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 Holdings plc (referred to herein as "Tronox", the "Company", "we", "us", or "our") operates titanium-bearing mineral sand mines and beneficiation 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 vertically integrated and consume all of our feedstock materials in our own nine TiO2 pigment facilities which we operate in the United States, Australia, Brazil, UK, France, the Netherlands, China and the Kingdom of Saudi Arabia (“KSA”). We believe that vertical integration is the best way to achieve our ultimate goal of delivering low cost, high-quality pigment to our coatings and other TiO2 customers throughout the world. The mining, beneficiation and smelting of titanium bearing mineral sands creates meaningful quantities of zircon, which we also supply to customers around the world.
We are a public limited company listed on the New York Stock Exchange and are registered under the laws of England and Wales.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission 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, 2020.
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 of its financial position as of March 31, 2021, and its results of operations for the three months ended March 31, 2021 and 2020. 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.
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, including any potential impacts on the economy as a result of the Covid-19 pandemic which could impact revenue growth and collectibility of trade receivables.
Recently Adopted 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. The adoption of this standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements
During the quarter ended March 31, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform Financial Reporting.” This amendment is elective in nature. Amongst other aspects, this standard provides for practical expedients and exceptions to current accounting standards that reference a rate which is expected to be dissolved (e.g. London Interbank Offered Rate “LIBOR”) as it relates to hedge accounting, contract modifications and other transactions that reference this rate, subject to meeting certain criteria. The standard is effective for all entities as of March 12, 2020 through December 31, 2022. The company is currently evaluating the impact of the standard.
2. Revenue
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 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 March 31, 2021, and December 31, 2020, 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 March 31, 2021 and December 31, 2020 were approximately $8 million and $4 million, respectively. Contract liability balances were reported as “Accounts payable” in the unaudited Condensed Consolidated Balance Sheets. All contract liabilities as of December 31, 2020 were recognized as revenue in “Net sales” in the unaudited Condensed Consolidated Statements of Income during the first quarter of 2021.
Disaggregation of Revenue
We operate under one operating and reportable segment, Tronox. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
North America
|
$
|
169
|
|
|
$
|
178
|
|
|
|
|
|
South and Central America
|
63
|
|
|
40
|
|
|
|
|
|
Europe, Middle-East and Africa
|
357
|
|
|
292
|
|
|
|
|
|
Asia Pacific
|
302
|
|
|
212
|
|
|
|
|
|
Total net sales
|
$
|
891
|
|
|
$
|
722
|
|
|
|
|
|
Net sales from external customers for each similar type of product were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
TiO2
|
$
|
696
|
|
|
$
|
580
|
|
|
|
|
|
Zircon
|
123
|
|
|
65
|
|
|
|
|
|
Feedstock and other products
|
72
|
|
|
77
|
|
|
|
|
|
Total net sales
|
$
|
891
|
|
|
$
|
722
|
|
|
|
|
|
Feedstock and other products mainly include rutile prime, ilmenite, chloride (“CP”) slag, pig iron and other mining products.
During the three months ended March 31, 2021 and 2020, our ten largest third-party TiO2 customers represented 29% and 29%, respectively, of our consolidated net sales. During the three months ended March 31, 2021 and 2020, no single customer accounted for 10% of our consolidated net sales.
3. 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 before income taxes is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Income tax provision
|
$
|
(6)
|
|
|
$
|
(7)
|
|
|
|
|
|
Income before income taxes
|
$
|
32
|
|
|
$
|
47
|
|
|
|
|
|
Effective tax rate
|
19
|
%
|
|
15
|
%
|
|
|
|
|
Tronox Holdings plc, a U.K. public limited company is the publicly-traded parent company for the business group, and the statutory tax rate in the U.K. at both March 31, 2021 and 2020 was 19%. The effective tax rates for the three months ended March 31, 2021 and 2020 are influenced by a variety of factors, primarily income and losses in jurisdictions with full valuation allowances, disallowable expenditures, restructuring impacts, prior year accruals, and our jurisdictional mix of income at tax rates different than the U.K. statutory rate.
At each reporting date, we perform an analysis to determine the likelihood of realizing our deferred tax assets and whether a valuation allowance is required or sufficient evidence exists to support the reversal of all or a portion of a valuation allowance. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversals of deferred tax liabilities) during the periods in which those deferred tax assets will become deductible. Our analysis takes into consideration all available positive and negative evidence, including prior operating results, the nature and reason for any losses, our forecast of future taxable income, utilization of tax planning strategies, and the dates on which any deferred tax assets are expected to expire. These assumptions and estimates require a significant amount of judgment and are made based on current and projected circumstances and conditions.
We continue to maintain full valuation allowances related to the total net deferred tax assets in Australia, Saudi Arabia, and United Kingdom, as we cannot objectively assert that these deferred tax assets are more likely than not to be realized. It is reasonably possible that a portion of these valuation allowances could be reversed within the next year due to increased profitability levels. Until these valuation allowances are eliminated, future provisions for income taxes for these jurisdictions will include no tax benefits with respect to losses incurred and tax expense only to the extent of current tax payments. Additionally, we have valuation allowances against specific tax assets in the Netherlands, South Africa, and the United States.
We currently have no uncertain tax positions recorded; however, we continue to evaluate the companies acquired in the Cristal Transaction, and it is reasonably possible that this could change in the next 12 months.
The Company was advised that the tax authority in the United Kingdom has commenced a tax audit for certain fiscal periods prior to the closing of the Cristal Transaction. The ultimate outcome of such an audit is not presently known. Cristal is obligated to indemnify us for pre-closing tax liabilities on any assessment associated with this audit.
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, adjustments to our provisions may be necessary and/or reclassifications of noncurrent tax liabilities to current may occur in the future.
4. Income Per Share
The computation of basic and diluted income per share for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Numerator - Basic and Diluted:
|
|
|
|
|
|
|
|
Net income
|
$
|
26
|
|
|
$
|
40
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interest
|
7
|
|
|
8
|
|
|
|
|
|
Net income available to ordinary shares
|
$
|
19
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - Basic and Diluted:
|
|
|
|
|
|
|
|
Weighted-average ordinary shares, basic (in thousands)
|
147,071
|
|
|
142,736
|
|
|
|
|
|
Weighted-average ordinary shares, diluted (in thousands)
|
153,928
|
|
|
143,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per ordinary share
|
$
|
0.13
|
|
|
$
|
0.23
|
|
|
|
|
|
Diluted net income per ordinary share
|
$
|
0.12
|
|
|
$
|
0.22
|
|
|
|
|
|
Net income (loss) per ordinary share amounts were calculated from exact, not rounded net income (loss) and share information. Anti-dilutive shares not recognized in the diluted net income per share calculation for the three months ended March 31, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Options
|
1,195,305
|
|
|
1,216,456
|
|
|
|
|
|
Restricted share units
|
924,385
|
|
|
7,322,644
|
|
|
|
|
|
5. Inventories, Net
Inventories, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Raw materials
|
$
|
168
|
|
|
$
|
170
|
|
Work-in-process
|
106
|
|
|
103
|
|
Finished goods, net
|
581
|
|
|
668
|
|
Materials and supplies, net
|
197
|
|
|
196
|
|
Inventories, net – current
|
$
|
1,052
|
|
|
$
|
1,137
|
|
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 March 31, 2021 and December 31, 2020, inventory obsolescence reserves primarily for materials and supplies were $42 million and $41 million, respectively. Reserves for lower of cost or market and net realizable value were $16 million and $29 million at March 31, 2021 and December 31, 2020, respectively.
6. Property, Plant and Equipment, Net
Property, plant and equipment, net of accumulated depreciation, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Land and land improvements
|
$
|
188
|
|
|
$
|
189
|
|
Buildings
|
368
|
|
|
368
|
|
Machinery and equipment
|
2,197
|
|
|
2,197
|
|
Construction-in-progress
|
196
|
|
|
192
|
|
Other
|
87
|
|
|
86
|
|
Subtotal
|
3,036
|
|
|
3,032
|
|
Less: accumulated depreciation
|
(1,326)
|
|
|
(1,273)
|
|
Property, plant and equipment, net
|
$
|
1,710
|
|
|
$
|
1,759
|
|
Substantially all of the property, plant and equipment, net is pledged as collateral for our debt. See Note 10.
The table below summarizes depreciation expense related to property, plant and equipment for the periods presented, recorded in the specific line items in our unaudited Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Cost of goods sold
|
$
|
65
|
|
|
$
|
59
|
|
|
|
|
|
Selling, general and administrative expenses
|
1
|
|
|
1
|
|
|
|
|
|
Total
|
$
|
66
|
|
|
$
|
60
|
|
|
|
|
|
7. Mineral Leaseholds, Net
Mineral leaseholds, net of accumulated depletion, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Mineral leaseholds
|
$
|
1,335
|
|
|
$
|
1,333
|
|
Less: accumulated depletion
|
(540)
|
|
|
(530)
|
|
Mineral leaseholds, net
|
$
|
795
|
|
|
$
|
803
|
|
Depletion expense relating to mineral leaseholds recorded in “Cost of goods sold” in the unaudited Condensed Consolidated Statements of Income was $10 million and $2 million during the three months ended March 31, 2021 and 2020, respectively.
8. Intangible Assets, Net
Intangible assets, net of accumulated amortization, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Gross Cost
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
Gross Cost
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
Customer relationships
|
$
|
291
|
|
|
$
|
(197)
|
|
|
$
|
94
|
|
|
$
|
291
|
|
|
$
|
(193)
|
|
|
$
|
98
|
|
TiO2 technology
|
93
|
|
|
(26)
|
|
|
67
|
|
|
93
|
|
|
(24)
|
|
|
69
|
|
Internal-use software and other
|
81
|
|
|
(41)
|
|
|
40
|
|
|
73
|
|
|
(39)
|
|
|
34
|
|
Intangible assets, net
|
$
|
465
|
|
|
$
|
(264)
|
|
|
$
|
201
|
|
|
$
|
457
|
|
|
$
|
(256)
|
|
|
$
|
201
|
|
As of March 31, 2021 and December 31, 2020, internal-use software included approximately $29 million and $19 million, respectively, of capitalized software costs which are not being amortized as the software is not ready for its intended use.
Amortization expense related to intangible assets recorded in "Selling, general and administrative expenses" in the unaudited Condensed Consolidated Statements of Income was $8 million and $9 million during the three months ended March 31, 2021 and 2020, respectively.
Estimated future amortization expense related to intangible assets is $24 million for the remainder of 2021, $33 million for 2022, $33 million for 2023, $36 million for 2024, $33 million for 2025 and $42 million thereafter.
9. Balance Sheet and Cash Flow Supplemental Information
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Employee-related costs and benefits
|
$
|
107
|
|
|
$
|
133
|
|
Related party payables
|
1
|
|
|
7
|
|
Interest
|
31
|
|
|
21
|
|
Sales rebates
|
39
|
|
|
43
|
|
Restructuring
|
2
|
|
|
2
|
|
Taxes other than income taxes
|
17
|
|
|
16
|
|
Asset retirement obligations
|
7
|
|
|
9
|
|
Interest rate swaps
|
43
|
|
|
57
|
|
|
|
|
|
Other accrued liabilities
|
61
|
|
|
62
|
|
Accrued liabilities
|
$
|
308
|
|
|
$
|
350
|
|
Additional supplemental cash flow information for the three months ended March 31, 2021 and 2020 and as of March 31, 2021 and December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Supplemental non cash information:
|
2021
|
|
2020
|
Financing activities - Acquisition of noncontrolling interest
|
$
|
125
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Capital expenditures acquired but not yet paid
|
$
|
28
|
|
|
$
|
37
|
|
10. Debt
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
|
|
March 31, 2021
|
|
December 31, 2020
|
Prior Term Loan Facility, net of unamortized discount (1)
|
$
|
2,150
|
|
|
Variable
|
|
9/22/2024
|
|
$
|
—
|
|
|
$
|
1,607
|
|
New Term Loan Facility, net of unamortized discount (1)
|
1,300
|
|
|
Variable
|
|
3/11/2028
|
|
1,291
|
|
|
—
|
|
Senior Notes due 2025
|
450
|
|
|
5.75
|
%
|
|
10/1/2025
|
|
450
|
|
|
450
|
|
Senior Notes due 2026
|
615
|
|
|
6.50
|
%
|
|
4/15/2026
|
|
—
|
|
|
615
|
|
Senior Notes due 2029
|
1,075
|
|
|
4.63
|
%
|
|
3/15/2029
|
|
1,075
|
|
|
—
|
|
6.5% Senior Secured Notes due 2025
|
500
|
|
|
6.50
|
%
|
|
5/1/2025
|
|
500
|
|
|
500
|
|
Standard Bank Term Loan Facility (1) (3)
|
222
|
|
|
Variable
|
|
3/25/2024
|
|
88
|
|
|
115
|
|
Tikon Loan (3)
|
N/A
|
|
Variable
|
|
5/23/2021
|
|
11
|
|
|
17
|
|
Australian Government Loan, net of unamortized discount
|
N/A
|
|
N/A
|
|
12/31/2036
|
|
1
|
|
|
1
|
|
MGT Loan(2)
|
36
|
|
Variable
|
|
Variable
|
|
35
|
|
|
36
|
|
Finance leases
|
|
|
|
|
|
|
14
|
|
|
15
|
|
Long-term debt
|
|
|
|
|
|
|
3,465
|
|
|
3,356
|
|
Less: Long-term debt due within one year
|
|
|
|
|
|
|
(514)
|
|
|
(58)
|
|
Debt issuance costs
|
|
|
|
|
|
|
(50)
|
|
|
(35)
|
|
Long-term debt, net
|
|
|
|
|
|
|
$
|
2,901
|
|
|
$
|
3,263
|
|
_______________
(1)Average effective interest rate on the Prior Term Loan Facility of 4.5% and 5.0% during the three months ended March 31, 2021 and 2020, respectively. Average effective interest rate on the New Term Loan Facility of 4.3% during the three months ended March 31, 2021. Average effective interest rate on the Standard Bank Term Loan Facility of 6.5% and 9.5% during the three months ended March 31, 2021 and 2020, respectively.
(2)The MGT loan is a related party debt facility.
(3)During the three months ended March 31, 2021, the Company made two voluntary prepayments totaling R260 million (approximately $17 million at March 31, 2021 exchange rate) on the Standard Bank Term Loan Facility. No prepayment penalties were required as a result of this principal prepayment. During the three months ended March 31, 2021, the Company made a voluntary prepayment of CNY 41 million (approximately $6 million at March 31, 2021 exchange rate) on the Tikon Loan. Additionally, in April 2021, the Company made a voluntary prepayment totaling R780 million (approximately $53 million at March 31, 2021 exchange rate) on the Standard Bank Term Loan Facility and repaid the remaining outstanding principal balance of $11 million on the Tikon loan. No prepayment penalties were required as a result of these principal prepayments.
Prior Term Loan Facility and New Term Loan Facility
On March 11, 2021, Tronox Finance LLC entered into an amendment and restatement of its existing first lien term loan credit facility (the "Prior Term Loan Facility") pursuant to which, among other thing, we amended and restated the Prior Term Loan Facility with a new amended and restated first lien credit agreement dated as of September 22, 2017 (as amended through and including March 11, 2021, the "New Term Loan Facility") with a syndicate of lenders and HSBC Bank USA, National Association, as administrative agent and collateral agent. The New Term Loan Facility provides the Company with (a) a new seven-year New Term Loan Facility) in an aggregate principal amount of $1.3 billion and (b) new five-year cash flow revolving facility (the "New Revolving Facility") providing initial revolving commitments of $350 million and a sublimit of
$125 million for letters of credit. The maturity date on the New Term Loan Facility and the New Revolving Facility is March 11, 2028 and March 11, 2026, respectively.
The New Term Loan Facility shall bear interest at either the base rate or an adjusted LIBOR rate, in each case plus an applicable margin. The applicable margin in respect of the New Term Loan Facility is either 1.50% or 1.25%, for base rate loans, or 2.50% or 2.25%, for adjusted LIBOR rate loans, in each case determined based on, initially the passage of time, and thereafter upon the Company’s first lien net leverage ratio at the applicable time. The New Revolving Facility shall bear interest at either the base rate or adjusted LIBOR rate, in each case plus an applicable margin. The applicable margin in respect of the New Revolving Facility is either 1.25%, 1.00% or 0.75% for base rate loans, or 2.25%, 2.00% or 1.75%, for adjusted LIBOR Rate Loans, in each case determined based on, initially the passage of time, and thereafter upon the Company’s first lien net leverage ratio at the applicable time. The New Credit Facility requires the Borrower to pay customary agency fees.
In connection with entering into the New Term Loan Facility, the Company terminated all remaining commitments and repaid all obligations under its Prior Term Loan Facility and Wells Fargo Revolver. Additionally, we repaid $313 million of the principal under the Prior Term Loan Facility with cash on hand.
Commencing June 30, 2021, the New Revolving Facility contains a springing financial covenant when a loan amount is drawn exceeding 35% of the New Revolving Facility. In this instance, the first lien net leverage ratio shall not exceed 4.75x at quarter end testing period.
As a result of this transaction and in accordance with ASC 470, we recognized approximately $4 million in "Loss on Extinguishment of Debt" recorded in the unaudited condensed Consolidated Statement of Income for the three months ended March 31, 2021.
In April 2021, we drew down $25 million on the New Revolving Facility, which was repaid later in April 2021.
Senior Notes due 2025, Senior Notes due 2026 and Senior Notes due 2029
On March 15, 2021, Tronox Incorporated closed an offering of $1,075 million aggregate principal amount of its 4.625% senior notes due 2029 (the "Senior Notes due 2029"). The notes were offered at par and issued under an indenture dated as of March 15, 2021 among the Company and certain of the Company's restricted subsidiaries as guarantors and Wilmington Trust, National Association. The Senior Notes due 2029 provide, among other thing, that the Senior Notes due 2029 are guaranteed by the Company and certain of the Company's restricted subsidiaries, subject to certain exceptions. The Senior Notes due 2029 and related guarantees are the senior obligations of the Company and the guarantors. The Senior Notes due 2029 have not been registered under the Securities Act, or any state securities laws, and may not be offered or sold in the United States absent registration requirements. The terms of the indenture, among other things, limit, in certain circumstances, the ability of the Company and its restricted subsidiaries to: incur secured indebtedness, incur indebtedness at a non-guarantor subsidiary, engage in certain sale-leaseback transactions and merge, consolidate or sell substantially all of their assets. Interest is payable on the Senior Notes due 2029 on March 15 and September 15 of each year beginning on September 15, 2021 until their maturity date of March 15, 2029.
On March 31, 2021, the Company repaid the outstanding principal balance of $615 million on its Senior Notes due 2026. As a result of this transaction, we recorded $30 million of debt extinguishment costs, including a call premium of $21 million, in "Loss on Extinguishment of Debt" on the Condensed Consolidated Statement of Income for the three months ended March 31, 2021.
On April 1, 2021, the Company repaid the outstanding principal balance of $450 million on its Senior Notes due 2025 including a call premium of $19 million.
Debt Covenants
At March 31, 2021, we are in compliance with all financial covenants in our debt facilities.
11. Derivative Financial Instruments
Derivatives recorded on the Condensed Consolidated Balance Sheet:
The following table is a summary of the fair value of derivatives outstanding at March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Assets(a)
|
|
Accrued Liabilities
|
|
Assets(a)
|
|
Accrued Liabilities
|
Derivatives Designated as Cash Flow Hedges
|
|
|
|
|
|
|
|
Currency Contracts
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
58
|
|
|
$
|
—
|
|
Interest Rate Swaps
|
$
|
—
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
57
|
|
Total Hedges
|
$
|
32
|
|
|
$
|
43
|
|
|
$
|
58
|
|
|
$
|
57
|
|
Derivatives Not Designated as Cash Flow Hedges
|
|
|
|
|
|
|
|
Currency Contracts
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
Total Derivatives
|
$
|
42
|
|
|
$
|
43
|
|
|
$
|
65
|
|
|
$
|
57
|
|
(a) At March 31, 2021 and December 31, 2020, current assets of $42 million and $65 million, respectively, are recorded in prepaid and other current assets on the Condensed Consolidated Balance Sheets.
Derivatives' Impact on the Condensed Consolidated Statement of Income:
The following table summarizes the impact of the Company's derivatives on the unaudited Condensed Consolidated Statement of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Pre-Tax Gain (Loss) Recognized in Earnings
|
|
Amount of Pre-Tax Gain (Loss) Recognized in Earnings
|
|
Revenue
|
|
Cost of Goods Sold
|
|
Other Income (Expense), net
|
|
Revenue
|
|
Cost of Goods Sold
|
|
Other Income (Expense), net
|
|
Three Months Ended March 31, 2021
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
Currency Contracts
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(16)
|
|
Derivatives Designated as Hedging Instruments
|
Currency Contracts
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
(4)
|
|
|
$
|
—
|
|
Total Derivatives
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
(1)
|
|
|
$
|
(4)
|
|
|
$
|
(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Prior Term Loan Facility, which effectively converts the variable rate to a fixed rate for that portion of the loan. The agreements expire in September 2024. The Company’s objectives in using the interest-rate swap agreements are to add stability to interest expense and to manage its exposure to interest rate movements. These interest rate swaps have been designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. There was no impact associated with the New Term Loan Facility as the hedge remained highly effective.
Fair value gains or losses on these cash flow hedges are recorded in other comprehensive (loss) income and are subsequently reclassified into interest expense in the same periods during which the hedged transactions affect earnings. At March 31, 2021 and December 31, 2020, the net unrealized loss of $43 million and $57 million, respectively, was recorded in "Accumulated other comprehensive loss" on the unaudited Condensed Consolidated Balance Sheet. For the three months ended March 31, 2021 and 2020, the amounts recorded in interest expense related to the interest-rate swap agreements were $4 million and $1 million, respectively.
Foreign Currency Risk
During the third quarter of 2019 and the first quarter of 2020, 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 March 31, 2021, we had notional amounts of 246 million Australian dollars (or approximately $187 million at March 31, 2021 exchange rate) that expire between April 30, 2021 and December 30, 2021 to reduce the exposure of our Australian subsidiaries’ cost of sales to fluctuations in currency rates. At March 31, 2021 and December 31, 2020, there was an unrealized net gain of $53 million and an unrealized net gain of $58 million, respectively, recorded in "Accumulated other comprehensive loss" on the unaudited Condensed Consolidated Balance Sheet, of which $45 million is expected to be recognized in earnings over the next twelve months in line with the underlying sales of inventory. Of the $45 million, $34 million will be recognized in earnings during the remainder of 2021.
We enter into foreign currency contracts for the South African Rand and Australian Dollar to reduce exposure of our subsidiaries’ balance sheet accounts not denominated in our subsidiaries’ functional currency to fluctuations in foreign currency exchange rates. Historically, we have used a combination of zero-cost collars or forward contracts to reduce the exposure. For accounting purposes, these foreign currency contracts are not considered hedges. The change in fair value associated with these contracts is recorded in “Other expense, net” within the unaudited Condensed Consolidated Statement of Income and partially offsets the change in value of third party and intercompany-related receivables not denominated in the functional currency of the subsidiary. At March 31, 2021, there was (i) 540 million South African Rand (or approximately $37 million at March 31, 2021 exchange rate) and (ii) 58 million Australian dollars (or approximately $44 million at March 31, 2021) of notional amount outstanding foreign currency contracts. At December 31, 2020, there was (i) 354 million South African Rand (or approximately $24 million at March 31, 2021 exchange rate) and (ii) 54 million Australian dollars (or approximately $41 million at March 31, 2021 exchange rate) of notional amounts outstanding foreign currency contracts.
12. Fair Value
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standards also have established a fair value hierarchy, which prioritizes the inputs to valuation techniques used in measuring fair value into three broad levels as follows:
Level 1 -Quoted prices in active markets for identical assets or liabilities
Level 2 -Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly
Level 3 -Unobservable inputs based on the Company’s own assumptions
Our debt is recorded at historical amounts. The following table presents the fair value of our debt and derivative contracts at both March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Prior Term Loan Facility
|
$
|
—
|
|
|
$
|
1,610
|
|
New Term Loan Facility
|
1,295
|
|
|
—
|
|
Standard Bank Term Loan Facility
|
88
|
|
|
115
|
|
Senior Notes due 2025
|
469
|
|
|
468
|
|
Senior Notes due 2026
|
—
|
|
|
641
|
|
Senior Notes due 2029
|
1,077
|
|
|
—
|
|
6.5% Senior Secured Notes due 2025
|
536
|
|
|
536
|
|
Tikon Loan
|
11
|
|
|
17
|
|
Australian Government Loan
|
1
|
|
|
1
|
|
MGT Loan
|
35
|
|
|
36
|
|
Interest rate swaps
|
43
|
|
|
57
|
|
Foreign currency contracts
|
42
|
|
|
65
|
|
We determined the fair value of the Prior Term Loan Facility, New Term Loan Facility, the Senior Notes due 2025, the Senior Notes due 2026, the Senior Notes due 2029 and 6.5% Senior Secured Notes due 2025 using quoted market prices, which under the fair value hierarchy is a Level 1 input. We determined the fair value of the Standard Bank Term Loan Facility and Tikon Loan utilizing transactions in the listed markets for identical or similar liabilities, which under the fair value hierarchy is a Level 2 input. The fair value of the Australian Government Loan and MGT Loan is based on the contracted amount which is a Level 2 input.
We determined the fair value of the foreign currency contracts and the 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, accounts payable, accrued liabilities and short-term debt approximate fair value due to the short-term nature of these items.
13. Asset Retirement Obligations
Asset retirement obligations consist primarily of rehabilitation and restoration costs, landfill capping costs, decommissioning costs, and closure and post-closure costs. Activities related to asset retirement obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Beginning balance
|
$
|
166
|
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion expense
|
3
|
|
|
3
|
|
|
|
|
|
Remeasurement/translation
|
(4)
|
|
|
(21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements/payments
|
(2)
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement period adjustment related to Cristal acquisition
|
—
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31,
|
$
|
163
|
|
|
$
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Current portion included in “Accrued liabilities”
|
$
|
7
|
|
|
$
|
9
|
|
Noncurrent portion included in “Asset retirement obligations”
|
156
|
|
|
157
|
|
Asset retirement obligations
|
$
|
163
|
|
|
$
|
166
|
|
14. Commitments and Contingencies
Purchase and Capital Commitments — Includes obligations for purchase requirements of process chemicals, supplies, utilities and services entered into in the ordinary course of business. At March 31, 2021, purchase commitments were $169 million for 2021, $85 million for 2022, $64 million for 2023, $57 million for 2024, $44 million for 2025, and $136 million thereafter.
Letters of Credit—At March 31, 2021, we had outstanding letters of credit and bank guarantees of $67 million, of which $35 million were letters of credit and $32 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 of reasonably possible environmental loss in excess of our recorded liabilities. We expect to fund expenditures for these matters from operating cash flows. The timing of cash expenditures depends principally on the timing of remedial investigations and feasibility studies, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. Included in these environmental matters are the following:
Hawkins Point Plant. Residual waste mud, known as Batch Attack Mud, and a spent sulfuric waste stream were deposited in an onsite repository (the “Batch Attack Lagoon”) at a former TiO2 manufacturing site, Hawkins Point Plant in Baltimore, Maryland, operated by 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 $60 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.
15. Accumulated Other Comprehensive Loss Attributable to Tronox Holdings plc
The tables below present changes in accumulated other comprehensive loss by component for the three months ended March 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Translation
Adjustment
|
|
Pension
Liability
Adjustment
|
|
Unrealized
Gains
(Losses) on
Hedges
|
|
Total
|
Balance, January 1, 2021
|
$
|
(491)
|
|
|
$
|
(120)
|
|
|
$
|
1
|
|
|
$
|
(610)
|
|
Other comprehensive income (loss)
|
(32)
|
|
|
(1)
|
|
|
11
|
|
|
(22)
|
|
Acquisition of noncontrolling interest
|
(34)
|
|
|
—
|
|
|
—
|
|
|
(34)
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
1
|
|
|
(3)
|
|
|
(2)
|
|
Balance, March 31, 2021
|
$
|
(557)
|
|
|
$
|
(120)
|
|
|
$
|
9
|
|
|
$
|
(668)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Translation
Adjustment
|
|
Pension
Liability
Adjustment
|
|
Unrealized
Gains
(Losses) on
Hedges
|
|
Total
|
Balance, January 1, 2020
|
$
|
(503)
|
|
|
$
|
(104)
|
|
|
$
|
1
|
|
|
$
|
(606)
|
|
Other comprehensive loss
|
(141)
|
|
|
—
|
|
|
(88)
|
|
|
(229)
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
1
|
|
|
5
|
|
|
6
|
|
Balance, March 31, 2020
|
$
|
(644)
|
|
|
$
|
(103)
|
|
|
$
|
(82)
|
|
|
$
|
(829)
|
|
16. Share-Based Compensation
Restricted Share Units (“RSUs”)
2021 Grant - During the three months ended March 31, 2021, the Company granted both time-based and performance-based awards to certain members of management and to members of the Board. A total of 621,519 of time-based awards were granted to management which will vest ratably over a three-year period ending March 5, 2024. A total of 605,732 of performance-based awards were granted, of which 302,866 of the awards vest based on a relative Total Shareholder Return ("TSR") calculation and 302,866 of the awards vest based on certain performance metrics of the Company. The non-TSR performance-based awards vest on March 5, 2024 based on the achievement against the target average company performance of three separate performance periods, commencing on January 1 of each 2021, 2022, and 2023 and ending on December 31 of each 2021, 2022 and 2023, for which, for each performance period, the performance metric is an average annual return on invested capital (ROIC) improvement versus 2020 ROIC. Similar to the Company's historical TSR awards granted in prior years, the TSR awards vest based on the Company's three-year TSR versus the peer group performance levels. Given these terms, the TSR metric is considered a market condition for which we used a Monte Carlo simulation to determine the weighted average grant date fair value of $28.93. The following weighted average assumptions were utilized to value the TSR grants:
|
|
|
|
|
|
|
2021
|
Dividend yield
|
1.56
|
%
|
Expected historical volatility
|
71.1
|
%
|
Risk free interest rate
|
0.17
|
%
|
Expected life (in years)
|
3
|
The unrecognized compensation cost associated with all unvested awards at March 31, 2021 was $45 million, adjusted for estimated forfeitures, which is expected to be recognized over a weighted-average period of approximately 2.3 years.
During the three months ended March 31, 2021 and 2020, we recorded $9 million and $8 million of stock compensation expense, respectively. The three months ended March 31, 2021 includes the acceleration of approximately $2 million of stock compensation expense associated with the retirement agreement entered into with the former CEO on March 18, 2021.
There were 11,193 options exercised during the three month periods ended March 31, 2021 with an intrinsic value of less than $0.1 million. Cash proceeds from the exercise of stock options was $0.2 million for the three months ended March 31, 2021.
17. Pension and Other Postretirement Healthcare Benefits
The components of net periodic cost associated with our U.S. and foreign pension plans recognized in the unaudited Condensed Consolidated Statements of Income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
Net periodic cost:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
3
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets
|
(6)
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
Net amortization of actuarial loss and prior service credit
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Total net periodic cost
|
$
|
(1)
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
The components of net periodic cost associated with our other postretirement healthcare plans were less than $1 million for each of the three months ended March 31, 2021 and 2020.
During the three months ended March 31, 2021, the Company made contributions to its pension plans of less than $1 million. The Company expects to make an additional $1 million of pension contributions for the remainder of 2021.
For the both the three months ended March 31, 2021 and 2020, we contributed $1 million to the Netherlands Multiemployer Plan, which was primarily recognized in “Cost of goods sold” in the unaudited Condensed Consolidated Statement of Income.
18. Related Parties
Exxaro
In connection with the Company’s acquisition in 2012 of Exxaro Resources Limited’s (“Exxaro”) mineral sands business, Exxaro was granted a “flip in” right such that following the occurrence of certain events, Exxaro could exercise a put option, or the Company could exercise a call option, whereby Exxaro exchanges its 26% shareholding in the Company’s South African operating subsidiaries which hold the Company’s material mining licenses (the “South African Subsidiaries Interest”) for an additional 7,246,035 of our ordinary shares. On November 26, 2018, the Company, certain of the Company’s subsidiaries and Exxaro entered into the Exxaro Mineral Sands Transaction Completion Agreement which amended the “flip in” rights granted to Exxaro to accelerate the occurrence of the “flip in” upon satisfaction of certain conditions, which have now been satisfied. On February 23, 2021, we exercised our call option to complete the “flip in” transaction, pursuant to which we issued to Exxaro 7,246,035 new ordinary shares of the Company in exchange for Exxaro’s South African Subsidiaries Interest. In addition, on March 1, 2021, Exxaro sold its entire share ownership in us, including the “flip-in” shares, totaling 21,975,315 ordinary shares in an underwritten public offering.
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 March 31, 2021, 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 25% 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”). The Option may be exercised if the Slagger achieves certain production criteria related to sustained quality and tonnage of slag produced (the “Option Criteria”). Likewise, AMIC may require us to acquire the Slagger on the same terms if the Option Criteria are satisfied. Furthermore, pursuant to the Option Agreement and during its term, we agreed to lend AMIC and, upon the creation of the SPV, the SPV $125 million for capital expenditures and operational expenses intended to facilitate the start-up of the Slagger (the “Tronox Loans”). At March 31, 2021, we have lent AMIC the Tronox Loans maximum amount of $125 million. We have recorded the $125 million of total principal loan payments and related interest of $7 million within “Other long-term assets” on the unaudited Condensed Consolidated Balance Sheet at March 31, 2021. The Option did not have a significant impact on the financial statements as of or for the periods ended March 31, 2021.
On May 13, 2020, we amended the Option Agreement (the "First Amendment") with AMIC to address circumstances in which the Option Criteria cannot be satisfied. Pursuant to the First Amendment, Tronox has the right to acquire the SPV in exchange for its forgiveness of the Tronox Loan, up to $125 million of principal amount and any interest accrued thereon of the Tronox Loans plus or minus 90% of the SPV’s net working capital. The First Amendment did not have a significant impact on our financial statements as of or for the period ended March 31, 2021.
Additionally, on May 13, 2020, we amended a Technical Services Agreement that we had entered with AMIC on March 15, 2018, to add project management support services. Under this arrangement, AMIC and its consultants are still responsible for engineering and construction of the Slagger while we provide technical advice and project management services including supervision and management of third party consultants intended to satisfy the Option Criteria. As compensation for these services, Tronox receives a monthly management fee of approximately $1 million, which is recorded in “Other income (expense), net” within the unaudited Condensed Consolidated Statement of Income and in “Prepaid and other assets” on the unaudited Condensed Consolidated Balance Sheet. The monthly management fee is subject to certain success incentives if and when the Slagger achieves the Option Criteria. Tronox recorded approximately $2 million and nil in "Other Income" for the three months ended March 31, 2021 and March 31, 2020, respectively in the unaudited Condensed Consolidated Statement of Income. At March 31, 2021, Tronox had a receivable due from AMIC related to management fee of $1 million that is recorded within “Prepaid and other assets” on the unaudited Condensed Consolidated Balance Sheet.
At March 31, 2021 Tronox had a receivable due from Tasnee of $6 million recorded within “Prepaid and other assets” on the unaudited Condensed Consolidated Balance Sheet, which relates primarily to stamp duty taxes paid on behalf of Tasnee and activities pursuant to a transition services agreement.
On December 29, 2019, we entered into an agreement with Cristal to acquire certain assets co-located at our Yanbu facility which produces metal grade TiCl4 ("MGT"). Consideration for the acquisition is the assumption by Tronox of a $36 million note payable to Cristal (the "MGT Loan"). The MGT is used at a titanium "sponge" plant facility, 65% of the ownership interests of which are held by Advanced Metal Industries Cluster and Toho Titanium Metal Co. Ltd ("ATTM"), a joint venture between AMIC and Toho Titanium Company Ltd. ATTM uses the TiCl4, which we supply by pipeline, for the production of titanium sponge, a precursor material used in the production of titanium metal.
On December 17, 2020 we completed the MGT transaction. Repayment of the $36 million note payable is based on a fixed U.S. dollar per metric ton quantity of MGT delivered by us to ATTM over time and therefore the ultimate maturity date is variable in nature. If ATTM fails to purchase MGT from us under certain contractually agreed upon conditions, then at our election we may terminate the MGT supply agreement with ATTM and will no longer owe any amount under the loan agreement with Cristal. We currently estimate the ultimate maturity to be between approximately five and seven years, subject to actual future MGT production levels. The interest rate on the note payable is based on the SAIBOR plus a premium. As of March 31, 2021, the outstanding balance of the note payable was $35 million, of which $6 million is expected to be paid within the next twelve months.
As a result of the transactions we have entered into related to the MGT assets, Tronox recorded $2 million and $1 million for purchase of chlorine gas for the three months ended March 31, 2021 and March 31, 2020, respectively from ATTM and such amounts are recorded in "Cost of goods sold" on the unaudited Condensed Consolidated Statement of Operations. The amount due to ATTM as of March 31, 2021 for the purchase of chlorine gas was $1 million and is recorded within “Accrued liabilities” on the unaudited Condensed Consolidated Balance Sheet. In addition, during the three months ended March 31, 2021 and March 31, 2020, Tronox recorded $10 million and $6 million, respectively, for MGT sales made to ATTM and MGT Loan repayments to Cristal. The MGT sales amounts are recorded in “Net sales” on the unaudited Condensed Consolidated Statement of Operations. At both March 31, 2021 and December 31, 2020, Tronox had a receivable from ATTM of $7 million from MGT sales that is recorded within “Prepaid and other assets” on the unaudited Condensed Consolidated Balance Sheet.