Tronox(TROX) - 2020 Q4 - Annual Report

PART I Business Tronox is the world's leading vertically integrated manufacturer of titanium dioxide pigment, leveraging its global mining and production facilities to maintain a low-cost, high-quality market position - Tronox is the world's leading vertically integrated manufacturer of TiO2 pigment, operating mines and beneficiation/smelting operations in Australia, South Africa, and Brazil, with nine pigment facilities globally[22] - Key strategic initiatives in 2020 focused on becoming a low-cost producer through IT transformation (Project newTron), stabilizing margins via improved contracting, and strengthening vertical integration through projects like the Atlas Campaspe mine development and the Jazan, KSA smelter facility[28][29][30] - The company successfully achieved $243 million in total synergies from the Cristal Transaction by the end of 2020, exceeding its goal of $220 million by 2022[36] - Tronox employs approximately 6,500 people across six continents, with a significant focus on safety, knowledge transfer between mining and pigment operations, and fostering a diverse and inclusive culture[63][65][66] 2020 Revenue by Product and Geography | Category | Percentage of Revenue | | :--- | :--- | | By Product | | | TiO2 | 79% | | Zircon | 10% | | Feedstock & Other | 11% | | By Geography | | | Europe, Middle East & Africa | 32% | | Asia Pacific | 28% | | North America | 29% | | South & Central America | 11% | Risk Factors The company faces risks from market volatility, the COVID-19 pandemic, intense competition, operational challenges, substantial debt, and complex regulatory environments, particularly in South Africa - Market conditions and global economic downturns, including the impact of the COVID-19 pandemic, could adversely affect demand and prices for the company's products, particularly TiO2 and zircon[88][91] - The company faces significant operational and regulatory risks in South Africa, including an unpredictable regulatory environment (Mining Charter III), reliance on a single state-owned energy supplier (Eskom), potential land expropriation, and exchange control restrictions[110][116][130] - As of December 31, 2020, the company had approximately $3.4 billion in total principal debt, with restrictive covenants that could affect operational flexibility and liquidity[127] - The classification of TiO2 powder as a Category 2 Carcinogen by inhalation in the European Union could lead to more stringent regulations, impact marketing, and increase costs[137][138] - Concentrated ownership by Cristal (26%) and Exxaro (10%) may allow them to influence corporate decisions, potentially creating conflicts of interest with other shareholders[152] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[168] Properties The company's assets include global mining operations and nine TiO2 pigment facilities with a total annual capacity of 1,078,000 metric tonnes, though total heavy mineral reserves decreased by 4.5% in 2020 TiO2 Production Facilities and Capacity (as of Dec 31, 2020) | Facility Location | Annual Capacity (MT) | Process | | :--- | :--- | :--- | | Hamilton, Mississippi, USA | 225,000 | Chloride | | Yanbu, Saudi Arabia | 200,000 | Chloride | | Stallingborough, England, UK | 165,000 | Chloride | | Kwinana, Western Australia | 150,000 | Chloride | | Kemerton, Western Australia | 110,000 | Chloride | | Botlek, the Netherlands | 90,000 | Chloride | | Salvador, Bahia, Brazil | 60,000 | Sulphate | | Fuzhou, Jiangxi Province, China | 46,000 | Sulphate | | Thann, Alsace, France | 32,000 | Sulphate | | Total | 1,078,000 | | Heavy Mineral Reserves Summary (as of Dec 31, 2020) | Mine / Deposit | Total Ore (million tonnes) | In-Place THM (million tonnes) | Change from 2019 (% THM) | | :--- | :--- | :--- | :--- | | Namakwa Sands, RSA | 727 | 43.9 | (3.6)% | | KZN Sands, RSA | 225 | 12.6 | (5.2)% | | Northern Operations, Australia | 429 | 9.9 | (10.0)% | | Southern Operations, Australia | 19 | 1.0 | (11.6)% | | Eastern Operations, Australia | 145 | 7.0 | (4.6)% | | Global Total | 1,545 | 74.4 | (4.5)% | 3-Year Heavy Mineral Reserves Comparison (In-Place THM, millions of metric tonnes) | Region | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total South Africa | 56.5 | 58.8 | 54.9 | | Total Australia | 17.9 | 19.3 | 11.2 | | Total Tronox | 74.4 | 78.1 | 66.1 | Legal Proceedings The company is engaged in legal matters concerning environmental remediation at a former plant and a significant contractual dispute with Venator Materials plc - The company has a provision of $60 million for remediation at the former Hawkins Point Plant in Baltimore, Maryland, and is in discussions with state regulators for a new consent decree[567] - Tronox is in litigation with Venator Materials plc, which is claiming a $75 million "Break Fee," while Tronox has filed a counterclaim seeking $400 million in damages[567] Mine Safety Disclosures The company reports no mine safety disclosures - None[239] PART II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's ordinary shares are traded on the New York Stock Exchange under the ticker symbol "TROX" - The company's ordinary shares trade on the New York Stock Exchange under the symbol "TROX"[242] Selected Financial Data This item is not applicable - Not applicable[243] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, reported net sales increased 4%, but pro forma sales declined 8% due to COVID-19 impacts, while net income was significantly boosted by a large non-cash tax benefit - On a pro forma basis, which assumes the Cristal acquisition occurred on January 1, 2018, net sales for 2020 decreased by $250 million (8%) compared to 2019, primarily due to lower sales volumes of TiO2 and pig iron, and lower average selling prices for Zircon[254] - Total available liquidity as of December 31, 2020, was $1,041 million, including $619 million in cash and $422 million available under revolving credit facilities, with total debt at $3.3 billion[248][270] - Net cash provided by operating activities decreased to $355 million in 2020 from $412 million in 2019, primarily due to a higher use of cash for working capital[287] Consolidated Results of Operations (Reported) | (Millions of U.S. Dollars) | 2020 | 2019 | Variance | | :--- | :--- | :--- | :--- | | Net sales | $2,758 | $2,642 | $116 | | Gross profit | $621 | $464 | $157 | | Gross Margin | 23% | 18% | 5 pts | | Income from operations | $271 | $95 | $176 | | Net income from continuing operations | $995 | $(102) | $1,097 | | Adjusted EBITDA | $668 | $615 | $53 | Reconciliation of Net Income to Adjusted EBITDA (Reported) | (Millions of U.S. Dollars) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net (loss) income from continuing operations | $995 | $(102) | $30 | | Interest expense | 189 | 201 | 193 | | Income tax provision | (881) | 14 | 13 | | Depreciation, depletion and amortization | 304 | 280 | 195 | | EBITDA (non-U.S. GAAP) | $599 | $375 | $398 | | Adjustments (Inventory step-up, transaction costs, etc.) | 69 | 240 | 115 | | Adjusted EBITDA (non-U.S. GAAP) | $668 | $615 | $513 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to commodity, credit, interest rate, and currency risks, which it manages through derivative instruments like interest-rate swaps and foreign currency contracts - The company is exposed to interest rate risk on its floating-rate debt; a hypothetical 1% increase in interest rates would result in a net decrease to pre-tax income of approximately $7 million on an annualized basis[350] - Significant currency risk exists, especially in South Africa and Australia, where revenues are primarily in U.S. dollars while expenses are in local currencies, with forward contracts used to hedge these exposures[352] - As of December 31, 2020, the company had interest-rate swap agreements with a notional value of $750 million to convert a portion of its variable-rate Term Loan Facility to a fixed rate[550] Financial Statements and Supplementary Data This section contains the audited consolidated financial statements and detailed notes for the fiscal years ended December 31, 2020, 2019, and 2018 Consolidated Financial Statements The consolidated financial statements show net sales of $2.758 billion and net income of $969 million for 2020, with total assets of $6.568 billion at year-end Key Financial Statement Data (Year Ended Dec 31, 2020) | Metric | Amount (Millions USD) | | :--- | :--- | | Statement of Operations | | | Net Sales | $2,758 | | Gross Profit | $621 | | Income from Operations | $271 | | Net Income (Loss) Attributable to Tronox | $969 | | Balance Sheet (as of Dec 31, 2020) | | | Total Current Assets | $2,529 | | Total Assets | $6,568 | | Total Current Liabilities | $805 | | Long-term Debt, net | $3,263 | | Total Liabilities | $4,697 | | Total Equity | $1,871 | Note 3. Acquisitions and Related Divestitures This note details the termination of the TTI acquisition and provides the final purchase price allocation for the ~$2.2 billion Cristal acquisition completed in 2019 - The company terminated its agreement to acquire the Tizir Titanium and Iron (TTI) business in January 2021 and paid an $18 million termination fee after a UK regulatory investigation[437][439] Cristal Transaction Summary (April 10, 2019) | Component | Value (Millions USD) | | :--- | :--- | | Cash Consideration Paid | $1,675 | | Fair Value of Shares Issued | $526 | | Total Purchase Price | $2,201 | | Total Assets Acquired (Fair Value) | $2,923 | | Total Liabilities Assumed (Fair Value) | $674 | Note 8. Income Taxes The company recorded an $881 million income tax benefit in 2020, primarily from a $909 million non-cash release of a valuation allowance on U.S. deferred tax assets - The company recorded a total income tax benefit of $881 million in 2020, compared to a $14 million provision in 2019[481] - A significant non-cash deferred tax benefit of $909 million was recognized in 2020 due to the reversal of a valuation allowance on U.S. deferred tax assets[492] - As of December 31, 2020, the company had total tax loss carryforwards of $9.7 billion, including $4.4 billion in U.S. federal and $4.2 billion in U.S. state jurisdictions[501] Note 15. Debt As of year-end 2020, the company had total long-term debt of $3.356 billion and made a voluntary prepayment of $200 million on its Term Loan Facility - In May 2020, the company issued $500 million of 6.5% senior secured notes due 2025, using a portion of the proceeds to repay $200 million drawn on its revolvers[528] - In December 2020, the company made a voluntary prepayment of $200 million on its Term Loan Facility, resulting in a $2 million loss on extinguishment of debt[524] Long-term Debt Principal Balances (as of Dec 31, 2020) | Facility | Principal (Millions USD) | Maturity Date | | :--- | :--- | :--- | | Term Loan Facility | $1,607 | Sep 2024 | | Senior Notes due 2025 (5.75%) | $450 | Oct 2025 | | Senior Notes due 2026 (6.50%) | $615 | Apr 2026 | | Senior Secured Notes due 2025 (6.50%) | $500 | May 2025 | | Standard Bank Term Loan Facility | $115 | Mar 2024 | | Other | $69 | Various | | Total | $3,356 | | Note 24. Related Party Transactions The company engages in significant transactions with major shareholders Exxaro and Cristal, including loans and asset acquisitions related to the Jazan smelter and Yanbu facility - As of December 31, 2020, major shareholders Exxaro and a Cristal affiliate (owned by Tasnee) held 10.3% and 26% of Tronox's shares, respectively[612][617] - Tronox has an option to acquire 90% of a titanium slag smelter in Jazan, KSA, and has loaned the maximum committed amount of $125 million to facilitate the smelter's start-up[617][618] - In December 2020, Tronox acquired MGT assets from Cristal in exchange for a $36 million note payable, with repayment tied to product delivery volumes[623] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with accountants on accounting and financial disclosure - None[632] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[633] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[635] Other Information The company reports no other information - None[639] PART III Directors, Executive Officers and Corporate Governance This section incorporates information by reference from the 2021 proxy statement and notes the appointment of interim co-CEOs in December 2020 - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 proxy statement[641] - Effective December 27, 2020, John D. Romano and Jean-François Turgeon were appointed interim co-CEOs following a leave of absence by Chairman and CEO Jeffry N. Quinn[642] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2021 proxy statement - Information regarding executive compensation is incorporated by reference from the company's 2021 proxy statement[643] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information regarding security ownership is incorporated by reference from the 2021 proxy statement, with details provided on securities available under equity compensation plans Equity Compensation Plan Information (as of Dec 31, 2020) | Category | Number of Securities | | :--- | :--- | | To be issued upon exercise of outstanding awards | 8,505,796 | | Weighted-average exercise price of outstanding options | $21.60 | | Remaining available for future issuance | 8,755,422 | Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's 2021 proxy statement - Information regarding related transactions and director independence is incorporated by reference from the company's 2021 proxy statement[648] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2021 proxy statement - Information regarding principal accounting fees and services is incorporated by reference from the company's 2021 proxy statement[650] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the report and notes the omission of financial statement schedules as the required information is included elsewhere - All financial statement schedules have been omitted as they are either inapplicable or the required information is included in the consolidated financial statements or notes[653] Form 10-K Summary The company provides no Form 10-K summary - None[662]