Tronox Q2 loss widens; company hopes to cut debt with real-estate sale proceeds

By Paul Deckelman

New York, August 2 - Tronox Inc. posted a wider second-quarter loss than it had a year ago despite higher net sales. The Oklahoma City-based chemical company's executives told analysts during a conference call on Wednesday following the release of the numbers that the wider loss was largely due to unplanned production problems at its pigments plant in Savannah, Ga., as well as higher energy costs and higher costs of process chemicals, which drove up its expenses.

However, they reiterated their plans to continue with "Project Cornerstone," a multi-year cost-cutting and cash-generating initiative, and said that they expected to use the proceeds from sales of real estate at closed facilities to cut debt.

"There's no question that we are not pleased," with the latest results, company chairman and chief executive officer Thomas W. Adams declared on the conference call. He said that "the sense of urgency" to turn such results around "is there."

For the quarter ended June 30, the company had a net loss of $14.4 million (36 cents per share), widening out from its year-earlier deficit of $3.6 million (9 cents per share). The latest quarterly results were impacted by a $7.7 million environmental charge, net of tax, that Tronox recorded in discontinued operations, due primarily to a cost increase by the commercially licensed disposal facility used in remediation efforts associated with the company's former operations in West Chicago, Ill., where its former corporate parent, Kerr-McGee Corp., processed thorium until 1973. Tronox expects to receive reimbursements for about 77% of those remediation costs at some point in the future, after it expends the cash.

The net loss widened even though the company saw sales rise to $372.9 million, a 4.8% increase from $355.9 million a year earlier. The company said in its earnings announcement that the increase was primarily due to higher pigment sales volumes rather than stronger prices, as Tronox was unable to fully implement price increases announced in January.

Tronox ended the quarter with outstanding debt of $549 million, including its $350 million of 9½% senior notes due 2012 sold last November by its Tronox Worldwide LLC subsidiary, and $199 million of term loan debt. Tronox was spun off from Oklahoma City-based Kerr-McGee, an energy and chemical concern, last year (Kerr-McGee sold its remaining stake in Tronox earlier this year and now has no ownership status). At that time, the soon-to-be independent company sold the new bonds and entered into a $450 million senior secured credit facility, consisting of a $200 million six-year term loan and a $250 million revolving credit line. Proceeds from the term loan and the notes offering were distributed to Kerr-McGee as part of the spin-off arrangement.

Company chief financial officer Mary Mikkelson told the conference call that during the second quarter, Tronox reduced its term loan debt by $500,000, as required by the terms of its credit agreement.

She said that the company had no outstanding revolver borrowings as of the quarter's end.

Mikkelson noted that the minimum required debt payment this year, under the facility's terms, is $2 million, and the company will have to make an additional $1.1 million principal payment in connection with its Australian mining operations, part of its pigment production in that country.

Sees some real estate proceeds in Q4

Mikkelson further said that net cash proceeds from any sales of land that the company owns in Henderson, Nev., site of a former processing facility, must be used to pay down outstanding debt, under the facility's terms. The company estimates that it could reap a total of $150 million from the sales of those holdings, with the sales of the first parcels expected to be completed this year. She said that assuming that the initial land sales close in the fourth quarter, Tronox estimates an additional debt reduction of $30 to $35 million this year.

The company had cash and cash equivalents of $25.9 million on hand at the end of the quarter.

Its interest expense was $12.3 million in the second quarter, and is expected to remain around that level in the current third quarter, when end on Sept. 30. The company continues to estimate full-year interest expense of around $45 to $50 million, the CFO said.

Aiming at $60 million cost cuts

Adams told the analysts that Tronox was hoping to improve its finances with "Project Cornerstone," which is supposed to result in $60 million of cash cost reductions over the next three years.

He stressed that headcount reductions are not contemplated, so there will be no severance costs associated with the initiative - only finding ways to streamline the company's operations and cut other overhead costs, such as sales, general and administrative expenses and costs along its supply chain.

As part of the project, he said that Tronox will aim to cut working capital costs - which totaled about $420 million in the second quarter - by $100 million by 2010, from the end-of-2005 level of $405 million.

"Project Cornerstone" also projects cutting maintenance capital spending by $20 million over the five-year period, and raising another $100 million from real estate sales above the Nevada transactions.

The company's 9½% notes were seen down 1½ points in Wednesday's dealings at 102.5 bid.

Its New York Stock Exchange-traded shares meantime were down $1.16 (9.03%), closing at $11.69, on volume of nearly two million shares.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.