NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Millions of U.S. dollars, except share, per share and metric tons data or unless otherwise noted)
1. The Company
Prior to March 27, 2019, Tronox Limited, a public limited company registered under the laws of the State of Western Australia, was the ultimate parent company of the Tronox group of companies. Effective March 27, 2019, Tronox Limited effected a redomiciliation transaction (the “Re-domicile Transaction”), effectively changing its jurisdiction of incorporation from Western Australia to England and Wales, by “top-hatting” the Tronox group of companies with Tronox Holdings plc (referred to herein as “Tronox,” “we,” “us,” or “our”), a public limited company registered under the laws of England and Wales. As a result of the Re-domicile Transaction, Tronox Limited became a wholly-owned subsidiary of Tronox Holdings plc. The Re-domicile Transaction was implemented by two schemes of arrangement, pursuant to which Tronox Limited’s Class A and Class B ordinary shares were exchanged on a one-for-one basis for ordinary shares in Tronox Holdings plc, par value US $0.01 per share. As a result, the Class A ordinary shares of Tronox Limited were delisted from the New York Stock Exchange (“NYSE”) and the ordinary shares of Tronox Holdings plc were listed on the NYSE in its place. The Re-domicile Transaction had an impact on capital gains tax for our ordinary shares held by Exxaro Resources Limited (“Exxaro”). See “Exxaro Mineral Sands Transaction Completion Agreement” below for a discussion of our agreement with Exxaro associated with South African capital gains tax.
On April 10, 2019, we completed the acquisition from National Industrialization Company ("Tasnee") of the TiO2 business of The National Titanium Dioxide Company Ltd., a limited company organized under the laws of the Kingdom of Saudi Arabia (“Cristal”) (the “Cristal Transaction”). Including the Cristal operations, we now operate titanium-bearing mineral sand mines and beneficiation and smelting operations in Australia, South Africa and Brazil 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. It is our long-term strategic goal to be fully vertically integrated and consume all of our feedstock materials in our own TiO2 pigment facilities in the United States, Australia, Brazil, UK, France, the Netherlands, China and the Kingdom of Saudi Arabia (“KSA”). We believe that full 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, which we also supply to customers around the world. See Note 3 below for further details on the Cristal Transaction.
In order to obtain regulatory approval for the Cristal Transaction, the Federal Trade Commission (“FTC”) required us to divest Cristal's North American TiO2 business, which we sold to INEOS on May 1, 2019, for cash proceeds of approximately $701 million, net of transaction costs and working capital adjustment. The operating results of Cristal’s North American TiO2 business, from the acquisition date to the date of divestiture, are included in a single caption entitled “Net Income (Loss) from discontinued operations, net of tax” in our Consolidated Statements of Operations. Refer to Note 3 and Note 6 for further details.
Exxaro Mineral Sands Transaction Completion Agreement
During 2018, we, certain of our subsidiaries and Exxaro entered into the Exxaro Mineral Sands Transaction Completion Agreement (the “Completion Agreement”). The Completion Agreement (i) provides for the orderly sale of Exxaro’s remaining ownership interest in us, subject to market conditions, (ii) helped to facilitate the Re-domicile Transaction, and (iii) addressed several legacy issues related to our 2012 acquisition of Exxaro’s mineral sands business. Pursuant to the terms of the Completion Agreement, Tronox has covenanted to pay Exxaro an amount equal to any South African capital gains tax assessed on Exxaro in respect of any profit arising to it on a disposal of any of its ordinary shares subsequent to the Re-domicile Transaction where such tax would not have been assessed but for the Re-domicile Transaction. Similarly, Exxaro has covenanted to pay Tronox an amount equal to any South African tax savings Exxaro may realize in certain situations from any tax relief that would not have arisen but for the Re-domicile Transaction.
Pursuant to the terms of the Completion Agreement, during the second quarter of 2019, we repurchased 14 million shares from Exxaro for an aggregate purchase price of approximately $200 million or $14.32 per share plus fees of approximately $1 million. The share price was based upon a 5% discount to the 10 day volume weighted average price as of the day that Exxaro exercised their sale notice to us. Upon repurchase of the shares by the Company, the shares were cancelled. As a result of the sale of the 14 million shares on May 9, 2019, in accordance with the tax indemnity referred to above whereby Tronox covenanted to pay Exxaro an amount equal to any South African capital gains tax assessed on Exxaro in respect to any profit arising to it on a disposal of any of its ordinary shares, we recorded a liability of approximately $4 million which is included in “Accrued liabilities” in our Consolidated Balance Sheets as of December 31, 2019 and was fully paid in January 2020.
Furthermore, pursuant to the Completion Agreement, the parties agreed to accelerate our purchase of Exxaro’s 26% membership interest in Tronox Sands LLP, a U.K. limited liability partnership (“Tronox Sands”). On February 15, 2019, we
completed the redemption of Exxaro’s ownership interest in Tronox Sands for consideration of approximately ZAR 2.06 billion (or approximately $148 million) in cash, which represented Exxaro’s indirect share of the loan accounts in our South African subsidiaries.
At December 31, 2019, Exxaro continues to own approximately 14.7 million shares of Tronox, or a 10.4% ownership interest, as well as their 26% ownership interest in our South African operating subsidiaries. Under the terms of the Completion Agreement, Exxaro has the right to sell its ownership in Tronox at any time. At the present time we are unable to reasonably determine when and if Exxaro will sell its remaining shares in the foreseeable future, and as a result, we are not able to estimate what the capital gains tax impacts would be should Exxaro sell its remaining shares. See Note 24 for additional information.
Basis of Presentation
We are considered a domestic 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”). The consolidated financial statements included in this Form 10-K are prepared in conformity with U.S. GAAP.
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.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. It is at least reasonably possible that the effect on the financial statements of a change in estimate due to one or more future confirming events could have a material effect on the financial statements.
2. Significant Accounting Policies
Foreign Currency
The U.S. dollar is our reporting currency for our consolidated financial statements in both 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 income (expense), net” in the Consolidated Statements of Operations. When a 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.
Translation adjustments on intercompany foreign currency receivables and payables that are not expected to be settled in the foreseeable future are reported in the same manner as translation adjustments.
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. All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as “Net sales” in the Consolidated Statements of Operations. Accruals are made for sales returns, rebates and other allowances, which are recorded in “Net sales” in the Consolidated Statements of Operations, and are based on our historical experience and current business conditions. 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 5.
Cost of Goods Sold
Cost of goods sold includes costs for purchasing, receiving, manufacturing, and distributing products, including raw materials, energy, labor, depreciation, depletion, shipping and handling, freight, warehousing, and other production costs.
Research and Development
Research and development costs, included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations comprised of salaries, building costs, utilities, administrative expenses, third party research, and allocations of corporate costs, were $17 million, $11 million, and $8 million during 2019, 2018, and 2017, 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.
Income Taxes
We use the asset and liability method of accounting for income taxes. The estimation of the amounts of income taxes involves the interpretation of complex tax laws and regulations and how foreign taxes affect domestic taxes, as well as the analysis of the realizability of deferred tax assets, tax audit findings, and uncertain tax positions.
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided against a deferred tax asset when it is more likely than not that all or some portion of the deferred tax asset will not be realized. We periodically assess the likelihood that we will be able to recover our deferred tax assets, and reflect any changes in our estimates in the valuation allowance, with a corresponding adjustment to earnings or other comprehensive income (loss), as appropriate. All available positive and negative evidence is weighted to determine whether a valuation allowance should be recorded.
The amount of income taxes we pay is subject to ongoing audits by federal, state, and foreign tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We assess our income tax positions, and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions for which it is more likely than not that a tax benefit will be 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 8.
Earnings per Share
Basic and diluted earnings per share are calculated using the two-class method. Under the two-class method, earnings used to determine basic earnings per share are reduced by an amount allocated to participating securities. Participating securities include restricted shares issued under the Tronox Management Equity Incentive Plan (the “MEIP”) (see Note 22), which contains non-forfeitable dividend rights. Our unexercised options 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 prior to February 2018 Series A and Series B Warrants. The options and Series A and Series B Warrants are included in the calculation of diluted earnings per ordinary share utilizing the treasury stock method. See Note 9.
Fair Value Measurement
We measure fair value on a recurring basis utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, and consider counterparty credit risk in our assessment of fair value. The fair value hierarchy is as follows:
•Level 1 – Quoted prices in active markets for identical assets and liabilities;
•Level 2 – Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data; and,
•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities
See Note 17.
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, 2019, we had restricted cash of $9 million primarily in Australia related to outstanding performance bonds. At December 31, 2018, included in restricted cash was $662 million related to our Blocked Term Loan (defined below). Upon consummation of the Cristal Transaction, the Blocked Term Loan became available to our subsidiary, Tronox Finance LLC. See Note 15.
Accounts Receivable, net of allowance for doubtful accounts
We perform credit evaluations of our customers, and take actions deemed appropriate to mitigate credit risk. Only in certain specific occasions do we require collateral in the form of bank or parent company guarantees or guarantee payments. We maintain allowances for potential credit losses based on specific customer review and current financial conditions.
Inventories, net
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. Feedstock 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.
We review 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.
Long Lived Assets
Property, plant and equipment, net is stated at cost less accumulated depreciation, and is depreciated over its estimated useful life using the straight-line method as follows:
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Land improvements
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10 — 20 years
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Buildings
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10 — 40 years
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Machinery and equipment
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3 — 25 years
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Furniture and fixtures
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10 years
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Maintenance and repairs are expensed as incurred, except for costs of replacements or renewals that improve or extend the lives of existing properties, which are capitalized. Upon retirement or sale, the cost and related accumulated depreciation are removed from the respective account, and any resulting gain or loss is included in “Cost of goods sold” or “Selling, general, and administrative expenses” in the Consolidated Statements of Operations. See Note 11.
We capitalize interest costs on major projects that require an extended period of time to complete. See Note 15.
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.
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.
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 at fair value as of the acquisition date. Under the acquisition method of accounting, each tangible and separately identifiable intangible asset acquired and liabilities assumed is recorded based on their preliminary estimated fair values on the acquisition date. The initial valuations are derived from estimated fair value assessments and assumptions used by management. Acquisition related costs are expensed as incurred and are included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.
Leases
We determine if a contract is or contains a lease at inception of the contract. 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 Consumer Price Index) are included in our initial measurement of the lease right of use assets and lease 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 Balance 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 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 or the acquisition date for leases acquired in the Cristal Transaction. 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 18.
Long-term Debt
Long-term debt is stated net of unamortized original issue premium or discount. Premiums or discounts are amortized using the effective interest method with amortization expense recorded in “Interest and debt expense, net” in the Consolidated Statements of Operations. Deferred debt issuance costs related to a recognized debt liability are presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and are amortized using the effective interest method with amortization expense recorded in “Interest and debt expense, net” in the Consolidated Statements of Operations. See Note 15.
Asset Retirement Obligations
Asset retirement obligations are recorded at their estimated fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. Fair value is measured using expected future cash outflows discounted at our credit-adjusted risk-free interest rate, which are considered Level 3 inputs. We classify accretion expense related to asset retirement obligations as a production cost, which is included in “Cost of goods sold” in the Consolidated Statements of Operations. See Note 19.
Environmental Remediation and Other Contingencies
We record an undiscounted liability when litigation has commenced or a claim or assessment has been asserted, or, based on available information, commencement of litigation or assertion of a claim or assessment is probable, and the associated costs can be reasonably estimated. See Note 20.
Self-Insurance
We are self-insured for certain levels of general and vehicle liability, property, workers’ compensation and health care coverage. The cost of these self-insurance programs is accrued based upon estimated fully developed settlements for known and anticipated claims. Any resulting adjustments to previously recorded reserves are reflected in current operating results. We do not accrue for general or unspecific business risks.
Share-based Compensation
Equity Restricted Share and Restricted Share Unit Awards — The fair value of equity instruments is measured based on the share price on the grant date and is recognized over the vesting period. These awards contain service, market, and/or performance conditions. For awards containing only a service or a market condition, we have elected to recognize compensation costs using the straight-line method over the requisite service period for the entire award. For awards containing a market condition, the fair value of the award is measured using the Monte Carlo simulation under a lattice model approach. For awards containing a performance condition, the fair value is the grant date close price and compensation expense is not recognized until we conclude that it is probable that the performance condition will be met. We reassess the probability at least quarterly. See Note 22.
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 22.
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. 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 (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. Net periodic cost is recorded in cost of goods sold and selling, general and administrative expenses in the Consolidated Statement of Operations 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 Comprehensive income in the Consolidated Statement of Comprehensive Income (Loss). 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 Operations 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 Adopted Accounting Pronouncements
In February 2016, the Financial Standards Accounting Board (“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 new standard requires a lessee to recognize on the balance sheet, for all leases of more than 12 months, a lease liability, which corresponds to the discounted obligation of future lease payments arising from a lease, and a right-of-use (“ROU”) asset, which represents the lessee’s right to use, or control the use of, the underlying asset over the lease term. On January 1, 2019, we adopted the new standard using the modified retrospective approach and thus, we did not adjust the comparative periods presented. As a result of the adoption of this standard, we recorded a lease liability and related right-of-use asset of $66 million and $64 million, respectively. We elected the package of practical expedients under the transition guidance, which does not require the reassessment of whether existing contracts are or contain a lease, the reassessment of the lease classification for any expired or existing leases, or the reassessment of unamortized initial direct costs of existing leases. As an accounting policy election, we excluded short-term leases (leases that have a term of 12 months or less and do not include a purchase option that we are reasonably certain to exercise) from the balance sheet presentation. Additionally, we elected to account for non-lease components in a contract as part of a single lease component for all asset classes. We implemented a new lease accounting system and updated our business processes and internal controls to address relevant risks associated with the implementation of the new standard including the preparation of the required financial information and disclosures. See Note 18 for details.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities. The standard updated guidance on accounting for hedging activities. The new guidance simplifies hedge effectiveness documentation requirements, changes both the designation and measurement for qualifying hedging relationships and the presentation of hedge results. We adopted this accounting guidance in the first quarter of 2019. The adoption of the standard had an immaterial impact on our consolidated financial statements and disclosures.
In August 2018, the FASB also issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in Accumulated Other Comprehensive Income expected to be recognized in net periodic benefit costs over the next fiscal year, (b) the amount and timing of plan assets expected to be returned to the employer, and (c) the effects of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. The new disclosures include the interest crediting rates for cash balance plans and an explanation of significant gains and losses related to changes in benefit obligations. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, with early adoption permitted. We early adopted this accounting standard for the year ended December 31, 2019 which did not have a material impact to our consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes. The standard simplifies the accounting for income taxes by removing the exceptions to the incremental approach for intraperiod tax allocation, the requirement to recognize deferred tax liability for equity method investments, the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020 with early adoption permitted. We are currently evaluating the effect, if any, that the standard will have on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (“Topic 820”): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The standard modifies the disclosure requirements in Topic 820, Fair Value Measurement, by: removing certain disclosure requirements related to the fair value hierarchy; modifying existing disclosure requirements related to measurement uncertainty; and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard is effective for fiscal years and interim periods within those
fiscal years beginning after December 15, 2019, with early adoption permitted. We do not expect the standard to have a material impact on our consolidated financial statements and disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), as amended. The standard introduces a new accounting model for expected credit losses on financial instruments, including trade receivables, based on estimates of current expected credit losses. This standard is effective for fiscal years beginning after December 15, 2019 and requires companies to apply the change in accounting on a prospective basis. The Company does not expect this guidance to have a material impact on the consolidated financial statements.
3. Cristal Acquisition and Related Divestitures
On April 10, 2019, we completed the acquisition of the TiO2 business of Cristal for $1.675 billion of cash, plus 37,580,000 ordinary shares. The total acquisition price, including the value of the ordinary shares at $14 per share on the closing date of the Cristal Transaction, was approximately $2.2 billion. With the acquisition of our shares, an affiliate of Cristal became our largest shareholder. At December 31, 2019, Cristal International Holdings B.V. (formerly known as Cristal Inorganic Chemical Netherlands Cooperatief W.A.), a wholly-owned subsidiary of National Titanium Dioxide Company Ltd., continues to own 37,580,000 shares of Tronox, or a 26% ownership interest. National Titanium Dioxide Company Ltd. is 79% owned by Tasnee.
In order to obtain regulatory approval for the Cristal Transaction, the FTC required us to divest Cristal's North American TiO2 business, which we sold to INEOS on May 1, 2019, for cash proceeds, net of transaction costs, of $701 million, inclusive of an amount for a working capital adjustment. The operating results of Cristal’s North American TiO2 business from the acquisition date to the date of divestiture are included in a single caption entitled “Net Income (Loss) from discontinued operations, net of tax” in our Consolidated Statements of Operations. See Note 6 for further information on discontinued operations.
In conjunction with the Cristal Transaction, we entered into a transition services agreement with Tasnee and certain of its affiliates under which we and the Tasnee entities will provide certain transition services to one another. See Note 24 for further details of the transition services agreement. In conjunction with the divestiture of Cristal's North American TiO2 business to INEOS, we entered into a transition services agreement with INEOS. Under the terms of the transition services agreement, INEOS agreed to provide the following services to Tronox for manufacturing, technology and innovation, information technology, finance, warehousing and human resources. Similarly, Tronox will provide services to INEOS for information technology, finance, product stewardship, warehousing and human resources.
In addition, in order to obtain regulatory approval by the European Commission, we divested the 8120 paper laminate grade, supplied from our Botlek facility in the Netherlands, to Venator Materials PLC (“Venator”). The divestiture was completed on April 26, 2019. Under the terms of the divestiture, we will supply the 8120 grade product to Venator under a supply agreement for an initial term of 2 years, and extendable up to 3 years, to allow for the transfer of the manufacturing of the 8120 grade to Venator. Total cash consideration is 8 million Euros, of which 1 million Euros was paid at the closing and the remaining 7 million Euros (approximately $6.2 million at December 31, 2019 exchange rate) will be paid in equal installments during the second quarters of 2020 and 2021. We recorded a charge of $19 million during the second quarter of 2019, in “Contract loss” in the Consolidated Statements of Operations, reflecting both the proceeds on sale and the estimated losses we expect to incur under the supply agreement with Venator.
We funded the cash portion of the Cristal Transaction through existing cash, borrowings from our Wells Fargo Revolver, and restricted cash which had been borrowed under the Blocked Term Loan and which became available to us for the purpose of consummating the Cristal Transaction. See Note 15 for further details of the Cristal Transaction financing.
Preliminary Allocation of the Purchase Price
For the Cristal Transaction, we have applied the acquisition method of accounting in accordance with ASC 805, "Business Combinations", with respect to the identifiable assets and liabilities of Cristal, which have been measured at estimated fair value as of the date of the business combination.
The aggregate purchase price noted above was allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date, primarily using Level 2 and Level 3 inputs (see Note 2 for an explanation of Level 2 and Level 3 inputs). These fair value estimates represent management’s best estimate of future cash flows (including sales, cost of sales, income taxes, etc.), discount rates, competitive trends, market comparables and other factors. Inputs used were generally determined from historical data supplemented by current and anticipated market conditions and growth rates.
Although the determination of the preliminary fair values are substantially complete, certain fair value estimates are based on preliminary information and are subject to change during the measurement period, which ends one year from the date of the acquisition. During the measurement period, when new information is obtained about facts and circumstances that existed as of
the acquisition date that, if known, would have resulted in revised estimated values of assets or liabilities assumed as of that date, we will revise the preliminary purchase price allocation and reflect the impact of any adjustments in the period in which the adjustments are determined. At December 31, 2019, the fair values that are based on preliminary information relate primarily to property, plant and equipment (including economic obsolescence), mineral leaseholds, contingent liabilities and certain noncurrent liabilities, and related impacts on deferred taxes and noncontrolling interest, if any. During the three months ended December 31, 2019, we updated the preliminary purchase price allocation from September 30, 2019, resulting in (i) increases to mineral leaseholds of $26 million, pension and postretirement healthcare liabilities of $14 million, and accounts payable and accrued liabilities of $13 million; (ii) a decrease to deferred taxes of $10 million; and (iii) other immaterial adjustments.
The purchase price consideration and preliminary estimated fair value of Cristal’s net assets acquired on April 10, 2019 are shown below. The assets and liabilities of Cristal's North American TiO2 business, that was subsequently divested on May 1, 2019, are shown as held for sale in the fair value of assets acquired and liabilities assumed (refer to Note 6).
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
Purchase Price Consideration:
|
|
|
Tronox Holdings plc shares issued
|
|
37,580,000
|
|
Tronox Holdings plc closing price per share on April 10, 2019
|
|
$
|
14.00
|
|
Total fair value of Tronox Holdings plc shares issued at acquisition date
|
|
$
|
526
|
|
Cash consideration paid
|
|
$
|
1,675
|
|
Total Purchase Price
|
|
$
|
2,201
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
Fair Value of Assets Acquired
|
|
|
Accounts receivable
|
|
$
|
248
|
|
Inventory
|
|
693
|
|
Deferred taxes
|
|
55
|
|
Prepaid and other assets
|
|
80
|
|
Property, plant and equipment
|
|
746
|
|
Mineral leaseholds
|
|
95
|
|
Intangible assets
|
|
62
|
|
Lease right of use assets
|
|
40
|
|
Other long-term assets
|
|
42
|
|
Assets held for sale
|
|
848
|
|
Total assets acquired
|
|
$
|
2,909
|
|
Less: Liabilities Assumed
|
|
|
|
Accounts payable
|
|
$
|
102
|
|
Accrued liabilities
|
|
136
|
|
Short-term lease liabilities
|
|
13
|
|
Pension and postretirement healthcare benefits
|
|
76
|
|
Environmental liabilities
|
|
64
|
|
Asset retirement obligations
|
|
75
|
|
Long-term debt
|
|
22
|
|
Long-term lease liabilities
|
|
24
|
|
Other long-term liabilities
|
|
19
|
|
Liabilities held for sale
|
|
126
|
|
Total liabilities assumed
|
|
$
|
657
|
|
Less noncontrolling interest
|
|
51
|
|
Purchase price
|
|
$
|
2,201
|
|
Summary of Significant Fair Value Methods
The methods used to determine the fair value of significant identifiable assets and liabilities included in the preliminary allocation of purchase price are discussed below.
Inventory
Acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials and supplies was determined based on historical carrying value which approximates fair value. The fair value step-up of inventories is being recognized in “Cost of sales” as the inventory is sold.
Assets held for sale and Liabilities of assets held for sale
As described above, in order to obtain regulatory approval for the acquisition, the U. S. FTC required us to divest Cristal's North American TiO2 business, which we sold to INEOS on May 1, 2019, for cash proceeds, net of transaction costs, of $701 million. Refer to Note 6 for further information.
Property, Plant and Equipment
Property, plant and equipment (“PP&E”) is comprised of land and improvements of $100 million; machinery and equipment of $511 million; buildings of $78 million; and construction in progress of $57 million. The preliminary estimated fair value for PP&E was primarily determined using a replacement cost approach, although a market approach was used for land and certain types of equipment. The replacement cost approach measures the value of an asset by estimating the cost to acquire or construct comparable assets and adjusts for age and condition of the asset. The market approach represents a sales comparison that measures the value of an asset through an analysis of sales and offerings of comparable assets. Additionally, a discounted cash flow analysis (“Income Approach”) was used to quantify economic obsolescence (“EO”). An EO adjustment was made when the Income Approach indicated that there were insufficient cash flows to support the values established through the market and replacement cost approaches.
The final fair values for property, plant and equipment may differ from this preliminary determinations, largely resulting from the EO calculations.
Mineral Leaseholds
The acquired assets of Cristal include mining operations in Australia. The fair value of these assets was determined using the income approach, specifically a discounted cash flow analysis ("DCF"). The DCF includes significant estimates and assumptions with respect to the expected production of the mine over the estimated time period, sales prices, profit margins and the discount rate. The calculated DCF value using this Income Approach was then reduced by the fair values determined for PP&E (see PP&E methodology) in order to derive the fair value of mineral leaseholds. There was no EO required for mining and mineral separation assets.
Intangible Assets
Intangible assets primarily consist of acquired developed technology. The values of the developed technology were determined utilizing the relief from royalty method, which is a form of Income Approach.
Pension and Other Postretirement Liabilities
Tronox recognized a pretax net liability representing the unfunded portion of Cristal’s defined-benefit pension and other postretirement benefit ("OPEB") plans.
Asset Retirement Obligations
Fair value is measured using expected future cash outflows discounted at our credit-adjusted risk-free interest rate. See Notes 2 and 19 to the consolidated financial statements for additional information.
Environmental Liabilities
Liabilities for environmental matters are recognized 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. 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 20 to the consolidated financial statements.
Deferred Income Tax Assets and Liabilities
The deferred income tax assets and liabilities include tax loss carryforwards along with the expected future federal, state and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets acquired and liabilities assumed and the respective tax bases. When applicable, valuation allowances were set up against deferred tax assets not expected to be realized. Tax rates utilized in calculating deferred income taxes represent the enacted statutory tax rates at the effective date of the merger in each respective jurisdiction. Refer to Note 8 for further information.
Noncontrolling Interests
Noncontrolling interest relates to Cristal’s historic noncontrolling interest in its publicly-traded Brazilian subsidiary. The fair value was calculated as a percentage of the fair value balance sheet of Cristal’s Brazilian subsidiary, which approximated the market capitalization of the subsidiary’s stock on the Brazilian stock exchange.
Other Assets Acquired and Liabilities Assumed
We utilized the carrying values, net of allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities as it was determined that carrying values represented the fair value of those items at the acquisition date.
Results of Cristal Operations Since Acquisition
For the year ended December 31, 2019, the acquired Cristal business contributed $1.0 billion in revenue and $67 million in operating losses which includes the recognition of $98 million of step-up in value of the acquired inventory.
Supplemental Pro Forma Financial Information
The following unaudited pro forma information gives effect to the Cristal Transaction as if it had occurred on January 1, 2018. The unaudited pro forma financial information reflects certain adjustments related to the acquisition, such as:
a.conforming the accounting policies of Cristal to those applied by Tronox;
b.conversion to U.S. GAAP from IFRS for Cristal;
c.the elimination of transactions between Tronox and Cristal;
d.recording certain incremental expenses resulting from purchase accounting adjustments, such as inventory step-up amortization, depreciation, depletion and amortization expense in connection with fair value adjustments to property, plant and equipment, mineral leaseholds and intangible assets;
e.recording the contract loss on the sale of the 8120 product line as a charge in the first quarter of 2018;
f.recording all transaction costs incurred in the first quarter of 2018;
g.recording the effect on interest expense related to borrowings in connection with the Cristal Transaction; and
h.recording the related tax effects and the impacts to EPS for the shares issued in conjunction with the transaction.
The unaudited pro forma financial information should not be relied upon as being indicative of the historical results that would have been obtained if the Cristal Transaction had actually occurred on that date, nor the results of operations in the future.
In accordance with ASC 805, the supplemental pro forma results of operations for the years ended December 31, 2019 and 2018, as if the Cristal Transaction had occurred on January 1, 2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
Year Ended December 31
|
|
|
|
|
2019
|
|
2018
|
Net Sales
|
|
$
|
3,008
|
|
|
|
$
|
3,339
|
|
Net income from continuing operations attributable to Tronox Holdings plc
|
|
$
|
18
|
|
|
|
$
|
32
|
|
For the year ended December 31, 2019, we incurred pre-tax charges of $98 million related to the recognition of the step up to fair value of inventories acquired. We also incurred a pre-tax charge of $19 million in contract losses incurred on the 8120 supply agreement with Venator for the year ended December 31, 2019. See Note 20. The 2019 pro forma results were adjusted to exclude these charges as these costs were reflected within the results of operations in the pro forma results as if they were incurred on January 1, 2018. For the year ended December 31, 2018, the pro forma results of operations reflect a pre-tax charges of $98 million related to the recognition of the step up to fair value of inventories acquired as well as the total $120 million of transaction costs.
4. Restructuring Initiatives
On April 10, 2019, we announced the completion of the Cristal Transaction. During the second quarter, as a result of the acquisition, we outlined a broad-based synergy savings program that is expected to reduce costs, simplify processes and focus the organization’s structure and resources on key growth initiatives. During the year ended December 31, 2019, we recorded costs of $22 million in our Consolidated Statement of Operations relating to these initiatives. The costs consisted of charges for employee-related costs, including severance.
The liability balance for restructuring as of December 31, 2019, which is recorded within “Accrued liabilities” in the Consolidated Balance Sheet, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Employee-Related Costs
|
Balance, January 1, 2019
|
|
$
|
—
|
|
Charges
|
|
22
|
|
Cash payments
|
|
(12)
|
|
Balance, December 31, 2019
|
|
$
|
10
|
|
5. Revenue
Nature of Contracts and Performance Obligations
We primarily generate revenue from selling TiO2 pigment products, products derived from titanium bearing mineral sands 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 multiple 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 shipping and handling activities that occur after control of the products has transferred to the customer 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 goods sold” in the Consolidated Statements of Operations.
The duration of our contract period is one year or less. As such, we have elected to recognize incremental costs incurred to obtain contracts, which primarily consist of commissions paid to third-party sales agents, as “Selling, general and administrative expenses” in the Consolidated Statements of Operations. Furthermore, we have elected not to disclose the value of unsatisfied performance obligations at each period end, given the original expected duration of our contracts are one year or less.
Transaction Price
Revenue is measured as the amount of consideration that we expect to be entitled in exchange for transferring 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 when 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, 2019, and December 31, 2018, 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. Infrequently we may receive advance payment from our customers 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, 2019 and December 31, 2018 were $1 million and less than $1 million, respectively. Contract liability balances were reported as “Accounts payable” in the Consolidated Balance Sheets. All contract liabilities as of December 31, 2018 were recognized as revenue in “Net sales” in the Consolidated Statements of Operations during the first quarter of 2019.
Disaggregation of Revenue
We operate under one operating and reportable segment, TiO2. See Note 25 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,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
North America
|
$
|
696
|
|
|
$
|
649
|
|
|
$
|
572
|
|
South and Central America
|
164
|
|
|
72
|
|
|
61
|
|
Europe, Middle-East and Africa
|
954
|
|
|
541
|
|
|
518
|
|
Asia Pacific
|
828
|
|
|
557
|
|
|
547
|
|
Total net sales
|
$
|
2,642
|
|
|
$
|
1,819
|
|
|
$
|
1,698
|
|
Net sales from external customers for each similar type of product were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
TiO2
|
$
|
2,049
|
|
|
$
|
1,230
|
|
|
$
|
1,210
|
|
Zircon
|
290
|
|
|
293
|
|
|
209
|
|
Feedstock and other products
|
303
|
|
|
259
|
|
|
225
|
|
Electrolytic
|
—
|
|
|
37
|
|
|
54
|
|
Total net sales
|
$
|
2,642
|
|
|
$
|
1,819
|
|
|
$
|
1,698
|
|
Feedstock and other products mainly include rutile prime, ilmenite, chloride slag and other mining products. Electrolytic products mainly include electrolytic manganese dioxide and boron. We sold our Electrolytic operations on September 1, 2018. See Note 6. The nature, amount, timing and uncertainty of revenue and cash flows typically do not differ significantly among different products.
6. Discontinued Operations and Other Disposition
Discontinued Operations - 2019 and 2017
As discussed in Note 3, the Company divested Cristal's North American TiO2 business to INEOS on May 1, 2019, for cash proceeds, of $701 million, net of transaction costs and a working capital adjustment. The operating results of Cristal’s North American TiO2 business from the acquisition date to the date of divestiture are included in a single caption entitled “Net income from discontinued operations, net of tax” in our Consolidated Statements of Operations and is included in the table below.
In the third quarter of 2017, we completed the previously announced sale of our wholly owned subsidiary, Alkali, to Genesis Energy, L.P. Until it was sold, Alkali's operations for the year ended December 31, 2017 were also accounted for as discontinued operations until sold.
The following table presents a summary of the operations of Cristal’s North American TiO2 business for the year ended December 31, 2019 and the operations of Alkali for the year ended December 31, 2017. There were no discontinued operations in 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
Year ended December 31, 2017
|
Net sales
|
|
$
|
41
|
|
|
$
|
521
|
|
Cost of goods sold
|
|
29
|
|
|
448
|
|
Gross profit
|
|
12
|
|
|
73
|
|
Selling, general and administrative expense and other expenses
|
|
5
|
|
|
18
|
|
Income before income taxes
|
|
7
|
|
|
55
|
|
Income tax provision
|
|
2
|
|
|
1
|
|
Loss on sale of discontinued operations, no tax impact
|
|
—
|
|
|
233
|
|
Income from discontinued operations, net of tax
|
|
$
|
5
|
|
|
$
|
(179)
|
|
Other Disposition - 2018
On September 1, 2018, Tronox LLC, our indirect wholly-owned subsidiary, sold to EMD Acquisition LLC certain of the assets and liabilities of our Henderson Electrolytic Operations based in Henderson, Nevada (the “Henderson Electrolytic Operations”), a component of our TiO2 segment, for $1.3 million in cash and a Secured Promissory Note of $4.7 million. On December 27, 2018, we received the full settlement of the Promissory Note of $4.7 million from EMD Acquisition LLC. For the year ended December 31, 2018, a total pre-tax loss on the sale of $31 million was recorded in “Impairment loss” in the Consolidated Statements of Operations.
7. Other Income (Expense), Net
Other income (expense), net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Net realized and unrealized foreign currency gains (losses)
|
$
|
5
|
|
|
$
|
29
|
|
|
$
|
(20)
|
|
Pension and postretirement benefit interest cost, expected return on assets and amortization of actuarial losses
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
Pension and postretirement benefit settlement gains(1)
|
1
|
|
|
3
|
|
|
—
|
|
Other, net
|
(2)
|
|
|
3
|
|
|
1
|
|
Total
|
$
|
3
|
|
|
$
|
33
|
|
|
$
|
(22)
|
|
_____________________
(1) 2018 gain relates to our former U.S. retiree medical plan. See Note 23.
8. 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,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
United Kingdom
|
$
|
56
|
|
|
$
|
(122)
|
|
|
$
|
(74)
|
|
International
|
(144)
|
|
|
165
|
|
|
(13)
|
|
Income (loss) from continuing operations before income taxes
|
$
|
(88)
|
|
|
$
|
43
|
|
|
$
|
(87)
|
|
The income tax (provision) benefit is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
United Kingdom:
|
|
|
|
|
|
Current
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
(2)
|
|
Deferred
|
11
|
|
|
3
|
|
|
1
|
|
International:
|
|
|
|
|
|
Current
|
(23)
|
|
|
(33)
|
|
|
(2)
|
|
Deferred
|
(2)
|
|
|
18
|
|
|
(3)
|
|
Income tax (provision) benefit
|
$
|
(14)
|
|
|
$
|
(13)
|
|
|
$
|
(6)
|
|
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,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Statutory tax rate
|
19
|
%
|
|
19
|
%
|
|
19
|
%
|
Increases (decreases) resulting from:
|
|
|
|
|
|
Tax rate differences
|
5
|
|
|
24
|
|
|
53
|
|
U.S. federal tax reform (including rate change)
|
—
|
|
|
(1)
|
|
|
(1,166)
|
|
Disallowable expenditures
|
(29)
|
|
|
88
|
|
|
(10)
|
|
Valuation allowances
|
(44)
|
|
|
(474)
|
|
|
675
|
|
Corporate Reorganization
|
—
|
|
|
—
|
|
|
375
|
|
Tax rate changes
|
17
|
|
|
41
|
|
|
3
|
|
State and local taxes
|
(7)
|
|
|
8
|
|
|
1
|
|
Prior year accruals
|
24
|
|
|
368
|
|
|
(1)
|
|
Branch taxation
|
(1)
|
|
|
(37)
|
|
|
43
|
|
Deferred gross margin
|
(4)
|
|
|
(9)
|
|
|
—
|
|
Other, net
|
4
|
|
|
3
|
|
|
1
|
|
Effective tax rate
|
(16)
|
%
|
|
30
|
%
|
|
(7)
|
%
|
During the year ended December 31, 2017, Tronox Limited, our former public parent which is registered under the laws of the State of Western Australia, became managed and controlled in the U.K. The statutory tax rate in the U.K. at December 31, 2019, 2018 and 2017 was 19%.
The Company reached a settlement agreement with the Australian Tax Office (“ATO”) on November 26, 2018 for the tax years 2012 through 2015, which were under examination by the ATO. This settlement resulted in the accrual of an $11 million current tax provision and the loss of $154 million in deferred tax assets related to Australian net operating losses (“NOLs”). The change to deferred taxes is fully offset by a valuation allowance and results in no impact to the consolidated provision. The
settlement of $11 million was paid to the ATO in December 2018. Both the current tax provision and NOL adjustment from the ATO settlement are reflected in the "Prior year accruals" line of the effective tax rate table.
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 of the effective tax rate table. 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 enacted rate of 21%, executive compensation accruals 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 2019, 2018 and 2017 differs from the United Kingdom statutory rate of 19% primarily due to prior year accruals, disallowable expenditures, U.S. tax reform legislation, valuation allowances, and rates different than the United Kingdom statutory rate of 19%. The 2018 rate was impacted by tax settlements for prior years and changes in tax rates in a foreign jurisdiction impacting our deferred tax assets, partially offset by a benefit of $48 million due to the release of a valuation allowance for deferred tax assets associated with our operating subsidiary in the Netherlands.
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 2017, 2018, and 2019. These are reflected within the Tax rate changes line above. The changes to deferred tax are offset by valuation allowances. During 2018, this line also includes the deferred tax impacts of tax rate reductions enacted in the Netherlands and the U.K. During 2019, a law change repealed a portion of the future Netherlands rate reduction, and this benefit is also reflected in the Tax rate changes line.
Upon completion of the Cristal Transaction, we now have additional jurisdictions with operational income. The statutory tax rates on income earned in Australia (30%), the United States (21%), South Africa (28%), France (32%), China (25%), Brazil (34%), the Kingdom of Saudi Arabia (KSA) (20%), and the Netherlands (25%) are higher than the U.K. statutory rate of 19%. Tax rates will be reduced in France, the Netherlands, and the United Kingdom to 25.83%, 21.7% and 17%, respectively, in future years.
Net deferred tax assets (liabilities) at December 31, 2019 and 2018 were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Net operating loss and other carryforwards
|
$
|
1,899
|
|
|
$
|
1,672
|
|
Property, plant and equipment, net
|
115
|
|
|
77
|
|
Reserves for environmental remediation and restoration
|
45
|
|
|
21
|
|
Obligations for pension and other employee benefits
|
58
|
|
|
48
|
|
Investments
|
28
|
|
|
24
|
|
Grantor trusts
|
615
|
|
|
659
|
|
Inventories, net
|
10
|
|
|
4
|
|
Interest
|
243
|
|
|
238
|
|
Lease liabilities
|
27
|
|
|
—
|
|
Other accrued liabilities
|
10
|
|
|
1
|
|
Other
|
11
|
|
|
10
|
|
Total deferred tax assets
|
3,061
|
|
|
2,754
|
|
Valuation allowance associated with deferred tax assets
|
(2,791)
|
|
|
(2,619)
|
|
Net deferred tax assets
|
270
|
|
|
135
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Inventories, net
|
(6)
|
|
|
(2)
|
|
Property, plant and equipment, net
|
(242)
|
|
|
(208)
|
|
Intangible assets, net
|
(45)
|
|
|
(44)
|
|
Lease assets
|
(28)
|
|
|
—
|
|
Foreign exchange
|
(9)
|
|
|
—
|
|
Other
|
(14)
|
|
|
(7)
|
|
Total deferred tax liabilities
|
(344)
|
|
|
(261)
|
|
Net deferred tax liability
|
$
|
(74)
|
|
|
$
|
(126)
|
|
|
|
|
|
Balance sheet classifications:
|
|
|
|
Deferred tax assets — long-term
|
$
|
110
|
|
|
$
|
37
|
|
Deferred tax liabilities — long-term
|
$
|
(184)
|
|
|
$
|
(163)
|
|
Net deferred tax liability
|
$
|
(74)
|
|
|
$
|
(126)
|
|
The application of business combination accounting on April 10, 2019 resulted in the remeasurement of deferred income taxes associated with the assets and liabilities of the acquired entities at fair value pursuant to ASC 805. As a result, net deferred tax assets of $55 million were recorded in accordance with ASC 740. Significant changes by category impacted by the acquisition were related to Net operating loss and other carryforwards of $186 million, Property, plant, and equipment $49 million, and Reserves for environmental remediation and restoration $23 million under deferred tax assets and to Property, plant and equipment, ($49) million and Inventories ($30) million under deferred tax liabilities in the above table. Acquired companies in certain jurisdictions also included valuation allowances in Australia, Brazil, Switzerland, and the United Kingdom of ($123) million of the value in the above table.
The net deferred tax liabilities reflected in the above table include deferred tax assets related to grantor trusts, which were established as Tronox Incorporated emerged from bankruptcy during 2011. The balances relate to the assets contributed to such grantor trusts by Tronox Incorporated 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 2018 and 2019, the U.S. net operating loss increased as the grantor trusts spent a portion of the funds received from the litigation.
There was an increase to our valuation allowance of $172 million during 2019, a decrease of $205 million in 2018, and a decrease of $532 million in 2017. The table below sets forth the changes, by jurisdiction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Australia
|
$
|
89
|
|
|
$
|
(144)
|
|
|
$
|
359
|
|
United Kingdom
|
(2)
|
|
|
8
|
|
|
10
|
|
United States
|
54
|
|
|
(12)
|
|
|
(899)
|
|
The Netherlands
|
—
|
|
|
(57)
|
|
|
(1)
|
|
South Africa
|
—
|
|
|
—
|
|
|
(1)
|
|
Brazil
|
14
|
|
|
—
|
|
|
—
|
|
Switzerland
|
15
|
|
|
—
|
|
|
—
|
|
Belgium
|
2
|
|
|
—
|
|
|
—
|
|
Total (decrease) increase in valuation allowances
|
$
|
172
|
|
|
$
|
(205)
|
|
|
$
|
(532)
|
|
As part of the functions under business combination accounting pursuant to ASC 805 and deferred income taxes in accordance with ASC 740, the company evaluated deferred tax attributes in each jurisdiction for application of a valuation allowance. Some operations acquired in the Cristal Transaction included a full or partial valuation allowance at the time of acquisition. Evidence provided to the Company that was maintained previously to support valuation allowances at acquisition was used along with considerations of any changes in operations and possible combinations with deferred tax attributes of the Company’s existing operations in each jurisdiction. It was determined that France would remove its valuation allowance, Australia and Brazil would increase from partial to full valuation allowances, Belgium would add a full valuation allowance, and Switzerland and the United States would sustain full valuation allowances at acquisition.
We released the valuation allowance of the operating entity in the Netherlands in 2018. During the period ended June 30, 2018, the Company had accumulated enough objective positive evidence to support the prospective use of its deferred tax assets held by the operating entity in the Netherlands. The valuation allowance in Australia decreased following the Company’s settlement which reduced its prior year NOLs. This was partially offset by current year losses in Australia.
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.
At December 31, 2019, we maintain full valuation allowances related to the total net deferred tax assets in Australia, Brazil, Switzerland, and the United States, 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. Future provisions for income taxes will include no tax benefits with respect to losses incurred and tax expense only to the extent of current U.S. state tax and current Brazil Social Contribution tax payments until the valuation allowances are eliminated. Additionally, we have valuation allowances against specific tax assets in the Netherlands, South Africa, and the United Kingdom.
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 Netherlands, Switzerland, the United Kingdom, and the United States relates to recent book losses and the lack of sufficient projected taxable income. The most significant evidential matter for South Africa relates to capital losses and assets that cannot be depleted or depreciated for tax purposes.
An ownership change occurred during 2019 for the Cristal U.S. businesses as a result of the acquisition by the Company. These ownership changes resulted in a limitation under IRC Sections 382 and 383 related to the net operating losses of the Cristal U.S. businesses. The net limitations related to the ownership change resulted in a reduction of $69 million of the acquired U.S. loss carryforward, offset by corresponding reduction to a valuation allowance. The Company did not have any transactions during 2019 that triggered an ownership change under IRC Sections 382 and 383 for the Tronox U.S. businesses.
The Company’s ability to use U.S. net operating losses and section 163(j) interest expense carryforwards (which are subject to Section 382 limitations) 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 rolling three-year period. If an ownership change does occur during 2020, the resulting impact could be a limitation of up to $5.4 billion composed of both U.S. net operating losses and interest limitation carryforwards. There would be no impact on the future grantor trust deductions from an IRC Section 382 change. The balance of the future Grantor Trust deductions at December 31, 2019 was $2.3 billion.
The deferred tax assets generated by tax loss carryforwards in Australia and the United States have been fully offset by valuation allowances. The expiration of these carryforwards at December 31, 2019 is shown below. The Australian, South African, French, Brazilian and United Kingdom tax loss carryforwards do not expire.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Unlimited
|
|
Total Tax Loss Carryforwards
|
United Kingdom
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
(149)
|
|
|
$
|
(149)
|
|
Australia
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(438)
|
|
|
(438)
|
|
The Netherlands
|
—
|
|
|
(7)
|
|
|
(32)
|
|
|
(36)
|
|
|
|
(29)
|
|
|
|
(34)
|
|
|
—
|
|
|
(138)
|
|
France
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(231)
|
|
|
(231)
|
|
Brazil
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(13)
|
|
|
(13)
|
|
Switzerland
|
—
|
|
|
—
|
|
|
(101)
|
|
|
(80)
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
(181)
|
|
U.S. Federal
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,131)
|
|
|
(203)
|
|
|
(4,334)
|
|
U.S. State
|
(13)
|
|
|
|
(10)
|
|
|
|
(8)
|
|
|
|
(31)
|
|
|
|
(16)
|
|
|
|
(4,261)
|
|
|
|
(34)
|
|
|
(4,373)
|
|
Other
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3)
|
|
|
(3)
|
|
Total tax loss carryforwards
|
$
|
(13)
|
|
|
$
|
(17)
|
|
|
$
|
(141)
|
|
|
$
|
(147)
|
|
|
|
$
|
(45)
|
|
|
|
$
|
(8,426)
|
|
|
$
|
(1,071)
|
|
|
$
|
(9,860)
|
|
At December 31, 2019, Tronox Holdings plc had foreign subsidiaries with undistributed earnings. Although we would not be subject to income tax on these earnings, amounts totaling $300 million could be subject to withholding tax if distributed. We have made no provision for deferred taxes for Tronox Holdings plc related to these undistributed earnings because they are considered to be indefinitely reinvested outside of the parents’ taxing jurisdictions.
The noncurrent liabilities section of our Consolidated Balance Sheet does not reflect any reserves for uncertain tax positions for either 2019 or 2018.
Our Australian, South African, and Brazilian returns are closed through 2014. Our U.S. returns are closed through 2015. Our Netherlands, French and United Kingdom returns are closed through 2016.
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 created sweeping tax reform, and the SEC issued Staff Accounting Bulletin 118 (SAB 118), which provided guidance on accounting for tax effects of H.R. 1 under ASC 740. As listed above these acts significantly impacted the effective tax rate disclosure for the year ended December 31, 2018.
H.R. 1 included a number of broad and complex changes to the U.S. tax code. The most significant of these changes to the Company was 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 2018 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 was considered to be complete during the year ended December 31, 2018. Other provisions of this tax reform had been reasonably estimated but were 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. Under the guidance of SAB 118, our accounting for Tax Cuts and Jobs Act (H.R. 1) was considered complete as of December 22, 2018. There are no material financial statement differences for the year ended December 31, 2019, or any interim period therein, from the information reported for the year ended December 31, 2018 resulting from the additional guidance issued by both the Internal Revenue Service and state taxing authorities.
During the three months ended March 31, 2018, the Company took steps necessary to restore a deferred interest deduction previously determined to be non-deductible under preliminary guidance on the provisions of H.R. 1. Concerns surrounding the new Base Erosion and Anti-Abuse Tax (BEAT) along with the changes to interest expense deductibility under IRC §163(j) remained outstanding until the period ended December 31, 2019. An IRS Proposed Regulation issued December 2, 2019 regarding BEAT resolved those outstanding concerns. We believe the guidance which is currently available is sufficient to support our final position regarding the impact of U.S. tax reform.
9. Loss Per Share
The computation of basic and diluted loss per share for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Numerator – Basic and Diluted:
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
(102)
|
|
|
$
|
30
|
|
|
$
|
(93)
|
|
Less: Net income (loss) from continuing operations attributable to noncontrolling interest
|
12
|
|
|
37
|
|
|
13
|
|
Undistributed net loss from continuing operations attributable to Tronox Holdings plc
|
(114)
|
|
|
(7)
|
|
|
(106)
|
|
Net (loss) income from discontinued operations available to ordinary shares
|
5
|
|
|
—
|
|
|
(179)
|
|
Net loss available to ordinary shares
|
$
|
(109)
|
|
|
$
|
(7)
|
|
|
$
|
(285)
|
|
Denominator – Basic and Diluted:
|
|
|
|
|
|
Weighted-average ordinary shares (in thousands)
|
139,859
|
|
|
122,881
|
|
|
119,502
|
|
Net income (loss) per Ordinary Share:
|
|
|
|
|
|
Basic and diluted net loss from continuing operations per ordinary share
|
$
|
(0.81)
|
|
|
$
|
(0.06)
|
|
|
$
|
(0.89)
|
|
Basic and diluted net (loss) income from discontinued operations per ordinary share
|
0.03
|
|
|
—
|
|
|
(1.50)
|
|
Basic and diluted net loss per ordinary share
|
$
|
(0.78)
|
|
|
$
|
(0.06)
|
|
|
$
|
(2.39)
|
|
Net loss per ordinary share amounts were calculated from exact, unrounded net loss and share information. Prior to January 2019, we had issued shares of restricted stock which were participating securities that did not have a contractual obligation to share in losses; therefore, when we have a net loss, none of the loss is allocated to these participating securities. The restricted stock vested on January 29, 2019. Consequently, for the years ended December 31, 2019, 2018 and 2017, the two-class method did not have an effect on our net loss per ordinary share calculation, and as such, dividends paid during these periods did not impact this calculation.
In computing diluted net loss per share under the two-class method, we considered potentially dilutive shares. Anti-dilutive shares not recognized in the diluted net loss per share calculation for the years ended December 31, 2019, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Options
|
1,260,902
|
|
|
1,319,743
|
|
|
1,707,133
|
|
Series A Warrants
|
—
|
|
|
—
|
|
|
222,939
|
|
Series B Warrants
|
—
|
|
|
—
|
|
|
328,563
|
|
Restricted share units
|
5,557,659
|
|
|
5,336,433
|
|
|
5,478,269
|
|
Series A and Series B Warrants expired on February 14, 2018.
10. Inventories, net
Inventories, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Raw materials
|
$
|
205
|
|
|
$
|
102
|
|
Work-in-process
|
129
|
|
|
43
|
|
Finished goods, net
|
573
|
|
|
225
|
|
Materials and supplies, net
|
224
|
|
|
109
|
|
Inventories, net - current
|
1,131
|
|
|
479
|
|
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 products.
At December 31, 2019 and 2018, inventory obsolescence reserves were $39 million and $13 million, respectively. At December 31, 2019 and December 31, 2018, reserves for lower of cost and net realizable value were $25 million and $17 million, respectively.
11. Property, Plant and Equipment
Property, plant and equipment, net of accumulated depreciation, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Land and land improvements
|
$
|
191
|
|
|
$
|
96
|
|
Buildings
|
340
|
|
|
242
|
|
Machinery and equipment
|
2,028
|
|
|
1,395
|
|
Construction-in-progress
|
156
|
|
|
63
|
|
Other
|
54
|
|
|
39
|
|
Total
|
2,769
|
|
|
1,835
|
|
Less: accumulated depreciation
|
(1,007)
|
|
|
(831)
|
|
Property, plant and equipment, net
|
$
|
1,762
|
|
|
$
|
1,004
|
|
Substantially all the Property, plant and equipment, net is pledged as collateral for our debt. See Note 15. Refer to Note 3 for Property, plant and equipment acquired as a result of the Cristal Transaction.
The table below summarizes depreciation expense related to property, plant and equipment for the periods presented, recorded in the specific line items in our Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Cost of goods sold
|
$
|
189
|
|
|
$
|
131
|
|
|
$
|
122
|
|
Selling, general and administrative expenses
|
5
|
|
|
3
|
|
|
3
|
|
Total
|
$
|
194
|
|
|
$
|
134
|
|
|
$
|
125
|
|
12. Mineral Leaseholds, net
Mineral leaseholds, net of accumulated depletion, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Mineral leaseholds
|
$
|
1,352
|
|
|
$
|
1,238
|
|
Less accumulated depletion
|
(500)
|
|
|
(442)
|
|
Mineral leaseholds, net
|
$
|
852
|
|
|
$
|
796
|
|
Refer to Note 3 for Mineral leaseholds acquired as a result of the Cristal Transaction.
Depletion expense related to mineral leaseholds during 2019, 2018, and 2017 was $56 million, $35 million, and $32 million, respectively, and was recorded in “Cost of goods sold” in the Consolidated Statements of Operations.
13. Intangible Assets, net
Intangible Assets, net of accumulated amortization, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Gross Cost
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Cost
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Customer relationships
|
$
|
291
|
|
|
$
|
(173)
|
|
|
$
|
118
|
|
|
$
|
291
|
|
|
$
|
(154)
|
|
|
$
|
137
|
|
TiO2 technology(1)
|
92
|
|
|
(17)
|
|
|
75
|
|
|
32
|
|
|
(13)
|
|
|
19
|
|
Internal-use software and other
|
49
|
|
|
(34)
|
|
|
15
|
|
|
47
|
|
|
(27)
|
|
|
20
|
|
Intangible assets, net
|
$
|
432
|
|
|
$
|
(224)
|
|
|
$
|
208
|
|
|
$
|
370
|
|
|
$
|
(194)
|
|
|
$
|
176
|
|
(1) Refer to Note 3 for Intangible assets acquired as a result of the Cristal Transaction.
The table below summarizes amortization expense related to intangible assets for the periods presented, recorded in the specific line items in our Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Cost of goods sold
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Selling, general and administrative expenses
|
28
|
|
|
25
|
|
|
24
|
|
Total
|
$
|
30
|
|
|
$
|
26
|
|
|
$
|
25
|
|
Estimated future amortization expense related to intangible assets is $32 million for 2020, $31 million for 2021, $28 million for 2022, $27 million for 2023, $26 million for 2024 and $64 million thereafter.
14. Balance Sheet and Cash Flows Supplemental Information
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Employee-related costs and benefits
|
$
|
103
|
|
|
$
|
69
|
|
Related party payables
|
7
|
|
|
—
|
|
Interest
|
16
|
|
|
16
|
|
Sales rebates
|
39
|
|
|
18
|
|
Restructuring
|
10
|
|
|
—
|
|
Taxes other than income taxes
|
6
|
|
|
5
|
|
Asset retirement obligations
|
16
|
|
|
6
|
|
Interest rate swaps
|
22
|
|
|
6
|
|
Professional fees and other
|
60
|
|
|
20
|
|
Liabilities held for sale
|
4
|
|
|
—
|
|
Accrued liabilities
|
$
|
283
|
|
|
$
|
140
|
|
Additional supplemental cash flow information for the year ended December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
Supplemental non cash information:
|
|
Year Ended December 31, 2019
|
Investing activities- shares issued in the Cristal Transaction
|
|
$
|
526
|
|
Financing activities- debt assumed in the Cristal Transaction
|
|
$
|
22
|
|
15. Debt
SABB Credit Facility
On October 16, 2019, our KSA subsidiary entered into a short-term working capital facility with the Saudi British Bank (“SABB Facility”) for an amount up to SAR 70 million (approximately $19 million) maturing in July 2020. The SABB Facility bears interest at the Saudi Inter Bank Offered Rate plus 180 basis points on outstanding balances. During October 2019, the Company borrowed SAR 50 million (or approximately $13 million at December 31, 2019 exchange rate) under the SABB Facility and subsequently repaid the outstanding balance in December 2019.
Wells Fargo Revolver
On September 22, 2017, we entered into a new global senior secured asset-based syndicated revolving credit facility with Wells Fargo Bank, N.A. (the “Wells Fargo Revolver”). The Wells Fargo Revolver which initially provided us with up to $550 million of revolving credit lines, with an $85 million sublimit for letters of credit, and has a maturity date of September 22, 2022. Our availability of revolving credit loans and letters of credit is subject to a borrowing base. Borrowings bear 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 is 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 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.
On March 22, 2019, we entered into a consent and amendment to the Wells Fargo Revolver and an amendment to our Term Loan Facility. The purpose of each amendment was to, among other things, (i) permit the refinancing of certain existing indebtedness incurred by our South African subsidiaries, Tronox KZN Sands Proprietary Limited and Tronox Mineral Sands Proprietary Limited, and the proposed uses of proceeds thereof, and (ii) implement required provisions in both the Wells Fargo Revolver and Term Loan Facility necessary in connection with the establishment of Tronox Holdings plc.
The Wells Fargo Revolver amendment also modified certain components of the borrowing base in order to increase the potential availability of credit. We also voluntarily reduced the revolving credit lines under the Wells Fargo Revolver from $550 million to $350 million. As a result of this modification, we accelerated the recognition of a portion of the deferred financing costs related to the Wells Fargo Revolver and during the three months ended March 31, 2019, recorded a charge of $2 million in “Loss on extinguishment of debt” within the Consolidated Statement of Operations. At December 31, 2019, there were no outstanding revolving credit loans under the Wells Fargo Revolver, excluding $21 million of issued and undrawn letters of credit under the Wells Fargo Revolver. Debt issuance costs associated with the Wells Fargo Revolver of $3 million were included in “Other long-term assets” in the Consolidated Balance Sheets at December 31, 2019 and are being amortized over the life of the Wells Fargo Revolver.
The Wells Fargo Revolver contains a springing financial covenant that requires the Company and its restricted subsidiaries to maintain a consolidated fixed charge coverage ratio of at least 1.0:1.0 during certain test periods based on borrowing availability under the Wells Fargo Revolver or following the occurrence of specified events of default.
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 (or approximately $54 million at December 31, 2019 exchange rate) maturing on December 13, 2020 (the “ABSA Revolver”). In connection with the Standard Bank Revolver entered into on March 25, 2019, discussed below, the ABSA Revolver was terminated on March 26, 2019. As a result of the termination, we accelerated the recognition of the remaining deferred financing costs related to the ABSA Revolver during the three months ended March 31, 2019 and recorded less than $1 million in “Loss on extinguishment of debt” within the Consolidated Statement of Operations.
Standard Bank Credit Facility
On March 25, 2019, our South African subsidiaries, Tronox KZN Sands Proprietary Limited and Tronox Mineral Sands Proprietary Limited, entered into the Standard Bank Credit Facility for an amount up to R1 billion (approximately $72 million at December 31, 2019 exchange rate) maturing on March 25, 2022. The Standard Bank Credit Facility bears interest at the Johannesburg Interbank Average Rate (“JIBAR”) plus 260 basis points when net leverage for our South African subsidiaries (total combined debt outstanding under the Standard Bank Revolver and Standard Bank Term less cash and cash equivalents divided by the consolidated EBITDA) is less than 1.5 and JIBAR plus 285 basis points when net leverage is greater than 1.5. There were no balances outstanding at December 31, 2019.
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 Standard Bank Term Loan Facility with a maturity date of March 25, 2024. The Term Loan Facility consists of (i) an aggregate principal amount of R2.6 billion (“Amortizing Loan”, approximately $186 million at December 31, 2019 exchange rate) the principal of which will 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 Standard Bank Term Loan Facility. During the third quarter of 2019, we repaid the outstanding balance on the Bullet Loan.
The Amortizing Loan bears interest at JIBAR plus 260 basis points when net leverage of the South African subsidiaries is less than 1.5 and JIBAR plus 285 points when net leverage is greater than 1.5. At December 31, 2019, the outstanding principal amounts for the Amortizing Loan was R2.2 billion (approximately $158 million).
The Standard Bank Term Loan Facility contains financial covenants relating to certain ratio tests.
Cristal Debt Acquired
As part of the Cristal Transaction, we became party to certain debt arrangements as described below:
•A revolving credit facility with Emirates NBD PJSC, that originally matured on December 31, 2019 and was extended to to March 31, 2020, under which we will have the ability to borrow up to approximately $50 million. The revolver is secured by inventory and trade receivables of Cristal 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, 2019.
•A working capital debt agreement in China (“Tikon Loan”) that matures in April and May of 2021. The Tikon Loan bears 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. At December 31, 2019, the outstanding balance on the Tikon Loan was approximately CNY 111 million (approximately $16 million USD at December 31, 2019 exchange rate).
•An interest free loan with the Australian government (“Australian Government Loan”) that matures in December 2021 subject to renewal every 5 years with final termination in December 2036. The loan balance due upon maturity is AUD 6 million (approximately $5.3 million at December 31, 2019 exchange rate). At December 31, 2019, the discounted value on the Australian Government Loan was approximately AUD 1.5 million (approximately $1 million at December 31, 2019 exchange rate).
Long-term Debt
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,
2019
|
|
December 31,
2018
|
Term Loan Facility, net of unamortized discount(1)
|
$
|
2,150
|
|
|
Variable
|
|
9/22/2024
|
|
$
|
1,805
|
|
|
$
|
2,119
|
|
Senior Notes due 2025
|
450
|
|
|
5.75
|
%
|
|
10/1/2025
|
|
450
|
|
|
450
|
|
Senior Notes due 2026
|
615
|
|
|
6.50
|
%
|
|
4/15/2026
|
|
615
|
|
|
615
|
|
Standard Bank Term Loan Facility(1)
|
222
|
|
|
Variable
|
|
|
3/25/2024
|
|
158
|
|
|
—
|
|
Tikon Loan
|
N/A
|
|
|
Variable
|
|
|
5/23/2021
|
|
16
|
|
|
—
|
|
Australian Government Loan, net of unamortized discount
|
N/A
|
|
|
N/A
|
|
|
12/31/2036
|
|
1
|
|
|
—
|
|
Finance leases
|
|
|
|
|
|
|
15
|
|
|
16
|
|
Total debt
|
|
|
|
|
|
|
3,060
|
|
|
3,200
|
|
Less: Long-term debt due within one year
|
|
|
|
|
|
|
(38)
|
|
|
(22)
|
|
Debt issuance costs
|
|
|
|
|
|
|
(34)
|
|
|
(39)
|
|
Long-term debt, net
|
|
|
|
|
|
|
$
|
2,988
|
|
|
$
|
3,139
|
|
(1)The average effective interest rate for the Term Loan Facility was 5.6% and 5.5% for the years ended December 31, 2019 and 2018, respectively. The average effective interest rate on the Standard Bank Term Loan Facility was 9.7% for the year ended December 31, 2019.
At December 31, 2019, the scheduled maturities of our long-term debt were as follows:
|
|
|
|
|
|
|
Total Borrowings
|
2020
|
38
|
|
2021
|
54
|
|
2022
|
38
|
|
2023
|
38
|
|
2024
|
1,824
|
|
Thereafter
|
1,080
|
|
Total
|
3,072
|
|
Remaining accretion associated with the Term Loan Facility and Australian Government Loan
|
(12)
|
|
Total borrowings
|
3,060
|
|
Term Loan Facility
On September 22, 2017, we entered into a new senior secured first lien term loan facility (the “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 Term Loan Facility consists of (i) a U.S. dollar term facility in an aggregate principal amount of $1.5 billion (the “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 on April 10, 2019, the Blocked Borrower merged with and into Tronox Finance, and the Blocked Term Loan became available to Tronox Finance.
Pursuant to the terms of the Term Loan Facility in the event of an asset sale, some or all of the net proceeds from the sale may be required to be used to prepay borrowings under the Term Loan Facility based on the ratio of the total combined debt outstanding under the Term Loan Facility and the Wells Fargo Revolver to the consolidated EBITDA for the previous four quarters, as defined in the Term Loan Facility (the "First Lien Net Leverage Ratio"). If this ratio is greater than three, then all of the net proceeds from an asset sale would be required to be used to prepay borrowings under the Term Loan Facility, while if the ratio were less than three but greater than 2.75, 50% of the net proceeds would be required for prepayment and if the ratio were less than 2.75, no prepayment would be required. On May 1, 2019, we divested Cristal’s North American operations for approximately $701 million and subsequent to the sale, our First Lien Net Leverage Ratio was below 2.75, and, as a result, the sale of the North American operations did not trigger a prepayment event.
The Term Loan Facility bears 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 Ratio the Applicable Rate under the Term Loan Facility as of December 31, 2019 was 2.75% basis points plus LIBOR. The Term Loan Facility was issued net of an original issue discount of $11 million.
On February 25, 2019, we entered into an amendment to both our Term Loan Facility and Wells Fargo Revolver. The purpose of each amendment was to make certain of our U.K. subsidiaries restricted subsidiaries, update the relevant indebtedness disclosure schedules to include certain inter-company indebtedness that had been in existence prior to the execution of each such facility, and waive an administrative omission under such facility. As a result of this amendment, the Company made two mandatory principal prepayments on the Term Loan Facility as follows: 1) $95 million subsequent to the issuance of the Standard Bank Term Loan Facility in March 2019 and 2) $100 million subsequent to the divestiture of the Cristal North American TiO2 business. The Company accounted for both of these mandatory principal prepayments as debt modifications in accordance with ASC 470. Additionally, in December 2019, the Company made a voluntary prepayment of $100 million on the Term Loan Facility. As a result of the voluntary prepayment, we accelerated the recognition of a portion of deferred financing costs and discount related to the Term Loan Facility and recorded $1 million in “Loss on extinguishment of debt” within the Consolidated Statement of Operations. No prepayment penalties were required as a result of these principal prepayments.
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 provide among other things, that the Senior Notes due 2025 are senior unsecured obligations of Tronox Finance plc and are guaranteed on a senior and unsecured basis by us and certain of our other subsidiaries. The Senior Notes due 2025 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. Interest is 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, 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 include certain limitations on our non-guarantor subsidiaries incurring indebtedness.
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 provide, among other things, that the Senior Notes due 2026 are senior unsecured obligations of Tronox Incorporated and are guaranteed on a senior and unsecured basis by us and certain of our other subsidiaries. The Senior Notes due 2026 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. Interest is 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, limit, 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 include 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. Debt issuance costs of $10 million
related to the Senior Notes due 2026 were recorded as a direct reduction of the carrying value of the long-term debt. Additionally, in connection with the redemption of our Senior Notes due 2022, we recorded $30 million in debt extinguishment costs including a call premium of $22 million during the second quarter of 2018.
Debt Covenants
At December 31, 2019, we are in compliance with all financial covenants in our debt facilities.
Interest and Debt Expense, Net
Interest and debt expense, net in the Consolidated Statements of Operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Interest on debt
|
$
|
186
|
|
|
$
|
180
|
|
|
$
|
171
|
|
Amortization of deferred debt issuance costs and discounts on debt
|
8
|
|
|
11
|
|
|
15
|
|
Capitalized interest
|
(1)
|
|
|
(3)
|
|
|
(2)
|
|
Interest on capital leases and letters of credit and commitments
|
8
|
|
|
5
|
|
|
4
|
|
Total interest and debt expense, net
|
$
|
201
|
|
|
$
|
193
|
|
|
$
|
188
|
|
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-line basis for our Wells Fargo Revolver. At December 31, 2019, we had deferred debt issuance costs of $3 million related to the Wells Fargo Revolver, which is recorded in “Other long-term assets” in the Consolidated Balance Sheets. At December 31, 2019, we had $12 million and $34 million of debt discount and debt issuance costs, respectively, related to our term loan and senior notes, which were recorded as a direct reduction of the carrying value of the long-term debt in the Consolidated Balance Sheets.
16. Derivative Financial Instruments
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.
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, 2019, the amounts recorded in interest expense related to the interest-rate swap agreements was less than $1 million. The fair value of the outstanding interest-rate swap contracts at December 31, 2019 was $22 million and was included in “Accrued liabilities” with a corresponding amount recorded in "Accumulated other comprehensive loss" on the Consolidated Balance Sheet.
Foreign Currency Risk
During the third quarter of 2019, we entered 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 income (expense) when the transactions are no longer probable of occurring.
As of December 31, 2019, we had notional amounts of (i) 3.7 billion South African rand (approximately $265 million at December 31, 2019 exchange rate) that expire between January 30, 2020 and February 25, 2021 to reduce the exposure of our South African subsidiaries’ third party sales to fluctuations in currency rates, and (ii) 486 million Australian dollars (approximately $341 million at December 31, 2019 exchange rate) that expire between January 30, 2020 and February 25, 2021 to reduce the exposure of our Australian subsidiaries’ cost of sales to fluctuations in currency rates. For the year ended December 31, 2019, we recorded a gain of $5 million and $3 million in “Net sales” and “Cost of goods sold” respectively on the Consolidated Statement of Operations, related to our cash flow hedges. There were no amounts recognized for foreign currency
cash flow hedges in the comparative periods of 2018. At December 31, 2019, the unrealized net gain associated with the open contracts used to hedge forecasted third party non-functional currency sales for our South African subsidiaries and the net unrealized gain associated with the open contracts to hedge forecasted non-functional currency cost of goods sold for our Australian subsidiaries was approximately $25 million and $12 million, respectively, of which $34 million is included in "Prepaid and other assets" and $3 million is included in "Other long-term assets" on our Consolidated Balance Sheet. Additionally, a corresponding $30 million credit, net of tax, is recorded in "Accumulated other comprehensive loss" on the Consolidated Balance Sheet which is expected to be recognized in earnings over the next twelve months.
We enter into foreign currency contracts for the South African rand to reduce exposure of our subsidiaries’ balance sheet accounts not denominated in our South African 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 income (expense), net” within the Consolidated Statement of Operations 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, 2019, there was $4 million, in the aggregate, of notional amount of outstanding foreign currency contracts with a fair value of a gain of less than $1 million. We determined the fair value of the foreign currency contracts 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 is a Level 2 input. For the year ended December 31, 2019, the gain associated with these contracts was $7 million recorded in "Other income (expense), net" within the Consolidated Statement of Operations.
17. 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, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
December 31,
2018
|
Term Loan Facility
|
$
|
1,820
|
|
|
$
|
2,074
|
|
Standard Bank Term Loan Facility
|
158
|
|
|
|
—
|
|
Senior Notes due 2025
|
459
|
|
|
368
|
|
Senior Notes due 2026
|
636
|
|
|
518
|
|
Tikon Loan
|
16
|
|
|
|
—
|
|
Australian Government Loan
|
1
|
|
|
|
—
|
|
Interest rate swaps
|
22
|
|
|
|
—
|
|
Foreign currency contracts
|
37
|
|
|
|
—
|
|
We determined the fair value of the Term Loan Facility, the Senior Notes due 2025 and the Senior Notes due 2026 using quoted market prices, which under the fair value hierarchy is a Level 1 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.
18. Leases
Financial information for the year ended December 31, 2019 is presented under the new standard, while the comparative periods are not required since we adopted the new standard using the modified retrospective adjustment approach. See Note 2 for further details.
Lease expense for the year ended December 31, 2019 was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
Operating lease expense
|
|
$
|
41
|
|
|
|
|
|
Finance lease expense:
|
|
|
|
Amortization of right-of-use assets
|
|
1
|
|
Interest on lease liabilities
|
|
2
|
|
|
|
|
|
Short term lease expense
|
|
22
|
|
Variable lease expense
|
|
20
|
|
Total lease expense
|
|
$
|
86
|
|
The table below summarizes lease expense for the year ended December 31, 2019, recorded in the specific line items in our Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
Cost of goods sold
|
|
$
|
80
|
|
Selling, general and administrative expenses
|
|
6
|
|
Total
|
|
$
|
86
|
|
The weighted-average remaining lease term in years and weighted-average discount rates at December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Weighted-average remaining lease term:
|
|
|
Operating leases
|
|
3.7
|
Finance leases
|
|
10.4
|
|
|
|
Weighted-average discount rate:
|
|
|
Operating leases
|
|
8.5
|
%
|
Finance leases
|
|
14.2
|
%
|
The maturity analysis for operating leases and finance leases at December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
2020
|
|
|
$
|
44
|
|
|
|
$
|
3
|
|
2021
|
|
|
35
|
|
|
|
3
|
|
2022
|
|
|
17
|
|
|
|
3
|
|
2023
|
|
|
7
|
|
|
|
3
|
|
2024
|
|
|
5
|
|
|
|
3
|
|
Thereafter
|
|
|
8
|
|
|
|
15
|
|
Total lease payments
|
|
|
116
|
|
|
|
30
|
|
Less: imputed interest
|
|
|
(16)
|
|
|
|
(15)
|
|
Present value of lease payments
|
|
|
$
|
100
|
|
|
|
$
|
15
|
|
The minimum commitments for operating leases and finance leases at December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
2019
|
|
|
$
|
15
|
|
|
|
$
|
3
|
|
2020
|
|
|
6
|
|
|
|
3
|
|
2021
|
|
|
5
|
|
|
|
3
|
|
2022
|
|
|
4
|
|
|
|
3
|
|
2023
|
|
|
3
|
|
|
|
3
|
|
Thereafter
|
|
|
4
|
|
|
|
18
|
|
Total lease payments
|
|
|
$
|
37
|
|
|
|
$
|
33
|
|
Total rent expense related to operating leases recorded in "Cost of goods sold" in the Consolidated Statement of Operations was $22 million each during 2018 and 2017. Total rent expense related to operating leases recorded in "Selling, general and administrative expense" in the Consolidated Statement of Operations was $2 million each during 2018 and 2017. During both 2018 and 2017, we made principal payments of less than $1 million for finance leases.
Additional information relating to cash flows and ROU assets for the year ended December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows used for operating leases
|
|
$
|
41
|
|
Operating cash flows used for finance leases
|
|
$
|
2
|
|
Financing cash flows used for finance leases
|
|
$
|
1
|
|
Additional information relating to ROU assets for the year ended December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
ROU assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases obtained in the normal course of business
|
|
$
|
28
|
|
Operating leases acquired in connection with Cristal acquisition
|
|
$
|
40
|
|
As of December 31, 2019, we have additional operating leases, primarily for equipment and machinery, that have not yet commenced. The related ROU asset is approximately $1 million. These leases will commence later in 2020 with lease terms of approximately two years.
19. 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,
|
|
|
|
2019
|
|
2018
|
Balance, January 1
|
$
|
74
|
|
|
$
|
82
|
|
Additions
|
3
|
|
|
6
|
|
Accretion expense
|
10
|
|
|
5
|
|
Remeasurement/translation
|
—
|
|
|
(8)
|
|
Changes in estimates, including cost and timing of cash flows
|
(8)
|
|
|
(4)
|
|
Settlements/payments
|
(4)
|
|
|
(3)
|
|
Acquired with the acquisition of Cristal
|
83
|
|
|
—
|
|
Disposed with the sale of Henderson Electrolytic
|
—
|
|
|
(4)
|
|
Balance, December 31
|
$
|
158
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Asset retirement obligations were classified as follows:
|
|
|
|
Current portion included in “Accrued liabilities”
|
$
|
16
|
|
|
$
|
6
|
|
Noncurrent portion included in “Asset retirement obligations”
|
142
|
|
|
68
|
|
Asset retirement obligations
|
$
|
158
|
|
|
$
|
74
|
|
We used the following assumptions in determining asset retirement obligations at December 31, 2019: inflation rates between 1.6% - 4.9% per year; credit adjusted risk-free interest rates between 6.0% -16.8%; the life of mines between 1-28 years and the useful life of assets between 3-34 years.
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 December 31, 2019 and 2018, the environmental rehabilitation trust assets were $14 million and $12 million, respectively, which were recorded in “Other long-term assets” in the Consolidated Balance Sheets.
20. Commitments and Contingencies
Purchase and Capital Commitments—At December 31, 2019, purchase commitments were $214 million for 2020, $64 million for 2021, $47 million for 2022, $43 million for 2023, $38 million for 2024, and $80 million thereafter.
Letters of Credit—At December 31, 2019, we had outstanding letters of credit and bank guarantees of $73 million, of which $24 million were letters of credit and $49 million were bank guarantees. Amounts for performance bonds were 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 or 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 Cristal USA, Inc. from 1954 until 2011. We assumed responsibility for remediation of the Hawkins Point
Plant when we acquired the TiO2 business of Cristal in April 2019. In 1984, a predecessor of Cristal and the Maryland Department of the Environment (“MDE”) entered into a consent decree (the “Consent Decree”) to address the Batch Attack Lagoon. The Consent Decree required that Cristal close the Batch Attack Lagoon when the Hawkins Point Plant ceased operations. In addition, we are investigating whether hazardous substances are migrating from the Batch Attack Lagoon. A provision of $56 million has been made in our financial statements for the Hawkins Point Plant consistent with the accounting policy described above. We are in discussions with the MDE regarding a new consent decree to address both the Batch Attack Lagoon as well as other environmental contamination issues associated with the Hawkins Point Plant.
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 $75 million “Break Fee” pursuant to the terms 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 Ventaor's claims and counterclaimed against Venator seeking to recover $400 million in damages from Venator that we suffered as a result of Venator’s breaches of the Exclusivity 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 Exclusivity Agreement. Though we believe that our interpretation of the Exclusivity Agreement is correct, there can be no assurance that we will prevail in litigation.
21. Accumulated Other Comprehensive Income (Loss) Attributable to Tronox Holdings plc and Other Equity Items
The tables below present changes in accumulated other comprehensive income (loss) by component for 2019, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Translation
Adjustment
|
|
Pension
Liability
Adjustment
|
|
Unrealized
Gains (losses)
on Derivatives
|
|
Total
|
Balance, January 1, 2017
|
$
|
(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)
|
|
Other comprehensive income (loss)
|
(133)
|
|
|
(5)
|
|
|
1
|
|
|
(137)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance, December 31, 2018
|
$
|
(445)
|
|
|
$
|
(95)
|
|
|
$
|
—
|
|
|
$
|
(540)
|
|
Other comprehensive income (loss)
|
3
|
|
|
(11)
|
|
|
8
|
|
|
—
|
|
Acquisition of noncontrolling interest
|
(61)
|
|
|
—
|
|
|
—
|
|
|
(61)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
2
|
|
|
(7)
|
|
|
(5)
|
|
Balance, December 31, 2019
|
$
|
(503)
|
|
|
$
|
(104)
|
|
|
$
|
1
|
|
|
$
|
(606)
|
|
Repurchase of Common Stock
In addition to the repurchase of 14 million shares from Exxaro discussed in Note 24, “Related Parties”, on June 3, 2019, the Company’s Board of Directors authorized the repurchase of up to $100 million of the Company’s stock. During the year ended December 31, 2019, we purchased 7,453,391 shares under the authorization at an average price of $11.59 per share and at a cost of approximately $87 million, including sales commissions and fees. We did not complete the full program given certain Section 382 restrictions related to our NOLs. Upon repurchase of the shares by the Company, the shares were cancelled.
22. Share-based Compensation
Share-based compensation expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Restricted shares and restricted share units
|
$
|
32
|
|
|
$
|
21
|
|
|
$
|
30
|
|
Options
|
—
|
|
|
—
|
|
|
—
|
|
T-Bucks Employee Participation Plan
|
—
|
|
|
—
|
|
|
1
|
|
Total share-based compensation expense (continuing operations)(1)
|
$
|
32
|
|
|
$
|
21
|
|
|
$
|
31
|
|
_________________
(1)2017 excludes $2 million relating to discontinued operations. See Note 6.
Tronox Holdings plc Amended and Restated Management Equity Incentive Plan
On March 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 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, as of December 31, 2019, the maximum number of shares which may be the subject of awards (inclusive of incentive options) is 20,781,225 ordinary shares.
Restricted Shares
We did not grant any restricted shares during 2019. Restricted shares issued under the MEIP contain non-forfeitable dividend rights. The following table presents a summary of activity for 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Outstanding, Outstanding, January 1, 2019
|
81,456
|
|
|
$
|
3.57
|
|
Vested
|
(81,456)
|
|
|
3.57
|
|
Outstanding, December 31, 2019
|
—
|
|
|
$
|
—
|
|
Expected to vest, December 31, 2019
|
—
|
|
|
$
|
—
|
|
At December 31, 2019, the restricted shares were fully vested. The total fair value of restricted shares that vested during both 2019 and 2018 was less than $1 million and $1 million for 2017.
Restricted Share Units (“RSUs”)
During 2017, a total of 1,397,471 RSUs were granted, pursuant to an Integration Incentive Award program (“Integration Incentive Award”) established in connection with the Cristal Transaction, to certain executive officers and managers with significant integration accountability. In addition, during the second quarter of 2018, an additional 139,225 RSUs were granted under the Integration Incentive Award. These RSUs would have vested two years from the date of the close of the Cristal Transaction and the number of shares that would have been issued to grantees would have been based upon the achievement of established performance conditions. Under the original terms of the Integration Incentive Award, if the Cristal Transaction did not close by July 1, 2018, all unvested awards pursuant to the Integration Incentive Award would immediately be canceled and forfeited.
During the second quarter of 2018, terms of the Integration Incentive Award were modified to eliminate the requirement that the Cristal Transaction must close by July 1, 2018. We accounted for this modification as a Type III modification since, at the modification date, the expectation of the award vesting changed from improbable to probable. As a result, we reversed approximately $6 million of previously recorded expense related to the Integration Incentive Award. The issued and unvested RSUs under the Integration Incentive Award were revalued based on the closing price of the Company’s stock on the modification date and will vest two years from the date the Cristal Transaction closed and based upon the achievement of established performance conditions. As a result, the estimated expense associated with the revalued award is being expensed over the period from the modification date through two years from the date that the Cristal Transaction closed.
During the third and fourth quarter of 2018, an additional 90,161 and 40,161 RSUs, respectively, were granted under the modified terms of the Integration Incentive Award, and during the third and fourth quarter of 2019, 65,387 and 16,750 additional RSUs were granted, respectively. All the integration awards discussed above will vest on April 10, 2021 if performance conditions are met.
In addition to the Integration Incentive Award, during 2019, we granted RSUs which have time and/or performance conditions. Both the time-based awards and the performance-based awards are classified as equity awards.
2019 RSU Grant-For the time-based awards valued at the weighted average grant date fair value, 195,178 RSUs were granted to Board members and vest a ratably over approximate one-year period, 1,311,677 RSUs were granted to management and vest ratably over a twenty-eight to thirty-seven month period ending March 5, 2022, and 3,528 RSUs were granted to certain Board members in lieu of cash fees earned and vested immediately. For the performance based awards, 1,307,927 RSUs were granted to management and cliff vest at the end of thirty-three to thirty-seven month period ending March 5, 2022. Vesting of the performance-based awards is based on a relative Total Shareholder Return (“TSR”) calculation compared to a peer group performance over the applicable three-year measurement period. The Company’s three-year TSR versus the peer group performance levels determines the payout percentage. The TSR metric is considered a market condition for which we use a Monte Carlo simulation to determine the grant date fair value of $12.65. The 2016 performance RSUs vested above target in 2019 and resulted in 687,485 RSUs additional shares being granted and vested immediately.
Similar TSR awards were granted during 2018 and 2017 with grant date fair values of $20.80 and $20.68, respectively, which were calculated utilizing a Monte Carlo simulation. The following weighted-average assumptions were utilized to value the grants in 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Dividend yield
|
N/A
|
|
N/A
|
|
1.37
|
%
|
Expected historical volatility
|
67.20
|
%
|
|
80.40
|
%
|
|
74.40
|
%
|
Risk free interest rate
|
2.50
|
%
|
|
2.32
|
%
|
|
1.51
|
%
|
Expected life (in years)
|
3
|
|
3
|
|
3
|
The following table presents a summary of activity for RSUs for 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Outstanding, Outstanding, January 1, 2019
|
5,336,433
|
|
|
$
|
12.92
|
|
Granted
|
3,587,932
|
|
|
10.81
|
|
Vested
|
(3,266,534)
|
|
|
6.13
|
|
Forfeited
|
(100,172)
|
|
|
13.81
|
|
Outstanding, December 31, 2019
|
5,557,659
|
|
|
$
|
15.19
|
|
Expected to vest, December 31, 2019
|
5,469,633
|
|
|
$
|
15.57
|
|
At December 31, 2019, there was $40 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 2.0 years. The weighted-average grant-date fair value of RSUs granted during 2019, 2018 and 2017 was $10.81 per unit, $19.23, and $17.55 per unit, respectively. The total fair value of RSUs that vested during 2019, 2018 and 2017 was $20 million, $17 million and $23 million, respectively.
Options
The 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 are based on (i) a fair value using the closing price of our Ordinary Shares on the grant date, (ii) a risk-free interest rate based on U.S. Treasury Strips available with a maturity period consistent with the expected life assumption, (iii) an expected volatility assumption based on historical price movements of our peer group, and (iv) a dividend yield determined based on the Company’s expected dividend payouts. We did not issue any options during 2019 and 2018 and all our options outstanding are fully vested at December 31, 2019.
The following table presents a summary of option activity for 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Contractual
Life (years)
|
|
Intrinsic
Value
|
Outstanding, January 1, 2019
|
1,319,743
|
|
|
$
|
21.53
|
|
|
4.16
|
|
$
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
(58,841)
|
|
|
21.34
|
|
|
|
|
|
Outstanding and Exercisable, December 31, 2019
|
1,260,902
|
|
|
$
|
21.54
|
|
|
3.18
|
|
$
|
—
|
|
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. There were no options exercised during 2019 and consequently there was no related intrinsic value. Total intrinsic value of options exercised during 2018 and 2017 was less than $1 million and $1 million, respectively. We issue new shares upon the exercise of options. During 2018, we received $4 million, in cash for the exercise of stock options. At both December 31, 2019 and 2018, there was no unrecognized compensation expense related to options.
23. Pension and Other Postretirement Healthcare Benefits
The following provides information regarding our U.S. and foreign plans:
U.S. Plans
Pension Plans — Tronox has two main U.S. defined benefit plans: the U.S. Qualified Plan and the U.S. Pension Plan (which was acquired as part of the Cristal acquisition). The U.S. Qualified Plan is a funded noncontributory qualified benefit plan which 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. Benefits under the U.S. Pension Plan are generally calculated based on years of credited service and average compensation as defined under the respective plan provisions. The U.S. Pension Plan is funded through contributions to a pension trust fund, generally subject to minimum funding requirements. As a result of the INEOS transaction, all active participants that moved to INEOS were terminated from the U.S. Pension Plan and became 100% vested with no further benefits accruing to those participants.
Postretirement Healthcare Plans — As part of the Cristal acquisition, we assumed liability for the Cristal U.S. retiree welfare plan. Additionally, in prior periods, we also maintained a U.S. postretirement healthcare plan which we settled in 2015 which resulted in a settlement gain of $3 million which had been deferred to “Accumulated other comprehensive loss” in the Consolidated Balance Sheet as settlement accounting requirements were deemed not fully satisfied. During 2018, we released the $3 million from “Accumulated other comprehensive loss” and recorded such amount in “Other income (expense), net” in the Consolidated Statement of Operations.
International Plans
Pension Plans — Tronox has international defined benefit commitments primarily in the United Kingdom and Saudi Arabia. As part of the Cristal acquisition, we assumed liability for a funded qualified defined benefit plan in the United Kingdom (“U.K. DB Scheme”). This plan is frozen with no additional benefits accruing to the participants. Benefits under the UK DB Scheme are generally calculated based on years of credit service and average compensation as defined under the plan provisions. Additionally, as part of the Cristal acquisition, we assumed liability of the 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 which a participant's services to the Company are terminated.
Multiemployer Pension Plan - In prior periods, we maintained a defined benefit plan in the Netherlands (the “Netherlands Plan”) to provide defined pension benefits to qualifying employees of Tronox Pigments (Holland) B.V. and its related companies. During 2014, the Netherlands Plan was replaced with a multiemployer plan, the Netherlands Contribution Plan (the "CDC Plan") effective January 1, 2015. Under the CDC Plan, employees earn benefits based on their pensionable salaries each year determined using a career average benefit formula. The collective bargaining agreement between us and the participants require us to contribute 21.2% of the participants’ pensionable salaries into a pooled fund administered by the industrywide PGB. The pensionable salary is the annual income of employees subject to a cap, which is adjusted each year to reflect the current requirements of the Netherlands’ Wages and Salaries Tax Act of 1964. Our obligation under this plan is limited to the fixed percentage contribution we make each year. The employees are entitled to any returns generated from the investment activities of the fund.
The following table outlines the details of our participation in the CDC Plan for the year ended December 31, 2019. The CDC disclosures provided herein are based on the fund’s 2018 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, 2018. 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, 2019, 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
|
|
2019
|
|
2018
|
|
FIP/RP
Pending/
Implemented
|
|
2019
|
|
2018
|
|
Surcharge
Imposed
|
|
Expiration
date of
Collective-
Bargaining
Agreement
|
PGB
|
|
NA
|
|
N/A
|
|
Green
|
|
No
|
|
$
|
4
|
|
|
$
|
4
|
|
|
No
|
|
12/31/2024
|
On the basis of the information available in the CDC Plan 2018 annual report, our contribution does not constitute more than 5 percent of the total contribution to the plan by all participants. During 2019, the fund did not impose any surcharge on us.
Postretirement Healthcare Plans — We also maintain postretirement healthcare plans in South Africa and Brazil. As part of the 2012 Exxaro Transaction, we established a post-employment healthcare plan, which provides medical and dental benefits to certain South African employees, retired employees and their registered dependents (the “South African Plan”). The South African Plan provides benefits as follows: (i) members employed before March 1, 1994 receive 100% post-retirement and death-in-service benefits; (ii) members employed on or after March 1, 1994 but before January 1, 2002 receive 2% per year of completed service subject to a maximum of 50% post-retirement and death-in-service benefits; and, (iii) members employed on or after January 1, 2002 receive no post-retirement and death-in-service benefits. As a result of the Cristal acquisition, we assumed liability for a post-retirement medical plan in Brazil (the "Brazil Medical Plan"). 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 other post-retirement benefit plans ("OPEB") as of and for the years ended December 31, 2019 and 2018. The benefit obligations and plan assets associated with our principal benefit plans are measured on December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
|
|
|
Other Post Retirement Benefit Plans
|
|
|
|
|
|
December 31
|
|
|
|
|
|
December 31
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
2019
|
|
|
|
2018
|
|
US
|
|
International
|
|
US
|
|
US
|
|
International
|
|
International
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
$
|
329
|
|
|
$
|
—
|
|
|
$
|
377
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
8
|
|
Service cost
|
1
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest cost
|
16
|
|
|
4
|
|
|
13
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Net actuarial (gains) losses
|
36
|
|
|
6
|
|
|
(27)
|
|
|
—
|
|
|
2
|
|
|
(1)
|
|
Acquisition, net(1)
|
106
|
|
|
230
|
|
|
—
|
|
|
2
|
|
|
3
|
|
|
—
|
|
Settlements
|
(59)
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency rate changes
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
Benefits paid
|
(31)
|
|
|
(10)
|
|
|
(30)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Administrative expenses
|
—
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefit obligation, end of year (2)
|
398
|
|
|
232
|
|
|
329
|
|
|
2
|
|
|
13
|
|
|
7
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
243
|
|
|
—
|
|
|
282
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Actual return on plan assets
|
51
|
|
|
6
|
|
|
(17)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition, net(1)
|
105
|
|
|
184
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
10
|
|
|
7
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(31)
|
|
|
(10)
|
|
|
(30)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency rate changes
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements
|
(59)
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Administrative expenses
|
—
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets, end of year
|
319
|
|
|
186
|
|
|
243
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net underfunded status of plans
|
$
|
(79)
|
|
|
$
|
(46)
|
|
|
$
|
(86)
|
|
|
$
|
(2)
|
|
|
$
|
(13)
|
|
|
$
|
(7)
|
|
Classification of amounts recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets
|
$
|
6
|
|
|
$
|
20
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued liabilities
|
—
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Pension and postretirement healthcare benefits
|
(85)
|
|
|
(60)
|
|
|
(86)
|
|
|
(2)
|
|
|
(13)
|
|
|
(7)
|
|
Total liabilities
|
(85)
|
|
|
(66)
|
|
|
(86)
|
|
|
(2)
|
|
|
(13)
|
|
|
(7)
|
|
Accumulated other comprehensive (income) loss
|
96
|
|
|
4
|
|
|
95
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Total
|
$
|
17
|
|
|
$
|
(42)
|
|
|
$
|
9
|
|
|
$
|
(2)
|
|
|
$
|
(12)
|
|
|
$
|
(7)
|
|
________________
(1) Represents the assets and benefit obligations assumed as part of the Cristal Transaction. Such plan assets and benefit obligations were remeasured as of the merger date and all subsequent activity through December 31, 2019 is presented within the respective captions above.
(2) Since the benefits under the U.S Qualified Plan 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 were $12 million in 2019 and estimated required contributions for 2020 are currently expected to be approximately $16 million.
The following table provides information for pension plans where the accumulated benefit obligation exceeds the fair value of the plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
|
2019
|
|
|
|
US
|
|
International
|
Projected benefit obligation (PBO)
|
$
|
351
|
|
|
$
|
67
|
|
Accumulated benefit obligation (ABO)
|
$
|
351
|
|
|
$
|
44
|
|
Fair value of plan assets
|
$
|
268
|
|
|
$
|
—
|
|
Expected Benefit Payments — The following table shows the expected cash benefit payments for the next five years and in the aggregate for the years 2025 through 2029:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025-2029
|
Pensions - US
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
29
|
|
|
$
|
29
|
|
|
$
|
131
|
|
Pensions - International
|
$
|
12
|
|
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
61
|
|
Other Post Retirement Benefit Plans - US
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Other Post Retirement Benefit Plans - International
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3
|
|
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 Operations for 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
|
|
|
Other Postretirement Benefit Plans
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
43100
|
2019
|
|
2018
|
|
2017
|
Net periodic cost:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
21
|
|
|
13
|
|
|
15
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Expected return on plan assets
|
(22)
|
|
|
(15)
|
|
|
(15)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net amortization of actuarial loss
|
2
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement losses (gains)(1)
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
Total net periodic cost - continuing operations
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
(2)
|
|
|
$
|
1
|
|
________________
(1) Recorded in Other income (expense), net in the Consolidated Statement of Operations.
Assumptions —
The following weighted average assumptions were used to determine net periodic cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
OPEB
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
2017
|
|
2019
|
|
|
|
2018
|
|
|
2017
|
|
US
|
|
International
|
|
US
|
|
US
|
|
US
|
|
International
|
|
International
|
|
|
International
|
Discount rate
|
4.34
|
%
|
|
2.50
|
%
|
|
3.71
|
%
|
|
4.25
|
%
|
|
4.00
|
%
|
|
10.25
|
%
|
|
11.54
|
%
|
|
|
10.87
|
%
|
Expected return on plan assets
|
5.69
|
%
|
|
3.00
|
%
|
|
5.64
|
%
|
|
5.64
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
The following weighted average assumptions were used in estimating the actuarial present value of benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
|
|
|
|
OPEB
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
2017
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
US
|
|
International
|
|
US
|
US
|
|
US
|
International
|
|
International
|
|
|
International
|
Discount rate
|
3.39
|
%
|
|
1.98
|
%
|
|
4.40
|
%
|
3.71
|
%
|
|
3.36
|
%
|
9.91
|
%
|
|
11.38
|
%
|
|
|
11.54
|
%
|
Rate of compensation increase
|
3.00
|
%
|
|
4.67
|
%
|
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
For the U.S. Qualified Plan and the U.S. Pension Plan, the mortality assumption was updated on December 31, 2019 to use the Society of Actuaries' most recently published generational projection scale (i.e. MP-2019) and base table (i.e. Pri-2012). The mortality improvement scale that had been used in as of December 31, 2018 was the MP-2018 projection scale and the base table was RP-2014. This update to our mortality assumption resulted in a decrease of $1 million to our projected benefit obligation as compared to December 31, 2018.
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 Company'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.
Discount Rate — The 2019 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 BVAL scores of 6 or greater. The 2018 rates were similarly selected with the exception of the use of BVAL scores as a selection criteria. Bonds with features that imply unreliable pricing, a less than certain cash flow, or other indicators of optionality are filtered out of the universe. The remaining universe is categorized into maturity groups, and within each of the maturity groups yields are ranked into percentiles.
Plan Assets — The investments of the U.S. and International 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 at December 31, 2019 and 2018, and the target asset allocation ranges, by major asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
US
|
|
|
|
International
|
|
|
|
US Qualified Plan
|
|
|
|
|
|
Actual
|
|
Target
|
|
Actual
|
|
Target
|
|
Actual
|
|
Target
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
50
|
%
|
|
|
49
|
%
|
|
7
|
%
|
|
|
4
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
Debt securities
|
|
|
48
|
|
|
|
48
|
|
|
26
|
|
|
|
25
|
|
|
|
48
|
|
|
|
48
|
|
Real estate
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
1
|
|
|
|
3
|
|
|
67
|
|
|
|
71
|
|
|
|
2
|
|
|
|
2
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
The fair values of pension investments as of December 31, 2019 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2019 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
|
|
|
$
|
68
|
|
|
|
(1)
|
$
|
—
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
$
|
68
|
|
Global comingled equity funds
|
|
|
104
|
|
|
|
(2)
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
104
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government bonds
|
|
|
69
|
|
|
|
|
|
(3)
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
69
|
|
Foreign government bonds
|
|
|
34
|
|
|
|
(3)
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
34
|
|
US corporate bonds
|
|
|
—
|
|
|
|
|
|
|
79
|
|
|
|
(4)
|
—
|
|
|
|
|
|
|
|
79
|
|
Foreign corporate bonds
|
|
|
16
|
|
|
|
|
|
(5)
|
6
|
|
|
|
(4)
|
—
|
|
|
|
|
|
|
|
22
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/ real estate fund
|
|
|
—
|
|
|
|
|
|
|
1
|
|
|
|
(6)
|
—
|
|
|
|
|
|
|
|
1
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
104
|
|
|
|
(9)
|
|
|
104
|
|
Alternative investments
|
|
|
—
|
|
|
|
|
|
(7)
|
1
|
|
|
|
(7)
|
—
|
|
|
|
|
|
|
|
1
|
|
Cash & cash equivalents
|
|
|
23
|
|
|
|
|
|
(8)
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
23
|
|
Total at fair value
|
|
|
$
|
314
|
|
|
|
|
|
|
|
$
|
87
|
|
|
|
|
|
$
|
104
|
|
|
|
|
|
|
|
$
|
505
|
|
________________
(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 a portion of 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 certain foreign corporate bonds, the category is comprised of corporate bonds of foreign companies from a diverse set of industries and size. The fair value is based on observable quoted prices on active exchanges, which are level 1 inputs.
(6)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.
(7)For alternative investments, this category is comprised of investments in alternative mutual funds whose holdings include liquid securities, cash and derivatives. Such funds focus on diversification and employ a variety of investing strategies including long/short equity, multi-strategy, and global macro. The fair value of these investments is determined by reference to the net asset value of the underlying holdings of the fund, which can be determined using observable data (e.g. indices, yield curves, quoted prices of similar securities), and is classified within level 2 of the valuation hierarchy.
(8)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.
(9)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, 2019:
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
|
|
Balance, December 31, 2018
|
|
$
|
—
|
|
Actual return on plan assets
|
|
2
|
|
Acquisitions
|
|
101
|
|
Transfers in/out of Level 3
|
|
—
|
|
Foreign currency translation
|
|
1
|
|
Balance, December 31, 2019
|
|
$
|
104
|
|
The fair values of pension investments as of December 31, 2018 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Qualified Plan
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2018, 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
|
$
|
67
|
|
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67
|
|
Equity Securities
|
54
|
|
(2)
|
—
|
|
|
—
|
|
|
54
|
|
Debt securities:
|
|
|
|
|
|
|
|
Corporate
|
—
|
|
|
56
|
|
(3)
|
—
|
|
|
56
|
|
Government
|
61
|
|
(4)
|
—
|
|
|
—
|
|
|
61
|
|
Cash & cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
Commingled cash equivalents fund
|
5
|
|
(5)
|
—
|
|
|
—
|
|
|
5
|
|
Total at fair value
|
$
|
187
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
243
|
|
________________
(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 corporate related debt securities, the fair value is based on observable inputs of comparable market transactions, which are level 2 inputs.
(4)For commingled cash equivalents funds, fair value is based on observable quoted prices on active exchanges, which are level 1 inputs.
Defined Contribution Plans
U.S. Savings Investment Plan
In 2006, we established the U.S. Savings Investment Plan (the “SIP”), a qualified defined contribution plan under section 401(k) of the Internal Revenue Code. Under the SIP, our regular full-time and part-time employees contribute a portion of their earnings, and we match these contributions up to a predefined threshold. Our matching contribution 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 approved discretionary contribution of 6% of pay for 2019, 2018 and 2017. 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 million, $4 million and $4 million during 2019, 2018 and 2017, respectively, which was included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations. Compensation expense associated with our discretionary contribution was $4 million in 2019, $5 million in 2018 and $5 million in 2017, which was included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.
U.S. Benefit Restoration Plan
In 2006, we established the U.S. Benefit Restoration Plan (the “BRP”), a nonqualified defined contribution plan, for employees whose eligible compensation is expected to exceed the IRS compensation limits for qualified plans. Under the BRP, participants can contribute up to 20% of their annual compensation and incentive. Our matching contribution under the BRP is the same as the SIP. Our matching contribution under this plan vests immediately to plan participants. Contributions under the BRP, including our match, are invested in accordance with the investment options elected by plan participants. Compensation expense associated with our matching contribution to the BRP was $2 million during 2019, and $1 million during each 2018 and 2017 which was included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.
24. Related Party Transactions
Exxaro
At December 31, 2019, Exxaro continues to own approximately 14.7 million shares of Tronox, or a 10.4% ownership interest, as well as their 26% ownership interest in our South African operating subsidiaries.
We had service level agreements with Exxaro for research and development that expired during the third quarter of 2018. Such service level agreements amounted to expenses of $1 million each during 2018 and 2017 which was included in “Selling general and administrative expense” in the Consolidated Statements of Operations. Additionally, we had a professional service agreement with Exxaro related to the Fairbreeze construction project, which ended in January 2017. We made payments to Exxaro of less than $1 million during 2018, which were capitalized in “Property, plant and equipment, net” in our Consolidated Balance Sheets. At December 31, 2019 there was no related party payables with respect to the Fairbreeze construction project and at December 31, 2018 we had less than $1 million of related party payables, which were recorded in “Accounts payable” in our Consolidated Balance Sheets.
On November 26, 2018, we, certain of our subsidiaries and Exxaro entered into the Completion Agreement. The Completion Agreement provides for the orderly sale of Exxaro’s remaining ownership interest in us, subject to market conditions, helped to facilitate the Re-domicile Transaction, as well as addressed several legacy issues related to our 2012 acquisition of Exxaro’s mineral sands business. Pursuant to the terms of the Completion Agreement, Tronox has covenanted to pay Exxaro an amount equal to any South African capital gains tax assessed on Exxaro in respect of any profit arising to it on a disposal of any of its ordinary shares subsequent to the Re-domicile Transaction where such tax would not have been assessed but for the Re-domicile
Transaction. Similarly, Exxaro has covenanted to pay Tronox an amount equal to any South African tax savings Exxaro may realize in certain situations from any tax relief that would not have arisen but for the Re-domicile Transaction.
Pursuant to the terms of the Completion Agreement, on May 9, 2019, Exxaro exercised their right under the agreement to sell 14 million shares to us for an aggregate purchase price of approximately $200 million or $14.3185 per share, plus fees of approximately $1 million. The share price was based upon a 5% discount to the 10 day volume weighted average price as of the day that Exxaro exercised their sale notice to us. Upon repurchase of the shares by the Company, the shares were cancelled. As a result of the sale of the 14 million shares on May 9, 2019, we recorded a liability of approximately $4 million which is included in “Accrued liabilities” in our Consolidated Balance Sheets as of December 31, 2019 and which was subsequently paid in January 2020.
At the present time, we are unable to reasonably determine when and if Exxaro will sell its remaining shares in the foreseeable future, and as a result, we are not able to estimate what the capital gains tax impacts would be should Exxaro sell its remaining shares.
Tasnee/Cristal
On April 10, 2019, we announced the completion of the acquisition of the TiO2 business of Cristal for $1.675 billion of cash, subject to a working capital and noncurrent liability adjustment, plus 37,580,000 ordinary shares. At December 31, 2019, 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 26% ownership interest. In February 2020, Tronox and Cristal resolved the working capital and noncurrent liability adjustment by agreeing that no payment was required by either party.
On May 9, 2018, we entered 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 special 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 $322 million of AMIC indebtedness (the “AMIC Debt”). As of December 31, 2019, we have loaned $89 million for capital expenditures and operational expenses to facilitate the start-up of the Slagger and we have recorded this loan payment and related interest of $3 million within “Other long-term assets” on the Consolidated Balance Sheet at December 31, 2019. The Option did not have a significant impact on the financial statements as of or for the year ended December 31, 2019.
Prior to the Cristal acquisition, we also acquired feedstock from AMIC for consumption in production. As of December 31, 2019, we had purchased $11 million of feedstock from AMIC and all payables had been settled as of December 31, 2019. In addition, Tronox sells Titanium Tetrachloride (TiCl4) to AMIC for use at a sponge plant facility. During the year ended December 31, 2019, Tronox recorded $5 million for TiCl4 product sales made to AMIC and such amounts were recorded in “Net sales” on the Consolidated Statement of Operations.
On December 29, 2019, we entered into an agreement, subject to regulatory approval, with Cristal to acquire certain assets co-located at our Yanbu facility that had been not included in the Cristal Transaction and which assets produce metal grade TiCl4 for a $36 million note payable. Under such agreement, the metal grade TiCl4 will be purchased 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. We expect this transaction to close in the first half of 2020.
In conjunction with the acquisition on April 10, 2019, we entered into a transition services agreement with Tasnee, Cristal and AMIC. Under the terms of the transition services agreement, Tasnee and its affiliates will provide services to Tronox related to information technology support and infrastructure, logistics, safety, health and environmental, treasury and tax. Similarly, Tronox will provide services to Tasnee and its affiliates for information technology support and infrastructure, finance and accounting, tax, treasury, human resources, logistics, research and development and business development.
As part of the transition services agreement, Tronox recorded approximately $4 million as reduction of "Selling, general and administrative expenses for the year ended December 31, 2019. Under the acquisition agreement, the stamp duty taxes were agreed to be shared. During the year ended December 31, 2019, Tronox paid $3 million on behalf of Tasnee related to stamp duty taxes. This amount is recorded as a reduction of the total stamp duty taxes paid in "Selling, general and administrative expenses” in the Consolidated Statement of Operations. During 2019, Tasnee prepaid insurance on Tronox's behalf, of which $1 million was expensed to "Cost of goods sold" on the Company's Consolidated Statement of Operations. At December 31, 2019, Tronox had a receivable due from Tasnee of $14 million and a payable due to Tasnee of $7 million that are recorded within “Prepaid and other assets” and “Accrued liabilities”, respectively, on the Consolidated Balance Sheet primarily relate to pre-acquisition activity and are expected to be settled in the near term.
25. Segment Information
Prior to and after the Cristal Transaction, we operate our business under one operating segment, TiO2, which is also our reportable segment. The Company's chief operating decision maker, who is its CEO, reviews financial information presented at the TiO2 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 well as sales based on country of production. 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.
During 2019, 2018 and 2017 our ten largest third-party TiO2 customers represented 31%, 37%, and 35%, respectively, of our consolidated net sales. During 2019, 2018, and 2017, no single customer accounted for 10 % of our consolidated net sales.
Net sales to external customers based on country of production, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
U.S. operations
|
$
|
676
|
|
|
$
|
685
|
|
|
$
|
663
|
|
International operations:
|
|
|
|
|
|
United Kingdom
|
218
|
|
|
—
|
|
|
—
|
|
Australia
|
674
|
|
|
444
|
|
|
452
|
|
South Africa
|
370
|
|
|
444
|
|
|
350
|
|
Other - international
|
704
|
|
|
246
|
|
|
233
|
|
Total net sales
|
$
|
2,642
|
|
|
$
|
1,819
|
|
|
$
|
1,698
|
|
See Note 5 for further information on revenues.
There is no difference between the total consolidated assets of continuing operations and our segment assets. Property, plant and equipment, net, mineral leaseholds, net, and lease right of use assets, net by geographic region, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
U.S. operations
|
$
|
255
|
|
|
$
|
176
|
|
International operations:
|
|
|
|
United Kingdom
|
93
|
|
|
—
|
|
Saudi Arabia
|
215
|
|
|
—
|
|
South Africa
|
799
|
|
|
782
|
|
Australia
|
1,109
|
|
|
802
|
|
Other - international
|
244
|
|
|
40
|
|
Total
|
$
|
2,715
|
|
|
$
|
1,800
|
|
26. Quarterly Results of Operations (Unaudited)
The following represents our unaudited quarterly results for the years ended December 31, 2019 and 2018. 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 the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter(1)
|
|
3rd Quarter(1)
|
|
4th Quarter
|
Net sales
|
$
|
390
|
|
|
$
|
791
|
|
|
$
|
768
|
|
|
$
|
693
|
|
Cost of goods sold
|
307
|
|
|
672
|
|
|
635
|
|
|
545
|
|
Contract loss
|
—
|
|
|
|
19
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
83
|
|
|
100
|
|
|
133
|
|
|
148
|
|
Net (loss) income from continuing operations
|
(30)
|
|
|
(55)
|
|
|
(12)
|
|
|
(5)
|
|
Net income (loss) from discontinued operations, net of tax
|
—
|
|
|
|
(1)
|
|
|
|
6
|
|
|
|
—
|
|
Net (loss) income
|
(30)
|
|
|
|
(56)
|
|
|
|
(6)
|
|
|
|
(5)
|
|
Net income attributable to noncontrolling interest
|
4
|
|
|
6
|
|
|
7
|
|
|
(5)
|
|
Net loss attributable to Tronox Holdings plc
|
$
|
(34)
|
|
|
$
|
(62)
|
|
|
$
|
(13)
|
|
|
$
|
—
|
|
Loss from continuing operations per share, basic and diluted
|
$
|
(0.27)
|
|
|
$
|
(0.41)
|
|
|
$
|
(0.13)
|
|
|
$
|
—
|
|
Income from discontinued operations per share, basic and diluted
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.04
|
|
|
$
|
—
|
|
_____________________
(1)During the third quarter of 2019, we recorded an out-of-period adjustment of $7 million to reduce the tax impact of a transaction related to the Cristal acquisition within income from discontinued operations that should have been recorded in the second quarter of 2019. After evaluating the quantitative and qualitative aspects of the adjustments, we concluded the effect of this adjustment, individually and in the aggregate, was not material to our previously issued interim consolidated financial statements and has no effect to our annual 2019 consolidated financial statements.
Unaudited quarterly results for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter(1)
|
|
4th Quarter
|
Net sales
|
$
|
442
|
|
|
$
|
492
|
|
|
$
|
456
|
|
|
$
|
429
|
|
Cost of goods sold
|
327
|
|
|
348
|
|
|
335
|
|
|
311
|
|
Gross profit
|
115
|
|
|
144
|
|
|
121
|
|
|
118
|
|
Net (loss) income
|
(41)
|
|
|
50
|
|
|
15
|
|
|
6
|
|
Net income attributable to noncontrolling interest
|
3
|
|
|
14
|
|
|
9
|
|
|
11
|
|
Net (loss) income attributable to Tronox Holdings plc(1)
|
$
|
(44)
|
|
|
$
|
36
|
|
|
$
|
6
|
|
|
$
|
(5)
|
|
(Loss) income per share, basic
|
$
|
(0.36)
|
|
|
$
|
0.30
|
|
|
$
|
0.05
|
|
|
$
|
(0.05)
|
|
(Loss) income per share, diluted
|
$
|
(0.36)
|
|
|
$
|
0.29
|
|
|
$
|
0.05
|
|
|
$
|
(0.05)
|
|
_____________________
(1)During the third quarter of 2018, we recorded out-of-period adjustments of $3 million to increase net income that should have been recorded previously. After evaluating the quantitative and qualitative aspects of the adjustments, we concluded the effect of this adjustment, individually and in the aggregate, was not material to our previously issued interim and annual consolidated financial statements and was not material to our 2018 consolidated financial statements.