Tronox(TROX) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents Tronox Holdings plc's unaudited condensed consolidated financial statements, including statements of operations, balance sheets, and cash flows, with detailed explanatory notes Condensed Consolidated Statements of Operations The company reported a significant net income increase in Q3 2020 and YTD 2020, primarily driven by a substantial income tax benefit Condensed Consolidated Statements of Operations Highlights (in millions) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $675 | $768 | $1,975 | $1,949 | | Gross profit | $139 | $133 | $443 | $316 | | Income from operations | $49 | $48 | $177 | $51 | | Income tax benefit (provision) | $893 | $(12) | $876 | $(10) | | Net income (loss) | $902 | $(6) | $938 | $(92) | | Net income (loss) attributable to Tronox | $896 | $(13) | $924 | $(109) | | Diluted EPS | $6.18 | $(0.09) | $6.42 | $(0.78) | Condensed Consolidated Balance Sheets Total assets and equity significantly increased as of September 30, 2020, primarily due to higher deferred tax assets and retained earnings Condensed Consolidated Balance Sheet Highlights (in millions) | Metric | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $722 | $302 | | Total current assets | $2,586 | $2,073 | | Deferred tax assets | $997 | $110 | | Total assets | $6,476 | $5,268 | | Long-term debt, net | $3,424 | $2,988 | | Total liabilities | $4,788 | $4,352 | | Total equity | $1,688 | $916 | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased, while investing cash outflow significantly reduced, and financing cash flow turned positive due to new debt Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Cash provided by operating activities | $156 | $237 | | Cash used in investing activities | $(151) | $(1,120) | | Cash provided by (used in) financing activities | $440 | $(517) | | Net increase (decrease) in cash | $438 | $(1,380) | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the basis of financial presentation, significant accounting policies, acquisitions, restructuring, and income tax adjustments - The company's long-term strategy is to be vertically integrated, consuming its own feedstock materials in its nine TiO2 pigment facilities to deliver low-cost, high-quality pigment[26] - In May 2020, the company signed a definitive agreement to acquire the Tizir Titanium and Iron ("TTI") business from Eramet S.A. for approximately $300 million in cash, with closing anticipated before May 13, 2021[34][36] - During Q3 2020, the company determined sufficient positive evidence existed to reverse a portion of the valuation allowance for its U.S. deferred tax assets, resulting in a non-cash deferred tax benefit of $895 million[64] - On May 1, 2020, a subsidiary issued $500 million of 6.5% senior secured notes due 2025, using a portion of the proceeds to repay $200 million of outstanding borrowings under its revolving credit facilities[82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial condition and results, highlighting the impact of the Cristal acquisition and COVID-19, including liquidity and non-GAAP measures Results of Operations Net sales decreased in Q3 2020 due to lower volumes, while nine-month reported sales increased due to the Cristal acquisition Q3 2020 vs Q3 2019 Revenue by Product (in millions) | Product | Q3 2020 | Q3 2019 | Variance | Percentage | | :--- | :--- | :--- | :--- | :--- | | TiO2 | $543 | $603 | $(60) | (10)% | | Zircon | $56 | $68 | $(12) | (18)% | | Feedstock and other | $76 | $97 | $(21) | (22)% | | Total net sales | $675 | $768 | $(93) | (12)% | Nine Months 2020 vs 2019 Pro Forma Revenue by Product (in millions) | Product | YTD 2020 | YTD 2019 | Variance | Percentage | | :--- | :--- | :--- | :--- | :--- | | TiO2 | $1,589 | $1,830 | $(241) | (13)% | | Zircon | $189 | $239 | $(50) | (21)% | | Feedstock and other | $197 | $246 | $(49) | (20)% | | Total net sales | $1,975 | $2,315 | $(340) | (15)% | - The company has delivered total synergies of $183 million in the first nine months of 2020 and is raising its full-year 2020 synergy target to $235 million[136] Liquidity and Capital Resources Total liquidity significantly increased to $1.1 billion, bolstered by new debt issuance, with no major debt maturities until 2024 Liquidity Position (in millions) | Component | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $722 | $302 | | Available under Revolvers | $376 | $346 | | Total Liquidity | $1,098 | $648 | - Working capital increased to $1.8 billion at September 30, 2020, from $1.4 billion at December 31, 2019[171] - In May 2020, the company issued $500 million in 6.5% senior secured notes due 2025, using a portion of the proceeds to repay $200 million in revolver borrowings[182] Non-U.S. GAAP Financial Measures This section reconciles non-U.S. GAAP measures like EBITDA and Adjusted EBITDA, used by management to evaluate performance Reconciliation of Net Income (Loss) to Adjusted EBITDA (in millions) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) (U.S. GAAP) | $902 | $(6) | $938 | $(92) | | EBITDA (non-U.S. GAAP) | $132 | $121 | $415 | $256 | | Adjusted EBITDA (non-U.S. GAAP) | $148 | $184 | $464 | $459 | Quantitative and Qualitative Disclosures About Market Risk The company discloses exposures to market, credit, interest rate, and currency risks, and its use of derivatives for mitigation - The ten largest third-party TiO2 customers represented 33% of consolidated net sales for the first nine months of 2020[227] - A hypothetical 1% increase in interest rates would result in a net decrease to pre-tax income of approximately $4 million on an annualized basis as of September 30, 2020[228] - The company is particularly exposed to currency fluctuations in South Africa and Australia, where revenues are largely in U.S. dollars while expenses are in local currencies, and uses foreign currency contracts to hedge these exposures[231] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Based on an evaluation as of September 30, 2020, the company's management concluded that its disclosure controls and procedures were effective[234] - No changes occurred during the quarter ended September 30, 2020, that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting[236] PART II – OTHER INFORMATION Legal Proceedings This section details ongoing legal proceedings, including environmental remediation and litigation with Venator Materials plc - The company is involved in litigation with Venator Materials plc, where Venator claims a $75 million "Break Fee" and Tronox has counterclaimed for $400 million in damages related to the divestiture of Cristal's North American operations[103] Risk Factors This section refers to previously disclosed risk factors, with no material changes except for a COVID-related update - There have been no material changes from the risk factors disclosed in the company's Form 10-K, except for a COVID-related risk factor filed on Form 8-K on April 23, 2020[239] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported[240] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None reported[241] Mine Safety Disclosures This item is not applicable to the company for this reporting period - Not applicable[242] Other Information The company reported no other information for this period - None reported[243] Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and iXBRL formatted financial statements - Exhibits filed include Rule 13a-14(a) and Section 1350 certifications for the CEO and CFO, as well as iXBRL formatted financial statements[245]