
Our ore resources and reserve estimates are based on a number of assumptions, including mining and recovery factors, future cash costs of production and ore demand and pricing. As a result, ore resources and reserve quantities actually produced may differ from current estimates.
The mineral resource and reserve estimates are estimates of the quantity and ore grades in our mines based on the interpretation of geological data obtained from drill holes and other sampling techniques, as well as from feasibility studies. The accuracy of these estimates is dependent on the assumptions and judgments made in interpreting the geological data in accordance with established guidelines and standards. Our mineral reserves represent the amount of ore that we believe can be economically mined and processed, and are estimated based on a number of factors.
There is significant uncertainty in any mineral reserve or mineral resource estimate. Factors that are beyond our control, such as the ability to secure mineral rights, the sufficiency of mineralization to support mining and beneficiation practices and the suitability of the market may significantly impact mineral resource and reserve estimates. The actual deposits encountered and the economic viability of mining a deposit may differ materially from our estimates. Since these mineral resources and reserves are estimates based on assumptions, we may revise these estimates in the future as we become aware of new developments. To maintain TiO2 feedstock and zircon production beyond the expected lives of our existing mines or to increase production materially above projected levels, we will need to access additional reserves through exploration or discovery.
If we are unable to innovate and successfully introduce new products, or new technologies or processes reduce the demand for our products or the price at which we can sell products, our results of operations could be adversely affected.
Our industries and the end-use markets into which we sell our products experience periodic technological change and product improvement. Our financial condition and results of operations
of our operating entities outside the U.S. are reported in various foreign currencies, primarily the South African Rand, Australian Dollars and Euros, and then converted into U.S. dollars at the applicable exchange rate for inclusion in the financial statements. As a result, any volatility of the U.S. dollar against these foreign currencies creates uncertainty for and may have a negative impact on reported sales and operating margin. We have made a U.S. dollar functional currency election for both Australian financial reporting and federal income tax purposes. On this basis, our Australian entities report their results of operations on a U.S. dollar basis. In addition, our operating entities often need to convert currencies they receive for their products into currencies in which they purchase raw materials or pay for services, which could result in a gain or loss depending on fluctuations in exchange rates.In order to manage this risk, we may, from time to time, enter into forward contracts to buy and sell foreign currencies.
Our operations may be negatively impacted by inflation.
Our profits and financial condition could be adversely affected when cost inflation is not offset by devaluationif we are unable to gauge the direction of commercial and technological progress in operating currencieskey end-use markets or an increaseif we fail to fund and successfully develop, manufacture and market products in such changing end-use markets.
In addition, new technologies or processes have the potential to replace or provide lower-cost alternatives to our products, such as new processes that reduce the amount of TiO2 or zircon content in consumer products which in turn could depress the demand and pricing for TiO2 or zircon, respectively. We cannot predict whether technological innovations will, in the pricefuture, result in a lower demand for our products or affect the competitiveness of our products. Ourbusiness. We may be required to invest significant resources to adapt to changing technologies, markets and competitive environments.
RISKS RELATING TO THE GLOBAL NATURE OF OUR BUSINESS
We are exposed to the risks of operating a global business.
We have operations in jurisdictions around the globe which subjects us to a number of risks, including:
•adapting to unfamiliar regional and geopolitical conditions and demands, including political instability, civil unrest, expropriation, nationalization of properties by a government, imposition of sanctions, changes to import or export regulations and fees, renegotiation or nullification of existing agreements, mining leases and permits;
•increased difficulties with regard to political and social attitudes, laws, rules, regulations and policies within countries that favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the development and growth of local competitors;
•economic and commercial instability risks, including those caused by sovereign and private debt default, corruption, and new and unfamiliar laws and regulations at national, regional and local levels, including taxation regimes, tariffs and trade barriers, exchange controls, repatriation of earnings, and labor and environmental and health and safety laws and regulations;
•implementation of additional technological and cybersecurity measures and cost reduction efforts, including restructuring activities, which may adversely affect our ability to capitalize on opportunities;
•major public health issues, such as COVID-19, which could cause, and have been affected by inflationcaused, disruptions in our operations or workforce;
•war, political conditions, hostilities, including, but not limited to, the countriesongoing Russia and Ukraine conflict, or terrorist activities;
•difficulties enforcing intellectual property and contractual rights in which they have operated in recent years. Working costscertain jurisdictions; and wages in
•unexpected events, including fires or explosions at facilities, and natural disasters, including as a result of climate-related events.
South Africa,
where we have large mining assets and
Australia have increased in recent years, resulting inderive a significant
cost pressures for the mining industry.As an emerging market, South Africaportion of our revenue and profit, poses a challenging array of long-term political, economic,distinct operational risks which could affect our business, financial and operational risks.
South Africa has continued undergoing political and economic challenges. Changes to or instability in the economic or political environment in South Africa, especially if such changes create political instability, actual or potential shortages of production materials or labor unrest, could result in production delays and production shortfalls, and materially impact our productioncondition and results of operations.
In South Africa, we currently operate two significant mining assets, as well as accompanying separation plants and smelting operations, and derive a significant portion of our profit from the sale of zircon. Our mining and smelting operations depend on electrical power generated by Eskom, the sole, state-owned sole energy supplier. South AfricanEskom has not been able to reliably provide electrical power and as a result “load-shedding” (planned and unplanned rolling power outages) is expected for the foreseeable future. In addition, in 2021, Eskom received a governmental order to reduce by one-third its operating capacity to limit its greenhouse gas emissions. Although Eskom is currently appealing the government order, there is no assurance that Eskom will be successful in its appeal. We have also experienced increased electricity prices have risen during the past few years, and future price increases are likely. Additionally,expected to occur. Capacity reductions, load shedding, and/or electricity price increases could have a material adverse effect on our business, financial conditions and results of operations.
Our operations in South Africa are reliant on services provided by the State-owned, sole provider of rail transport, Transnet Freight Rail and ocean transport, Transnet National Port Authority (collectively "Transnet"). Furthermore, Transnet provides extensive dockside services at both the ports of Richards Bay and Saldanha Bay from where we export bulk quantities of TiO2 feedstock to our pigment plants worldwide and pig iron. Like Eskom, Transnet faces chronic operational and financial challenges. In 2021, Port of Richards Bay, which is owned and operated by Transnet, was impacted by two separate events, including a significant fire, which damaged part of the Port's infrastructure, causing increased shipment delays. Such shipment delays at the port of Richards Bay continued in 2022, and we believe such delays may continue in 2023 and beyond. Delays or interruptions at either the rail service or the ports in which we receive and/or export material could have a negative impact on our business, financial condition and results of operations.
In addition, our KZN Sands operations currently use approximately
328,000340,000 gigajoules of Sasol gas, which is available only from Sasol
Limited; however, we could replace approximately 30% to 44% of our current Sasol gas usage with furnace off-gas produced by KZN Sands, if necessary. TABLE OF CONTENTS
We use significant amounts of water in our operations, which could impose significant costs. Use of water in South Africa is governed by water-use licenses. Our KZN mining operation in South Africa uses water to transport the slimes or sand from reclaimed areas to the processing plant and to the tailings facilities. Additionally, South Africa is currently experiencing a drought resulting in water restrictions being imposed in certain areas, most notably recentlyLimited. As such, an interruption in the Western Cape where our Namakwa Sands operations are located. A prolonged drought in a regionsupply of South Africa may lead to continued, or more severe water restrictions, either of whichSasol gas could have a material adverse effect on our business, financial condition orconditions and results of operations. Under
In addition, under South African law, our South African mining operations are subject to water-use licenses that govern each operation. These licenses require, among other conditions, that mining operations achieve and maintain certain water quality limits for all water discharges, where applicable. Our South African operations that came into existence after the adoption of the National Water Act, No. 36 of 1998 have applied for and been issued the required water-use licenses. However, changesChanges to water-use licenses could affectincrease our costs of operations thereby affecting our operational results and financial condition. On May 13, 2016, the Department of Water and Sanitation of the Republic of
The aforementioned operational risks, as well as any other foreseen or unforeseen operational risks primarily related to doing business in South Africa, announced water restrictions affecting users of the fresh water supply to our Namakwa Sands operations. On December 12, 2017 the Department of Water and Sanitation published a notice in terms of the National Water Act (1998) curtailing water usage by 45% for residential and commercial users and 60% for agricultural users. Saldanha Bay Municipality, where our Namakwa Sands Smelter is located, is currently on Level 5 water restrictions and tariffs. While these restrictions have not curtailed our mining or processing operations to date, the reservoirs that store water for the system, which also supplies fresh water to the residents of the City of Cape Town, are at historically low levels and there can be no assurance that further use restrictions or supply curtailments maycould have a materiallymaterial adverse impacteffect on our operations at Namakwa Sands and as a result thebusiness, financial condition and results of operationsoperations.
As an emerging market, South Africa poses a challenging array of our business. Namakwa Sands operationslong-term political, social and economic risks.
South Africa continues to implement freshwater consumption reduction initiativesundergo political, social and finding alternative sourceseconomic challenges. For example, in 2021, unprecedented and politically motivated civil unrest in South Africa resulted in significant damage to the national supply chains and logistics. The
primary area of
waterunrest was near to
reduce reliance onour KZN operations. Changes to, or instability in, the
city’s water system.economic, social or political environment in South Africa which cause civil unrest, shortages of production materials, interruptions to transportation networks, or labor unrest could result in production delays and production shortfalls, and materially impact our production and results of operations.
The South African government
has recently embarked on a process of identifying and securing land for persons who were previously dispossessed of such land as a result of Apartheid policies. In December 2019, the South African government released a draft land expropriation bill for public comment. The land expropriation bill contemplates that, where it is in the “public interest”, land may
intervene in mining through various means including increased taxation, greater control and conditions on the distribution of mineral rights, poverty alleviation, and job creation. Such measures have not yet been defined, and the impact the measures may have on our business remains uncertain.Changes to the revised MPRDA have been incorporated into the 2013 MPRDA amendment, and are awaiting considerationbe expropriated by the South African Parliament beforegovernment, without compensation being promulgated. Somepayable to the current owners. While the South African government has indicated that such measures will be applied initially to state-owned land, it is possible that such measures may extend to agricultural and mining areas. In the event that the land on which the Namakwa Sands and KZN Sands operations are situated areas become the subject of thea land claim under any such proposed changesor future land expropriation bill, it may have ana material adverse effect on our business, operatingfinancial condition and results and financial condition. Although we expect the bulk of the original act to remain intact, there could be substantial changes, based on the current draft. This could have adverse effects on our business, operating results and financial condition.
operations.
The South
Africa’sAfrican government's exchange control regulations require resident companies to obtain the prior approval of the South African Reserve Bank to raise capital in any currency other than the Rand, and restrict the export of capital from South Africa. While the South African government has relaxed exchange controls in recent years, it is difficult to predict whether or how it will further change or abolish exchange control measures in the future. These exchange control restrictions could hinder our financial and strategic flexibility, particularly our ability to use South African capital to fund acquisitions, capital expenditures, and new projects outside of South Africa.
Our
South African operations
have been affected by inflation in South Africa
are reliant on services provided byin recent years. Employment costs and wages in South Africa have increased in recent years, resulting in significant cost pressures for the
state agency, Transnet, for limited rail transport services at Namakwa Sands. Furthermore, they provide extensive dockside services at both the ports of Richards Baymining industry. Prolonged or heightened inflation and
Saldanha Bay. Delays, particularly those caused by industrial actions,associated cost pressures could have a
negative impactmaterial adverse effect on our business,
operating results and financial condition.South African law governs the payment of compensation and medical costs to a compensation fund against which mining employees and other people at sites where ancillary mining activities are conducted can claim for mining activity-related illnesses or injuries. Should claims against the compensation fund rise significantly due to our mining activity or if claims against us are not covered by the compensation fund, the amount of our contribution or liability to claimants may increase, which could adversely impact our financial condition. In addition, the HIV/AIDS epidemic in South Africa poses risks to our South African operations in terms of potentially reduced productivity, and increased medical and other costs. If there is a significant increase in the incidence of HIV/AIDS infection and related diseases among the South African workforce over the next several years, our operations, projects and financial condition may be adversely affected.
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Our flexibility in managing our labor force may be adversely affected by labor and employment laws in the jurisdictions in which we operate, many of which are more onerous than those of the U.S.; and some of our labor force has substantial workers' council or trade union participation, which creates a risk of disruption from labor disputes and new laws affecting employment policies.
Labor costs constituted approximately 29% of our production costs in 2017. The majority of our employees are located outside the U.S. In most of those countries, labor and employment laws are more onerous than in the U.S. and, in many cases, grant significant job protection to employees, including rights on termination of employment.
In South Africa, over 73% of our workforce belongs to a union. In Australia, most employees are not currently represented by a union, but approximately 46% are represented by a collective bargaining agreement. In the Netherlands, approximately 49% of our employees are represented by a collective bargaining agreement and 27% are members of a union.
Our South African operations have entered into various collective agreements with organized labor regulating wages and working conditions at our mines.mines and smelter operations. There have been periods when various stakeholders have been unable to agree on dispute resolution processes, leading to threats of disruptive labor disputes, although only two strikes have ever occurred in the history of these operations.industrial action disputes. Due to the high level of employee union membership, our South African operations are at risk of production stoppages for indefinite periods due to strikes and other labor disputes. Although we believe that we have good labor relations with our South African employees, we may experience labor disputes in the future.
South African employment law,
In addition, although we believe that our relationships with our various local communities are good, the areas in which is based on the minimum standard set by the International Labour Organization, sets out minimum terms and conditions of employment for employees. Although these may be improved by agreements between an employer and the trade unions, prescribed minimum terms and conditions form the benchmark for all employment contracts. Ourour South African operations are required to submit a report tosituated are the South African Department of Labour under South African employment law detailing the progress made towards achieving employment equity in the workplace. Failing to submit this report in a timely manner could result in substantial penalties. In addition, future legislative developments that affect South African employment policies may increase production costs or negatively impact relationships with employees and trade unions, which may have an adverse effect on our business, operating results and financial condition.We are required to consult with, and seek the consent or advicetraditional homelands of various employee groups or works’ councils that represent our employees for any changes to our activities or employee benefits. This requirement could have a significant impact on our flexibility in managing costs and responding to market changes.
Given the nature of our chemical, mining and smelting operations, we face a material risk of liability, delays and increased cash costs of production from environmental and industrial accidents and operational breakdowns.
Our business involves significant risks and hazards, including environmental hazards, industrial accidents, and breakdowns of equipment and machinery. Our business is exposed to hazards associated with chemical process manufacturing and the related storage, handling and transportation of raw materials, products and wastes, and our furnace operationstribal groupings that are subject to explosions, water ingresshistorically politically volatile. This volatility persists today and refractory failure,frequently results in violent, destructive behaviors. Increased volatility and our open pit and dredge mining operations that are subject to flooding and accidents associated with rock transportation equipment and conveyor belts. Furthermore, during operational breakdowns, the relevant facility may not be fully operational within the anticipated timeframe, which could result in further business losses. The occurrence of any of these or other hazards could delay production, suspend operations, increase repair, maintenance or medical costs and, due to the integration of our facilities, could have an adverse effect on the productivity and profitability of a particular manufacturing facility or on our business as a whole. Over our operating history, we have incurred incidents of this nature. Although insurance policies provide limited coverage for these risks, such policies will not fully cover some of these risks.
There is also a risk that our key raw materials or our products may be found to have currently unrecognized toxicological or health-related impact on the environment or on our customers or employees. Such hazards may cause personal injury and loss of life, damage to property and contamination of the environment, which could lead to government fines or work stoppage injunctions and lawsuits by injured persons. If such actions are required, we may have inadequate insurance to cover such claims, or insufficient cash flow to pay for such claims. Such outcomes could adversely affect our financial condition and results of operations.
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Equipment upgrades, equipment failures and deterioration of assets may lead to production curtailments, shutdowns or additional expenditures.
Our operations depend upon critical equipment that require scheduled upgrades and maintenance and, may suffer unanticipated breakdowns or failures. As a result, our mining operations and processing may be interrupted or curtailed, which could have a material adverse effect on our results of operations.
In addition, assets critical to our mining and chemical processing operations may deteriorate due to wear and tear or otherwise sooner than we currently estimate. Such deteriorationconsequential civil unrest may result in additional maintenance spending and additional capital expenditures. If theseproduction stoppages and/or the destruction of assets do not generate the amount of future cash flows that we expect, and we are not able to refurbish them or procure replacement assets in an economically feasible manner,which comprise our future results ofSouth African operations, may be materially and adversely affected.
If any of the equipment on which we depend were severely damaged or were destroyed by fire, abnormal wear and tear, flooding, or otherwise, we may be unable to replace or repair it in a timely manner or at a reasonable cost, which would impact our ability to produce and ship our products, which wouldcould have a material adverse effect on our business, financial condition orand results of operations.
Political and social instability, and unrest, and actual, or potential, armed conflicts in the Middle East region may affect the Company's results of operations and financial position.
Our operations in KSA have been affected in the past, and may be affected in the future, by political, social and economic conditions from time to time prevailing in, or affecting, KSA or the wider Middle East region, including by rocket attacks from armed rebel groups. For example, since 2011, a number of countries in the Middle East region have witnessed significant social unrest, including widespread public demonstrations, and, in certain cases, armed conflict, terrorist attacks, diplomatic disputes, foreign military intervention and a change of government. In addition, KSA faces a number of challenges arising mainly from the relatively high levels of unemployment among the Saudi youth population, requests for political and social changes, and the security threat posed by certain groups. Should KSA experience similar political and social unrest as found in other countries in the Middle East, the Saudi Arabian economy could be adversely affected, our TiO2 plant located in Yanbu could be temporarily disrupted or materially adversely affected and our business and operating results could be materially adversely affected.
In addition, the Slagger, that is subject to the Option or Put (as defined elsewhere herein), is located in Jazan, KSA near the border between KSA and Yemen which has been subject to rocket attacks from armed rebel groups fighting the KSA military in Yemen. Further attacks could materially adversely affect our business and operating results.
Our results of operations may be adversely affected by fluctuations in currency exchange rates.
The financial condition and results of operations of our operating entities outside the U.S. are reported in various foreign currencies, primarily the South African Rand, Australian Dollars, Euros, Pound Sterling and Brazilian Real and then converted into U.S. dollars at the applicable exchange rate for inclusion in the financial statements. A significant portion of our costs are denominated in currencies other than the U.S. dollar. As a result, any volatility of the U.S. dollar against these foreign currencies creates uncertainty for, and may have a negative impact on, reported sales and operating margin. In addition, our operating entities often need to convert currencies they receive for their products into currencies in which they purchase raw materials or pay for services, which could result in a gain or loss depending on fluctuations in exchange rates. In order to manage this risk, we have, from time to time, entered into forward contracts to buy and sell foreign currencies.
RISKS RELATING TO OUR DEBT AND CAPITAL STRUCTURE
We are a holding company that is dependent on cash flows from our operating subsidiaries to fund our debt
obligations, capital expenditures and ongoing operations.
All of our operations are conducted, and all of our assets are owned, by our operating companies, which are our subsidiaries. We intend to continue to conduct our operations at the operating
companies and any future subsidiaries.company level. Consequently, our cash flow and our ability to meet our obligations or make cash distributions depends upon the cash flow of our operating companies, and
any future subsidiaries, and the payment of funds by our operating companies
and any future subsidiaries in the form of dividends or otherwise. The ability of our operating companies
and any future subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities, or indentures, and legal restrictions regarding the transfer of funds.
Our ability to service our debt and fund our planned capital expenditures and ongoing operations will depend on our ability to generate and increase cash flow, and our access to additional liquidity sources. Our ability to generate and increase cash flow is dependent on many factors,
including:the transfer of funds from subsidiaries in the U.S. to certain foreign subsidiaries;
our ability to obtain raw materials at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher raw material costs;
the selling price of our products;
our ability to adequately deliver customer service and competitive product quality;
the impact of competition from other chemical and materials manufacturers and diversified companies;
general world business conditions, economic uncertainty or downturn and the significant downturn in housing construction and overall economies;
the effects of governmental regulation on our business;
tariffs, trade duties and other trade barriers; and
political and social instability.
Many of these factors are beyond our control. A general economic downturn can result in reduced spending by customers, which will impact our revenues and cash flows from operating activities. At reduced performance, if we are unable to generate sufficient cash flow or access additional liquidity sources, we may not be able to service and repay our existing debt, operate our business, respond to competitive challenges, or fund our other liquidity and capital needs.
Our industry and the end-use markets in which we compete are highly competitive. This competition may adversely affect our results of operations and operating cash flows.
Each of our markets is highly competitive. Competition in the TiO2 segment industry is based on a number of factors such as price, product quality, and service. We face significant competition from major international
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and smaller regional competitors. Our most significant competitors include major chemical and materials manufacturers and diversified companies, a number of which have substantially larger financial resources, greater personnel, and larger facilities than we do. We also compete with numerous smaller, regional producers as well as Chinese producers that have significantly expanded their sulphate TiO2 production capacity in recent years and have also commenced the commercial production of TiO2 via chloride technology.
Zircon producers generally compete on the basis of price, quality, logistics, delivery, and payment terms and consistency of supply. Although we believe we have competitive quality, long-term relationships with customers and product range, our primary competitive disadvantage relative to our major competitors is our distance from our main consumers (i.e., Asia and Europe).
Within the end-use markets in which we compete, competition between products is intense. We face substantial risk that certain events, such as new product development by competitors, changing customer needs, the commercial production of TiO2 via chloride technology, production advances for competing products, or price changes in raw materials, could cause our customers to switch to our competitors’ products. If we are unable to develop and produce or market our products to compete effectively against our competitors following such events, our results of operations and operating cash flows may suffer.
An increase in the price of energy or other raw materials, or an interruption in our energy or other raw material supply, could have a material adverse effect on our business, financial condition or results of operations.
Our mining and production processes consume significant amounts of energy and raw materials, the costs of which can be subject to worldwide, as well as, local supply and demand, as well as other factors beyond our control. In 2017, raw materials used in the production of TiO2 constituted approximately 44% of our operating expenses. Fuel and energy linked to commodities, such as diesel, heavy fuel oil and coal, and other consumables, such as chlorine, illuminating paraffin, electrodes, and anthracite, consumed in our TiO2 manufacturing and mining operations form an important part of our TiO2 operating costs. We have no control over the costs of these consumables,including many of which are linked to some degree to the price of oil and coal, and the costs of many of these raw materials may fluctuate widely for a variety of reasons, including changesother risks described in availability, major capacity additions or reductions, or significant facility operating problems. These fluctuations could negatively affect our TiO2 operating margins, our profitability or planned capital expenditures. As these costs rise, our operating expenses will increase and could adversely affect our business, especially if we are unable to pass price increases in raw materials through to our customers.
this section entitled “Risk Factors”.
The agreements and instruments governing our debt contain restrictions and limitations that could affect our
ability to operate our business, as well as impact our liquidity.
As of December 31, 2017,2022, our total principal amount of debt was approximately $3.2$2.5 billion. Our credit facilities contain covenants that could adversely affect our ability to operate our business, our liquidity, and our results of operations. These covenants may restrict, among other things, our and our subsidiaries’subsidiaries' ability to:
•incur or guarantee additional indebtedness;
•complete asset sales, acquisitions or mergers;
•make investments and capital expenditures;
•prepay other indebtedness;
•enter into transactions with affiliates; and
•fund additional dividends or repurchase shares.
Certain of our
indebtedness facilities
including our $550 million Wells Fargo Revolver and
together with the $2.15 billion New Term Loan Facility, $584 million aggregate principal amount of our Senior Notes due 2022 and our $450 million aggregate principal amount of our Senior Notes due 2025, all defined below,senior notes include requirements relating to the ratio of adjusted EBITDA to indebtedness or certain fixed charges. The breach of any covenants or obligations in our credit facilities, not otherwise waived or amended, could result in a default under the applicable debt obligations (and cross-defaults to certain other debt obligations) and could trigger acceleration of those obligations, which in turn could trigger other cross defaults under other
existing or future agreements
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governing our long-term indebtedness. In addition, the secured lenders under the credit facilities could foreclose on their collateral, which includes equity interests in our subsidiaries, and exercise other rights of secured creditors. Any default under those credit facilities could adversely affect our growth, our financial condition, our results of operations and our ability to make payments on our credit facilities, and could force us to seek the protection of bankruptcy laws.
A large portion
We may need additional capital in the future and may not be able to obtain it on favorable terms, and such capital expenditure projects may not realize expected investment returns.
Our business is capital intensive, and our success depends to a significant degree on our ability to maintain our manufacturing operations and invest in those operations to expand capacity and remain competitive from a cost perspective. We may require additional capital in the future to finance capital investments, for a variety of purposes, including (i) replacement of mines that are end of life, (ii) expansion or optimization of existing production facilities or mining operations, (iii) ongoing research and development activities, (iv) business development opportunities in rare earth or other critical minerals, and (v) general working capital needs. For instance, in 2020 we began the implementation of a multi-year global digital transformation, known as Project newTRON, that includes the acquisition and implementation of new operational and financial systems, technology and processes, including a global ERP system. The implementation of our
shares is owned bydigital transformation involves numerous risks, including (i) new information and operational technologies and systems not being properly designed, integrated, managed and implemented or a
single shareholder, Exxaro.At December 31, 2017, Exxaro held approximately 24%
delay in such implementation, (ii) diversion of management's attention away from normal daily business operations, (iii) significant or material weaknesses in our financial controls or delays in timely reporting our results of operations, and (iv) initial dependence on unfamiliar systems while training personnel to use new systems. Such risks could significantly increase the program’s costs, cause us to fail to achieve the anticipated benefits from the program, and negatively impact our operations, including, our plant’s system safety, functionality and effectiveness. Although we have taken, and will continue to take, significant steps to mitigate the potential negative impact of the voting securitiesimplementation of Tronox Limited, and had two representatives serving as Directors on our nine-member board. On March 8, 2017, Exxaro announced its intentionsuch new digital systems, there can be no assurance that these procedures will be completely successful.
Additionally, we entered into the Option Agreement with AMIC pursuant to
begin pursuingwhich AMIC granted us an option to acquire 90% of a
pathSPV, to
monetize itswhich AMIC’s ownership
stake in Tronox over time. On October 10, 2017, Exxaro sold 22,425,000 Class A ordinary shares in an underwritten registered offering (the “Exxaro Share Transaction”) reducing its ownership percentage of voting securities from 44% at December 31, 2016. Further sales by Exxaro will result in additional Class B Shares converting to Class A Shares and an increase in the
numberSlagger will be contributed together with $322 million of
Class A Shares outstanding could cause the market price of shares to decline.Due to Exxaro’s significant ownership interest, it is entitled to certain rights under the Constitution and the Shareholder’s Deed of Tronox Limited. For example, the Constitution provides that, for as long as the Class B voting interest is at least 10%indebtedness currently held by AMIC. Upon exercise of the total voting interest in Tronox Limited,Option or Put, there mustcan be nine directors on our board; of which the holders of Class A Shares will be entitledno assurance that we may assume this indebtedness and may need to vote separatelyobtain funding to elect a certain number of directors to our board (which we refer to as Class A Directors), and the holders of Class B Shares will be entitled to vote separately to elect a certain number of directors to our board (which we refer to as Class B Directors). If the Class B voting interest is greater than or equal to 20% but less than 30%, our board of directors will consist of seven Class A Directors and two Class B Directors. If the Class B voting interest is greater than or equal to 10% but less than 20%, our board will consist of eight Class A Directors and one Class B Director.
The Constitution also provides that, subject to certain limitations, for as long as the Class B voting interest isrepay it at least 20%, a separate vote by holders of Class A Shares and Class B Shares is required to approve certain types of merger or similar transactions that will result in a change in control or a sale of all or substantially all of our assets or any reorganization or transaction that does not treat Class A and Class B Shares equally.
Under the terms of the Shareholder’s Deed entered into upon completion of 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.maturity. In the event an agreement regarding the proposal iswe require any additional financing, such financing may not reached, Exxaro is permittedbe available when needed on terms favorable to make a takeover offer for all the shares of Tronox Limited not held by affiliates of Exxaro provided that binding acceptancesus, or at all. If we are received from a majority of the shares not held by affiliates of Exxaro. Additionally, Exxaro is not contractually obligatedunable to obtain adequate funds on acceptable terms, we may be unable to maintain, its 26% share ownership inexpand or lower the operating costs of our South African subsidiaries. Although Exxaro is requiredfacilities or take advantage of future opportunities or respond to comply with applicable lawcompetitive pressures, which could harm our results of operations, financial condition and business prospects.
Additionally, if we undertake these projects, they may not be completed on schedule, at the budgeted cost, or at all. Moreover, our
constituent documents (including our Shareholders’ Agreement which sets forthrevenue may not increase immediately upon the
requirements by which Exxaro is obligated to continue to empower our two South African subsidiaries under BEE legislation), there is no assurance that Exxaro will not reduce its 26% stake in the future throughexpenditure of funds on a
sale, disposition or other permissible transfer. Moreover, in the future, Exxaro may exchange its 26% interest in the mineral sands business for additional Class B Shares.particular project. As a result, of Exxaro’s significant ownership interest and its governance rights, Exxarowe may not be able to exert substantial influence overrealize our management,expected investment return, which could adversely affect our results of operations and potential significant corporate transactions, includingfinancial condition.
RISKS RELATING TO OUR LEGAL AND REGULATORY ENVIRONMENT
Our South African mining rights are subject to onerous regulatory requirements imposed by legislation and the Department of Mineral Resources and Energy (the “DMRE”), the compliance with which could have a
change in control or the sale of all or substantially all of our assets. Exxaro’s influence may have anmaterial adverse effect on
the trading priceour business, financial condition and results of
our ordinary shares. See also Risk Factor “Risks of Cristal Transaction” for additional considerations related to ownership by Cristal of a significant minority interest in the Company upon closing of the Cristal Transaction.Our South African operations may lose the benefit of the BEE status under South African legislation, resulting in the need to implement a remedial solution or introduce a new minority shareholder, which could negatively impact our South African operations.
BEE
Black economic empowerment (“BEE”) legislation was introduced into South Africa as a means to seek to redress the inequalities of the previous Apartheid system by requiring the inclusion of historically disadvantaged South Africans in the mainstream economy. Under BEE legislation,
South African businessescertain of our operations are required to
become “empowered”be partially owned by historically disadvantaged South Africans --- known as “empowerment” --- and comply with other provisions of applicable BEE legislation that relate to matters such as mandatory procurement and employment opportunities for the communities in which we operate. On March 1, 2019, a new set of BEE rules and regulations relevant to our operation came into effect known as "Mining Charter III".
Under the “empowerment” rules of Mining Charter III, certain of our operations require a 30% BEE shareholding that must be structured through a special purpose vehicle comprised of black entrepreneurs, the local community surrounding the relevant mining area and eligible employees. In addition, Mining Charter III sets forth more stringent requirements applicable to all of our South African operations, including: the procurement of goods and services from BEE compliant entities; race, age and gender based employment quotas; and, workers’ housing and living conditions. Uncertainty over the status of Mining Charter III arose when in September 2021, the South African High Court ruled that certain provisions of Mining Charter III were unconstitutional and that Mining Charter III cannot be considered binding legislation. Although the DMRE determined not to appeal such ruling, there is no assurance that all the provisions of Mining Charter III will take effect or that the DMRE as result of such ruling will not attempt to enforce the same or more onerous provisions through legislative amendments. TABLE OF CONTENTS
Prior to Mining Charter III, BEE in the South African mining companies are required to comply with a “sector charter” in order to be deemed “empowered”. Thesector was governed by Mining Charter II. Under Mining Charter II, our South African operations were “empowered” by a 26% ownership interest in two of our South African subsidiaries by Exxaro Resources Limited ("Exxaro") which prior to 2017 was greater than 50% owned by historically disadvantaged South Africans. We believe that under Mining Charter specifies certain requirements that all mining companies must satisfy, including a requirement that at leastIII the two South African subsidiaries in which Exxaro previously held 26% of the shares in such companies are held by BEEbecame permanently “empowered” entities. Exxaro takes the position that it is a BEE “empowered” company under the--- so-called, “once empowered always empowered” principle that emerges from the joint reading of the original Mining Charter (promulgated in 2004) and the amendment thereto promulgated in 2010.
Exxaro retains a 26% direct ownership interest in each of Tronox KZN Sands (Pty) Ltd and Tronox Mineral Sands (Pty) Ltd in order for these two entities to comply with the requirements of the Mineral and Petroleum Resources Development Act (“MPRDA”) and the South African Mining Charter ownership requirements.
Pursuant to our Shareholders’ Agreement with Exxaro, Exxaro has agreed to maintain its direct ownership for a period of the shorter of the date on which the requirement to maintain a direct ownership stake in each of Tronox KZN Sands (Pty) Ltd and Tronox Mineral Sands (Pty) Ltd no longer applies or June 2022 (unless it transfers the direct ownership interests to another qualified buyer under the MPRDA and the Mining Charter). If either Tronox KZN Sands (Pty) Ltd or Tronox Mineral Sands (Pty) Ltd ceases to qualify under the Mining Charter, Tronox Limited and Exxaro have agreed to jointly seek a remedial solution. If Tronox Limited and Exxaro cannot successfully implement a solution and the reason for this failure is due to anything other than a change in law, then we may dispose of Exxaro’s shares in the non-qualifying company to another BEE compliant, qualifying purchaser. During any period of any non-qualification, our South African operations may be in violation of their mining or prospecting rights, as well as the requirements of the MPRDA and the South African Mining Charter, which could result in a suspension or revocation of the non-qualifying company’s mining and prospecting rights (after providing the non-compliant company with an opportunity to remedy the defect complained of) and could expose us to operating restrictions, lost business opportunities and delays in receiving further regulatory approvals for our South African operations and expansion activities. In addition, if Exxaro’s direct ownership in Tronox KZN Sands (Pty) Ltd and Tronox Mineral Sands (Pty) Ltd is sold to another purchaser, we could be required to share control of our South African operations with a minority shareholder, which may impact our operational and financial flexibility and could impact profitability, expansion opportunities and our results of operations.
There are two concurrent legal challenges in South Africa that could be material to us. First, the question of whether the “once
“Once empowered always empowered” principle applies in the mining industry in South Africa is subject to current litigation between the South Africa Chamber of Mines (an industry body that represents approximately 90% of the South African Mining Industry) and the South African Department of Mineral Resources. The “once empowered always empowered” principle assertsmeans that a South African company that has had the requisite shareholding base consisting of historically disadvantaged South Africans for a minimum period of ten yearsas at December 31, 2014 will always qualify as an “empowered” entity. Inentity for purposes of the retention of an existing mining right for the duration of that right. The question of whether the “once empowered always empowered” principle applies in the mining sector,industry in South Africa has been subject to litigation between the requisite shareholding base is 26%. An adverse outcomeMinerals Council of South Africa (the “Minerals Council”) (formerly the Chamber of Mines, an industry body that represents approximately 90% of the South African Mining Industry) and the DMRE. The South African High Court decided in the affirmative for the Minerals Council and such decision was subsequently confirmed on appeal. Thus, based on the High Court's ruling, the “once empowered always empowered” principle applies to our existing mining rights. In addition, the South African High Court in connection with such litigationits September 2021 decision with respect to the unconstitutionality of Mining Charter III also confirmed that “once empowered always empowered” applies to the renewal and transfer of mining rights. However, there is no assurance that DMRE may not enact new legislation that would undermine the court's ruling regarding the applicability of "once
empowered always empowered" to the renewal and transfer of mining rights. In the event that "once empowered always empowered" does not ultimately apply to the renewal or transfer of mining rights it could
adversely affecthave a material adverse effect on our business, financial condition and results of operations.
Second, on June 15, 2017,
Our failure to comply with the Department of Mineral Resources issued a substantially revised South African Mining Charter. The revised charter sets forth new requirements with regard to continuing ownership of mining rights by BEE entities, the form and percentage of that ownership by BEE entities, procurement from BEE compliant entities, race and gender ownership and employment quotas, and workers’ housing and living conditions. The new charter was immediately challenged by the Chamber of Mines. As a result of such legal challenge, the applicationanti-corruption laws of the new charter has been consensually suspended pendingU.S. and various international jurisdictions could negatively impact our reputation and results of operations.
Doing business on a global basis requires us to comply with the
conclusionlaws and regulations of the
legal process. WeU.S. government and those of various international jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. In particular, our operations are
uncertainsubject to U.S. and foreign anti-corruption laws and regulations, such as
to whether the
new charter will be ultimately implemented in its current form, but a new mining charter with stricter requirements similar to those described above could adversely affect our business, financial condition or results of operations.Our ore resources and reserve estimates are based on a number of assumptions, including mining and recovery factors, future cash costs of production and ore demand and pricing. As a result, ore resources and reserve quantities actually produced may differ from current estimates.
The mineral resource and reserve estimates are estimates ofU.S. Foreign Corrupt Practices Act (“FCPA”), the quantity and ore grades in our mines based on the interpretation of geological data obtained from drill holes and other sampling techniques,U.K. Bribery Act 2010 (“U.K. Bribery Act”), as well as anti-corruption laws of the various jurisdictions in which we operate. Our global operations may expose us to the risk of violating, or being accused of violating, the foregoing or other anti-corruption laws. Such violations could be punishable by criminal fines, imprisonment, civil penalties, disgorgement of profits, injunctions, and exclusion from feasibility studies. The accuracygovernment contracts, as well as other remedial measures. Investigations of these estimates is dependent on the assumptions and judgments made in interpreting the geological data. The assessment of geographical characteristics, such as location, quantity, quality, continuity of geology and grade, is made with varying degrees of confidence in accordance with
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established guidelines and standards. We use various exploration techniques, including geophysical surveys and sampling through drilling and trenching, to investigate resources and implement applicable quality assurance and quality control criteria to ensure that data is representative. Our mineral reserves represent the amount of ore that we believealleged violations can be economically minedvery expensive, disruptive, and processed,damaging to our reputation. Although we have implemented anti-corruption policies and are estimated based on a number of factors, which have been stated in accordance with SEC Industry Guide 7 (“Industry Guide 7”), the South African Code for Reporting of Exploration Results, Mineral Resourcesprocedures, there can be no guarantee that these policies, procedures, and Mineral Reserves 2007 version, as amended 2009 (SAMREC) and the Australian code for Reporting of Exploration Results, Mineral Resources the Joint Ore Reserves Committee Code (2012) (JORC).
There is significant uncertainty in any mineral reservetraining will effectively prevent violations by our employees or mineral resource estimate. Factors that are beyond our control, such as the ability to secure mineral rights, the sufficiency of mineralization to support mining and beneficiation practices and the suitability of the market may significantly impact mineral resource and reserve estimates. The actual deposits encountered and the economic viability of mining a deposit may differ materially from our estimates. Since these mineral resources and reserves are estimates based on assumptions related to factors discussed above, we may revise these estimatesrepresentatives in the future asfuture. Additionally, we become aware of new developments. To maintain TiO2 feedstock production beyondface a risk that our distributors and other business partners may violate the expected lives ofFCPA, the U.K. Bribery Act, or similar laws or regulations. Such violations could expose us to FCPA and U.K. Bribery Act liability and/or our existing mines or to increase production materially above projected levels, we will need to access additional reserves through exploration or discovery.
If we are unable to innovatereputation may potentially be harmed by their violations and successfully introduce new products, or new technologies or processes reduce the demand for our products or the price at which we can sell products, our profitability could be adversely affected.
Our industriesresulting sanctions and the end-use markets into which we sell our products experience periodic technological change and product improvement. Our future growth will depend on our ability to gauge the direction of commercial and technological progress in key end-use markets and on our ability to fund and successfully develop, manufacture and market products in such changing end-use markets. We must continue to identify, develop and market innovative products or enhance existing products on a timely basis to maintain our profit margins and our competitive position. We may be unable to develop new products or technology, either alone or with third parties, or license intellectual property rights from third parties on a commercially competitive basis. If we fail to keep pace with the evolving technological innovations in our end-use markets on a competitive basis, our financial condition and results of operations could be adversely affected.
In addition, new technologies or processes have the potential to replace or provide lower-cost alternatives to our products, such as new processes that reduce TiO2 in consumer products or the use of chloride slag in the production of TiO2, which could result in TiO2 producers using less chloride slag, or to reduce the need for TiO2 in consumer products, which could depress the demand and pricing for TiO2. We cannot predict whether technological innovations will, in the future, result in a lower demand for our products or affect the competitiveness of our business. We may be required to invest significant resources to adapt to changing technologies, markets and competitive environments.
fines.
We are subject to many environmental, health and safety
regulations that may result in unanticipated costs or liabilities, which could reduce our profitability.regulations.
Our operations and production facilities are subject to extensive environmental and health and safety laws and regulations at national, international and local levels in numerous jurisdictions relating to use of natural resources, pollution, protection of the environment, mine site remediation, transporting and storing raw materials and finished products, and storing and disposing of hazardous wastes among other materials.
SuchMoreover, certain environmental laws
include, in the U.S., the Clean Air Actimpose joint and
the Clean Water Act, protectingseveral and/or strict liability for costs to clean up and restore sites where pollutants have been disposed or otherwise spilled or released. We cannot be certain that we will not incur significant costs and liabilities for remediation or damage to property, natural resources or persons as a result of
air and water resources, the Toxic Substances Control Act (TSCA), and in the EU, the Registration, Evaluation, Authorization and Restrictionsspills or releases from our operations or those of
Chemicals (“REACH”), REACH regulation, requiring registration of chemicals in commerce and reporting of potential known adverse effects, and numerous other local, state and federal laws and regulations governing materials transport and packaging. Analogous regimes exist in other parts of the world, including Australia and China and there are rules to conform chemical labeling in accordance with the globally harmonized system. Additional new laws and regulations may be enacted or adopted by various regulatory agencies globally. For example, TSCA reform was enacted in June 2016, and the U.S. EPA is in the process of developing new chemical control regulations.a third party.
The costs of compliance with the extensive environmental, health and safety laws and regulations or the inability to obtain, update or renew permits required for operation or expansion of our business could
reducenegatively impact our
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profitability results of operations or otherwise adversely affect our business. If we fail to comply with the conditions of our permits governing the production and management of regulated materials, mineral sands mining licenses or leases or the provisions of the applicable U.S., South African or Australian law,relevant jurisdictional laws in which we operate, these permits, mining licenses or leases and mining rights could be canceled or suspended, and we could be prevented from obtaining new mining and prospecting rights, which could materially and adversely affect our business, operating results and financial condition. Additionally, we could incur substantial costs, including fines, damages, criminal or civil sanctions and remediation costs, or experience interruptions in our operations, for violations arising under these laws and regulations.regulations, including operating without the required permits, mining licenses or leases and/or mining rights. In the event of a catastrophic incident involving any of the raw materials we use, or chemicals or mineral products we produce, we could incur material costs as a result of addressing the consequences of such event.
Changes to existing laws governing operations, especially changes in laws relating to transportation of mineral resources, the treatment of land and infrastructure, contaminated land, the remediation of mines, tax royalties,
waste handling and management, exchange control restrictions, environmental remediation, mineral rights, ownership of mining assets, or the rights to prospect and mine may have a material adverse effect on our future business operations and financial performance. There is risk that onerous conditions may be attached to authorizations in the form of mining rights, water-use licenses, miscellaneous licenses and environmental approvals, or that the grant of these approvals may be delayed or not granted.
Our current operations involve the production and management of regulated materials thatTiO2 products are subject to various environmental lawsincreased regulatory scrutiny, that may impede or inhibit widespread usage of TiO2 and regulations/ or diminish the Company’s ability to sustain or grow its business or may add significant costs of doing business.
Current regulatory and societal demands for increased protection against products which may cause cancer, genetic mutations or other long-term health problems are dependent on obtainingresulting in increased pressure for more stringent regulation of our TiO2 products. We expect these trends to continue and the periodic renewalultimate cost of permits from various governmental agencies. The inabilitycompliance could be material. In particular, changes to obtain, update or renew permits related toproduct safety regulations could limit the operationuse of, and demand for, our businesses,TiO2 products, require investment in new product development or the costs requiredway we manufacture our existing products, and increase regulatory compliance expenditures for us and our suppliers.
For instance, in order to comply2020, the European Commission adopted a regulation classifying certain forms of TiO2 with permit standards, could have a material adverse effect on us.Moreover, certain environmental laws impose joint and several and/or strict liability for costs to clean up and restore sites where pollutants have been disposed or otherwise spilled or released. We are currently addressing certain areas of known contamination on our own properties, none of which we presently anticipate will result in any material costs or adverse impacts on our business or operations. However, we cannot be certain that we will not incur significant costs and liabilities for remediation or damage to property, natural resources or persons as a result of spills or releases from our operations or those of a third party.
The classification of TiO2particular aerodynamic diameter as a Category 2 Carcinogencarcinogen by inhalation. However, in November 2022, the European Union could result in more stringent regulatory control with respect to TiO2.
In May 2016, France’s competent authority under the EU’s REACH regulation submitted a proposal toCourt of Justice annulled the European Chemicals Agency (“ECHA”)Commission's classification of TiO
2 as a carcinogen primarily on the basis that would classifythere was no evidence that TiO2 as carcinogenic in humans by inhalation. The Company together with other companies may cause cancer when inhaled. As of the date hereof, the European Commission has not appealed such decision. In the event that the European Commission appeals the ruling and trade associations representing the TiO2 industry and industries consuming our products, submitted comments opposingits ultimately successful, the classification based on evidence from epidemiological and other scientific studies. On October 12, 2017, ECHA’s Committee for Risk Assessment (“RAC”) released a written opinion dated September 14, 2017 stating that based on the scientific evidence it reviewed, there is sufficient grounds to classifyof TiO2 under the EU’s Classification, Labelling and Packaging Regulation (“CLP”) as a Category 2 Carcinogen but only with a hazard statement describing the risk by inhalation. The European Commission will review the RAC’s formal recommendation to determine what regulatory measures, if any, should be taken. If the European Commission decides to adopt this classification, it could require that products manufactured with TiO2 be classified as containing carcinogenic materials, which could impact our business by inhibiting the marketing of products containing TiO2to consumers, and subject our manufacturing operations to new regulations that could increase costs. AnyIn addition, notwithstanding the European Court of Justice decision, the proposed Category 2 classification use restriction or authorized requirement for use imposed by the ECHAand labelling requirements could have additional effects under other EU laws (e.g., those affecting medical and pharmaceutical applications, cosmetics, food packaging and food additives) and/or trigger heightened regulatory scrutiny in countries and local jurisdictions outside the EU based on health and safety grounds. For instance, the Health and Safety Executive in the U.K. has published the U.K.’s mandatory classification and labelling list, which includes the classification of TiO2 as a suspected carcinogen (in a powder form containing 1% or more of particles with aerodynamic diameter ≤ 10 μm). The classification became mandatory in the U.K. in October 2021.
In May 2021, the European Food Safety Authority (EFSA) announced new guidelines which concluded that a certain digestible form of TiO2 known as E171 is no longer considered safe as a food additive due to uncertainty for genotoxicity. Though we do not manufacture E171, the EFSA guidelines indicate additional regulatory review of our TiO2 products is likely which could result in more stringent qualifications and use-restriction being applied or to the introduction of further classifications. It is also possible that heightened regulatory scrutiny wouldcould lead to claims by consumers or those involved in the production of such products alleging adverse health impacts. In addition, there is no assurance that other materials which we add to our TiO2 products could also be subject to increased regulation which could impact the cost of labelling or the sales of our products. For instance, certain of our plastic grades are used in food contact materials and in October 2022, the European Commission launched a public consultation aiming to revise the European Union regulations on food contact materials. While the outcome of such consultation remains uncertain, any additional regulatory requirements on the use of food contact materials ultimately imposed by the European Commission could have a material adverse effect on our business, financial condition and results of operations. TABLE OF CONTENTS
Our dependence on burning natural gasESG issues, including those related to generate electricalclimate change and sustainability, may subject us to additional costs and restrictions, including increased energy and steam and our manufacturing practices that release CO2 to the atmosphere could mean that governmental initiatives to limit the emission of GHGraw material costs, which could have an adverse effect on our business, financial condition and results of operations, as well as damage our reputation.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the
atmosphere could present risks to our present and future
operations from natural disasters and extreme weather conditions, such as flooding, hurricanes, earthquakes and wildfires. Such extreme weather conditions could pose physical risks to our facilities and disrupt the operation of our supply chain, increase operational costs and have a material adverse effect on our
costsbusiness and
therefore our results of operations.
Our U.S.-based In addition, if any of the equipment on which we depend were severely damaged or were destroyed by environmental hazards or otherwise, we may be unable to replace or repair it in a timely manner or at a reasonable cost, which would impact our ability to produce and ship our products, which would have a material adverse effect on our business, financial condition or results of operations. For instance, in the fourth quarter of 2022, the region of New South Wales, Australia where our Ginkgo and Atlas Campaspe mining operations are also subjectlocated experienced historic flooding which has resulted in, among other things, a delay in the commissioning of our new Atlas Campaspe mine as well as prevented feedstock mined at such sites from being transported to EPA’s regulations regarding GHG emissionsour Australian pigment plants in a timely manner. Such flooding had an adverse effect on our business, financial condition and depending upon the natureresults of operations in 2022 and scope of any future regulations, could become subject to additional costs or limitations. Current requirements include an obligation to monitor and report the GHG emissions from our facilities and to comply with the Clean Air Act’s Prevention of Significant Deterioration requirements in connection with any new or modified major sources of GHG emissions. Although we believe will also have an impact to our 2023 financial results. Moreover, the impacts of climate change on global water resources may result in water scarcity, which could impact our ability to access sufficient quantities of water in certain locations and result in increased costs. For instance, we use significant amounts of water in our South Africa operations. Certain regions of South Africa have experienced in the past, and are prone to, drought conditions resulting in water restrictions being imposed in such areas. A prolonged drought in a region of South Africa where our operations are currently in compliance with these obligations, EPA has continuedlocated may lead to pursue additional GHG regulations, including the currently proposed Clean Power Plan for existing sources of GHGs in the power generating sector. In addition, several states have taken legal measures to reduce emissions of GHGs, including through the planned development of GHG emission inventories and/or regional GHG “cap and trade” programs. Although our facilities are not currently subject to any such program, the expansion or further adoption of such programs in jurisdictions where we operate could impose additional compliance obligations on our facilities. As a result, such programs could result in an increase in fuel or energy costs for our businesses or, if we are directly regulated, an additional cost to acquire necessary allowances. Future costs of compliance with either the existing or future federal or State regulations could materially and adversely affect our business, operating results and financial condition.
We may be subject to litigation, the disposition ofwater use restrictions which could have a material adverse effect on our business, financial condition and results of operations.
The naturemajority of our operations exposes usgreenhouse gas emissions are generated from our TiO2 slag furnaces in South Africa, synthetic rutile kiln in Australia, and TiO2 pigment plants in the United States, United Kingdom, France, Brazil, China, Netherlands, Australia, and Saudi Arabia. Concerns about the relationship between greenhouse gases and global climate change, and an increased focus on carbon neutrality, may result in new or increased legal and regulatory requirements on both national and supranational levels, to possible litigation claims, including disputes with competitors, customers, equipment vendors, environmental groupsmonitor, regulate, control and tax emissions of carbon dioxide and other non-governmental organizationsgreenhouse gases. A number of governmental bodies have already introduced, or NGOs,are contemplating, regulatory changes in response to climate change, including regulating greenhouse gas emissions. Any laws or regulations that are adopted to reduce emissions of greenhouse gases could, among other things, (i) cause an increase to our raw material costs, (ii) increase our costs to operate and providersmaintain our facilities including potentially causing the operation or maintenance of shipping services. Somecertain sites to be uneconomical, and (iii) increase costs to administer and manage emissions programs.
In addition, companies across all industries are facing increasing scrutiny relating to their ESG policies. Increased focus and activism related to ESG may hinder the Company’s access to capital, as investors may reconsider their capital investment as a result of their assessment of the lawsuitsCompany’s ESG practices. In particular, customers, investors and other stakeholders are increasingly focusing on environmental issues, including climate change, water use, and other sustainability concerns. Moreover, increased regulatory requirements, including in relation to various aspects of ESG including disclosure requirements, may seek finesresult in increased compliance or penalties and damagesinput costs of energy, raw materials or compliance with emissions standards, which may cause disruptions in large amounts,the manufacture of our products or seekan increase in operating costs. Any failure to restrictachieve our ESG goals or a perception of our failure to act responsibly with respect to the environment or to effectively respond to new, or changes in, legal or regulatory requirements concerning environmental or other ESG matters, or increased operating or manufacturing costs due to increased regulation, could adversely affect our business, activities. Becausefinancial condition and results of the uncertain nature of litigation and coverage decisions, we cannot predict the outcome of these mattersoperations, as well as our reputation.
If our intellectual property were compromised or
whether insurance claims may mitigate any damagescopied by competitors, or if competitors were to
us. Litigation is very costly, and the costs associated with prosecuting and defending litigation matters could have a material adverse effect ondevelop similar intellectual property independently, our results of operations
and financial condition.Expansion or improvement of our existing facilities may not result in revenue increases and will be subject to regulatory, environmental, political, legal and economic risks, which could adversely affect our results of operations and financial condition.
One of the ways we may grow our business is through the expansion or improvement of our existing facilities. The construction of additions or modifications to our existing facilities involve numerous regulatory, environmental, political, legal and economic uncertainties that are beyond our control. Such expansion or improvement projects may also require the expenditure of significant amounts of capital, and financing may not be available on economically acceptable terms or at all. If we undertake these projects, they may not be completed on schedule, at the budgeted cost, or at all. Moreover, our revenue may not increase immediately upon the expenditure of funds on a particular project. As a result, we may not be able to realize our expected investment return, which could adversely affect our results of operations and financial condition.
We compete with other mining and chemical businesses for key human resources in the countries in which we operate, and our business will suffer if we are unable to hire highly skilled employees or if our key officers or employees discontinue employment with us.
We compete with other chemical and mining companies, and other companies generally, in the countries in which we operate to attract and retain key human resources at all levels with the appropriate technical skills and operating and managerial experience necessary to continue operating and expanding our businesses. These operations use modern techniques and equipment and accordingly require various types of skilled workers. The success of our business will be materially dependent upon the skills, experience and efforts of our key officers and skilled employees. Competition for skilled employees is particularly severe in Western Australia and at Namakwa Sands, which may cost us in terms of higher labor costs or reduced productivity. As a result, we may not be able to attract and retain skilled and experienced employees. Should we lose any of our key personnel or fail to attract and retain key qualified personnel or other skilled employees, our business may be harmed and our operational results and financial condition could be negatively affected.
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There may be difficulty in effecting service of legal process and enforcing judgments against us and our directors and management.
We are registered under the laws of Western Australia, Australia, and substantial portions of our assets are located outside of the U.S. In addition, certain members of our board of directors reside outside the U.S. As a result, it may be difficult for investors to effect service of process within the U.S. upon Tronox Limited or such other persons residing outside the U.S., or to enforce judgments outside the U.S. obtained against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce rights predicated upon the U.S. federal securities laws in original actions brought in courts in jurisdictions located outside the United States.
Third parties may develop new intellectual property rights for processes and/or products that we would want to use, but would be unable to do so; or, Further, third parties may claim that the products we make or the processes that we use infringe on their intellectual property rights which may cause uscould result in costly litigation.
Our success depends to
pay unexpected litigation costsa significant degree upon our ability to protect and preserve our patents and unpatented proprietary technology, operational knowledge and other trade secrets (collectively "intellectual property rights"). The undetected or
damages or prevent us from making, using or selling products we make or require alterationunremedied unauthorized use of the processes we use.Results of our operations may also be negatively impacted if a competitor develops or has the right to use intellectual property rights for new processes or productsthe legitimate development or acquisition of intellectual property related to our industry by third parties could reduce or eliminate any competitive advantage we have as a result of our intellectual property rights. If we must take legal action to protect, defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of our resources and our management’s attention, and we cannot obtain similarmay not prevail in any such suits or proceedings. A failure to protect, defend or enforce our intellectual property rights could have an adverse effect on favorable terms or are unable to independently develop non-infringing competitive alternatives.
our financial condition and results of operations.
Although there are currently no
known pending or threatened proceedings or claims
known to us that are material relating to alleged infringement, misappropriation or violation of the intellectual property rights of others, we may be subject to legal proceedings and claims in the future in which third parties allege that their patents or other intellectual property rights are infringed, misappropriated or otherwise violated by us or our products or processes. In the event that any such infringement, misappropriation or violation of the intellectual property rights of others is found, we may need to obtain licenses from those parties or substantially re-engineer our products or processes to avoid such infringement, misappropriation or violation. We might not be able to obtain the necessary licenses on acceptable terms or be able to re-engineer our products or processes successfully. Moreover, if we are found by a court of law to infringe, misappropriate or otherwise violate the intellectual property rights of others, we could be required to pay substantial damages or be enjoined from making, using or selling the infringing products or technology. We also could be enjoined from making, using or selling the allegedly infringing products or technology pending the final outcome of the suit. Any of the foregoing could adversely affect our financial condition and results of operations.
If
We may be subject to litigation, the disposition of which could have a material adverse effect on our intellectual property were compromisedresults of operations.
The nature of our operations exposes us to possible litigation claims, including disputes with competitors, customers, equipment vendors, environmental groups and other non-governmental organizations, and providers of shipping services. Some of the lawsuits may seek fines or copied by competitors,penalties and damages in large amounts, or if competitors wereseek to develop similar intellectual property independently,restrict our business activities. Because of the uncertain nature of any litigation and coverage decisions, we cannot predict the outcome of these matters or whether insurance claims may mitigate any damages to us. Litigation is very costly, and the costs associated with prosecuting and defending litigation matters could have a material adverse effect on our results of operations and financial condition. See Note 18 of notes to our consolidated financial statements, included elsewhere in this Form 10-K for further information regarding our commitments and contingencies.
Our flexibility in managing our labor force may be adversely affected by labor and employment laws in the jurisdictions in which we operate, many of which are more onerous than those of the U.S.; and some of our labor force has substantial workers' council or trade union participation, which creates a risk of disruption from labor disputes and new laws affecting employment policies.
The vast majority of our employees are located outside the U.S. In most of those countries, labor and employment laws are more onerous than in the U.S. and, in many cases, grant significant job protection to employees, including rights on termination of employment. Moreover, many of our workforce outside the U.S. belong to unions and/or are represented by a collective bargaining agreement. As such, in such jurisdictions we are required to consult with, and seek the consent or advice of, various employee groups or works’ councils that represent our employees for any changes to our activities or employee benefits. This requirement could
be negatively affected.Our success depends tohave a significant degree upon our ability to protect and preserve our intellectual property rights. Although we own and have applied for numerous patents and trademarks throughout the world, we may have to rely on judicial enforcement of our patents and other proprietary rights. Our patents and other intellectual property rights may be challenged, invalidated, circumvented, and rendered unenforceable or otherwise compromised. A failure to protect, defend or enforce our intellectual property could have an adverse effectimpact on our financial conditionflexibility in managing costs and results of operations.
We also rely upon unpatented proprietary technology, expertise and other trade secretsresponding to maintain our competitive position. While we maintain policies to enter into confidentiality agreements with our employees and third parties to protect our proprietary expertise and other trade secrets, these agreements may not be enforceable or, even if legally enforceable, we may not have adequate remedies for breaches of such agreements. We also may not be able to readily detect breaches of such agreements. The failure of our patents or confidentiality agreements to protect our proprietary technology, expertise or trade secrets could result in significantly lower revenues, reduced profit margins or loss of market share.
In addition, we may be unable to determine when third parties are using our intellectual property rights without our authorization. We also have licensed certain of our intellectual property rights to third parties, and we cannot be certain that our licensees are using our intellectual property only as authorized by the applicable license agreement. The undetected or unremedied unauthorized use of our intellectual property rights or the legitimate development or acquisition of intellectual property related to our industry by third parties could reduce or eliminate any competitive advantage we have as a result of our intellectual property, adversely affecting our
changes.
financial condition and results of operations. If we must take legal action to protect, defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of our resources and our management’s attention, and we may not prevail in any such suits or proceedings. A failure to protect, defend or enforce our intellectual property rights could have an adverse effect on our financial condition and results of operations.
RISKS RELATING TO ACCOUNTING AND TAXATION
If our intangible assets or other long-lived assets become impaired, we may be required to record a significant
noncash charge to earnings.
We have a significant amount of intangible assets and other long-lived assets on our consolidated balance sheets. Under
generally accepted accounting principles in the United States (“U.S.
GAAP”),GAAP, we review our intangible assets and other long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances, indicating that the carrying value of our intangible assets and other long-lived assets may not be recoverable, include, but are not limited to, a significant decline in share price and market capitalization, changes in the industries in which we operate, particularly the impact of a downturn in the global economy, as well as competition or other factors leading to reduction in expected long-term sales or
profitability.results of operations. We may be required to record a significant noncash charge in our financial statements during the period in which any impairment of our intangible assets and other long-lived assets is determined, negatively impacting our results of operations.
Our ability to use
NOLsour tax attributes to offset future income may be limited.
Our ability to use
any net operating losses (“NOLs”) and
sectionSection 163(j) interest expense carryforwards
(which are now subject to Section 382 limitations per the new recently enacted U.S. major tax reform legislation) generated by
itus could be substantially limited if we were to experience an “ownership change” as defined under Section 382 of the
Code.U.S. Internal Revenue Code of 1986, as amended ("the Code"). In general, an
“ownership change”ownership change would occur if our “5-percent shareholders,” as defined under Section 382 of the Code
and including certain groups of persons treated as “5-percent shareholders,” collectively increased their ownership in us by more than 50 percentage points over a rolling three-year period.
The Exxaro Share Transaction and the issuanceAlthough we believe we have sufficient protection of
the Class A ordinary shares to Cristal Netherlands in connection with the Cristal Transaction may result inour approximately $4.3 billion of NOLs and/or approximately $769 million of Section 163(j) interest expense carryforwards, there can be no assurance that an
“ownership change”ownership change for U.S. federal and applicable state income tax
purposes. Should Exxaro decide to sell a significant portion of their remaining ownershippurposes will not occur in the
future, an “ownership change” will most likely occur.future. A corporation that experiences an ownership change will generally be subject to an annual limitation on the use of
itscertain pre-ownership change
NOLs (and certain other losses and/or
credits) equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate for the month in which the ownership change occurs. Although our NOLs continue to have full valuation allowances, suchcredits. Such a limitation could, for any given year, have the effect of increasing the amount of our U.S. federal
and/or state income tax liability, which would negatively impact our financial condition and the amount of after-tax cash available for distribution to holders of our ordinary
shares.shares if declared by our board of directors.
We could be subject to changes in tax rates, adoption of new tax laws or additional tax liabilities.
We are subject to taxation in
all of the
United States, Australia and various other foreign jurisdictions.jurisdictions in which we operate. Our future effective tax rate could be affected by changes in statutory rates and other legislative changes, or changes in determinations regarding the jurisdictions in which we are subject to tax. From time to time, the U.S. federal, state and local and foreign governments make substantive changes to tax rules and their application, which could result in higher corporate taxes than would be incurred under existing tax law and could have an adverse effect on our results of operations or financial condition. From time to time, we are also subject to tax audits by various taxing
authorities, including the Internal Revenue Service in the United States and the Australian Tax Office in Australia.authorities. Although we believe our tax positions are appropriate, the final determination of any
future tax audits could be materially different from our income tax provisions, accruals and reserves and any such unfavorable outcome from a
future tax audit could have a material adverse effect on our results of operations or financial condition.
Our results of operations and financial condition could be seriously impacted by security breaches, including cybersecurity incidents.
Failure to
effectively prevent, detect and recover from security breaches, including attacks on information technology and infrastructure by hackers; viruses; breaches due to employee errormeet some or
actions; or other disruptions could result in misuseall of our
assets,key financial and non-financial targets could negatively impact the value of our business
disruptions, loss of property including trade secrets and
confidentialTABLE OF CONTENTS
business information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales and interference with regulatory compliance. We have determined that such attacks could result in unauthorized parties gaining access to at least certain confidential business information. However, to date, we have not experienced any material financial impact, changes in the competitive environment or business operations that we attribute to these attacks. Although management does not believe that we have experienced any material losses to date related to security breaches, including cybersecurity incidents, there can be no assurance that we will not suffer such losses in the future. We actively manage the risks within our control that could lead to business disruptions and security breaches. As these threats continue to evolve, particularly around cybersecurity, we may be required to expend significant resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, such events could materially adversely affect our business,stock price.
From time to time, we may announce certain key financial condition or results of operations.We may need additional capital in the future and may not be ablenon-financial targets that are expected to obtain it on favorable terms.
Our businesses are capital intensive, and our success depends to a significant degree on our ability to develop and market innovative products and to update our facilities and process technology. We may require additional capital in the future to finance our growth and development, implement further marketing and sales activities, fund ongoing research and development activities and meet general working capital needs. Our capital requirements will depend on many factors, including acceptance of, and demandserve as benchmarks for our products, the extentperformance for a given time period, such as, projections for our future revenue growth, Adjusted EBITDA, Adjusted diluted earnings per share and free cash flow. Our failure to which we invest in new technology and research and development projects, and the status and timingmeet one or more of these developments, as well as general availability of capital from debt and/or equity markets. Additional financingkey financial targets may not be available when needed on terms favorable to us, or at all. Further, the terms of our debt may limit our ability to incur additional indebtedness or issue additional equity. If we are unable to obtain adequate funds on acceptable terms, we may be unable to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures, which could harmnegatively impact our results of operations, stock price, and shareholder returns. The factors influencing our ability to meet these key financial conditiontargets include, but are not limited to, changes in the global economic environment relating to our TiO
2 products and business prospects.zircon, changes in our competitive landscape, including our relationships with new or existing customers, our ability to introduce new products, applications, or technologies, our inability to complete strategic projects on budget or on schedule, our undertaking an acquisition, joint venture, or other strategic arrangement, and other factors described within this Item 1A – Risk Factors, many of which are beyond our control.
RISKS RELATING TO INVESTING IN OUR ORDINARY SHARES
Concentrated ownership of our ordinary shares by Cristal may prevent minority shareholders from influencing significant corporate decisions and may result in conflicts of interest.
| Item 1B. | Unresolved Staff Comments |
As of December 31, 2022, Cristal Inorganic, an affiliate of Cristal owned approximately 24% of our outstanding ordinary shares. As such, Cristal Inorganic may be able to influence fundamental corporate matters and transactions. This concentration of ownership, may delay, deter or prevent acts that would be favored by our other shareholders. The interests of Cristal Inorganic may not always coincide with our interests or the interests of our other shareholders. Also, Cristal Inorganic may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us, but which might involve risks to our other shareholders or adversely affect us or our other shareholders.
There
In addition, under the shareholders agreement (the “Cristal Shareholders Agreement”) we entered into at the closing of the Cristal transaction with Cristal, as long as Cristal Inorganic and the three shareholders of Cristal (collectively, the “Cristal Shareholders”) collectively beneficially own at least 24,900,000 or more of our ordinary shares, they have the right to designate for nomination two directors of our board of directors (the “Board”). As long as the Cristal Shareholders collectively beneficially own at least 12,450,000 ordinary shares but less than 24,900,000 ordinary shares, they have the right to designate for nomination one director of the Board. The Cristal Shareholders Agreement also provides that as long as the Cristal Shareholders collectively beneficially own at least 12,450,000 ordinary shares they have certain preemptive rights. Also, pursuant to the Cristal Shareholders Agreement, we have filed a universal shelf registration statement which is currently effective and which would cover shares owned by Cristal.
As a result of these or other factors, including as a result of any offering of shares by Cristal, or the perception that such sales may occur, the market price of our ordinary shares could decline. In addition, this concentration of share ownership may adversely affect the trading price of our ordinary shares because investors may perceive disadvantages in owning shares in a company with significant shareholders or with significant outstanding shares with registration rights.
English law and provisions in our articles of association may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our shareholders to replace or remove our current management.
Certain provisions of the U.K. Companies Act 2006 (the “Companies Act”) and our articles of association may have the effect of delaying or preventing a change in control of us or changes in our management. For example, our articles of association include provisions that:
•maintain an advance notice procedure for proposed nominations of persons for election to our board of directors;
•provide certain mandatory offer provisions, including, among other provisions, that a shareholder, together with persons acting in concert, that acquires 30 percent or more of our issued shares without making an offer to all of our other shareholders that is in cash or accompanied by a cash alternative would be at risk of certain sanctions from our board of directors unless they acted with the prior consent of our board of directors or the prior approval of the shareholders; and
•provide that vacancies on our board of directors may be filled by a vote of the directors or by an ordinary resolution of the shareholders.
In addition, public limited companies are no unresolved commentsprohibited under the Companies Act from taking shareholder action by written resolution. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
Although we do not anticipate being subject to the U.K. City Code on Takeovers and Mergers, such Takeover Code may still have anti-takeover effects in the event the Takeover Panel determines that were receivedsuch Code is applicable to us.
The U.K. City Code on Takeovers and Mergers (the “Takeover Code”) applies, among other things, to an offer for a public company whose registered office is in the U.K. (or the Channel Islands or the Isle of Man) and whose securities are not admitted to trading on a regulated market in the U.K. (or on any stock exchange in the Channel Islands or the Isle of Man) if the company is considered by the Panel on Takeovers and Mergers (the “Takeover Panel”) to have its place of central management and control in the U.K. (or the Channel Islands or the Isle of Man). This is known as the “residency test.” The test for central management and control under the Takeover Code is different from that used by the U.K. tax authorities. Under the Takeover Code, the Takeover Panel will determine whether we have our place of central management and control in the U.K. by looking at various factors, including the structure of our board of directors, the functions of the directors and where they are resident.
Given that currently all of the members of our Board of Directors reside outside the United Kingdom, we do not anticipate that we will be subject to the Takeover Code. However, if at the time of a takeover offer, the Takeover Panel determines that we have our place of central management and control in the U.K., we would be subject to a number of rules and restrictions, including but not limited to the following: (1) our ability to enter into deal protection arrangements with a bidder would be
extremely limited; (2) we might not, without the approval of our shareholders, be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions or disposals; and (3) we would be obliged to provide equality of information to all bona fide competing bidders.
As a public limited company incorporated in England and Wales, certain capital structure decisions requires approval of our shareholders, which may limit our flexibility to manage our capital structure.
The Companies Act generally provides that a board of directors of a public limited company may only allot shares (or grant rights to subscribe for or convertible into shares) with the prior authorization of shareholders, such authorization stating the maximum amount of shares that may be allotted under such authorization and specifying the date on which such authorization will expire, being not more than five years, each as specified in the articles of association or relevant shareholder resolution. We obtained previous shareholder authority to allot additional shares for a period of five years from February 25, 2019, which authorization will need to be renewed at least upon expiration (five years from February 25, 2019) but may be sought more frequently for additional five-year terms (or any shorter period).
The Companies Act generally provides that existing shareholders of a company have statutory pre-emption rights when new shares in such company are allotted and issued for cash. However, it is possible for such statutory pre-emption right to be disapplied by either shareholders passing a special resolution at a general meeting, being a resolution passed by at least 75% of the votes cast, or by inclusion of relevant provisions in the articles of association of the company. Such a disapplication of statutory pre-emption rights may not be for more than five years. We obtained previous shareholder authority to disapply statutory pre-emption rights for a period of five years from February 25, 2019, which disapplication will need to be renewed upon expiration (i.e., at least every five years) to remain effective, but may be sought more frequently for additional five-year terms (or any shorter period).
The Companies Act generally prohibits a public limited company from repurchasing its own shares without the prior approval of its shareholders by ordinary resolution, being a resolution passed by a simple majority of votes cast, and subject to compliance with other statutory formalities. Such authorization may not be for more than five years from the
SEC staff.date on which such ordinary resolution is passed. We obtained previous shareholder authority to repurchase shares for a period of five years from February 25, 2019, which authorization will need to be renewed at least upon expiration (i.e., five years from February 25, 2019) but may be sought more frequently for additional five-year terms (or any shorter period).
Transfers of our ordinary shares outside The Depository Trust may be subject to stamp duty or stamp duty reserve tax in the U.K., which would increase the cost of dealing in our shares.
Except for ordinary shares received by a holder deemed to be an affiliate of us for purposes of U.S. securities laws, our ordinary shares have been issued to a nominee for The Depository Trust Company (“DTC”) and corresponding book-entry interests credited in the facilities of DTC. On the basis of current law and HM Revenue and Customs (“HMRC”) practice, no charges to U.K. stamp duty or stamp duty reserve tax (“SDRT”) are expected to arise on the issue of the ordinary shares into DTC’s facilities or on transfers of book-entry interests in ordinary shares within DTC’s facilities.
Shareholders are strongly encouraged to hold their ordinary shares in book entry form through DTC. Transfers of shares held in book entry form through DTC currently do not attract a charge to stamp duty or SDRT in the U.K. A transfer of title in the shares from within the DTC system out of DTC, including to certificate shares, and any subsequent transfers that occur entirely outside the DTC system will attract a charge to stamp duty at a rate of 0.5% of any consideration, which is payable by the transferee of the shares. Any such duty must be paid (and the relevant transfer document, if any, stamped by HMRC) before the transfer can be registered in our books. However, if those shares are redeposited into DTC, the redeposit will attract stamp duty or SDRT at the rate of 1.5% to be paid by the transferor.
We have put arrangements in place such that directly held ordinary shares cannot be transferred into the DTC system until the transferor of the ordinary shares has first delivered the ordinary shares to a depositary specified by us so that SDRT may be collected in connection with the initial delivery to the depositary. Any such ordinary shares will be evidenced by a receipt issued by the depositary. Before the transfer can be registered in our books, the transferor will also be required to put the depositary in funds to settle the resultant liability to SDRT, which will be charged at a rate of 1.5% of the value of the shares.
Our articles of association provide that the courts of England and Wales have exclusive jurisdiction to determine any dispute brought by a shareholder in that shareholder's capacity as such and certain other matters.
Our articles of association provide that the courts of England and Wales have exclusive jurisdiction to determine any dispute brought by a shareholder in that shareholder's capacity as such, or related to or connected with any derivative claim in respect of a
cause of action vested in us or seeking relief on our behalf, against us and/or the board and/or any of the directors, former directors, officers, employees or shareholders individually, arising out of or in connection with our articles of association or (to the maximum extent permitted by applicable law) otherwise.This choice of forum provision may limit a shareholder's ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our directors, former directors, officers, employees or shareholders which may discourage lawsuits against us and our directors, former directors, officers, employees or shareholders.
There may be difficulty in effecting service of legal process and enforcing judgments against us and our directors and management.
We are incorporated under the laws of England and Wales and a substantial portion of our assets are located outside of the U.S. The U.S. and the U.K. do not currently have a treaty providing for the recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. The enforceability of any judgment of a U.S. federal or state court in the U.K. will depend on the laws and any treaties in effect at the time, including conflicts of laws principles (such as those bearing on the question of whether a U.K. court would recognize the basis on which a U.S. court had purported to exercise jurisdiction over a defendant). In this context, there is doubt as to the enforceability in the U.K. of civil liabilities based solely on the federal securities laws of the U.S. In addition, awards for punitive damages in actions brought in the U.S. or elsewhere may be unenforceable in the U.K.. An award for monetary damages under U.S. securities laws would likely be considered punitive if it did not seek to compensate the claimant for loss or damage suffered and was intended to punish the defendant.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Below are our primary offices and facilities at December 31,
2017.2022. We believe our properties are in good operating condition, and are well maintained. Pursuant to separate financing agreements, substantially all
of our
material U.S.
, European and Australian properties are pledged or encumbered to support or otherwise provide security for our indebtedness.
Corporate
Our corporate officesprimary office locations consisted of the following:Location
| Owned/Leased
| Offices
| | | | | | | | | | | | |
Location | | Owned/Leased | | Offices |
| Stamford, Connecticut | Leased
| Leased | | 263 Tresser Boulevard, Suite 1100 |
Kwinana Beach, Western Australia
Stallingborough, United Kingdom | Owned
| Lot 22 MasonOwned
| | Laporte Road Kwinana Beach WA 6167, Australia |
London, United Kingdom
Oklahoma City, Oklahoma | Leased
| 25 BuryOwned
| | 3301 NW 150 Street 3rd Floor |
Overview of Our Vertical Integration
Tronox is the world's leading vertically integrated manufacturer of TiO2 SegmentMining
pigment. We produce the majority of our internal TiO2 pigment feedstock requirements internally at our mine and mineral processing facilities. Our supply chain consists of mining operations in South Africa and Australia, separation and upgrading facilities located near our mines where we separate and process raw ore and then “upgrade” the titanium content of the raw ore to produce specialized chloride TiO2 feedstock materials (titanium slag and synthetic rutile) and nine TiO2 pigment production facilities located on six continents. The internal TiO2 feedstocks we produce include titanium slag, synthetic rutile, natural rutile, leucoxene, chloride ilmenite and sulfate ilmenite.
As part of our TiO2 value chain, we explore, acquire, mine and process heavy mineral sands to produce Heavy Mineral Concentrate (“HMC”) from which the Valuable Heavy Mineral (VHM) titanium and zircon products are made. HMC is produced from heavy mineral sands primarily through spiral gravity concentration at our mines. Mined material is transported to our nearby integrated mineral separation plants (MSP) to separate and concentrate VHMs by gravity, magnetic and electrostatic techniques. Multiple grades of titanium minerals and zircon may be produced from each MSP. The three titanium feedstocks which result from the MSP process (natural rutile, leucoxene and ilmenite) are each handled differently. Natural rutile and leucoxene are ordinarily shipped from the MSP to one of our TiO2 pigment production facilities. Depending on the TiO2 content of mined ilmenite, we either use it directly to produce TiO2 pigment or we upgrade it to produce titanium slag at our two South African smelter operations and synthetic rutile (SR) at our Chandala metallurgical complex in Western Australia. Our internally sourced titanium mineral products provide a secure, long-term low-cost supply of high-grade feedstock for our TiO2 pigment manufacturing facilities.
There is a high degree of substitutability among natural rutile, synthetic rutile, titanium slag, leucoxene and chloride ilmenite as titanium feedstocks for chloride pigment production. The commercial value of titanium feedstock is a function not only of TiO2 content and supply and demand balances, but also particle size, trace element geochemistry, logistics and other factors. The global TiO2 industry is a value-added supply chain, with final product prices for TiO2 pigment, typically significantly higher than that of chloride or sulfate ilmenite, the backbone of the global titanium mineral supply. The revenue assumptions for titanium feedstocks we applied to determine our reserve estimates, as described below, are based on market intelligence gathered from internal and external experts, sales contracts and historic pricing. The economic assessment is done on a minerals only basis and no value of downstream upgrading is attributed to the minerals units.
In 2022, we produced concentrates of ilmenite, rutile, leucoxene, and zircon from five operations:
–Namakwa Sands, Western Cape, South Africa;
–KwaZulu-Natal (“KZN”) Sands, KwaZulu-Natal, South Africa;
–Northern Operations,Our Western Australia;
–Southern Operations, Western Australia; and
–Eastern Operations, Murray Basin, New South Wales, Australia.
Ilmenite from our Namakwa and KZN Sands mines in South Africa is converted to titanium slag at our smelters at Saldanha Bay, Western Cape and Empangeni, KwaZulu-Natal, respectively. Ilmenite from our Cooljarloo mine in Western Australia is converted to SR at our Chandala metallurgical complex which is most commonly used as feedstock to our TiO2 pigment plants at Kwinana and Kemerton, both of which are south of Perth in Western Australia.
Mining Operations
Tronox owns and operates six mining and mineral processing operations, consisteach including one or more heavy mineral sand (“HMS”) mines producing HMC which is separated into valuable co-products, primarily zircon, and TiO2 feedstocks --- ilmenite, natural rutile or leucoxene --- in a dedicated mineral separation plant.
In South Africa, the Namakwa Sands operations include two open-pit mines at Brand-se-Baai, each with a dedicated primary gravity concentration plant and a secondary concentration plant (SCP) that processes the HMC from both primary plants. Products from the SCP are further processed to finished mineral products at a nearby mineral separation plant (MSP) in Koekenaap. Ilmenite product is further processed into titanium slag and pig iron at a two-furnace smelter at Saldanha, Western Cape, South Africa which is two hundred kilometers south of
theKoekenaap. The KZN operations have an open pit hydraulic mine at Fairbreeze
mine,with a
primary gravity concentration plant, a mineral separation plant
andat nearby Empangeni alongside a
two-furnace smelter complex,
with two furnaces.Our Namakwa Sands operations includeand export facilities at the Namakwa Sands mine, a primary concentration plant, a secondary concentration plant, a separation plant, and a smelter complex with two furnaces.
Our Westernport of Richards Bay.
In Australia, operationsthe Northern Operations consist of the Cooljarloo dredge mine and floating heavy mineralprimary gravity concentration plant, and the Chandala metallurgical complex, which includesconsisting of a mineral separation plant and SR plant. The Southern Operations consist of a syntheticdry open pit mine and primary concentration at Wonnerup and a mineral separation plant at Bunbury.
The Eastern Operations in the Murray Basin of Australia includes one operating dredge mine at Ginkgo which is supplemented by a dry open pit mine at Crayfish, a dry open pit mine at Atlas Campaspe and a mineral separation plant at Broken Hill, NSW. The Snapper mine ceased production in April 2022 after 12 years of production. The Gingko and Crayfish mines are expected to be mined until early 2024. During 2022, commissioning of the Atlas Campaspe mine continued and we expect will ramp up to full production in early 2023. The Atlas Campaspe mine is abundant in natural rutile
plant.and high value zircon and will be a significant source of high-grade ilmenite suitable for direct use or upgraded feedstock production.
Figure 1 Showing global site and offices including locations with resources and reserves.
Pigment Operations
Our owned office at 3301 NW 150th Street in Oklahoma City, Oklahoma is used for our pigment management operations and research and development.
Our pigment production facilities consist ofutilize the physical assets necessarytitanium mineral feedstock from our mining and appropriateprocessing operations to produce distribute and supply our TiO2, and consist mainly of manufacturing and distribution facilities. pigment products. The following table summarizeslists our TiO2 production facilities and pigment production facilities and capacity (in gross MTmetric tonnes per year), by location:
Facility
| Production
| TiO2
Capacity
| Process
| Property
Owned/Leased
| Facility
Owned/Leased
| | | | | | | | | | | | | | | | | | |
Hamilton, Mississippi
Facility | | TiO2
Production | | TiO2
Capacity | 225,000
| Process | | Chloride
| | | Owned
| | | Owned
| |
| Hamilton, Mississippi, USA | | TiO2 | | 225,000 | | | Chloride | |
| Yanbu, Saudi Arabia | | TiO2 | | 200,000 | | | Chloride | |
| Stallingborough, England, United Kingdom | | TiO2 | | 165,000 | | | Chloride | |
| Kwinana, Western Australia | | TiO2 | | TiO2
150,000 | | | 150,000
Chloride | | | Chloride
| | | Owned
| | | Owned
| |
| Kemerton, Western Australia | | TiO2 | | 110,000 | | | Chloride | |
| Botlek, the Netherlands | | TiO2 | | TiO2
90,000 | | | 90,000
Chloride | | | Chloride
| | | Leased
| | | Owned
| |
Electrolytic Operations
We have an electrolytic manufacturing and distribution facility as follows:
Facility
| Product
| Property
Owned/Leased
| Facility
Owned/Leased
|
| Salvador, Bahia, Brazil | | Henderson, NevadaTiO2
| | 60,000 | | | Sulphate | |
| Fuzhou, Jiangxi Province, China | | EMD, Boron productsTiO2
| | 46,000 | | | Sulphate | |
| Thann, Alsace, France | | TiO2 | Leased
| 32,000 | | Owned
| Sulphate | |
TABLE OF CONTENTS
Mineral Properties
As of December 31, 2017, we owned mining rights to ore reserves described herein at our three mineral sands operations in South Africa and Western Australia, where we mine heavy mineral sands to supply titanium mineral feedstock to our TiO2 manufacturing business and co- products for external sale.
Each mining operation maintains a Life-of-Mine Plan (“LOMP”), which is a strategic business plan for short and long-term mine planning and decision-making. A LOMP is based, in part, on estimated mineral reserves and can serve as a road map for mine development and planning, resource development, production targets, marketing, and financial management.
Reporting of
Ore ReserveReserves and
Mineral Resources
U.S. registrants are required to report oreresources and reserves under Industry Guide 7, “Descriptionin accordance with the amendments finalized in February 2019 to Item 102 of PropertyRegulation S-K(Subpart 1300). These amendments were intended to modernize the disclosure requirements for properties owned or operated by Issuers Engaged or To Be Engaged in Significant Mining Operations”. Industry Guide 7 requires that sufficient technicalmining companies to provide investors with a more comprehensive understanding of a registrant’s mining properties.
Our mineral resource and
economic studies have been completed to reasonably assure economic extraction of the declared reserves, based on the parameters and assumptions current to the end of the reporting period.The mineral reserve estimates are based on detailedextensive geological geotechnical, mine engineering and mineral processing inputs, into financialresource models developed and reviewedmodified by Tronox employees and management in South Africa, Australia and the U.S., including senior personnel who have been involved with each of our activevarious mining and mineral processing operations since the operations commenced.
factors and assessed in a techno-economic model for commercial viability. This constitutes a Life-of-Mine-Plan
(LOMP) for each operation. Our
heavy minerals reserves estimates have evolved from years of in-house reserve estimates, reconciliationsLOMP and
revised economic analyses and are routinely reviewed by third party consultants to comply with Industry Guide 7. Mineral reserve estimates are
optimized with respect to anticipated revenues and costs. Assumptions are developed
using conventional methods used in thefrom our extensive experience and include mining
industry, guided by the mineral resource reporting standards of the South African Code for the Reporting of Exploration Results, Mineral Resourcesparameters, processing recoveries, operating costs, foreign exchange, and
Mineral Reserves, also known as the SAMREC code (“SAMREC”), or the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, also known as the JORC code (“JORC”). Definitions and determination of Proven and Probable Reserve estimates under Industry Guide 7 are equivalent in all material respects to the ore reserve classifications under SAMREC and JORC, both internationally recognized guidelines for disclosures of mineral resources and reserves designed to ensure transparency, data validity and standardized methodologies for estimating the size and grades of mineral deposits. Both SAMREC and JORC require technical resource reports, written or supervised by a professional certified as a Competent Person by one or more of the organizations responsible for development and maintenance of their respective reporting standards. Annual Mineral Resource and Ore Reserve Statements are prepared by experienced Tronox resource professionals for eachrehabilitation. Each of our
three heavy mineral sand operating units,operations reconcile predicted mining and
reviewed by qualified experts whoprocessing metrics with actual production and recovery data on a monthly basis. Our models are
certified byupdated as necessary and used to determine ore boundaries based on economic assumptions. To satisfy the
professional organizations sanctioned under their respective country codes for disclosures of mineraldisclosure rules the nominal cut-off grades used to define resources
are, generally: 0.3% zircon at Namakwa Sands; 1.5% ilmenite at KZN Sands; 1.0% Total Heavy Minerals (“THM”) at our Northern Operations, Western Australia, 3% THM at our Southern Operations, Western Australia, and
reserves.Our heavy mineral reserve1% THM at our Eastern Operations, Murray Basin, Australia. Actual cut-off grades applied in estimates under SAMREC and JORC follow similar prescribed methodologies to classify portions of a mineral deposit as measured, indicated or inferred resourcescan vary according to the level of geological confidence. Portions of those categories determined to be economic by more rigorous modeling at the time of the evaluation may be upgraded to “proved” or “probable”numerous factors, such as mining method, overburden: ore reserves.
Despite differences between Industry Guide 7ratios, and SAMREC or JORC the methodologies for determination of mineral reserves, or “ore reserves,” and definitions of reserve classifications are essentially equivalent. The Proven and Probable heavy mineral (“HM”) assemblage quality. For reserves statedwhere there is substantial asset investment post the minerals production stage, parameters that best utilize the whole value chain may take precedence over maximizing value from the minerals business unit, therefore impacting the optimal mining shell and effective cut-off grade.
Not all HMS deposits are alike. Our reserves, as set forth in the tables in this report are unmodified from the Proved and Probable HM reserves declared in the Mineral Resources and Reserves Statements submitted by our South African and Australian operations. Under Industry Guide 7, SAMREC and JORC, Proven (or “Proved”) reservestable below, have a higher confidence level because we have undertaken sufficient drilling density and validation. Resources present unconfirmed continuity and variability in grade, HM assemblage, or other characteristics, as well as the indeterminate impact of modifying factors, and hence are not classified as reserves.
Within the broad category of resources, inferred resources have a lower level of geological confidence than
Probabledo indicated resources with measured resources being the highest confidence level from a geological perspective. Only indicated resources and measured resources can be converted to reserves with proven reserves having a higher level of economically exploitable confidence than probable reserves.
The summary table of our reserves below have been determined to be economically-exploitable by individuals competent and qualified to act under the new disclosure requirements as “Qualified Persons”.
Mining and Mineral Tenure
Industry Guide 7
S-K Subpart 1300 requires us to describe our rights to access and mine the minerals we report as
ore reserves and to disclose any change in mineral tenure of material significance. Our heavy mineral exploration and mining activities in South Africa and Australia are regulated by the South African Department of Mineral Resources,
and the Western Australia Department of Mines, Industry Regulation and Safety
respectively.and the New South Wales Department of Planning, Industry and Environment. All
of our exploration and mining
operationsactivities are subject to multiple levels of environmental regulatory review,
that includeincluding approvals of environmental
programsplans and public comment periods as pre-conditions to granting of
TABLE OF CONTENTS
mineral tenure. The rights and regulatory framework for minerals of relevance to Tronox are generally described below, followed by additional details of our three major mineral extraction and processing operations.
Mineral Tenure - South Africa
Our two South African mineral sand mining processing chains are operated by Namakwa Sands and KZN Sands, both indirect, wholly-owned subsidiaries of Tronox Holdings plc. The South African Department of Mineral Resources and Energy (“DMR”DMRE”) is the regulatory administrator of mineral rights in South Africa, subject to the provisions of the Mineral and Petroleum Resources Development Act (“MPRDA”), No. 28 of 2004, as amended 2009.in 2016. The MPRDA vests all mineral rights in South Africa in the national government and establishes conditions for the acquisition and maintenance of prospecting and mining rights. Prospecting rights and mining rights may only be granted by the DMRE. Prospecting rights are initially granted for a maximum period of five years and can be renewed once for an extension of up to three years. Prospecting rights may be revoked for non-compliance with the terms of the prospecting right.
Mining
rights are granted by the DMR, subject toright applications require additional approvals by the Department of Environmental Affairs (“DEA”) of an Environmental Management Program (“EMP”) and an Integrated Water and
WasteLand Use License.
Mining rights are valid for up to 30 years and may be extended by 30-year
renewals. They may be revoked if therenewals, subject to compliance with conditions
ofestablished in the EMP
are breached or for other contraventions ofand by the MPRDA. Environmental permitting and compliance are co-administered by the
Western Caperegional offices of DEA and Development
Planning (Namakwa Sands) and the KZN DEA (KZN Sands).Planning. All rights, licenses and permits for Namakwa Sands and KZN Sands are in good standing.
Through
On the Western Cape of South Africa, Tronox
Mineral Sands (Pty) Ltd, Namakwa Sands holds mining
rights over an area of 19,205 hectares (47,457 acres) and
prospectingsurface rights
mostlytotaling 17,111 hectares (43,542 acres) at the active mining site near
Brand-se-Baai.Brand-se-Baai, commonly referred to as our Namakwa Sands operation. On the Eastern coast of South Africa, Tronox also controls mining and prospecting rights in KwaZulu-Natal Province, on South Africa’s Indian Ocean coast, through our majority ownership ofcovering approximately 4,041 hectares (9,986 acres) at KZN, Sands. Much of thewhere surface access rights at the Fairbreeze mine are either owned directly by KZN Sands or secured through an agreementby agreements with Mondi Ltd.
A further 4,790 hectares (11,836 acres) of prospecting rights are held by a direct, wholly-owned subsidiary of KZN Sands at the nearby Port Durnford and Waterloo project areas which we are currently in the process of converting into a mining right.
Mineral Tenure - Australia
Our Australian mineral properties are divided into the Northern and Southern Operations on the Swan Coastal Plain of Western Australia and the Eastern Operations in the Murray Basin of New South Wales and Victoria. Mining tenements in
Australia are managed at the State or Territorial level. In Western Australia,
include Prospecting Licenses,Mining Leases, Exploration Licenses
and Retention Licenses
Mining Leases,are granted and
other instruments set forthadministered by the Western
Australia Mining Act of 1978. Mining activities are governed by various laws and regulations administered by State and National agencies, particularly the Western AustraliaAustralian Department of Mines, Industry Regulation and Safety,
(DMIRS)and in New South Wales by the NSW Department of Planning, Industry and Environment, under the authority of the Western Australian Mining Act 1978 and the
New South Wales Mining Act 1992, respectively. Principal environmental authorities are the Western
AustraliaAustralian Department of Water and Environmental
Regulation.InRegulation and the NSW Environment Protection Authority.
At the Northern Operations in Western Australia, Tronox controls mining leases, exploration and other licenses and
rights.rights covering a total 50,838 hectares (125,623 acres). Mining and Public Environmental Review plans are approved for the Cooljarloo mine and
approval to extend the
plannedenvironmental plans for Dongara
mine.were recently approved. Environmental Protection Agency approval of Cooljarloo West
is anticipated during 2018.Mining of thehas also been approved. The main Cooljarloo deposits are authorized by the Mineral Sands (Cooljarloo) Mining and Processing Agreement Act 1988 (WA), under Mineral Sands Agreement 268 (MSA 268), covering 9,745deposit covers 9,744 hectares (24,080(24,078 acres). The remainder of our heavy mineral ore reserves are held by mining leases granted by the DMIRS. We hold 1514 mining and attendant environmental approvalsleases at the Dongara project. Three older mining leases are held at our Jurien property, the site of a former heavy mineralminerals open pit mine operated by WMCanother party in the 1970’s.
Tronox holds mining and exploration licenses totaling 533,500 hectares (1,318,307 acres) in the South Perth Basin and Murray Basin heavy mineral provinces of Australia.
The Southern Operations in the southwest of Western Australia comprises 29 mining leases, 3 exploration licenses, 3 retention licenses, 2 general purpose leases and 2 miscellaneous licenses totaling 9,100 hectares.
Tronox holds 5 mining leases, 16 exploration licenses and 2 retention licenses in our Eastern Operations in the Murray Basin of New South Wales, Victoria and South Australia. The tenements cover approximately 524,400 hectares (2,025 sq miles). Three mining leases west of Pooncarie, NSW cover approximately 6,720 hectares (16,605 acres) surrounding our active mines at Ginkgo, Crayfish and rehabilitation site at Snapper. One mining lease of 2,330 hectares is at the Atlas Campaspe mining project in NSW.
Mineral Sands - South Africa and
Western Australia
HM sands
HMS deposits are naturally concentratednatural concentrations of granular minerals of high densitiesdensity (conventionally above about 2.92.85 gm/cm3), formed. Titanium-rich HMS deposit source rocks are typically granitic and/or high-grade metamorphic crystalline rocks. The heavy mineral assemblage of a particular HMS deposit generally reflects the ilmenite, leucoxene, natural rutile and zircon contained in local and regional source rocks. Factors that influence the formation of HMS deposits include erosion of crystalline source rocks, fluvial transport to the coastline, longshore drift, coastal geomorphology, deposition of heavy minerals, and prolonged natural sorting of heavy minerals by erosion, transportwater and concentration. wind, according to the density, size and shape of HM grains. Post-depositional geological processes that can affect the economic viability of a HMS deposit include in situ weathering, induration of the host sands, and natural preservation or destruction of the HMS deposit.
Not all of the HM hasheavy minerals have commercial value, and a distinction is made between the Total Heavy Minerals (“THM”) and the portion of the THM composed of Valuable Heavy Minerals (“VHM”). Typical VHM can be recovered at relatively low cost by gravity, magnetic and electrostatic separation techniques. In our disclosures, we express grade in terms of percentage of THM by weight inassemblages include the ore, and express individual VHM as percentages of the total heavy minerals unless otherwise stated. TABLE OF CONTENTS
Our TiO2 business explores, acquires, mines and processes HMs to produce, commercial grades of VHM co-products, and upgrades the titanium mineral, ilmenite, into high-grade feedstock for our TiO2 manufacturing facilities. A diagram of our heavy mineral sand mining and processing — TiO2 pigment value chain is as follows:
All of our HM mining operations extract ilmenite, a titanium-iron oxide mineral, ilmenite (FeTiO3); rutile, a premium TiO2 mineral feedstock mineral; leucoxene, a natural alteration product of weathered ilmenite; and zircon, a zirconium silicate (ZrSiO4) mineral(ZrSiO4) valuable for its applicationuse in a diverse range of industrial and construction end-uses. Leucoxeneapplications. Other HM of commercial value, such as garnet, staurolite, kyanite and monazite, may be recovered as by-products.
Of interest recently is the potential use of monazite, both in contained ore bodies and in stockpiled sources located near the mineral separation processes at Namakwa Sands. Monazite has increasing commercial value due to a naturally upgraded formhigh concentration of ilmenite. Other heavy minerals presentrare earth metals which can be separated by well-established methods. Rare earths are expected to remain in high demand as demand grows for electric vehicles, wind turbines, and consumer goods that require rare earth-containing permanent magnets. We currently do not know the metallurgical recovery potential for the monazite as our processes have historically focused on traditional value minerals. Given the increasing importance of monazite, we are evaluating new processes to better understand the grade and recoverability of monazite in our heavy mineral assemblages may have commercial value, subject to their recovery from heavy mineral concentrate (“HMC”) feed to our mineral separation plants. We recover and market staurolite, an aluminum silicate mineral used in sandblasting and other applications, at our Chandala mineral separation plant from the HMC feed from our Cooljarloo mine HMC. Other mineral constituentsmining tenements.
TRONOX MINERAL SAND - 2022 AGGREGATE MINERAL PRODUCTION FOR THE PAST THREE YEARS (metric tonnes per year)
| | | | | | | | | | | | | | | | | | | | |
| Product | | 2022 | | 2021 | | 2020 |
Rutile(1) | | 159,124 | | | 141,594 | | | 168,258 | |
Ilmenite(2) | | 1,156,099 | | | 1,190,981 | | | 1,188,051 | |
Zircon(3) | | 199,733 | | | 219,825 | | | 245,471 | |
________________(1) includes natural rutile + leucoxene
(2) includes multiple grades of potential value include garnet and monazite. Our reserve estimates are based solely upon the valueTiO2 grades of extractable and recoverableilmenite
(3) includes multiple grades of zircon
rutile, ilmenite and leucoxene.In 2017, we mined VHM, including ilmenite, rutile, leucoxene, and zircon at three integrated operations:
Namakwa Sands, Western Cape, South Africa
KZN and Tronox Northern Operations in, Western Australia. Our three TiO2 feedstock operating centers integrate ilmenite with metallurgical beneficiation. Ilmenite is converted to synthetic rutile (SR) in our Northern Operations in Western Australia, to provide SR feedstock to our Southern Operations TiO2 pigment manufacturing. Ilmenite is converted to titanium slag and pig iron in our integrated Namakwa and KZN smelter facilities in South Africa.TRONOX MINERAL SAND PRODUCT CAPACITIES
Capacity (metric tons per year) | Namakwa
Sands | KZN
Sands | Western
Australia | Total |
Rutile(1) | 31,000 | 25,000 | 35,000 | 91,000 |
Synthetic rutile | — | — | 220,000 | 220,000 |
Titanium slag | 190,000 | 220,000 | — | 410,000 |
Zircon(2) | 125,000 | 55,000 | 40,000 | 220,000 |
Pig iron | 100,000 | 121,000 | — | 221,000 |
Reserve life | 25+ Years | 12+ Years | 20+ Years | |
Exploration rights & undeveloped reserves | Yes | Yes | Yes | |
| (1) | Rutile includes natural rutile and leucoxene. |
| (2) | Includes all commercial grades of zircon |
TABLE OF CONTENTS
Namakwa Sands, Western Cape and KZN, South Africa
Our heavy mineral sand operations in South Africa include similar material flows from integrated mine-mineral separation-smelter value chains on the west and east coasts of South Africa. Both Namakwa, Western Cape and KZN Sands, KwaZulu-Natal produce smelter products of titanium slag and pig iron from ilmenite, plus commercial grades of zircon and high-grade titanium mineralrutile + leucoxene concentrates. In the Western Cape Province, we mine the large Namakwa heavy mineral deposit at Brand-se-Baai
Ore is excavated from two
open-cut shovel-and-truckopen-pit dry mines
each with a dedicatedand delivered by trucks and conveyors to two primary wet concentration
plant. Primary concentrateplants. Heavy Mineral Concentrate is separated into magnetic and non-magnetic fractions at a secondary concentration plant at the
mine, and the secondary concentratesmine. The two fractions are further processed at a mineral separation plant
(“dry mill”) 52 km south
of the mine at Koekenaap. Ilmenite, rutile and zircon are transported by rail
from Koekenaap to Saldanha Bay, where ilmenite is smelted in a two-furnace complex into titanium slag and pig iron. Chloride-grade slag, slag fines, pig iron, rutile and zircon are exported from our
proprietarydedicated facilities at the Saldanha Bay deep-water port,
aboutapproximately 150 km north of Cape Town.
Reserve estimates as
The Namakwa Sands HM deposit occupies an ellipsoidal area of
December 31, 2017, in accordance with SAMREC (2009) reporting standards, are: 43.8 million tonnes in-place HM, containing about 19.6 million metric tonnes ilmenite, 4.5 million tonnes zircon,15 kilometers northeasterly by 4 km wide and
4.0 million tonnes rutileis interpreted to be an ancient dune complex shaped by prevailing winds at the time of its formation. Repetitive cycles of erosion from crystalline source rock, fluvial transport and
leucoxene from 687 million tonnes of ore. These reserves are sufficient to sustainprolonged reworking by water and wind formed the
current rate of mining for over 25 years without any new reserve additions.deposit. The Namakwa Sands heavy mineral assemblage is diverse and heterogeneous, creating challenges to efficient recovery of valuable heavy minerals. Significant amounts of low-value heavy minerals in the Namakwa HM assemblage include: garnet, pyroxene, hematite, magnetite, and kyanite. Most of the ore reserves are hosted by a complex dune sand sequence over 40 meters thick, known as the Orange Feldspathic Sand, or “OFS.”. The OFS is significantly affected by the formation of hard duricrust layers and lenses, interpreted to be a chemical precipitate of variable amounts of silicon (Si), calcium (Ca), magnesium (Mg), iron (Fe), aluminum (Al) and other constituents from alkaline groundwater. The duricrust is superposed upon HM-bearing strata and adversely affects VHM recoveries. Additional reserves are hosted at the surface by a sheet-like layer of iron oxide-stained, wind-blown sand known as the red aeolian sand (RAS). No overburden is present.
Adjustments to our geotechnical-economic modelling and a comprehensive metallurgical program have enabled division of the West and East deposits into blocks of discrete geological domains with distinctive mineralogical and processing characteristics. Our improved understanding of Namakwa ore has led to improvements in liberation and recoveries of VHM.
The
KZN Sands, integrated mining-processing operation consists ofKwaZulu-Natal, South Africa
KZN Sands operates the open-cut Fairbreeze mine, just south of the coastal town of Mtunzini, 45 kilometers SSWthe Central Processing Complex, 30 km west of Richards Bay, a Central Processing Complex (“CPC”) at Empangeni, where ilmenite is fed to a dual electric arc furnace smelter for conversion into slag and pig iron, and storage andbulk export facilities at the port of Richards Bay. Smelter products, rutile and zircon are exported from Richards Bay.
The Fairbreeze deposit is hosted by deeply weathered “Berea-type” sands which are mined using a hydraulic mining technique thatsupported by track dozing. The hydraulic mining technique was pioneered for HMS mining at the now-depletedour nearby Hillendale mine, from 2001-2013.where rehabilitation is now complete. High-pressure water jets disaggregate the fine-grained ore sand into a slurry that flows by gravity to a central collection caisson and is pumped to a semi-mobile primary wet plant for the production of heavy mineral concentrate.to produce HMC. This HMC is hauled by truck 4045 km to the Empangeni CPC 18 km west of Richards Bay, for separation into rutile,commercial zircon and ilmenite. Ilmenite is fed to an adjoiningrutile concentrates, and ilmenite feed for the adjacent two-furnace smeltersmelter. Except for productionlocal consumption of titanium slag andsome pig iron. Alliron, all saleable products are exported from Richards Bay.Bay, including high-grade titanium feedstocks for our TiO
2 pigment plants.
The Fairbreeze deposit is hosted by a complex of strandline/paleo-dune couplets,
aboutapproximately two kilometers inland from the modern coastline, forming an elongate ridge extending
about 12 km south-southwesterly from the town of Mtunzini with a maximum width of
aboutapproximately two kilometers. No overburden is present. Modern erosion has dissected the deposit into five discrete ore bodies
named Fairbreeze A, B, C, C-Extension and D. The Fairbreeze dune complex is part of a regional, coast-parallel corridor of terraces and dunes collectively known as the Berea Red Sand that formed along the southeastern coast of Africa from Durban to Mombasa, in response to static sea levels of the Pliocene-Pleistocene. As with all heavy mineral sand deposits, iron-titanium oxides, rutile, zircon and other minerals in the HM assemblage at Fairbreeze are inherited from their source rock provenance and modified by selective sorting during deposition. Probable source rocks for the HM are the Natal Metamorphic Province and younger rift-related basalts.
Reserve estimates for KZN as
Northern Operations, Western Australia
Our mineral properties of
December 31, 2017, in accordance with SAMREC (2009) reporting standards, are: 177 million tonnes ore averaging 6.2% totalthe coastal plain of Western Australia are located within two historically important heavy
minerals. According to the Fairbreeze LOMP, our reserves are sufficient to sustain production for over 12 years. TABLE OF CONTENTS
Tronox Western Australia
mineral provinces. Our combined Cooljarloo dredge mine and Chandala metallurgical complex are the key components of our Northern Operations in Western Australia. Since the commencement of mining in December 1989, when ore reserves were manually calculated at a 2% THM cut-off grade, to December 31, 2017, cumulative production during 28 years of continuous mining atplanned Cooljarloo totals over 18 million tonnes HMC. At the CooljarlooWest dredge mine, approximately 170 km north of Perth, twocontain proven and probable reserves shown in the tables below.
Two dredges in a single pond feed an ore slurry to a floating concentrator.gravity concentrator to produce HMC, which is hauled by trucks 110 km south by truck to our Chandala metallurgical complex near Muchea, 60 km north of Perth, for the recovery of ilmenite, rutile, leucoxene and zircon. Ilmenite is upgraded at Chandala to synthetic rutile (SR),SR, a high-TiO2high-TiO2 feedstock for our integrated TiO2 pigment plant at Kwinana south of Perth. The Kwinana pigment plant and other components of our Southern Operations in Western Australia are described in Part 1, Item 1.Our Western Australia ore reserves of over 11.1 million tonnes of in-place total heavy minerals, including 5.8 million tonnes from Cooljarloo, 2.1 million tonnes from Cooljarloo West, and 3.2 million tonnes from Dongara, are sufficient to sustain our current value chain of HMC, multiple commercial grades of rutile, leucoxene and zircon, and SR feed to the KwinanaTiO
2 pigment plant for over 20 years.Ore reserves from three-ore bodies at Cooljarloo West (Kestrel, Harrier and Woolka) will be dredge-mined as an extension to the life of our Cooljarloo mining operations. Since our 2006 acquisition of the Dongara project, 370 kilometers north of Perth, we have completed several feasibility studies and obtained all long lead-time approvals forplants
The mining of
the Dongara deposits, including environmental licenses and permits.The economic disadvantage of mining low-grade ore at Cooljarloo is offsetsupported by economies of scale, low-cost dredging, a high-quality VHM suite that constitutes nearly 80% of THM, and good processing characteristics of the ilmenite in its conversion to SR. Over our nearly three decadesUpon exhaustion of operations, our professional staff in Western Australia has exploited opportunitiesCooljarloo ore, the dredge mine will relocate to extract value from the integrated mine-to-pigment chain, allowing us to create one of the most efficient operations in the global mineral sands industry.
Heavy minerals at Cooljarloo andnearby Cooljarloo West, where reserves from three-ore bodies contain an estimated 2.6 million tonnes of in-place heavy minerals.
At Dongara, multiple studies, drilling, and dry-mining optimization over the past 15 years identified reserves of 68 million tonnes of ore at an average grade of 5.1% THM in five deposits, for which mining and environmental approvals have been secured. Tronox has chosen not to upgrade the studies to a current feasibility level and consequently has reported only resources for the Dongara project.
Heavy mineral deposits of our Northern Operations generally occur in multiple,as stacked, elongate, NNW-trending strands and elongate tabular bodies parallel to the modern coastline.coastline, bounded to the east by the Gingin Scarp. A swarm of HM bodiesdeposits in the Cooljarloo district span an area of 40 km NNW by a width of over 5 km, bounded on the east by the “Gingin” scarp. Shoreline and shallow off-shore HM placers accumulated on the Swan Coastal Plain during static sea levels of the Pleistocene, or “Ice Age”.km. Heavy minerals were derived from the granitic and gneissiccrystalline “basement” of the Yilgarn craton east of the scarp and recycled from underlying Mesozoic sediments of the northernNorth Perth Basin. MostBasin west of the economically extractiblescarp are associated with marine still-stands on a wave-cut platform, as HM sands accumulated in shoreline, dunal and other coastal environments of a westward-regressing seacoast.
Southern Operations, Western Australia
We extract heavy minerals from the Wonnerup North open-cut HMS mine, 10 km east of Busselton, from which HMC is trucked to our MSP at Bunbury, adjacent to the Bunbury port. The Bunbury MSP also processes streams of non-magnetic zircon and rutile rich HM concentrates from our Broken Hill MSP in New South Wales.
Ilmenite-dominant heavy mineral deposits of the South Perth Basin occur as multiple, arcuate bands, parallel to the J-shaped Geographe Bay modern shoreline.
The Wonnerup North deposit is a shallow (~3m deep) windblown dunal deposit on the Capel paleo-shoreline, one of two strandlines, along with the Yoganup paleo shoreline, located 7 km and 15 km inland, respectively, from the modern Indian Ocean coast associated with most of the economic HMS deposits of the region.
Eastern Operations, Murray Basin, New South Wales, Australia
Our Eastern Operations are located in the Cooljarloo districtMurray Basin, a 300,000-square-kilometer intra-cratonic sedimentary basin covering parts of Victoria, New South Wales, and South Australia. Our operating mines at Ginkgo and Crayfish are overlainapproximately 40 km west of Pooncarie, New South Wales. Overburden at our Ginkgo and Crayfish mines is removed by younger overburden. Shoreline HM placersconventional mining methods, followed by dredge mining of slightly younger ages than Cooljarloo are also overlainore. Dry mining at Crayfish, a small deposit adjacent to Ginkgo, started in September 2019, from which ore is hauled to the Ginkgo dredge pond. Mining at Snapper was completed in April 2022 following 12 years of continuous production The Snapper site is currently undergoing mine closure and rehabilitation.
HMC from Ginkgo-Crayfish is hauled by
variable overburdentrucks approximately 240 km to our MSP in Broken Hill, NSW. At current production rates, mining is expected to continue at
JurienGinkgo and
Dongara.In 2017, 23 million tonnes of ore were mined from Cooljarloo ore reserves. New drilling, reevaluation of certain reserves and resources, and optimizationsCrayfish until early 2024.
Construction at our two new open-cut dry mines at Atlas/Campaspe, 150km east of the
mine model resultedcurrent operations and 90 km north of Balranald, NSW and approximately 270 km southeast of Broken Hill was completed in
a net decreaseearly 2023. Starting with Atlas, which is expected to ramp up to full production by the third quarter of
our reserve base by 10 million tonnes. Further reviews of ore exploitation options are planned during 2018.Our total heavy mineral reserves at December 31, 2017 in Western Australia, including Cooljarloo, Cooljarloo West and Dongara are 481 million tonnes of ore containing 11.1 million tonnes of heavy minerals, representing a 4.3% decrease in THM from our year-end 2016 estimate. Included in2023, the in-ground heavy mineral reserves are approximately 6.5 million tonnes ilmenite, 1.2 million tonnes zircon, and 900,000 combined tonnes of rutile and leucoxene.
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Our 2017 combinednew production will replace the production from the three HM mining-processing centersSnapper, Ginkgo and Crayfish mines. HMC produced on-site at Atlas and Campaspe by wet gravity separation will be delivered to the Broken Hill MSP via a combination of road and rail transport. Active exploration programs are shownongoing in the table below.
Tronox 2017 ProductionMurray Basin heavy minerals province, where our exploration licenses cover nearly 5,100 square kilometers.
The Broken Hill MSP utilizes magnetic separation techniques to produce commercial concentrates of
TiO2, Feedstockilmenite and Co-ProductsTronox Operation | Rutile(1) | Zircon(2) | Synthetic
Rutile | Titanium
Slag | Pig Iron |
| (Thousands of metric tonnes) |
Namakwa Sands | | 30 | | | 121 | | | — | | | 180 | | | 101 | |
KZN Sands | | 19 | | | 46 | | | — | | | 179 | | | 104 | |
Tronox Western Australia | | 28 | | | 34 | | | 243 | | | — | | | — | |
2017 Total | | 77 | | | 201 | | | 243 | | | 359 | | | 205 | |
| (1) | Natural rutile and leucoxene |
| (2) | Includes all commercial grades of zircon |
Ourleucoxene, and a non-magnetic HM concentrate. The products are either railed approximately 430 km to the port of Adelaide, South African and Australian mineral sands resource development strategy is guided by an in-house a resource development group comprised of key personnel with complementary expertise and experience. Our primary goal isAustralia or railed directly from Broken Hill to assure a long-term supply of titanium feedstocks to our vertically-integrated TiO2 value chain.
We believe our combined integrated titanium mining-to-titanium dioxide operations constitute the largest fully-integrated TiO2 value chain in the world, and the TiO2 business of Tronox is the world’s only mining-mineral processing chain with production of both titanium slag and synthetic rutile. Our captive slag from South Africa, synthetic rutile from Western Australia and natural rutile from our three operations satisfy over 100%using the Trans Australian Railway. The non-magnetic concentrates are then shipped to the Bunbury MSP for further processing into final products.
Further description of each of our
TiO2 feedstock requirements. Excess TiO2 feedstock can be marketed externally or stockpiled for future internal consumption.Natural rutile, synthetic rutile, and titanium slagmining projects described above are to a certain extent fungible as titanium feedstocks for chloride pigment production. However, each titanium mineral and beneficiated mineral product has a discreet commercial market, and the commercial value of titanium feedstock is a function not only of TiO2 content and supply and demand balances, but also particle size, trace element geochemistry, logistics and other factors. The global TiO2 industry is a valued-added supply chain, with final product prices for TiO2 pigment, typically higher than that of ilmenite, the base load titanium mineral the industry. The revenue assumptions for titanium feedstocks applied in the determination of heavy mineral ore reserve estimates are based on our sales contracts, pricing assumptionsincluded in our integrated TiO2 value chain, and market intelligence.
Our LOMP and reserve estimates are derived from detailed techno-economic models created from extensive geological, mining and analytical databases, and optimized with respect to anticipated revenues, and costs. Cost assumptions are developed from our extensive experience and include mining parameters, processing recoveries, foreign exchange, and rehabilitation. Each of our operations reconcile predicted mining and processing metrics with actual production and recovery data on a monthly basis. Our models are updated as necessary and used to determine the ultimate ore boundaries, rather than a simple grade cut-off. To satisfy the disclosure rules in Industry Guide 7, our nominal cut-off grades are: 0.2% zircon at Namakwa Sands; 1.5% ilmenite at KZN Sands; and 1.3% THM (approximately 1% VHM) at Tronox Northern Operations, Western Australia.
exhibit filings.
Heavy Mineral Reserves
Ore reserves are those portions of mineral deposits that are economically and legally exploitable at December 31, 2017.
All of our heavy mineral reserves are reported on the basis of our 100% ownership of in-place, economically extractable ore, determined from comprehensive geological, mining, processing and economic models and include dilution and mining losses. Ore is classified as either Provenmodels. Reserve classifications of proven or Probable,probable are based on the level of confidence in the reserve estimatesappropriate resource estimates. Our residual resources are those areas of mineralized ground which have either had insufficient drilling to confidently define the shape, grade and cost/revenue assumptions.recoverability of the valuable
minerals as well as not yet having been subjected to a detailed assessment of the impact of validated “modifying factors” on the revenue generating potential of a deposit.
For clarity, in the tables below, our reserves have been excised from the resources as they can be proven to be profitably mined and processed. The remaining deposit that exceeds cut-off grade, but have not yet been demonstrated to be profitable by virtue of either recoverable grade, operating cost or capital required to develop, are separately defined as resources.
The following table summarizestables summarize our heavy mineral ore reserves and resources as well as their contained in situ THM and heavy mineralHM assemblages as of December 31, 2017. Increases or decreases in our reserves estimates from December 31, 20162022.
TRONOX MINERAL SANDS - 2022 RESERVES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| MINE / DEPOSIT | | Reserve
Category | | Material
(million
tonnes) | | HM% | | Mineral Assemblage (% of THM) | | |
| Ilmenite | | Rutile and
Leucoxene | | Zircon | | Change (+/-) from 2021 (%)1 |
| Namakwa Sands Dry Mine - Western Cape RSA | | | | | | | | |
| | Proven | | 136 | | | 7.4 | % | | 37.6 | | | 8.7 | | | 9.0 | | | |
| | Probable | | 551 | | | 5.4 | % | | 53.8 | | | 11.2 | | | 11.4 | | | |
| | Total Reserves | | 687 | | | 5.8 | % | | 49.7 | | | 10.6 | | | 10.8 | | | (2.3) | |
| KZN Sands Hydraulic Mine KwaZulu-Natal RSA | | | | | | | | |
| | Proven | | 198 | | | 5.6 | % | | 61.7 | | | 7.4 | | | 7.6 | | | |
| | Probable | | 11 | | | 3.7 | % | | 51.8 | | | 5.0 | | | 7.0 | | | |
| | Total Reserves | | 209 | | | 5.5 | % | | 61.3 | | | 7.3 | | | 7.6 | | | (4.1) | |
| Cooljarloo – Dredge Mine - Western Australia | | | | | | | | |
| | Proven | | 210 | | | 1.6 | % | | 61.5 | | | 7.7 | | | 10.7 | | | |
| | Probable | | 130 | | | 2.0 | % | | 60.5 | | | 8.3 | | | 12.3 | | | |
| | Total Reserves | | 340 | | | 1.8 | % | | 61.1 | | | 8.0 | | | 11.4 | | | (5.8) | |
| Atlas-Campaspe Dry Mine - New South Wales Australia | | | | | | | | |
| | Proven | | 110 | | | 6.3 | % | | 60.7 | | | 11.8 | | | 12.5 | | | |
| | Probable | | — | | | — | % | | — | | | — | | | — | | | |
| | Total Reserves | | 110 | | | 6.3 | % | | 60.7 | | | 11.8 | | | 12.5 | | | 2.6 | |
| Wonnerup Dry Mine - Western Australia | | | | | | | | |
| | Proven | | 9 | | | 5.3 | % | | 70.1 | | | 19.1 | | | 9.6 | | | |
| | Probable | | 4 | | | 5.7 | % | | 77.5 | | | 11.4 | | | 8.8 | | | |
| | Total Reserves | | 13 | | | 5.4 | % | | 72.6 | | | 16.5 | | | 9.4 | | | (15.0) | |
| Ginkgo-Crayfish Dredge/ Dry Mines - New South Wales Australia | | | | | | | | |
| | Proven | | 26 | | | 1.9 | % | | 51.5 | | | 16.3 | | | 12.7 | | | |
| | Probable | | — | | | — | | | — | | | — | | | — | | | |
| | Total Reserves | | 26 | | | 1.9 | % | | 51.5 | | | 16.3 | | | 12.7 | | | (28.8) | |
| Total Reserves | | | | | | | | | | | | | | |
| | Proven | | 689 | | 4.7 | % | | 54.0 | | | 9.1 | | | 9.5 | | | |
| | Probable | | 696 | | 4.7 | % | | 54.4 | | | 10.9 | | | 11.4 | | | |
| | Total Reserves | | 1,385 | | | 4.7% | | 54.2 | | | 10.0 | | | 10.5 | | | (3.9) | |
1 Changes are predominantly due to December 31, 2017 are indicateddepletion as a percentresult of in-place THM reserves.MINE / DEPOSIT | Reserve
Category | Ore
(million
MT) | Average
Grade
(% THM) | In-Place
THM
(million
MT) | VHM Assemblage (% of THM) | Change
from
2016
(+ (-) %) |
Ilmenite | Rutile and
Leucoxene | Zircon |
Namakwa Sands Open Pit Dry Mine – Western Cape RSA | | | | | | | | | | | | | | | | | | | | | | | | |
| Proven | | 195 | | | 8.6 | | | 16.7 | | | 35.7 | | | 7.8 | | | 9.1 | | | | |
| Probable | | 492 | | | 5.5 | | | 27.1 | | | 50.2 | | | 9.8 | | | 10.9 | | | | |
| Total Reserves | | 687 | | | 6.4 | | | 43.8 | | | 44.7 | | | 9.1 | | | 10.3 | | | (5.6 | )% |
KZN Sands Open Pit Hydraulic Mine – KZN RSA | | | | | | | | | | | | | | | | | | | | | | |
| Proven | | 131 | | | 6.7 | | | 8.8 | | | 61.9 | | | 5.2 | | | 8.4 | | | | |
| Probable | | 46 | | | 4.6 | | | 2.1 | | | 53.3 | | | 5.0 | | | 7.2 | | | | |
| Total Reserves | | 177 | | | 6.2 | | | 10.9 | | | 60.2 | | | 5.2 | | | 8.1 | | | (6.8 | )% |
South Africa | Total Reserves | | 864 | | | | | | 54.7 | | | | | | | | | | | | (5.9 | )% |
Cooljarloo – Dredge Mine Western Australia | | | | | | | | | | | | | | | | | | | | | | |
| Proven | | 294 | | | 1.8 | | | 5.4 | | | 60.5 | | | 7.7 | | | 10.2 | | | | |
| Probable | | 20 | | | 2.1 | | | 0.4 | | | 61.6 | | | 7.8 | | | 9.3 | | | | |
| Total Reserves | | 314 | | | 1.9 | | | 5.8 | | | 60.6 | | | 7.7 | | | 10.1 | | | (7.9 | )% |
Cooljarloo West Planned Dredge Mine – Western Australia | | | | | | | | | | | | | | | | | | | | | | |
| Proven | | — | | | — | | | — | | | — | | | — | | | — | | | | |
| Probable | | 105 | | | 2.0 | | | 2.1 | | | 60.5 | | | 7.9 | | | 12.2 | | | | |
| Total Reserves | | 105 | | | 2.0 | | | 2.1 | | | 60.5 | | | 7.9 | | | 12.2 | | | | |
Dongara Planned Dry Mine – Western Australia | | | | | | | | | | | | | | | | | | | | | | |
| Proven | | 62 | | | 5.2 | | | 3.2 | | | 48.7 | | | 8.9 | | | 10.9 | | | | |
| Probable | | — | | | — | | | — | | | — | | | — | | | — | | | | |
| Total Reserves | | 62 | | | 5.2 | | | 3.2 | | | 48.7 | | | 8.9 | | | 10.9 | | | | |
Western Australia | Total Reserves | | 481 | | | | | | 11.1 | | | | | | | | | | | | (4.3 | )% |
Global | Total Reserves | | 1,345 | | | | | | 65.8 | | | | | | | | | | | | (5.6 | )% |
TRONOX MINERAL SANDS - 2022 RESOURCES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| MINE / DEPOSIT | | Resource
Category | | Material
(million
tonnes) | | HM% | | Mineral Assemblage (% of THM) | | |
| Ilmenite | | Rutile and
Leucoxene | | Zircon | | Change (+/-) from 2021 (%)1 |
| Namakwa Sands Dry Mine - Western Cape RSA | | | | | | | | | | | | |
| | Measured | | 104 | | | 8.0 | % | | 30.2 | | | 5.9 | | | 6.9 | | | |
| | Indicated | | 86 | | | 6.5 | % | | 28.3 | | | 5.6 | | | 6.9 | | | |
| | Measured + Indicated | | 190 | | | 7.3 | % | | 29.3 | | | 5.8 | | | 6.9 | | | |
| | Inferred | | 110 | | | 5.5 | % | | 35.1 | | | 8.1 | | | 6.6 | | | |
| | Total | | 300 | | | 6.7 | % | | 31.4 | | | 6.6 | | | 6.7 | | | (1.9) | |
| KZN Sands Hydraulic Mine - KwaZulu-Natal RSA | | | | | | | | | | | | |
| | Measured | | 48 | | | 4.2 | % | | 64.3 | | | 8.1 | | | 7.7 | | | |
| | Indicated | | 1 | | | 2.0 | % | | 53.5 | | | 7.0 | | | 7.5 | | | |
| | Measured + Indicated | | 49 | | | 4.1 | % | | 64.1 | | | 8.1 | | | 7.6 | | | |
| | Inferred | | 56 | | | 3.4 | % | | 54.6 | | | 6.9 | | | 7.1 | | | |
| | Total | | 105 | | | 3.7 | % | | 59.1 | | | 7.4 | | | 7.3 | | | (2.0) | |
| Cooljarloo – Dredge Mine - Western Australia | | | | | | | | | | | | |
| | Measured | | 10 | | | 1.6 | % | | 59.3 | | | 7.7 | | | 9.8 | | | |
| | Indicated | | 282 | | | 1.5 | % | | 61.4 | | | 6.7 | | | 10.5 | | | |
| | Measured + Indicated | | 292 | | | 1.5 | % | | 61.3 | | | 6.8 | | | 10.4 | | | |
| | Inferred | | 12 | | | 2.9 | % | | 58.0 | | | 7.3 | | | 9.0 | | | |
| | Total | | 304 | | | 1.6 | % | | 61.1 | | | 6.8 | | | 10.4 | | | 3.9 | |
| Dongara Planned Dry Mine - Western Australia | | | | | | | | | | | | |
| | Measured | | 109 | | | 4.1 | % | | 50.2 | | | 9.0 | | | 10.8 | | | |
| | Indicated | | 31 | | | 3.5 | % | | 53.7 | | | 9.1 | | | 12.4 | | | |
| | Measured + Indicated | | 140 | | | 3.9 | % | | 52.0 | | | 9.1 | | | 11.6 | | | |
| | Inferred | | 46 | | | 3.7 | % | | 56.1 | | | 8.9 | | | 9.2 | | | |
| | Total | | 186 | | | 3.9 | % | | 52.1 | | | 9.0 | | | 10.7 | | | 4.2 | |
| | | | | | | | | | | | | | |
| Atlas-Campaspe Dry Mine - New South Wales Australia | | | | | | | | |
| | Measured | | 27 | | | 2.5 | % | | 58.8 | | | 10.9 | | | 11.7 | | | |
| | Indicated | | — | | | — | % | | — | | | — | | | — | | | |
| | Measured + Indicated | | 27 | | | 2.5 | % | | 58.8 | | | 10.9 | | | 11.7 | | | |
| | Inferred | | 83 | | | 3.1 | % | | 60.1 | | | 5.8 | | | 13.1 | | | |
| | Total | | 110 | | | 3.0 | % | | 59.8 | | | 6.9 | | | 12.8 | | | (3.2) | |
| Port Durnford - KwaZulu-Natal RSA | | | | | | | | |
| | Measured | | 143 | | | 4.5 | % | | 67.6 | | | 6.0 | | | 9.3 | | | |
| | Indicated | | 340 | | | 4.1 | % | | 67.4 | | | 6.1 | | | 9.3 | | | |
| | Measured + Indicated | | 483 | | | 4.2 | % | | 67.5 | | | 6.1 | | | 9.3 | | | |
| | Inferred | | 466 | | | 3.5 | % | | 71.8 | | | 6.3 | | | 10.0 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | 949 | | | 3.9 | % | | 69.4 | | | 6.2 | | | 9.6 | | | 0.0 | |
| Wonnerup Dry Mine - Western Australia | | | | | | | | | | | | |
| | Measured | | 13 | | | 4.6 | % | | 77.5 | | | 12.0 | | | 8.8 | | | |
| | Indicated | | 6 | | | 4.8 | % | | 86.9 | | | 3.3 | | | 7.6 | | | |
| | Measured + Indicated | | 19 | | | 4.6 | % | | 80.5 | | | 9.2 | | | 8.4 | | | |
| | Inferred | | 3 | | | 4.4 | % | | 84.0 | | | 4.0 | | | 8.3 | | | |
| | Total | | 22 | | | 4.6 | % | | 81.0 | | | 8.5 | | | 8.4 | | | (6.4) | |
| Ginkgo-Crayfish Dredge/ Dry Mines - New South Wales Australia | | | | | | | | |
| | Measured | | 78 | | | 1.3 | % | | 47.9 | | | 18.2 | | | 12.4 | | | |
| | Indicated | | — | | | — | % | | — | | | — | | | — | | | |
| | Measured + Indicated | | 78 | | | 1.3 | % | | 47.9 | | | 18.2 | | | 12.4 | | | |
| | Inferred | | 59 | | | 1.1 | % | | 47.9 | | | 17.9 | | | 13.0 | | | |
| | Total | | 137 | | | 1.2 | % | | 47.9 | | | 18.1 | | | 12.6 | | | (1.0) | |
| Kara/Cylinder - New South Wales Australia | | | | | | | | | | | | |
| | Measured | | — | | | — | % | | — | | | — | | | — | | | |
| | Indicated | | 165 | | | 4.4 | % | | 49.4 | | | 12.9 | | | 12.0 | | | |
| | Measured + Indicated | | 165 | | | 4.4 | % | | 49.4 | | | 12.9 | | | 12.0 | | | |
| | Inferred | | 26 | | | 2.8 | % | | 54.4 | | | 24.4 | | | 14.2 | | | |
| | Total | | 191 | | | 4.1 | % | | 49.8 | | | 13.9 | | | 12.2 | | | (4.7) | |
| Total Resources | | | | | | | | | | | | | | |
| | Measured | | 532 | | | 4.4 | % | | 49.9 | | | 7.5 | | | 8.8 | | | |
| | Indicated | | 911 | | | 3.6 | % | | 55.6 | | | 7.7 | | | 9.7 | | | |
| | Measured + Indicated | | 1,443 | | | 3.9 | % | | 53.2 | | | 7.6 | | | 9.3 | | | |
| | Inferred | | 861 | | | 3.5 | % | | 60.6 | | | 7.5 | | | 9.5 | | | |
| | Total | | 2,304 | | | 3.8 | % | | 55.8 | | | 7.6 | | | 9.4 | | | (0.2) | |
1 Changes are predominantly due to depletion as a result of mining offset by increases at Cooljarloo and Dongara due to re-estimation.
Abbreviations,
Definitions, and
definitions:MT —metric tonnes (1Notations
One metric ton tonne = 1.10231 short tons)Ore tons
Reserves —the portions of our inventories of mineralized —mineralized material inclusive of dilution, determined to be economically and legally exploitable as of December 31, 2017,2022, classified as either Probable Reserves or Proven Reserves,, based on level of confidence.
Resources – mineralized ground which has either had insufficient drilling to confidently define the shape, grade and recoverability of the valuable minerals as well as not yet having been subjected to a detailed assessment of the impact of validated modifying factors on the revenue generating potential of a deposit.
LOMP —Life-of-Mine-Plans (LOMPs) have been developed for each mine site by teams of Tronox professionals based on the mineral reserves and resources, realistic assumptions of geological, mining, metallurgical, economic, marketing, legal, environmental, social, governmental, engineering, operational and all other modifying factors in sufficient detail to demonstrate at the time of reporting that extraction is reasonably justified.
THM — total heavy minerals, with densities >2.9>2.85 g/cm3 regardless of commercial value
VHM — valuable heavy minerals, including Ilmenite, Rutile, Leucoxene & Zirconzircon, reported as percentage of THM.Change from 2016 — Increase or decrease of estimated in-place THM in
Minor computational discrepancies may be due to rounding.
Cooljarloo Dredge Mine reserves
expressed as + or – percent change from 2016.include Cooljarloo and Cooljarloo West
Key Assumptions— economic viability is determined by techno-economic modeling constructed fromthat integrates geological, analytical and geotechnical databases, mining parameters, metallurgical recovery assumptions, pit optimizations, and economic assumptions based on currentrecoveries, known or forecast operating costs, foreign exchange rates,cost of capital, and projected product sales prices at time of production. Historical sales prices by themselves are unreliable predictors of future prices, and our revenue forecasts are based on multiple factors, including market research, existingour private contracts, internal and external consultant opinions. Nominalmarket research.
Disclosures of mineral reserves traditionally include a cut-off grade, the grade in a mineral deposit below which material cannot be profitably mined and processed. However, economic exploitability is determined by many modifying factors other than grade, and most modern mining operations, including ours, use detailed computer models utilized by employees who possess the experience and technical expertise to identify what parts of a deposit are economically exploitable. As cut-off grades
are 0.2%remain entrenched in the mining industry, the following nominal cut-off grades apply, with qualifications, to our five operations: 0.3% zircon at Namakwa
Sands,Sands; 1.5% ilmenite at KZN
Sands, andSands; 1.3% THM
(1%(approximately 1% VHM) at
Cooljarlooour Northern Operations, WA, 3% THM at our Southern Operations, WA, and
Cooljarloo West.1% THM at our Eastern Operations, NSW. TABLE OF CONTENTS
Our forecast productionProduction forecasts of commercial-quality titanium mineral and zircon concentrates from reserves is based on mining rates, the heavy mineral assemblage and grade distributions,are taken from our experience in valuable mineral recoveries, and other inputs to our techno-economic models.Life-of-Mine Plans. Mining recoveries are typically 99-100%. Metallurgicalclose to 100%, but metallurgical recoveries in each concentration step can vary widely, as a function of ore and mineral characteristics. Processing efficiencies are affected by many factors, including mineralogical diversity, grain size, morphology and surface coatings of the heavy minerals. To a practical extent, mineral separation technology is customized for the physical characteristics of each mining operation. CumulativeWe apply recovery factors for VHM in our mine concentrates, inclusive of HM concentration at the mine and production of mineral concentrates at the separation plant, are generally in the range of 70% to 95%. Actual recoveries are applied in our techno-economic models to determine economic viability. Unrecovered VHM in certain dry mill tailings streams are stockpiled, but their hypothetical value is not considered in our revenue assumptions.
based on actual operating data.
Mineral reserve estimates, life-of mine projections, and revenue assumptions are inherently forward-looking and subject to market conditions, uncertainties, and unanticipated events beyond our control.
Our revenue assumptions are anchored by in-house and external forecasts of the prevailing sales prices for our mineral concentrates and beneficiated mineral products at the time of their anticipated sale, or consumption in our vertically-integrated TiO2 supply chain. In our experience, historical prices for commercial mineral concentrates and titanium feedstocks are not by themselves a reliable guide to future prices.The following table compares the heavy mineral reserves reported for the three years ending December 31, 2017, 2016 and 2015:
3-Year Reserves (Mt In-Place THM)
| Reserve
Life-Of-Mine | December 31, |
| 2017 | 2016 | 2015 |
| | (In millions of MT) |
Namakwa Sands | >25 years | | 43.8 | | | 46.4 | | | 47.8 | |
KZN Sands | >12 years | | 10.9 | | | 11.7 | | | 12.0 | |
Total South Africa | | | 54.7 | | | 58.1 | | | 59.8 | |
Cooljarloo and Cooljarloo West | | | 7.9 | | | 8.4 | | | 8.2 | |
Dongara | | | 3.2 | | | 3.2 | | | 3.3 | |
Total Western Australia | >20 years | | 11.1 | | | 11.6 | | | 11.5 | |
Total Tronox | | | 65.8 | | | 69.7 | | | 71.3 | |
The above three -year total heavy mineral reserves for the Tronox Mineral Sands Division are expressed as millions of MT in-place THM for the years ended 2015 through 2017. LOMPs for each operation may include some non-reserve mineralized material not currently classified as reserves under SAMREC and JORC the guidelines, and the mine lives in the LOMPs may be longer than what can be supported by the reserves. Our LOMP’s and ore reserves support operational lives of over 25 years at Namakwa Sands, over 12 years at KZN Sands, and over 20 years at our Western Australia Northern Operations.
Item 3. Legal Proceedings
Information required by this item is incorporated herein by reference to the section captioned “Notes to Consolidated Financial Statements, Note
17-18 - Commitments and Contingencies” of this Form 10-K.
| Item 4. | Mine Safety Disclosures |
SEC regulations require us to disclose certain information about administrative or judicial proceedings to which a governmental authority is party arising under federal, state or local environmental provisions if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to the SEC regulations, the Company uses a threshold of $1 million or more for purposes of determining whether disclosure of any such proceedings is required.
Information regarding mine safety and other regulatory actions at our mine in Green River, Wyoming, operated in conjunction with the Alkali business (which was sold on September 1, 2017), is included in Exhibit 95 of this Form 10-K.
Item 4. Mine Safety Disclosures
None.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities |
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market for our Class AOrdinary Shares
Our ordinary shares
Our Class A Shares began trading trade on the New York Stock Exchange on June 18, 2012 under the symbol “TROX.” There is no public trading market for our Class B Shares, which are held by Exxaro.
The following table sets forth, for the fiscal quarters indicated, the high and low sales prices per share of our Class A Shares, and the dividends declared during 2017 and 2016.
| Sales Price | Dividends
per Share |
| High | Low |
2017
| | | | | | | | | |
Fourth quarter | $ | 28.40 | | $ | 18.50 | | $ | 0.045 | |
Third quarter | $ | 23.52 | | $ | 14.83 | | $ | 0.045 | |
Second quarter | $ | 19.53 | | $ | 12.88 | | $ | 0.045 | |
First quarter | $ | 19.99 | | $ | 10.41 | | $ | 0.045 | |
2016
| | | | | | | | | |
Fourth quarter | $ | 12.03 | | $ | 7.40 | | $ | 0.045 | |
Third quarter | $ | 9.92 | | $ | 4.17 | | $ | 0.045 | |
Second quarter | $ | 8.20 | | $ | 3.84 | | $ | 0.045 | |
First quarter | $ | 6.87 | | $ | 2.79 | | $ | 0.25 | |
Holders of Record
As of January
26, 2018,31, 2023, there were approximately
42656 holders of record of
Class A Shares.ordinary shares. This does not include the shareholders that held shares of our
Class A Sharesordinary shares in a nominee or “street-name” accounts through banks or broker-dealers. See Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Issuer Purchases of Equity Securities TABLE OF CONTENTS
| Item 6. | Selected Financial Data | | | | | | | | | | | | | | | |
| 2022 | | Total Number of Shares Purchased | Weighted Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan(1) | Maximum Approximate Dollar Value that May Yet be Purchased Under the Plan(1) |
| October 1 - October 31 | | — | | $ | — | | — | | $ | 250,536,235 | |
| November 1 - November 30 | | — | | — | | — | | 250,536,235 | |
| December 1 - December 31 | | — | | — | | — | | 250,536,235 | |
| Total | | — | | $ | — | | — | | $ | 250,536,235 | |
The following table sets forth selected historical financial data for(1) On November 9, 2021, the periods indicated. In connection withCompany announced that the Alkali Sale, we recognized a lossCompany’s Board of $233Directors has authorized the repurchase of up to $300 million net of tax,the Company’s ordinary shares, par value $0.01 per share (the “ordinary shares”), through February 2024. For details on share repurchases made during the year ended December 31, 2017. As a result of the Alkali Sale, Alkali’s results of operations have been reported as discontinued operations (see Note 32022, see "Note 19" of notes to consolidated financial statementsstatements. Under the authorization from our Board of Directors, we have approximately $251 million available for additional information). This information should be read in conjunctionrepurchases through February 2024.
Stock Performance Graph
The following graph presents the five-year cumulative total stockholder returns for our ordinary shares compared with the Standard & Poor’s (“S&P”) 500, the S&P MidCap 400 Chemicals and the S&P 400 Materials indices.
The graph assumes that the values of our Consolidatedordinary shares, the S&P 500, the S&P MidCap 400 Chemicals index, and the S&P 400 Materials index were each $100 on December 31, 2017, and that all dividends were reinvested.
Item 6. Selected Financial Statements (including the notes thereto) and our “Management’sData
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” | Year Ended December 31, |
| 2017 | 2016(1) | 2015(1) | 2014(1) | 2013(1) |
Statement of Operations Data:
| | | | | | | | | | | | | | | |
Net sales | $ | 1,698 | | $ | 1,309 | | $ | 1,510 | | $ | 1,737 | | $ | 1,922 | |
Gross profit | | 388 | | | 134 | | | 19 | | | 206 | | | 197 | |
Selling, general and administrative expenses | | (251 | ) | | (189 | ) | | (199 | ) | | (191 | ) | | (188 | ) |
Restructuring income (expense) | | 1 | | | (1 | ) | | (21 | ) | | (15 | ) | | — | |
Income (loss) from operations | | 138 | | | (56 | ) | | (201 | ) | | — | | | 9 | |
Interest and debt expense, net | | (188 | ) | | (185 | ) | | (176 | ) | | (133 | ) | | (130 | ) |
Net gain (loss) on liquidation of non-operating subsidiaries | | — | | | — | | | — | | | (35 | ) | | 24 | |
Gain (loss) on extinguishment of debt | | (28 | ) | | 4 | | | — | | | (8 | ) | | (4 | ) |
Other income (expense), net | | (9 | ) | | (27 | ) | | 28 | | | 27 | | | 46 | |
Income (loss) from continuing operations before income taxes | | (87 | ) | | (264 | ) | | (349 | ) | | (149 | ) | | (55 | ) |
Income tax (provision) benefit | | (6 | ) | | 125 | | | (23 | ) | | (268 | ) | | (31 | ) |
Net income (loss) from continuing operations | $ | (93 | ) | $ | (139 | ) | $ | (372 | ) | $ | (417 | ) | $ | (86 | ) |
Net income (loss) from discontinued operations | | (179 | ) | | 79 | | | 55 | | | — | | | — | |
Net income (loss) | | (272 | ) | | (60 | ) | | (317 | ) | | (417 | ) | | (86 | ) |
Income (loss) attributable to noncontrolling interest | | 13 | | | 1 | | | 12 | | | 10 | | | 35 | |
Net income (loss) attributable to Tronox Limited | $ | (285 | ) | $ | (61 | ) | $ | (329 | ) | $ | (427 | ) | $ | (121 | ) |
(Loss) per share from continuing operations
| | | | | | | | | | | | | | | |
Basic | $ | (0.89 | ) | $ | (1.20 | ) | $ | (3.31 | ) | $ | (3.74 | ) | $ | (1.06 | ) |
Diluted | $ | (0.89 | ) | $ | (1.20 | ) | $ | (3.31 | ) | $ | (3.74 | ) | $ | (1.06 | ) |
Income (loss) per share from discontinued operations(2) | | | | | | | | | | | | | | | |
Basic | $ | (1.50 | ) | $ | 0.68 | | $ | 0.47 | | $ | — | | $ | — | |
Diluted | $ | (1.50 | ) | $ | 0.68 | | $ | 0.47 | | $ | — | | $ | — | |
Balance Sheet Data (continuing operations):
| | | | | | | | | | | | | | | |
Working capital (3) | $ | 2,291 | | $ | 614 | | $ | 654 | | $ | 2,019 | | $ | 2,288 | |
Total assets continuing operations | $ | 4,864 | | $ | 3,293 | | $ | 3,337 | | $ | 5,024 | | $ | 5,653 | |
Total debt, net | $ | 3,147 | | $ | 3,054 | | $ | 3,076 | | $ | 2,353 | | $ | 2,362 | |
Total equity | $ | 1,015 | | $ | 1,153 | | $ | 1,103 | | $ | 1,790 | | $ | 2,440 | |
Total assets discontinued operations | $ | — | | $ | 1,671 | | $ | 1,690 | | $ | — | | $ | — | |
Supplemental Information (continuing operations):
| | | | | | | | | | | | | | | |
Depreciation, depletion and amortization expense | $ | 182 | | $ | 177 | | $ | 253 | | $ | 302 | | $ | 322 | |
Capital expenditures | $ | 91 | | $ | 86 | | $ | 165 | | $ | 187 | | $ | 165 | |
Dividends per share | $ | 0.18 | | $ | 0.385 | | $ | 1.00 | | $ | 1.00 | | $ | 1.00 | |
Operations
| (1) | Reflects the impact of the revisions to our previously issued consolidated financial statements. See Note 1 of notes to consolidated financial statements. |
| (2) | Reflects the sale of the Alkali business. See Note 3 of notes to consolidated financial statements for additional information. |
| (3) | Working capital is defined as the excess (deficit) of current assets over current liabilities of continuing operations. |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with Tronox Limited’sHoldings plc's consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other sections in this Annual Report on Form 10-K contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, and actual results could differ materially from those discussed in the forward-looking statements as a result of numerous factors. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements also can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,“plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties outlined in Item 1A. “Risk Factors.”
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains
certain financial measures, in particular the presentation of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA, which are not presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). We are presenting these non-U.S. GAAP financial measures because we believe they provide us and readers of this Form 10-K with additional insight into our operational performance relative to earlier periods and relative to our competitors. We do not intend for these non-U.S. GAAP financial measures to be a substitute for any U.S. GAAP financial information. Readers of these statements should use these non-U.S. GAAP financial measures only in conjunction with the comparable U.S. GAAP financial measures. A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA is also provided herein.
Executive Overview
We are a global leader
Tronox Holdings plc (referred to herein as "Tronox", "we", "us", or "our") operates titanium-bearing mineral sand mines and beneficiation operations in Australia and South Africa to produce feedstock materials that can be processed into TiO2 for pigment, high purity titanium chemicals, including titanium tetrachloride, and Ultrafine© titanium dioxide used in certain specialty applications. Our strategy is to be vertically integrated and produce enough feedstock materials to be as self-sufficient as possible in the production of TiO2 at our 9 pigment facilities located in the United States, Australia, Brazil, UK, France, the Netherlands, China and marketingthe Kingdom of Saudi Arabia (“KSA”). We believe that vertical integration is the best way to achieve our ultimate goal of delivering low cost, high-quality pigment to our coatings and other TiO2 customers throughout the world. The mining, beneficiation and smelting of titanium bearing mineral sands and titanium dioxide (“TiO2”) pigment.We operate three TiO2 pigment facilities at the following locations: Hamilton, Mississippi; Botlek, the Netherlands; and Kwinana, Western Australia, representing an aggregate annual TiO2 production capacitycreates meaningful quantities of approximately 465,000 metric tons (“MT”). TiO2 is used extensively in the manufacture of paint and other coatings, plastics and paper, and in a wide range of other applications, including inks, fibers, rubber, food, cosmetics, and pharmaceuticals. Moreover, it is a critical component of everyday consumer applications due to its superior ability to cover or mask other materials effectively and efficiently relative to alternative white pigments and extenders. TiO2 is considered a quality of life product, and some research indicates that consumption generally increases as disposable income increases. At present, it is our belief that there is no effective mineral substitute for TiO2 because no other white pigment has the physical properties for achieving comparable opacity and brightness, or can be incorporated as cost effectively. We also operate three separate mining operations: KwaZulu-Natal (“KZN”) Sands located in South Africa, Namakwa Sands located in South Africa and Cooljarloo located in Western Australia.
Our TiO2 business includes the following:
Exploration, mining, and beneficiation of mineral sands deposits;
Production of titanium feedstock and its co-products (including chloride slag, slag fines, rutile, synthetic rutile and leucoxene),zircon, pig iron and zircon;the rare-earth bearing mineral, monazite, which we also supply to customers around the world.
| • | Production and marketing of TiO2; and |
Electrolytic manganese dioxide manufacturing and marketing, which is primarily focused on advanced battery materials and specialty boron products.
Recent Developments
On February 21, 2017, Tronox Limited, The National Titanium Dioxide Company Ltd.,We are a public limited company organizedlisted on the New York Stock Exchange and are registered under the laws of the Kingdom of Saudi Arabia (“Cristal”),England and Cristal Inorganic Chemicals Netherlands Coöperatief W.A., a cooperative organized under the laws of the Netherlands and a wholly owned
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subsidiary of Cristal (“Seller”), entered into a Transaction Agreement (the “Transaction Agreement”), pursuant to which we 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 (“Class A Shares”), par value $0.01 per share, of Tronox Limited (the “Cristal Transaction”). Following the closing of the Cristal Transaction, the Seller will own approximately 24% of the outstanding ordinary shares (including both Class A and Class B) of Tronox Limited. On March 1, 2018, Tronox, Cristal and Seller entered into an Amendment to the Transaction Agreement (the “Amendment”) that extends the termination date under the Transaction Agreement to June 30, 2018, with automatic 3-month extensions to March 31, 2019, if necessary based on the status of outstanding regulatory approvals. The Amendment also provides that Tronox has the right to terminate the Transaction Agreement if it determines that the outstanding regulatory approvals are not reasonably likely to be obtained. In the event that such termination by Tronox is (i) on or after January 1, 2019, and Tronox elects to terminate the Transaction Agreement if it determines that the outstanding regulatory approvals are not reasonably likely to be obtained; or (ii) if regulatory approval has not been obtained by March 31, 2019 and Tronox or Cristal elects to terminate the Transaction Agreement; then Tronox is required to pay Cristal a $60 million termination fee. The Transaction Agreement also provides that we 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 Cristal Transaction has not occurred by June 30, 2018 (subject to automatic 3-month extensions to March 31, 2019 if necessary based on the status of outstanding regulatory approvals).
The Cristal Transaction is conditioned upon the receipt of various regulatory approvals, including antitrust clearance in numerous jurisdictions. On April 13, 2017, the FTC issued a request for additional information (“Second Request”) to the Company and Cristal in connection with its filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and Tronox believes it has fully complied with the Second Request. On December 5, 2017, the FTC announced that it would not approve the Cristal Transaction as proposed and filed an administrative action to prevent the parties from consummating the transaction. On January 23, 2018, Tronox filed suit against the FTC in the U.S. District Court for the Northern District of Mississippi seeking a declaration that the Cristal Transaction is lawful under applicable law, among other things. On December 21, 2017, the European Commission announced that after its initial review, it would pursue Phase II investigation of the Cristal Transaction before reaching a decision to approve it, with or without conditions. The transaction agreement provides for customary representations, warranties and covenants that are subject, in some cases, to specified exceptions and qualifications contained in the transaction agreement. There can be no assurance, however, that all closing conditions for the Cristal Transaction will be satisfied and, if they are satisfied, that they will be satisfied in time for the closing to occur by June 30, 2018 (subject to automatic 3-month extensions to March 31, 2019 if necessary based on the status of outstanding regulatory approvals), at which time either party to the transaction agreement may mutually agree to extend the closing date or terminate the transaction agreement if the Cristal Transaction has not closed by such time. We have received approval for the Cristal Transaction from seven of the nine regulatory jurisdictions whose approvals are required to close Cristal Transaction.
On October 2, 2017, at a special meeting of shareholders of the Company held pursuant to the Transaction Agreement, the Company’s shareholders approved a resolution to issue 37,580,000 Class A Shares to the Seller in connection with the acquisition of Cristal’s TiO2 business, and the resulting acquisition of interests in such Class A Shares by the Seller and certain other persons and entities, at the closing of such acquisition.
On September 1, 2017, we completed the Alkali Sale and in connection therewith, we recognized a loss of $233 million, net of tax, during the year ended December 31, 2017. See Note 3 of notes to consolidated financial statements for additional information. As a result of the Alkali Sale, Alkali’s results of operations have been reported as discontinued operations (see Note 3). Both Tronox Holdings and Genesis Energy, L.P. have agreed, following the closing, to indemnify the other party for losses arising from certain breaches of the Purchase Agreement and for certain other liabilities, subject to certain limitations. As a result of the Alkali Sale, we now operate under one operating and reportable segment, TiO2.
On March 8, 2017, Exxaro announced its intention to begin pursuing a path to monetize its ownership stake in Tronox over time. On October 10, 2017, Exxaro sold 22,425,000 Class A Shares in an underwritten registered offering (the “Exxaro Share Transaction”). At December 31, 2017 and December 31, 2016, Exxaro held approximately 24% and 44%, respectively, of the voting securities of Tronox Limited. See Notes 1 and 21 of
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notes to consolidated financial statements for additional information regarding Exxaro transactions. Presently, Exxaro intends to sell the remainder of its Tronox shares in a staged process over time pursuant to the existing registration statement, subject to market conditions. Exxaro’s sale of Class A Shares does not impact its 26% ownership interest in each of our Tronox KZN Sands (Pty) Ltd. and Tronox Mineral Sands (Pty) Ltd subsidiaries.
Beginning in the fourth quarter of 2016, we implemented various steps of an internal corporate reorganization 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, eliminated administrative activities and reversed the deferred tax assets related to intercompany interest deductions. The related withholding tax accrual 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. In connection with the Corporate Reorganization during the first quarter of 2017, Tronox Limited became managed and controlled in the U.K., with no additional impacts to the consolidated provision for income taxes due to the valuation allowances in various jurisdictions. See Note 6 of notes to our consolidated financial statements for additional information.
Business Environment
The following discussion includes trends and factors that may affect future operating results:
Our pigment business benefited from
The first half of 2022 began with considerable momentum while the second half was characterized by a global industry recovery that begansignificant market pullback starting in China, followed by the firstrest of Asia Pacific, EMEA and the Americas. As a result of the swift market decline, fourth quarter revenue decreased 27% compared to the prior year, driven by lower TiO2, zircon and pig iron sales volumes. For the fourth quarter of 2016. To meet healthy demand, we operated our pigment plants at high utilization rates while matching pigment production2022 as compared to the fourth quarter of 2021, TiO2 volumes decreased 34% partially offset by a 7% increase in average selling prices and an unfavorable 2% impact from exchange rates. Zircon sales volumes decreased 44% partially offset by a 20% increase in average selling prices. Revenue from other products decreased 12% from the fourth quarter 2021 to the fourth quarter of 2022 primarily due to lower pig iron volumes. Gross profit decreased for the fourth quarter of 2022 as compared to the fourth quarter of 2021 due to the unfavorable impact of sales volumes and keeping inventory at or below normal levels. Global pigment pricing has rebounded with successive gainsproduct mix as well as higher production costs, commodity costs and increased freight rates. These unfavorable impacts were partially offset by an increase in each quarter sinceaverage selling prices of TiO2, zircon and pig iron, favorable impacts of foreign currency and favorable overhead absorption and cost savings.
Sequentially, revenue decreased 27% in the firstfourth quarter of 2016. We believe pigment inventories,2022 compared to the third quarter of 2022 primarily as a result of volume declines of TiO2 and zircon. TiO2 volumes were impacted by continued global economic uncertainty and inventory destocking across the supply chain that resulted in a 28% sequential decline from the third quarter of 2022 to the fourth quarter of 2022. TiO2 average selling prices also declined 1% in the aggregate, arefourth quarter of 2022 compared to the third quarter of 2022. Revenue from zircon sales decreased 29% sequentially from the third quarter of 2022 to the fourth quarter of 2022, as a 30% decrease in sales volumes was partially offset by 1% increase in average selling prices. Other products revenues decreased 15% sequentially from the third quarter of 2022 to the fourth quarter of 2022 mainly due to lower average selling prices and sales volumes of pig iron and other products. Gross profit decreased sequentially from the third quarter of 2022 to the fourth quarter of 2022 due to lower sales volumes of TiO2, zircon and pig iron as well as higher production costs due to inflationary cost pressures, increased freight rates, the unfavorable impacts of average selling prices and costs associated with a fire at our mineral separation facility in South Africa and the ongoing historic flooding in Australia impacting the Ginkgo and Atlas Campaspe mining operations, partially offset by favorable exchange rates.
As of December 31, 2022, our total available liquidity was $608 million, including $164 million in cash and cash equivalents and $444 million available under revolving credit agreements. As of December 31, 2022, our total debt was $2.5 billion and net debt to trailing-twelve month Adjusted EBITDA was 2.8x. The Company also has no financial covenants on its term loans or
below normal levels at both customerbonds and
producer locations globally resulting in a continued tight supply-demand balance. We continue to use a significant majority of our high-grade titanium feedstock for our pigment production. Weonly one springing financial covenant on its Cash Flow revolver facility, which we do not expect
moderate cost increases related to other raw material inputs such as electrodes, coke, and electricity as commodity markets strengthen. The zircon market has stabilized but remains in a tight supply-demand balance and we expect modest price gains to continue in 2018.We continue to be uniquely tax-advantaged by favorable tax loss carry forwards and other favorable tax positions. While we believe these tax-advantaged factors will continuetriggered based on our current scenario planning. Refer to offer benefits for years to come, if Exxaro sells their remaining shareholdings in 2018, these favorable tax positions may no longer be available. See Note 613 of notes to our consolidated financial statements for additional information.
further details.
Consolidated Results of Operations
from Continuing Operations
Year Ended December 31, 20172022 Compared to the Year Ended December 31, 2016 | Year Ended December 31, |
| 2017 | 2016 | Variance |
| (Millions of U.S. dollars) |
Net sales | $ | 1,698 | | $ | 1,309 | | $ | 389 | |
Cost of goods sold | | 1,310 | | | 1,175 | | | 135 | |
Gross profit | | 388 | | | 134 | | | 254 | |
Selling, general and administrative expenses | | (251 | ) | | (189 | ) | | (62 | ) |
Restructuring income (expense) | | 1 | | | (1 | ) | | 2 | |
Income (loss) from operations | | 138 | | | (56 | ) | | 194 | |
Interest and debt expense, net | | (188 | ) | | (185 | ) | | (3 | ) |
Gain (loss) on extinguishment of debt | | (28 | ) | | 4 | | | (32 | ) |
Other income (expense), net | | (9 | ) | | (27 | ) | | 18 | |
Income (loss) from continuing operations before income taxes | | (87 | ) | | (264 | ) | | 177 | |
Income tax (provision) benefit | | (6 | ) | | 125 | | | (131 | ) |
Net income (loss) from continuing operations | $ | (93 | ) | $ | (139 | ) | $ | 46 | |
2021 | | | | | | | | | | | | | | | | | | | | |
| | |
| Year Ended December 31, | |
| 2022 | | 2021 | | Variance | |
| (Millions of U.S. Dollars) | |
| Net sales | $ | 3,454 | | | $ | 3,572 | | | $ | (118) | | |
| Cost of goods sold | 2,622 | | | 2,677 | | | (55) | | |
| Gross profit | $ | 832 | | | $ | 895 | | | $ | (63) | | |
| Gross Margin | 24.1 | % | | 25.1 | % | | (1.0) | pts | |
| | | | | | |
| Selling, general and administrative expenses | 289 | | | 318 | | | (29) | | |
| Venator settlement | 85 | | | — | | | 85 | | |
| Income from operations | 458 | | | 577 | | | (119) | | |
| Interest expense | (125) | | | (157) | | | 32 | | |
| Interest income | 9 | | | 7 | | | 2 | | |
| Loss on extinguishment of debt | (21) | | | (65) | | | 44 | | |
| Other (expense) income, net | (13) | | | 12 | | | (25) | | |
| Income before income taxes | 308 | | | 374 | | | (66) | | |
| Income tax (provision) benefit | 192 | | | (71) | | | 263 | | |
| Net income | $ | 500 | | | $ | 303 | | | $ | 197 | | |
| | | | | | |
| Effective tax rate | (62) | % | | 19 | % | | (81) pts | |
| | | | | | |
EBITDA(1) | $ | 693 | | | $ | 821 | | | $ | (128) | | |
Adjusted EBITDA(1) | $ | 875 | | | $ | 947 | | | $ | (72) | | |
| Adjusted EBITDA as % of Net Sales | 25.3 | % | | 26.5 | % | | (1.2) | pts | |
_____________________
(1) EBITDA and Adjusted EBITDA are Non-U.S. GAAP financials measures. Please refer to the “Non-U.S. GAAP Financial Measures” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of these measures and a reconciliation of these measures to Net income (loss) from continuing operations.
Net sales in 2017 increased by 30% compared to 2016 primarily due to the impact of higher selling prices for Pigment of $200$3,454 million Zircon of $28 million, Pig iron of $16 million, Slag Fines of $5 million and Natural Rutile of $2 million. Higher volume and product mix for Pigment of $38 million, CP Slag of $35 million, Zircon of $18 million, Pig Iron of $13 million, Ilmenite of $13 million, Synthetic Rutile of $8 million, Slag Fines of $3 million and Natural Rutile of $2 million also contributed to the increase in net sales for the year ended 2017. December 31, 2022 decreased by 3% compared to $3,572 million for the same period in 2021. Revenue decreased primarily due to lower TiO2, zircon and pig iron sales volumes. Net sales by type of product for the years ended December 31, 2022 and 2021 were as follows:
The impact from foreigntable below presents reported revenue by product: | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | |
| (Millions of dollars, except percentages) | 2022 | | 2021 | | Variance | | Percentage |
TiO2 | $ | 2,693 | | | $ | 2,793 | | | $ | (100) | | | (4) | % |
| Zircon | 438 | | | 478 | | | (40) | | | (8) | % |
| Other products | 323 | | | 301 | | | 22 | | | 7 | % |
| Total net sales | $ | 3,454 | | | $ | 3,572 | | | $ | (118) | | | (3) | % |
For the year ended December 31, 2022, TiO2 revenue decreased $100 million, or 4%, compared to the prior year due to a $404 million decrease in sales volumes partially offset by an increase of $391 million in average selling prices. Foreign currency translation versus 2016negatively impacted TiO2 revenue by $86 million due primarily to the weakening of the Euro. Zircon revenues decreased $40 million primarily due to a 36% decrease in sales volumes partially offset by a 28% increase in average selling prices. Other products revenue increased $22 million primarily due to an increase in average selling prices of pig iron and other products partially offset by a decrease in sales volumes of pig iron.
Gross profit of $832 million for the year ended December 31, 2022 was
$7 million favorable.Our gross profit margin in 2017 was 23%24.1% of net sales compared to 10%25.1% of net sales for the same period in the prior year.2021. The increase of $254 milliondecrease in our gross margin wasis primarily due to:
•the unfavorable impact of 17 points due to product mix and higher production and commodity costs and increased freight rates which were offset by favorable overhead absorption and cost savings, partially offset by
•the favorable impact of approximately 13 points due to an increase in TiO2, zircon and pig iron selling prices, of $254 million, higher volumes and product mix of $28 million,
•the net favorable impact of lower production costs of $16 millionapproximately 3 points due primarily to a higher facility utilization, partially offset by unfavorable changes in foreign currency translation of $44 millionexchange rates. This is primarily fromdue to the South African Rand and Australian dollar.dollar given costs in these regions are primarily incurred in local currencies while revenues are tied to the U.S. dollar whereas within our European region both revenues and costs of goods sold are denominated in Euros and as such did not have a significant impact to gross margin.
Selling, general and administrative ("SG&A") expenses increaseddecreased $29 million when comparing the year ended December 31, 2022 to the prior year. The SG&A expenses decrease was primarily driven by 33%a $30 million decrease in 2017employee costs primarily due to lower incentive compensation and $3 million of lower professional fees, partially offset by higher travel and entertainment expenses of $6 million. The remaining net decrease was driven by individually immaterial amounts.
The outcome of the Venator settlement resulted in a $85 million payment to Venator which includes $10 million of interest accrued since May 13, 2019 (refer to Note 18 in notes to consolidated financial statements for further details).
Income from operations for the year ended December 31, 2022 of $458 million, decreased by $119 million or 21% compared to 2016. Includedthe same period in SG&A are $124 million and $63 million of corporate expenses for 2017 and 2016, respectively. The $61 million increase in corporate expenses was due to higher professional fees of $46 million related2021 which is primarily attributable to the Cristal Transaction, higher employee share-basedVenator settlement of $85 million (discussed above) and other compensation costs of $11 million and higher otherthe lower gross margin partially offset by the lower selling, general and administrative costsexpenses.
Adjusted EBITDA as a percentage of $4 million. SG&A costs associated with our TiO2 activities increased $1 millionnet sales was 25.3% for the year ended December 31, 2022, a decrease of 1.2 points from 26.5% in the prior year. The lower gross profit partially offset by the lower SG&A expenses as discussed above were the primary drivers of the year-over-year decrease in Adjusted EBITDA percentage.
Interest expense for the year
ended December 31, 2022 decreased $32 million compared to the same period
in 2021. The decrease is primarily due to
higher employee stock-basedthe lower average debt outstanding balances and
other compensation costs and unfavorable changes in foreign currency translation.Restructuring costs were $2 million lower than 2016. TiO2 and corporate restructuring costs were each $1 million lower in 2017average interest rates on the 2022 Term Loan Facility as compared to 2016. Seethe 6.5% Senior Secured Notes due 2025 given the refinancing transaction in April 2022 (refer to Note 413 of notes to consolidated financial statements.
Income from operationsstatements for 2017 was $138 million, $261 million from our TiO2 activities offset by $123 million of corporate expenses, which includes $124 million of SG&Afurther details) and a $1 million reversal of restructuring expense. Loss from operationslower average debt outstanding balance on the Standard Bank Term Loan Facility.
Interest income for 2016 was $56 million, $6 million income from operations from our TiO2 activities and $62 million of corporate expenses. Income from operations for our TiO2 activitiesthe year ended December 31, 2022 increased by $255$2 million compared to 2016the same period in 2021 primarily due to an overall increase in gross profitinterest rates on our cash investments period over period.
Loss on extinguishment of
$254debt of $21 million
$2 million decrease in restructuring costs, offset by a $1 million increase in selling, general and administrative expenses. Corporate general and administrative expenses for 2017 increased for the
reasons noted aboveyear ended December 31, 2022 is primarily comprised of an $18 million call premium paid in
relation to the
discussionredemption of the
SG&A expenses.Interest6.5% Senior Secured Notes and related write-off of certain debt expense,issuance costs associated with the issuance of a new term loan which closed in April 2022.
Other (expense) income, net
- Seefor the year ended December 31, 2022 primarily consisted of an $20 million pension settlement loss related to our U.S. Qualified Plan (refer to Note
15 of21 in notes to consolidated financial
statements.Gain (loss) on debt extinguishment in 2017 was a lossstatements) and $3 million of $28 million compared to a gain $4 million in 2016 due to the refinancing of our term loan and notes in the third quarter of 2017. See Note 15 of notes to consolidated financial statements.
Other expense, net in 2017 primarily consisted of a net realized and unrealized foreign currency loss of $20 million,losses partially offset by interestthe $8 million associated with the monthly technical service fee relating to the Jazan slagger we receive from AMIC, and $4 million of pension income of $10 million. Other expense, net in 2016 primarily consisted of a net realized and unrealized foreign currency loss of $31 million,due to the expected return on plan assets offset by pension related interest costs and amortization of actuarial gain/losses.
We maintain full valuation allowances related to the total net deferred tax assets in Switzerland and the United Kingdom. The provisions for income
taxes associated with these jurisdictions include no tax benefits with respect to losses incurred and tax expense only to the extent of
$3 million. The change in the net realized and unrealized foreign currency is primarily driven by the strengthening of the South African Rand as of December 31, 2017 used in the remeasurement of our U.S. dollar denominated open trade and notes receivable positions.current tax payments. Additionally, we have valuation allowances against other specific tax assets.
The effective tax
rates in 2017rate was (62)% and
2016 differ from19% for the
United Kingdom statutoryyears ended December 31, 2022 and 2021, respectively. The large negative effective tax rate
of 19% and the Australian statutory rate of 30% primarily due to valuation allowances and income in foreign jurisdictions taxed at rates different than the statutory rates. Additionally, 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. Forfor the year ended December 31,
2016,2022 is significantly influenced by the
release of valuation allowances for deferred tax assets in Australia. The net
impact is a $300 million benefit to the income
impact was $107 million, reflecting a net reduction in withholding tax
accrualsprovision. Refer to Note 5 of
$110 million, offsetnotes to consolidated financial statements for further information. Additionally, the effective tax rates for the years ended December 31, 2022 and 2021 are influenced by a
foreign currency lossvariety of
$3 million.factors, primarily income and losses in jurisdictions with valuation allowances, disallowable expenditures, prior year accruals, and our jurisdictional mix of income at tax rates different than the U.K. statutory rate.TABLE OF CONTENTS
Year Ended December 31, 20162021 Compared to the Year Ended December 31, 2015
| Year Ended December 31, |
| 2016 | 2015 | Variance |
| (Millions of U.S. dollars) |
Net sales | $ | 1,309 | | $ | 1,510 | | $ | (201 | ) |
Cost of goods sold | | 1,175 | | | 1,491 | | | (316 | ) |
Gross profit | | 134 | | | 19 | | | 115 | |
Selling, general and administrative expense | | (189 | ) | | (199 | ) | | 10 | |
Restructuring expense | | (1 | ) | | (21 | ) | | 20 | |
Income (loss) from operations | | (56 | ) | | (201 | ) | | 145 | |
Interest and debt expense, net | | (185 | ) | | (176 | ) | | (9 | ) |
Gain on extinguishment of debt | | 4 | | | — | | | 4 | |
Other income (expense), net | | (27 | ) | | 28 | | | (55 | ) |
Income (loss) from continuing operations before income taxes | | (264 | ) | | (349 | ) | | 85 | |
Income tax (provision) benefit | | 125 | | | (23 | ) | | 148 | |
Net income (loss) from continuing operations | $ | (139 | ) | $ | (372 | ) | $ | 233 | |
Net sales in 2016 decreased by 13% compared to 2015 primarily due to the impact of lower selling prices and product mix of $117 million, lower volumes of $83 million and unfavorable foreign currency translation of $1 million. The lower selling prices and selling mix impacted both feedstock and pigment products to a relatively equal extent. The impact of lower volumes primarily reflects $52 million related to the closureA discussion of our sodium chlorate plant in Hamilton, Mississippi in 2015, $83 million lower demand during 2016 for feedstock, partially offset by $52 million higher demand for pigment products.
Gross profit margin in 2016 was 10%results of net sales compared to 1% in the prior year. The gross profit improvement highlights the cost reduction benefits from our operational excellence program and our operating strategy that focuses on matching TiO2 pigment production to market demand while keeping finished pigment inventories at or below normal levels. For the majority of 2016, our average pigment capacity utilization rate was in excess of 90% with all lines at all pigment plants in operations.
Selling, general and administrative expenses in 2016 decreased by 5% compared to 2015. Included in SG&A are $63 million and $73 million of corporate expenses for the years ended December 31, 2016 and 2015, respectively. The decrease in corporate expenses compared to 2015 is primarily due to $29 million of additional professional fees related to the 2015 Alkali Transaction, partially offset by an $11 million transfer tax benefit from 2015 that did not recur, higher bad debt expense and employee related costs in 2016.
Restructuring income (expense) - See Note 4 of notes to consolidated financial statements.
Loss from continuing operations for the year ended December 31, 2016 was $56 million, $62 million2021 versus December 31, 2020 is included in Part II, Item 7, “Management’s Discussion and Analysis of Corporate expenses offset by incomeFinancial Condition and Results of $6 million fromOperations - Results of Operation”, included in our TiO2 activities. Loss from continuing operationsAnnual Report on Form 10-K for the year ended December 31, 20152021.
Other Comprehensive Income (Loss)
There was
$201an other comprehensive loss of $27 million
$127 million of losses from our TiO2 activities and $74 million of Corporate expenses including $1 million in restructuring costs. The improvement in results for our TiO2 activities was primarily due to the gross profit improvement noted above. Corporate expenses for the year ended December 31,
2016 decreased for the reasons noted above in the discussion of the SG&A expenses.Interest and debt expense, net - See Note 15 of notes2022 compared to consolidated financial statements.
Gain (loss) on debt extinguishment - See Note 15 of notes to consolidated financial statements.
Other expense, net in 2016 primarily consisted of a net realized and unrealized foreign currencyother comprehensive loss of $31$104 million offset by interest income of $3 million. Other income, net during 2015, primarily consisted of a net realized and unrealized foreign currency gain of $21 million and interest income of $7 million. The change in the net realized and unrealized foreign currency is primarily driven by the strengthening of the South African Rand as of December 31, 2016 used in the remeasurement of our U.S. dollar denominated open trade and notes receivable positions.
The effective tax rate in 2016 and 2015 differs from the Australian statutory rate of 30% primarily due to valuation allowances, income in foreign jurisdictions taxed at rates lower than 30%, and withholding tax accruals
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on interest income. 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. Forfor the year ended December 31, 2016, the net income impact2021. This decrease in comprehensive loss was $107 million, reflecting a net reduction in withholding tax accrualsprimarily driven by unfavorable movements of $110 million, offset by a foreign currency losstranslation adjustments of $3 million.
$79 million for the year ended December 31, 2022 as compared to unfavorable foreign currency translation adjustments of $113 million in the prior year. In addition, we recognized net gains on derivative instruments of $30 million in the year ended December 31, 2022 as compared to net losses on derivative instruments of $11 million in the prior year. We also recognized $22 million of pension and postretirement gains for the year ended December 31, 2022 as compared to $20 million of pension and postretirement gains for the prior year.
A discussion of our comprehensive (loss) income for the year ended December 31, 2021 versus December 31, 2020 is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Other Comprehensive (Loss) Income”, included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Liquidity and Capital Resources
During
2017,2022, our liquidity
improveddecreased by
$876$69 million to
$1.4 billion.$608 million.
The table below presents our liquidity, including amounts available under our credit facilities, as of the following dates: | December 31,
2017 | December 31,
2016 |
Cash and cash equivalents | $ | 1,116 | | $ | 248 | |
Available under the Wells Fargo Revolver | | 232 | | | — | |
Available under the UBS Revolver | | — | | | 190 | |
Available under the ABSA Revolver | | — | | | 95 | |
Available under the New ABSA Revolver | | 61 | | | — | |
Total | $ | 1,409 | | $ | 533 | |
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2021 |
| Cash and cash equivalents | $ | 164 | | | $ | 228 | |
| Available under the Cash Flow Revolver | 300 | | | 329 | |
| Available under the Standard Credit Facility | 59 | | | 63 | |
| Available under the Emirates Revolver | 60 | | | 38 | |
| Available under the SABB Facility | 19 | | | 19 | |
| Available under the Bank Itau Facility | 6 | | | — | |
| Total | $ | 608 | | | $ | 677 | |
Our New Term Loan Facility, defined below, consists of (i) a U.S. dollar term facility in an aggregate principal amount of $1.5 billion (the “New Term Loans”) and (ii) a U.S. dollar term facility in an aggregate principal amount of $650 million (the “Blocked Term Loan”) which was included in restricted cash as of December 31, 2017. In connection with the Cristal Transaction, we refinanced and increased our credit facilities lowering our cost of debt and extended the portfolio’s weighted average years to maturity. Additionally, we improved our mix of secured and unsecured debt and achieved more favorable covenants. See Note 15 of notes to consolidated financial statements. Historically, we have funded our operations and met our commitments through cash generated by operations. During 2012, 2015operations, issuance of unsecured notes, bank financings and 2017,borrowings under lines of credit. In the next twelve months, we issued a $900expect that our operations will provide sufficient cash for our operating expenses, capital expenditures, interest payments and debt repayments, however, if necessary, we have the ability to borrow under our debt and revolving credit agreements (see Note 13 of notes to consolidated financial statements). This is predicated on our achieving our forecast which could be negatively impacted by items outside of our control, including, among other things, macroeconomic conditions, inflationary pressures, political instability including the ongoing Russia and Ukraine conflict and any expansion of such conflict, and supply chain disruptions. If negative events occur in
the future, we may need to reduce our capital spend, cut back on operating costs, and other items within our control to maintain appropriate liquidity.
In January and February 2023, we drew down an aggregate amount of approximately $118 million aggregate principal, 6.375% senior notes due 2020on several of our short-term facilities.
Working capital (calculated as current assets less current liabilities) was $1.1 billion at
par value (the “Senior Notes due 2020”) which were redeemed during the third quarter of 2017, a $600 million aggregate principal, 7.50% senior notes dueDecember 31, 2022,
(the “Senior Notes due 2022”) and a $450 million aggregate principal, 5.75% senior notes due 2025 (the “Senior Notes due 2025”), respectively. Also, during 2013 and 2017 we obtained a $1.5compared to $1.2 billion
senior secured term loan (the “ Prior Term Loan”) which was repaid during the third quarter of 2017 and a $2.15 billion new senior secured first lien term loan facility (the “New Term Loan Facility”), respectively.at December 31, 2021.
As of and for the year ended December 31,
2017,2022, the non-guarantor subsidiaries of our Senior Notes due
20252029 represented approximately
24%19% of our total consolidated liabilities, approximately
40%37% of our total consolidated assets, approximately
21%44% of our total consolidated net sales and approximately
36%48% of our Consolidated EBITDA (as such term is defined in the
20252029 Indenture). In addition, as of December 31,
2017,2022, our non-guarantor subsidiaries had
$935$744 million of total consolidated liabilities (including trade payables but excluding intercompany liabilities), all of which would have been structurally senior to the
20252029 Notes. See Note
1513 of notes to consolidated financial statements for additional information.
At December 31,
2017,2022, we had outstanding letters of credit
and bank guarantees
and performance bonds, seeof $109 million. See Note
1513 of notes to consolidated financial statements.
In the next twelve months, we expect that our operations and available borrowings under our debt refinancing and revolving credit agreements (see Note 15 of notes to consolidated financial statements) will provide sufficient cash to fund the Cristal Transaction, our operating expenses, capital expenditures, interest payments, debt repayments, and dividends. Working capital (calculated as current assets from continuing operations less current liabilities from continuing operations) was $2.3 billion at December 31, 2017, compared to $614 million at December 31, 2016, an increase of $1.7 billion, which is primarily due to proceeds from the sale of the Alkali business, debt refinancing and cash provided by continuing operations of $166 million, partially offset by dividends paid of $23 million and capital expenditures of $91 million.
Principal factors that could affect our ability to obtain cash from external sources include (i) debt covenants that limit our total borrowing capacity; (ii) increasing interest rates applicable to our floating rate debt;
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(iii) increasing demands from third parties for financial assurance or credit enhancement; (iv) credit rating downgrades, which could limit our access to additional debt; (v) a decrease in the market price of our common stock and debt obligations; orand (vi) volatility in public debt and equity markets.
As of December 31,
2017,2022, our credit rating with Moody’s
and Standard & Poor’s was
Ba3 stable outlook, positively upgraded starting in the first quarter of 2022 from B1 stable outlook
andat December 31, 2021. As of December 31, 2022, our credit rating with Standard & Poor's was B positive outlook, positively upgraded starting in the first quarter of 2022 from B stable outlook
respectively. On August 24, 2017, Standard & Poor’s upgraded our outlook to B stable outlook from B negative outlook. On September 7, 2017, Moody’s upgraded our corporate credit rating to B1 stable outlook from B2 negative outlook. Atat December 31,
2017, we have sufficient borrowings available and have no significant principal payments on debt due until 2022.2021. See Note 13 of notes to consolidated financial statements.
Cash and Cash Equivalents
We consider all investments with original maturities of three months or less to be cash equivalents. As of December 31,
2017,2022, our cash and cash equivalents were
primarily invested in money market
funds.funds and we also receive earnings credits for some balances left in our bank operating accounts. 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.
The use of our cash includes
payment of our operating expenses, capital expenditures, servicing our interest and debt repayment obligations,
cash taxes, making pension contributions and making quarterly dividend payments.
Going forward, we expect to continue to invest in our businesses through cost reduction initiatives, as well as growth and vertical integration-related capital expenditures including projects such as newTRON and various mine development projects, continued reductions in our debt, continued dividends and share repurchases.
At December 31,
2017,2022, we held
$1.8 billion$164 million in cash and cash equivalents
and restricted cash in these respective jurisdictions:
$42 million in Europe, $117 million in Australia, $110$18 million in South Africa,
$40 million in Australia, $39 million in Brazil, $16 million in Saudi Arabia, $29 million in China, and
$1.5 billion$22 million in Europe. Our credit facilities limit transfers of funds from subsidiaries in the United
States. Our credit facilities contain restrictions that limit our abilityStates to
move assets between guarantors and non-guarantors.certain foreign subsidiaries. In addition, at December 31, 2022, we held less than $1 million of restricted cash which is in Australia related to performance bonds.
At December 31, 2022, Tronox
Limited hasHoldings plc had foreign subsidiaries with
positive undistributed
earnings. Although we would not be subject to income tax on these earnings,
at December 31, 2017. Wewe have
asserted that amounts in specific jurisdictions are indefinitely reinvested outside of the parent's taxing jurisdictions. These amounts could be subject to withholding tax if distributed, but the Company has made no provision for
deferred taxestax related to these undistributed
earnings. The Company has removed its assertion that earnings
because theyin China are
considered to be indefinitely reinvested,
and the withholding tax accruals for potential repatriations from that jurisdiction are now reflected in the
foreign jurisdictions.effective tax rate reconciliation in Note 5 to the consolidated financial statements.
Stock Repurchases
As previously announced, on November 9, 2021, the Company's Board of Directors authorized the repurchase of up to $300 million of the Company's stock through February 2024. During the year ended December 31, 2022, we purchased a total of 2,843,789 shares on the open market at an average price of $17.38 per share and at an aggregate cost of approximately $50
million, including sales commissions, transfer taxes and fees. Upon repurchase of the shares by the Company, the shares were cancelled. Under the authorization from our Board of Directors, we have approximately $251 million available for additional repurchases through February 2024.
Cash Dividends on
Class A and Class BOrdinary Shares
During 2017, we declared and paid quarterly dividends to holders of our Class A ordinary shares (“Class A Shares”) and Class B ordinary shares (“Class B Shares”) as follows:
| Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 |
Dividend per share | $ | 0.045 | | $ | 0.045 | | $ | 0.045 | | $ | 0.045 | |
Total dividend | $ | 6 | | $ | 6 | | $ | 5 | | $ | 6 | |
Record date (close of business) | March 6 | May 15 | August 21 | November 20 |
On February 20, 2018,22, 2023, the Board of Directors declared a quarterly dividend of $0.045$0.125 per share to holders of our Class A Shares and Class B Sharesordinary shares at the close of business on March 12, 2018, totaling $5 million,6, 2023, which will be paid on or before March 26, 2018.
April 6, 2023.
2022 Term Loan Facility
On April 4, 2022, Tronox Finance LLC (the "Borrower"), the Borrower's indirect parent company, Tronox Holdings plc (the "Company"), certain of the Company's subsidiaries, the incremental term lender party thereto, and HSBC Bank USA National Association, as Administrative Agent and Collateral Agent, entered into Amendment No. 1 to the Amended and Restated First Lien Credit Agreement (the "Amendment"). The Amendment provides the Borrower with a new seven-year incremental term loan facility (the "2022 Term Loan Facility" and, the loans thereunder, the "2022 Incremental Term Loans") under its credit agreement in an aggregate initial principal amount of $400 million.
The proceeds of the 2022 Incremental Term Loan were used on April 4, 2022, along with cash on hand, to redeem all of the outstanding 6.5% Senior Secured Notes due 2025 issued by Tronox Incorporated under the Indenture dated as of May 1, 2020 with Wilmington Trust, National Association, as Trustee and Collateral Agent and to pay transaction related costs and expenses. In connection with such redemption, all security interest and liens granted to Wilmington Trust, National Association, were automatically terminated and discharged.
As a result of this transaction, we recognized approximately $21 million, including a call premium of $18 million, in "Loss on Extinguishment of Debt" on the Consolidated Statement of Income for the year ended December 31, 2022.
Itaù Unibanco S.A. Credit Facility
On November 1, 2022, our Brazilian subsidiary entered into a working capital facility with Itaù Unibanco S.A. in Brazil for an amount up to 30 million BRL (approximately $6 million at the December 31, 2022 exchange rate). There is no maturity date under this facility until written notice is given. The facility bears interest at the Bolsa do Basil reference rate on outstanding balances. There is no borrowings outstanding under this facility at December 31, 2022.
At December 31, 20172022 and 2016,2021, our long-term debt, net of unamortized discount and debt issuance costs was $2.5 billion and $2.6 billion, respectively.
At December 31, 2022 and 2021, our net debt (the excess of our debt over cash and cash equivalents) was $2.0$2.4 billion and $2.8$2.3 billion, respectively, excludingrespectively. See Note 13 of notes to consolidated financial statements.
Off-Balance Sheet Arrangements
On March 15, 2022, the $650Company entered into an accounts receivable securitization program ("Securitization Facility") with a financial institution, through our wholly-owned special purpose bankruptcy-remote subsidiary, Tronox Securitization LLC ("SPE"). The Securitization Facility permitted the SPE to sell accounts receivable up to $75 million.
In November 2022, the Company amended the receivable purchase agreement to expand the program to include receivables generated by its wholly-owned Australian operating subsidiaries, Tronox Pigment Pty Ltd., Tronox Pigment Bunbury Ltd. and Tronox Mining Australia Ltd. which increased the facility limit to $200 million
of cash relatedand to
extend the
Blocked Term Loan at December 31, 2017.Our short-term debt at December 31, 2016 consisted of the UBS Revolver with an outstanding balance of $150 million. We repaid the $150 million outstanding balance of the UBS Revolver during the third quarter of 2017 (See Note 15 ofprogram term to November 2025.
See "Note 7 - Accounts Receivable Securitization Program" in notes to consolidated financial statements for additional information). The average effective interest rate of our UBS Revolver was 4.7% and 4.2% during 2017 and 2016, respectively. Our short-term debt atfurther details regarding this off-balance sheet program.
Cash Flows
Years Ended December 31, 2017 consisted of the Wells Fargo Revolver2022 and the New ABSA Revolver with no outstanding balance.2021
Long-term debt,The following table presents cash flow for the periods indicated: | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
| (Millions of U.S. dollars) |
| Net cash provided by operating activities | $ | 598 | | | $ | 740 | |
| Net cash used in investing activities | (415) | | | (269) | |
| Net cash (used in) provided by financing activities | (250) | | | (877) | |
| Effect of exchange rate changes on cash | (1) | | | (10) | |
| Net decrease in cash and cash equivalents | $ | (68) | | | $ | (416) | |
Cash Flows provided by Operating Activities — Cash provided by our operating activities is driven by net income adjusted for non-cash items and changes in working capital items. The following table summarizes our net cash provided by operating activities for 2022 and 2021: | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
| (Millions of U.S. dollars) |
| Net income | $ | 500 | | | $ | 303 | |
| Net adjustments to reconcile net income to net cash provided by operating activities | 113 | | | 455 | |
| Income related cash generation | 613 | | | 758 | |
| Net change in assets and liabilities | (15) | | | (18) | |
| Net cash provided by our operating activities | $ | 598 | | | $ | 740 | |
Net cash provided by operating activities was $598 million in 2022 as compared to $740 million in 2021. The decrease of $142 million period over period is primarily due to a $145 million reduction in net income net of
an unamortized discountnon-cash adjustments and
debt issuance costs, consisteda decrease of $3 million use of cash for net assets and liabilities. The lower use of cash for working capital was primarily driven by a decrease in accounts receivable of $233 million as a result of the
following: | Original
Principal | Annual
Interest
Rate | Maturity
Date | December 31,
2017 | December 31,
2016 |
Prior Term Loan, net of unamortized discount(1) | $ | 1,500 | | | Variable | | | — | | $ | — | | $ | 1,441 | |
New Term Loan Facility, net of unamortized discount(2) | $ | 2,150 | | | Variable | | | 9/22/2024 | | | 2,138 | | | — | |
Senior Notes due 2020 | $ | 900 | | | 6.375 | % | | — | | | — | | | 896 | |
Senior Notes due 2022 | $ | 600 | | | 7.50 | % | | 3/15/2022 | | | 584 | | | 584 | |
Senior Notes due 2025 | $ | 450 | | | 5.75 | % | | 9/22/2025 | | | 450 | | | — | |
Lease financing | | | | | | | | | | | 19 | | | 19 | |
Long-term debt | | | | | | | | | | | 3,191 | | | 2,940 | |
Less: Long-term debt due within one year | | | | | | | | | | | (17 | ) | | (16 | ) |
Debt issuance costs | | | | | | | | | | | (44 | ) | | (36 | ) |
Long-term debt, net | | | | | | | | | | $ | 3,130 | | $ | 2,888 | |
| (1) | Average effective interest rate of 5.1% and 4.9% during 2017 and 2016, respectively. |
| (2) | Average effective interest rate of 4.9% during 2017 which includes the impact of the Blocked Term Loan. |
At December 31, 2017, we had noSecuritization Facility (see Note 7 in notes to consolidated financial covenantsstatements) and a decrease in prepaids and other current assets of $47 million in the Wells Fargo Revolver, the New ABSA Revolvercurrent year, partially offset by increases in inventories of $255 million and the New Term Loan Facility, however, only the New ABSA Revolver had a financial maintenance covenant that applies to local operationsuse of cash for long-term other assets and only when the New ABSA Revolver is drawn upon. We wereliabilities of $40 million.
Cash Flows used in compliance with all of our reporting covenants as of andInvesting Activities — Net cash used in investing activities for the year ended December 31, 2017. See Note 15 of notes2022 was $415 million as compared to financial statements.Cash Flows
Years Ended$269 million for the year ended December 31, 2017 and 2016
2021. The following table presents$146 million increase in use of cash flow from continuing operations for the periods indicated:
| Year Ended December 31, |
2017 | 2016 |
(Millions of U.S. dollars) |
Net cash provided by operating activities | $ | 166 | | $ | 86 | |
Net cash provided by (used in) investing activities | | 583 | | | (84 | ) |
Net cash provided by (used in) financing activities | | 24 | | | (78 | ) |
Net cash provided by discontinued operations | | 82 | | | 93 | |
Effect of exchange rate changes on cash | | 13 | | | 2 | |
Net increase in cash and cash equivalents | $ | 868 | | $ | 19 | |
Cash and cash equivalents — end of year | $ | 1,116 | | $ | 248 | |
Cash Flows providedyear over year is primarily driven by Operating Activities - Net cash provided by operating activities during 2017higher capital expenditures of $166$428 million increased by $80 million compared to 2016. This increase was primarily due to higher cash earnings in 2017, partially offset by higher working capital reductions in 2016.
Cash Flows provided by (used in) Investing Activities - Net cash flows provided by investing activities in 2017 was $583$13 million compared to cash used in investing activities of $84 million in 2016. The increase was primarily due to proceeds of $1.325 billion from the Alkali Sale, offset by the $650 million proceeds from the Blocked Term Loan, and related interestsale of $1 million, under the New Term Loan Facility, which is included in “Restricted cash”assets in the Consolidated Balance Sheets at December 31, 2017. Capital expenditures were $5 million higher in 2017 compared to 2016.
Cashcurrent year.
Cash Flows (used in) provided by (used in) Financing Activities - Net cash provided by financing activities during 2017 was primarily attributable to proceeds from long-term debt of $2.6 billion, partially offset by repayments of TABLE OF CONTENTS
short-term and long-term debt of $2.5 billion, debt issuance costs of $37 million and call premium of $14 million. In addition, in 2017, dividends paid were $23 million, restricted stock and performance-based shares settled in cash for taxes were $12 million and proceeds received from the exercise of warrants and options were $13 million. These compare to net cash used in financing activities during 2016 of $78 million, which was primarily attributable to dividends paid of $46 million and principal repayments on long-term debt of $31 million.
Years Ended December 31, 2016 and 2015
The following table presents cash flow from continuing operations for the periods indicated:
| Year Ended December 31, |
| 2016 | 2015 |
| (Millions of U.S. dollars) |
Net cash provided by operating activities | $ | 86 | | $ | 67 | |
Net cash used in investing activities | | (84 | ) | | (1,814 | ) |
Net cash provided by (used in) financing activities | | (78 | ) | | 602 | |
Net cash provided by discontinued operations | | 93 | | | 124 | |
Effect of exchange rate changes on cash | | 2 | | | (26 | ) |
Net increase (decrease) in cash and cash equivalents | $ | 19 | | $ | (1,047 | ) |
Cash and cash equivalents — end of year | $ | 248 | | $ | 229 | |
Cash Flows provided by Operating Activities - Net cash provided by operating activities during 2016 of $86 million increased by $19 million compared to 2015. The increase was primarily due to higher cash earnings in 2016, partially offset by higher working capital reductions in 2015.
Cash Flows used in Investing Activities - Net cash used in investing activities in 2016 was $84 million compared to $1.814 billion in 2015. The decrease was primarily due to the acquisition of Alkali for $1.65 billion in 2015. Capital expenditures were $86 million and $165 million in 2016 and 2015, respectively. The reduction in capital spending was due to the completion of the new Fairbreeze mine in South Africa.
Cash Flows provided by (used in) Financing Activities - — Net cash used in financing activities during 2016the year ended December 31, 2022 was $250 million as compared to cash used in financing activities of $877 million for the year ended December 31, 2021. The current year is primarily attributable to dividends paidcomprised of $46 millionrepayments of long-term and principal repayments on long-termshort-term debt of $31 million. This compares to net cash provided by financing activities during 2015 which was primarily attributable to cash received from the issuance of the Senior Notes due 2022 of $600 million and cash received on the drawdown of the UBS Revolver of $150$629 million partially offset by dividendsproceeds from long-term debt and short-term debt of $538 million. The current year was primarily comprised of the early redemption of the 6.5% Senior Secured Notes due 2025 of $500 million and a related call premium paid of $117$18 million, debt issuance costs paidrepayments of $15$103 million on our Cash Flow Revolver and total mandatory repayments of approximately $12 million on both our 2022 Term Loan Facility and South Africa Term Loan Facility. These repayments were offset by net proceeds from the new 2022 Term Loan Facility of $396 million and principal repaymentsproceeds from our Cash Flow Revolver of $133 million. Additionally, during the current year, $50 million of cash was used in the repurchase of the Company's stock as part of our previously announced share repurchase program as well as $87 million of cash used to pay dividends during the year ended December 31, 2022 as compared to $65 million in the same period of 2021.
Years Ended December 31, 2021 and 2020
A discussion of our cash flows for the year ended December 31, 2021 versus 2020 is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cash Flows”, included in our Annual Report on
long-term debt of $18 million.Form 10-K for the year ended December 31, 2021.
The following table sets forth information relating to our contractual obligations as of December 31, 2017: | Contractual Obligation Payments Due by Period(3)(4) |
| Total | Less than
1 year | 1-3
years | 3-5
years | More than
5 years |
| (Millions of U.S. dollars) |
Long-term debt and lease financing (including interest)(1) | $ | 4,277 | | $ | 191 | | $ | 390 | | $ | 936 | | $ | 2,760 | |
Purchase obligations(2) | | 408 | | | 149 | | | 98 | | | 58 | | | 103 | |
Operating leases | | 44 | | | 19 | | | 12 | | | 7 | | | 6 | |
Asset retirement obligations | | 82 | | | 3 | | | 6 | | | 5 | | | 68 | |
Total | $ | 4,811 | | $ | 362 | | $ | 506 | | $ | 1,006 | | $ | 2,937 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Contractual Obligation Payments Due by Period(3) |
| Total | | Less than
1 year | | 1-3
years | | 3-5
years | | More than
5 years |
| | | (Millions of U.S. dollars) | | |
Long-term debt and lease financing (including interest)(1) | $ | 3,298 | | | $ | 206 | | | $ | 292 | | | $ | 331 | | | $ | 2,469 | |
Purchase obligations(2) | 2,566 | | | 348 | | | 317 | | | 307 | | | 1,594 | |
| Operating leases | 234 | | | 32 | | | 46 | | | 30 | | | 126 | |
Pension and other post-retirement benefit obligations(4) | 233 | | | 31 | | | 49 | | | 47 | | | 106 | |
Asset retirement obligations(5) | 448 | | | 16 | | | 33 | | | 49 | | | 350 | |
| Total | $ | 6,779 | | | $ | 633 | | | $ | 737 | | | $ | 764 | | | $ | 4,645 | |
__________________
(1)We calculated the Term Loan Facility interest at a LIBOR plus a margin of 2.25%. See Note 13 of notes to our consolidated financial statements.
(2)Includes obligations to purchase requirements of process chemicals, supplies, utilities and services. We have various purchase commitments for materials, supplies, and services entered into in the ordinary course of business. Included in the purchase commitments table above are contracts, which require minimum volume purchases that extend beyond one year or are renewable annually and have been renewed for 2023. Certain contracts allow for changes in minimum required purchase volumes in the event of a temporary or permanent shutdown of a facility. We believe that all of our purchase obligations will be utilized in our normal operations.
(3)The table excludes contingent obligations, as well as any possible payments for uncertain tax positions given the inability to estimate the possible amounts and timing of any such payments.
(4)Pension and other post-retirement benefit ("OPEB") obligations of $233 million include estimates of pension plan contributions and expected future benefit payments for unfunded pension and OPEB plans. Pension plan contributions are forecasted for 2023 only. Expected future unfunded pension and OPEB benefit payments are forecasted only through 2032. Contribution and unfunded benefit payment estimates are based upon current valuation assumptions. Estimates of pension contributions after 2023 and unfunded benefit payments after 2032 are not included in the table because the timing of their resolution cannot be estimated. Refer to Note 21 in notes to consolidated financial statements for further discussion on our pension and OPEB plans.
(5)Asset retirement obligations are shown at the undiscounted and uninflated values.
| (1) | We calculated the Term Loan interest at a base rate of 1.7% plus a margin of 3.0%. See Note 15 of notes to our consolidated financial statements. |
| (2) | Includes obligations to purchase requirements of process chemicals, supplies, utilities and services. We have various purchase commitments for materials, supplies, and services entered into in the ordinary course of business. Included in the purchase commitments table above are contracts, which require minimum volume purchases that extend beyond one year or are renewable annually and have been renewed for 2018. Certain contracts allow for changes in minimum required purchase volumes in the event of a temporary or permanent shutdown of a facility. We believe that all of our purchase obligations will be utilized in our normal operations. |
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| (3) | The table excludes contingent obligations, as well as any possible payments for uncertain tax positions given the inability to estimate the possible amounts and timing of any such payments. |
| (4) | The table excludes commitments pertaining to our pension and other postretirement obligations. |
Non-U.S. GAAP Financial Measures
EBITDA, and Adjusted EBITDA, Adjusted net income attributable to Tronox and Diluted adjusted net income per share attributable to Tronox, which are used by management to measure performance, are not presented in accordance with U.S. GAAP. We define EBITDA as net income (loss) excluding the impact of income taxes, interest expense, interest income and depreciation, depletion and amortization. We define Adjusted EBITDA as EBITDA excluding the impact of nonrecurring items such as restructuring charges, gain or loss on debt extinguishments, impairment charges, gains or losses on sale of assets, acquisition-related transaction costs and pension settlements and curtailment gains or losses. Adjusted EBITDA also excludes non-cash items such as share-based compensation costs, pension and postretirement costs, and realized and unrealized foreign currency remeasurement gains and losses. We define Adjusted net income attributable to Tronox as net income attributable to Tronox excluding the impact of nonrecurring items which are the Company believes are not indicative of its core operating results such as restructuring charges, gain or loss on debt extinguishments, impairment charges, gains or losses on sale of assets, acquisition-related transaction costs and pension settlements and curtailment gains or losses. We define Diluted adjusted net income per share attributable to Tronox as Diluted net income per share excluding the impact of nonrecurring items which are the Company believes are not indicative of its core operating results such as restructuring charges, gain or loss on debt extinguishments, impairment charges, gains or losses on sale of assets, acquisition-related transaction costs and pension settlements and curtailment gains or losses.
Management believes that EBITDA,
isAdjusted EBITDA, Adjusted net income attributable to Tronox and Diluted adjusted net income per share attributable to Tronox are useful to investors, as it is commonly used in the industry as a means of evaluating operating performance. We do not intend for these
non-U.Snon-U.S. GAAP financial measures to be a substitute for any U.S. GAAP financial information. Readers of these statements should use these non-U.S. GAAP financial measures only in conjunction with the comparable U.S. GAAP financial measures. Since other companies may calculate EBITDA,
and Adjusted EBITDA,
Adjusted net income attributable to Tronox and Diluted adjusted net income per share attributable to Tronox differently than we do, EBITDA,
and Adjusted EBITDA,
Adjusted net income attributable to Tronox and Diluted adjusted net income per share attributable to Tronox, as presented herein, may not be comparable to similarly titled measures reported by other companies.
Management believes these non-U.S. GAAP financial measures:
Reflect•reflect our ongoing business in a manner that allows for meaningful period-to-period comparison and analysis of trends in our business, as they exclude income and expense that are not reflective of ongoing operating results;
Provide•provide useful information in understanding and evaluating our operating results and comparing financial results across periods; and
Provide•provide a normalized view of our operating performance by excluding items that are either noncash or infrequently occurring in nature; andoccurring.
Assist investors in assessing our compliance with financial covenants under our debt instruments.
Adjusted EBITDA is one ofThese non-U.S. GAAP measures are the primary measures management uses for planning and budgeting processes, and to monitor and evaluate financial and operating results. In addition, Adjusted EBITDA is a factor in evaluating management’s performance when determining incentive compensation.
The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA for the periods presented: | Year Ended December 31, |
| 2017 | 2016 | 2015 |
Net income (loss), (U.S. GAAP) | $ | (272 | ) | $ | (60 | ) | $ | (317 | ) |
Income (loss) from discontinued operations, net of tax (see Note 3), (U.S. GAAP) | | (179 | ) | | 79 | | | 55 | |
Net income (loss) from continuing operations, (U.S. GAAP) | | (93 | ) | | (139 | ) | | (372 | ) |
Interest and debt expense, net | | 188 | | | 185 | | | 176 | |
Interest income | | (10 | ) | | (3 | ) | | (7 | ) |
Income tax provision (benefit) | | 6 | | | (125 | ) | | 23 | |
Depreciation, depletion and amortization expense | | 182 | | | 177 | | | 253 | |
EBITDA (non-U.S. GAAP) | | 273 | | | 95 | | | 73 | |
Transaction costs(a) | | 48 | | | — | | | 29 | |
Share-based compensation(b) | | 31 | | | 24 | | | 22 | |
Restructuring (income) expense(c) | | (1 | ) | | 1 | | | 21 | |
(Gain) loss on extinguishment of debt(d) | | 28 | | | (4 | ) | | — | |
Foreign currency remeasurement (gain) loss(e) | | 25 | | | 32 | | | (20 | ) |
Other items(f) | | 16 | | | 18 | | | 14 | |
Adjusted EBITDA (non-U.S. GAAP)(g) | $ | 420 | | $ | 166 | | $ | 139 | |
| | | | | | | | | | | | | | | | | |
| |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net income (U.S. GAAP) | 500 | | | 303 | | | 995 | |
| Interest expense | 125 | | | 157 | | | 189 | |
| Interest income | (9) | | | (7) | | | (8) | |
| Income tax provision | (192) | | | 71 | | | (881) | |
| Depreciation, depletion and amortization expense | 269 | | | 297 | | | 304 | |
| EBITDA (non-U.S. GAAP) | 693 | | | 821 | | | 599 | |
Share-based compensation(a) | 26 | | | 31 | | | 30 | |
Transaction costs(b) | — | | | 18 | | | 14 | |
Restructuring(c) | — | | | — | | | 3 | |
Venator settlement(d) | 85 | | | — | | | — | |
Integration costs(e) | — | | | — | | | 10 | |
Loss on extinguishment of debt(f) | 21 | | | 65 | | | 2 | |
Foreign currency remeasurement(g) | 3 | | | (16) | | | (4) | |
Pension settlement and curtailment losses (gains)(h) | 20 | | | — | | | (2) | |
Insurance proceeds(i) | — | | | — | | | (11) | |
Other items(j) | 27 | | | 28 | | | 27 | |
| Adjusted EBITDA (non-U.S. GAAP) | $ | 875 | | | $ | 947 | | | $ | 668 | |
________________
(a)Represents non-cash share-based compensation. See Note 20 of notes to consolidated financial statements.
(b)2021 amount represents the breakage fee and other costs associated with the termination of the TTI transaction which were primarily recorded in "Other (expense) income, net" in the Consolidated Statements of Income. 2020 amount represents transaction costs associated with the TTI acquisition which were recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Income.
(c)2020 amount represents amounts for employee-related costs, including severance, which was recorded in “Restructuring” in the Consolidated Statements of Income.
(d)Represents the breakage fee including interest associated with the Venator settlement which were recorded in "Venator settlement" in the Consolidated Statements of Income.
(e)2020 amount represents integration costs associated with the Cristal transaction after the acquisition which were recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Income.
(f)2022 amount represents the loss in connection with the redemption of the 6.5% Senior Secured Notes and the issuance of a new loan which closed in April 2022. 2021 amount represents the loss in connection with the following: 1) termination of its Wells Fargo Revolver, 2) amendment and restatement of its term loan facility including the new revolving credit facility, 3) termination of its Senior Notes due 2026 and its Senior Notes due 2025, 4) issuance of its Senior Notes due 2029 and 5) several voluntary prepayments made on the Term Loan Facility. See Note 13 of notes to consolidated financial statements. 2020 amount represents the loss in connection with a voluntary prepayment on the prior term loan facility in the US.
(g)Represents realized and unrealized gains and losses associated with foreign currency remeasurement related to third-party and intercompany receivables and liabilities denominated in a currency other than the functional currency of the entity holding them, which are included in "Other (expense) income, net" in the Consolidated Statements of Income.
(h)2022 amount represents a non-cash pension settlement loss due to the settling of low-dollar valued amounts in our U.S. Qualified Plan. 2020 amount represents a curtailment gain due to the freezing of plan benefits partially offset by pension settlements.
(i)2020 amount represents reimbursement from claims related to the Ginkgo concentrator failure we inherited as a part of the Cristal transaction.
(j)Includes noncash pension and postretirement costs, accretion expense, severance expense, and other items included in “Selling general and administrative expenses” and “Cost of goods sold” in the Consolidated Statements of Income.
The following table reconciles Net income attributable to Tronox to Adjusted net income attributable to Tronox for the periods presented:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net income attributable to Tronox Holdings plc (U.S. GAAP) | $ | 497 | | | $ | 286 | | | $ | 969 | |
Transaction costs(a) | — | | | 18 | | | 14 | |
Venator settlement(b) | 85 | | | — | | | — | |
Restructuring(c) | — | | | — | | | 3 | |
Integration costs(d) | — | | | — | | | 10 | |
Loss on extinguishment of debt(e) | 21 | | | 57 | | | 2 | |
Pension settlement and curtailment losses (gains)(f) | 15 | | | — | | | (2) | |
Insurance proceeds(g) | — | | | — | | | (11) | |
Other(h) | (3) | | | 12 | | | 4 | |
Withholding tax accrued(i) | 4 | | | — | | | — | |
Tax valuation allowance(j) | (301) | | | (8) | | | (903) | |
Brazilian tax credits(k) | — | | | (3) | | | — | |
Income tax expense - deferred tax assets(l) | (7) | | | — | | | (5) | |
| Adjusted net income attributable to Tronox Holdings plc (non-U.S. GAAP) (1)(2) | $ | 311 | | | $ | 362 | | | 81 | |
| | | | | |
| Diluted net income per share (U.S. GAAP) | $ | 3.16 | | | $ | 1.81 | | | $ | 6.69 | |
| | | | | |
| Transaction costs, per share | — | | | 0.11 | | | 0.10 | |
| Venator settlement, per share | 0.54 | | | — | | | — | |
| Restructuring, per share | — | | | — | | | 0.02 | |
| Integration costs, per share | — | | | — | | | 0.07 | |
| Loss on extinguishment of debt, per share | 0.13 | | | 0.36 | | | 0.01 | |
| Pension settlement and curtailment losses (gains), per share | 0.09 | | | — | | | (0.01) | |
| Insurance proceeds, per share | — | | | — | | | (0.08) | |
| Other, per share | (0.02) | | | 0.08 | | | 0.03 | |
| Withholding tax accrued | 0.03 | | | — | | | — | |
| Tax valuation allowance, per share | (1.92) | | | (0.05) | | | (6.24) | |
| Brazilian tax credits, per share | — | | | (0.02) | | | — | |
| Income tax expense - deferred tax assets, per share | (0.04) | | | — | | | (0.03) | |
| Diluted adjusted net income per share attributable to Tronox Holdings plc (non-U.S. GAAP) | $ | 1.98 | | | $ | 2.29 | | | $ | 0.56 | |
| | | | | |
| Weighted average shares outstanding, diluted (in thousands) | 157,110 | | | 157,945 | | | 144,906 | |
________________
| (a) | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) Represents transactionbreakage fee and other costs associated with termination of TTI Transaction which were primarily recorded in "Other income (expense)" in the Consolidated Statements of Income. |
| (b) Represents the breakage fee including interest associated with the Venator settlement which were recorded in "Venator settlement" in the Consolidated Statements of Income. |
| (c) Represents amounts for employee-related costs, including severance, net of tax which was recorded in "Restructuring" in the Consolidated Statements of Income. |
(d) Represents integration costs associated with the Cristal Transactionacquisition after the acquisition which were recorded in “Selling,"Selling, general and administrative expenses”expenses" in the Consolidated Statements of Operations. During 2015,Income, net of tax. |
(e) 2022 amount represents the $29 million of transaction costs were associated with the one-time non-operating items and the effect of the Alkali acquisition which is includedloss in “Selling, general and administrative expenses” in the Consolidated Statements of Operations. |
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| (b) | Represents non-cash share-based compensation. See Note 19 of notes to Consolidated Financial Statements for additional information. |
| (c) | Represents severance and other costs associated with the shutdown of our sodium chlorate plant, and other global restructuring efforts, which was recorded in “Restructuring income (expense)” in the Consolidated Statements of Operations. See Note 4 of notes to Consolidated Financial Statements. |
| (d) | Represents $28 million of loss, which includes a $22 million loss associatedconnection with the redemption of the outstanding balance6.5% Senior Secured Notes and the issuance of a new term loan which closed in April 2022. 2021 amount represents the loss in connection with the following: 1) termination of its Wells Fargo Revolver, 2) amendment and restatement of its term loan facility including the new revolving credit facility, 3) termination of its Senior Notes due 2020, $1 million of unamortized original debt issuance costs from the repayment of the UBS Revolver,2026 and $5 million of debt issuance costs from the refinancing activities associated with the term loans. During 2016, the $4 million gain was associated with the repurchase of $20 million face value of ourits Senior Notes due 2020 and2025, 4) issuance of its Senior Notes due 2029, and 5) certain discretionary prepayments made primarily on our term loan in the US. 2020 amount represents a voluntary prepayment made on the prior term loan facility in the US. |
(f) 2022 which was recordedamount represents a non-cash pension settlement loss due to the settling of low-dollar valued amounts in “Gain (loss)our U.S. Qualified Plan. 2020 amount represents a curtailment gain due to the freezing of plan benefits partially offset by pension settlements. |
| (g) Represents reimbursement from claims related to the Ginkgo concentration failure we inherited as a part of the Cristal Transaction. |
| (h) Represents other activity not representative of the ongoing operations of the Company. |
| (i) Represents potential withholding tax due to the Chinese government for historic distributable income generated. |
| (j) 2022 amount represents the reversal of the tax valuation allowance associated with unlimited lived deferred tax assets primarily within our Australian jurisdictions. 2021 amount represents the reversal of the tax valuation allowance associated with unlimited live deferred tax assets within our Saudi Arabia jurisdiction. 2020 amount represents the reversal of tax valuation allowances associated with unlimited lived deferred tax assets within our US and Brazilian jurisdictions, partially offset by the establishment of full tax valuation allowances against the deferred tax assets within our Saudi Arabia and UK jurisdictions. |
| (k) Represents a portion of Brazilian tax credits realized during 2021 generated from operations prior to the Cristal acquisition. |
| (l) Represents a charge to tax expense for the impact on deferred tax assets from a change in tax rates in a foreign tax jurisdiction. |
| | | | | | | | |
(1) Only the loss on extinguishment of debt” in the Consolidated Statements of Operations. See Note 15 of notes to Consolidated Financial Statements. |
| (e) | Represents foreign currency remeasurement, which is included in “Other income (expense), net” in the Consolidated Statements of Operations. |
| (f) | Includes noncashdebt and pension settlement loss amounts and postretirement costs, severance expense, adjustment of transfer tax related to the Exxaro Transaction, insurance settlement gain andcertain other items included in “Selling general and administrative expenses” and “Cost of goods sold” in the Consolidated Statements of Operations. |
| (g) | have been tax impacted. No income tax impactimpacts have been given to other items as they were recorded in jurisdictions with full valuation allowance except for South Africa related restructuring costs. See Note 6 of notesallowances. |
(2) Diluted adjusted net income per share attributable to Consolidated Financial Statements for additionalTronox Holdings plc was calculated from exact, not rounded Adjusted net income attributable to Tronox Holdings plc and share information. |
The following table reconciles net income (loss) from continuing operations, our comparable measure for segment reporting under U.S. GAAP, to Adjusted EBITDA by segment for the periods presented:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
TiO2 segment | $ | 261 | | $ | 6 | | $ | (127 | ) |
Corporate | | (123 | ) | | (62 | ) | | (74 | ) |
Income (loss) from operations (U.S. GAAP) | | 138 | | | (56 | ) | | (201 | ) |
TiO2 segment | | 177 | | | 171 | | | 247 | |
Corporate | | 5 | | | 6 | | | 6 | |
Depreciation, depletion and amortization expense | | 182 | | | 177 | | | 253 | |
TiO2 segment | | 62 | | | 59 | | | 92 | |
Corporate | | 38 | | | (14 | ) | | (5 | ) |
Other | | 100 | | | 45 | | | 87 | |
TiO2 segment | | 500 | | | 236 | | | 212 | |
Corporate | | (80 | ) | | (70 | ) | | (73 | ) |
Adjusted EBITDA (non-U.S. GAAP) | $ | 420 | | $ | 166 | | $ | 139 | |
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions regarding matters that are inherently uncertain and that ultimately affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The estimates and assumptions are based on management’s experience and understanding of current facts and circumstances. These estimates may differ from actual results. Certain of our accounting policies are considered critical, as they are both important to reflect our financial position and results of operations and require significant or complex judgment on the part of management. The following is a summary of certain accounting policies considered critical by management.
Inventories, net
Pigment inventories are stated
Asset Retirement Obligations
To the extent a legal obligation exists, an asset retirement obligation (“ARO”) is recorded at its estimated fair value and accretion expense is recognized over time as the lower of actual cost or net realizable value, net of allowances for obsoletediscounted liability is accreted to its expected settlement value. Because AROs represent financial obligations to be settled in the future, uncertainties exist in estimating the timing and slow-moving inventory. The cost of finished goods pigment 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 ore, are determined by average cost to acquire. Raw materials are carried at actual cost. Mineral Sands inventories are stated at the loweramount of the weighted-average costassociated costs to be incurred. Fair value is measured using expected future cash outflows, adjusted for expected inflation and discounted at our credit-adjusted risk-free interest rate. No market-risk premium has been included in our calculation of production or market. We periodically review the cost of our inventory in comparisonARO balances since we can make no reliable estimate. Management believes these estimates and assumptions are reasonable; however, they are inherently uncertain. Refer to its net realizable value. We also periodically review our inventory for obsolescence (inventory that is no longer marketable for its intended use). In either case, we record any write-down equalNotes 17 to the difference betweenconsolidated financial statements for a summary of the costestimates and assumptions utilized. At December 31, 2022, AROs were $161 million of inventorywhich the long-term portion of $153 million is recorded in "Asset retirement obligations" and its estimated net realizable valuethe short-term portion of $8 million is recorded in "Accrued liabilities" in the Consolidated Balance Sheet.
Environmental Matters
Liabilities for environmental matters are recognized when remedial efforts are probable and the costs can be reasonably estimated. Such liabilities are based on assumptions about alternative uses, market conditions and otherour best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal
factors. Inventoriesinformation becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range or reasonably possible environmental loss in excess of our recorded liabilities. At December 31, 2022, environmental liabilities (both short term and long term) were $54 million.
For further discussion, see Environmental Matters included elsewhere in this section entitled, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Notes 2 and 18 to the consolidated financial statements.
Income Taxes
We have operations in several countries around the world and are subject to income and similar taxes in these countries. The estimation of the amounts of income tax 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. Although we believe our tax accruals are adequate, differences may occur in the future, depending on the resolution of pending and new tax matters.
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 soldrecovered or consumed within twelve months aftersettled. A valuation allowance is provided against a deferred tax asset when it is more likely than not that all or some portion of the balance sheet date are classified as currentdeferred 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. ASC 740, Income Taxes, requires that all other inventoriesavailable positive and negative evidence be weighted to determine whether a valuation allowance should be recorded.
The amount of income taxes we pay are
classified as non-current assets.Business Combinations
Business acquisitions are accounted for using the acquisition method under Accounting Standards Codification (“ASC”) 805, Business Combinations,subject to ongoing audits by federal, state and foreign tax authorities, which requires recording assets acquired and liabilities assumed at fair value asmay result in proposed assessments. Our estimate of 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 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 Notes 2 and 5 to the consolidated financial statements for additional information.
Contingencies
From time to time, we may be subject to lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of the conduct of our business, including matters relating to commercial transactions, prior acquisitions and divestitures including our acquisition
date. Underof Cristal, employee benefit plans, intellectual property, and environmental, health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the
acquisition methodlikelihood of
accounting, each tangible and separately identifiable intangible asset acquired and liability assumed is recordedadverse judgments or outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on
their estimated fair values ona careful analysis of each matter with the
acquisition date. Acquisition related costsassistance of outside legal counsel and, if applicable, other experts. Such contingencies are
expensed as incurredsignificant and
are includedthe accounting requires considerable management judgments in
“Selling, generalanalyzing each matter to assess the likely outcome and
administrative expenses” in the
Consolidated Statements of Operations.need for establishing appropriate liabilities and providing adequate disclosures.
Refer to Notes 2 and 18 to the consolidated financial statements for additional information.
Key estimates related to long-lived assets (property, plant and equipment, mineral leaseholds, and intangible assets) include useful lives, recoverability of carrying values, and the existence of any
asset retirement obligations. As a result of future decisions, such estimates could be significantly modified. The estimated useful lives of property, plant and equipment range from three to forty years, and depreciation is recognized on a straight-line basis. Useful lives are estimated based upon our historical experience, engineering estimates, and industry information. These estimates include an assumption regarding periodic
maintenance and an appropriate level of annual capital expenditures to maintain the assets.maintenance. Mineral leaseholds are depreciated over their useful lives as determined under the units of production method. Intangible assets with finite useful lives are amortized on the straight-line basis over their estimated useful lives. The amortization methods and remaining useful lives are reviewed quarterly.
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.
Asset Retirement Obligations
To the extent a legal obligation exists, an asset retirement obligation (“ARO”) is recorded at its estimated fair value and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. Fair value is measured using expected future cash outflows discounted at our credit-adjusted risk-free interest rate. No market-risk premium has been included in our calculation of ARO balances since we can make no reliable estimate. Our consolidated financial statements 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.
We used the following assumptions in determining asset retirement obligations at December 31, 2017: inflation rates between 2.5% - 4.2% per year; credit adjusted risk-free interest rates between 7.0% - 17.1%; the life of mines between 12 - 27 years and the useful life of assets of between 5 - 33 years.
Income Taxes
We have operations in several countries around the world and are subject to income and similar taxes in these countries. The estimation of the amounts of income tax 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. Although we believe our tax accruals are adequate, differences may occur in the future, depending on the resolution of pending and new tax matters.
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
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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. ASC 740, Income Taxes, requires that all available positive and negative evidence be weighted to determine whether a valuation allowance should be recorded.
The amount of income taxes we pay are 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 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.
Pension and Postretirement Benefits
We provide pension
and postretirement healthcare benefits for qualifying employees
worldwide. These plansin the United States and internationally, with the largest in the United Kingdom. Because pension benefits represent financial obligations that will ultimately be settled in the future with employees who meet eligibility requirements, uncertainties exist in estimating the timing and amount of future payments, and significant estimates are
accountedrequired to calculate pension expense and liabilities relating to these plans. The company utilizes the services of independent actuaries, whose models are used to help facilitate these calculations. Several key assumptions are used in actuarial models to calculate pension expense and liability amounts recorded in the financial statements; the most significant variables in the models are the expected rate of return on plan assets, the discount rate, and the expected rate of compensation increase. Management believes the assumptions used in the actuarial calculations are reasonable, reflect the company’s experience and expectations for
the future and
disclosedare within accepted practices in
accordance with ASC 715, Compensation — Retirement Benefits.each of the respective geographic locations in which it operates. However, actual results in any given year often differ from actuarial assumptions due to economic events and different rates of retirement, mortality, and turnover. Refer to Notes 2 and 21 to the consolidated financial statements for a summary of the plan assumptions and additional information on our pension arrangements.
Expected Return on Plan Assets - — In forming the assumption of the U.S. long-term rate of return on plan assets, we took into accountconsider the expected earnings on funds already invested, earnings on contributions expected to be receivedmade in the current year, and earnings on reinvested returns. The long-term rate of return estimation methodology for U.S.the 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 theA 100 basis point change in these expected 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.with all other variables held constant, would change our pension expense by approximately $3 million.
Discount Rate - — The discount rates selected for estimation of the actuarial present value of the benefit obligations of the U.S. Qualified Plan were 3.71% and 4.25% at December 31, 2017 and 2016, respectively. The 2017 and 2016 rates were selectedare determined based on the results of a cash flow matching analysis, which projectedprevailing market rate for high-quality, fixed-income debt instruments with maturities corresponding to the expected cash flowstiming of benefit payments as of the plans using a yield curves model developedannual measurement date for each of the various plans. These rates change from a universe of Aa-graded U.S. currencyyear to year based on market conditions that affect corporate bonds (obtained from Bloomberg)bond yields. A 100 basis points change in discount rates, with at least $50 million outstanding. Bonds with features that imply unreliable pricing,all other variables held constant, would have a less than certain cash flow, or other indicators$1 million impact to our pension expense. A 100 basis points reduction in discount rates would increase the PBO by approximately $29 million whereas a 100 basis point increase in discount rates would have a favorable impact to the PBO of optionality are filtered outapproximately $33 million.
Rates of Compensation Increase - We determine these rates based on review of the universe. The remaining universe is categorized into maturity groups, and within eachunderlying long-term salary increase trend characteristic of the maturity groups yields are ranked into percentiles.The discount rates selected for estimatinglocal labor markets and historical experience, as well as comparison to peer companies. A 100 basis points change in the actuarial present valueexpected rate of the benefit obligationscompensation increase, with all other variables held constant, would change our pension expense by approximately $1 million. A 100 basis points reduction in rate of the Netherlands Plan was 1.50% ascompensation would have a favorable impact of November 1, 2016. This$4 million whereas a 100 basis point increase in rate was based on the long-term Euro corporate bond index rates that correlate with anticipated cash flows associated with future benefit payments.
of compensation would have an unfavorable impact of approximately $5 million.
Recent Accounting Pronouncements
See Note 2 of notes to Consolidated Financial Statements for recently issued accounting pronouncements.
We are subject to a broad array of international, federal, state, and local laws and regulations relating to safety, pollution, protection of the environment, and the generation, storage, handling, transportation, treatment, disposal, and remediation of hazardous substances and waste materials. In the ordinary course of business, we are subject to frequent environmental inspections and monitoring, and occasional investigations by governmental enforcement authorities. Under these laws, we are or may be required to obtain or maintain permits or licenses in connection with our operations. In addition, under these laws, we are or may be required to remove or mitigate the effects on the environment of the disposal or release of chemical, petroleum, low-level radioactive and other substances at our facilities. We may incur future costs for capital improvements and general compliance under
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environmental, health, and safety laws, including costs to acquire, maintain, and repair pollution control equipment. Environmental laws and regulations are becoming increasingly stringent, and compliance costs are significant and will
continue to be significant in the foreseeable future. There can be no assurance that such laws and regulations or any environmental law or regulation enacted in the future is not likely to have a material effect on our business. We believe we are in compliance with applicable environmental rules and regulations in all material respects.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Refer to Item 3. Legal Proceedings for further information.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market, credit, operational, and liquidity risks in the normal course of business, which are discussed below. We manage these risks through normal operating and financing activities and, when appropriate, with derivative instruments. We do not invest in derivative instruments for speculative purposes, but historically have entered into, and may enter into, derivative instruments for hedging purposes in order to reduce the exposure to fluctuations in interest rates, natural gas prices and exchange rates.
A substantial portion of our products and raw materials are commodities that reprice as market supply and demand fundamentals change. Accordingly, product margins and the level of our profitability tend to vary with changes in the business cycle. Our TiO2 prices may do so in the near term as ore prices and pigment prices are expected to fluctuate over the next few years. We try to protect against such instability through various business strategies. These include provisions in sales contracts allowing us to pass on higher raw material costs through timely price increases and formula price contracts to transfer or share commodity price risk, as well as using varying contract term lengths and selling to a diverse mix of customers by geography and industry to reap the benefits of a diverse portfolio. Credit risk is the risk that a borrower or a counterparty will fail to meet their obligations. A significant portion of our liquidity is concentrated in trade accounts receivable that arise from sales of our products to customers. In the case of TiO2, the high level of industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic, industry or other conditions. We have significant exposure to credit risk in industries that are affected by cyclical economic fluctuations such as mining.fluctuations. We perform ongoing credit evaluations of our customers and use credit risk insurance policies from time to time, as deemed appropriate, to mitigate credit risk but generally do not require collateral. Our contracts typically enable us to tighten credit terms if we perceive additional credit risk andrisk; however, historic losses due to write offs of bad debt have been relatively low. In addition, due to our international operations, in our TiO2 segment, we are subject to potential trade restrictions and sovereign risk in certain countries in which we operate. We maintain allowances for potential credit losses based on specific customer review and current financial conditions. During 2017, 20162022, 2021 and 2015,2020 our ten largest third-party TiO2customers represented 35%30%, 36%28%, and 40%32%, respectively, of our consolidated net sales. During 2017,2022, 2021, and 2020, no single customer accounted for 10% of our consolidated net sales. During both 2016 and 2015, one pigment customer accounted for 10% of our consolidated net sales. Interest rate risk arises from the probabilitypossibility that changes in interest rates will impact our financial results. Our exposureWe are exposed to interest rate risk is associated withon our $2.15 billion of floating rate Newdebt, the Term Loan Facility.Facility, 2022 Term Loan Facility, Standard Bank Term Loan Facility, Cash Flow Revolver, Standard Bank Revolver, Emirates Revolver and SABB Credit Facility balances. Using a sensitivity analysis as of December 31, 2017,2022, a hypothetical 1% increase in interest rates would result in an increasea net decrease to pre-tax lossincome of approximately $4$6 million on an annualized basis. This is due to the fact that earnings on our floating rateinterest earning financial assets of $1.8 billion$38 million at December 31, 20172022 would increase by the full 1%, offsetting the impact of a 1% increase in interest expense on our $2.15 billion Newfloating rate debt of $696 million.
During 2019, we entered into interest-rate swap agreements for a portion of our Prior Term Loan Facility,
balance.which effectively convert the variable rate to a fixed rate for a portion of the loan. The agreements expire in September 2024. The Company's objectives in using the interest-rate swap agreements are to add stability to interest expense and to manage its exposure to interest rate movements. There was no impact associated with the Term Loan Facility as the hedge remained highly effective.
Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact our balance sheets due to the valuetranslation of our assets and liabilities denominated in foreign currencies, as well as our earnings due to the translation of our balance sheets and remeasurementcertain of our statementssubsidiaries’ Statements of operationsIncome from local currencies to U.S. dollars. Wedollars, as well as due to remeasurement of assets and liabilities denominated in currencies other than a subsidiary’s functional currency. A significant portion of our Adjusted EBITDA is derived from jurisdictions that are subject to currency risk with Australia, Europe and South Africa representing the largest
contributors. 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 Australia, Brazil, China, South Africa, the Netherlands, France and the Netherlands.United Kingdom. The exposure is more prevalent in South Africa and Australia as the majority of revenues are earned in U.S. dollars while expenses are primarily incurred in local currencies. Since we are exposed to movements in the South African Randrand, the Australian Dollar, the Euro and the Australian DollarPound Sterling versus the U.S. dollar, we may enter into forward contracts to buy and sell foreign currencies as “economic hedges” for these foreign currency transactions.
We periodically enter into foreign currency contracts used to hedge non-functional currency sales for our South African subsidiaries and forecasted non-functional currency cost of goods sold for our Australian subsidiaries. These foreign currency contracts are designated as cash flow hedges. Changes to the fair value of these foreign currency contracts are recorded as a component of other comprehensive income (loss) to the extent such contracts are effective, and are recognized in net sales or costs of goods sold in the period in which the forecasted transaction affects earnings or the transactions are no longer probable of occurring.
As of December 31, 2022, we had no outstanding amounts to reduce the exposure of our Australian subsidiaries’ cost of sales to fluctuations in currency rates or to reduce the exposure of our South African subsidiaries' third party sales to fluctuations in currency rates. At December 31, 2022, there was an unrealized net loss of $4 million recorded in "Accumulated other comprehensive loss" on the Consolidated Balance Sheet, which is expected to be recognized in earnings over the next twelve months. At December 31, 2021, there was an unrealized net gain of $15 million recorded in "Accumulated other comprehensive loss" on the Consolidated Balance Sheet.
We enter into foreign currency contracts to reduce exposure of our subsidiaries’ balance sheet accounts not denominated in our subsidiaries’ functional currency to fluctuations in foreign currency exchange rates. For accounting purposes, these foreign currency contracts are not considered hedges. The change in fair value associated with these contracts is recorded in “Other (expense) income, net” within the Consolidated Statement of Income and partially offsets the change in value of third party and intercompany-related receivables not denominated in the functional currency of the subsidiary. At December 31, 2022, there was (i) 1.2 billion South African Rand (or approximately $68 million at the December 31, 2022 exchange rate), (ii) 197 million Australian dollars (or approximately $135 million at the December 31, 2022 exchange rate), (iii) 20 million Pound Sterling (or approximately $24 million at the December 31, 2022 exchange rate and (iv) 44 million Euro (or approximately $48 million at the December 31, 2022 exchange rate) of notional amount of outstanding foreign currency contracts.
Item 8. Financial Statements and Supplementary Data
| Item 8. | Financial Statements and Supplementary Data |
| Page No.
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Tronox LimitedHoldings Audited Annual Financial Statements
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Tronox
LimitedHoldings plc
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Tronox LimitedHoldings plc and its subsidiaries (the “Company”) as of December 31, 20172022 and 20162021, and the related consolidated statements of operations,income, of comprehensive income, (loss), changes in shareholders’of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2017,2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’sCompany's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172022 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, 2017,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
The Company's management is responsible for these consolidated 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
ControlsControl over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
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Definition and Limitations of Internal Control over Financial Reporting
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounts Receivable Securitization Program
As described in Note 7 to the consolidated financial statements, in March 2022, the Company entered into an accounts receivable securitization program with a financial institution to sell accounts receivables generated by its wholly owned U.S. operating subsidiary. In November 2022, the Company amended the receivable purchase agreement to expand the program to include receivables generated by its wholly owned Australian operating subsidiaries. For the year ended December 31, 2022, the Company sold to the purchaser accounts receivable in exchange for a total aggregated amount of $147 million of cash proceeds, and recorded $24 million within accounts payable as of December 31, 2022 for the amount that is still due to the purchaser as a result of a periodic decrease in accounts receivable sold to the purchaser, which was paid in January 2023. Additionally, as of December 31, 2022, the Company retained approximately $69 million of unsold receivables which were pledged as collateral for the sold receivables. As these transactions represent a true sale, the Company derecognized the sold receivables as of December 31, 2022 and classified the cash proceeds as a source of cash provided by operating activities.
The principal considerations for our determination that performing procedures relating to the accounts receivable securitization program is a critical audit matter are (i) the significant judgment by management when evaluating whether the sold receivables met the definition of a true sale in accordance with U.S. GAAP; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the audit evidence obtained relating to the evaluation of the appropriateness of the true sale conclusion and classification of the true sale within the financial statements; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s evaluation as to whether the sold receivables met the definition of a true sale. These procedures also included, among others (i) obtaining and reviewing the third-party true sale opinions and securitization agreements; (ii) confirming, on a sample basis, the outstanding sold receivable as of December 31, 2022 with the third-party customer of the Company to validate that a bona fide receivable existed upon the sale of the receivable to the purchaser; (iii) confirming the outstanding principal balance as of December 31, 2022 with the purchaser; (iv) evaluating the appropriateness of the classification of the sold and unsold receivables in the financial statements; and (v) testing the completeness and accuracy of data provided by management. Professionals with specialized skill and knowledge were used to assist in evaluating whether the sold receivables met the definition of a true sale under U.S. GAAP and evaluating the appropriateness of the classification of the true sale in the financial statements.
/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
March 1, 2018February 22, 2023
We have served as the Company’s auditor since 2014.
TRONOX LIMITED
HOLDINGS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
INCOME
(Millions of U.S. dollars, except share and per share data) | Year Ended December 31, |
| 2017 | 2016 | 2015 |
Net sales | $ | 1,698 | | $ | 1,309 | | $ | 1,510 | |
Cost of goods sold | | 1,310 | | | 1,175 | | | 1,491 | |
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Gross profit | | 388 | | | 134 | | | 19 | |
Selling, general and administrative expenses | | (251 | ) | | (189 | ) | | (199 | ) |
Restructuring income (expense) | | 1 | | | (1 | ) | | (21 | ) |
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Income (loss) from operations | | 138 | | | (56 | ) | | (201 | ) |
Interest and debt expense, net | | (188 | ) | | (185 | ) | | (176 | ) |
Gain (loss) on extinguishment of debt | | (28 | ) | | 4 | | | — | |
Other income (expense), net | | (9 | ) | | (27 | ) | | 28 | |
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Income (loss) from continuing operations before income taxes | | (87 | ) | | (264 | ) | | (349 | ) |
Income tax (provision) benefit | | (6 | ) | | 125 | | | (23 | ) |
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Net income (loss) from continuing operations | | (93 | ) | | (139 | ) | | (372 | ) |
Net income (loss) from discontinued operations, net of tax | | (179 | ) | | 79 | | | 55 | |
Net income (loss) | | (272 | ) | | (60 | ) | | (317 | ) |
Net income (loss) attributable to noncontrolling interest | | 13 | | | 1 | | | 12 | |
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Net income (loss) attributable to Tronox Limited | $ | (285 | ) | $ | (61 | ) | $ | (329 | ) |
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Net income (loss) per share, basic and diluted:
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Continuing operations | | (0.89 | ) | | (1.20 | ) | | (3.31 | ) |
Discontinued operations | | (1.50 | ) | | 0.68 | | | 0.47 | |
Net income (loss) per share, basic and diluted | $ | (2.39 | ) | $ | (0.52 | ) | $ | (2.84 | ) |
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Weighted average shares outstanding, basic and diluted (in thousands) | | 119,502 | | | 116,161 | | | 115,566 | |
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| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net sales | $ | 3,454 | | | $ | 3,572 | | | $ | 2,758 | |
| Cost of goods sold | 2,622 | | | 2,677 | | | 2,137 | |
| Gross profit | 832 | | | 895 | | | 621 | |
| Selling, general and administrative expenses | 289 | | | 318 | | | 347 | |
| Venator settlement | 85 | | | — | | | — | |
| Restructuring | — | | | — | | | 3 | |
| Income from operations | 458 | | | 577 | | | 271 | |
| Interest expense | (125) | | | (157) | | | (189) | |
| Interest income | 9 | | | 7 | | | 8 | |
| Loss on extinguishment of debt | (21) | | | (65) | | | (2) | |
| Other (expense) income, net | (13) | | | 12 | | | 26 | |
| Income before income taxes | 308 | | | 374 | | | 114 | |
| Income tax benefit (provision) | 192 | | | (71) | | | 881 | |
| Net income | 500 | | | 303 | | | 995 | |
| Net income attributable to noncontrolling interest | 3 | | | 17 | | | 26 | |
| Net income attributable to Tronox Holdings plc | $ | 497 | | | $ | 286 | | | $ | 969 | |
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| Earnings per share: | | | | | |
| Basic | $ | 3.21 | | | $ | 1.88 | | | $ | 6.76 | |
| Diluted | $ | 3.16 | | | $ | 1.81 | | | $ | 6.69 | |
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| Weighted average shares outstanding, basic (in thousands) | 154,867 | | | 152,056 | | | 143,355 | |
| Weighted average shares outstanding, diluted (in thousands) | 157,110 | | | 157,945 | | | 144,906 | |
See notes to consolidated financial statements.
TRONOX LIMITED
HOLDINGS PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Millions of U.S. dollars) | Year Ended December 31, |
| 2017 | 2016 | 2015 |
Net income (loss) | $ | (272 | ) | $ | (60 | ) | $ | (317 | ) |
Other comprehensive income (loss):
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Foreign currency translation adjustments | | 125 | | | 119 | | | (292 | ) |
Pension and postretirement plans:
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Actuarial gains (losses), net of taxes of less than $1 million in 2017, 2016, and 2015 | | (6 | ) | | (18 | ) | | 12 | |
Amortization of unrecognized actuarial losses, net of taxes of less than $1 million in 2017, 2016 and 2015 | | 3 | | | 2 | | | 3 | |
Removal of Alkali qualified plan actuarial losses due to Sale | | 5 | | | — | | | — | |
Prior service credit (no tax impact, see Note 6) | | — | | | (4 | ) | | — | |
Pension and postretirement benefit curtailments gain (loss) (no tax impact, see Note 6) | | — | | | (1 | ) | | — | |
Settlement gain on the Netherlands Pension Plan, (no tax impact; See Note 6) | | — | | | 31 | | | — | |
Unrealized gains (losses) on derivative financial instruments, (no tax impact; See Note 6) | | (4 | ) | | 3 | | | — | |
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Other comprehensive income (loss) | | 123 | | | 132 | | | (277 | ) |
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Total comprehensive income (loss) | $ | (149 | ) | $ | 72 | | $ | (594 | ) |
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Comprehensive income (loss) attributable to noncontrolling interest:
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Net income | | 13 | | | 1 | | | 12 | |
Foreign currency translation adjustments | | 29 | | | 31 | | | (77 | ) |
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Comprehensive income (loss) attributable to noncontrolling interest | | 42 | | | 32 | | | (65 | ) |
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Comprehensive income (loss) attributable to Tronox Limited | $ | (191 | ) | $ | 40 | | $ | (529 | ) |
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| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net income | $ | 500 | | | $ | 303 | | | $ | 995 | |
| Other comprehensive income (loss): | | | | | |
| Foreign currency translation adjustments | (79) | | | (113) | | | (4) | |
| Pension and postretirement plans (See Note 21): | | | | | |
| Actuarial gains (losses), net of tax expense of $4, tax expense of $6 and tax benefit of $5 in 2022, 2021 and 2020, respectively | 5 | | | 16 | | | (20) | |
| Amortization of unrecognized actuarial losses, net of tax benefit of $2 in 2022, $2 in 2021 and less than $1 in 2020 | 2 | | | 4 | | | 4 | |
| Settlement loss reclassified from accumulated other comprehensive loss to the Consolidated Statements of Income, net of tax benefit of $5 in 2022 and nil for both 2021 and 2020 | 15 | | | — | | | — | |
| Total pension and postretirement gains (losses) | 22 | | | 20 | | | (16) | |
| Realized (gains) losses on derivative instruments reclassified from accumulated other comprehensive loss to the Consolidated Statements of Income (net of tax expense of $1 and $1 in 2022 and 2021, respectively and net of tax benefit of $2 in 2020. | (23) | | | (32) | | | 4 | |
| Unrealized gains (losses) on derivative financial instruments, (net of tax expense of $5, tax expense of $1 and tax benefit of $5 in 2022, 2021, 2020, respectively; See Note 14) | 53 | | | 21 | | | (4) | |
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| Other comprehensive loss | (27) | | | (104) | | | (20) | |
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| Total comprehensive income | $ | 473 | | | $ | 199 | | | $ | 975 | |
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| Comprehensive income (loss) attributable to noncontrolling interest: | | | | | |
| Net income | 3 | | | 17 | | | 26 | |
| Foreign currency translation adjustments | 3 | | | (10) | | | (16) | |
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| Comprehensive income attributable to noncontrolling interest | 6 | | | 7 | | | 10 | |
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| Comprehensive income attributable to Tronox Holdings plc | $ | 467 | | | $ | 192 | | | $ | 965 | |
See notes to consolidated financial statements.
TRONOX LIMITED
HOLDINGS PLC
CONSOLIDATED BALANCE SHEETS
(Millions of U.S. dollars, except share and per share data) | December 31, |
| 2017 | 2016 |
ASSETS
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Current Assets
| | | | | | |
Cash and cash equivalents | $ | 1,116 | | $ | 248 | |
Restricted cash | | 653 | | | 3 | |
Accounts receivable, net of allowance for doubtful accounts | | 336 | | | 278 | |
Inventories, net | | 473 | | | 499 | |
Prepaid and other assets | | 53 | | | 28 | |
Income taxes receivable | | 8 | | | 11 | |
Total assets of discontinued operations | | — | | | 1,671 | |
Total current assets | | 2,639 | | | 2,738 | |
Noncurrent Assets
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Property, plant and equipment, net | | 1,115 | | | 1,092 | |
Mineral leaseholds, net | | 885 | | | 877 | |
Intangible assets, net | | 198 | | | 223 | |
Inventories, net | | 3 | | | 14 | |
Other long-term assets | | 24 | | | 20 | |
Total assets | $ | 4,864 | | $ | 4,964 | |
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LIABILITIES AND EQUITY
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Current Liabilities
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Accounts payable | $ | 165 | | $ | 136 | |
Accrued liabilities | | 163 | | | 150 | |
Short-term debt | | — | | | 150 | |
Long-term debt due within one year | | 17 | | | 16 | |
Income taxes payable | | 3 | | | 1 | |
Total liabilities of discontinued operations | | — | | | 111 | |
Total current liabilities | | 348 | | | 564 | |
Noncurrent Liabilities
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Long-term debt, net | | 3,130 | | | 2,888 | |
Pension and postretirement healthcare benefits | | 103 | | | 115 | |
Asset retirement obligations | | 79 | | | 73 | |
Long-term deferred tax liabilities | | 171 | | | 151 | |
Other long-term liabilities | | 18 | | | 20 | |
Total liabilities | | 3,849 | | | 3,811 | |
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Commitments and Contingencies
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Shareholders’ Equity
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Tronox Limited Class A ordinary shares, par value $0.01 — 92,717,935 shares issued and 92,541,463 shares outstanding at December 31, 2017 and 65,998,306 shares issued and 65,165,672 shares outstanding at December 31, 2016 | | 1 | | | 1 | |
Tronox Limited Class B ordinary shares, par value $0.01 — 28,729,280 and 51,154,280 shares issued and outstanding at December 31, 2017 and 2016, respectively | | — | | | — | |
Capital in excess of par value | | 1,558 | | | 1,524 | |
Accumulated deficit | | (327 | ) | | (19 | ) |
Accumulated other comprehensive loss | | (403 | ) | | (497 | ) |
Total Tronox Limited shareholders’ equity | | 829 | | | 1,009 | |
Noncontrolling interest | | 186 | | | 144 | |
Total equity | | 1,015 | | | 1,153 | |
Total liabilities and equity | $ | 4,864 | | $ | 4,964 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 164 | | | $ | 228 | |
| Restricted cash | — | | | 4 | |
| Accounts receivable (net of allowance of $4 in 2022 and $4 in 2021) | 377 | | | 631 | |
| Inventories, net | 1,278 | | | 1,048 | |
| Prepaid and other assets | 135 | | | 132 | |
| Income taxes receivable | 6 | | | 6 | |
| Total current assets | 1,960 | | | 2,049 | |
| Noncurrent Assets | | | |
| Property, plant and equipment, net | 1,830 | | | 1,710 | |
| Mineral leaseholds, net | 701 | | | 747 | |
| Intangible assets, net | 250 | | | 217 | |
| Lease right of use assets, net | 136 | | | 85 | |
| Deferred tax assets | 1,233 | | | 985 | |
| Other long-term assets | 196 | | | 194 | |
| Total assets | $ | 6,306 | | | $ | 5,987 | |
| | | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 486 | | | $ | 438 | |
| Accrued liabilities | 252 | | | 328 | |
| Short-term lease liabilities | 20 | | | 26 | |
| Short-term debt | 50 | | | — | |
| Long-term debt due within one year | 24 | | | 18 | |
| Income taxes payable | 18 | | | 12 | |
| Total current liabilities | 850 | | | 822 | |
| Noncurrent Liabilities | | | |
| Long-term debt, net | 2,464 | | | 2,558 | |
| Pension and postretirement healthcare benefits | 89 | | | 116 | |
| Asset retirement obligations | 153 | | | 139 | |
| Environmental liabilities | 51 | | | 66 | |
| Long-term lease liabilities | 110 | | | 55 | |
| Deferred tax liabilities | 153 | | | 157 | |
| Other long-term liabilities | 33 | | | 32 | |
| Total liabilities | 3,903 | | | 3,945 | |
| | | |
| Commitments and Contingencies - Note 18 | | | |
| Shareholders’ Equity | | | |
| Tronox Holdings plc ordinary shares, par value $0.01 — 154,496,923 shares issued and outstanding at December 31, 2022 and 153,934,677 shares issued and outstanding at December 31, 2021 | 2 | | | 2 | |
| Capital in excess of par value | 2,043 | | | 2,067 | |
| Retained Earnings | 1,080 | | | 663 | |
| Accumulated other comprehensive loss | (768) | | | (738) | |
| Total Tronox Holdings plc shareholders’ equity | 2,357 | | | 1,994 | |
| Noncontrolling interest | 46 | | | 48 | |
| Total equity | 2,403 | | | 2,042 | |
| Total liabilities and equity | $ | 6,306 | | | $ | 5,987 | |
See notes to consolidated financial statements.
TRONOX LIMITED
HOLDINGS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of U.S. dollars) | Year Ended December 31, |
| 2017 | 2016 | 2015 |
Cash Flows from Operating Activities:
| | | | | | | | | |
Net income (loss) | $ | (272 | ) | $ | (60 | ) | $ | (317 | ) |
Net income (loss) from discontinued operations, net of tax | | (179 | ) | | 79 | | | 55 | |
Net income (loss) from continuing operations | | (93 | ) | | (139 | ) | | (372 | ) |
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities, continuing operations:
| | | | | | | | | |
Depreciation, depletion and amortization | | 182 | | | 177 | | | 253 | |
Corporate Reorganization | | — | | | (107 | ) | | — | |
Deferred income taxes | | 2 | | | (9 | ) | | (1 | ) |
Share-based compensation expense | | 31 | | | 24 | | | 22 | |
Amortization of deferred debt issuance costs and discount on debt | | 15 | | | 11 | | | 11 | |
Pension and postretirement healthcare benefit (income) expense | | 3 | | | 2 | | | 1 | |
(Gain) loss on extinguishment of debt | | 28 | | | (4 | ) | | — | |
Other, net | | 37 | | | 50 | | | (3 | ) |
Contributions to employee pension and postretirement plans | | (23 | ) | | (19 | ) | | (15 | ) |
Changes in assets and liabilities:
| | | | | | | | | |
(Increase) decrease in accounts receivable, net | | (50 | ) | | (21 | ) | | 10 | |
(Increase) decrease in inventories, net | | 60 | | | 107 | | | 154 | |
(Increase) decrease in prepaid and other assets | | (28 | ) | | (5 | ) | | 3 | |
Increase (decrease) in accounts payable and accrued liabilities | | 1 | | | 17 | | | — | |
Increase (decrease) in taxes payable | | 1 | | | 2 | | | 4 | |
Cash provided by operating activities-continuing operations | | 166 | | | 86 | | | 67 | |
| | | | | | | | | |
Cash Flows from Investing Activities:
| | | | | | | | | |
Capital expenditures | | (91 | ) | | (86 | ) | | (165 | ) |
Debt proceeds restricted for Cristal acquisition | | (651 | ) | | — | | | — | |
Proceeds from the sale of business | | 1,325 | | | — | | | — | |
Proceeds from the sale of assets | | — | | | 2 | | | 1 | |
Acquisition of business | | — | | | — | | | (1,650 | ) |
Cash provided by (used in) investing activities – continuing operations | | 583 | | | (84 | ) | | (1,814 | ) |
| | | | | | | | | |
Cash Flows from Financing Activities:
| | | | | | | | | |
Repayments of short-term debt | | (150 | ) | | — | | | — | |
Repayments of long-term debt | | (2,342 | ) | | (31 | ) | | (18 | ) |
Proceeds from long-term debt | | 2,589 | | | — | | | 750 | |
Debt issuance costs | | (37 | ) | | — | | | (15 | ) |
Call premium paid | | (14 | ) | | — | | | — | |
Dividends paid | | (23 | ) | | (46 | ) | | (117 | ) |
Restricted stock and performance-based shares settled in cash for taxes | | (12 | ) | | (1 | ) | | (1 | ) |
Proceeds from the exercise of warrants and options | | 13 | | | — | | | 3 | |
Cash provided by (used in) financing activities – continuing operations | | 24 | | | (78 | ) | | 602 | |
| | | | | | | | | |
Discontinued Operations:
| | | | | | | | | |
Cash provided by operating activities | | 107 | | | 126 | | | 150 | |
Cash used in investing activities | | (25 | ) | | (33 | ) | | (26 | ) |
Net cash flows provided by discontinued operations | | 82 | | | 93 | | | 124 | |
| | | | | | | | | |
Effects of exchange rate changes on cash and cash equivalents | | 13 | | | 2 | | | (26 | ) |
| | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | 868 | | | 19 | | | (1,047 | ) |
Cash and cash equivalents at beginning of period | | 248 | | | 229 | | | 1,276 | |
Cash and cash equivalents at end of period - continuing operations | $ | 1,116 | | $ | 248 | | $ | 229 | |
| | | | | | | | | |
Supplemental cash flow information - continuing operations:
| | | | | | | | | |
Interest paid, net | $ | 186 | | $ | 171 | | $ | 152 | |
| | | | | | | | | |
Income taxes paid | $ | 10 | | $ | 2 | | $ | 23 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cash Flows from Operating Activities: | | | | | |
| Net income | 500 | | | 303 | | | 995 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, depletion and amortization | 269 | | | 297 | | | 304 | |
| Deferred income taxes | (261) | | | 15 | | | (899) | |
| Share-based compensation expense | 26 | | | 31 | | | 30 | |
| Amortization of deferred debt issuance costs and discount on debt | 8 | | | 11 | | | 10 | |
| Loss on extinguishment of debt | 21 | | | 65 | | | 2 | |
| Other non-cash affecting net income | 50 | | | 36 | | | 65 | |
| Changes in assets and liabilities: | | | | | |
| Decrease (increase) in accounts receivable, net | 233 | | | (108) | | | (49) | |
| (Increase) decrease in inventories, net | (255) | | | 53 | | | (21) | |
| Decrease (increase) in prepaid and other assets | 47 | | | 53 | | | (29) | |
| (Decrease) increase in accounts payable and accrued liabilities | (5) | | | 53 | | | 17 | |
| Net changes in income tax payables and receivables | 5 | | | 9 | | | (2) | |
| Changes in other non-current assets and liabilities | (40) | | | (78) | | | (68) | |
| Cash provided by operating activities | 598 | | | 740 | | | 355 | |
| | | | | |
| Cash Flows from Investing Activities: | | | | | |
| Capital expenditures | (428) | | | (272) | | | (195) | |
| Insurance proceeds | — | | | 1 | | | 1 | |
| Loans | — | | | — | | | (36) | |
| Proceeds from the sale of assets | 13 | | | 2 | | | 1 | |
| Cash used in investing activities | (415) | | | (269) | | | (229) | |
| | | | | |
| Cash Flows from Financing Activities: | | | | | |
| Repayments of short-term debt | (113) | | | — | | | (13) | |
| Repayments of long-term debt | (516) | | | (3,212) | | | (233) | |
| Proceeds from short-term debt | 142 | | | — | | | 13 | |
| Proceeds from long-term debt | 396 | | | 2,472 | | | 500 | |
| Repurchase of common stock | (50) | | | — | | | — | |
| Debt issuance costs | (4) | | | (37) | | | (10) | |
| Call premium paid | (18) | | | (40) | | | — | |
| Dividends paid | (87) | | | (65) | | | (40) | |
| Restricted stock and performance-based shares settled in cash for taxes | — | | | (3) | | | (3) | |
| Proceeds from the exercise of stock options | — | | | 8 | | | — | |
| Cash (used in) provided by financing activities | (250) | | | (877) | | | 214 | |
| | | | | |
| Effects of exchange rate changes on cash and cash equivalents and restricted cash | (1) | | | (10) | | | (3) | |
| | | | | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | (68) | | | (416) | | | 337 | |
| Cash and cash equivalents and restricted cash at beginning of period | 232 | | | 648 | | | 311 | |
| Cash and cash equivalents and restricted cash at end of period | $ | 164 | | | $ | 232 | | | $ | 648 | |
| | | | | |
| Supplemental cash flow information: | | | | | |
| Interest paid, net | $ | 114 | | | $ | 138 | | | $ | 159 | |
| | | | | |
| Income taxes paid | $ | 60 | | | $ | 47 | | | $ | 17 | |
See notes to consolidated financial statements.
TRONOX LIMITED
HOLDINGS PC
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Millions of U.S. dollars) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tronox Holdings plc
Ordinary
Shares (in thousands) | | Tronox
Holdings plc
Ordinary
Shares (amount) | | Capital in Excess of par Value | | (Accumulated Deficit) Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Tronox Limited Shareholders’ Equity | | Non- controlling Interest | | Total Equity |
| Balance at January 1, 2020 | 141,900 | | | $ | 1 | | | $ | 1,846 | | | $ | (493) | | | $ | (606) | | | $ | 748 | | | $ | 168 | | | $ | 916 | |
| Net income | — | | | — | | | — | | | 969 | | | — | | | 969 | | | 26 | | | 995 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (4) | | | (4) | | | (16) | | | (20) | |
| Shares-based compensation | 2,032 | | | — | | | 30 | | | — | | | — | | | 30 | | | — | | | 30 | |
| Shares cancelled | (375) | | | — | | | (3) | | | — | | | — | | | (3) | | | — | | | (3) | |
| Measurement period adjustment related to Cristal acquisition | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
| Minority interest dividend | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | (2) | |
| Ordinary share dividends ($0.28 per share) | — | | | — | | | — | | | (42) | | | — | | | (42) | | | — | | | (42) | |
| Balance at December 31, 2020 | 143,557 | | | $ | 1 | | | $ | 1,873 | | | $ | 434 | | | $ | (610) | | | $ | 1,698 | | | $ | 173 | | | $ | 1,871 | |
| Net income | — | | | — | | | — | | | 286 | | | — | | | 286 | | | 17 | | | 303 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (94) | | | (94) | | | (10) | | | (104) | |
| Shares-based compensation | 2,844 | | | — | | | 31 | | | — | | | — | | | 31 | | | — | | | 31 | |
| Shares cancelled | (137) | | | — | | | (3) | | | — | | | — | | | (3) | | | — | | | (3) | |
| Options exercised | 425 | | | — | | | 8 | | | — | | | — | | | 8 | | | — | | | 8 | |
| Acquisition of noncontrolling interest | 7,246 | | | 1 | | | 158 | | | — | | | (34) | | | 125 | | | (125) | | | — | |
| Ordinary share dividends ($0.36 per share) | — | | | — | | | — | | | (57) | | | — | | | (57) | | | (7) | | | (64) | |
| Balance at December 31, 2021 | 153,935 | | | $ | 2 | | | $ | 2,067 | | | $ | 663 | | | $ | (738) | | | $ | 1,994 | | | $ | 48 | | | $ | 2,042 | |
| Net income | — | | | — | | | — | | | 497 | | | — | | | 497 | | | 3 | | | 500 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (30) | | | (30) | | | 3 | | | (27) | |
| Shares-based compensation | 3,420 | | | — | | | 26 | | | — | | | — | | | 26 | | | — | | | 26 | |
| Shares cancelled | (28) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Options exercised | 14 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Shares repurchased and cancelled | (2,844) | | | — | | | (50) | | | — | | | — | | | (50) | | | — | | | (50) | |
| Noncontrolling interest dividend | — | | | — | | | — | | | — | | | — | | | — | | | (8) | | | (8) | |
| Ordinary share dividends ($0.50 per share) | — | | | — | | | — | | | (80) | | | — | | | (80) | | | — | | | (80) | |
| Balance at December 31, 2022 | 154,497 | | | $ | 2 | | | $ | 2,043 | | | $ | 1,080 | | | $ | (768) | | | $ | 2,357 | | | $ | 46 | | | $ | 2,403 | |
| Tronox
Limited
Class A
Ordinary
Shares | Tronox
Limited
Class B
Ordinary
Shares | Capital
in
Excess
of par
Value | (Accumulated
Deficit)
Retained
Earnings | Accumulated
Other
Comprehensive
Loss | Total
Tronox
Limited
Shareholders’
Equity | Non-
controlling
Interest | Total
Equity |
Balance at January 1, 2015 | $ | 1 | | $ | — | | $ | 1,476 | | $ | 536 | | $ | (398 | ) | $ | 1,615 | | $ | 177 | | $ | 1,792 | |
Net income (loss) | | — | | | — | | | — | | | (329 | ) | | — | | | (329 | ) | | 12 | | | (317 | ) |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (200 | ) | | (200 | ) | | (77 | ) | | (277 | ) |
Shares-based compensation | | — | | | — | | | 21 | | | — | | | — | | | 21 | | | — | | | 21 | |
Class A and Class B share dividends | | — | | | — | | | — | | | (118 | ) | | — | | | (118 | ) | | — | | | (118 | ) |
Warrants and options exercised | | — | | | — | | | 3 | | | — | | | — | | | 3 | | | — | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 | $ | 1 | | $ | — | | $ | 1,500 | | $ | 89 | | $ | (598 | ) | $ | 992 | | $ | 112 | | $ | 1,104 | |
Net income (loss) | | — | | | — | | | — | | | (61 | ) | | — | | | (61 | ) | | 1 | | | (60 | ) |
Other comprehensive loss | | — | | | — | | | — | | | — | | | 101 | | | 101 | | | 31 | | | 132 | |
Shares-based compensation | | — | | | — | | | 25 | | | — | | | — | | | 25 | | | — | | | 25 | |
Class A and Class B share dividends | | — | | | — | | | — | | | (47 | ) | | — | | | (47 | ) | | — | | | (47 | ) |
Shares cancelled | | — | | | — | | | (1 | ) | | — | | | — | | | (1 | ) | | — | | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | $ | 1 | | $ | — | | $ | 1,524 | | $ | (19 | ) | $ | (497 | ) | $ | 1,009 | | $ | 144 | | $ | 1,153 | |
Net income (loss) | | — | | | — | | | — | | | (285 | ) | | — | | | (285 | ) | | 13 | | | (272 | ) |
Other comprehensive income | | — | | | — | | | — | | | — | | | 94 | | | 94 | | | 29 | | | 123 | |
Shares-based compensation | | — | | | — | | | 33 | | | — | | | — | | | 33 | | | — | | | 33 | |
Shares cancelled | | — | | | — | | | (12 | ) | | — | | | — | | | (12 | ) | | — | | | (12 | ) |
Warrants and options exercised | | — | | | — | | | 13 | | | — | | | — | | | 13 | | | — | | | 13 | |
Class A and Class B share dividends | | — | | | — | | | — | | | (23 | ) | | — | | | (23 | ) | | — | | | (23 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | $ | 1 | | $ | — | | $ | 1,558 | | $ | (327 | ) | $ | (403 | ) | $ | 829 | | $ | 186 | | $ | 1,015 | |
See notes to consolidated financial statements.
TRONOX LIMITED
HOLDINGS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
Tronox LimitedHoldings plc (referred to herein as "Tronox", the "Company", "we", "us", or "our") operates titanium-bearing mineral sand mines and its subsidiaries (collectively referredbeneficiation operations in Australia and South Africa to produce feedstock materials that can be processed into TiO2 for pigment, high purity titanium chemicals, including titanium tetrachloride, and Ultrafine© titanium dioxide used in certain specialty applications. Our strategy is to be vertically integrated and produce enough feedstock materials to be as “Tronox,” “we,” “us,” or “our”self-sufficient as possible in the production of TiO2 at our 9 pigment facilities located in the United States, Australia, Brazil, UK, France, the Netherlands, China and the Kingdom of Saudi Arabia (“KSA”). We believe that vertical integration is the best way to achieve our ultimate goal of delivering low cost, high-quality pigment to our coatings and other TiO2 customers throughout the world. The mining, beneficiation and smelting of titanium bearing mineral sands creates meaningful quantities of zircon, pig iron and the rare-earth bearing mineral, monazite, which we also supply to customers around the world.
We are a public limited company
listed on the New York Stock Exchange and are registered under the laws of
the State of Western Australia. We are a global leader in the productionEngland and
marketing of titanium bearing mineral sands and titanium dioxide (“TiO2”) pigment. 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.We have global operations in North America, Europe, South Africa, and the Asia-Pacific region. We classify our business into one reportable segment, TiO2, in which we operate three pigment production facilities at the following locations: Hamilton, Mississippi; Botlek, the Netherlands; and Kwinana, Western Australia. We also operate three separate mining operations: KwaZulu-Natal (“KZN”) Sands and Namakwa Sands both located in South Africa and Cooljarloo located in Western Australia.
On February 21, 2017, Tronox Limited, 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 we 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 (“Class A Shares”), par value $0.01 per share, of Tronox Limited (the “Cristal Transaction”). Following the closing of the Cristal Transaction, the Seller will own approximately 24% of the outstanding ordinary shares (including both Class A and Class B) of Tronox Limited. On March 1, 2018, Tronox, Cristal and Seller entered into an Amendment to the Transaction Agreement (the “Amendment”) that extends the termination date under the Transaction Agreement to June 30, 2018, with automatic 3-month extensions to March 31, 2019, if necessary based on the status of outstanding regulatory approvals. The Amendment also provides that Tronox has the right to terminate the Transaction Agreement if it determines that the outstanding regulatory approvals are not reasonably likely to be obtained. In the event that such termination by Tronox is (i) on or after January 1, 2019, and Tronox elects to terminate the Transaction Agreement if it determines that the outstanding regulatory approvals are not reasonably likely to be obtained; or (ii) if regulatory approval has not been obtained by March 31, 2019 and Tronox or Cristal elects to terminate the Transaction Agreement; then Tronox is required to pay Cristal a $60 million termination fee. The Transaction Agreement also provides that we 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 has not occurred by June 30, 2018 (subject to automatic 3-month extensions to March 31, 2019 if necessary based on the status of outstanding regulatory approvals).
The Cristal Transaction is conditioned upon the receipt of various regulatory approvals, including antitrust clearance in numerous jurisdictions. On April 13, 2017, the FTC issued a request for additional information (“Second Request”) to the Company and Cristal in connection with its filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and Tronox believes it has fully complied with the Second Request. On December 5, 2017, the FTC announced that it would not approve the Cristal Transaction as proposed and filed an administrative action to prevent the parties from consummating the transaction. On January 23, 2018, Tronox filed suit against the FTC in the U.S. District Court for the Northern District of Mississippi seeking a declaration that the Cristal Transaction is lawful under applicable law, among other things. On December 21, 2017, the European Commission announced that after its initial review, it would pursue a Phase II investigation of the Cristal Transaction before reaching a decision to approve it, with or without conditions. The Transaction Agreement provides for customary representations, warranties and covenants that are subject, in some cases, to specified exceptions and qualifications contained in the Transaction Agreement. There can be no assurance, however, that all closing conditions for the Cristal Transaction will be satisfied and, if they are satisfied, that they will be satisfied in time for the closing to occur by June 30, 2018 (subject to automatic
Wales. TABLE OF CONTENTS
3-month extensions to March 31, 2019 if necessary based on the status of outstanding regulatory approvals), at which time either party to the Transaction Agreement may mutually agree to extend the closing date or terminate the Transaction Agreement if the Cristal Transaction has not closed by such time. We have received approval for the Cristal Transaction from seven of the nine regulatory jurisdictions whose approvals are required to close the Cristal Transaction.
On October 2, 2017, at a special meeting of shareholders of the Company held pursuant to the Transaction Agreement, the Company’s shareholders approved a resolution to issue 37,580,000 Class A Shares to the Seller in connection with the acquisition of Cristal’s TiO2 business, and the resulting acquisition of interests in such Class A Shares by the Seller and certain other persons and entities, at the closing of such acquisition.
On September 1, 2017, we completed the previously announced sale of our wholly owned subsidiary Tronox Alkali Corporation (“Alkali”) to Genesis Energy, L.P. for proceeds of $1.325 billion in cash (the “Sale”).
During the year ended December 31, 2017, we recognized a pre-tax loss of $233 million on the Alkali disposal. For all periods presented, sales, costs and expenses and income taxes attributable to Alkali together with the loss on disposal have been aggregated in a single caption entitled “Income (loss) from discontinued operations, net of tax” in our Consolidated Statement of Operations. Included in the calculation of the loss noted above, were approximately $21 million of transaction fees related to the sale of Alkali. For cash flow presentation purposes, these transaction costs are included in “Cash provided by operating activities, continuing operations” on the Consolidated Statements of Cash Flows. See Note 3 – Discontinued Operations for additional information.
In 2012, our Class B ordinary shares (“Class B Shares”) were issued to Exxaro Resources Limited (“Exxaro”) and one of its subsidiaries in consideration for 74% of Exxaro’s South African mineral sands business. 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 Tronox Board of Directors 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. On March 8, 2017, Exxaro announced its intention to begin pursuing a path to monetize its ownership stake in Tronox over time. On October 10, 2017, Exxaro sold 22,425,000 Class A ordinary shares (“Class A Shares”) in an underwritten registered offering (the “Exxaro Share Transaction”). At December 31, 2017 and December 31, 2016, Exxaro held approximately 24% and 44%, respectively, of the voting securities of Tronox Limited. See Note 21 for additional information regarding Exxaro transactions. Presently, Exxaro intends to sell the remainder of its Tronox shares in a staged process over time pursuant to the existing registration statement, subject to market conditions. Exxaro’s sale of Class A Shares did not impact their 26% ownership interest in each of our Tronox KZN Sands (Pty) Ltd. and Tronox Mineral Sands (Pty) Ltd subsidiaries. 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.
Basis of Presentation
We are considered a domestic company in
Australiathe United Kingdom and, as such, are required to
reportcomply with filing requirements in
Australia under International Financial Reporting Standards (“IFRS”).the United Kingdom. Additionally,
as we are not considered a “foreign private issuer” in the U.S.
,; therefore, 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.
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.
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Revision of Previously Issued Consolidated Financial Statements
During the three months ended March 31, 2017, we identified a misstatement in our selling, general, and administrative expense for certain prior periods related to a liability resulting from a non-timely filing with a statutory authority. The aggregate misstatement is $11 million, which impacts our previously issued consolidated statements of operations, comprehensive loss, balance sheets and cash flows as of and for the years ended December 31, 2015 and 2016, and the unaudited condensed consolidated financial statements for the third and fourth quarters and corresponding year-to-date periods of 2015, and each quarter and corresponding year-to-date periods of 2016.
In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, management evaluated the materiality of the misstatement from qualitative and quantitative perspectives, and concluded that the misstatement was not material to our previously issued annual and interim financial statements. The cumulative amount of the prior period adjustments would have been material to our current statement of operations and comprehensive loss had we made the correction in the three months ended March 31, 2017 and accordingly we have revised our previously issued financial statements to correct this misstatement. We also corrected the timing of other previously recorded immaterial out-of-period adjustments and reflected them in the revised prior period financial statements. The previously recorded immaterial out-of-period adjustments include a $6 million decrease to cost of goods sold due to an overstated depreciation expense and a $7 million increase to cost of goods sold related to royalty tax both originating in 2013 and previously recorded as out-of-period corrections in 2014; a $5 million decrease to cost of goods sold that originated in 2012 and was previously recorded as an out-of-period correction in 2014 due to overstated depletion expense; and other miscellaneous immaterial corrections.
The effects on our consolidated financial statements are as follows:
Consolidated Statement of Operations
| Year Ended December 31, 2016 | Year Ended December 31, 2015 |
| As
Reported(1) | Adjustment | Revised | As
Reported(1) | Adjustment | Revised |
Net sales | $ | 1,309 | | $ | — | | $ | 1,309 | | $ | 1,510 | | $ | — | | $ | 1,510 | |
Cost of goods sold | | 1,175 | | | — | | | 1,175 | | | 1,487 | | | 4 | | | 1,491 | |
Gross profit | | 134 | | | — | | | 134 | | | 23 | | | (4 | ) | | 19 | |
Selling, general and administrative expenses | | (185 | ) | | (4 | ) | | (189 | ) | | (192 | ) | | (7 | ) | | (199 | ) |
Income (loss) from operations | | (52 | ) | | (4 | ) | | (56 | ) | | (190 | ) | | (11 | ) | | (201 | ) |
Other income (expense), net | | (27 | ) | | — | | | (27 | ) | | 28 | | | — | | | 28 | |
Income (loss) from continuing operations before income taxes | | (260 | ) | | (4 | ) | | (264 | ) | | (338 | ) | | (11 | ) | | (349 | ) |
Net income (loss) from continuing operations | | (135 | ) | | (4 | ) | | (139 | ) | | (362 | ) | | (10 | ) | | (372 | ) |
Income (loss) from discontinued operations, net of tax | | 77 | | | 2 | | | 79 | | | 55 | | | — | | | 55 | |
Net loss attributable to Tronox Limited | | (59 | ) | | (2 | ) | | (61 | ) | | (318 | ) | | (11 | ) | | (329 | ) |
Net income (loss) per share from continuing operations, basic and diluted | | (1.17 | ) | | (0.03 | ) | | (1.20 | ) | | (3.22 | ) | | (0.09 | ) | | (3.31 | ) |
Net income (loss) per share from discontinued operations, basic and diluted | | 0.67 | | | 0.01 | | | 0.68 | | | 0.47 | | | — | | | 0.47 | |
Weighted average shares outstanding, basic and diluted (in thousands) | | 116,161 | | | 116,161 | | | 116,161 | | | 115,566 | | | 115,566 | | | 115,566 | |
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Consolidated Statements of Comprehensive Income (Loss)
| Year Ended December 31, 2016 | Year Ended December 31, 2015 |
| As
Reported | Adjustment | Revised | As Reported | Adjustment | Revised |
| | | | | | | | | | | | | | | | | | |
Net loss | $ | (58 | ) | $ | (2 | ) | $ | (60 | ) | $ | (307 | ) | $ | (10 | ) | $ | (317 | ) |
Total comprehensive income (loss) | | 74 | | | (2 | ) | | 72 | | | (584 | ) | | (10 | ) | | (594 | ) |
Comprehensive income (loss) attributable to Tronox Limited | | 42 | | | (2 | ) | | 40 | | | (518 | ) | | (11 | ) | | (529 | ) |
Consolidated Balance Sheet
| Year Ended December 31, 2016 |
| As Reported (1) | Adjustment | Revised |
Current assets of continuing operations | $ | 1,067 | | $ | — | | $ | 1,067 | |
Total assets of discontinued operations | | 1,668 | | | 3 | | | 1,671 | |
Total current assets | | 2,735 | | | 3 | | | 2,738 | |
Total assets | | 4,961 | | | 3 | | | 4,964 | |
Accrued liabilities | | 138 | | | 11 | | | 149 | |
Current liabilities of continuing operations | | 443 | | | 10 | | | 453 | |
Total liabilities of discontinued operations | | 110 | | | 1 | | | 111 | |
Total current liabilities | | 553 | | | 11 | | | 564 | |
Total liabilities | | 3,800 | | | 11 | | | 3,811 | |
Accumulated deficit | | (13 | ) | | (6 | ) | | (19 | ) |
Accumulated other comprehensive loss | | (495 | ) | | (2 | ) | | (497 | ) |
Total Tronox Limited shareholders’ equity | | 1,017 | | | (8 | ) | | 1,009 | |
Total equity | | 1,161 | | | (8 | ) | | 1,153 | |
Total liabilities and equity | | 4,961 | | | 3 | | | 4,964 | |
| (1) | Amounts reflect the results of Alkali as discontinued operations. |
Consolidated Statement of Cash Flows
There was no net impact to operating, investing and financing cash flows from the revisions for continuing operations for the years ended December 31, 2016 and 2015.
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
The U.S. dollar is
the functionalour reporting 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.consolidated financial statements in U.S. GAAP. 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
(expense) income,
(expense), net” in the Consolidated Statements of
Operations.Income. When
thea 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.
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Gains and lossesTranslation adjustments on intercompany foreign currency transactionsreceivables and payables 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
We recognize revenue at a point in time when
riskthe customer obtains control of
loss and title to the
product is transferredpromised products. For most transactions this occurs when products are shipped from our manufacturing facilities or at a later point when control of the products transfers to the customer
pricing is fixedat a specified destination or
determinable, and collection is reasonably assured.time. 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.Income. Accruals are made for sales returns, rebates and other allowances, which are recorded in “Net sales” in the Consolidated Statements of
Operations,Income and are based on our historical experience and current business conditions.
Additionally, we have elected the practical expedient to
exclude sales taxes and similar taxes that we collect from customers on behalf of government authorities from the revenue transaction price. See Note 3.
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.
Research and development costs, included in “Selling, general and administrative expenses” in the Consolidated Statements of
Operation comprisingIncome comprised of salaries, building costs, utilities, administrative expenses,
third party research, and allocations of corporate costs, were
$8$12 million,
$9$13 million, and
$11$12 million during
2017, 2016,2022, 2021, and
2015,2020, respectively, and were expensed as incurred.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs related to marketing,
research and development, agent commissions, and legal and administrative functions such as corporate management, human resources, information technology, investor relations, accounting, treasury, and tax compliance.
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 forof 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 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 6.5.
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
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Plan (the “MEIP”) (see Note 19) and the T-Bucks Employee Participation Plan (“T-Bucks EPP”) (see Note 19)20), both of which containcontains 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.options. 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
7.6.
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 8.
15.
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,
2017, included in restricted cash was $651 million related to our Blocked Term Loan (defined below) See Note 15. Upon consummation of the Cristal acquisition, the Blocked Term Loan will become available to Tronox Finance. See Note 15. At December 31, 2017, 2016 and 2015,2022, we had restricted cash
of less than $1 million which was in Australia related to outstanding performance bonds. At December 31, 2021, we had restricted cash of $4 million comprised of $3 million in Australia related to outstanding performance bonds
of $2and $1 million
$3 million and $5 million, respectively.in Saudi Arabia related to vendor supply agreement guarantees.
Accounts Receivable, net of allowance for
doubtful accountscredit losses
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
parentalparent company guarantees or guarantee payments. We maintain allowances for potential credit losses based on specific customer review and current financial conditions.
See Note 9.
Pigment inventories are stated at the lower of actual cost and net realizable value, 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 SandsFeedstock and co-products 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.
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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 10.
8.
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 | 10 — 20 years |
Buildings | 10 — 40 years |
Machinery and equipment | 3 — 25 years |
Furniture and fixtures | 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.Income. See Note 11.
9.
We capitalize costs associated with our asset retirement obligations which are generally included in machinery and equipment. See Note 17.
We capitalize interest costs on major projects that require an extended period of time to complete. See Note
15.13.
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
12.10.
Intangible assets are stated at cost less accumulated amortization and are amortized on a straight-line basis over their estimated useful lives, which
generally range from 3 to 20 years. See Note
13.11.
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.
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
Leases
We determine if a contract is or contains a lease at fair value asinception of the acquisition date. Undercontract. Our leases are primarily operating leases. Leased assets primarily include office buildings, rail cars and motor vehicles, forklifts, and other machinery and equipment. Our leases primarily have fixed lease payments, with real estate leases typically requiring additional payments for real estate taxes and occupancy-related costs. Certain of our leases also have variable lease payments. Variable lease payments that depend on an index or a rate (such as 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 andConsumer Price Index) are included in “Selling, generalour initial measurement of the lease right of use assets and administrative expenses” inlease liabilities. Variable lease payments that are not index or rate based (such as variable payments based on our performance or use of the leased assets) are recorded as expenses when incurred and excluded from the measurement of right of use assets and lease liabilities. Our leases typically have initial lease terms ranging from 1 to 25 years. Some of our lease agreements include options to renew, extend or early terminate the leases. Lease term is the non-cancellable period of a lease, adjusted by the period covered by an option to extend or terminate the lease if we are reasonably certain to exercise (or not exercise) that option. Our operating leases typically do not contain purchase options we expect to exercise, residual value guarantees or other material covenants.
Operating leases are recorded under “Lease right of use assets”, “Short-term lease liabilities”, and “Long-term lease liabilities” on the Consolidated StatementsBalance Sheets. Finance leases are recorded under “Property, plant and equipment net”, “Long-term debt due within one year”, and “Long-term debt” on the Consolidated Balance Sheets. Operating lease right of Operations.use ("ROU") assets and lease liabilities are initially recorded at the present value of the future minimum lease payments over the lease term at the commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. Lease payments for the initial measurement of lease ROU assets and lease liabilities include fixed payments and variable payments that depend on an index or a rate. Variable lease payments that are not index or rate based are recorded as expenses when incurred. Operating lease ROU assets are amortized on a straight-line basis over the period of the lease. Finance lease ROU assets are amortized on a straight-line basis over the shorter of their estimated useful lives of leased asset and the lease terms. See Note 16. TABLE OF CONTENTS
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.Income. 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.Income. See Note
15.13.
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.Income. See Note
16.17.
Environmental Remediation and Other Contingencies
We
recognize a loss and record an undiscounted liability when
litigation has commenced orany of the following occur: 1) a claim or assessment has been asserted,
2) a litigation has commenced, or
3) based on available information,
commencement of litigation or assertion ofit is probable that a claim or
an assessment
will be asserted or a litigation will commence; and in addition, the outcome is
probable,expected to be unfavorable to us and the associated costs can be reasonably estimated. See Note
16.18.
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.
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 19.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 19, Long-Term Incentive Plan.
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 19.
20.
Defined Benefit Pension and Postretirement Benefit Plans
We recognize the funded status of our defined benefit pension plans and postretirement benefit plans in the Consolidated Balance
Sheet.Sheets. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at the measurement date. The benefit obligation for the defined benefit plans is the projected benefit obligation (PBO), which represents the actuarial present value of benefits expected to be paid upon retirement based on employee services already rendered and estimated future compensation levels. The benefit obligation for our postretirement benefit plans is the accumulated postretirement benefit obligation
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(APBO), which represents the actuarial present value of postretirement benefits attributed to employee services already rendered. The fair value of plan assets related to our defined benefit plan represents the current market value of assets held in a trust fund, which is established for the sole benefit of plan participants.
If the fair value of plan assets exceeds the benefit obligation, the plan is overfunded, and the excess is recorded as a prepaid pension asset. On the other hand, if the benefit obligation exceeds the fair value of plan assets, the plan is underfunded, and the deficit is recorded as pension and postretirement healthcare benefits obligation in the Consolidated Balance Sheet. The portion of the pension and postretirement healthcare obligations payable within the next 12 months is recorded in accrued liabilities in the Consolidated Balance Sheet.
Net periodic pension and postretirement benefit cost represents the aggregation of service cost, interest cost, expected return on plan assets, amortization of prior service costs or credits and actuarial gains or losses previously recognized as a component of OCI and it is recorded in the Consolidated Statement of
Operations.Income. Net periodic cost is recorded in cost of goods sold and selling, general and administrative expenses in the Consolidated Statement of
OperationsIncome based on the employees’ respective functions.
Actuarial gains or losses represents the effect of remeasurement on the benefit obligation principally driven by changes in the plan actuarial assumptions. Prior service costs or credits arise from plan amendments. The actuarial gains or losses and prior service costs or credits are initially recognized as a component of Other
Comprehensivecomprehensive income
(loss) in the Consolidated Statement of Comprehensive
Income (Loss).Income. Those gains or losses and prior service costs or credits are subsequently recognized as a component of net periodic cost.
The measurement of benefit obligations and net periodic cost is based on estimates and assumptions approved by management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases and mortality rates.
Defined Contribution Plans -— We recognize our contribution as expense when they are due. The expense is recorded in cost of goods sold or selling, general and administrative expenses the Consolidated Statement of OperationsIncome based on the employees’ respective functions.
Multiemployer Plan - — We treat our multiemployer plan like a defined contribution plan. A pension plan to which two or more unrelated employers contribute is generally considered to be a multiemployer plan. As a defined contribution plan, we recognize the contribution for the period as a net benefit cost and any contributions due and unpaid as a liability.
Recently
AdoptedIssued Accounting Pronouncements
In
February 2018,March 2020, the FASB issued ASU
2018-02, “Reclassification2020-04, "Reference Rate Reform (Topic 848): Facilitation of Certain Taxthe Effects From Accumulated Other Comprehensive Income” (ASU 2018-02)of Reference Rate Reform Financial Reporting”. This amendment is elective in nature. Amongst other aspects, this standard provides for practical expedients and exceptions to current accounting standards that reference a rate which is expected to be dissolved (e.g.,
which amends ASC 220, Income Statement — Reporting Comprehensive Income,London Interbank Offered Rate “LIBOR”) as it relates to
allow a reclassification from accumulatedhedge accounting, contract modifications and other
comprehensive incometransactions that reference this rate, subject to
retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. In addition, under ASU 2018-02, an entity will be required to providemeeting certain
disclosures regarding stranded tax effects. ASU 2018-02criteria. The standard is effective for all entities
for fiscal years beginning afteras of March 12, 2020 through December
15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of ASU 2018-02 to have a material impact on our consolidated financial statements.31, 2022. In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which amends ASC Topic 718, Compensation – Stock Compensation. ASU 2016-09 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. We adopted ASU 2016-09 during the first quarter of 2017. Its adoption did not have a material impact on our consolidated financial statements.
In March 2016,December 2022, the FASB issued ASU 2016-05, Derivatives and Hedging: Effect2022-06, which defers the sunset date of Derivative Contract Novations on Existing Hedge Accounting Relationships (“ASC 848, Reference Rate Reform, from December 31, 2022 to December 31, 2024. 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
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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. We adopted ASU 2016-05 during the first quarter of 2017. Its adoption did not have an impact on our consolidated financial statements.
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 adopted ASU 2015-11 during the first quarter of 2017. The adoption of ASU 2015-11 did not have an impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU 2017-122022-06 is effective immediately for annual periods beginning on or after December 15, 2018, including interim periods within those periods. Early adoption is permitted which we are considering. all entities.
We
do not expect the adoption of ASU 2017-12have conducted an internal assessment to
have a material impact on our consolidated financial statements.In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation(Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under ASU 2017-09, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changesidentify items that would be impacted as a result of the dissolution of LIBOR. Based upon this assessment, we have determined that this change will be most impactful to our intercompany debt agreements and interest rate swap agreements. Upon conversion of these benchmark rates, we intend to elect the practical expedients allowed under this standard which is expected to result in an immaterial impact to the financial statements.
3. Revenue
Nature of Contracts and Performance Obligations
We primarily generate revenue from selling TiO2 pigment products and related co-products, primarily zircon and pig iron, to our customers. These products are used for the manufacture of paints, coatings, plastics, paper, and a wide range of other applications. We account for a contract with our customer when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.
Our promise in a contract typically relates to the transferring of a product or
conditions. ASU 2017-09 is effective prospectivelymultiple distinct products that are substantially the same and that have the same pattern of transfer, representing a single performance obligation within a contract. We have elected to account for
annual periods beginning on orshipping and handling activities that occur after
December 15, 2017, including interim periods within those periods. Early adoption is permitted. The impact, if any, that ASU 2017-09 will have on our consolidated financial statements will depend on any future award modification.In March 2017,control of the FASB issued ASU 2017-07, Compensation-Retirement Benefits: Improvingproducts has transferred to the Presentationcustomer as contract fulfillment activities, rather than a separate performance obligation. Amounts billed to a customer in a sales transaction related to shipping and handling activities continue to be reported as “Net sales” and related costs as “Cost of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”) which amends the requirements in ASC 715, Compensation — Retirement Benefits, which requires employers that sponsor defined benefit pension and/or other postretirement plans to aggregate the various components of net periodic benefit cost for presentation purposes but does not prescribe where they should be presentedgoods sold” in the income statement. ASU 2017-07 requires employersConsolidated Statements of Income.
The duration of our contract period is one year or less. As such, we have elected to present the service cost componentrecognize incremental costs incurred to obtain contracts, which primarily consist of the net periodic benefit costcommissions paid to third-party sales agents, as “Selling, general and administrative expenses” in the same income statement line item(s) as other employee compensation costs arising from service rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately from the line item(s) that includes the service cost and outsideConsolidated Statements of any subtotal of operating income, if one is presented. Employers willIncome. Furthermore, we have elected not to disclose the line item(s) used to presentvalue of unsatisfied performance obligations at each period end, given the other componentsoriginal expected duration of net periodic benefit cost, if the componentsour contracts are not presented separately in the income statement. ASU 2017-07one year or less.
Transaction Price
Revenue is
effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permittedmeasured as
of the beginning of an annual period for which an entity’s financial statements (interim or annual) have not been issued. ASU 2017-07 requires the presentation of the components of net periodic benefit cost in the income statement retrospectively while the guidance limiting the capitalization of net periodic benefit cost in assets to the service component will be applied prospectively. The adoption of ASU 2017-07 will result in the reclassification of pension costs of $4 million, $3 million and $1 million, in 2017, 2016 and 2015, respectively, from “Income (loss) from operations” to “Other income (expense), net” in our Consolidated Statements of Operations.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
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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. 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. We adopted ASU 2016-18 in January 2018. The guidance should be applied retrospectively to all periods presented. The adoption of ASU 2016-18 will require us to include and reconcile the amount of “Restricted cash”, in addition to “Cash and cash equivalents”, for cash flow purposes for all periods presented commencing with the three months ending March 31, 2018.
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. 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 as it will depend on the nature of future cash flow transactions impacted by the new guidance.
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, as originally issued would have required adoption using a modified retrospective transition and provided for certain practical expedients. Transition would have required application of the new guidance at the beginning of the earliest comparative period presented. On January 5, 2018, the FASB issued a proposed ASU for comment that would allow entities the option to instead apply the provisions of the new leases guidance at the effective date (e.g., January 1, 2019), without adjusting the comparative periods presented. Comments on the proposed update are due to the FASB by February 5, 2018 and we will assess our method of adoption if the FASB approves this transition option. 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 concludedconsideration that we will not early adopt ASU 2016-02. We continue to monitor the FASB’s actions and will consider the impact of any changes made to the guidance prior to its effective date. Refer to Notes 15 and 17 regarding current obligations under lease agreements.
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
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an amount that reflects the consideration to which the entity expectsexpect to be entitled in exchange for those goodstransferring products to the customer. The transaction price typically consists of fixed cash consideration. We also offer various incentive programs to our customers, such as rebates, discounts, and other price adjustments that represent variable consideration. We estimate variable consideration and include such consideration amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We adjust our estimate of revenue at the earlier of when the amount of consideration we expect to receive changes or services. ASU 2014-09 also requires additional disclosures aboutwhen the consideration becomes fixed. Sales returns rarely happen in our business; therefore, it is unlikely that a significant reversal of revenue will occur.
Sales and similar taxes we collect on behalf of governmental authorities are excluded from the transaction price for the determination of revenue. The expected costs associated with product warranties continue to be recognized as expense when the products are sold. Customer payment terms and conditions vary by contract and customer, although the timing of revenue
recognition typically does not differ from the timing of invoicing. Additionally, as we generally do not grant extended payment terms, we have determined that our contracts generally do not include a significant financing component.
Revenue Recognition
We recognize revenue at a point in time when the customer obtains control of the promised products. For most transactions this occurs when products are shipped from our manufacturing facilities or at a later point when control of the products transfers to the customer at a specified destination or time.
Contract Balances
Contract assets represent our rights to consideration in exchange for products that have transferred to a customer when the right is conditional on situations other than the passage of time. For products that we have transferred to our customers, our rights to the consideration are typically unconditional and only the passage of time is required before payments become due. These unconditional rights are recorded as accounts receivable. As of December 31, 2022, and December 31, 2021, we did not have material contract asset balances.
Contract liabilities represent our obligations to transfer products to a customer for which we have received consideration from the customer. When a customer has poor credit worthiness, we may receive advance payment that is accounted for as deferred revenue. Deferred revenue is earned when control of the product transfers to the customer, which is typically within a short period of time from when we received the advanced payment. Contract liability balances as of December 31, 2022 and December 31, 2021 were less than $1 million and $2 million, respectively. Contract liability balances were reported as “Accrued liabilities” in the Consolidated Balance Sheets. All material contract liabilities as of December 31, 2021 and 2020 were recognized as revenue in “Net sales” in the Consolidated Statements of Income during the first quarter of 2022 and first quarter of 2021, respectively.
Disaggregation of Revenue
We operate under one operating and reportable segment, Tronox. See Note 23 for details. We disaggregate our revenue from contracts with customers by product type and geographic area. We believe this level of disaggregation appropriately depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors and reflects how our business is managed.
Net sales to external customers by geographic areas where our customers are located were as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| North America | $ | 790 | | | $ | 743 | | | $ | 716 | |
| South and Central America | 264 | | | 252 | | | 181 | |
| Europe, Middle-East and Africa | 1,335 | | | 1,398 | | | 1,013 | |
| Asia Pacific | 1,065 | | | 1,179 | | | 848 | |
| Total net sales | $ | 3,454 | | | $ | 3,572 | | | $ | 2,758 | |
The 2020 amounts by geographic area in table above have been corrected for an increase and decrease of $78 million to Asia Pacific and North America, respectively, as well as an increase and decrease of $134 million to Europe, Middle-East and Africa and South and Central America, respectively.
Net sales from external customers for each similar type of product were as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
TiO2 | $ | 2,693 | | | $ | 2,793 | | | $ | 2,176 | |
| Zircon | 438 | | | 478 | | | 283 | |
| Other products | 323 | | | 301 | | | 299 | |
| Total net sales | $ | 3,454 | | | $ | 3,572 | | | $ | 2,758 | |
Other products mainly include pig iron, TiCl4 and other mining products. The nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. 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 May 2017.We are substantially complete with our implementation plan for adopting ASU 2014-09 including the evaluation of differences between the existing accounting guidance and Topic 606. Based on the results of our evaluation, we didtypically do not identify any changes which will have a material impact to our consolidated financial statements. Similarly, we did not identify any significant impact on our business processes, controls and systems. We are in the process of finalizing the documentation of our accounting policies. We adopted the new standard using the modified retrospective approach effective January 1, 2018.
3. Discontinued Operations
Concurrent with the announcement of the Cristal Transaction, we expressed intent to begin a process to market our Alkali soda ash business, which met the criteria as held for sale in the third quarter of 2017 and was sold on September 1, 2017. The sale of Alkali is an important step in positioning us as a global leader in the TiO2 industry. The proceeds will be used to fund the majority of the cash consideration for the Cristal acquisition and a portion was also used in the refinancing of our debt. See Notes 1 and 15. The criteria for presentation of Alkali as a discontinued operation in accordance with ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity was met in the third quarter of 2017. This disposal is considered a strategic shift that has and will have a major effect on our operations and financial results; therefore, the results of Alkali have been classified as discontinued operations for all periods presented. Alkali’s assets as of December 31, 2016 have been segregated from continuing operations and presented as current assets or current liabilities from discontinued operations.
Alkali, which was previously one of our two operating and reportable segments, included certain allocated corporate costs, which have been reallocated to Corporate. The amount of allocated corporate costs was $3 million, $4 million and $3 million respectively, for the years ended December 31, 2017, 2016 and 2015. After the Alkali Sale, we now operate in a single operating and reportable segment, TiO2.
The following table presents the major classes of Alkali’s line items constituting the “Income (loss) from discontinued operations, net of tax” in our Consolidated Statements of Operations:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
Net sales | $ | 521 | | $ | 786 | | $ | 602 | |
Cost of goods sold | | 448 | | | 671 | | | 505 | |
Selling, general and administrative expenses | | (18 | ) | | (25 | ) | | (25 | ) |
Income before income taxes | | 55 | | | 89 | | | 72 | |
Income tax provision | | (1 | ) | | (10 | ) | | (17 | ) |
Loss on sale of discontinued operations, no tax impact | | (233 | ) | | — | | | — | |
Net income (loss) from discontinued operations, net of tax | $ | (179 | ) | $ | 79 | | $ | 55 | |
4. Other (Expense) Income, Net
The following table is a summary of the carrying amounts of Alkali’s assets and liabilities included as “Total assets of discontinued operations” and “Total liabilities of discontinued operations” of December 31, 2016:
| December 31,
2016 |
Assets
| | | |
Current Assets
| | | |
Accounts receivable, net of allowance for doubtful accounts | $ | 146 | |
Inventories, net | | 33 | |
All other current assets | | 21 | |
Total current assets of discontinued operations | | 200 | |
Noncurrent Assets
| | | |
Property, plant and equipment, net | | 739 | |
Mineral leaseholds, net | | 730 | |
Other long-term assets | | 2 | |
Total assets of discontinued operations | $ | 1,671 | |
| | | |
Liabilities
| | | |
Current Liabilities
| | | |
Accounts payable | $ | 44 | |
Accrued liabilities | | 36 | |
All other current liabilities | | 11 | |
Total current liabilities of discontinued operations | | 91 | |
All other long-term liabilities | | 20 | |
Total liabilities of discontinued operations | $ | 111 | |
4. Restructuring Expense
Restructuring incomeOther (expense) in our Consolidated Statements of Operations consists of charges related to employee severance and associated costs recorded in connection with the global restructuring of our TiO2 segment, cost improvement initiative and the alignment of our production output to market requirements (the “TiO2 Restructuring Initiatives”) which were recorded in “Restructuring income, (expense)” in the Consolidated Statements of Operations. The TiO2 Restructuring Initiatives were completed in 2016 and resulted in a reduction in workforce of approximately 580 employees and outside contractors, the cessation of production of our sodium chlorate plant in Hamilton, Mississippi and the suspension of the operation of our Cooljarloo North Mine in Western Australia. Restructuring income (expense) in our Consolidated Statements of Operations also includes the reversal of restructuring expense pursuant to the settlement of claims previously filed relating to a prior restructure (“Restructuring Settlement”).
Restructuring income (expense) during 2017, 2016 and 2015 is as follows:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
TiO2 Restructuring Initiatives | $ | — | | $ | (1 | ) | $ | (21 | ) |
Restructuring Settlement | | 1 | | | — | | | — | |
| $ | 1 | | $ | (1 | ) | $ | (21 | ) |
The cumulative amount incurred relating to our TiO2 Restructuring Initiatives completed in 2016 was $22 million.
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Restructuring income (expense) by segment during 2017, 2016 and 2015 was as follows:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
TiO2 segment | $ | — | | $ | (1 | ) | $ | (20 | ) |
Corporate | | 1 | | | — | | | (1 | ) |
Total | $ | 1 | | $ | (1 | ) | $ | (21 | ) |
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:
| 2017 | 2016 |
Balance, January 1, | $ | — | | $ | 15 | |
Additional provision, net | | — | | | 1 | |
Cash payments | | — | | | (16 | ) |
Balance, December 31, | $ | — | | $ | — | |
| | | | | | |
5. Other Income (Expense), Net
Other income (expense), net is comprised of the following:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
Net realized and unrealized foreign currency gains (losses) | $ | (20 | ) | $ | (31 | ) | $ | 21 | |
Interest income | | 10 | | | 3 | | | 7 | |
Pension and postretirement benefit curtailment gains/(settlement losses)(1) | | — | | | (1 | ) | | — | |
Other, net | | 1 | | | 2 | | | — | |
Total | $ | (9 | ) | $ | (27 | ) | $ | 28 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net realized and unrealized foreign currency gains (losses) | $ | (3) | | | $ | 16 | | | $ | 4 | |
| Pension and postretirement benefit interest cost, expected return on assets and amortization of actuarial losses | 4 | | | 5 | | | 1 | |
Pension and postretirement benefit settlement and curtailment (losses) gains(1) | (20) | | | — | | | 2 | |
Insurance proceeds(2) | — | | | — | | | 11 | |
Breakage fee(3) | — | | | (18) | | | — | |
| AMIC technical service support fee (Note 22) | 8 | | | 8 | | | 5 | |
| Other, net | (2) | | | 1 | | | 3 | |
| Total | $ | (13) | | | $ | 12 | | | $ | 26 | |
_____________________
(1) 2022 amount is a settlement loss related to our U.S. Qualified Plan. 2020 amount is a curtailment gain related to our former U.S. Pension Plan (acquired as part of the Cristal transaction). See Note 21.
(2) 2020 amount represents reimbursement from claims related to the Ginkgo concentrator failure we inherited as a part of the Cristal Transaction.
(3) 2021 amount represents the breakage fee associated with the termination of the TTI acquisition.
| (1) | Losses related to our Netherlands pension plan. See Note 20. |
6.5. 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)
from continuing operations before income taxes is comprised of the following:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
United Kingdom | $ | (74 | ) | $ | 362 | | | 330 | |
Australia | | (143 | ) | | (145 | ) | | (359 | ) |
International | | 130 | | | (481 | ) | | (320 | ) |
Income (loss) from continuing operations before income taxes | $ | (87 | ) | $ | (264 | ) | $ | (349 | ) |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| United Kingdom | $ | (130) | | | $ | (16) | | | $ | (12) | |
| International | 438 | | | 390 | | | 126 | |
| Income before income taxes | $ | 308 | | | $ | 374 | | | $ | 114 | |
The income tax (provision) benefit is summarized below: | Year Ended December 31, |
| 2017 | 2016 | 2015 |
United Kingdom:
| | | | | | | | | |
Current | $ | (2 | ) | $ | (1 | ) | $ | (1 | ) |
Deferred | | 1 | | | — | | | — | |
Australian:
| | | | | | | | | |
Current | | — | | | 65 | | | (17 | ) |
International:
| | | | | | | | | |
Current | | (2 | ) | | 52 | | | (6 | ) |
Deferred | | (3 | ) | | 9 | | | 1 | |
Income tax (provision) benefit | $ | (6 | ) | $ | 125 | | $ | (23 | ) |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| United Kingdom: | | | | | |
| Current | $ | — | | | $ | (1) | | | $ | (1) | |
| Deferred | — | | | — | | | (10) | |
| International: | | | | | |
| Current | (69) | | | (55) | | | (17) | |
| Deferred | 261 | | | (15) | | | 909 | |
| Income tax benefit (provision) | $ | 192 | | | $ | (71) | | | $ | 881 | |
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.
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
Statutory tax rate | | 19 | % | | 30 | % | | 30 | % |
Increases (decreases) resulting from:
| | | | | | | | | |
Tax rate differences | | 53 | | | 44 | | | 30 | |
U.S. federal tax reform (including rate change) | | (1,166 | ) | | — | | | — | |
Disallowable expenditures | | 33 | | | (17 | ) | | (4 | ) |
Valuation allowances | | 675 | | | 80 | | | (68 | ) |
Corporate Reorganization | | 375 | | | (123 | ) | | — | |
State rate changes | | 3 | | | (4 | ) | | 13 | |
Withholding taxes | | — | | | 42 | | | (11 | ) |
Prior year accruals | | (1 | ) | | (3 | ) | | — | |
Branch taxation | | — | | | (3 | ) | | 1 | |
Other, net | | 2 | | | 1 | | | 2 | |
Effective tax rate | | (7 | )% | | 47 | % | | (7 | )% |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Statutory tax rate | 19 | % | | 19 | % | | 19 | % |
| Increases (decreases) resulting from: | | | | | |
| Tax rate differences | 9 | | | 7 | | | 10 | |
| Disallowable expenditures | 8 | | | 2 | | | 17 | |
| Valuation allowances | (100) | | | (27) | | | (849) | |
| Corporate reorganization | — | | | 17 | | | (96) | |
| Tax rate changes | (3) | | | 2 | | | (8) | |
| State and local taxes | 1 | | | 1 | | | 5 | |
| Prior year accruals | — | | | (2) | | | 131 | |
| Branch taxation | — | | | — | | | — | |
| Withholding taxes | 2 | | | 2 | | | — | |
| Tax credits | — | | | (2) | | | (2) | |
| Expiration of net operating loss | 2 | | | — | | | — | |
| Other, net | — | | | — | | | — | |
| Effective tax rate | (62) | % | | 19 | % | | (773) | % |
During
Tronox Holdings plc is a U.K. public limited company and the
year ended December 31, 2017, Tronox Limited,parent company for the
public parent which is registered under the laws of the State of Western Australia, became managed and controlled in the U.K.business group. The statutory tax rate in the U.K. at December 31,
20172022, 2021 and 2020 was 19%.
During 2016 and 2015, Tronox Limited was managed and controlled in Australia which has a statutory tax rate of 30%.On December 22, 2017, the U.S. enacted major tax reform legislation. Our deferred tax impact of that legislation has been included in the effective income tax rate table above as a separate line item. It is almost entirely offset in the Valuation allowances line. The gross deferred tax impacts were primarily from our large deferred tax assets being revalued from the previous U.S. statutory rate of 35% down to the newly enacted rate of 21%, compensation accruals and deferred interest amounts which are no longer expected to be deductible under the new legislation, and a change to the portion of an indefinite lived deferred tax liability we could realize based on the new net operating loss indefinite carryforward period and usage limitation.
The effective tax rate for 2017 differs from the United Kingdom statutory raterates in 2022, 2021 and 2020 are all influenced by a variety of 19%factors, primarily due to U.S.income and losses in jurisdictions with valuation allowances, changes in tax reform legislation, valuation allowances,rates, disallowable expenditures, prior year accruals, and rates different than the United Kingdom statutory raterate. The valuation allowances in each year were impacted by items other than income and losses as follows: 2022 was impacted by the significant release of 19%. For 2016valuation allowances in Australia, 2021 was impacted by the release of a valuation allowance in Saudi Arabia and 2015 it differs fromthe liquidation of an inactive Dutch subsidiary with a valuation allowance against its worthless net operating losses, and 2020 was impacted by the release of valuation allowances in Brazil and the U.S. and the recording of valuation allowances in Saudi Arabia and the U.K. Additional factors of significance in the above table are as follows: 1) the disallowance expenditures amount for 2022 includes the Venator settlement, 2) the Corporate reorganization amount for 2021 includes the liquidation of the inactive Dutch subsidiary and the write-off of its net operating losses, 3) the Corporate reorganization amounts for 2021 and 2020 include the restructuring of our Australian entities, and 4) the Prior year accrual amount for 2020 includes the amendment of prior year Australian tax returns in resolution of a tax audit. Each of these additional factors were fully offset by valuation allowances.
The Company reached an agreement with the Australian
statutory rate of 30% primarilyTax Office ("ATO") during the year ended December 31, 2020 for the tax years 2016 through 2019 related to the companies operating in Australia acquired in the Cristal transaction, which were under examination by the ATO. Cash tax payments to be made pursuant to this agreement are not reflected in the above table due to
valuation allowances, rates different than the
Australian statutory rate of 30%, and withholding tax accruals on interest income.During the fourth quarter of 2016, we implemented various 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 resultindemnification clause of the Corporate Reorganization, we reduced our cross jurisdictional financing arrangements and consequently reversedCristal Transaction purchase contract. As part of the agreement, $79 million in deferred tax assets related to intercompany interest deductions.Australian NOLs were lost. 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 changeschange to deferred taxes arewas fully offset by a valuation allowancesallowance and resultresults in no impact to the consolidated provision for income taxes forprovision. The NOL adjustment from the ATO agreement is reflected in the "Prior year ended December 31, 2016. The net income impactaccruals" line of the Corporate Reorganization was a benefit of $137 million in the fourth quarter of 2016, reflecting the reversal of $139 million of withholdingeffective 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.
rate table.
Changes in our state apportionment factors and state statutory rate changes 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, 20162020. During 2020, tax law changes fully repealed the future Netherlands rate reduction, and 2017. These arethis benefit is also reflected withinin the State"Tax rate changes line above. The changes to deferred tax are offset by valuation allowances.changes" line.
During 2017, the statutory tax rates on income earned in Australia (30%), the United States (35%), South Africa (28%), and the Netherlands (25%) are higher than the United Kingdom statutory rate of 19%. The statutory tax rate on income earned in Switzerland (8%) and Jersey (0%) are lower than the United Kingdom statutory rate of 19%. Also, we continue to maintain a full valuation allowance in Australia, the Netherlands, and the U.S.
Net deferred tax assets (liabilities) at December 31, 20172022 and 20162021 were comprised of the following:
| December 31, |
| 2017 | 2016 |
Deferred tax assets:
| | | | | | |
Net operating loss and other carryforwards | $ | 1,834 | | $ | 1,899 | |
Property, plant and equipment, net | | 81 | | | 106 | |
Reserves for environmental remediation and restoration | | 28 | | | 25 | |
Obligations for pension and other employee benefits | | 49 | | | 69 | |
Investments | | 29 | | | 25 | |
Grantor trusts | | 669 | | | 1,055 | |
Inventories, net | | 7 | | | 11 | |
Interest | | 245 | | | 326 | |
Other accrued liabilities | | 2 | | | 6 | |
Other | | 14 | | | 14 | |
Total deferred tax assets | | 2,958 | | | 3,536 | |
Valuation allowance associated with deferred tax assets | | (2,825 | ) | | (3,357 | ) |
Net deferred tax assets | | 133 | | | 179 | |
| | | | | | |
Deferred tax liabilities:
| | | | | | |
Property, plant and equipment, net | | (244 | ) | | (237 | ) |
Intangible assets, net | | (52 | ) | | (86 | ) |
Other | | (7 | ) | | (7 | ) |
Total deferred tax liabilities | | (303 | ) | | (330 | ) |
Net deferred tax liability | $ | (170 | ) | $ | (151 | ) |
| | | | | | |
Balance sheet classifications:
| | | | | | |
Deferred tax assets — long-term | $ | 1 | | $ | — | |
Deferred tax liabilities — long-term | $ | (171 | ) | $ | (151 | ) |
Net deferred tax liability | $ | (170 | ) | $ | (151 | ) |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Deferred tax assets: | | | |
| Net operating loss and other carryforwards | $ | 1,739 | | | $ | 1,720 | |
| Property, plant and equipment, net | 200 | | | 220 | |
| Reserves for environmental remediation and restoration | 47 | | | 43 | |
| Obligations for pension and other employee benefits | 46 | | | 58 | |
| Investments | 4 | | | 4 | |
| Grantor trusts | 621 | | | 636 | |
| Inventories, net | 6 | | | 8 | |
| Interest | 190 | | | 214 | |
| Lease liabilities | 48 | | | 23 | |
| Other accrued liabilities | 2 | | | 3 | |
| Foreign exchange | 1 | | | 9 | |
| Other | 5 | | | 7 | |
| Total deferred tax assets | 2,909 | | | 2,945 | |
| Valuation allowance associated with deferred tax assets | (1,527) | | | (1,841) | |
| Net deferred tax assets | 1,382 | | | 1,104 | |
| | | |
| Deferred tax liabilities: | | | |
| Inventories, net | (3) | | | (5) | |
| Property, plant and equipment, net | (228) | | | (216) | |
| Intangible assets, net | (15) | | | (22) | |
| Lease assets | (38) | | | (24) | |
| Foreign exchange | (4) | | | (1) | |
| Other | (14) | | | (8) | |
| Total deferred tax liabilities | (302) | | | (276) | |
| Net deferred tax asset | $ | 1,080 | | | $ | 828 | |
| | | |
| Balance sheet classifications: | | | |
| Deferred tax assets — long-term | $ | 1,233 | | | $ | 985 | |
| Deferred tax liabilities — long-term | $ | (153) | | | $ | (157) | |
| Net deferred tax asset | $ | 1,080 | | | $ | 828 | |
The net deferred tax liabilitiesassets 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 and the proceeds from the resolution of previous litigation of $5.2 billion during 2014, which resulted in additional deferred tax assets of $2.0 billion. This increase was fully offset by valuation allowances. During 2016As the grantor trusts continue to spend funds received from the litigation and 2017,earn income from the investment of those funds, the U.S. net operating loss increased aswill increase or decrease.
The 2021 amounts included within the
grantor trusts spent a portionProperty, plant and equipment, net and Valuation allowance associated with deferred tax asset captions in the table above have each been corrected for an increase of
the funds received from the litigation.Both the Grantor trusts amount and the Net operating loss and other carryforwards amount above were significantly reduced during 2017 as a result of the U.S. tax reform federal rate change from 35% down$113 million to 21%. The reduction to the Net operating loss and other carryforwards line was offset by current year tax losses and by additional net capital losses resulting from the final steps in completing our 2016 Corporate Reorganization.
gross up historical amounts. TABLE OF CONTENTS
There was a decrease to our valuation allowance of $532$314 million during 2017,2022 and a decrease of $218$98 million in 2016, and an increase of $229 million in 2015.2021. The table below sets forth the changes, by jurisdiction:
| December 31, |
| 2017 | 2016 | 2015 |
Australia | $ | 359 | | $ | (258 | ) | $ | 111 | |
United Kingdom | | 10 | | | — | | | — | |
United States | | (899 | ) | | 40 | | | 113 | |
The Netherlands | | (1 | ) | | — | | | 6 | |
South Africa | | (1 | ) | | — | | | (1 | ) |
Total increase (decrease) in valuation allowances | $ | (532 | ) | $ | (218 | ) | $ | 229 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| United Kingdom | $ | 13 | | | $ | (1) | |
| United States | (5) | | | (19) | |
| Australia | (314) | | | (43) | |
| The Netherlands | — | | | (24) | |
| Saudi Arabia | — | | | (11) | |
| Brazil | — | | | — | |
| Switzerland | (8) | | | — | |
| Belgium | — | | | — | |
| Total (decrease) increase in valuation allowances | $ | (314) | | | $ | (98) | |
The decrease to our valuation allowance in the United States in 2017 was primarily the result of the tax reform legislation impacts. The increase to our valuation allowances in both Australia and the United Kingdom during 2017 was to offset deferred tax assets generated from book losses and Corporate Reorganization net capital losses. The decrease to the valuation allowance in The Netherlands is due to $12 million NOL utilization, offset by the effect of foreign currency exchange rates changes between 2016 and 2017 of $11 million. 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 forDuring the year ended December 31, 2016. The increase2022, we determined that sufficient positive evidence existed to reverse a portion of the valuation allowance attributable to the Australian deferred tax assets which we now believe the Company will be able to utilize in
future years. This reversal resulted in a non-cash deferred tax benefit of $300 million. Our analysis considered all positive and negative evidence, including (i) three years of cumulative income of our Australian subsidiaries, (ii) our continuing and improved profitability over the last twelve months, (iii) estimates of continued profitability based on updated to our latest forecasts, (iv) changes in the factors that drove losses in the past, and (v) an evaluation of specific deferred tax assets for limitations under certain Australian tax provisions. Based on this analysis, we concluded that it is more likely than not that our Australian subsidiaries will be able to utilize all of their deferred tax assets except for those which are classified as Capital Gains Tax (CGT) assets. These CGT assets represent losses which can only be utilized against CGT gains, and because the Company has no foreseeable source of CGT gains, we will continue to carry an Australian valuation allowance with a current estimated value of $471 million.
During the year ended December 31, 2021, the Company liquidated an inactive Dutch subsidiary with a valuation allowance against its worthless net operating losses, and because of improved operations, the Company reversed the valuation allowance in Saudi Arabia which had been established during the United States during 2016 is primarilyyear December 31, 2020.
During the resultyear ended December 31, 2020, we determined sufficient positive evidence existed to reverse a portion of an increasethe valuation allowance attributable to our net operating loss partially offset by a reduction to ourthe deferred tax assets caused byassociated with our operations in the U.S. This reversal resulted in a lower effective state incomenon-cash deferred tax rate. The increasesbenefit of $909 million. Our analysis considered all positive and negative evidence and concluded that it was more likely than not that our U.S. subsidiaries will be able to utilize all of their deferred tax assets with an indefinite life. A portion of the U.S. deferred tax assets are attributable to NOLs incurred in prior years which are subject to expiration in future years. Our analysis did not support that these limited-life NOLs would be utilized before their expiration, and it is against these deferred tax assets in the U.S. that the Company continues to carry a valuation allowance with a current estimated value of $1,021 million.
During the year ended December 31, 2020, we also determined sufficient positive evidence existed to reverse the valuation allowance attributable to the deferred tax assets associated with our operations in Brazil. This reversal resulted in a non-cash deferred tax benefit of $8 million. Our analysis considered all positive and negative evidence, the most significant of which was the continuing and improved profitability of the Brazilian company subsequent to its acquisition in 2019 and estimates of continued profitability based on updates to our latest forecasts. Based on this analysis, we concluded that it is more likely than not that our Brazilian subsidiary will be able to utilize all of its deferred tax assets.
During the year ended December 31, 2020, we established a valuation allowance
against the net deferred tax assets in
Australia and the United
States during 2015 are primarily the resultKingdom. The addition of
book losses during that year.this valuation allowance resulted in a non-cash deferred tax provision of $10 million. Forecasted changes to intercompany interest is recent negative evidence now impacting our analysis.
At December 31,
2017, we maintain2022, the table above reflects full valuation allowances related to the total net deferred tax assets in
Australia,Switzerland and the United
States, and the Netherlands,Kingdom, as we cannot objectively assert that these deferred tax assets are more likely than not to be realized.
It is reasonably possible that a portion of these valuation allowances could be reversed within the next year due to increased book profitability levels and our pending acquisition of the Cristal TiO2 Business. 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
Australia, South Africa and the
United Kingdom.U.S.
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, the Netherlands,Switzerland and the United Kingdom relates to recentcumulative book losses and the lack of sufficient projected taxable income.losses. The moremost significant evidential matter for Australia and South Africa relates to capital losses and 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 related to the 2012 ownership change will have any material effect on our U.S. federal income tax liabilities. The Company did not have any transactions during 2017 that triggered an ownership change under IRC Sections 382 and 383.
The Company’s ability to use any net operating losses and section 163(j) interest expense carryforwards (which are now subject to Section 382 limitations per the new recently enacted U.S. major tax reform legislation) generated by it could be substantially limited if the Company were to experience another ownership change as defined under IRC Section 382. In general, an ownership change would occur if the Company’s “5-percent shareholders,” as defined under IRC Section 382, including certain groups of persons treated as “5-percent shareholders,” collectively increased their ownership in the Company by more than 50 percentage points over a
TABLE OF CONTENTS
rolling three-year period. If an ownership change does occur during 2018, the resulting impact could be a limitation of up to $5.2 billion composed of both U.S. net operating losses and interest limitation carryforwards. There would be minimal impact on the $2.5 billion future Grantor Trust deductions from an IRC Sections 382 change.
The deferred tax assets generated by tax loss carryforwards in Australia,Switzerland and the United States, and the NetherlandsKingdom have been fully offset by valuation allowances. In the United States, the deferred tax assets generated by tax loss carryforwards are partially offset by a valuation allowance to the extent they are subject to expiration. The expiration of these carryforwards at December 31, 20172022 is
shown below. The Australian, Saudi Arabian, French, Brazilian and South AfricanUnited Kingdom tax loss carryforwards do not expire. | United Kingdom | Australia | The Netherlands | U.S. Federal | U.S. State | Tax Loss
Carryforwards
Total |
2018 | $ | — | | $ | — | | $ | — | | $ | — | | $ | 21 | | $ | 21 | |
2019 | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
2020 | | — | | | — | | | — | | | — | | | 16 | | | 16 | |
2021 | | — | | | — | | | 17 | | | — | | | 2 | | | 19 | |
2022 | | — | | | — | | | 34 | | | — | | | 60 | | | 94 | |
Thereafter | | — | | | — | | | 143 | | | 4,114 | | | 4,015 | | | 8,272 | |
No Expiration | | 55 | | | 636 | | | — | | | — | | | — | | | 691 | |
Total tax loss carryforwards | $ | 55 | | $ | 636 | | $ | 194 | | $ | 4,114 | | $ | 4,115 | | $ | 9,114 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 - 2040 | | Unlimited | | Total Tax Loss Carryforwards |
| United Kingdom | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (97) | | | $ | (97) | |
| Australia | — | | | — | | | — | | | — | | | — | | | — | | | (436) | | | (436) | |
| The Netherlands | — | | | — | | | — | | | — | | | — | | | — | | | (83) | | | (83) | |
| France | — | | | — | | | — | | | — | | | — | | | — | | | (180) | | | (180) | |
| Saudi Arabia | — | | | — | | | — | | | — | | | — | | | — | | | (6) | | | (6) | |
| Switzerland | (80) | | | — | | | — | | | — | | | — | | | — | | | — | | | (80) | |
| China | — | | | — | | | — | | | — | | | (5) | | | — | | | — | | | (5) | |
| Brazil | — | | | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | |
| U.S. Federal | — | | | — | | | — | | | — | | | — | | | (3,959) | | | (334) | | | (4,293) | |
| U.S. State | (14) | | | (12) | | | (40) | | | (75) | | | (27) | | | (4,060) | | | (19) | | | (4,247) | |
| Total tax loss carryforwards | $ | (94) | | | $ | (12) | | | $ | (40) | | | $ | (75) | | | $ | (32) | | | $ | (8,019) | | | $ | (1,165) | | | $ | (9,437) | |
At December 31,
2017,2022, Tronox
LimitedHoldings plc had foreign subsidiaries with undistributed earnings. Although we would not be subject to income tax on these earnings, amounts totaling
$150$454 million
are in specific jurisdictions which we assert are indefinitely reinvested outside of the parents' taxing jurisdictions. These amounts could be subject to withholding tax if
distributed. We havedistributed, but the Company has made no provision for
deferred taxes for Tronox Limitedtax related to these undistributed
earnings. The Company has removed its assertion that earnings
because theyin China are
considered to be indefinitely reinvested,
outside ofand the
parents’ taxing jurisdictions.withholding tax accruals for potential repatriations from that jurisdiction are now reflected in the effective tax rate reconciliation above.
The noncurrent liabilities section of our Consolidated Balance Sheet does not reflect any reserves for uncertain tax positions for either
20172022 or
2016.2021.
Our
AustralianChinese returns are closed through
2011. However, under2018. Our U.K. and Brazilian returns are closed through 2016. Our Australian,
tax laws, transfer pricing issues have no limitation period. OurSouth African, and U.S. returns are closed
for years through
2012, with the exception of an amendment filed for the 2007 tax year.2018. Our Netherlands
and French returns are closed through
2014. Our South African returns are closed through 2012.2019.
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.
On December 22, 2017 the U.S. government enacted the Tax Cuts and Jobs Act (H.R. 1), which creates sweeping tax reform, and the SEC issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for tax effects of H.R. 1 under ASC 740. As listed above these acts passed late in the Company’s fiscal year significantly impacted the effective tax rate disclosure for the year ended December 31, 2017.
H.R. 1 includes a number of broad and complex changes to the U.S. tax code. The most significant of these changes to the Company is the reduction of the federal corporate tax rate from 35% down to 21%. This change represents the most substantial portion of the amount presented in the effective tax rate as U.S. federal tax reform. The effect of this rate change on the U.S. deferred tax assets and liabilities as well as their associated valuation allowance is considered to be complete. Other provisions of this tax reform have been reasonably estimated but are not yet deemed complete.
SAB 118 provides for a measurement period to complete the accounting for income taxes from H.R. 1 that should not extend beyond one year from the enactment date, or December 22, 2018. To the extent that the Company’s accounting for the income tax effects of any provisions in H.R. 1 is incomplete, a reasonable estimate was determinable and this provisional estimate is included in the financial statements. While we are able to make reasonable estimates of the impacts of H.R. 1 on the year ended December 31, 2017, the final impacts may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the IRS or state taxing authorities, and actions not yet taken.
7. Loss6. Income Per Share
The computation of basic and diluted
lossincome per share for the periods indicated is as follows:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
Numerator – Basic and Diluted:
| | | | | | | | | |
Net income (loss) from continuing operations | $ | (93 | ) | $ | (139 | ) | $ | (372 | ) |
Less: Net income (loss) from continuing operations attributable to noncontrolling interest | | 13 | | | 1 | | | 12 | |
Undistributed net income (loss) from continuing operations attributable to Tronox Limited | | (106 | ) | | (140 | ) | | (384 | ) |
Percentage allocated to ordinary shares (1) | | 100 | % | | 100 | % | | 100 | % |
Net income (loss) from continuing operations available to ordinary shares | | (106 | ) | | (140 | ) | | (384 | ) |
Net income (loss) from discontinued operations available to ordinary shares | | (179 | ) | | 79 | | | 55 | |
Net income (loss) available to ordinary shares | $ | (285 | ) | $ | (61 | ) | $ | (329 | ) |
Denominator – Basic and Diluted:
| | | | | | | | | |
Weighted-average ordinary shares (in thousands) | | 119,502 | | | 116,161 | | | 115,566 | |
Net income (loss) per Ordinary Share(2):
| | | | | | | | | |
Basic and diluted net income (loss) from continuing operations per ordinary share | $ | (0.89 | ) | $ | (1.20 | ) | $ | (3.31 | ) |
Basic and diluted net income (loss) from discontinued operations per ordinary share | | (1.50 | ) | | 0.68 | | | 0.47 | |
Basic and diluted net loss per ordinary share | $ | (2.39 | ) | $ | (0.52 | ) | $ | (2.84 | ) |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Numerator – Basic and Diluted: | | | | | |
| Net income | $ | 500 | | | $ | 303 | | | $ | 995 | |
| Less: Net income attributable to noncontrolling interest | 3 | | | 17 | | | 26 | |
| Net income available to ordinary shares | $ | 497 | | | $ | 286 | | | $ | 969 | |
| | | | | |
| Denominator – Basic and Diluted: | | | | | |
| Weighted-average ordinary shares, basic (in thousands) | 154,867 | | | 152,056 | | | 143,355 | |
| Weighted-average ordinary shares, diluted (in thousands) | 157,110 | | | 157,945 | | | 144,906 | |
| | | | | |
| Net income per Ordinary Share: | | | | | |
| Basic net income per ordinary share | $ | 3.21 | | | $ | 1.88 | | | $ | 6.76 | |
| Diluted net income per ordinary share | $ | 3.16 | | | $ | 1.81 | | | $ | 6.69 | |
| (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 2017, 2016, and 2015, 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 lossNet income per ordinary share amounts were calculated from exact, unrounded net income 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 lossincome per share calculation for the years ended December 31, 2022, 2021 and 2020 were as follows:
| December 31, 2017 | December 31, 2016 | December 31, 2015 |
| Shares | Average
Exercise Price | Shares | Average
Exercise Price | Shares | Average
Exercise Price |
Options | | 1,707,133 | | $ | 21.27 | | | 1,970,481 | | $ | 21.19 | | | 2,189,967 | | $ | 21.15 | |
Series A Warrants | | 222,939 | | $ | 8.51 | | | 1,440,662 | | $ | 8.51 | | | 1,354,529 | | $ | 9.63 | |
Series B Warrants | | 328,563 | | $ | 9.37 | | | 1,953,207 | | $ | 9.37 | | | 1,833,834 | | $ | 10.63 | |
Restricted share units | | 5,478,269 | | $ | 11.33 | | | 5,587,331 | | $ | 7.19 | | | 1,494,027 | | $ | 23.04 | |
| | | | | | | | | | | | | | | | | |
| Shares |
| 2022 | | 2021 | | 2020 |
| Options | 515,092 | | | 414,296 | | | 1,201,891 | |
| Restricted share units | 1,590,086 | | | — | | | 1,054,994 | |
8. Fair Value Measurement
For
7. Accounts Receivable Securitization Program
On March 15, 2022, the Company entered into an accounts receivable securitization program (“Securitization Facility”) with a financial instrumentsinstitution ("Purchaser"), through our wholly-owned special purpose bankruptcy-remote subsidiary Tronox Securitization LLC (“ SPE”). The purpose of this program is to enhance the Company's financial flexibility by providing additional liquidity. The Securitization Facility permitted the SPE to sell accounts receivable up to $75 million (the “Facility Limit”). Under the Securitization Facility, our wholly-owned U.S. operating subsidiary, Tronox LLC (“Originator”), sells its entire accounts receivable on a periodic basis to the SPE. The SPE in turn sells undivided interests in the receivables that meet certain eligibility criteria, pursuant to the terms of a receivable purchase agreement, to the Purchaser in exchange for cash, not to exceed the Facility Limit. The SPE retains the remaining receivables as unsold receivables which are pledged as a collateral for the sold receivables to which the purchaser is granted a first priority security interest.
Following the sale of the receivables by the Originator to the SPE, the receivables are legally isolated from Tronox and its affiliated entities, and upon the subsequent sale and transfer of the receivables from the SPE to the administrative agent, effective control of the receivables is passed to the purchaser, which has all rights, including the right to pledge or sell the receivables. Any new receivables that are subsequently measured at fairnot sold to the purchaser by the SPE are added to the unsold receivables held as collateral.
During March 2022, the Company sold accounts receivable having an aggregate face value
of $75 million to the
fair value measurement is grouped into levels. See Note 2.At bothPurchaser in exchange for cash proceeds of $75 million.
In November 2022, the Company amended the receivable purchase agreement to expand the program to include receivables generated by its wholly-owned Australian operating subsidiaries, Tronox Pigment Pty Ltd., Tronox Pigment Bunbury Ltd. and Tronox Mining Australia Ltd. which increased the Facility Limit to $200 million and extended the program term to November 2025. Following this amendment, we sold additional accounts receivable in exchange for net cash proceeds of $72 million, for a total aggregate amount of $147 million for the combined program.
For the year ended December 31,
2017 and 2016, our financial instrument measured at fair value was our environmental rehabilitation trust, which amounted2022, the Company sold to
$13 million and was categorized as Level 2. See Note 16.The carrying amounts for cash and cash equivalents, restricted cash,the Purchaser accounts receivable other current assets,a total of $123 million which resulted in the Company recording $24 million within "Accounts Payable" on the Consolidated Balance Sheet at December 31, 2022 as this amount is due to the Purchaser as a result of a periodic decrease in accounts payable, short-term debt, and other current liabilities approximate their fair value because ofreceivable sold to the short-term nature of these instruments.
Our debt is recorded at historical amounts. Purchaser, which was paid in January 2023.
At December 31, 2017,2022, we retained approximately $69 million of unsold receivables which we pledged as collateral for the fair valuesold receivables. As this transaction represents a true sale, we derecognized the sold receivables from our Consolidated Balance Sheet as of December 31, 2022 and classified the cash proceeds as source of cash provided by operating activities in our Consolidated Statement of Cash Flows.
8. Inventories, net
Inventories, net consisted of the following: | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Raw materials | $ | 261 | | | $ | 265 | |
| Work-in-process | 125 | | | 117 | |
| Finished goods, net | 641 | | | 461 | |
| Materials and supplies, net | 251 | | | 205 | |
| Inventories, net | $ | 1,278 | | | $ | 1,048 | |
Materials and supplies, net consists of processing chemicals, maintenance supplies, and spare parts, which will be consumed directly and indirectly in the production of our New Term Loan Facility (defined below) was $2.17 billion and at December 31, 2016, the fair value of the Prior Term Loan (defined below) was $1.5 billion. products.
At December 31,
2016 the fair value of the Senior Notes due 2020, defined below, was $841 million. At December 31, 20172022 and
2016, the fair value of the Senior Notes due 2022, defined below, was $6092021, inventory obsolescence reserves were $42 million and
$544$43 million, respectively. At December 31,
2017 the fair value of the Senior NotesTABLE OF CONTENTS
due 2025, defined below, was $463 million. We determined the fair value of the New Term Loan Facility, Prior Term Loan, the Senior Notes due 2020, the Senior Notes due 2022 and the Senior Notes due 2025 using quoted market prices. The fair value hierarchy for the New Term Loan Facility, Prior Term Loan, the Senior Notes due 2020, the Senior Notes due 2022 and the Senior Notes due 2025 is a Level 1 input. The balance outstanding under our UBS Revolver at December 31, 2016 is carried at contracted amounts, which approximates 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 15.
9. Accounts Receivable, Net of Allowance for Doubtful Accounts
Accounts receivable, net of allowance for doubtful accounts, consisted of the following:
| December 31, |
| 2017 | 2016 |
Trade receivables | $ | 324 | | $ | 271 | |
Other | | 13 | | | 8 | |
Subtotal | | 337 | | | 279 | |
Allowance for doubtful accounts | | (1 | ) | | (1 | ) |
Accounts receivable, net of allowance for doubtful accounts | $ | 336 | | $ | 278 | |
Bad debt expense was less than $1 million for each of the years ended 2017, 2016 and 2015. Bad debt expense was recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.
10. Inventories, net
Inventories, net consisted of the following:
| December 31, |
| 2017 | 2016 |
Raw materials | $ | 137 | | $ | 191 | |
Work-in-process | | 35 | | | 35 | |
Finished goods, net | | 194 | | | 190 | |
Materials and supplies, net(1) | | 110 | | | 97 | |
Total | | 476 | | | 513 | |
Less: Inventories, net – non-current | | (3 | ) | | (14 | ) |
Inventories, net – current | $ | 473 | | $ | 499 | |
| (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 $28 million and $24 million at December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, inventory obsolescence reserves were $14 million and $17 million, respectively. At December 31, 2017 and December 31, 2016,2021, reserves for lower of cost and net realizable value were $27 million and $26$11 million, respectively.
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11.9. Property, Plant and Equipment
Property, plant and equipment, net of accumulated depreciation, consisted of the following: | December 31, |
| 2017 | 2016 |
Land and land improvements | $ | 95 | | $ | 94 | |
Buildings | | 267 | | | 237 | |
Machinery and equipment | | 1,387 | | | 1,275 | |
Construction-in-progress | | 103 | | | 82 | |
Other | | 41 | | | 38 | |
Total | | 1,893 | | | 1,726 | |
Less: accumulated depreciation | | (778 | ) | | (634 | ) |
Property, plant and equipment, net(1) | $ | 1,115 | | $ | 1,092 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Land and land improvements | $ | 226 | | | $ | 188 | |
| Buildings | 390 | | | 365 | |
| Machinery and equipment | 2,330 | | | 2,234 | |
| Construction-in-progress | 370 | | | 263 | |
| Other | 62 | | | 73 | |
| Subtotal | 3,378 | | | 3,123 | |
| Less: accumulated depreciation | (1,548) | | | (1,413) | |
| Property, plant and equipment, net | $ | 1,830 | | | $ | 1,710 | |
Substantially all the Property, plant and equipment, net is pledged as collateral for our debt. See Note 13.
| (1) | Substantially all of these assets are pledged as collateral for our debt. See Note 15. |
DepreciationThe table below summarizes depreciation expense related to property, plant and equipment during 2017, 2016, and 2015 was $125 million, $117 million, and $150 million, respectively, of which $122 million, $114 million, and $146 million, respectively, wasfor the periods presented, recorded in “Cost of goods sold”the specific line items in theour Consolidated Statements of Operations. Depreciation expense of $3 million each for 2017 and 2016 and $4 million for 2015 was recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.
12.Income: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cost of goods sold | $ | 205 | | | $ | 222 | | | $ | 233 | |
| Selling, general and administrative expenses | 4 | | | 5 | | | 5 | |
| Total | $ | 209 | | | $ | 227 | | | $ | 238 | |
10. Mineral Leaseholds, net
Mineral leaseholds, net of accumulated depletion, consisted of the following: | December 31, |
| 2017 | 2016 |
Mineral leaseholds | $ | 1,303 | | $ | 1,257 | |
Less accumulated depletion | | (418 | ) | | (380 | ) |
Mineral leaseholds, net | $ | 885 | | $ | 877 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Mineral leaseholds | $ | 1,282 | | | $ | 1,306 | |
| Less accumulated depletion | (581) | | | (559) | |
| Mineral leaseholds, net | $ | 701 | | | $ | 747 | |
Depletion expense related to mineral leaseholds during 2017, 2016,2022, 2021, and 20152020 was $32$29 million, $35$37 million, and $77$33 million, respectively, and was recorded in “Cost of goods sold” in the Consolidated Statements of Operations.
13.Income.
11. Intangible Assets, net
| December 31, 2017 | December 31, 2016 |
| Gross
Cost | Accumulated
Amortization | Net Carrying
Amount | Gross
Cost | Accumulated
Amortization | Net Carrying
Amount |
Customer relationships | $ | 291 | | $ | (134 | ) | $ | 157 | | $ | 291 | | $ | (115 | ) | $ | 176 | |
TiO2 technology | | 32 | | | (11 | ) | | 21 | | | 32 | | | (9 | ) | | 23 | |
Internal-use software | | 45 | | | (25 | ) | | 20 | | | 45 | | | (21 | ) | | 24 | |
Intangible assets, net | $ | 368 | | $ | (170 | ) | $ | 198 | | $ | 368 | | $ | (145 | ) | $ | 223 | |
Intangible Assets, net of accumulated amortization, consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross Cost | | Accumulated Amortization | | Net Carrying Amount | | Gross Cost | | Accumulated Amortization | | Net Carrying Amount |
| Customer relationships | $ | 291 | | | $ | (231) | | | $ | 60 | | | $ | 291 | | | $ | (211) | | | $ | 80 | |
TiO2 technology | 93 | | | (37) | | | 56 | | | 93 | | | (31) | | | 62 | |
| Internal-use software and other | 179 | | | (45) | | | 134 | | | 120 | | | (45) | | | 75 | |
| Intangible assets, net | $ | 563 | | | $ | (313) | | | $ | 250 | | | $ | 504 | | | $ | (287) | | | $ | 217 | |
Amortization
As of December 31, 2022 and 2021, internal-use software included approximately$106 million and $68 million, respectively, of capitalized software costs which are not being amortized as the software is not ready for its intended use.
The table below summarizes amortization expense related to intangible assets was $25 million each for 2017 and 2016 and $26 million during 2015, respectively, of which $24 million each wasthe periods presented, recorded during 2017 and 2016 and $25 million was recorded during 2015 in “Selling general and administrative expenses” in the specific line items in our Consolidated Statements of Operations. During 2017, 2016 and 2015, $1 million each of amortization expense was recorded in “Cost of goods sold” in the Consolidated Statements of Operations. Income: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cost of goods sold | $ | 2 | | | $ | 2 | | | $ | 2 | |
| Selling, general and administrative expenses | 29 | | | 31 | | | 31 | |
| Total | $ | 31 | | | $ | 33 | | | $ | 33 | |
Estimated future amortization expense related to intangible assets is
$25$28 million for
each of the years from 2018 through 2021, $232023, $36 million for
20222024, $39 million for 2025, $21 million for 2026, $19 million for 2027 and
$75$107 million thereafter.
12. Balance Sheet and Cash Flows Supplemental Information
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14. Accrued Liabilities
Accrued liabilities consisted of the following:
| December 31, |
| 2017 | 2016 |
Employee-related costs and benefits | $ | 72 | | $ | 61 | |
Interest | | 21 | | | 35 | |
Sales rebates | | 19 | | | 20 | |
Taxes other than income taxes | | 7 | | | 9 | |
Other | | 44 | | | 25 | |
Accrued liabilities | $ | 163 | | $ | 150 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Employee-related costs and benefits | $ | 107 | | | $ | 155 | |
| Related party payables | 15 | | | 1 | |
| Interest | 15 | | | 20 | |
| Sales rebates | 37 | | | 36 | |
| Taxes other than income taxes | 13 | | | 18 | |
| Asset retirement obligations | 8 | | | 10 | |
| Interest rate swaps | — | | | 25 | |
| Other accrued liabilities | 57 | | | 63 | |
| Accrued liabilities | $ | 252 | | | $ | 328 | |
Additional supplemental cash flow information for the year ended and as of December 31, 2022, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Supplemental non cash information: | 2022 | | 2021 | | 2020 |
| Operating activities - reduction of Hawkins Point environmental obligation | $ | 12 | | | $ | — | | | $ | — | |
| Operating activities - MGT sales made to AMIC | $ | 3 | | | $ | 4 | | | $ | — | |
| Operating activities - Interest expense on MGT loan | $ | 1 | | | $ | 1 | | | $ | — | |
| Investing activities - sale of Hawkins Point land | $ | 12 | | | $ | — | | | $ | — | |
| Investing activities - Acquisition of MGT assets | $ | — | | | $ | — | | | $ | 36 | |
| Financing activities - debt assumed in the acquisition of MGT assets | $ | — | | | $ | — | | | $ | 36 | |
| Financing activities - Acquisition of noncontrolling interest | $ | — | | | $ | 125 | | | $ | — | |
| Financing activities - Repayment of MGT loan | $ | 3 | | | $ | 3 | | | $ | — | |
| Financing activities - Initial commercial insurance premium financing agreement | $ | 21 | | | $ | — | | | $ | — | |
| | | | | |
| December 31, |
| 2022 | | 2021 | | 2020 |
| Capital expenditures acquired but not yet paid | $ | 72 | | | $ | 75 | | | $ | 37 | |
15.
Long-term Debt
RefinancingOn September 22, 2017, we completed our offering
Long-term debt, net of an unamortized discount and debt issuance costs, consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Original
Principal | | Annual
Interest Rate | | Maturity
Date | | December 31,
2022 | | December 31,
2021 |
Term Loan Facility, net of unamortized discount(1) | $ | 1,300 | | | Variable | | 3/11/2028 | | $ | 898 | | | $ | 897 | |
2022 Term Loan Facility, net of unamortized discount(1) | 400 | | | Variable | | 4/4/2029 | | 393 | | | — | |
| Senior Notes due 2029 | 1,075 | | | 4.63 | % | | 3/15/2029 | | 1,075 | | | 1,075 | |
| 6.5% Senior Secured Notes due 2025 | 500 | | | 6.50 | % | | 5/1/2025 | | — | | | 500 | |
Standard Bank Term Loan Facility(1) | 98 | | | Variable | | 11/11/2026 | | 77 | | | 92 | |
| Australian Government Loan, net of unamortized discount | N/A | | N/A | | 12/31/2036 | | 1 | | | 1 | |
MGT Loan(2) | 36 | | | Variable | | Variable | | 30 | | | 33 | |
| Finance leases | | | | | | | 47 | | | 14 | |
| Long-term debt | | | | | | | 2,521 | | | 2,612 | |
| Less: Long-term debt due within one year | | | | | | | (24) | | | (18) | |
| Debt issuance costs | | | | | | | (33) | | | (36) | |
| Long-term debt, net | | | | | | | $ | 2,464 | | | $ | 2,558 | |
(1)The average effective interest rate, including impacts of our Senior Notes due 2025interest rate swap, for an aggregate principal amount of $450 million, the net proceeds of which together with borrowings under our $2.150 billion New Term Loan Facility was 4.8% and the proceeds from the Alkali sale, funded the redemption of the remaining outstanding balance of our Senior Notes due 2020 and we paid off the remaining outstanding balance of our $1.5 billion Prior Term Loan. In addition, we paid off the outstanding short-term borrowings under our UBS Revolver and entered into a new asset-based revolving syndicated facility with Wells Fargo (all defined below).The refinancing of our Senior Notes due 2020 was considered a debt extinguishment in accordance with ASC 470, Debt (“ASC 470”). However, for refinancing of both the UBS Revolver and the Prior Term Loan, a portion of each of these refinancing arrangements were considered modifications and a portion considered extinguishments in accordance with the requirements of ASC 470 as some of the original lenders in the original syndications were part of the new lender base.
Short-term Debt
During the third quarter of 2017, we repaid the $150 million outstanding balance under the global senior secured asset-based syndicated revolving credit facility with UBS AG (the “UBS Revolver”). Concurrent with entering into the Wells Fargo Revolver, described below, the UBS Revolver was terminated. Unamortized original debt issuance costs of $1 million relating to the UBS Revolver were included in “Gain (loss) on extinguishment of debt” in the Consolidated Statements of Operations5.1% for the year ended December 31, 2017.2022 and 2021, respectively. The remaining unamortized balanceaverage effective interest rate on the Standard Bank Term Loan Facility was 7.2% and 7.3% for the year ended December 31, 2022 and 2021, respectively. The average effective interest rate on the 2022 Term Loan Facility was 5.8% for the year ended December 31, 2022.
(2)The MGT loan is a related party debt facility. Average effective interest rate on the MGT loan was 4.4% and 3.1% during the year ended December 31, 2022 and 2021, respectively. Refer below for further details.
At December 31, 2022, the scheduled maturities of originalour long-term debt issuance costs of $2 million relating to the UBSwere as follows: | | | | | |
| Total Borrowings |
| 2023 | 20 | |
| 2024 | 21 | |
| 2025 | 22 | |
| 2026 | 63 | |
| 2027 | 6 | |
| Thereafter | 2,397 | |
| Total | 2,529 | |
| Remaining accretion associated with the Term Loan Facility and the 2022 Term Loan Facility | (8) | |
| Total borrowings | 2,521 | |
Long-term Debt
Prior Term Loan Facility, Term Loan Facility, Cash Flow Revolver
will be amortized over the life of the Wells Fargo Revolver.Wells Fargo Revolver
and 2022 Term Loan Facility
On September 22, 2017, we entered into a newsenior secured first lien term loan facility (the “Prior Term Loan Facility”) with the lenders party thereto and Bank of America, N.A., as administrative agent, with a maturity date of September 22, 2024. The Prior Term Loan Facility consisted of a U.S. dollar term facility in an aggregate principal amount of $2.15 billion (the “Term Loans”) with our subsidiary, Tronox Finance LLC (“Tronox Finance”) as the borrower. The Prior Term Loan Facility bore interest at the “Applicable Rate” defined by reference to a grid-pricing matrix that relates to our First Lien Net Leverage Ratio and was issued net of an original issue discount of $11 million.
On September 22, 2017, we entered into a global senior secured asset-based syndicated revolving credit facility with Wells Fargo Bank, N.A. (the “Wells Fargo Revolver”). The Wells Fargo Revolver provideswhich initially provided us with up to $550 million of revolving credit lines, with an $85 million sublimit for letters of credit, and hashad a maturity date of September 22, 2022. Our availability of revolving credit loans and letters of credit iswas subject to a borrowing base. Borrowings bearbore interest at our option, at either an adjusted London Interbank Offered Rate (“LIBOR”) plus an applicable margin that ranges from 1.25% to 1.75%, or a base rate, which iswas defined to mean 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-monthone month period plus 1.00% plus a margin that ranges from 0.25% to 0.75%, in each case, based on the average daily borrowing availability. At
The Wells Fargo Revolver was terminated during the year ended December 31, 2021 as a result of the Cash Flow Revolver (defined below).
In December 2020, the Company made a voluntary prepayment of $200 million on the Prior Term Loan Facility. As a result of the voluntary prepayment, we recorded $2 million in "Loss on extinguishment of debt" within the Consolidated Statement of Income for the year ended December 31, 2020. No prepayment penalties were required as a result of this principal prepayment.
On March 11, 2021, Tronox Finance LLC entered into an amendment and restatement of its Prior Term Loan Facility pursuant to which, among other thing, we amended and restated the Prior Term Loan Facility with a new amended and restated first lien credit agreement dated as of September 22, 2017 (as amended through and including March 11, 2021) with a syndicate of lenders and HSBC Bank USA, National Association, as administrative agent and collateral agent. The new amended and restated first lien credit agreement provides the Company with (a) a new seven-year term loan facility ("Term Loan Facility") in an aggregate principal amount of $1.3 billion and (b) new five-year cash flow revolving facility (the "Cash Flow Revolver") providing initial revolving commitments of $350 million and a sublimit of $125 million for letters of credit. The maturity date on the Term Loan Facility and the Cash Flow Revolver is March 11, 2028 and March 11, 2026, respectively.
The Term Loan Facility shall bear interest at either the base rate or an adjusted LIBOR rate, in each case plus an applicable margin. The applicable margin in respect of the Term Loan Facility is either 1.50% or 1.25%, for base rate loans, or 2.50% or 2.25%, for adjusted LIBOR rate loans, in each case determined based on, initially the passage of time, and thereafter upon the Company’s first lien net leverage ratio at the applicable time. Interest is payable on the Term Loan Facility on the last business of each March, June, September and December. Based on our first lien net leverage ratio, the applicable margin under the Term Loan Facility as of December 31, 2022 was LIBOR plus a margin of 2.25%. The Cash Flow Revolver shall bear interest at either the base rate or adjusted LIBOR rate, in each case plus an applicable margin. The applicable margin in respect of the Cash Flow Revolver is either 1.25%, 1.00% or 0.75% for base rate loans, or 2.25%, 2.00% or 1.75%, for adjusted LIBOR Rate Loans, in each case determined based on, initially the passage of time, and thereafter upon the Company’s first lien net leverage ratio at the applicable time. The Term Loan Facility requires the Borrower to pay customary agency fees.
In connection with entering into the Term Loan Facility, the Company terminated all remaining commitments and repaid all obligations under its Prior Term Loan Facility and Wells Fargo Revolver. Additionally, we repaid $313 million of the principal under the Prior Term Loan Facility with cash on hand.
Commencing June 30, 2021, the Cash Flow Revolver contains a springing financial covenant when a loan amount is drawn exceeding 35% of the Cash Flow Revolver. In this instance, the first lien net leverage ratio shall not exceed 4.75x at quarter end testing period.
As a result of this transaction in accordance with ASC 470, we recognized approximately $4 million in "Loss on Extinguishment of Debt" recorded in the Consolidated Statement of Income for the year ended December 31, 2021.
Additionally, during the year ended December 31, 2021, the Company made several voluntary prepayments totaling
$398 million on the Term Loan Facility. As a result, we recognized approximately $9 million in "Loss on Extinguishment of Debt" recorded in the Consolidated Statement of Income for the year ended December 31, 2021.
During the year ended December 31, 2022, we drew down $133 million on our Cash Flow Revolver and repaid $103 million as of December 31, 2022. As of December 31, 2022, there were nowas $30 million outstanding revolving credit loans (recorded within "Short-term debt" on the Consolidated Balance Sheet) under the Wells FargoCash Flow Revolver excluding $19and $20 million of issued and undrawn letters of credit under the Wells FargoCash Flow Revolver. Additionally, in connection with the sale of the Hawkins Point Plant (refer to Note 18 - Commitments & Contingencies for further details), in December 2022, a $50 million undrawn letter of credit was issued as a bi-lateral, stand-alone arrangement. Debt issuance costs associated with the Wells FargoCash Flow Revolver of $7$2 million ($2 million remaining from the UBS Revolver and $5 million incurred for the Wells Fargo Revolver) were included in “Other long-term assets” in the Consolidated Balance Sheets at December 31, 20172022 and isare being amortized over the life of the Wells FargoCash Flow Revolver.ABSA Revolving Credit Facility
On December 13, 2017, we entered into an agreement for a revolving credit facility with ABSA Bank Limited (“ABSA”) acting through its ABSA Capital Division for an amount up to R750 million (approximately
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$61 million at December 31, 2017 exchange rate) maturing on December 13, 2020 (the “New ABSA Revolver”). The New ABSA Revolver replaces our R1.3 billion revolving credit facility (approximately $105 million at December 31, 2017 exchange rate) with ABSA that matured on June 14, 2017 (the “ABSA Revolver”). The New ABSA Revolver bearsaverage effective 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 ranges from 3.45% to 3.85%, in each case, based on the aggregate loan amount outstanding as a percentage of the total commitments of the ABSA Facility. During 2017 we had no drawdowns or repayments on the New ABSA Revolver. During 2017, 2016 and 2015, we had no drawdowns or repayments on the ABSA Revolver. At December 31, 2016, thereCash Flow Revolver was no outstanding borrowings on the ABSA Revolver.
Long-term debt, net of an unamortized discount and debt issuance costs, consisted of the following:
| Original
Principal | Annual
Interest Rate | Maturity
Date | December 31,
2017 | December 31,
2016 |
Prior Term Loan, net of unamortized discount(1) | $ | 1,500 | | Variable | | — | | $ | — | | $ | 1,441 | |
New Term Loan Facility, net of unamortized discount(2) | | 2,150 | | Variable | | 9/22/2024 | | | 2,138 | | | — | |
Senior Notes due 2020 | | 900 | | | 6.375 | % | | — | | | — | | | 896 | |
Senior Notes due 2022 | | 600 | | | 7.50 | % | | 3/15/2022 | | | 584 | | | 584 | |
Senior Notes due 2025 | | 450 | | | 5.75 | % | | 9/22/2025 | | | 450 | | | — | |
Lease financing | | | | | | | | | | | 19 | | | 19 | |
Long-term debt | | | | | | | | | | | 3,191 | | | 2,940 | |
Less: Long-term debt due within one year | | | | | | | | | | | (17 | ) | | (16 | ) |
Debt issuance costs | | | | | | | | | | | (44 | ) | | (36 | ) |
Long-term debt, net | | | | | | | | | | $ | 3,130 | | $ | 2,888 | |
| (1) | Average effective interest rate of 5.1% and 4.9% during 2017 and 2016, respectively. |
| (2) | Average effective interest rate of 4.9% during 2017. |
At December 31, 2017, the scheduled maturities of our long-term debt were as follows:
| Total Borrowings |
2018 | | 17 | |
2019 | | 22 | |
2020 | | 22 | |
2021 | | 23 | |
2022 | | 607 | |
Thereafter | | 2,512 | |
Total | | 3,203 | |
Remaining accretion associated with the New Term Loan Facility | | (12 | ) |
Total borrowings | $ | 3,191 | |
Prior Term Loan
On April 23, 2014, we, along with our wholly owned subsidiary, Tronox Pigments (Netherlands) B.V., and certain named guarantor subsidiaries, entered into a Third Amended and Restated Credit and Guaranty Agreement (the “Third Agreement”) with the lender party thereto and Goldman Sachs Bank USA, as administrative agent. Pursuant to the Third Agreement, we obtained a $1.5 billion senior secured term loan (the “Prior Term Loan”) with a maturity date of March 19, 2020. As mentioned above, on September 22, 2017, we repaid the remaining $1.4 billion outstanding balance of the $1.5 billion Prior Term Loan and entered into the New Term Loan Facility described below. Unamortized original debt discount and issuance costs of $1 million relating to the Prior Term Loan were included in “Gain (loss) on extinguishment of debt” in the Consolidated Statements of Operations for the year ended December 31, 2017. The remaining balance2022.
On April 4, 2022, Tronox Finance LLC (the "Borrower"), the Borrower's indirect parent company, Tronox Holdings plc (the "Company"), certain of
unamortized original debt discount TABLE OF CONTENTS
the Company's subsidiaries, the incremental term lender party thereto, and issuance costs of $3 millionHSBC Bank USA. National Association, as Administrative Agent and $13 million, respectively, relatingCollateral Agent, entered into Amendment No. 1 to the Prior Term Loan will continue to be amortized overAmended and Restated First Lien Credit Agreement (the "Amendment"). The Amendment provides the life of the New Term Loan Facility.
New Term Loan Facility
On September 22, 2017, we entered intoBorrower with a new senior secured first lienseven-year incremental term loan facility (the “New"2022 Term Loan Facility”Facility" and, the loans thereunder, the "2022 Incremental Term Loans") under its credit agreement in an aggregate initial principal amount of $400 million.
The obligations of the Borrower under the 2022 Term Loan Facility are guaranteed and secured by the same guarantees and liens under the existing credit agreement of the Term Loan Facility (as discussed above). The 2022 Incremental Term Loans are a separate class of loans under the credit agreement, and if the Borrower elects to make an optional prepayment under the credit agreement or is required to make a mandatory prepayment under the credit agreement, the Borrower, may, in each case, select which class or classes of loans to prepay.
The 2022 Incremental Term Loans will amortize in equal quarterly installments in an aggregate annual amount equal to 1.0% of the original principal amount of the 2022 Incremental Term Loans commencing with the second full fiscal quarter after the effective date of the 2022 Incremental Term Loan Facility. The final maturity of the 2022 Incremental Term Loans will occur on the seventh anniversary of the effective date of the 2022 Incremental Term Loan Facility. The 2022 Incremental Term Loan Facility permits amendments thereto whereby individual lenders party thereto and Bank of America, N.A., as administrative agent, with amay extend the maturity date of September 22, 2024. their outstanding loans upon the Borrower's request without the consent of any other lender, so long as certain conditions are met.
The New2022 Incremental Term Loan Facility consists of (i) a U.S. dollar term facility in an aggregate principal amount of $1.5 billion (the “New Term Loans”) with our subsidiary, Tronox Finance LLC (“Tronox Finance”) as the borrower and (ii) a U.S. dollar term facility in an aggregate principal amount of $650 million (the “Blocked Term Loan”) with our unrestricted subsidiary, Tronox Blocked Borrower LLC (the “Blocked Borrower”) as the borrower, which Blocked Term Loan was funded into a blocked account. Upon consummation of the Cristal Transaction, the Blocked Borrower will merge with and into Tronox Finance, and the Blocked New Term Loan will become available to Tronox Finance. If the Cristal Transaction is terminated, the Blocked Term Loan will be repaid to the lenders of such Blocked Term Loan. The proceeds from the Blocked Term Loan are included in “Restricted cash” in the Consolidated Balance Sheets at December 31, 2017. The Blocked Term Loan under the New Term Loan FacilityLoans shall bear interest, at the “Applicable Rate” defined by reference to a grid-pricing matrix that relates to our first lien net leverage ratio. Based upon our first lien net leverage ratioBorrower's option, at either the Applicable Rate underbase or the NewSOFR rate, in each case plus an applicable margin. The applicable margin in respect of the 2022 Incremental Loans is 2.25% per annum, for base rate loans, or 3.25% per annum, for SOFR rate loans. The 2022 Incremental Term Loan Facility asLoans have an interest rate floor of 0.50%. As of December 31, 2017 was 300 basis points plus LIBOR. The New2022, the applicable margin under the 2022 Term Loan Facility was issued net of an original issue discount of $11 million. At December 31, 2017, the unamortized discount was $12 million which includes $3 million relating to the Prior Term Loan. Debt issuance costs of $4 million relating to the New3.25%.
The 2022 Incremental Term Loan Facility contains the same negative covenants applicable to the term loans outstanding under the Existing Credit Agreement immediately prior to the effectiveness of the Amendment, which covenants, subject to certain limitations, thresholds and exceptions, limit the Company and its restricted subsidiaries to (among other restrictions): incur
indebtedness; grant liens; pay dividends and make subsidiary and certain other distributions; sell assets; make investments; enter into transactions with affiliates; and make certain modifications to material documents (including organizational documents).
The proceeds of the 2022 Incremental Term Loans were includedused on April 4, 2022, along with cash on hand, to redeem all outstanding 6.5% Senior Secured Notes due 2025 issued by Tronox Incorporated under the Indenture dated as of May 1, 2020 with Wilmington Trust, National Association, as Trustee and Collateral Agent and to pay transaction related costs and expenses.
As a result of this transaction, we recognized approximately $21 million, including a call premium of $18 million, in “Gain (loss)"Loss on extinguishment of debt” indebt" on the Consolidated StatementsStatement of OperationsIncome for the year ended December 31, 2017. Debt issuance costs2022.
As of
$30December 31, 2022, the total outstanding principal balance is $397 million,
associated with the New Term Loan Facility ($13of which $4 million
remaining from the Prior Term Loan and $17 million incurred for the New Term Loan Facility) wereis recorded
as a direct reductionwithin "Current portion of
the carrying value of the long-term
debt as described below and will be amortized over the life of the New Term Loan Facility.Senior Notes due 2020
On September 25, 2017, we redeemed (the “Redemption”) the $896 million outstanding balance of our $900 million aggregate principal, 6.375% senior notes due 2020 issued by Tronox Finance (the “Senior Notes due 2020”). The total cash payment made in connection with the Redemption was approximately $917 million, and included accrued interest of $7 million and a call premium of $14 million (the “Call Premium”) included in “Gain (loss)debt" on extinguishment of debt” in the Consolidated Statements of Operations. During the year ended December 31, 2016, we repurchased $4 million of face value of the Senior Notes due 2020 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. The Senior Notes due 2020 were fully and unconditionally guaranteed on a senior and unsecured basis by us and certain of our subsidiaries. As a result of the Redemption, we are no longer required to present guarantor consolidating financial statements in this Form 10-K for the year ended December 31, 2017. In connection with the Redemption, we recorded a loss on extinguishment of debt of $22 million included in “Gain (loss) on extinguishment of debt” in the Consolidated Statements of Operations, of which $8 million related to unamortized debt issuance costs and $14 million related to the Call Premium.
Senior Notes due 2022
We have $600 million aggregate principal amount, 7.50% Senior Notes due 2022 (the “Senior Notes due 2022”) which notes were issued pursuant to an indenture dated March 19, 2015 (the “2022 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 year ended December 31, 2017. During the year ended December 31, 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.
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 and are guaranteed on a senior and unsecured basis by us
Balance Sheet. TABLE OF CONTENTS
and certain of our other subsidiaries. Interest is payable on March 15 and September 15 of each year until their maturity date of March 15, 2022. The terms of the 2022 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 us; 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. At December 31, 2017 and December 31, 2016, debt issuance costs related to the Senior Notes due 2022 of $8 million and $10 million, respectively, were recorded as a direct reduction of the carrying value of the long-term debt as described below.
Senior Notes due 2025
On September 22, 2017, Tronox Finance plc, issued 5.75% senior notes due 2025 for an aggregate principal amount of $450 million (the “Senior Notes due 2025”), which notes were issued under an indenture dated September 22, 2017 (the “2025 Indenture”). The 2025 Indenture and the Senior Notes due 2025
provideprovided among other things, that the Senior Notes due 2025
arewere senior unsecured obligations of Tronox Finance plc and
arewere guaranteed on a senior and unsecured basis by us and certain of our other subsidiaries. The Senior Notes due 2025
havewere not
been registered under the Securities Act, and
maywere not
be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements. Interest
iswas payable on April 1 and October 1 of each year beginning on April 1, 2018 until their maturity date of October 1, 2025. The terms of the 2025 Indenture, among other things,
limit,limited, in certain circumstances, the ability of us and certain of our subsidiaries to: incur secured indebtedness, engage in certain sale-leaseback transactions and merge, consolidate or sell substantially all of our assets. The terms of the 2025 Indenture also
includeincluded certain limitations on our non-guarantor subsidiaries incurring indebtedness.
Debt issuance costsDuring the year ended December 31, 2021, we paid the outstanding balance of
$9$450 million
relating toon the Senior Notes due 2025
were recorded as a
direct reductionresult of the
carrying value of the long-term debt as described below and will be amortized over the lifeissuance of the Senior Notes due
2025.Liquidity2029 as defined and Capital Resources
discussed below.
Senior Notes due 2026
On April 6, 2018, Tronox Incorporated issued 6.5% Senior Notes due 2026 for an aggregate principal amount of $615 million (“Senior Notes due 2026”). The 2026 Indenture and the Senior Notes due 2026 provided, among other things, that the Senior Notes due 2026 were senior unsecured obligations of Tronox Incorporated and were guaranteed on a senior and unsecured basis by us and certain of our other subsidiaries. The Senior Notes due 2026 were not registered under the Securities Act and were not offered or sold in the U.S. absent registration or an applicable exemption from registration requirements. Interest was payable on April 15 and October 15 of each year beginning on October 15, 2018 until their maturity date of April 15, 2026. The terms of the 2026 Indenture, among other things, limited, in certain circumstances, our and certain of our subsidiaries ability to: incur secured indebtedness; engage in certain sale-leaseback transactions; and merge, consolidate or sell substantially all of our assets. The terms of the 2026 Indenture also included certain limitations on our non-guarantor subsidiaries incurring indebtedness. The proceeds of the offering were used to fund the redemption of our Senior Notes due 2022. During the year ended December 31, 2021, we paid the outstanding balance of $615 million on the Senior Notes due 2026 as a result of the issuance of the Senior Notes due 2029 as defined and discussed below.
Senior Notes due 2029
On March 15, 2021, Tronox Incorporated closed an offering of $1,075 million aggregate principal amount of its 4.625% senior notes due 2029 (the "Senior Notes due 2029"). The notes were offered at par and issued under an indenture dated as of March 15, 2021 among the Company and certain of the Company's restricted subsidiaries as guarantors and Wilmington Trust, National Association. The Senior Notes due 2029 provide, among other thing, that the Senior Notes due 2029 are guaranteed by the Company and certain of the Company's restricted subsidiaries, subject to certain exceptions. The Senior Notes due 2029 and related guarantees are the senior obligations of the Company and the guarantors. The Senior Notes due 2029 have not been registered under the Securities Act, or any state securities laws, and may not be offered or sold in the United States absent registration requirements. The terms of the indenture, among other things, limit, in certain circumstances, the ability of the Company and its restricted subsidiaries to: incur secured indebtedness, incur indebtedness at a non-guarantor subsidiary, engage in certain sale-leaseback transactions and merge, consolidate or sell substantially all of their assets. Interest is payable on the Senior Notes due 2029 on March 15 and September 15 of each year beginning on September 15, 2021 until their maturity date of March 15, 2029.
During the year ended December 31, 2021, the Company repaid the outstanding principal balance of $615 million and $450 million on its Senior Notes due 2026 and its Senior Notes due 2025, respectively. As a result of this transaction, we recorded $52 million of debt extinguishment costs, including call premiums of $21 million and $19 million on the Senior Notes
due 2026 and Senior Notes due 2025, respectively, in "Loss on Extinguishment of Debt" on the Consolidated Statement of Income for the year ended December 31, 2021.
6.5% Senior Secured Notes due 2025
On May 1, 2020, Tronox Incorporated, a wholly-owned indirect subsidiary of the Company, issued 6.5% senior secured notes due 2025 for an aggregate principal amount of $500 million (the "6.5% Senior Secured Notes due 2025"), which were issued under an indenture dated May 1, 2020. A portion of the proceeds of this debt offering was utilized to repay the $200 million of the Company's outstanding borrowings under its Wells Fargo, Standard Bank, and Emirates revolvers which were originally borrowed during the first quarter of 2020. During the year ended December 31, 2022, we paid the outstanding balance of $500 million on the 6.5% Senior Secured Notes due 2025 utilizing the proceeds of the 2022 Term Loan Facility (discussed above), along with cash on hand. In connection with such redemption, all security interests and liens granted to Wilmington Trust, National Association, as Trustee and Collateral Agent, were automatically terminated and discharged.
Prior Standard Bank Term Loan Facility
On March 25, 2019, our South African subsidiaries, Tronox KZN Sands Proprietary Limited and Tronox Mineral Sands Proprietary Limited, entered into the Prior Standard Bank Term Loan Facility with a maturity date of March 25, 2024. The Term Loan Facility consisted of (i) an aggregate principal amount of R2.6 billion (“Amortizing Loan”, approximately $153 million at the December 31, 2022 exchange rate), the principal of which was to be paid back at 5 percent per quarter over the five year term of the loan, and (ii) an aggregate principal amount of R600 million (“Bullet Loan”), the principal of which was to be paid back at the maturity date of the Prior Standard Bank Term Loan Facility. During the third quarter of 2019, we repaid the outstanding balance on the Bullet Loan.
The Amortizing Loan bore interest at JIBAR plus 260 basis points when net leverage of the South African subsidiaries was less than 1.5 and JIBAR plus 285 points when net leverage was greater than 1.5.
During the year ended December 31, 2021, we made several voluntary prepayments totaling R1,040 million (approximately $69 million) on the Prior Standard Bank Term Loan Facility. No prepayment penalties were required as a result of this principal prepayment. Additionally, during the year ended December 31, 2021, we repaid the remaining outstanding balance of R390 million (approximately $26 million) of the Prior Standard Bank Term Loan Facility and entered into an amendment and restatement with Standard Bank as is discussed below.
Standard Bank Term Loan Facility and Revolving Credit Facility
On October 1, 2021, Tronox Minerals Sands Proprietary Limited, a wholly-owned subsidiary of the Company, entered into an amendment and restatement of a new credit facility with Standard Bank. The new credit facility provides the Company with (a) a new five-year term loan facility in an aggregate principal amount of R1.5 billion (approximately $98 million) (the "Standard Bank Term Loan Facility") and (b) a new three-year revolving credit facility (the "Standard Bank Revolving Credit Facility") providing initial revolving commitments of R1.0 billion (approximately $59 million at the December 31, 2022 exchange rate). The maturity date on the Standard Bank Term Loan Facility and the Standard Bank Revolving Credit Facility is November 11, 2026 and October 1, 2024, respectively. The Standard Bank Term Loan Facility has a delayed draw feature up to thirty business days from the effective date of the executed credit agreement. Mandatory capital repayments of R37.5 million (approximately $2 million at the December 31, 2022 exchange rate) are scheduled quarterly with the first mandatory repayment starting in December 2021.
Both the Standard Bank Term Loan Facility and the Standard Bank Revolving Credit Facility shall bear interest at an adjusted JIBAR rate plus an applicable margin. The applicable margin on the Standard Bank Term Loan Facility is 2.35%. The applicable margin on the Standard Bank Revolving Credit Facility is based upon average credit utilization during any interest period. If the revolving credit facility utilization is less than 33%, less than 66% but greater than 33%, or greater than 66%, the applicable margin is 2.10%, 2.25%, and 2.40%, respectively. The Standard Bank Revolving Credit Facility requires the borrower to pay customary agency fees. Interest is payable on the Standard Bank Term Loan Facility on each of March 31, June 30, September 30 and December 31, and the final maturity date pursuant to the agreement. Interest is payable on the Standard Bank Revolving Credit Facility on the last day of the applicable interest period pursuant to the agreement.
Pursuant to the credit agreement, on November 11, 2021, the Company drew down the total outstanding principal balance of R1.5 billion (approximately $98 million) on the Standard Bank Term Loan Facility. As of December 31, 2017, we had $2322022, the total outstanding principal balance is R1.3 billion (approximately $77 million available underat the $550 million Wells Fargo Revolver, $61 million under the New ABSA Revolver and $1.1 billion in cash and cash equivalents. In addition, as of December 31, 20172022 exchange rate), of which R150 million (approximately $9 million at the December 31, 2022 exchange rate) is recorded within "Current portion of long-term debt" on the Consolidated Balance Sheet.
Tikon Loan
We maintained a working capital debt agreement in China (“Tikon Loan”) that matured in May of 2021. The Tikon Loan bore interest based on an official lending basis rate per annum as announced and published by the People’s Bank of China plus a 7% premium. During the year ended December 31, 2021, we had restricted cashrepaid the remaining outstanding principal balance of $653CNY 111 million which included(approximately $17 million). No prepayment penalties were required as a result of these principal prepayments.
Australian Government Loan
We maintain an interest-free loan with the
$650Australian government (“Australian Government Loan”) that is subject to renewal every 5 years and is contingent on renewal of our Australind site leases with final maturity in December 2036. The loan balance due upon maturity is AUD 6 million
of proceeds from(approximately $4 million at the
Blocked Term Loan discussed above and $1 million of related interest.Lease Financing
We have capital lease obligations in South Africa, which are payable through 2031 at a weighted average interest rate of approximately 14%December 31, 2022 exchange rate). At December 31, 20172022, the discounted value on the Australian Government Loan was approximately AUD 2 million (approximately $1 million at the December 31, 2022 exchange rate).
MGT Loan
On December 17, 2020, we completed our agreement with Cristal to acquire certain assets co-located at our Yanbu facility which produce metal grade TiCl4 (“MGT”) in exchange for a $36 million note payable. Repayment of the note payable is based on a fixed U.S. dollar per metric ton quantity of MGT delivered by us to Advanced Metal Industries Cluster and 2016, assets recordedToho Titanium Metal Co. Ltd (ATTM) over time and therefore the ultimate maturity date is variable in nature. If ATTM fails to purchase MGT from us under certain contractually agreed upon conditions, then at our election we may terminate the MGT supply agreement with ATTM and will no longer owe any amount under the loan agreement with Cristal. We currently estimate the ultimate maturity to be between approximately five to six years, subject to actual future MGT production levels. The interest rate is based on the Saudi Arabian Interbank Offered Rate (“SAIBOR”) plus a premium. As of December 31, 2022, the outstanding balance of the note payable was $30 million, of which $7 million is expected to be paid within the next twelve months (recorded within "Long-term debt due within one year" on our Consolidated Balance Sheet). Refer to Note 22 for further information on the MGT transaction.
Short-term Debt
Cash Flow Revolver
For a description of the Cash Flow Revolver, see details above under "Prior Term Loan Facility, Term Loan Facility, Cash Flow Revolver and 2022 Term Loan Facility".
Standard Bank Revolving Credit Facility
For a description of the Standard Bank Revolving Credit Facility, see details above under "Standard Bank Term Loan Facility and Revolving Credit Facility".
Emirates Revolver
We maintain a revolving credit facility with Emirates NBD PJSC. In March 2022, the Company entered into an amendment to extend the maturity date of the Emirates Revolver from March 31, 2022 to March 31, 2023. Under the Emirates Revolver, we have the ability to borrow up to approximately $60 million. The revolver is secured by inventory and trade receivables of Tronox Pigment UK Ltd. Under the terms of the revolver, for U.S. dollar borrowings the interest rate is LIBOR plus 2.25% while the interest rate for Euro borrowings is Euribor plus 2.25%. There were no borrowings outstanding under this revolver at December 31, 2022.
SABB Credit Facility
On October 16, 2019, our KSA subsidiary entered into a short-term working capital lease obligations were $23facility with the Saudi British Bank (“SABB Facility”) for an amount up to SAR 70 million (approximately $19 million). The SABB Facility bears interest at the Saudi Inter Bank Offered Rate plus 180 basis points on outstanding balances. In March 2020, the Company borrowed SAR 50 million (or approximately $13 million) under the SABB Facility and $21subsequently repaid the outstanding balances. There is no borrowing outstanding under this facility at December 31, 2022. In December 2022, the Company extended the maturity date of the SABB Credit Facility from November 30, 2022 to November 30, 2023.
Itaù Unibanco S.A. Credit Facility
On November 1, 2022, our Brazilian subsidiary entered into a working capital facility with Itaù Unibanco S.A. in Brazil for an amount up to 30 million respectively. Related accumulated amortization was $8 million andBRL (approximately $6 million at the December 31, 20172022 exchange rate). There is no maturity date under this facility until written notice is given. The facility bears interest at the Bolsa do Basil reference rate on outstanding balances. There is no borrowings outstanding under this facility at December 31, 2022.
In January and 2016, respectively. During 2017, 2016,February 2023, we drew down an aggregate amount of approximately $118 million on several of our short-term facilities.
Insurance premium financing
In August 2022, the Company entered into a $21 million insurance premium financing agreement with a third-party financing company. The balance will be repaid in monthly installments over 10 months at a 5% fixed annual interest rate. As of December 31, 2022, the financing balance was $10 million and
2015 we made principal payments of less than $1 million for all periods.is recorded in "Short-term debt" in the Consolidated Balance Sheet.
Debt Covenants
At December 31,
2017, future minimum lease payments, including interest, were as follows: | Principal
Repayments | Interest | Total
Payments |
2018 | $ | 1 | | $ | 3 | | $ | 4 | |
2019 | | 1 | | | 3 | | | 4 | |
2020 | | 1 | | | 2 | | | 3 | |
2021 | | 1 | | | 2 | | | 3 | |
2022 | | 1 | | | 2 | | | 3 | |
Thereafter | | 14 | | | 10 | | | 24 | |
Total | $ | 19 | | $ | 22 | | $ | 41 | |
Bridge Facility
In connection2022, we are in compliance with all financial covenants in our acquisition of Alkali in 2015, we entered into a $600 million senior unsecured bridge facility (the “Bridge Facility”). The Bridge Facility was not utilizeddebt facilities.
Interest and terminated with the completion of the purchase of Alkali. During 2015, we incurred $8 million of financing fees related to the Bridge Facility, which were included in “InterestDebt Expense, Net
Interest and debt expense, net”net in the Consolidated Statements of Operations. TABLE OF CONTENTS
Debt Covenants
At December 31, 2017, we had no financial covenants in the Wells Fargo Revolver, the New ABSA Revolver and the New Term Loan Facility, however, only the New ABSA Revolver had a financial maintenance covenant that applies to local operations and only when the New ABSA Revolver is drawn upon.
Interest and Debt Expense, Net
Interest and debt expense, net of capitalized interest in the Consolidated Statements of OperationsIncome consisted of the following:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
Interest on Prior Term Loan | $ | 49 | | $ | 67 | | $ | 63 | |
Interest on New Term Loan Facility | | 26 | | | — | | | — | |
Interest on Senior Notes due 2020 | | 42 | | | 57 | | | 57 | |
Interest on Senior Notes due 2022 | | 44 | | | 44 | | | 35 | |
Interest on Senior Notes due 2025 | | 7 | | | — | | | — | |
Amortization of deferred debt issuance costs and discounts on debt | | 15 | | | 11 | | | 11 | |
Bridge facility | | — | | | — | | | 8 | |
Capitalized interest | | (2 | ) | | (3 | ) | | (6 | ) |
Other | | 7 | | | 9 | | | 8 | |
Total interest and debt expense, net | $ | 188 | | $ | 185 | | $ | 176 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Interest on debt | $ | 132 | | | $ | 148 | | | $ | 174 | |
| Amortization of deferred debt issuance costs and discounts on debt | 8 | | | 11 | | | 10 | |
| Capitalized interest | (17) | | | (7) | | | (2) | |
| Interest on capital leases and letters of credit and commitments | 2 | | | 5 | | | 7 | |
| Total interest and debt expense, net | $ | 125 | | | $ | 157 | | | $ | 189 | |
In connection with obtaining debt, we incurred debt issuance costs, which are being amortized through the respective maturity dates using the effective interest method for our long-term debt and on a straight linestraight-line basis for our Wells FargoCash Flow Revolver. At December 31, 2017,2022 and December 31, 2021, we had deferred debt issuance costs of $7$2 million and $2 million, respectively, related to the Wells FargoCash Flow Revolver, which is recorded in “Other long-term assets” in the Consolidated Balance Sheets. At December 31, 2017,2022 and December 31, 2021, we had $12debt discount of $8 million and $27$5 million, of debt discountrespectively, and debt issuance costs of $33 million and $36 million, respectively, primarily related to the New Term Loan Facility, which was recorded as a direct reduction of the carrying value of the long-term debt in the Consolidated Balance Sheets. At December 31, 2017, we had $9 million of debt issuance costs, related to the Senior Notes due 2025, which was recorded as a direct reduction of the carrying value of the long-term debt in the Consolidated Balance Sheets. At December 31, 2017our term loans and December 31, 2016, we had $8 million and $10 million, respectively, of debt issuance costs related to the Senior Notes 2022,senior notes, which were recorded as a direct reduction of the carrying value of the long-term debt in the Consolidated Balance Sheets.
14. Derivative Financial Instruments
Derivatives recorded on the Consolidated Balance Sheet:
The following table is a summary of the fair value of derivatives outstanding at December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value |
| December 31, 2022 | | December 31, 2021 |
| Assets(a) | | Accrued Liabilities | | Assets(a) | | Accrued Liabilities |
| Derivatives Designated as Cash Flow Hedges |
| Currency Contracts | $ | — | | | $ | — | | | $ | 3 | | | $ | 1 | |
| Interest Rate Swaps | $ | 30 | | | $ | — | | | $ | — | | | $ | 25 | |
| Natural Gas Hedges | $ | 1 | | | $ | 2 | | | $ | 1 | | | $ | — | |
| Total Hedges | $ | 31 | | | $ | 2 | | | $ | 4 | | | $ | 26 | |
| Derivatives Not Designated as Cash Flow Hedges |
| Currency Contracts | $ | 1 | | | $ | — | | | $ | — | | | $ | — | |
| Total Derivatives | $ | 32 | | | $ | 2 | | | $ | 4 | | | $ | 26 | |
(a) At December 31, 2022 and 2021, current assets of $32 million and $4 million, respectively, are recorded in prepaid and other current assets on the Consolidated Balance Sheet.
Derivatives' Impact on the Consolidated Statement of Income
The following table summarizes the impact of the Company's derivatives on the Consolidated Statement of Income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of Pre-Tax Gain (Loss) Recognized in Earnings |
| Revenue | | Cost of Goods Sold | | Other (Expense) Income, net | | Revenue | | Cost of Goods Sold | | Other (Expense) Income, net | | Revenue | | Cost of Goods Sold | | Other (Expense) Income, net |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| Derivatives Not Designated as Hedging Instruments | | | | | | |
| Currency Contracts | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 4 | |
| Derivatives Designated as Hedging Instruments | | | | | | |
| Currency Contracts | $ | 4 | | | $ | 13 | | | $ | — | | | $ | (3) | | | $ | 35 | | | $ | — | | | $ | (7) | | | $ | 3 | | | $ | — | |
| Natural Gas | $ | — | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 3 | | | $ | — | | | $ | — | | | $ | (1) | | | $ | — | |
| Total Derivatives | $ | 4 | | | $ | 18 | | | $ | 1 | | | $ | (3) | | | $ | 38 | | | $ | 1 | | | $ | (7) | | | $ | 2 | | | $ | 4 | |
Interest Rate Risk
During the second quarter of 2019, we entered into interest-rate swap agreements with an aggregate notional value of $750 million representing a portion of our Term Loan Facility, which effectively converts the variable rate to a fixed rate for that portion of the loan. The agreements expire in September 2024. The Company's objectives in using the interest-rate swap agreements are to add stability to interest expense and to manage its exposure to interest rate movements. These interest rate swaps have been designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. There was no impact associated with the New Term Loan Facility as the hedge remained highly effective.
Fair value gains or losses on these cash flow hedges are recorded in other comprehensive (loss) income and are subsequently reclassified into interest expense in the same periods during which the hedged transactions affect earnings. For the year ended December 31, 2022, 2021 and 2020, the amounts recorded in interest expense related to the interest-rate swap agreements were $4 million, $16 million and $10 million, respectively. At December 31, 2022 and December 31, 2021, the net unrealized gain was $30 million and the unrealized loss was $25 million, respectively, and was recorded in "Accumulated other comprehensive loss" on the Consolidated Balance Sheet.
Foreign Currency Risk
From time to time, we enter into foreign currency contracts used to hedge forecasted third party non-functional currency sales for our South African subsidiaries and forecasted non-functional currency cost of goods sold for our Australian subsidiaries. These foreign currency contracts are designated as cash flow hedges. Changes to the fair value of these foreign currency contracts are recorded as a component of other comprehensive (loss) income, if these contracts remain highly effective, and are recognized in net sales or costs of goods sold in the period in which the forecasted transaction affects earnings or are recognized in other (expense) income, net when the transactions are no longer probable of occurring.
As of December 31, 2022, we had no outstanding amounts to reduce the exposure of our Australian subsidiaries’ cost of sales to fluctuations in currency rates or to reduce the exposure of our South African subsidiaries' third party sales to fluctuations in currency rates. At December 31, 2022, there was an unrealized net loss of $4 million recorded in "Accumulated other comprehensive loss" on the Consolidated Balance Sheet, which is expected to be recognized in earnings over the next twelve months. At December 31, 2021, there was an unrealized net gain of $15 million recorded in "Accumulated other comprehensive loss" on the Consolidated Balance Sheet.
We enter into foreign currency contracts to reduce exposure of our subsidiaries’ balance sheet accounts not denominated in our subsidiaries’ functional currency to fluctuations in foreign currency exchange rates. For accounting purposes, these foreign currency contracts are not considered hedges. The change in fair value associated with these contracts is recorded in “Other (expense) income, net” within the Consolidated Statement of Income and partially offsets the change in value of third party and intercompany-related receivables not denominated in the functional currency of the subsidiary. At December 31, 2022, there was (i) 1.2 billion South African Rand (or approximately $68 million at the December 31, 2022 exchange rate), (ii) 197 million Australian dollars (or approximately $135 million at the December 31, 2022 exchange rate), (iii) 20 million Pound Sterling (or approximately $24 million at the December 31, 2022 exchange rate and (iv) 44 million Euro (or approximately $48 million at the December 31, 2022 exchange rate) of notional amount of outstanding foreign currency contracts.
15. Fair Value Measurement
For financial instruments that are subsequently measured at fair value, the fair value measurement is grouped into levels. See Note 2.
Our debt is recorded at historical amounts. The following table presents the fair value of our debt and derivative contracts at both December 31, 2022 and December 31, 2021: | | | | | | | | | | | | | | | | | |
| December 31,
2022 | | December 31,
2021 |
| Asset | Liability | | Asset | Liability |
| Term Loan Facility | $ | — | | $ | 876 | | | $ | — | | $ | 895 | |
| 2022 Term Loan Facility | — | | 388 | | | — | | — | |
| Standard Bank Term Loan Facility | — | | 77 | | | — | | 92 | |
| Senior Notes due 2029 | — | | 893 | | | — | | 1,071 | |
| 6.5% Senior Secured Notes due 2025 | — | | — | | | — | | 526 | |
| Australian Government Loan | — | | 1 | | | — | | 1 | |
| MGT Loan | — | | 30 | | | — | | 33 | |
| Interest rate swaps | 30 | | — | | | — | | 25 | |
| Natural gas hedges | 1 | | 2 | | | 1 | | — | |
| Foreign currency contracts | 1 | | — | | | 3 | | 1 | |
We determined the fair value of the Term Loan Facility, the 2022 Term Loan Facility, the Senior Notes due 2029, and the 6.5% Senior Secured Notes due 2025 using quoted market prices, which under the fair value hierarchy is a Level 1 input. We determined the fair value of the Standard Bank Term Loan Facility utilizing transactions in the listed markets for similar liabilities, which under the fair value hierarchy is a Level 2 input. The fair value of the Australian Government Loan and MGT Loan is based on the contracted amount which is a Level 2 input.
We determined the fair value of the foreign currency contracts and interest rate swaps using inputs other than quoted prices in active markets that are observable either directly or indirectly. The fair value hierarchy for the foreign currency contracts and interest rate swaps is a Level 2 input.
The carrying value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value due to the short-term nature of these items.
16. Leases
Lease expense for the year ended December 31, 2022, 2021 and 2020 was comprised of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Operating lease expense | | $ | 39 | | | $ | 47 | | | $ | 48 | |
| | | | | | |
| Finance lease expense: | | | | | | |
| Amortization of right-of-use assets | | 4 | | | 1 | | | $ | 1 | |
| Interest on lease liabilities | | 4 | | | 2 | | | $ | 2 | |
| | | | | | |
| Short term lease expense | | 35 | | | 30 | | | $ | 26 | |
| Variable lease expense | | 14 | | | 23 | | | $ | 22 | |
| Total lease expense | | $ | 96 | | | $ | 103 | | | $ | 99 | |
The table below summarizes lease expense for the year ended December 31, 2022, 2021 and 2020 recorded in the specific line items in our Consolidated Statements of Income:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Cost of goods sold | | $ | 92 | | | $ | 98 | | | $ | 91 | |
| Selling, general and administrative expenses | | 4 | | | 5 | | | 8 | |
| Total | | $ | 96 | | | $ | 103 | | | $ | 99 | |
The weighted-average remaining lease term in years and weighted-average discount rates at December 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Weighted-average remaining lease term: | | | | |
| Operating leases | | 11.6 | | 8.7 |
| Finance leases | | 8.8 | | 8.8 |
| | | | |
| Weighted-average discount rate: | | | | |
| Operating leases | | 10.8 | % | | 7.4 | % |
| Finance leases | | 12.2 | % | | 14.1 | % |
The maturity analysis for operating leases and finance leases at December 31, 2022 were as follows:
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
| 2023 | | 32 | | | 10 | |
| 2024 | | 27 | | | 9 | |
| 2025 | | 19 | | | 8 | |
| 2026 | | 16 | | | 8 | |
| 2027 | | 14 | | | 8 | |
| Thereafter | | 126 | | | 33 | |
| Total lease payments | | 234 | | | 76 | |
| Less: imputed interest | | (103) | | | (29) | |
| Present value of lease payments | | $ | 131 | | | $ | 47 | |
Additional information relating to cash flows and ROU assets for the year ended December 31, 2022, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | | December 31, 2020 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows used for operating leases | | $ | 39 | | | $ | 51 | | | $ | 55 | |
| Operating cash flows used for finance leases | | $ | 4 | | | $ | 2 | | | $ | 2 | |
| Financing cash flows used for finance leases | | $ | 3 | | | $ | 1 | | | $ | 1 | |
Additional information relating to ROU assets for the year ended December 31, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 |
| ROU assets obtained in exchange for lease obligations: | | | | |
| Operating leases obtained in the normal course of business | | $ | 83 | | | $ | 49 | |
| Finance leases obtained in the normal course of business | | $ | 37 | | | $ | 2 | |
17. 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, |
| 2017 | 2016 |
Balance, January 1, | $ | 76 | | $ | 81 | |
Additions | | 1 | | | 1 | |
Accretion expense | | 5 | | | 5 | |
Remeasurement/translation | | 5 | | | 1 | |
Changes in estimates, including cost and timing of cash flows | | — | | | (11 | ) |
Settlements/payments | | (5 | ) | | (1 | ) |
Balance, December 31, | $ | 82 | | $ | 76 | |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
| Balance, January 1 | $ | 149 | | | $ | 166 | |
| Additions | 3 | | | 5 | |
| Accretion expense | 12 | | | 12 | |
| Remeasurement/translation | (7) | | | (9) | |
| Changes in estimates, including cost and timing of cash flows | 7 | | | (15) | |
| Settlements/payments | (3) | | | (10) | |
| Other acquisition and divestiture related | — | | | — | |
| Balance, December 31 | $ | 161 | | | $ | 149 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Asset retirement obligations were classified as follows: | | | |
| Current portion included in “Accrued liabilities” | $ | 8 | | | $ | 10 | |
| Noncurrent portion included in “Asset retirement obligations” | 153 | | | 139 | |
| Asset retirement obligations | $ | 161 | | | $ | 149 | |
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| December 31, |
| 2017 | 2016 |
Asset retirement obligations were classified as follows:
| | | | | | |
Current portion included in “Accrued liabilities” | $ | 3 | | $ | 3 | |
Noncurrent portion included in “Asset retirement obligations” | | 79 | | | 73 | |
Asset retirement obligations | $ | 82 | | $ | 76 | |
We used the following assumptions in determining asset retirement obligations at December 31, 2017:2022: inflation rates between 2.5%1.5% - 4.2%4.3% per year; credit adjusted risk-free interest rates between 7.0% -17.1%5.8% -20.6%; the life of mines between 12-271-24 years and the useful life of assets between 4-336-31 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.
Environmental Rehabilitation Trust
In accordance with applicable regulations, we have established an environmental rehabilitation trust for the prospecting and mining operations in South Africa, which receives, holds, and invests funds for the rehabilitation or management of asset retirement obligations. The trustees of the fund are appointed by us and consist of sufficiently qualified employees capable of
fulfilling their fiduciary duties. At
both December 31,
20172022 and
2016,2021, the environmental rehabilitation trust assets were
$13$12 million
and $12 million, respectively, which were recorded in “Other long-term assets” in the Consolidated Balance Sheets.
17.
18. 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 $22 million, $21 million and $25 million during 2017, 2016 and 2015, respectively. Total rental expense related to operating leases recorded in “Selling, general and administrative expense” in the Consolidated Statements of Operations, was $2 million each during 2017, 2016 and 2015.
At December 31, 2017, minimum rental commitments under non-cancelable operating leases were as follows:
| Operating |
2018 | $ | 19 | |
2019 | | 8 | |
2020 | | 4 | |
2021 | | 4 | |
2022 | | 3 | |
Thereafter | | 6 | |
Total | $ | 44 | |
Purchase and Capital Commitments—At December 31, 2017,2022, purchase commitments were $348 million for 2023, $168 million for 2024, $149 million for 2018, $552025, $152 million for 2019, $432026, $155 million for 2020, $342027, and $1,594 million for 2021, $24 million for 2022, and $103 million thereafter.
Letters of Credit—At December 31, 2017,2022, we had outstanding letters of credit and bank guarantees and performance bonds of $46$109 million, of which $19$70 million were letters of credit issued under the Wells Fargo Revolver, $20and $39 million were bank guarantees issued by ABSA Bank Limited (“ABSA”), $5 million were bank guarantees issued by Standard Bank and $2 million wereguarantees. Amounts for performance bonds issuedwere not material.
Environmental Matters— It is our policy to record appropriate liabilities for environmental matters when remedial efforts are probable and the costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of our recorded liabilities. We expect to fund expenditures for these matters from operating cash flows. The timing of cash expenditures depends principally on the timing of remedial investigations and feasibility studies, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. Included in these environmental matters are the following:
Hawkins Point Plant. Residual waste mud, known as Batch Attack Mud, and a spent sulfuric waste stream were deposited in an onsite repository (the “Batch Attack Lagoon”) at a former TiO2 manufacturing site, Hawkins Point Plant in Baltimore, Maryland, operated 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,
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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.
On December 5, 2017, the U.S. Federal Trade Commission (FTC) filed an administrative complaint against Tronox Limited, the National Industrialization Company of Saudi Arabia (“TASNEE”), National Titanium Dioxide Company Limited (Cristal) and Cristal USA, Inc. The complaint alleges thatfrom 1954 until 2011. We assumed responsibility for remediation of the proposed acquisition by Tronox ofHawkins Point Plant when we acquired the TiO2 business of Cristal would violate Section 7in April 2019. On December 21, 2022, we sold the Hawkins Point Plant to the Maryland Port Administration ("MPA"), a state agency controlled by the Maryland Department of Transportation. Pursuant to the terms of the Clayton Antitrust Acttransaction, MPA became the lead party in developing and Section 5implementing appropriate measures to address, treat, control, and mitigate the environmental conditions at the property under the regulatory oversight of the FTC Act.Maryland Department of the Environment ("MPE"). Under MPA ownership, the Hawkins Point Plant will be utilized for storage and beneficial reuse of dredged material from the Port of Baltimore. In exchange for transferring ownership of the site to MPA, Tronox has agreed to make scheduled, annual payments to MPA which together with scheduled, annual contributions from MPA will be used to remediate the property. The administrative complaint seeks,sale of the property to MPA did not have a material impact to the Consolidated Statement of Income. As of December 31, 2022, we have a provision of $42 million included in "Environmental liabilities" in our Consolidated Balance Sheet for the Hawkins Point Plant consistent with the accounting policy described above.
Other Matters— We are subject to a number of other lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of the conduct of our business, including matters relating to commercial transactions, prior acquisitions and divestitures, including our acquisition of Cristal, employee benefit plans, intellectual property, and environmental, health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Included in these other matters is the following:
Venator Materials plc v. Tronox Limited. In May 2019, Venator Materials plc (“Venator”) filed an action in the Superior Court of the State of Delaware alleging among other things that we owed Venator a permanent injunction$75 million “Break Fee” pursuant to prevent the transactionterms of a preliminary agreement dated July 14, 2018 (the “Exclusivity Agreement”). The Exclusivity Agreement required, among other things, Tronox and Venator to use their respective best efforts to negotiate a definitive agreement to sell the entirety of the National Titanium Dioxide Company Limited’s (“Cristal’s”) North American operations to Venator if a divestiture of all or a substantial part of these operations were required to secure the approval of the Federal Trade Commission for us to complete our acquisition of Cristal’s TiO2 business. In June 2019, we denied Venator's claims and counterclaimed against Venator seeking to recover $400 million in damages from being completed.On January 23, 2018, Tronox Limited filed suit againstVenator that we suffered as a result of Venator’s breaches of the FTCExclusivity Agreement. Specifically, we alleged, among other things, that Venator’s failure to use best efforts constituted a material breach of the Exclusivity Agreement and directly resulted in and caused us to sell Cristal’s North American operations to an alternative buyer for $701 million, $400 million less than the price Venator had agreed to in the U.S. DistrictExclusivity Agreement. On April 6, 2022, the Judge presiding over the case in the Superior Court of the State of Delaware delivered a directed verdict in favor of Venator without allowing the jury to deliberate. The Company determined not to appeal the Judge's verdict, and as such, on April 18, 2022, the Company and Venator entered into a settlement agreement whereby the Company paid $85 million, inclusive of interest, on April 25, 2022. As a result, we recorded the charge within "Venator settlement" on the Consolidated Statement of Income for the Northern Districtyear ended December 31, 2022.
Western Australia Stamp Duty Matter. In May 2018, we lodged a pre-transaction determination request for a stamp duty exemption with the Western Australia Office of Mississippi. The complaint seeksState Revenue (the “WA OSR”) in connection with our re-domicile transaction (the “Re-Domicile Transaction”) which was subsequently granted by the WA OSR in June 2018 on a declaration that Tronox’s proposed acquisitionpreliminary basis. Immediately following the consummation of the TiO2 business of Cristal is lawful under Section 7Re-Domicile Transaction, we filed a confirmation request for the stamp duty exemption with the WA OSR. Following this confirmation request, we exchanged numerous communications with the WA OSR addressing questions raised and stating our position. In July 2021, the WA OSR informed us that they have reviewed their technical position on the applicability of the Clayton Antitrust Actstamp duty exemption and Section 5have determined that such an exemption is disallowed. On April 8, 2022, the Company lodged an appeal of the FTC Act or,WA OSR's decision with the Western Australia State Administrative Tribunal. The Tribunal hearing is currently expected to take place in the alternative,second half of 2023. While the Company believes it complied with the rules relevant to obtaining an injunction barringexemption from stamp duties in connection with the FTC from seeking to prevent the acquisition at a later date.18. Shareholders’ Equity
The changes in outstanding Class A ordinary shares (“Class A Shares”) and Class B Shares for 2016 and 2017 were as follows:
Class A Shares:
| | | |
Balance, January 1, 2016
| | 64,521,851
| |
Shares issued for share-based compensation
| | 732,724
| |
Shares cancelled for share-based compensation
| | (89,062
| )
|
Shares issued upon warrants exercised
| | 159
| |
Balance, December 31, 2016
| | 65,165,672
| |
Shares issued for share-based compensation
| | 3,048,824
| |
Shares cancelled for share-based compensation
| | (623,920
| )
|
Shares issued upon options exercised
| | 165,974
| |
Shares issued upon warrants exercised
| | 2,359,913
| |
Exxaro Share Transaction
| | 22,425,000
| |
Balance, December 31, 2017
| | 92,541,463
| |
Class B Shares:
| | | |
Balance, December 31, 2016
| | 51,154,280
| |
Exxaro Share Transaction
| | (22,425,000
| )
|
Balance, December 31, 2017
| | 28,729,280
| |
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, 2017, 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 atRe-Domicile Transaction, if 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 termunfavorable ruling is received from the date initially issuedWestern Australia State Administrative Tribunal and expiredTronox is not able to successfully appeal such ruling, the stamp duty payable on February 14, 2018. A holder may exercise the Warrants by paying the applicable exercise priceRe-Domicile Transaction could result in cash or exercising on a cashless basis. The Warrants are freely transferable by the holder. At December 31, 2017 and 2016, there were 37,033 and 239,306 Series A Warrants outstanding, respectively, and 54,488 and 323,915 Series B Warrants outstanding, respectively.
88
material change to our financial statement.TABLE OF CONTENTS
Dividends
During 2017 and 2016, we declared and paid quarterly dividends to holders of our Class A Shares and Class B Shares as follows:
| Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 |
Dividend per share | $ | 0.045 | | $ | 0.045 | | $ | 0.045 | | $ | 0.045 | |
Total dividend | $ | 6 | | $ | 6 | | $ | 5 | | $ | 6 | |
Record date (close of business) | March 6 | May 15 | August 21 | November 20 |
| Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 |
Dividend per share | $ | 0.25 | | $ | 0.045 | | $ | 0.045 | | $ | 0.045 | |
Total dividend | $ | 30 | | $ | 5 | | $ | 5 | | $ | 6 | |
Record date (close of business) | March 4 | May 16 | August 17 | November 16 |
19. Accumulated Other Comprehensive Income (Loss)Loss Attributable to Tronox Limited
Holdings plc and Other Equity Items
The tables below present changes in accumulated other comprehensive income (loss)loss by component for 2017, 20162022, 2021 and 2015. | Cumulative
Translation
Adjustment | Pension
Liability
Adjustment | Unrealized
Gains (losses) on
Derivatives | Total |
Balance, January 1, 2015 | $ | (281 | ) | $ | (117 | ) | $ | — | | $ | (398 | ) |
Other comprehensive income (loss) | | (215 | ) | | 12 | | | — | | | (203 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | | — | | | 3 | | | — | | | 3 | |
Balance, December 31, 2015 | $ | (496 | ) | $ | (102 | ) | $ | — | | $ | (598 | ) |
Other comprehensive income (loss) | | 88 | | | 8 | | | 4 | | | 100 | |
Amounts reclassified from accumulated other comprehensive income (loss) | | — | | | 2 | | | (1 | ) | | 1 | |
Balance, December 31, 2016 | $ | (408 | ) | $ | (92 | ) | $ | 3 | | $ | (497 | ) |
Other comprehensive income (loss) | | 96 | | | (6 | ) | | (3 | ) | | 87 | |
Amounts reclassified from accumulated other comprehensive income (loss) | | — | | | 8 | | | (1 | ) | | 7 | |
Balance, December 31, 2017 | $ | (312 | ) | $ | (90 | ) | $ | (1 | ) | $ | (403 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative Translation Adjustment | | Pension Liability Adjustment | | Unrealized Gains (losses) on Derivatives | | Total |
| Balance, January 1, 2020 | $ | (503) | | | $ | (104) | | | $ | 1 | | | $ | (606) | |
| Other comprehensive income (loss) | 12 | | | (20) | | | (4) | | | (12) | |
| | | | | | | |
| Amounts reclassified from accumulated other comprehensive loss | — | | | 4 | | | 4 | | | 8 | |
| Balance, December 31, 2020 | (491) | | | (120) | | | 1 | | | (610) | |
| Other comprehensive (loss) income | (103) | | | 16 | | | 21 | | | (66) | |
| Acquisition of noncontrolling interest | (34) | | | — | | | — | | | (34) | |
| Amounts reclassified from accumulated other comprehensive loss | — | | | 4 | | | (32) | | | (28) | |
| Balance, December 31, 2021 | $ | (628) | | | $ | (100) | | | $ | (10) | | | $ | (738) | |
| Other comprehensive (loss) income | (82) | | | 5 | | | 53 | | | (24) | |
| Amounts reclassified from accumulated other comprehensive loss | — | | | 17 | | | (23) | | | (6) | |
| Balance, December 31, 2022 | $ | (710) | | | $ | (78) | | | $ | 20 | | | $ | (768) | |
Repurchase of Common Stock
On November 9, 2021, the Company's Board of Directors authorized the repurchase of up to $300 million of the Company's stock through February 2024. During the year ended December 31, 2022, we purchased a total of 2,843,789 shares on the open
market at an average price of $17.38 per share and at an aggregate cost of approximately $50 million, including sales commissions, transfer taxes and fees. Upon repurchase of the shares by the Company, the shares were cancelled. Under the authorization from our Board of Directors, we have approximately $251 million available for additional repurchases through February 2024.
19.
20. Share-based Compensation
Share-based compensation expense consisted of the following: | Year Ended December 31, |
| 2017 | 2016 | 2015 |
Restricted shares and restricted share units | $ | 30 | | $ | 20 | | $ | 15 | |
Options | | — | | | 2 | | | 5 | |
T-Bucks Employee Participation Plan | | 1 | | | 2 | | | 2 | |
Total share-based compensation expense (continuing operations)(1) | $ | 31 | | $ | 24 | | $ | 22 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Total share-based compensation expense from restricted share units | $ | 26 | | | $ | 31 | | | $ | 30 | |
The stock compensation expense for the year ended December 31, 2021 is inclusive of a $3 million true up of expense due to the 2020 and 2021 performance grants as well as the acceleration of $2 million of stock compensation expense associated with the retirement agreement entered into with the former CEO on March 18, 2021.
| (1) | Excludes $2 million, $1 million and less than $1 million of share-based compensation relating to discontinued operations. See Note 3. |
Tronox LimitedHoldings plc Amended and Restated Management Equity Incentive Plan
On
June 15, 2012, weMarch 27, 2019, in connection with the Re-domicile Transaction, Tronox Holdings plc assumed the management equity incentive plan previously adopted
by Tronox Limited, which plan was renamed the
Tronox Holdings plc Amended and Restated Management Equity Incentive Plan. The amendments to the plan were made to provide, among other things, for the appropriate substitution of Tronox Holdings in place of Tronox Limited and to ensure the compliance with the laws of England and Wales law in place of Australian law. 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, theThe maximum number of shares which
may be the subject ofwere initially subjected to awards (inclusive of incentive options)
iswas 20,781,225
Class A Shares. Theseordinary shares
wereand was increased by 8,000,000 on the affirmative vote of our shareholders on
May 25, 2016.June 24, 2020.TABLE OF CONTENTS
Restricted Shares
We did not grant any restricted shares during 2017.
The following table presents a summary of activity for 2017:
| Number
of Shares | Weighted Average
Grant Date
Fair Value |
Outstanding, January 1, 2017 | | 284,400 | | $ | 6.09 | |
Vested | | (107,928 | ) | | 8.00 | |
Outstanding, December 31, 2017 | | 176,472 | | $ | 4.92 | |
Expected to vest, December 31, 2017 | | 176,472 | | $ | 4.92 | |
At December 31, 2017, there was less than $1 million of unrecognized compensation expense related to nonvested restricted shares, which is expected to be recognized over a weighted-average period of 1.0 years. Since the restricted shares were granted to certain members of our Board, the unrecognized compensation expense was not adjusted for estimated forfeitures. The weighted-average grant-date fair value of restricted shares granted during 2016 and 2015 was $4.16 per share and $22.60 per share, respectively. The total fair value of restricted shares that vested during 2017, 2016 and 2015 was $1 million, $3 million, and $4 million, respectively.
Restricted Share Units (“RSUs”)
During 2017, we granted
On an annual basis, the Company grants RSUs which have time and/or performance conditions. Both the time-based awards and the performance-based awards are classified as equity awards. For
2022 Grants - The Company granted both time-based and performance-based awards to certain members of management and to members of the Board. A total of 582,136 of time-based awards 1,075 RSUs vested immediately, 14,053 RSUs vest ratably over a six-month period, 100,160 RSUs vest ratably over a one-year period, 1,951 RSUs vest ratably over a twenty-eight month period, 12,869 RSUs vest ratably over a thirty-one month period and 773,774 RSUswere granted to management which will vest ratably over a three-year period and are valued atending March 5, 2025. A total of 68,296 of time-based awards were granted to members of the weighted average grant date fair value. For theBoard of which will vest in May 2023. A total of 533,416 of performance-based awards 1,949 RSUs cliff vest at the endwere granted, of twenty-eight months, 154,639 RSUs cliff vest at the end of thirty-one months, 1,145,933 cliff vest at the endwhich 266,708 of the three years and 883,538 RSUs cliffawards vest at the end of the forty months. Included in the performance-based awards are 788,588 RSUs for which vesting is determined based on a relative Total StockholderShareholder Return (“TSR”("TSR") calculation overand 266,708 of the applicable measurement period.awards vest based on certain performance metrics of the Company. The non-TSR performance-based awards vest on March 5, 2025 based on the achievement against the target average company performance of three separate performance periods, commencing on January 1 of each 2022, 2023, and 2024 and ending on December 31 of each 2022, 2023 and 2024, for which, for each performance period, the performance metric is an average annual return on invested capital (ROIC) improvement versus 2021 ROIC. Similar to the Company's historical TSR awards granted in prior years, the TSR awards vest based on the Company's three-year TSR versus the peer group performance levels. Given these terms, the TSR metric is considered a market condition for which we useused a Monte Carlo simulation to determine the weighted average grant date fair value. A totalvalue of 1,397,471 RSUs$34.41.
Similar TSR awards were granted
pursuantduring 2021 and 2020 with grant date fair values of $29.07 and $10.00, respectively, which were calculated utilizing a Monte Carlo simulation. The following weighted-average assumptions were utilized to
an Integration Incentive Award program (“Integration Incentive Award”) establishedvalue the grants in
connection with the Cristal Transaction, to certain executive officers2022, 2021 and
managers with significant integration accountability. If the Cristal Transaction does not close by July 1, 2018, then the Integration Incentive Award granted will be cancelled.2020:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Dividend yield | 3.22 | % | | 1.56 | % | | 2.13 | % |
| Expected historical volatility | 68.00 | % | | 71.10 | % | | 58.30 | % |
| Risk free interest rate | 3.06 | % | | 0.17 | % | | 1.42 | % |
| Expected life (in years) | 3 | | 3 | | 3 |
The following table presents a summary of activity for 2017: | Number
of Shares | Weighted Average
Grant Date
Fair Value |
Outstanding, January 1, 2017 | | 5,587,331 | | $ | 7.19 | |
Granted | | 3,089,941 | | | 17.55 | |
Vested | | (2,392,662 | ) | | 9.55 | |
Forfeited | | (806,341 | ) | | 11.83 | |
Outstanding, December 31, 2017 | | 5,478,269 | | $ | 11.33 | |
Expected to vest, December 31, 2017 | | 5,849,495 | | $ | 10.27 | |
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
| Outstanding, January 1, 2022 | 5,114,945 | | | $ | 13.12 | |
| Granted | 2,313,346 | | | 19.47 | |
| Vested | (3,428,058) | | | 12.92 | |
| Forfeited | (209,829) | | | 18.72 | |
| Outstanding, December 31, 2022 | 3,790,404 | | | $ | 17.01 | |
| Expected to vest, December 31, 2022 | 3,005,712 | | | $ | 14.26 | |
The 2019 performance-based RSUs vested above target in 2022 and resulted in 1,115,249 additional RSU shares being granted and vested immediately. At December 31, 2017,2022, there was $33$27 million of unrecognized compensation expense related to nonvested RSUs, adjusted for estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.01.6 years. The weighted-average grant-date fair value of RSUs granted during 2017, 20162022, 2021 and 20152020 was $17.55$19.47 per unit, $4.07$20.91 per unit, and $23.47$8.89 per unit, respectively. The total fair value of RSUs that vested during 2017, 20162022, 2021 and 20152020 was $23$44 million, $10$41 million and $6$30 million, respectively.
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Options
We did not issue any options during 2022, 2021 and 2020 and all our options outstanding are fully vested at December 31, 2022. The following table presents a summary of option activity for 2017:
| Number of
Options | Weighted
Average
Exercise Price | Weighted
Average
Contractual
Life (years) | Intrinsic
Value |
Outstanding, January 1, 2017 | | 1,970,481 | | $ | 21.19 | | | 6.38 | | $ | — | |
Exercised | | (165,974 | ) | | 20.10 | | | | | | | |
Forfeited | | (4,273 | ) | | 21.98 | | | | | | | |
Expired | | (93,101 | ) | | 21.58 | | | | | | | |
Outstanding, December 31, 2017 | | 1,707,133 | | $ | 21.27 | | | 4.29 | | $ | 1 | |
Expected to vest, December 31, 2017 | | 794 | | $ | 22.69 | | | 7.01 | | $ | — | |
Exercisable, December 31, 2017 | | 1,706,339 | | $ | 21.27 | | | 4.29 | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options | | Weighted Average Exercise Price | | Weighted Average Contractual Life (years) | | Intrinsic Value |
| Outstanding, January 1, 2022 | 756,327 | | | $ | 22.13 | | | 1.3 | | $ | 2 | |
| Exercised | (13,881) | | | 19.59 | | | | | |
| Forfeited | (3,842) | | | 20.30 | | | | | |
| Expired | (223,512) | | | 25.95 | | | | | |
| Outstanding and Exercisable, December 31, 2022 | 515,092 | | | $ | 20.55 | | | 0.62 | | $ | — | |
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. TotalDuring 2022 and 2021, there were 13,881 and 424,832 options exercised, respectively, with a total intrinsic value of options exercised during 2017 was $1 million. No options were exercised during 2016 and consequently, there was no related intrinsic value. Total intrinsic value of options exercised during 2015 was less than $1 million.million and $2 million, respectively. We issue new shares upon the exercise of options. During 2017,2022 and 2021, we received $3less than $1 million and $8 million, respectively, in cash for the exercise of stock options. SinceThere were no stock options were exercised during 2016,2020 and consequently there was no cash was received. During 2015, we received $3 in cash for the exercise of stock options.
related intrinsic value. At December 31, 20172022, 2021 and 2016,2020, there was no unrecognized compensation expense related to options, adjusted for estimated forfeitures, was nil and less than $1 million, respectively.
We did not issue any options during 2017 and 2016. During 2015, we granted 2,380 with a weighted average grant date fair value of $7.04.
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.
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 a T-Bucks Trust (the “Trust”) with R124 million (approximately $15 million), which was used to acquire Class A Shares. On May 31, 2017, the shares held by the Trust became fully vested. The Trust sold 546,403 shares in June 2017 on behalf of the participants who elected to receive cash. The remaining participants elected to receive 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 December 31, 2017 and 2016, the LTIP plan liability was nil and less than $1 million, respectively.
TABLE OF CONTENTS
20.21. Pension and Other Postretirement Healthcare Benefits
We sponsor a noncontributory
The following provides information regarding our U.S. and foreign plans:
U.S. Plans
Pensionand Postretirement Healthcare Plans— Tronox has one main U.S. defined benefit retirement plans,plan: the qualified retirement plan inU.S. Qualified Plan. Prior to December 2020, the United States,Company also had the U.S. Pension Plan (which was acquired as part of the Cristal acquisition). In December 2020, the U.S. Pension Plan was frozen and merged into the U.S. Qualified Plan. The U.S. Qualified Plan is a collective defined contribution plan in the Netherlands, and a South Africa postretirement healthcare plan. We previously sponsored a defined benefit retirement plan in the Netherlands until it was settled in 2016 as described below.We sponsored afunded noncontributory definedqualified benefit plan that covered eligible employees of Alkali, which became effective from the acquisition date of Alkali, on April 1, 2015 (the “Alkali Qualified Plan”). Our obligations under the Alkali Qualified Plan transferred with the Alkali Sale and $5 million in actuarial losses and prior service costs previously included in “Accumulated other comprehensive loss” were recognized as a loss within “Income (loss) from discontinued operations, net of tax” on the Statement of Operations for the year ended December 31, 2017.
U.S. Plans
Qualified Retirement Plan — We sponsor a noncontributory qualified defined benefit plan (funded) (the “U.S. Qualified Plan”)is 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 In October 2022, the Company entered into an irrevocable arrangement with an insurance provider to settle certain lower dollar valued accounts within its frozen U.S Qualified Plan — to reduce PBGC premiums. As a result of this arrangement, the Company recorded a non-cash pension settlement charge of approximately $20 million during the fourth quarter of 2022. We sponsored an unfunded U.S.also maintain one postretirement healthcare plan. Effective January 1, 2015, we eliminatedplan - the pre-65U.S. retiree medical programs. Participants who retired priorwelfare plan.
International Plans
Pension Plans — Tronox has international defined benefit commitments primarily in the United Kingdom ("U.K. DB Scheme") and Saudi Arabia. The U.K. DB Scheme is a funded qualified defined benefit plan in the United Kingdom, which is frozen with no additional benefits accruing 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.the participants. Benefits under thisthe U.K. DB Scheme are generally calculated based on years of credit service and final compensation when benefits ceased to accrue as defined under the plan provisions. We also maintain a Saudi Arabia Cristal End of Service Benefit plan which provides end of service benefits to qualifying participants. End of service benefits are based on years of service and the reasons for participants who have not retired by January 1, 2015 were eliminated.Foreign Plans
Thewhich a participant's services to the Company are terminated.
Multiemployer Pension Plan - In prior periods, we maintained a defined benefit plan in 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 andwas replaced it with a multiemployer plan, the Netherlands Contribution Plan (the "CDC Plan") effective January 1, 2015 (the “Netherlands Collective Contribution 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”.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 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 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 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 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.
TABLE OF CONTENTS
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”).2015. Under the CDC plan,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%20.4% of the participants’ pensionable salaries into a pooled fund administered by the industrywideindustry-wide 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 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, theThe 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, 2017.2022. The CDC disclosures provided herein are based on the fund’s 20162021 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, 2016.2021. 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, 2017,2022, 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 | EIN/Pension
Plan
Number | 2017 | 2016 | FIP/RP
Pending/
Implemented | 2017 | 2016 | Surcharge
Imposed | Expiration
date of
Collective-
Bargaining
Agreement |
PGB | NA | N/A | Green | No | 4 | 4 | No | 12/31/2019 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Pension Protection Act Zone Status | | | | Tronox Contributions | | | | |
Pension Fund | | EIN/Pension Plan Number | | 2022 | | 2021 | | FIP/RP Pending/ Implemented | | 2022 | | 2021 | | Surcharge Imposed | | Expiration date of Collective- Bargaining Agreement |
| PGB | | NA | | N/A | | Green | | No | | $ | 5 | | | $ | 5 | | | No | | 12/31/2024 |
On the basis of the information available in the CDC Plan 20162021 annual report, our contribution does not constitute more than 5 percent of the total contribution to the plan by all participants. During 2017,2022, the fund did not impose any surcharge on us.
Postretirement Healthcare Plans — We also maintain postretirement healthcare plans in South Africa Postretirement Healthcare(the "South African Plan") and Brazil (the "Brazil Medical Plan"). The South African Plan — As part of the Exxaro Transaction, we established a post-employment healthcare plan, which provides medical and dental benefits to certain Namakwa SandsSouth African employees, retired employees and their registered dependents (the “South African Plan”).dependents. 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. The Brazil Medical Plan provides post-employment medical benefits to employees who contributed to the medical plan while employed. Retirees receiving a benefit under the plan are required to pay a contribution that varies based on the coverage level elected.
Pension and Postretirement Benefit Costs / Obligations
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 U.S. and international pension plans and postretirement healthcareother post-retirement benefit plans ("OPEB") as of and for the years ended December 31, 20172022 and 2016.2021. The benefit obligations and plan assets associated with our principal benefit plans are measured on December 31.
| Retirement Plans | Postretirement Healthcare
Plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December | Year Ended December | | Pensions | | Other Post Retirement Benefit Plans |
| 2017 | 2016 | 2017 | 2016 | | December 31 | | December 31 |
Change in benefit obligations:
| | | | | | | | | | | | | |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| | | US | International | | US | International | | US | International | | US | International |
| Change in benefit obligations: | | Change in benefit obligations: | | | | | | | |
Benefit obligation, beginning of year | $ | 369 | | $ | 506 | | $ | 8 | | $ | 7 | | Benefit obligation, beginning of year | $ | 369 | | $ | 234 | | | $ | 399 | | $ | 252 | | | $ | 2 | | $ | 16 | | | $ | 2 | | $ | 23 | |
Service cost | | — | | | — | | | — | | | — | | Service cost | — | | 4 | | | — | | 4 | | | — | | 1 | | | — | | 1 | |
Interest cost | | 15 | | | 19 | | | 1 | | | 1 | | Interest cost | 10 | | 4 | | | 10 | | 4 | | | — | | 2 | | | — | | 2 | |
Net actuarial (gains) losses | | 25 | | | 43 | | | (1 | ) | | — | | Net actuarial (gains) losses | (77) | | (61) | | | (10) | | (10) | | | (1) | | (1) | | | — | | (3) | |
| Curtailments | | Curtailments | — | | — | | | — | | — | | | — | | — | | | — | | — | |
| Settlements | | Settlements | (81) | | — | | | — | | — | | | — | | — | | | — | | — | |
Plan amendments | | — | | — | | | — | | — | | | — | | — | | | — | | (4) | |
Foreign currency rate changes | | — | | | (5 | ) | | — | | | — | | Foreign currency rate changes | — | | (17) | | | — | | (2) | | | — | | — | | | — | | (2) | |
Contributions by plan participants | | — | | | — | | | — | | | — | | |
Curtailment | | — | | | — | | | — | | | — | | |
Settlement | | — | | | (155 | ) | | — | | | — | | |
Plan amendments | | — | | | — | | | — | | | — | | |
Benefits paid | | (26 | ) | | (34 | ) | | — | | | — | | Benefits paid | (22) | | (10) | | | (30) | | (14) | | | — | | (1) | | | — | | (1) | |
Administrative expenses | | (6 | ) | | (5 | ) | | — | | | — | | |
Benefit obligation, end of year | | 377 | | | 369 | | | 8 | | | 8 | | 199 | | 154 | | | 369 | | 234 | | | 1 | | 17 | | | 2 | | 16 | |
Change in plan assets: | | | | | | | | | | | | | |
| Change in plan assets: | | Change in plan assets: | |
Fair value of plan assets, beginning of year | | 262 | | | 375 | | | — | | | — | | Fair value of plan assets, beginning of year | 337 | | 183 | | | 344 | | 195 | | | — | | — | | | — | | — | |
Actual return on plan assets | | 33 | | | 41 | | | — | | | — | | Actual return on plan assets | (63) | | (53) | | | 23 | | (3) | | | — | | — | | | — | | — | |
Employer contributions(1) | | 19 | | | 15 | | | — | | | — | | — | | 4 | | | — | | 6 | | | — | | 1 | | | — | | 1 | |
Settlement | | — | | | (126 | ) | | — | | | — | | |
| Benefits paid | | Benefits paid | (22) | | (10) | | | (30) | | (14) | | | — | | (1) | | | — | | (1) | |
Foreign currency rate changes | | — | | | (4 | ) | | — | | | — | | Foreign currency rate changes | — | | (18) | | | — | | (1) | | | — | | — | | | — | | — | |
Benefits paid | | (26 | ) | | (34 | ) | | — | | | — | | |
Administrative expenses | | (6 | ) | | (5 | ) | | — | | | — | | |
| Settlements | | Settlements | (72) | | — | | | — | | — | | | — | | — | | | — | | — | |
Fair value of plan assets, end of year | | 282 | | | 262 | | | — | | | — | | Fair value of plan assets, end of year | 180 | | 106 | | | 337 | | 183 | | | — | | — | | | — | | — | |
Net over (under) funded status of plans | $ | (95 | ) | $ | (107 | ) | $ | (8 | ) | $ | (8 | ) | |
Classification of amounts recognized in the Consolidated Balance Sheets:
| | | | | | | | | | | | | |
| Net underfunded status of plans | | Net underfunded status of plans | $ | (19) | | $ | (48) | | | $ | (32) | | $ | (51) | | | $ | (1) | | $ | (17) | | | $ | (2) | | $ | (16) | |
| Classification of amounts recognized in the Consolidated Balance Sheets: | | Classification of amounts recognized in the Consolidated Balance Sheets: | | | | | | | |
| Other long-term assets | | Other long-term assets | $ | — | | $ | 10 | | | $ | — | | $ | 20 | | | $ | — | | $ | — | | | $ | — | | $ | — | |
Accrued liabilities | $ | — | | $ | — | | $ | — | | $ | — | | Accrued liabilities | — | | (6) | | | — | | (4) | | | — | | — | | | (1) | | — | |
Pension and postretirement healthcare benefits | | (95 | ) | | (107 | ) | $ | (8 | ) | | (8 | ) | Pension and postretirement healthcare benefits | (19) | | (52) | | | (32) | | (67) | | | (1) | | (17) | | | (1) | | (16) | |
Total liabilities | | (95 | ) | | (107 | ) | | (8 | ) | | (8 | ) | Total liabilities | (19) | | (58) | | | (32) | | (71) | | | (1) | | (17) | | | (2) | | (16) | |
Accumulated other comprehensive (income) loss | | 92 | | | 87 | | | (2 | ) | | (2 | ) | Accumulated other comprehensive (income) loss | 55 | | 4 | | | 81 | | 10 | | | — | | 2 | | | — | | 3 | |
Total | $ | (3 | ) | $ | (20 | ) | $ | (10 | ) | $ | (10 | ) | Total | $ | 36 | | $ | (44) | | | $ | 49 | | $ | (41) | | | $ | (1) | | $ | (15) | | | $ | (2) | | $ | (13) | |
________________
(1) Relates to a plan amendment entered into during 2021 related to the Brazil Medical Plan.
(2) Since the benefits under the U.S Qualified Plan and the U.K. DB Scheme are frozen, the projected benefit obligation and accumulated benefit obligation are the same.
Contributions
At a minimum, Tronox contributes to its pension plans to comply with local regulatory requirements (e.g., ERISA in the United States). Discretionary contributions in excess of the local minimum requirements are made based on many factors, including long-term projections of the plans' funded status, the economic environment, potential risk of overfunding, pension insurance costs and alternative uses of the cash. Changes to these factors can impact the timing of discretionary contributions from year to year. Pension contributions for its US and international plans were approximately $6 million in 2022 and are currently expected to be approximately $8 million in 2023.
The following table provides information for pension plans where the accumulated benefit obligation exceeds the fair value of the plan assets:
| (1) | We expect 2018 contributions to be $21 million for the qualified retirement plan. |
At December 31, 2017, our qualified retirement plan was in an underfunded status of $95 million. As a result, we have a projected minimum funding requirement of $11 million for 2017, which will be payable in 2018.
| US Qualified Plan |
| Year Ended December 31, |
| 2017 | 2016 |
Accumulated Benefit Obligation | $ | 377 | | $ | 369 | |
Projected Benefit Obligation | | (377 | ) | | (369 | ) |
Fair value of plan assets | | 282 | | | 262 | |
Funded status-underfunded | $ | (95 | ) | $ | (107 | ) |
| | | | | | | | | | | |
| Pensions |
| 2022 |
| US | | International |
| Projected benefit obligation (PBO) | $ | 199 | | | $ | 58 | |
| Accumulated benefit obligation (ABO) | $ | 199 | | | $ | 39 | |
| Fair value of plan assets | $ | 180 | | | $ | — | |
Expected Benefit Payments — The following table shows the expected cash benefit payments for the next five years and in the aggregate for the years 20232028 through 2027: | 2018 | 2019 | 2020 | 2021 | 2022 | 2023-2027 |
Retirement Plans | $ | 28 | | $ | 28 | | $ | 27 | | $ | 27 | | $ | 27 | | $ | 119 | |
Postretirement Healthcare Plan | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028-2032 |
| Pensions - US | $ | 25 | | | $ | 21 | | | $ | 19 | | | $ | 19 | | | $ | 18 | | | $ | 80 | |
| Pensions - International | $ | 12 | | | $ | 10 | | | $ | 10 | | | $ | 10 | | | $ | 10 | | | $ | 49 | |
| Other Post Retirement Benefit Plans - US | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | |
| Other Post Retirement Benefit Plans - International | $ | — | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 7 | |
Retirement and Postretirement Healthcare Expense — The table below presents the components of net periodic cost associated with the U.S. and foreign plans recognized in the Consolidated Statements of OperationsIncome for 2017, 2016,2022, 2021, and 2015: | Retirement Plans | Postretirement Healthcare Plans |
| Year Ended December 31, | Year Ended December 31, |
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 |
Net periodic cost:
| | | | | | | | | | | | | | | | | | |
Service cost | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
Interest cost | | 15 | | | 19 | | | 19 | | | 1 | | | 1 | | | 1 | |
Expected return on plan assets | | (15 | ) | | (19 | ) | | (22 | ) | | — | | | — | | | — | |
Net amortization of actuarial loss | | 3 | | | 2 | | | 3 | | | — | | | — | | | — | |
Curtailment gains | | — | | | (1 | ) | | — | | | — | | | — | | | — | |
Settlement losses | | — | | | 2 | | | — | | | — | | | — | | | — | |
Total net periodic cost - continuing operations | $ | 3 | | $ | 3 | | $ | — | | $ | 1 | | $ | 1 | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pensions | | Other Postretirement Benefit Plans |
| Year Ended December 31, | | Year Ended December 31, |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Net periodic cost: | | | | | | | | | | | |
| Service cost | $ | 5 | | | $ | 4 | | | $ | 5 | | | $ | — | | | $ | 1 | | | $ | — | |
Interest cost(1) | 14 | | | 14 | | | 17 | | | 2 | | | 2 | | | 1 | |
Expected return on plan assets(1) | (24) | | | (26) | | | (22) | | | — | | | — | | | — | |
Net amortization of actuarial loss(1) | 4 | | | 5 | | | 4 | | | — | | | 1 | | | — | |
Settlement losses (gains)(1) | 20 | | | — | | | — | | | — | | | — | | | — | |
Curtailment (gains)(1) | — | | | — | | | (2) | | | — | | | — | | | — | |
| Total net periodic cost | $ | 19 | | | $ | (3) | | | $ | 2 | | | $ | 2 | | | $ | 4 | | | $ | 1 | |
Pretax amounts that are expected to be reclassified from “Accumulated other comprehensive loss”
________________
(1) Recorded in Other (expense) income, net in the Consolidated
Balance Sheets to retirement expense during 2018 related to unrecognized actuarial losses are $3 million for the U.S. retirement plans and unrecognized settlement gainStatement of
$3 million for the U.S. postretirement healthcare plan.Income.
Assumptions —
The following weighted average assumptions were used to determine net periodic cost: | 2017 | 2016 | 2015 |
| US Qualified
Plan | Netherlands
Plan | US Qualified
Plan | Netherlands
Plan | US Qualified
Plan | Netherlands
Plan |
Discount rate | | 4.25 | % | | — | % | | 4.75 | % | | 2.25 | % | | 3.75 | % | | 2.25 | % |
Expected return on plan assets | | 5.64 | % | | — | % | | 5.64 | % | | 4.25 | % | | 5.95 | % | | 4.75 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | |
| 2022 | | 2021 | | 2020 |
| US | | International | | US | | International | | US | | International |
| Discount rate | 2.97 | % | | 1.91 | % | | 2.60 | % | | 1.47 | % | | 3.39 | % | | 1.98 | % |
| Expected return on plan assets | 6.80 | % | | 2.50 | % | | 6.70 | % | | 2.50 | % | | 6.03 | % | | 2.50 | % |
| | | | | | | | | | | |
| OPEB | | |
| 2022 | 2021 | | 2020 |
| US | | International | | US | | International | | US | | International |
| Discount rate | 2.83 | % | | 10.29 | % | | 2.59 | % | | 10.19 | % | | 3.36 | % | | 8.72 | % |
| Expected return on plan assets | N/A | | N/A | | N/A | | N/A | | N/A | | N/A |
The following weighted average assumptions were used in estimating the actuarial present value of the plans’ benefit obligations: | 2017 | 2016 | 2015 |
| US Qualified
Plan | Netherlands
Plan | US Qualified
Plan | Netherlands
Plan(1) | US Qualified
Plan | Netherlands
Plan |
Discount rate | | 3.71 | % | | — | % | | 4.25 | % | | 1.50 | % | | 4.75 | % | | 2.25 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pensions | | |
| 2022 | | 2021 | | | | 2020 |
| US | | International | | US | | International | | US | | International |
| Discount rate | 5.70 | % | | 4.70 | % | | 2.97 | % | | 1.87 | % | | 2.60 | % | | 1.45 | % |
| Rate of compensation increase | N/A | | 4.72 | % | | N/A | | 4.68 | % | | 3.00 | % | | 4.65 | % |
| | | | | | | | | | | |
| OPEB | | |
| 2022 | | 2021 | | | | 2020 |
| US | | International | | US | | International | | US | | International |
| Discount rate | 5.62 | % | | 11.10 | % | | 2.83 | % | | 10.33 | % | | 2.59 | % | | 9.51 | % |
| Rate of compensation increase | N/A | | N/A | | N/A | | N/A | | N/A | | N/A |
| (1) | This reflects the rate used to calculate the final Netherlands Plan benefit obligation immediately before the Settlement Date. |
During 2014,For the U.S. Qualified Plan, at both December 31, 2022 and December 31, 2021, the mortality assumption was determined using the Society of Actuaries issued an updated mortalityActuaries' the generational projection scale (i.e. MP-2021) and base 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 2017, the mortality improvement scale that had been used in the 2016 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 $3 million to our projected benefit obligation as compared to December 31, 2016.
(i.e. Pri-2012). TABLE OF CONTENTS
The following weighted-average assumptions were used in determining the actuarial present value of the South African Plan:
| 2017 | 2016 | 2015 |
Discount rate | | 11.54 | % | | 10.87 | % | | 10.94 | % |
Expected Return on Plan Assets — In forming the assumption of the U.S. and international long-term rate of return on plan assets, we considered 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 the U.S. Qualified PlanCompany's pension 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 rates selected for estimation of the actuarial present value of the benefit obligations of the U.S. Qualified Plan were 3.71%2022 and 4.25% at December 31, 2017 and 2016, respectively. The 2017 and 20162021 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,BVAL scores of 6 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 obligations of the Netherlands Plan was 1.50% as of the Settlement Date. This rate was based on the long-term Euro corporate bond index rates that correlate with anticipated cash flows associated with future benefit payments.
greater.
Plan Assets — Asset categoriesThe investments of the U.S. and associatedInternational pension plans are managed to meet the future expected benefit liabilities of the plan over the long term by investing in diversified portfolios consistent with prudent diversification and historical and expected capital market returns. Tronox's U.S. and international pension plans’ weighted-average asset allocations for our funded retirement plans at December 31, 20172022 and 2016: | December 31, |
| 2017 | 2016 |
| Actual | Target | Actual | Target |
Qualified Plan:
| | | | | | | | | | | | |
Equity securities | | 50 | % | | 50 | % | | 36 | % | | 38 | % |
Debt securities | | 48 | | | 48 | | | 61 | | | 62 | |
Cash and cash equivalents | | 2 | | | 2 | | | 3 | | | — | |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
The U.S. Qualified Plan is administered by a board-appointed committee that has fiduciary responsibility for2021, and 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’starget asset allocation guidelinesranges, by major asset category, are reviewed in light of evolving risk and return expectations.
Substantially all of the plan’s assets are invested with nine mutual fund managers, eight separately managed equity accounts, one fixed-income fund manager 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 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
as follows:
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| US | | International | | US | | International |
| Actual | | Target | | Actual | | Target | | Actual | | Target | | Actual | | Target |
| | | | | | | | | | | | | | | |
| Equity securities | 49 | % | | 46 | % | | — | % | | — | % | | 49 | % | | 49 | % | | — | % | | — | % |
| Debt securities | 46 | | | 46 | | | 37 | | | 37 | | | 46 | | | 48 | | | 43 | | | 43 | |
| Real estate | 1 | | | — | | | — | | | — | | | 1 | | | — | | | — | | | — | |
| Other | 4 | | | 8 | | | 63 | | | 63 | | | 4 | | | 3 | | | 57 | | | 57 | |
| Total | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
The fair values of pension investments as of December 31, 20172022 are summarized below: | U.S. Qualified Plan |
| Fair Value Measurement at December 31, 2017, Using: |
| Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) | Significant
Other
Observable
Inputs
(Level 2) | Significant
Unobservable
Inputs
(Level 3) | Total |
Asset category:
| | | | | | | | | | | | |
Commingled Equity Funds | $ | 94(1 | ) | $ | — | | $ | — | | $ | 94 | |
Equity Securities | | 47(2 | ) | | — | | | — | | | 47 | |
Debt securities:
| | | | | | | | | | | | |
Corporate | | — | | | 66(3 | ) | | — | | | 66 | |
Government | | 68(4 | ) | | — | | | — | | | 68 | |
Cash & cash equivalents:
| | | | | | | | | | | | |
Commingled cash equivalents fund | | 7(5 | ) | | — | | | — | | | 7 | |
Total at fair value | $ | 216 | | $ | 66 | | $ | — | | $ | 282 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | Fair Value Measurement at December 31, 2022 Using: |
| | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | | | Significant Other
Observable Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | | | | Total |
| Asset category: | | | | | | | | | | | | | | |
| Equities securities: | | | | | | | | | | | | | | |
| Global equity securities | | | $ | 53 | | | | (1) | $ | — | | | | $ | — | | | | | $ | 53 | |
| Global commingled equity funds | | | 35 | | | | (2) | — | | | | — | | | | | 35 | |
| Debt securities: | | | | | | | | | | | | | | |
| US government bonds | | | 48 | | | | (3) | — | | | | — | | | | | 48 | |
| Foreign government bonds | | | 19 | | | | (3) | — | | | | — | | | | | 19 | |
| US corporate bonds | | | — | | | | | 34 | | | (4) | — | | | | | 34 | |
| Foreign corporate bonds | | | — | | | | | 22 | | | (4) | — | | | | | 22 | |
| Real Estate: | | | | | | | | | | | | | | |
| Property/ real estate fund | | | — | | | | | 1 | | | (5) | — | | | | | 1 | |
| Other: | | | | | | | | | | | | | | |
| Insurance contracts | | | — | | | | | — | | | | 63 | | | (7) | | 63 | |
| Cash & cash equivalents | | | 11 | | | | (6) | — | | | | — | | | | | 11 | |
| Total at fair value | | | $ | 166 | | | | | $ | 57 | | | | $ | 63 | | | | | $ | 286 | |
________________
(1)For global equity securities, this category is comprised of shares of common stock in both U.S. and international companies from a diverse set of industries and size. Common stock is valuated at the closing market price reported on a U.S. or international exchange where the security is actively traded. Equity securities are classified within level 1 of the fair value hierarchy.
(2)Global commingled equity funds are comprised of managed funds that invest in common stock of both U.S. and international companies shares from a diverse set of industries and size. Common stock are valued at the closing market price reported on a U.S. or international exchange where the security is actively traded. These funds are classified within level 1 of the fair value hierarchy.
(3)For US and foreign government bonds, this category includes U.S. treasuries, U.S. federal agency obligations and international government debt. The fair value of these investments are based on observable quoted prices on active exchanges, which are level 1 inputs.
(4)For US corporate bonds and foreign corporate bonds, this category is comprised of corporate bonds of U.S. and foreign companies from a diverse set of industries and size. The fair values for the U.S. and foreign corporate bonds are determined using quoted prices of similar securities in active markets and observable data or broker or dealer quotations. The fair values for these investments are classified as level 2 within the valuation hierarchy.
(5)For property / real estate funds, this category includes real estate properties, partnership equities and investments in operating companies. The fair value of the assets is determined using discounted cash flows by estimating an income stream for the property plus a reversion into a present value at a risk adjusted rate. Yield rates and growth assumptions utilized are derived from market transactions as well as other financial and industry data. The fair value of these investments are classified as level 2 in the valuation hierarchy.
(6)Cash and cash equivalents include cash and short-interest bearing investments with maturities of three months or less. Investments are valued at cost plus accrued interest. Cash and cash equivalents are classified within level 1 of the valuation hierarchy.
(7)For insurance contracts, the fair value is estimated as the cost of purchasing equivalent annuities on terms consistent with those currently available in the market. The contracts are with highly rated insurance companies and are classified within level 3 of the valuation hierarchy. The following table summarizes changes in fair value of the pension plan assets classified as level 3 for the year ended December 31, 2022:
| (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 equity securities, fair value is basedInsurance Contracts |
| Balance, December 31, 2021 | | $ | 98 | |
Actual return on observable quoted prices on active exchanges, which are level 1 inputs.plan assets | | (20) | |
| Purchases, sales, settlements | | (5) | |
| Transfers in/out of Level 3 | | — | |
| Foreign currency translation | | (10) | |
| Balance, December 31, 2022 | | $ | 63 | |
| (3) | For corporate related debt securities, the fair value is based on observable inputs of comparable market transactions, which are level 2 inputs. |
| (4) | For government related debt securities, the fair value is based on observable quoted prices on active exchanges, which are level 1 inputs. |
| (5) | For commingled cash equivalents funds, fair value is based on observable quoted prices on active exchanges, which are level 1 inputs. |
The fair values of pension investments as of December 31, 20162021 are summarized below:
| 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 |
Asset category:
| | | | | | | | | | | | |
Commingled Equity Funds | $ | 95(1 | ) | $ | — | | $ | — | | $ | 95 | |
Debt securities:
| | | | | | | | | | | | |
Corporate | | — | | | 78(2 | ) | | — | | | 78 | |
Government | | 81(3 | ) | | — | | | — | | | 81 | |
Cash & cash equivalents:
| | | | | | | | | | | | |
Commingled cash equivalents fund | | 8(4 | ) | | — | | | — | | | 8 | |
Total at fair value | $ | 184 | | $ | 78 | | $ | — | | $ | 262 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2021, Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| Asset category: | | | | | | | |
| Equities securities: | | | | | | | |
| Global equity securities | $ | 93 | | (1) | $ | — | | | $ | — | | | $ | 93 | |
| Global commingled equity funds | 73 | | (2) | — | | | — | | | 73 | |
| Debt securities: | | | | | | | |
| US government bonds | 81 | | (3) | — | | | — | | | 81 | |
| Foreign government bonds | 39 | | (3) | — | | | — | | | 39 | |
| US corporate bonds | — | | | 73 | | (4) | — | | | 73 | |
| Foreign corporate bonds | — | | | 42 | | (4) | — | | | 42 | |
| Real Estate: | | | | | | | |
| Property/ real estate fund | — | | | 1 | | (5) | — | | | 1 | |
| Other: | | | | | | | |
| Insurance contracts | — | | | — | | | 98 | | (7) | 98 | |
| Cash & cash equivalents | 19 | | (6) | — | | | — | | | 19 | |
| Total at fair value | $ | 305 | | | $ | 116 | | | $ | 98 | | | $ | 519 | |
________________
(1)For global equity securities, this category is comprised of shares of common stock in both U.S. and international companies from a diverse set of industries and size. Common stock is valuated at the closing market price reported on a U.S. or international exchange where the security is actively traded. Equity securities are classified within level 1 of the fair value hierarchy.
(2)Global commingled equity funds are comprised of managed funds that invest in common stock of both U.S. and international companies shares from a diverse set of industries and size. Common stock are valued at the closing market price reported on a U.S. or international exchange where the security is actively traded. These funds are classified within level 1 of the fair value hierarchy.
(3)For US and foreign government bonds, this category includes U.S. treasuries, U.S. federal agency obligations and international government debt. The fair value of these investments are based on observable quoted prices on active exchanges, which are level 1 inputs.
(4)For US corporate bonds and foreign corporate bonds, this category is comprised of corporate bonds of U.S. and foreign companies from a diverse set of industries and size. The fair values for the U.S. and foreign corporate bonds are determined using quoted prices of similar securities in active markets and observable data or broker or dealer quotations. The fair values for these investments are classified as level 2 within the valuation hierarchy.
(5)For property / real estate funds, this category includes real estate properties, partnership equities and investments in operating companies. The fair value of the assets is determined using discounted cash flows by estimating an income stream for the property plus a reversion into a present value at a risk adjusted
| (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. |
rate. Yield rates and growth assumptions utilized are derived from market transactions as well as other financial and industry data. The fair value of these investments are classified as level 2 in the valuation hierarchy.
(6)Cash and cash equivalents include cash and short-interest bearing investments with maturities of three months or less. Investments are valued at cost plus accrued interest. Cash and cash equivalents are classified within level 1 of the valuation hierarchy.
(7)For insurance contracts, the fair value is estimated as the cost of purchasing equivalent annuities on terms consistent with those currently available in the market. The contracts are with highly rated insurance companies and are classified within level 3 of the valuation hierarchy. The following table summarizes changes in fair value of the pension plan assets classified as level 3 for the year ended December 31, 2021:
| | | | | | | | |
| | Insurance Contracts |
| Balance, December 31, 2020 | | $ | 111 | |
| Actual return on plan assets | | (6) | |
| Purchases, sales, settlements | | (6) | |
| Transfers in/out of Level 3 | | — | |
| Foreign currency translation | | (1) | |
| Balance, December 31, 2021 | | $ | 98 | |
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
sectionSection 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 is 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 approvedA discretionary contribution of 6%
of paywas made for
2017, 20162022, 2021 and
2015.2020. 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
$4$5 million,
$3$5 million and $4 million during
2017, 20162022, 2021 and
2015,2020, respectively, which was included in “Selling, general and administrative expenses” in the Consolidated Statements of
Operations.Income. Compensation expense associated with our discretionary contribution was $5 million in
20172022, $5 million in 2021 and $4 million
each in
2016 and 2015,2020, which was included in “Selling, general and administrative expenses” in the Consolidated Statements of
Operations.Income.
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$1 million and $1 million during
2017, 20162022, 2021 and
20152020, respectively, which was included in “Selling, general and administrative expenses” in the Consolidated Statements of
Operations.21. Related Party Transactions
Exxaro
We had service level agreementsIncome.
South Africa Defined Contribution Plans
Tronox Mineral Sands Proprietary Limited, a wholly owned subsidiary of the Company, participates in several defined contribution plans which are registered in the Republic of South Africa and are governed by the South African Pension Funds Act of 1956. These plans provide retirement and other benefits to all permanent employees, and where applicable, retired employees and their dependents. The Company contributes a range of 10% to 15% (depending on the plan) of the employees' predefined pre-tax pensionable earnings. Compensation expense associated with Exxaro for researchthese plans was $7 million, $5 million, and development that expired during the third quarter of 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 each during 2017 and 2016 and $2$4 million during 20152022, 2021 and 2020, respectively, which was included in “Sellingboth "Costs of goods sold" and "Selling, general and administrative expense”expenses" in the Consolidated Statements of Operations. Additionally,Income.
22. Related Party Transactions
Tasnee / Cristal
At December 31, 2022 Cristal International Holdings B.V. (formerly known as Cristal Inorganic Chemical Netherlands Cooperatief W.A.), a wholly-owned subsidiary of Tasnee, continues to own 37,580,000 shares of Tronox, or a 24% ownership interest.
On May 9, 2018, we hadentered into an Option Agreement with AMIC which is owned equally by Tasnee and Cristal. Under the terms of the Option Agreement, AMIC granted us an option (the “Option”) to acquire 90% of a professional service agreementspecial purpose vehicle (the “SPV”), to which AMIC’s ownership in a titanium slag smelter facility (the “Slagger”) in The Jazan City for Primary and Downstream Industries in KSA will be contributed together with Exxaro$322 million of AMIC indebtedness (the "AMIC Debt"). The AMIC Debt would remain outstanding debt of the SPV upon exercise of the Option. The Option may be exercised if the Slagger achieves certain production criteria related to sustained quality and tonnage of slag produced (the “Option Criteria”). Likewise, AMIC may require us to acquire the Fairbreeze construction project, which ended in January 2017. We made paymentsSlagger on the same terms if the Option Criteria are satisfied. Furthermore, pursuant to Exxarothe Option Agreement and during its term, we agreed to lend AMIC and, upon the creation of less than $1the SPV, the SPV, up to $125 million during 2017, $2 million during 2016for capital expenditures and $3 million during 2015, which were capitalized in “Property, plant and equipment, net” in our Consolidated Balance Sheets.operational expenses intended to facilitate the start-up of the Slagger (the “Tronox Loans”). At both December 31, 20172022 and 2016,2021, we have lent AMIC the Tronox Loans maximum amount of $125 million, which, together with the related accrued interest of $13 million and $9 million, respectively, is recorded within "Other long-term assets" on the Consolidated Balance Sheet. The Option did not have a significant impact on the financial statements as of or for the periods ended December 31, 2022 and 2021. For the years ended December 31, 2022 and 2021, Tronox recorded $60 million and nil , respectively, for purchases of feedstock material produced by the Slagger. Such sales are recorded in "Cost of goods sold" on the Consolidated Statement of Income. At December 31, 2022 and 2021, amounts due related to Slagger feedstock purchases were $14 million and nil, respectively, which are recorded within “Accrued liabilities” on the Consolidated Balance Sheet.
On May 13, 2020, we amended the Option Agreement (the "First Amendment") with AMIC to address circumstances in which the Option Criteria cannot be satisfied. Pursuant to the First Amendment, Tronox has the right to acquire the SPV in exchange for (i) our forgiveness of the Tronox Loans principal and accrued interest thereon, and (ii) the SPV's assumption of $36 million of indebtedness plus accrued interest thereon lent by AMIC to the SPV. Under the First Amendment, the SPV would not assume any of the AMIC Debt.
Additionally, on May 13, 2020, we amended a Technical Services Agreement that we had less thanentered with AMIC on March 15, 2018, to add project management support services. Under this arrangement, AMIC and its consultants are still responsible for engineering and construction of the Slagger while we provide technical advice and project management services including supervision and management of third party consultants intended to satisfy the Option Criteria. As compensation for these services, Tronox receives a management fee, which is subject to certain success incentives if and when the Slagger achieves the Option Criteria. For both of the years ended December 31, 2022 and 2021, Tronox recorded management fees of $8 million, in “Other (expense) income, net” within the Consolidated Statement of Income. For the years ended December 31, 2022 and 2021, Tronox recorded other technical support fees received under the Technical Services Agreement of $2 million and nil , respectively, in "Selling, general and administrative expenses" on the Consolidated Statement of Income. At December 31, 2022 and 2021, Tronox had a receivable due from AMIC related to management fee and technical support fees of $2 million and $1 million, respectively, that is recorded within “Prepaid and other assets” on the Consolidated Balance Sheet.
At December 31, 2022, Tronox had a receivable due from Tasnee of $2 million related party payables,primarily to pre-acquisition period tax matters in process with certain tax authorities which wereare reimbursable from Tasnee. At December 31, 2021, Tronox had a receivable due from Tasnee of $8 million related primarily to $4 million of stamp duty taxes reimbursable from Tasnee and $3 million for pre-acquisition period tax matters. These receivables are recorded within “Prepaid and other assets” on the Consolidated Balance Sheet.
On December 29, 2019, we entered into an agreement with Cristal to acquire certain assets co-located at our Yanbu facility which produce metal grade TiCl4 ("MGT"). Consideration for the acquisition was the assumption by Tronox of a $36 million note payable to Cristal (the "MGT Loan"). MGT is used at a titanium "sponge" plant facility, 65% of the ownership interests of which are held by Advanced Metal Industries Cluster and Toho Titanium Metal Co. Ltd ("ATTM"), a joint venture between AMIC and Toho Titanium Company Ltd. ATTM uses the TiCl4, which we supply by pipeline, for the production of titanium sponge, a precursor material used in the production of titanium metal.
On December 17, 2020 we completed the MGT transaction. Repayment of the $36 million note payable is based on a fixed U.S. dollar per metric ton quantity of MGT delivered by us to ATTM over time and therefore the ultimate maturity date is variable in nature. If ATTM fails to purchase MGT from us under certain contractually agreed upon conditions, then at our election we may terminate the MGT supply agreement with ATTM and will no longer owe any amount under the loan agreement with Cristal. We currently estimate the ultimate maturity to be between approximately five and six years, subject to actual future MGT production levels. The interest rate on the note payable is based on the SAIBOR plus a premium. At December 31, 2022 and 2021 the outstanding balance of the note payable was $30 million and $33 million, respectively, of which $7 million and $7 million, respectively, was expected to be paid within the next twelve months. The note payable is recorded within "Long-term debt, net" and "Long-term debt due within one year" on the Consolidated Balance Sheet. For both years ended December 31, 2022 and 2021, Tronox recorded interest expense of $1 million related to the MGT Loan, which is recorded in “Accounts payable” in our"Interest expense" on the Consolidated Balance Sheets.22. Segment Information
Segment performance is evaluated based on segment operating income (loss), which representsStatement of Income.
During the results of segment operations before unallocated costs, such as general corporate expenses not identified to a specific segment, interest expense, other income (expense), netyears ended December 31, 2022 and income tax expense or benefit.2021, Tronox recorded $3 million and
Net$4 million, respectively, for MGT Loan repayments to Cristal that is recorded within "Net sales" on the Consolidated Statement of Income.
As a result of these transactions we have entered into related to the MGT assets, Tronox recorded $4 million and $8 million for purchase of chlorine gas for the years ended December 31, 2022 and 2021, respectively, from ATTM and such amounts are recorded in "Cost of goods sold" on the Consolidated Statement of Income. The amount due to ATTM as of December 31, 2022 and 2021, for the purchase of chlorine gas was $1 million and $1 million, respectively, and is recorded within “Accrued liabilities” on the Consolidated Balance Sheet.
During the years ended December 31, 2022 and 2021, Tronox recorded $29 million and $31 million, respectively, for MGT sales made to AMIC. The MGT sales are recorded in “Net sales” on the Consolidated Statement of Income. At December 31, 2022 and income (loss)December 31, 2021, Tronox had a receivable from operations wereAMIC of $6 million and $6 million, respectively, from MGT sales that is recorded within “Prepaid and other assets” on the Consolidated Balance Sheet.
23. Segment Information
We operate our business under one operating segment, Tronox, which is also our reportable segment. The Company's chief operating decision maker, who are its Co-CEOs, reviews financial information presented at the consolidated level for purposes of allocating resources and evaluating financial performance. Since we operate our business under one segment, there is no difference between our consolidated results and segment results.
We disaggregate revenue from contracts with customers by product type and geographic area as
follows: | Year Ended December 31, |
| 2017 | 2016 | 2015 |
Net sales (TiO2) | $ | 1,698 | | $ | 1,309 | | $ | 1,510 | |
TiO2 segment | $ | 261 | | $ | 6 | | $ | (127 | ) |
Corporate | | (123 | ) | | (62 | ) | | (74 | ) |
Income (loss) from operations | | 138 | | | (56 | ) | | (201 | ) |
Interest and debt expense, net | | (188 | ) | | (185 | ) | | (176 | ) |
Gain (loss) on extinguishment of debt | | (28 | ) | | 4 | | | — | |
Other income (expense), net | | (9 | ) | | (27 | ) | | 28 | |
Income (loss) from continuing operations before income taxes | $ | (87 | ) | $ | (264 | ) | $ | (349 | ) |
During 2022, 2021 and 2020 our ten largest third-party customers represented 30%, 28%, and 32%, respectively, of our consolidated net sales. During 2022, 2021, and 2020, no single customer accounted for 10 % of our consolidated net sales.
Net sales to external customers by geographic region, based on country of production, were as follows: | Year Ended December 31, |
| 2017 | 2016 | 2015 |
U.S. operations | $ | 663 | | $ | 570 | | $ | 621 | |
International operations:
| | | | | | | | | |
Australia | | 452 | | | 352 | | | 380 | |
South Africa | | 350 | | | 200 | | | 313 | |
The Netherlands | | 233 | | | 187 | | | 196 | |
Total net sales | $ | 1,698 | | $ | 1,309 | | $ | 1,510 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| U.S. operations | $ | 733 | | | $ | 716 | | | $ | 653 | |
| International operations: | | | | | |
| United Kingdom | 331 | | | 396 | | | 301 | |
| Australia | 822 | | | 873 | | | 637 | |
| South Africa | 484 | | | 441 | | | 330 | |
| Saudi Arabia | 419 | | | 420 | | | 269 | |
| Other - international | 665 | | | 726 | | | 568 | |
| Total net sales | $ | 3,454 | | | $ | 3,572 | | | $ | 2,758 | |
Net sales from external customersSee Note 3 for each similar product were as follows:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
Pigment | $ | 1,211 | | $ | 966 | | $ | 976 | |
Titanium feedstock and co-products | | 434 | | | 286 | | | 426 | |
Electrolytic | | 53 | | | 57 | | | 108 | |
Total net sales | $ | 1,698 | | $ | 1,309 | | $ | 1,510 | |
During 2017, 2016
There is no difference between the total consolidated assets and 2015 our ten largest third-party TiO2 customers represented 35%, 36% and 40%, respectively, of our consolidated net sales. During 2017, no single customer accounted for 10% of our consolidated net sales. During both 2016 and 2015, one pigment customer accounted for 10% of our consolidated net sales.Depreciation, amortization and depletion were as follows:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
TiO2 segment | $ | 177 | | $ | 171 | | $ | 247 | |
Corporate | | 5 | | | 6 | | | 6 | |
Total depreciation, amortization and depletion | $ | 182 | | $ | 177 | | $ | 253 | |
Capital expenditures were as follows:
| Year Ended December 31, |
| 2017 | 2016 | 2015 |
TiO2 segment | $ | 89 | | $ | 84 | | $ | 164 | |
Corporate | | 2 | | | 2 | | | 1 | |
Total capital expenditures | $ | 91 | | $ | 86 | | $ | 165 | |
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Total assets of continuing operations were as follows:
| December 31, |
| 2017 | 2016 |
TiO2 segment | $ | 3,058 | | $ | 2,991 | |
Corporate | | 1,806 | | | 302 | |
Total | $ | 4,864 | | $ | 3,293 | |
segment assets. Property, plant and equipment, net, and mineral leaseholds, net, and lease right of use assets, net by geographic region, were as follows:
| December 31, |
| 2017 | 2016 |
U.S. operations | $ | 193 | | $ | 194 | |
International operations:
| | | | | | |
South Africa | | 919 | | | 844 | |
Australia | | 849 | | | 896 | |
The Netherlands | | 39 | | | 35 | |
Total | $ | 2,000 | | $ | 1,969 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| U.S. operations | $ | 308 | | | $ | 251 | |
| International operations: | | | |
| United Kingdom | 93 | | | 97 | |
| Saudi Arabia | 226 | | | 241 | |
| South Africa | 705 | | | 705 | |
| Australia | 1,093 | | | 1,000 | |
| Other - international | 242 | | | 248 | |
| Total | $ | 2,667 | | | $ | 2,542 | |
23. Quarterly Results of Operations (Unaudited)
The following represents our unaudited quarterly results for the years ended December 31, 2017 and 2016. 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 2017:
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter |
Net sales | $ | 378 | | $ | 421 | | $ | 435 | | $ | 464 | |
Cost of goods sold | | 315 | | | 327 | | | 329 | | | 339 | |
Gross profit | | 63 | | | 94 | | | 106 | | | 125 | |
Net income (loss) from continuing operations | | (53 | ) | | (17 | ) | | (25 | ) | | 2 | |
Net income (loss) from discontinued operations, net of tax | | 15 | | | 22 | | | (216 | )(1) | | — | |
Net income (loss)(2) | | (38 | ) | | 5 | | | (241 | ) | | 2 | |
Net income (loss) attributable to noncontrolling interest | | 3 | | | 2 | | | 6 | | | 2 | |
Net income (loss) attributable to Tronox Limited(2) | $ | (41 | ) | $ | 3 | | $ | (247 | ) | $ | — | |
Income (loss) from continuing operations per share, basic and diluted | $ | (0.48 | ) | $ | (0.16 | ) | $ | (0.26 | ) | $ | — | |
Income (loss) from discontinued operations per share, basic and diluted | $ | 0.13 | | $ | 0.18 | | $ | (1.81 | ) | $ | — | |
| (1) | Includes a loss of $233 million on the Alkali Sale. |
| (2) | During the fourth quarter of 2017, we recorded out-of-period adjustments that should have been recorded previously that decreased net income (loss) from continuing operations by $2 million and decreased income from continuing operations per share by $0.01. 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 interim and annual consolidated financial statements and is not material to our 2017 consolidated financial statements. |
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Unaudited quarterly results for 2016:
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter |
Net sales | $ | 285 | | $ | 333 | | $ | 339 | | $ | 352 | |
Cost of goods sold | | 291 | | | 295 | | | 291 | | | 298 | |
Gross profit (loss) | | (6 | ) | | 38 | | | 48 | | | 54 | |
Net income (loss) from continuing operations | | (114 | ) | | (62 | ) | | (62 | ) | | 99 | |
Net income (loss) from discontinued operations, net of tax | | 20 | | | 12 | | | 23 | | | 24 | |
Net income (loss) | | (94 | ) | | (50 | ) | | (39 | ) | | 123 | |
Net income (loss) attributable to noncontrolling interest | | (1 | ) | | 2 | | | (2 | ) | | 2 | |
Net income (loss) attributable to Tronox Limited | $ | (93 | ) | $ | (52 | ) | $ | (37 | ) | $ | 121 | |
Income (loss) from continuing operations per share, basic | $ | (0.97 | ) | $ | (0.55 | ) | $ | (0.53 | ) | $ | 0.84 | |
Income (loss) from continuing operations per share, diluted | $ | (0.97 | ) | $ | (0.55 | ) | $ | (0.53 | ) | $ | 0.81 | |
Income (loss) from discontinued operations per share, basic | $ | 0.17 | | $ | 0.11 | | $ | 0.20 | | $ | 0.21 | |
Income (loss) from discontinued operations per share, diluted | $ | 0.17 | | $ | 0.11 | | $ | 0.20 | | $ | 0.20 | |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. Controls and ProceduresNone.
| Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As
Under the supervision of
December 31, 2017, our management,and with the participation of
Tronox's management, including our
Chief Executive Officer (“CEO”)Co-CEOs and
Chief Financial Officer (“CFO”), has conducted an evaluationCFO, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures.procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) (the "Exchange Act"), as of December 31, 2022, the end of the period covered by this report. Based on that evaluation, our
CEOco-CEOs and CFO
have concluded that
ourthe Company's disclosure controls and procedures were effective as of
December 31, 2017.that date. Tronox's disclosure controls and procedures are designed to ensure that information required to be disclosed by Tronox in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to Tronox's management, including Tronox's co-CEOs and CFO, or other person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal
ControlsControl Over Financial Reporting
Management of Tronox
LimitedHoldings plc and its subsidiaries is responsible for establishing and maintaining adequate internal
controlscontrol over financial reporting. Internal controls over financial reporting is a process designed under the supervision of our
interim principal
executiveco-executive officers and principal financial
officersofficer 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, 2017.2022. 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, 20172022 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,
20172022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears
herein.in Item 8 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
There
We are currently undergoing a multi-year IT-enabled transformation program that includes increased automation of both operational and financial systems, including the global enterprise risk management program, during third quarter of 2022, we implemented upgrades to our financial systems and platforms in certain regions. The full implementation is expected to occur in phases over a number of years. As the phased implementation of this system occurs, we expect certain changes to our processes and procedures which, in turn, will result in changes to our internal control over financial reporting.
While we expect this transformation program to strengthen our internal financial controls, management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve.
Other than as discussed above, there have been no changes to our internal control over financial reporting during the quarter ended December 31, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information about our executive officers as of February 22, 2023:
| Item 9B. | Other Information | | | |
| NAME | POSITION |
| John D. Romano | Co-Chief Executive Officer |
| Jean-Francois Turgeon | Co-Chief Executive Officer |
| Timothy Carlson | Senior Vice President, Chief Financial Officer |
| Jeff Engle | Senior Vice President, Commercial and Strategy |
| Russell Austin | Senior Vice President, Operations |
| Jeffrey Neuman | Senior Vice President, General Counsel and Secretary |
| D. John Srivisal | Senior Vice President, Business Development and Finance |
| Melissa Zona | Senior Vice President, Chief Sustainability and Human Resources Officer |
| Jennifer Guenther | Vice President, Head of Investor Relations |
| Jonathan P. Flood | Vice President, Controller and Principal Accounting Officer |
Not Applicable.
PART III
Information about members of our Board of Directors as of February 22, 2023:
| Item 10. | Directors, | | | |
| NAME | CURRENT OCCUPATION |
| Ilan Kaufthal | Chairman of the Board, Tronox Holdings plc;
Eastwind Advisors |
| Mutlaq Al-Morished | CEO, TASNEE |
| Vanessa Guthrie | Former Managing Director and Chief Executive OfficersOfficer, Toro Energy Limited |
| Peter B. Johnston | Former Interim CEO, Tronox Limited; Former Global Head of Nickel Assets, Glencore |
| Ginger M. Jones | Former Senior Vice President and Corporate GovernanceCFO, Cooper Tire & Rubber Company |
| Stephen Jones | Former President and CEO, Covanta Holding Corporation |
| Moazzam Khan | Managing Director, Cristal International Holdings BV |
| Sipho Nkosi | Former CEO, Exxaro Resources Limited |
| John Romano | Co-Chief Executive Officer, Tronox |
| Jean-Francois Turgeon | Co-Chief Executive Officer, Tronox |
InformationOther information regarding our executive officers, members of the Board of Directors, including its audit committee and audit committee financial experts, as well as information regarding our Code of Ethics and Business Conduct
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and Ethics that applies to our Chiefco-Chief Executive OfficerOfficers and senior financial officers, will be presented in Tronox Limited’sHolding plc’s definitive proxy statement for its 20182023 annual general meeting of shareholders, which will be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, under the headings "Proposal 1 - Election of Directors" and "Code of Ethics and Business Conduct" and is incorporated herein by reference.
The information required to be furnished pursuant to this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in Tronox Limited’s definitive proxy statement for its 2018 annual general meeting of shareholders, and is incorporated herein by reference.
| Item 11. | Executive Compensation |
Item 11. Executive Compensation
Information regarding executive officer and director compensation will be presented in Tronox
Limited’sHoldings plc's definitive proxy statement for its
20182023 annual general meeting of shareholders, filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K,
under the headings "Human Resources and Compensation Committee Interlocks and Insider Participation", "2022 Non-Employee Director Compensation" and "Compensation Discussion and Analysis" and is incorporated herein by
reference. | Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
reference, except as to information required pursuant to Item 402(v) of Regulation S-K relating to pay versus performance.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Information regarding security ownership of certain beneficial owners and management and related shareholder matters will be presented in Tronox Limited’sHoldings plc's definitive proxy statement for its 20172023 annual general meeting of shareholders, filed not
later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, under the heading "Security Ownership of Certain Beneficial Owners" and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2022 regarding securities issued under the Tronox Holdings plc Amended and Restated Management Equity Incentive Plan (the “Tronox Holdings plc MEIP”). | | | | | | | | | | | | | | | | | |
| Number of securities to be issued upon exercise of outstanding restricted share units and options | | Weighted-average exercise price of outstanding options(1) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the second column)(2) |
| Equity compensation plans approved by security holders | 4,305,496 | | | $ | 20.55 | | | 6,257,303 | |
| Equity compensation plans not approved by security holders | — | | | — | | | — | |
| Total | 4,305,496 | | | $ | 20.55 | | | 6,257,303 | |
_____________________
(1) Because there is no exercise price for restricted share units, such awards are not included in the weighted-average exercise price.
(2) Each restricted share unit awarded under the Tronox Holdings plc MEIP was granted at no cost to the persons receiving them and represents the contingent right to receive the equivalent number of ordinary shares.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions and director independence will be presented in Tronox Holdings plc's definitive proxy statement for its 2023 annual general meeting of shareholders, filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K,
under the heading "Certain Relationships and Related Transactions" and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2017 regarding securities issued under the Tronox Limited Management Equity Incentive Plan (the “Tronox Limited MEIP”).
| Number of securities
to be issued upon
exercise of
outstanding restricted
shares, restricted share
units and options(2) | Weighted-average
exercise price of
outstanding
restricted shares,
restricted
share units and options | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
the second column)(1) |
Equity compensation plans approved by security holders | | 7,361,874 | | $ | 13.48 | | | 8,531,623 | |
Equity compensation plans not approved by security holders | | — | | | — | | | — | |
Total | | 7,361,874 | | $ | 13.48 | | | 8,531,623 | |
Item 14. Principal Accounting Fees and Services.
| (1) | Each restricted share unit awarded under the Tronox Limited MEIP was granted at no cost to the persons receiving them and represents the contingent right to receive the equivalent number of Class A Shares. |
| (2) | Excludes Warrants, as they were not issued under the Tronox Limited MEIP. |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Information regarding certain relationshipsprincipal accounting fees and related transactions and director independenceservices will be presented in Tronox Limited’sHoldings plc's definitive proxy statement for its 20182023 annual general meeting of shareholders, filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, under the heading "Fees Paid to Independent Registered Public Accounting Firm" and is incorporated herein by reference.
| Item 14. | Principal Accounting Fees and Services. |
Information regarding principal accounting fees and services will be presented in Tronox Limited’s definitive proxy statement for its 2018 annual general meeting
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)The following documents are filed as part of shareholders, filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference.10-K: 1.Consolidated Financial Statements TABLE OF CONTENTS
PART IV
| Item 15. | Exhibits, Financial Statement Schedules. |
| (a) | The following documents are filed as part of this Annual Report on Form 10-K: |
| 1. | Consolidated Financial Statements |
Reference is made to the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules appearing at “Item 8. Financial Statements and Supplementary Data” in this report.
| 2. | Consolidated Financial Statement Schedules |
2.Consolidated Financial Statement Schedules
All financial statement schedules are omitted as they are inapplicable, or the required information has been included in the consolidated financial statements or notes thereto.
3. Exhibits
(b) The exhibits listed in the following table have been filed with, or incorporated by reference into, this Annual Report on Form 10-K. | Amended and Restated Transaction Agreement by and among Tronox Incorporated, Tronox Limited, Concordia Acquisition Corporation, Concordia Merger Corporation, Exxaro Resources Limited, Exxaro Holdings Sands (Proprietary) Limited and Exxaro International BV, dated as of April 20, 2012 (incorporated by reference to Annex A to the proxy statement/prospectus which forms a part of the Registration Statement on Form S-4 filed by Tronox Limited and Tronox Incorporated on May 4, 2012).
| | | | |
| 2.1 | |
| Stock and Asset Purchase Agreement, dated as of February 3, 2015, by and among FMC Corporation, Tronox US Holdings Inc. and Tronox Limited (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Tronox Limited on February 4, 2015).
|
| |
| Transaction Agreement, dated as of February 21, 2017, by and between Cristal, Tronox Limited and Cristal Inorganic Chemicals Netherlands Coöperatief W.A. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Tronox Limited on February 21, 2017). |
| 2.2 | |
| Amendment No. 1 to Transaction Agreement, dated as of March 1, 2018, by and among The National Titanium Dioxide Company Limited, Tronox Limited and Cristal Inorganic Chemicals Netherlands Coöperatief W.A. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Tronox Limited on March 1, 2018). |
| 2.3 | |
| |
| 4.1 | |
| Indenture, dated asSpecimen ordinary share certificate of August, 20, 2012, among Tronox Finance LLC, Tronox Limited, the other guarantors named therein and Wilmington Trust, National Association, as TrusteeHoldings plc (incorporated by reference to Exhibit 4.1 of the QuarterlyCurrent Report on Form 10-Q8-K filed by Tronox Limited on November 14, 2012)March 27, 2019).
|
| 4.2 | |
| First Supplemental Indenture,Shareholders Agreement, dated August 29, 2012, to the Indenture, dated as of August, 20, 2012 amongApril 10, 2019, by and between Tronox Finance LLC, TronoxHoldings plc, Cristal Inorganic Chemicals Netherlands Coöperatief W.A., The National Titanium Dioxide Company Limited, the other guarantors named thereinGulf Investment Corporation and Wilmington Trust, National Association, as TrusteeDr. Talal Al-Shair (incorporated by reference to Exhibit 4.34.1 of the Quarterly Report on Form 10-Q filed by Tronox Limited on November 14, 2012).
|
| |
| Fifth Supplemental Indenture, dated as of April 1, 2015, to the Indenture dated as of August 20, 2012 among Tronox Finance LLC, the guarantors named therein and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company’sCurrent Report on Form 8-K filed on April 7, 2015)11, 2019).
|
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| 4.3 | Sixth Supplemental Indenture, dated asDescription of January 31, 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 (incorporated by reference to Exhibit 4.8Securities of the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2016 filed by Tronox Limited on February 24, 2017)Registrant (filed herewith). |
| 4.4 | |
| 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 (incorporated by reference to Exhibit 4.9 of the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2016 filed by Tronox Limited on February 24, 2017).
|
| |
| Eighth Supplemental Indenture, dated as of March 22, 2017, to the Indenture, dated August 20, 201215, 2021, among Tronox Finance LLC, as Issuer,Incorporated, Tronox Limited as Parent, the guarantors named thereinHoldings plc and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 10-Q filed on May 4, 2017).
|
| |
| Ninth Supplemental Indenture, dated as of September 1, 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 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed by Tronox Limited on September 7, 2017)March 15, 2021).
|
| 4.5 | |
| Indenture dated asForm of March 19, 2015 between Evolution Escrow Issuer LLC to be merged into Tronox Finance LLC and Wilmington Trust, National Association, as trustee4.625 % Senior Notes due 2029 (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 8-K filed on April 7, 2015).
|
| |
| First Supplemental Indenture dated as of April 1, 2015 among Tronox Finance LLC (as successor to Evolution Escrow Issuer LLC), the parties named in Schedule I thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 8-K filed on April 7, 2015).
|
| |
| Second Supplemental Indenture, dated as of January 31, 2017, to the Indenture, dated March 19, 2015 among Tronox Finance LLC, as Issuer, Tronox Limited as Parent, the guarantors named therein and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.7 of the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2016 filed by Tronox Limited on February 24, 2017).
|
| |
| Third Supplemental Indenture, dated as of February 14, 2017, to the Indenture, dated March 19, 2015 among Tronox Finance LLC, as Issuer, Tronox Limited as Parent, the guarantors named therein and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.10 of the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2016 filed by Tronox Limited on February 24, 2017).
|
| |
| Fourth Supplemental Indenture, dated as of March 22, 2017, to the Indenture, dated March 19, 2015 among Tronox Finance LLC, as Issuer, Tronox Limited as Parent, the guarantors named therein and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 10-Q filed on May 4, 2017).
|
| |
| Fifth Supplemental Indenture, dated as of September 1, 2017, to the Indenture, dated March 19, 2015 among Tronox Finance LLC, as Issuer, Tronox Limited as Parent, the guarantors named therein and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed by Tronox Limited on September 7, 2017).
|
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| Fourth Amendment to Credit and Guaranty Agreement dated July 28, 2017, by and among, inter alia, Tronox Limited, Tronox Australia Holdings PTY Limited, Tronox Management PTY Limited, Tronox Holdings Cooperatief U.A., Tronox Pigments (Netherlands) B.V. and Goldman Sachs Bank USA (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tronox Limited on August 7, 2017).
|
| 10.1* | |
| Consent toTronox Holdings plc Amended and Restated Revolving Syndicated Facility Agreement dated July 28, 2017, by and among, inter alia, Tronox Limited, Tronox Australia Holdings PTY Limited, Tronox Management PTY Limited, Tronox Holdings Cooperatief U.A., Tronox Pigments (Netherlands) B.V. and UB AG, Stamford BranchEquity Incentive Plan (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by Tronox Limited on August 7, 2017)March 27, 2019).
|
| 10.2* | |
| Indenture, dated as of September 22, 2017 among Tronox FinanceHoldings plc the Company and the other guarantors named therein and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed by Tronox Limited on September 25, 2017).
|
| |
| Amended and Restated Warrant Agreement, dated as of June 15, 2012, by and between Tronox Incorporated, Tronox Limited, Computershare Inc. and its wholly owned subsidiary, Computershare Trust Company, N.A. (incorporated by reference to Exhibit 10.6 of the Current Report on Form 8-K filed by Tronox Limited on June 20, 2012). |
| |
| Employment Agreement entered into as of February 14, 2011 by and between Tronox LLC and John D. Romano (incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-4 filed by Tronox Limited and Tronox Incorporated on December 30, 2011).
|
| |
| Shareholders’ Agreement by and between Tronox Sands Holdings PTY Limited, Tronox Limited, Exxaro Resources Limited, Exxaro Sands (Proprietary) Limited and Exxaro TSA Sands Proprietary Limited (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by Tronox Limited on June 20, 2012).
|
| |
| Shareholder’s Deed dated June 15, 2012 by and between Tronox Limited, Thomas Casey, and Exxaro Resources Limited (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tronox Limited on June 20, 2012).
|
| |
| Credit and Guaranty Agreement, dated February 8, 2012, by and among Tronox Pigments (Netherlands) B.V., Tronox Incorporated, the guarantors listed therein, the lenders listed therein, and Goldman Sachs Bank USA (incorporated by reference to Exhibit 10.14 of the Registration Statement on Form S-4 filed by Tronox Limited and Tronox Incorporated on March 22, 2012).
|
| |
| Employment Agreement entered into as of April 19, 2012 by and between Tronox LLC and Thomas J. Casey (incorporated by reference to Exhibit 10.15 of the Registration Statement on Form S-4 filed by Tronox Limited and Tronox Incorporated on April 23, 2012).
|
| |
| Tronox Limited Management EquityAnnual Bonus Incentive Plan (incorporated by reference to Exhibit 10.16 of the Registration Statement on Form S-4 filed by Tronox Limited and Tronox Incorporated on April 23, 2012).
|
| |
| First Amendment to the Credit and Guaranty Agreement, dated May 11, 2012, by and among Tronox Pigments (Netherlands) B.V., Tronox Incorporated, Goldman Sachs Bank USA, the requisite lenders party thereto and the guarantors party thereto (incorporated by reference to Exhibit 10.12 of the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2012 filed by Tronox Limited on February 28, 2013).
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| Technical Amendment to the Credit and Guaranty Agreement, dated June 12, 2012, by and among Goldman Sachs Bank USA and Tronox Pigments (Netherlands) B.V. (incorporated by reference to Exhibit 10.13 of the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2012 filed by Tronox Limited on February 28, 2013).
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| Transition Services Agreement, dated June 15, 2012, by and between Tronox Limited, Exxaro Resources Limited, Exxaro TSA Sands Proprietary Limited and Exxaro Sands (Proprietary) Limited (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed by Tronox Limited on June 20, 2012)March 27, 2019).
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| 10.3* | |
| Template Project Services Agreement,Offer letter, dated June 15, 2012,November 7, 2019 by and between Tronox Limited and Exxaro Resources Limited (incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K filed by Tronox Limited on June 20, 2012).
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| Revolving Syndicated Facility Agreement, dated June 18, 2012, among Tronox Incorporated, Tronox Limited, Guarantors named therein, Lenders named therein, UBS Securities LLC, as Arranger, Bookmanager, Documentation Agent and Syndication Agent, UBS AG, Stamford Branch, as Issuing Bank, Administrative Agent and Collateral Agent, UBS Loan Finance LLC, as Swingline Lender, and UBS AG, Stamford Branch, as Australian Security Trustee (incorporated by reference to Exhibit 10.7 of the Current Report on Form 8-K filed by Tronox Limited on June 20, 2012).
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| First Amendment to Revolving Syndicated Facility Agreement, dated August 8, 2012, among Tronox Limited, the other borrowers and the guarantors party thereto, the lenders party thereto and UBS AG, Stamford Branch (incorporated by reference to Exhibit 10.18 of the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2012 filed by Tronox Limited on February 28, 2013).
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| First Amendment to that Certain Employment Agreement entered into as of February 22, 2013, by and between Tronox LLC and Thomas J. Casey (incorporated by reference to Exhibit 10.21 of the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2012 filed by Tronox Limited on February 28, 2013).
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| Single Tenant Industrial Lease by and between Le Petomane XXVII, Inc., not individually but solely in the representative capacity as the Trustee of the Nevada Environmental Response Trust, and Tronox LLC dated February 14, 2011 (incorporated by reference to Exhibit 10.3 of the Annual Report on Form 10-K filed by Tronox Limited on February 27, 2014).
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| Tronox Limited Annual Performance Bonus Plan (incorporated by reference to Exhibit B of the Definitive Proxy Statement of Tronox Limited filed on Form DEF 14A on April 15, 2013).
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| Employment Agreement entered into as of July 25, 2013 by and between Tronox LLC and Jean Francois Turgeon (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tronox Limited on August 7, 2013).
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| Employment Agreement entered into as of March 1, 2014 by and between Tronox LLC and Richard L. Muglia (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed by Tronox Limited on May 8, 2014).
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| Third Amendment to Credit and Guaranty Agreement, dated as of April 23, 2014, among Tronox Pigments (Netherlands) B.V., Tronox Limited, the guarantors listed therein, the lender parties thereto and Goldman Sachs Bank USA (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tronox Limited on April 29, 2014).
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| Amended and Restated Employment Agreement dated as of August 14, 2014 by and between Tronox Limited, Tronox LLC and Thomas Casey (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 20, 2014).
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| Amendment to Certain Equity-Based Award Agreements, dated as of August 14, 2014, between Tronox Limited and Thomas Casey (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 20, 2014).
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| Amended and Restated Employment Agreement dated as of December 23, 2014 by and between Tronox LLC and John Romano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 23, 2014).
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| Employment Agreement dated as of June 15, 2012 by and between Tronox LLC and Willem Van Niekerk (incorporated by reference to Exhibit 10.29 of the Annual Report on Form 10-K filed by Tronox Limited on February 26, 2015).
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| Amended and Restated Revolving Syndicated Facility Agreement dated as of April 1, 2015, among Tronox Incorporated, Tronox Limited, Tronox Pigments (Holland) B.V., Guarantors named therein, Lenders named therein, UBS Securities LLC, as Lead Arranger and Bookmanager, Goldman Sachs Bank USA and Royal Bank of Canada, as Co-Syndication Agents, Credit Suisse AG, Cayman Islands Branch and Wells Fargo Bank, N.A., as Co-Documentation Agents, UBS AG, Stamford Branch, as Issuing Bank, Swingline Lender, Administrative Agent and Collateral Agent, and UBS AG, Stamford Branch, as Australian Security Trustee (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K filed on April 7, 2015).
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| Separation Agreement, General Release and Waiver of Claims entered into as of July 14, 2016 by and between Tronox Limited and Katherine C. Harper (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2016).
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| Employment Agreement Extension entered into as of July 13, 2016 by and between Tronox LLC and Jean-Francois Turgeon (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 15, 2016).
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| Amendment No. 2 to Tronox Limited Management Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 9, 2016).
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| Employment Agreement entered into as of October 17, 2016 by and between Tronox LLCHoldings plc and Timothy Carlson (incorporated by reference to Exhibit 10.1 to the Company’s CurrentQuarterly Report on Form 8-K10-Q filed on October 17, 2016)November 12, 2019).
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| 10.4* | |
| Amendment No. 1 to Tronox Limited Management Equity Incentive Plan (incorporated by reference to Exhibit A of the Definitive Proxy Statement of Tronox Limited filed on Form DEF 14A on April 8, 2016).
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| General form of executive officer Time-Based Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.1 to10.4 of the Company’sAnnual Report on Form 10-Q10-K filed on May 4, 2017)February 22, 2022). |
| 10.5* | |
| General form of executive officer TSR Performance-Based Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.2 to10.5 of the Company’sAnnual Report on Form 10-Q10-K filed on May 4, 2017)February 22, 2022). |
| 10.6* | |
| 10.7* | |
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| 10.8 | |
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| Stock Purchase Agreement, dated as of August 2, 2017, by and among Tronox Limited, Tronox US Holdings Inc., Tronox Alkali Corporation, and Genesis Energy, L.P. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Tronox Limited on August 2, 2017)March 27, 2019).
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| 10.9 | |
| Interim CEO Agreement for the Provision of Depositary Services and Custody Services, dated as of May 15, 2017 byApril 10, 2019, in respect of Tronox Holdings plc Depositary Receipts among Computershare Trust Company, N.A., Tronox Holdings plc, Cristal Inorganic Chemicals Netherlands Coöperatief W.A. and between Tronox LLC and Peter Johnstonall other holders from time to time of depositary receipts issued in accordance herewith (incorporated by reference to Exhibit 10.1 of the Amended Current Report on Form 8-K/A8-K filed by Tronox Limited on May 18, 2017)April 15, 2019).
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| 10.10 | |
10.36*
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10.37*
| Retirement Agreement dated as of May 15, 2017 by and between Tronox Limited, Tronox LLC and Thomas Casey (incorporated by reference to Exhibit 10.3 of the Amended Current Report on Form 8-K/A filed by Tronox Limited on May 18, 2017).
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| Revolving Syndicated FacilityFirst Lien Credit Agreement dated as of September 22, 2017 among the Company, Tronox US Holdings Inc.(as amended through and certain of the Company’s other subsidiaries alongincluding Mach 11, 2021) with a syndicate of lenders and Wells FargoHSBC Bank USA, National Association, as issuing bank, swingline lender, administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tronox Limited on September 25, 2017)March 11, 2021).
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| 10.11 | |
| Amendment No. 1 to Amended and Restated First Lien Term Loan Credit Agreement, dated as of September 22, 2017 among Tronox Finance LLCApril 4, 2022, with the incremental term lender party thereto, and its unrestricted subsidiary Tronox Blocked Borrower LLC, and certain of the Company’s other subsidiaries, along with a syndicate of lenders andHSBC Bank of America, N.A.USA, National Association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.210.1 of the Current Report on Form 8-K filed by Tronox Limited on September 25, 2017)April 4, 2022).
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| 10.12* | |
| EmploymentRetirement Agreement dated as of March 18, 2021 by and between Tronox LLCthe Company and Mr. Jeffry N. Quinn (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K/A8-K filed by Tronox Limited on November 28, 2017)March 18, 2021).
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| 10.13* | |
| 10.14* | |
| 14.1 | |
| Ratio of Earnings to Fixed Charges.
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| Tronox Code of Ethics and Business Conduct, Code of Ethicseffective March 27, 2019 (incorporated by reference to Exhibit 14.1 toof the Company’s Annual Report on Form 10-K filed on February 27, 2014)March 16, 2020). |
| 21.1 | |
| Subsidiaries of Tronox Limited.Holdings plc. (filed herewith) |
| 23.1 | |
| Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm for Tronox Limited.Holdings plc. (furnished herewith) |
| 24.0 | |
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| 31.2 | |
| 31.3 | |
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| 32.2 | |
| 32.3 | |
| 96.1 | |
| 96.2 | |
| 96.3 | |
101.INS
96.4 | |
| 101.INS | Inline XBRL Instance Document (filed herewith) |
| 101.SCH | |
101.SCH
| Inline XBRL Taxonomy Extension Schema Document. Document (filed herewith) |
| 101.CAL | |
101.CAL
| Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) |
| 101.LAB | |
101.LAB
| Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith) |
| 101.DEF | |
101.DEF
| Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) |
| 101.PRE | |
101.PRE
| Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) |
| 104 | * | Indicates management contract or compensatory plan or arrangement. |
| Item 16. | The cover page from the Company's Annual Report on Form 10-K Summary.for the year ended December 31, 2022, which has been formatted in Inline XBRL, and included with Exhibit 101. |
_______________
*Indicates management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary.
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 1st22nd day of March 2018.February 2023. | TRONOX LIMITED
(Registrant)
| | | | | | | |
| | TRONOX HOLDINGS PLC |
| By:
| /s/ Timothy Carlson
(Registrant) |
| Name:
| Timothy Carlson
|
| Title:
By: | Senior /s/ Jonathan P. Flood
|
| Name: | Jonathan P. Flood |
| Title: | Vice President, Controller and Chief
FinancialPrincipal Accounting Officer |
| | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.Signature
| Title
| Date
| | | | | | | | | | | | |
Signature | | Title | | Date |
| | | | |
/s/ Jeffry N. QuinnJohn Romano | President,
Chief
| Co-Chief Executive Officer, and Director
(Principal Executive Officer) | March 1, 2018
| February 22, 2023 |
Jeffry N. Quinn
John Romano | |
| | | | |
/s/ Jean-Francois Turgeon | | Co-Chief Executive Officer, Director
(Principal Executive Officer) | | February 22, 2023 |
| Jean-Francois Turgeon | |
| | | | |
| /s/ Timothy Carlson | | Senior Vice President and Chief
Financial Officer and Director
(Principal(Principal Financial Officer) | March 1, 2018
| February 22, 2023 |
Timothy Carlson | |
| | | | |
/s/ James T. Bagley Jonathan P. Flood | | Vice President and Controller
(Principal Accounting Officer) | March 1, 2018
| February 22, 2023 |
James Bagley
Jonathan P. Flood | |
| | | | |
/s/ Ilan Kaufthal
* | Non-executive
| Chairman of the Board of Directors | March 1, 2018
| February 22, 2023 |
Ilan Kaufthal | | | |
| | | | |
/s/ Daniel Blue
* | Director
| March 1, 2018
Director | | February 22, 2023 |
Daniel Blue
Mutlaq Al-Morished | | | | |
| | | | |
/s/ Mxolisi Mgojo
* | Director
| March 1, 2018
Director | | February 22, 2023 |
Mxolisi Mgojo
Vanessa Guthrie | | | | |
| | | | |
/s/ Andrew P. Hines
* | Director
| March 1, 2018
Director | | February 22, 2023 |
Andrew P. Hines
Stephen Jones | | | | |
| | | | |
/s/ Wayne A. Hinman
* | Director
| March 1, 2018
Director | | February 22, 2023 |
Wayne A. Hinman
Moazzam Khan | | | | |
| | | | |
/s/ Peter Johnston
* | Director
| March 1, 2018
Director | | February 22, 2023 |
Peter B. Johnston | | | | |
| | | | |
/s/ Sipho Nkosi
* | Director
| March 1, 2018
Director | | February 22, 2023 |
Sipho Nkosi | | | | |
| | | | |
| * | | Director | | February 22, 2023 |
| Ginger M. Jones | | | | |
| | | | |
| *By: /s/ Jeffrey Neuman | | Senior Vice President, General Counsel and Secretary | | February 22, 2023 |
| Jeffrey Neuman, Attorney-in-fact | | | | |
Figure 1 Showing global site and offices including locations with resources and reserves.Pigment Operations