Tronox Holdings plc - Quarter Report: 2015 March (Form 10-Q)

UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549

Form 10-Q

(Mark One)  

For the quarterly period ended March 31, 2015

OR

For the transition period from                      to                     

1-35573  

(Commission file number)

TRONOX LIMITED  

(ACN 153 348 111)  

(Exact Name of Registrant as Specified in its Charter)

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

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

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

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

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

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

As of April 30, 2015, the Registrant had 64,412,084 Class A ordinary shares and 51,154,280 Class B ordinary shares outstanding.

Table of Contents

Item 1. Financial Statements (Unaudited)

TRONOX LIMITED  

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  

(Unaudited)  

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

See notes to unaudited condensed consolidated financial statements.

TRONOX LIMITED  

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS  

(Unaudited) 

(Millions of U.S. dollars)

See notes to unaudited condensed consolidated financial statements.

TRONOX LIMITED  

CONDENSED CONSOLIDATED BALANCE SHEETS  

(Unaudited)  

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

See notes to unaudited condensed consolidated financial statements.

TRONOX LIMITED  

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  

(Unaudited)  

(Millions of U.S. dollars)

See notes to unaudited condensed consolidated financial statements.

TRONOX LIMITED 

CONDENSED CONSOLIDATED STATEMENT OF EQUITY  

(Unaudited)  

(Millions of U.S. dollars)

See notes to unaudited condensed consolidated financial statements.

TRONOX LIMITED  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(Unaudited)  

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

1. The Company

Tronox Limited and its subsidiaries (collectively referred to as “Tronox,” “we,” “us,” or “our”) is a public limited company registered under the laws of the State of Western Australia. We are a global leader in the production and marketing of titanium bearing mineral sands and titanium dioxide (“TiO₂”) pigment. Our TiO₂ products are critical components of everyday applications such as paint and other coatings, plastics, paper and other uses. Our mineral sands business consists primarily of three product streams—titanium feedstock, zircon and pig iron. Titanium feedstock is primarily used to manufacture TiO₂. Zircon, a hard, glossy mineral, is used for the manufacture of ceramics, refractories, TV screen glass and a range of other industrial and chemical products. Pig iron is a metal material used in the steel and metal casting industries to create wrought iron, cast iron and steel. We have global operations in North America, Europe, South Africa, and the Asia-Pacific region. We operate three TiO₂ facilities at the following locations: Hamilton, Mississippi; Botlek, The Netherlands; and Kwinana, Western Australia, and we operate three separate mining operations: KwaZulu-Natal (“KZN”) Sands and Namakwa Sands both located in South Africa, and Cooljarloo located in Western Australia.

The accompanying condensed consolidated financial statements are unaudited, and have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014. The Condensed Consolidated Balance Sheet as of December 31, 2014 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

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

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

During the three months ended March 31, 2015, we recorded out-of-period adjustments that should have been recorded in 2012 through 2014 that decreased cost of goods sold by $3 million, decreased loss before income taxes by $3 million, decreased net loss by $2 million, and decreased loss per share by $0.01. After evaluating the quantitative and qualitative aspects of the adjustments, we concluded the effect of these adjustments, individually and in the aggregate, was not material to our previously issued consolidated financial statements and is not expected to be material to our 2015 consolidated financial statements.

Recent Accounting Pronouncements

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

2. Acquisition of Alkali Chemicals Group

On April 1, 2015, (the “Alkali Transaction Date”) we completed the previously announced acquisition of 100% of the Alkali Chemicals business from FMC Corporation (“Alkali”) for an aggregate purchase price of approximately $1.64 billion in cash (the “Alkali Transaction”), subject to a customary post-closing adjustment in respect of working capital. Alkali is the world’s largest producer of natural soda ash, which is used by customers in the glass, detergent and chemicals manufacturing industries.  Natural soda ash maintains a sustained structural cost advantage globally compared to producers of synthetic soda ash.  As a result of this advantage, Alkali brings a history of consistently delivering superior operational and financial performance across economic cycles.  The Alkali Transaction diversifies our end markets, revenue base and increases our participation in faster growing emerging market economies.  Alkali will operate as a separate business unit and reporting segment.

We funded the Alkali Transaction through existing cash and new debt. See Note 13 for further details of the Alkali Transaction financing.

We will account for the Alkali Transaction under ASC 805, Business Combinations, which requires recording assets and liabilities at fair value. Under the acquisition method of accounting, each tangible and separately identifiable intangible asset acquired and liabilities assumed will be recorded based on their preliminary estimated fair values on the Alkali Transaction Date.

Since the Alkali Transaction Date, we have been preparing, with the assistance of third-party professionals, the supplemental pro forma information, the initial purchase price allocation and other disclosures as required by ASC 805. We expect our disclosure to be completed and available in our second quarter.

3. Restructuring Expense

During September 2014, we commenced a cost reduction initiative. The initiative involved a reduction in our workforce by approximately 135 employees and outside contractor positions. During the three months ended March 31, 2015, we paid $2 million in cash related to restructuring.

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

4. Income Taxes

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

The effective tax rate for the three months ended March 31, 2015 and 2014 differs from the Australian statutory rate of 30% primarily due to valuation allowances, income in foreign jurisdictions taxed at rates lower than 30%, and withholding tax accruals. We recorded less tax benefit on book losses for the period ended March 31, 2015 due to full valuation allowances in Australia and The Netherlands.

The statutory tax rates on income earned in South Africa (28% for limited liability companies), The Netherlands (25% for corporations), and the United Kingdom (20.25% for corporations and limited liability companies and not applicable for certain limited liability partners) are lower than the Australian statutory rate of 30%. The statutory tax rate, applied against losses in the United States (35% for corporations), is higher than the Australian statutory rate of 30%.

We now maintain full valuation allowances related to the total net deferred tax assets in Australia, the United States, and The Netherlands, as we cannot objectively assert that these deferred tax assets are more likely than not to be realized. Future provisions for income taxes will include no tax benefits with respect to losses incurred and tax expense only to the extent of current state tax payments until the valuation allowances are eliminated. Additionally, we have valuation allowances against specific tax assets in South Africa.

These conclusions were reached by the application of ASC 740, Income Taxes, which requires all available positive and negative evidence be weighted to determine whether a valuation allowance should be recorded. The more significant evidential matter in Australia, the United States, and The Netherlands relates to recent book losses and the lack of sufficient projected taxable income. The more significant evidential matter for South Africa relates to assets that cannot be depleted or depreciated for tax purposes.

Anadarko Litigation

On January 23, 2015, Anadarko paid $5.2 billion, including approximately $65 million of accrued interest, pursuant to the terms of the settlement agreement. We did not receive any portion of the settlement amount. Instead, 88% of the $5.2 billion went to trusts and other governmental entities for the remediation of polluted sites by Kerr-McGee. The remaining 12% was distributed to a tort trust to compensate individuals injured as a result of Kerr-McGee’s environmental failures.

We received a private letter ruling from the U.S. Internal Revenue Service confirming that the trusts that held the claims against Anadarko are grantor trusts of Tronox Incorporated solely for federal income tax purposes. As a result, we believe we are entitled to tax deductions equal to the amount spent by the trusts to remediate environmental matters and to compensate the injured individuals. These deductions will accrue over the life of the trusts as the $5.2 billion is spent. We believe that these expenditures and the accompanying tax deductions may continue for decades. At December 31, 2014, we had recorded deferred tax assets of $2.0 billion related to the $5.2 billion of expected future tax deductions from trust expenditures. These deferred tax assets are fully offset by valuation allowances.

5. Loss Per Share

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

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

6. Restricted Cash

On March 6, 2015, Evolution Escrow Issuer LLC (“Evolution”), a special purpose limited liability company organized under the laws of Delaware, was formed. Evolution was wholly owned by Stichting Evolution Escrow, a Dutch foundation not affiliated with the Company.

On March 9, 2015, Tronox Limited and Evolution announced that Evolution intended to offer, subject to market and other considerations, senior notes due 2022 (the “Senior Notes due 2022”) through an offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act. The Senior Notes due 2022 were offered in connection with the acquisition of Alkali.

On March 19, 2015, Evolution closed an offering of $600 million aggregate principal amount of its 7.50% Senior Notes due 2022. The proceeds from the offering of the Senior Notes due 2022 were released to the Company on April 1, 2015 to partially pay the purchase price for the Alkali Transaction. The following assets and liabilities of Evolution were consolidated at March 31, 2015: $603 million of restricted cash, $600 million of Senior Notes due 2022, $2 million of debt issuance costs and $4 million of accrued interest and debt issuance costs included in “Restricted cash,” “Long-term debt,” “Other long-term assets” and “Accrued liabilities,” respectively in the unaudited Condensed Consolidated Balance Sheets.

At March 31, 2015, Evolution was consolidated into our financial statements solely for accounting purposes in accordance with ASC 810, Consolidation, as it was a variable interest entity and Tronox was the primary beneficiary, and the bond proceeds were classified as restricted cash.

See Note 13 for further details of the Alkali Transaction financing.

At both March 31, 2015 and December 31, 2014, we had restricted cash in Australia related to outstanding letters of credit of $5 million and $3 million, respectively.

7. Accounts Receivable, Net of Allowance for Doubtful Accounts

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

Bad debt expense was less than $1 million for both the three months ended March 31, 2015 and 2014, and was recorded in “Selling, general and administrative expenses” in the unaudited Condensed Consolidated Statements of Operations.

8. Inventories, Net

Inventories, net consisted of the following:

Finished goods includes inventory on consignment of $45 million and $42 million at March 31, 2015 and December 31, 2014, respectively. At both March 31, 2015 and December 31, 2014, inventory obsolescence reserves were $14 million. During the three months ended March 31, 2015 and 2014, we recognized a net lower of cost or market charge of $9 million and a net lower of cost or market charge of $12 million, respectively, which was included in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations.

9. Property, Plant and Equipment, Net

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

Depreciation expense related to property, plant and equipment during the three months ended March 31, 2015 and 2014 was $37 million and $39 million, respectively, of which $36 million and $38 million, respectively, was recorded in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations and $1 million in each period was recorded in “Selling, general and administrative expenses” in the unaudited Condensed Consolidated Statements of Operations.

10. Mineral Leaseholds, Net

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

Depletion expense related to mineral leaseholds during the three months ended March 31, 2015 and 2014 was $21 million and $27 million, respectively, which was recorded in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Operations.

11. Intangible Assets, Net

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

Amortization expense related to intangible assets during the three months ended March 31, 2015 and 2014 was $7 million in each period, which was recorded in “Selling, general and administrative expenses” in the unaudited Condensed Consolidated Statements of Operations. Estimated future amortization expense related to intangible assets is $20 million for the remainder of 2015, $25 million for 2016, $25 million for 2017, $25 million for 2018, $25 million for 2019, and $145 million thereafter.

 12. Accrued Liabilities

Accrued liabilities consisted of the following:

13. Debt

UBS Revolver

We have a global senior secured asset-based syndicated revolving credit facility with UBS AG (the “UBS Revolver”) with a maturity date of June 18, 2017. Through March 31, 2015, the UBS Revolver provided us with a committed source of capital with a principal borrowing amount of up to $300 million, subject to a borrowing base. Obligations under the UBS Revolver were collateralized by a first priority lien on substantially all of our existing, and future deposit accounts, inventory, and account receivables, and certain related assets, excluding those held by our South African subsidiaries, Netherland’s subsidiaries, and Bahamian subsidiary, and a second priority lien on all of our other assets, including capital shares. At March 31, 2015 and December 31, 2014, our borrowing base was $141 million and $276 million, respectively. The borrowing base at March 31, 2015 reflects $150 million of requested borrowings, which were received on April 1, 2015, as discussed below. During the three months ended March 31, 2015 and 2014, we had no drawdowns or repayments on the UBS Revolver. At both March 31, 2015 and December 31, 2014, there were no outstanding borrowings on the UBS Revolver.

On April 1, 2015, in connection with the Alkali Transaction, we entered into an amended and restated asset-based revolving syndicated facility agreement with UBS, which provides for up to $500 million of revolving credit lines, with a $85 million sublimit for letters of credit. Availability of revolving credit loans and letters of credit are subject to a borrowing base. Borrowings bear interest at our option, at either a base rate or an adjusted LIBOR rate and borrowings in Euros bear interest at an adjusted LIBOR rate, in each case plus an applicable margin. The base rate is defined as the greatest of (a) the Administrative Agent’s prime rate, (b) the Federal funds effective rate plus 0.50% and (c) the adjusted LIBOR rate for a one-month period plus 1.00%. The applicable margin ranges from 0.50% to 1.00% for borrowings at the base rate and from 1.50% to 2.00% for borrowings at the adjusted LIBOR rate, in each case, based on the average daily borrowing availability. On April 1, 2015, we borrowed $150 million against the UBS Revolver.

ABSA Revolving Credit Facility

We have a R1.3 billion (approximately $107 million at March 31, 2015) revolving credit facility with ABSA Bank Limited (“ABSA”) acting through its ABSA Capital Division (the “ABSA Revolver”) with a maturity date of June 14, 2017. The ABSA Revolver bears interest at (i) the base rate (defined as one month JIBAR, which is the mid-market rate for deposits in South African Rand for a period equal to the relevant period which appears on the Reuters Screen SAFEY Page alongside the caption YLD) as of 11h00 Johannesburg time on the first day of the applicable period, plus (ii) the Margin, which is 3.9%.

During the three months ended March 31, 2015 and 2014, we had no drawdowns or repayments on the ABSA Revolver. At both March 31, 2015 and December 31, 2014, there were no outstanding borrowings on the ABSA Revolver.

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

At March 31, 2015, the scheduled maturities of our long-term debt were as follows:

Term Loan

On April 23, 2014, we, along with our wholly owned subsidiary, Tronox Pigments (Netherlands) B.V., and certain of our subsidiaries named as guarantors, entered into a Third Amendment to the Credit and Guaranty Agreement (the “Third Agreement”) on our $1.5 billion senior secured term loan (the “Term Loan”) with the lender parties thereto and Goldman Sachs Bank USA, as administrative agent, which amends the Second Agreement. The Term Loan was issued net of an original issue discount. At March 31, 2015 and December 31, 2014, the unamortized discount was $7 million for both periods. During both the three months ended March 31, 2015 and 2014, we made principal repayments of $4 million.

Senior Notes due 2020

On August 20, 2012, our wholly owned subsidiary, Tronox Finance LLC (“Tronox Finance”), completed a private placement offering of $900 million aggregate principal amount of senior notes at par value (the “Senior Notes due 2020”). The Senior Notes due 2020 bear interest semiannually at a rate equal to 6.375%, and are fully and unconditionally guaranteed on a senior, unsecured basis by us and certain of our subsidiaries. The Senior Notes due 2020 were initially offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.

On September 17, 2013, Tronox Finance issued $900 million in aggregate principal amount of registered 6.375% Senior Notes due 2020 in exchange for its then existing $900 million in aggregate principal amount of its 6.375% Senior Notes due 2020. The Senior Notes due 2020 are guaranteed by Tronox and certain of its subsidiaries. See Note 22.

Senior Notes due 2022

 On March 19, 2015, Evolution closed an offering of $600 million aggregate principal amount of its 7.50% Senior Notes due 2022 (the “Senior Notes due 2022”). Evolution was initially a wholly owned subsidiary of Stichting Evolution Escrow, a Dutch foundation that is not an affiliate of Tronox Limited. The Senior Notes due 2022 were offered and sold by Evolution in reliance on an exemption pursuant to Rule 144A and Regulation S under the Securities Act. The Senior Notes due 2022 have not been registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The Senior Notes due 2022 were issued under an Indenture, dated as of March 19, 2015 (the “Indenture”), between Evolution and Wilmington Trust, National Association (the “Trustee”).

 On April 1, 2015, in connection with the Alkali Transaction, Evolution merged with and into Tronox Finance, and Tronox Finance assumed the obligations of Evolution under the Indenture and the Senior Notes due 2022, and the proceeds from the offering of the Senior Notes due 2022 were released to us. We and certain of our subsidiaries entered into a supplemental indenture (the “First Supplemental Indenture”), by and among us, Tronox Finance, the guarantors party thereto, and the Trustee, pursuant to which we and such subsidiaries became guarantors of the Senior Notes due 2022 under the Indenture. Also in connection with the Alkali Transaction, we entered into a $600 million senior unsecured bridge facility (the “Bridge Facility”). The Bridge Facility terminated with the completion of the Alkali Transaction. We incurred $8 million of financing fees related to the Bridge Facility to be expensed in the second quarter of 2015. Debt issuance costs related to the Senior Notes due 2022 of $2 million, were capitalized and included in Other long-term assets in the unaudited Condensed Consolidated Balance Sheet at March 31, 2015. Finance costs of $11 million owed to the syndicated banks in connection with the debt issuance costs of the Senior Notes due 2022 will be capitalized in the second quarter of 2015.

 The Indenture and the Senior Notes due 2022 provide, among other things, that the Senior Notes due 2022 are senior unsecured obligations of Tronox Finance. Interest is payable on the Senior Notes due 2022 on March 15 and September 15 of each year beginning on September 15, 2015 until their maturity date of March 15, 2022. The terms of the Indenture, among other things, limit, in certain circumstances, the ability of us to: incur certain additional indebtedness and issue preferred stock; make certain dividends, distributions, investments and other restricted payments; sell certain assets; incur liens; agree to any restrictions on the ability of certain subsidiaries to make payments to the Company; consolidate or merge with or into, or sell substantially all of our assets to, another person; enter into transactions with affiliates; and enter into new lines of business. 

Lease Financing

We have capital lease obligations in South Africa, which are payable through 2031 at a weighted average interest rate of approximately 14%. At March 31, 2015 and December 31, 2014, such obligations had a net book value of assets recorded under capital leases aggregating $18 million and $20 million, respectively. During both the three months ended March 31, 2015 and 2014, we made principal payments of less than $1 million.

Fair Value

Our debt is recorded at historical amounts. At both March 31, 2015 and December 31, 2014, the fair value of the Term Loan was $1.5 billion. At March 31, 2015 and December 31, 2014, the fair value of the Senior Notes due 2020 was $881 million and $903 million, respectively. At March 31, 2015, the fair value of the Senior Notes due 2022 was $609 million. We determined the fair value of the Term Loan, the Notes and the Term Facility using Bloomberg market prices. The fair value hierarchy for the Term Loan and the Notes is a Level 1 input.

Debt Covenants

At March 31, 2015, we had financial covenants in the UBS Revolver, the ABSA Revolver and the Term Loan; however, only the ABSA Revolver had a financial maintenance covenant that applies to local operations and only when the ABSA Revolver is drawn upon. The Term Loan and the UBS Revolver are subject to an intercreditor agreement pursuant to which the lenders’ respective rights and interests in the security are set forth. We were in compliance with all our financial covenants as of and for the three months ended March 31, 2015.

Interest and Debt Expense, Net

Interest and debt expense, net in the unaudited Condensed Consolidated Statements of Operations consisted of the following:

In connection with obtaining debt, we incurred debt issuance costs, which are being amortized through the respective maturity dates using the effective interest method. At both March 31, 2015 and December 31, 2014, we had $44 million of deferred debt issuance costs, which are recorded in “Other long-term assets” in the unaudited Condensed Consolidated Balance Sheets.

14. Asset Retirement Obligations

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

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 March 31, 2015 and December 31, 2014, the environmental rehabilitation trust assets were $15 million and $17 million, respectively, which were recorded in “Other long-term assets” in the unaudited Condensed Consolidated Balance Sheets.

 15. Commitments and Contingencies

Purchase and Capital Commitments—At March 31, 2015, purchase commitments were $182 million for the remainder of 2015, $100 million for 2016, $71 million for 2017, $63 million for 2018, $58 million for 2019, and $299 million thereafter.

Letters of Credit—At March 31, 2015, we had outstanding letters of credit, bank guarantees, and performance bonds of $49 million, of which $24 million were letters of credit issued under the UBS Revolver, $20 million were bank guarantees issued by ABSA and $5 million were performance bonds issued by Westpac Banking Corporation.

Other Matters—From time to time, we may be party to a number of legal and administrative proceedings involving legal, environmental, and/or other matters in various courts or agencies. These proceedings, individually and in the aggregate, may have a material adverse effect on us. These proceedings may be associated with facilities currently or previously owned, operated or used by us and/or our predecessors, some of which may include claims for personal injuries, property damages, cleanup costs, and other environmental matters. Current and former operations may also involve management of regulated materials that are subject to various environmental laws and regulations including the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act or state equivalents. Similar environmental laws and regulations and other requirements exist in foreign countries in which we operate. Currently, we are not party to any pending legal or administrative proceedings that may have a material adverse effect, either individually or in the aggregate, on its business, financial condition or results of operations.

16. Shareholders’ Equity

The changes in outstanding Class A ordinary shares (“Class A Shares”) and Class B ordinary shares (“Class B Shares”) for the three months ended March 31, 2015 were as follows:

Warrants

We have outstanding Series A Warrants (the “Series A Warrants”) and Series B Warrants (the “Series B Warrants,” and together with the Series A Warrants, the “Warrants”). At March 31, 2015, holders of the Warrants were entitled to purchase 5.32 Class A Shares and receive $12.50 in cash at an exercise price of $58.03 for each Series A Warrant and $64.05 for each Series B Warrant. The Warrants have a seven-year term from the date initially issued and will expire on February 14, 2018. A holder may exercise the Warrants by paying the applicable exercise price in cash or exercising on a cashless basis. The Warrants are freely transferable by the holder. At March 31, 2015 and December 31, 2014, there were 239,631 and 240,816 Series A Warrants outstanding, respectively, and 324,037 and 324,383 Series B Warrants outstanding, respectively.

Dividends

During 2015, we declared and paid quarterly dividends to holders of our Class A Shares and Class B Shares as follows:

 Accumulated Other Comprehensive Loss Attributable to Tronox Limited

The tables below present changes in accumulated other comprehensive loss by component for the three months ended March 31, 2015 and 2014.

17. Noncontrolling Interest

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

Noncontrolling interest activity was as follows:

18. Share-Based Compensation

Compensation expense consisted of the following:

Tronox Limited Management Equity Incentive Plan

On June 15, 2012, we adopted the Tronox Limited Management Equity Incentive Plan (the “MEIP”), which permits the grant of awards that are comprised of incentive options, nonqualified options, share appreciation rights, restricted shares, restricted share units, performance awards, and other share-based awards, cash payments, and other forms as the compensation committee of the Board in its discretion deems appropriate, including any combination of the above. Subject to further adjustment, the maximum number of shares which may be the subject of awards (inclusive of incentive options) is 12,781,225 Class A Shares.

Restricted Shares

During the three months ended March 31, 2015, we granted restricted shares which vest ratably over a three-year period. These awards are classified as equity awards, and are accounted for using the fair value established at the grant date.

The following table presents a summary of activity for the three months ended March 31, 2015:

At March 31, 2015, there was $5 million of unrecognized compensation expense related to nonvested restricted shares, adjusted for estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.3 years. The weighted-average grant-date fair value of restricted shares granted during the three months ended March 31, 2015 and 2014 was $21.14 per share and $22.17 per share, respectively. The total fair value of restricted shares that vested during the three months ended March 31, 2015 was $2 million.

Restricted Share Units (“RSUs”)

During the three months ended March 31, 2015, we granted RSUs which have time and/or performance conditions. Both the time-based awards and the performance-based awards are classified as equity awards. The time-based awards vest ratably over a three-year period, and are valued at the weighted average grant date fair value. The performance-based awards cliff vest at the end of the three years. Included in the performance-based awards are RSUs for which vesting is determined by a Total Stockholder Return (“TSR”) calculation over the applicable measurement period. The TSR metric is considered a market condition for which we use a Monte Carlo simulation to determine the grant date fair value.

At March 31, 2015, there was $29 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 2.5 years. The weighted-average grant-date fair value of restricted share units granted during the three months ended March 31, 2015 and 2014 was $23.50 per share and $22.26 per share, respectively. The total fair value of RSUs that vested during the three months ended March 31, 2015 was $5 million.

Options

During the three months ended March 31, 2015, we granted options to purchase Class A Shares, which vest ratably over a three-year period and have a ten-year term. The following table presents a summary of activity for the three months ended March 31, 2015:

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 period. The amount will change based on the fair market value of our stock. Total intrinsic value of options exercised was less than $1 million for each of the three months ended March 31, 2015 and 2014. We issue new shares upon the exercise of options. During the three months ended March 31, 2015, we received $3 million in cash for the exercise of stock options.

At March 31, 2015, unrecognized compensation expense related to options, adjusted for estimated forfeitures, was $7 million, which is expected to be recognized over a weighted-average period of 1.5 years.

During the three months ended March 31, 2015 and 2014, we issued 2,380 and 910,375 options, respectively, with a weighted average grant date fair value of $7.04 and $8.17, respectively.

Fair value is determined on the grant date using the Black-Scholes option-pricing model and is recognized in earnings on a straight-line basis over the employee service period of three years, which is the vesting period. The assumptions used in the Black-Scholes option-pricing model on the grant date were as follows:

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

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

During 2012, we established the T-Bucks EPP for the benefit of certain qualifying employees of our South African subsidiaries. We funded the T-Bucks Trust (the “Trust”) with R124 million (approximately $15 million), which was used to acquire Class A Shares. Additional contributions may be made in the future at the discretion of the Board. The T-Bucks EPP is classified as an equity-settled shared-based payment plan, whereby participants were awarded share units in the Trust, which entitles them to receive Class A Shares upon completion of the vesting period on May 31, 2017. Participants are entitled to receive dividends on the shares during the vesting period. Forfeited shares are retained by the Trust, and are allocated to future participants. Compensation costs are recognized over the vesting period using the straight-line method. During 2012, the Trust purchased 548,234 Class A Shares at $25.79 per share, which was the fair value on the date of purchase. The balance at both March 31, 2015 and December 31, 2014 was 548,234 shares.

Long-Term Incentive Plan

We have a long-term incentive plan (the “LTIP”) for the benefit of certain qualifying employees of Tronox subsidiaries in South Africa and Australia. The LTIP is classified as a cash settled compensation plan and is re-measured to fair value at each reporting date. At March 31, 2015 and December 31, 2014, the LTIP plan liability was less than $1 million and $1 million, respectively.

19. Pension and Other Postretirement Healthcare Benefits

We sponsor a noncontributory defined benefit retirement plan (qualified) in the United States, a defined benefit retirement plan in The Netherlands, a new collective defined contribution plan in The Netherlands, and a South Africa postretirement healthcare plan.

During the fourth quarter of 2014, our benefit committee approved to end future benefit accruals under the TDF-Botlek Pension Fund Foundation (“The Netherlands DB plan”) and replaced it with a new collective contribution plan (“The Netherlands CDC plan”). As a result of this decision, effective from January 1, 2015, benefit accruals commenced under the new CDC plan while The Netherlands DB plan became effectively “frozen”.

Under the new CDC plan, employees earn benefits based on their pensionable salaries each year determined using a career average benefit formula. We contribute 19.8% of these benefits and the employees contribute 4% into a pooled fund administered by the industrywide Pension Fund for Graphical Industry (“PBG”). Our obligation under this new plan is limited to the fixed percentage contribution we make each year. That is, investment risks, mortality risks and other actuarial risks typically associated with a defined benefit plan are borne by the employees. Additionally, the employees are entitled to any returns generated from the investment activities of the fund. The CDC plan is considered a defined benefit plan for accounting purposes.

In the first quarter, we contributed $1 million into the pooled fund, which was recognized in the unaudited Condensed Consolidated Statement of Operations.

The components of net periodic cost associated with the U.S., The Netherlands DB plan and postretirement plans recognized in the unaudited Condensed Consolidated Statements of Operations were as follows:

The components of net periodic cost associated with the postretirement healthcare plans for both the three months ended March 31, 2015 and 2014 were less than $1 million.

20. Related Parties

We had service level agreements with Exxaro for services such as tax preparation and research and development, both of which expire during 2015, as well as information technology services, which expired during 2014. Such service level agreements amounted to $1 million and $2 million of expense during the three months ended March 31, 2015 and 2014, respectively. Additionally, we have a professional service agreement with Exxaro related to the Fairbreeze construction project. During both the three months ended March 31, 2015 and 2014, we paid less than $1 million to Exxaro, which was capitalized in “Property, plant and equipment, net” on our unaudited Condensed Consolidated Balance Sheets. At both March 31, 2015 and December 31, 2014, we had less than $1 million of related party payables, which were recorded in “Accounts payable” on our unaudited Condensed Consolidated Balance Sheets.

21. Segment Information

The reportable segments presented below represent our operating segments for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also considered the nature of services provided by our operating segments. We currently have two reportable segments, Mineral Sands and Pigment. Our Mineral Sands segment includes the exploration, mining, and beneficiation of mineral sands deposits, as well as heavy mineral production, and produces titanium feedstock, including chloride slag, slag fines, and rutile, as well as pig iron and zircon. Our Pigment segment primarily produces and markets TiO₂. Corporate and Other is comprised of our electrolytic operations, all of which are located in the United States, as well as our corporate activities.

Segment performance is evaluated based on segment operating income (loss), which represents the results of segment operations before unallocated costs, such as general corporate expenses not identified to a specific segment, interest expense, other income (expense), and income tax expense or benefit. Sales between segments are generally priced at market. Any resulting profit remaining in the inventory of the acquiring segment is eliminated in consolidation.

During the three months ended March 31, 2015, our ten largest pigment customers and our ten largest third-party mineral sands customers represented approximately 31% and 20%, respectively, of net sales; however, no single customer accounted for more than 10% of total net sales.

Capital expenditures by segment were as follows:

Total assets by segment were as follows:

22. Guarantor Condensed Consolidating Financial Statements

The obligations of Tronox Finance, our wholly-owned subsidiary, under the Senior Notes due 2020 are fully and unconditionally (subject to certain customary circumstances providing for the release of a guarantor subsidiary) guaranteed on a senior unsecured basis, jointly and severally, by Tronox Limited (referred to for purposes of this note only as the “Parent Company”) and each of its current and future restricted subsidiaries, other than excluded subsidiaries, that guarantee any indebtedness of the Parent Company or its restricted subsidiaries (collectively, the “Guarantor Subsidiaries”). The Subsidiary Issuer, Tronox Finance, and each of the Guarantor Subsidiaries are 100% owned, directly or indirectly, by the Parent Company. Our subsidiaries that do not guarantee the Senior Notes due 2020 are referred to as the “Non-Guarantor Subsidiaries.” The guarantor condensed consolidating financial statements presented below presents the statements of operations, statements of comprehensive income (loss), balance sheets and statements of cash flow data for: (i) the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and the subsidiary issuer, on a consolidated basis (which is derived from Tronox historical reported financial information); (ii) the Parent Company, alone (accounting for our Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and Tronox Finance on an equity basis under which the investments are recorded by each entity owning a portion of another entity at cost, adjusted for the applicable share of the subsidiary’s cumulative results of operations, capital contributions and distributions, and other equity changes); (iii) the Guarantor Subsidiaries alone; (iv) the Non-Guarantor Subsidiaries alone; and (v) the subsidiary issuer, Tronox Finance.

The guarantor condensed consolidating financial statements are presented on a legal entity basis, not on a business segment basis. The indenture governing the Senior Notes due 2020 provides for a Guarantor Subsidiary to be automatically and unconditionally released and discharged from its guarantee obligations in certain customary circumstances, including:

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS 

Three Months Ended March 31, 2015  

(Unaudited)  

(Millions of U.S. dollars)

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  

Three Months Ended March 31, 2015  

(Unaudited)  

(Millions of U.S. dollars)

GUARANTOR CONDENSED CONSOLIDATING BALANCE SHEETS 

As of March 31, 2015  

(Unaudited)  

(Millions of U.S. dollars)

GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS 

Three Months Ended March 31, 2015  

(Unaudited)  

(Millions of U.S. dollars)

GUARANTOR CONDENSED CONSOLIDATING BALANCE SHEETS 

As of December 31, 2014  

(Unaudited)  

(Millions of U.S. dollars)

We revised each of our guarantor condensed consolidating financial statements for the three months ended March 31, 2014 regarding the presentation of intercompany activities between the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and the subsidiary issuer. These revisions, which we determined are not material to our prior year condensed financial statements or consolidated financial statements based on quantitative and qualitative considerations, did not affect our consolidated financial position, consolidated results of operations or consolidated cash flows. The revisions were as follows:

REVISED GUARANTOR CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS 

Three Months Ended March 31, 2014  

(Unaudited)  

(Millions of U.S. dollars)