NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General, Description of Business, Recent Developments and Basis of Presentation
Description of Business
Venator became an independent publicly traded company following our IPO and separation from Huntsman Corporation in August 2017. Venator operates in
two
segments: Titanium Dioxide and Performance Additives. The Titanium Dioxide segment primarily manufactures and sells TiO
2
, and operates
eight
TiO
2
manufacturing facilities across the globe. The Performance Additives segment manufactures and sells functional additives, color pigments, timber treatment and water treatment chemicals. This segment operates
16
manufacturing and processing facilities globally.
Basis of Presentation
Our unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP" or "U.S. GAAP") and in management’s opinion reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, comprehensive income, financial position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes to consolidated and combined financial statements included in the Annual Report on Form 10‑K for the year ended December 31, 2018 for our Company.
In the
notes to unaudited condensed consolidated financial statements
, all dollar and share amounts, except per share amounts, in tabulations are in millions unless otherwise indicated.
Recent Developments
On April 26, 2019, we acquired intangible assets related to the European paper laminates product line from Tronox Limited ("Tronox") for a purchase price of
€8 million
payable as follows:
€1 million
upon completion of the acquisition and the remaining
€7 million
in
two
installments over
two years
. A note payable for
$8 million
is included within accrued liabilities and other noncurrent liabilities on our unaudited condensed consolidated balance sheets at June 30, 2019.
Note 2. Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted During the Period
Effective January 1, 2019, we adopted Accounting Standards Update ("ASU") No. 2016-02,
Leases (Topic 842)
using the modified retrospective approach which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The adoption of this ASU did not result in a cumulative effect adjustment to the opening balance of retained earnings. This ASU requires substantially all leases to be recognized on the balance sheet as right-of-use assets ("ROU assets") and lease obligations. Additional qualitative and quantitative disclosures are also required. Adoption of the new standard resulted in the recording of an operating lease ROU asset of
$47 million
and a lease liability of
$49 million
. The adoption of this ASU did not have a material impact on our condensed consolidated statements of operations or cash flows. Our accounting for finance leases remained substantially unchanged.
We elected the following optional practical expedients allowed under the ASU: (i) we applied the package of practical expedients permitting entities not to reassess under the new standard our prior conclusions about lease identification, classification or initial direct costs for any leases existing prior to the effective date; (ii) we elected to account for lease and associated non-lease components as a single lease component for all asset classes with the exception of buildings and (iii) we do not recognize ROU assets and related lease obligations with lease terms of 12 months or less from the commencement date.
In February 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-02,
Income Statement—Reporting Comprehensive Income (Topic 220)
. This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). This standard is effective for interim and annual reporting periods beginning after December 15, 2018. The adoption of this ASU did not have a material impact on our unaudited condensed consolidated statement of comprehensive income.
Accounting Pronouncements Pending Adoption in Future Periods
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.
The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The new standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. We have completed our assessment and we do not anticipate this will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14,
Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)
. The amendments in this ASU add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. This ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This standard is effective for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. Since the ASU is related to disclosure requirements only, this adoption will not have a material impact on our consolidated financial statements.
Note 3. Leases
We have leases for warehouses, office space, land, office equipment, production equipment and automobiles. ROU assets and lease obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. Operating lease ROU assets and liabilities are included in operating lease right-of-use assets, current operating lease liabilities, and operating lease liabilities on our condensed consolidated balance sheet. Finance leases ROU assets are included in property, plant and equipment, net, while finance lease liabilities are included in other non-current liabilities. As the implicit rate is not readily determinable in most of our lease arrangements, we use our incremental borrowing rate based on information available at the commencement date in order to determine the net present value of lease payments. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. We have lease agreements that contain lease and non-lease components.
We determine if an arrangement is a lease or contains a lease at inception. Certain leases contain renewal options that can extend the term of the lease for
one year
or more. Our leases have remaining lease terms of up to
93 years
, some of which include options to extend the lease term for up to
20 years
. Options are recognized as part of our ROU assets and lease liabilities when it is reasonably certain that we will extend that option. Sublease arrangements and leases with residual value guarantees, sale leaseback terms or material restrictive covenants, are immaterial. Lease payments include fixed and variable lease components. Variable components are derived from usage or market-based indices, such as the consumer price index. As of
June 30, 2019
, we do not have leases initiated but not yet commenced which are expected to commence during the remainder of 2019.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Lease Cost
|
Three months ended June 30, 2019
|
|
Six months ended June 30, 2019
|
|
Operating lease cost
|
$
|
3
|
|
|
$
|
7
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
1
|
|
|
1
|
|
|
Interest on lease liabilities
|
—
|
|
|
—
|
|
|
Short-term lease cost
|
—
|
|
|
1
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
Leases
|
As of
June 30, 2019
|
|
Assets
|
|
|
Operating Lease Right-of-Use Assets
|
$
|
41
|
|
|
|
|
|
Finance Lease Right-of-Use Assets, at cost
|
$
|
13
|
|
|
Accumulated Depreciation
|
(4
|
)
|
|
Finance Lease Right-of-Use Assets, net
|
$
|
9
|
|
|
|
|
|
Liabilities
|
|
|
Operating Lease Obligation
|
|
|
Current
|
$
|
9
|
|
|
Non-Current
|
34
|
|
|
Total Operating Lease Liabilities
|
$
|
43
|
|
|
|
|
|
Finance Lease Obligation
|
|
|
Current
|
$
|
1
|
|
|
Non-Current
|
8
|
|
|
Total Finance Lease Liabilities
|
$
|
9
|
|
Cash paid for amounts included in the present value of operating lease liabilities were as follows:
|
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|
|
|
|
|
|
|
|
|
|
Cash Flow Information
|
Three months ended June 30, 2019
|
|
Six months ended June 30, 2019
|
|
Operating cash flows from operating leases
|
$
|
3
|
|
|
$
|
7
|
|
|
Operating cash flows from finance leases
|
1
|
|
|
1
|
|
|
Financing cash flows from finance leases
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
As of
June 30, 2019
|
|
Weighted average remaining lease term (years)
|
|
|
Operating leases
|
12.5
|
|
|
Finance leases
|
7.3
|
|
|
Weighted average discount rate
|
|
|
Operating leases
|
7.2
|
%
|
|
Financing leases
|
5.2
|
%
|
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
|
2019 (remaining)
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
2020
|
10
|
|
|
2
|
|
|
12
|
|
|
2021
|
8
|
|
|
1
|
|
|
9
|
|
|
2022
|
6
|
|
|
1
|
|
|
7
|
|
|
2023
|
4
|
|
|
1
|
|
|
5
|
|
|
After 2023
|
38
|
|
|
4
|
|
|
42
|
|
|
Total lease payments
|
$
|
72
|
|
|
$
|
10
|
|
|
$
|
82
|
|
|
Less: Interest
|
29
|
|
|
1
|
|
|
30
|
|
|
Present value of lease liabilities
|
$
|
43
|
|
|
$
|
9
|
|
|
$
|
52
|
|
Disclosures related to periods prior to adoption of the New Lease Standard
The total expense recorded under operating lease agreements in the consolidated and combined statements of operations was
$16 million
for the year ended December 31, 2018. Future minimum lease payments under noncancelable operating leases as of December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Operating Leases
|
|
Capital Leases
|
|
2019
|
$
|
13
|
|
|
$
|
1
|
|
|
2020
|
11
|
|
|
2
|
|
|
2021
|
9
|
|
|
1
|
|
|
2022
|
6
|
|
|
1
|
|
|
2023
|
4
|
|
|
1
|
|
|
Thereafter
|
40
|
|
|
7
|
|
|
Total
|
$
|
83
|
|
|
$
|
13
|
|
|
Less: Amounts representing interest
|
|
|
3
|
|
|
Present value of minimum lease payments
|
|
|
$
|
10
|
|
|
Less: Current portion of capital leases
|
|
|
1
|
|
|
Long-term portion of capital leases
|
|
|
$
|
9
|
|
Note 4. Revenue
We generate substantially all of our revenues through sales of inventory in the open market and via long-term supply agreements. At contract inception, we assess the goods promised in our contracts and identify a performance obligation for each promise to transfer to the customer a good that is distinct. In substantially all cases, a contract has a single performance obligation to deliver a promised good to the customer. Revenue is recognized when the performance obligations under the terms of our contracts are satisfied. Generally, this occurs at the time of shipping, at which point the control of the goods transfers to the customer. Further, in determining whether control has transferred, we consider if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferred goods. Sales, value added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. We have elected to account for all shipping and handling activities as fulfillment costs. We recognize these costs for shipping and handling when control over products have transferred to the customer as an expense in cost of goods sold. We have also elected to expense commissions when incurred as the amortization period of the commission asset that we would have otherwise recognized is less than one year.
The following table disaggregates our revenue by major geographical region for the
three and six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
|
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
|
Europe
|
|
$
|
215
|
|
|
$
|
49
|
|
|
$
|
264
|
|
|
$
|
428
|
|
|
$
|
104
|
|
|
$
|
532
|
|
|
North America
|
|
88
|
|
|
65
|
|
|
153
|
|
|
165
|
|
|
122
|
|
|
287
|
|
|
Asia
|
|
92
|
|
|
22
|
|
|
114
|
|
|
184
|
|
|
43
|
|
|
227
|
|
|
Other
|
|
44
|
|
|
3
|
|
|
47
|
|
|
87
|
|
|
7
|
|
|
94
|
|
|
Total Revenues
|
|
$
|
439
|
|
|
$
|
139
|
|
|
$
|
578
|
|
|
$
|
864
|
|
|
$
|
276
|
|
|
$
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
|
Europe
|
|
$
|
229
|
|
|
$
|
59
|
|
|
$
|
288
|
|
|
$
|
470
|
|
|
$
|
117
|
|
|
$
|
587
|
|
|
North America
|
|
80
|
|
|
78
|
|
|
158
|
|
|
151
|
|
|
155
|
|
|
306
|
|
|
Asia
|
|
96
|
|
|
30
|
|
|
126
|
|
|
192
|
|
|
57
|
|
|
249
|
|
|
Other
|
|
50
|
|
|
4
|
|
|
54
|
|
|
98
|
|
|
8
|
|
|
106
|
|
|
Total Revenues
|
|
$
|
455
|
|
|
$
|
171
|
|
|
$
|
626
|
|
|
$
|
911
|
|
|
$
|
337
|
|
|
$
|
1,248
|
|
The following table disaggregates our revenue by major product line for the
three and six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
|
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
|
TiO
2
|
|
$
|
439
|
|
|
$
|
—
|
|
|
$
|
439
|
|
|
$
|
864
|
|
|
$
|
—
|
|
|
$
|
864
|
|
|
Color Pigments
|
|
—
|
|
|
70
|
|
|
70
|
|
|
—
|
|
|
140
|
|
|
140
|
|
|
Functional Additives
|
|
—
|
|
|
33
|
|
|
33
|
|
|
—
|
|
|
65
|
|
|
65
|
|
|
Timber Treatment
|
|
—
|
|
|
31
|
|
|
31
|
|
|
—
|
|
|
60
|
|
|
60
|
|
|
Water Treatment
|
|
—
|
|
|
5
|
|
|
5
|
|
|
—
|
|
|
11
|
|
|
11
|
|
|
Total Revenues
|
|
$
|
439
|
|
|
$
|
139
|
|
|
$
|
578
|
|
|
$
|
864
|
|
|
$
|
276
|
|
|
$
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
|
TiO
2
|
|
$
|
455
|
|
|
$
|
—
|
|
|
$
|
455
|
|
|
$
|
911
|
|
|
$
|
—
|
|
|
$
|
911
|
|
|
Color Pigments
|
|
—
|
|
|
84
|
|
|
84
|
|
|
—
|
|
|
166
|
|
|
166
|
|
|
Functional Additives
|
|
—
|
|
|
39
|
|
|
39
|
|
|
—
|
|
|
80
|
|
|
80
|
|
|
Timber Treatment
|
|
—
|
|
|
41
|
|
|
41
|
|
|
—
|
|
|
78
|
|
|
78
|
|
|
Water Treatment
|
|
—
|
|
|
7
|
|
|
7
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
Total Revenues
|
|
$
|
455
|
|
|
$
|
171
|
|
|
$
|
626
|
|
|
$
|
911
|
|
|
$
|
337
|
|
|
$
|
1,248
|
|
The amount of consideration we receive and revenue we recognize is based upon the terms stated in the sales contract, which may contain variable consideration such as discounts or rebates. We also give our customers a limited right to return products that have been damaged, do not satisfy their specifications, or for other specific reasons. Payment terms on product sales to our customers typically range from
30 days
to
90 days
. Although certain exceptions exist where
standard payment terms are exceeded, these instances are infrequent and do not exceed one year. Discounts are allowed for some customers for early payment or if certain volume commitments are met. As our standard payment terms are less than one year, we have elected to not assess whether a contract has a significant financing component. In order to estimate the applicable variable consideration at the time of revenue recognition, we use historical and current trend information to estimate the amount of discounts, rebates, or returns to which customers are likely to be entitled. Historically, actual discount or rebate adjustments relative to those estimated and accrued at the point of which revenue is recognized have not materially differed.
Note 5. Inventories
Inventories are stated at the lower of cost or market, with cost determined using first-in, first-out and average cost methods for different components of inventory. Inventories at
June 30, 2019
and
December 31, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Raw materials and supplies
|
$
|
163
|
|
|
$
|
165
|
|
|
Work in process
|
62
|
|
|
56
|
|
|
Finished goods
|
283
|
|
|
317
|
|
|
Total
|
$
|
508
|
|
|
$
|
538
|
|
Note 6. Variable Interest Entities
We evaluate our investments and transactions to identify variable interest entities for which we are the primary beneficiary. We hold a variable interest in the following joint ventures for which we are the primary beneficiary:
|
|
|
|
•
|
Pacific Iron Products Sdn Bhd is our
50%
-owned joint venture with Coogee Chemicals that manufactures products for Venator. It was determined that the activities that most significantly impact its economic performance are raw material supply, manufacturing and sales. In this joint venture we supply all the raw materials through a fixed cost supply contract, operate the manufacturing facility and market the products of the joint venture to customers. Through a fixed price raw materials supply contract with the joint venture we are exposed to the risk related to the fluctuation of raw material pricing. As a result, we concluded that we are the primary beneficiary.
|
|
|
|
|
•
|
Viance, LLC ("Viance") is our
50%
-owned joint venture with DuPont de Nemours, Inc. Viance markets timber treatment products for Venator. We have determined that the activity that most significantly impacts Viance’s economic performance is manufacturing. The joint venture sources all of its products through a contract manufacturing arrangement at our Harrisburg, North Carolina facility and we bear a disproportionate amount of working capital risk of loss due to the supply arrangement whereby we control manufacturing on Viance’s behalf. As a result, we concluded that we are the primary beneficiary.
|
Creditors of these entities have no recourse to Venator’s general credit. As the primary beneficiary of these variable interest entities at
June 30, 2019
, the joint ventures’ assets, liabilities and results of operations are included in Venator’s unaudited condensed consolidated financial statements.
The revenues, income before income taxes and net cash provided by operating activities for our variable interest entities for the
three and six
months ended
June 30, 2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenues
|
$
|
25
|
|
|
$
|
35
|
|
|
$
|
47
|
|
|
$
|
66
|
|
|
Income before income taxes
|
3
|
|
|
5
|
|
|
5
|
|
|
9
|
|
|
Net cash provided by operating activities
|
4
|
|
|
3
|
|
|
6
|
|
|
12
|
|
Note 7. Restructuring, Impairment, and Plant Closing and Transition Costs
Venator has initiated various restructuring programs in an effort to reduce operating costs and maximize operating efficiency.
Restructuring Activities
Company-wide Restructuring
In January 2019, we implemented a plan to reduce costs and improve efficiency of certain company-wide functions. As part of the program, we recorded restructuring expense of
$1 million
and
$4 million
for the
three and six
months ended
June 30, 2019
, all of which related to workforce reductions. We expect that additional costs related to this plan will be immaterial.
Titanium Dioxide Segment
In July 2016, we implemented a plan to close our Umbogintwini, South Africa Titanium Dioxide manufacturing facility. As part of the program, we recorded restructuring expense of
$1 million
, each, for the
three and six
months ended
June 30, 2019
and
$1 million
and
$2 million
for the
three and six
months ended
June 30, 2018
, respectively, all of which related to plant shutdown costs. We expect further charges as part of this program to be immaterial.
In March 2017, we implemented a plan to close the white end finishing and packaging operation of our Titanium Dioxide manufacturing facility at our Calais, France site. The announced plan follows the 2015 closure of the black end manufacturing operations and would result in the closure of the entire facility. As part of the program, we recorded restructuring expense of
$1 million
and
$2 million
for the
three and six
months ended
June 30, 2019
, respectively, and
$4 million
and
$9 million
for the
three and six
months ended
June 30, 2018
, respectively, all of which related to plant shutdown costs. We expect to incur additional plant shutdown costs of approximately
$5 million
through 2020.
In September 2018, we implemented a plan to close our Pori, Finland Titanium Dioxide manufacturing facility. As part of the program, we recorded restructuring gain of
$3 million
for the
three months ended June 30, 2019
, of which a gain of
$14 million
related to early settlement of contractual obligation was partially offset by
$8 million
of accelerated depreciation,
$2 million
related to employee benefits, and
$1 million
related to plant shutdown costs. This restructuring gain consists of a noncash gain of
$6 million
partially offset by
$3 million
of cash expense. We recorded restructuring expense of
$3 million
for the
six months ended June 30, 2019
, of which a gain of
$14 million
related to early settlement of contractual obligation was offset by
$11 million
of accelerated depreciation,
$4 million
related to employee benefits, and
$2 million
related to plant shutdown costs. This restructuring expense consists of
$6 million
of cash expense and a noncash gain, net, of
$3 million
. We expect to incur additional charges of approximately
$112 million
through the end of 2024, of which
$24 million
relates to accelerated depreciation,
$78 million
relates to plant shut down costs,
$8 million
relates to other employee costs and
$2 million
related to the write off of other assets. Future charges consist of
$26 million
of noncash costs and
$86 million
of cash costs.
Performance Additives Segment
In September 2017, we implemented a plan to close our Performance Additives manufacturing facilities in St. Louis, Missouri and Easton, Pennsylvania. As part of the program, we recorded restructuring expense of
nil
for the
three and six
months ended
June 30, 2019
. We recorded restructuring expense of
$5 million
and
$8 million
for the
three and six
months ended
June 30, 2018
, respectively. We do not expect to incur any additional charges as part of this program.
In August 2018, we implemented a plan to close our Performance Additives manufacturing site in Beltsville, Maryland. As part of the program, we recorded restructuring expense of
$1 million
and
$2 million
for the
three and six
months ended
June 30, 2019
, all of which related to accelerated depreciation. We do not expect to incur any additional charges as part of this program.
In May 2018, we implemented a plan to close portions of our Performance Additives manufacturing facility in Augusta, Georgia. As part of the program, we recorded restructuring expense of
nil
for the
three and six
months ended
June 30, 2019
. We recorded restructuring expense of
$127 million
for the
three and six
months ended
June 30, 2018
, of which
$125 million
related to accelerated depreciation,
$1 million
related to other noncash charges and
$1 million
related to cash charges. We do not expect to incur any additional charges as part of this program.
Accrued Restructuring and Plant Closing and Transition Costs
As of
June 30, 2019
and
December 31, 2018
, accrued restructuring and plant closing and transition costs by type of cost and year of initiative consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reductions
(1)
|
|
Other restructuring costs
|
|
Total
(2)
|
|
Accrued liabilities as of December 31, 2018
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
2019 charges for 2018 and prior initiatives
|
5
|
|
|
5
|
|
|
10
|
|
|
2019 charges for 2019 initiatives
|
4
|
|
|
—
|
|
|
4
|
|
|
2019 payments for 2018 and prior initiatives
|
(19
|
)
|
|
(5
|
)
|
|
(24
|
)
|
|
2019 payments for 2019 initiatives
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
Accrued liabilities as of June 30, 2019
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
Current portion of restructuring reserves
|
8
|
|
|
$
|
—
|
|
|
8
|
|
|
Long-term portion of restructuring reserve
|
11
|
|
|
—
|
|
|
11
|
|
|
|
|
|
(1)
|
The total workforce reduction reserves of
$19 million
relate to the termination of
258
positions, of which
12
positions had been terminated but not yet paid as of
June 30, 2019
.
|
|
|
|
|
(2)
|
Accrued liabilities remaining at
June 30, 2019
and
December 31, 2018
by year of initiatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
2017 initiatives and prior
|
$
|
9
|
|
|
$
|
18
|
|
|
2018 initiatives
|
9
|
|
|
14
|
|
|
2019 initiatives
|
1
|
|
|
—
|
|
|
Total
|
$
|
19
|
|
|
$
|
32
|
|
Our restructuring accruals are all related to our Titanium Dioxide segment.
Restructuring, Impairment and Plant Closing and Transition Costs
Details with respect to major cost type of restructuring charges and impairment of assets for the
three and six
months ended
June 30, 2019
and
2018
by initiative are provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2019
|
|
June 30, 2019
|
|
Cash charges
|
$
|
6
|
|
|
$
|
14
|
|
|
Early settlement of contractual obligation
|
(14
|
)
|
|
(14
|
)
|
|
Accelerated depreciation
|
8
|
|
|
12
|
|
|
Total 2019 Restructuring, Impairment and Plant Closing and Transition Costs
|
$
|
—
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2018
|
|
June 30, 2018
|
|
Cash charges
|
$
|
6
|
|
|
$
|
12
|
|
|
Accelerated depreciation
|
129
|
|
|
132
|
|
|
Other noncash charges
|
1
|
|
|
1
|
|
|
Total 2018 Restructuring, Impairment and Plant Closing and Transition Costs
|
$
|
136
|
|
|
$
|
145
|
|
Note 8. Debt
Outstanding debt, net of debt issuance costs of
$14 million
and
$13 million
as of
June 30, 2019
and
December 31, 2018
, respectively, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Senior Notes
|
$
|
371
|
|
|
$
|
370
|
|
|
Term Loan Facility
|
363
|
|
|
365
|
|
|
Other
|
36
|
|
|
13
|
|
|
Total debt
|
770
|
|
|
748
|
|
|
Less: short-term debt and current portion of long-term debt
|
32
|
|
|
8
|
|
|
Long-term debt
|
$
|
738
|
|
|
$
|
740
|
|
The estimated fair value of the Senior Notes was
$345 million
and
$300 million
as of
June 30, 2019
and
December 31, 2018
, respectively. The estimated fair value of the Term Loan Facility was
$365 million
and
$355 million
as of
June 30, 2019
and
December 31, 2018
, respectively. The estimated fair values of the Senior Notes and the Term Loan Facility are based upon quoted market prices (Level 1).
We have
$24 million
in aggregate principal outstanding under our ABL Facility. The fair value of our borrowings under the ABL Facility approximates the carrying amount due to the short term nature of the borrowing.
The weighted average interest rate on our outstanding balances under the Senior Notes and Term Loan Facility as of
June 30, 2019
was approximately
5%
.
Senior Notes
On July 14, 2017, our subsidiaries Venator Finance S.à.r.l. and Venator Materials LLC (the "Issuers") entered into an indenture in connection with the issuance of the Senior Notes. The Senior Notes are general unsecured senior obligations of the Issuers and are guaranteed on a general unsecured senior basis by Venator and certain of Venator’s subsidiaries. The indenture related to the Senior Notes imposes certain limitations on the ability of Venator and certain of its subsidiaries to, among other things, incur additional indebtedness secured by any principal properties, incur indebtedness of non-guarantor subsidiaries, enter into sale and leaseback transactions with respect to any principal properties and consolidate or merge with or into any other person or lease, sell or transfer all or substantially all of its properties and assets. The Senior Notes bear interest of
5.75%
per year payable semi-annually and will mature on July 15, 2025. The Issuers may redeem the Senior Notes in whole or in part at any time prior to July 15, 2020 at a price equal to
100%
of the principal amount thereof plus accrued and unpaid interest, if any, and an early redemption premium, calculated on an agreed percentage of the outstanding principal amount, providing compensation on a portion of foregone future interest payables. The Senior Notes will be redeemable in whole or in part at any time on or after July 15, 2020 at the redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, up to, but not including, the redemption date. In addition, at any time prior to July 15, 2020, the Issuers may redeem up to
40%
of the aggregate principal amount of the Senior Notes with an amount not greater than the net cash proceeds of certain equity offerings or contributions to Venator’s equity at
105.75%
of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Upon the occurrence of certain change of control events (other than the separation), holders of the Venator Notes will have the right to require that the Issuers purchase all or a portion of such holder’s Senior Notes in cash at a purchase price equal to
101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.
Senior Credit Facilities
On August 8, 2017, we entered into the Senior Credit Facilities that provide for first lien senior secured financing of up to
$675 million
, consisting of:
|
|
|
|
•
|
the Term Loan Facility in an aggregate principal amount of
$375 million
, with a maturity of
seven years
; and
|
|
|
|
|
•
|
the ABL Facility in an aggregate principal amount of up to
$300 million
, with a maturity of
five years
.
|
The Term Loan Facility amortizes in aggregate annual amounts equal to
1%
of the original principal amount of the Term Loan Facility and is paid quarterly.
On June 20, 2019 the ABL facility was increased to an aggregate principal amount of up to
$350 million
, with no change to the maturity dates.
Availability to borrow the
$350 million
of commitments under the ABL Facility is subject to a borrowing base calculation comprised of accounts receivable and inventory in the U.S., Canada, the U.K., Germany and accounts receivable in France and Spain, that fluctuate and may be further impacted by the lenders’ discretionary ability to impose reserves and availability blocks that might otherwise incrementally increase borrowing availability. As a result, the aggregate amount available for extensions of credit under the ABL Facility at any time is the lesser of
$350 million
and the borrowing base calculated according to the formula described above minus the aggregate amount of extensions of credit outstanding under the ABL Facility at such time.
Borrowings under the Term Loan Facility bear interest at a rate equal to, at Venator’s option, either (a) a London Interbank Offering Rate ("LIBOR") based rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs subject to an interest rate floor to be agreed or (b) a base rate determined by reference to the highest of (i) the rate of interest per annum determined from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City, (ii) the federal funds rate plus
0.50%
per annum and (iii) the
one-month adjusted LIBOR
plus
1.00%
per annum, in each case plus an applicable margin to be agreed upon. Borrowings under the ABL Facility bear interest at a variable rate equal to an applicable margin based on the applicable quarterly average excess availability under the ABL Facility plus either a LIBOR or a base rate. The applicable margin percentage is calculated and established once every three calendar months
and varies from
150
to
200
basis points for LIBOR loans depending on the quarterly average excess availability under the ABL Facility for the immediately preceding three-month period.
Guarantees
All obligations under the Senior Credit Facilities are guaranteed by Venator and substantially all of our subsidiaries (the "Guarantors") and are secured by substantially all of the assets of Venator and the Guarantors, in each case subject to certain exceptions. Lien priority as between the Term Loan Facility and the ABL Facility with respect to the collateral will be governed by an intercreditor agreement.
Note 9. Derivative Instruments and Hedging Activities
To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of certain foreign currency transactions. We do not use derivative financial instruments for trading or speculative purposes.
Cross-Currency Swaps
In December 2017, we entered into
three
cross-currency swap agreements to convert a portion of our intercompany fixed-rate, U.S. dollar denominated notes, including the semi-annual interest payments and the payment of remaining principal at maturity, to a fixed-rate, Euro denominated debt. The economic effect of the swap agreement was to eliminate the uncertainty of the cash flows in U.S. Dollars associated with the notes by fixing the principle amount at
€169 million
with a fixed annual rate of
3.43%
. These hedges have been designated as cash flow hedges and the critical terms of the cross-currency swap agreements correspond to the underlying hedged item. These swaps mature in July 2022, which is our best estimate of the repayment date of these intercompany loans. The amount and timing of the semi-annual principle payments under the cross-currency swap also correspond with the terms of the intercompany loans. Gains and losses from these hedges offset the changes in the value of interest and principal payments as a result of changes in foreign exchange rates.
We formally assessed the hedging relationship at the inception of the hedge in order to determine whether the derivatives that are used in the hedging transactions are highly effective in offsetting cash flows of the hedged item and we will continue to assess the relationship on an ongoing basis. We use the hypothetical derivative method in conjunction with regression analysis to measure effectiveness of our cross-currency swap agreement.
The changes in the fair value of the swaps are deferred in other comprehensive income and subsequently recognized in other income in the
unaudited condensed consolidated
statement of operations when the hedged item impacts earnings. Cash flows related to our cross-currency swap that relate to our periodic interest settlement will be classified as operating activities and the cash flows that relates to principal balances will be designated as financing activities. The fair value of these hedges was
$11 million
and
$6 million
at
June 30, 2019
and
December 31, 2018
, respectively, and was recorded as other noncurrent assets on our
unaudited condensed consolidated
balance sheets. We estimate the fair values of our cross-currency swaps by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, credit default swap rates and cross-currency basis swap spreads. The cross-currency swap has been classified as Level 2 because the fair value is based upon observable market-based inputs or unobservable inputs that are corroborated by market data.
For the
six months ended June 30, 2019
and
2018
, the change in accumulated other comprehensive loss associated with these cash flow hedging activities was a gain of
$5 million
, each. As of
June 30, 2019
, accumulated other comprehensive loss of
nil
is expected to be reclassified to earnings during the next twelve months. The actual amount that will be reclassified to earnings over the next twelve months may vary from this amount due to changing market conditions.
We would be exposed to credit losses in the event of nonperformance by a counterparty to our derivative financial instruments. We continually monitor our position and the credit rating of our counterparties, and we do not anticipate nonperformance by the counterparties.
Forward Currency Contracts Not Designated as Hedges
We transact business in various foreign currencies and we enter into currency forward contracts to offset the risks associated with foreign currency exposure. At
June 30, 2019
and
December 31, 2018
, we had
$79 million
and
$89 million
, respectively, notional amount (in U.S. dollar equivalents) outstanding in foreign currency contracts with a term of approximately
one month
. The contracts are valued using observable market rates (Level 2).
Note 10. Income Taxes
Venator uses the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed on a tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets for each jurisdiction. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of Venator and cumulative income or losses during the applicable period. Cumulative losses incurred over the period limits our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable tax jurisdictions could affect the realization of deferred tax assets in those jurisdictions.
We recorded income tax benefit of
$9 million
and income tax expense of
$45 million
, respectively, for the
three months ended June 30, 2019
and
2018
, respectively, and income tax benefit of
$8 million
and income tax expense of
$65 million
for the six months ended June 30, 2019 and 2018, respectively. Our tax expense is significantly affected by the mix of income and losses in tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions.
For U.S. federal income tax purposes Huntsman recognized a gain as a result of the IPO and the separation to the extent the fair market value of the assets associated with our U.S. businesses exceeded the basis of such assets for U.S. federal income tax purposes at the time of the separation. As a result of such gain recognized, the basis of the assets associated with our U.S. businesses was increased. This basis step up gave rise to a deferred tax asset of
$36 million
that we recognized for the year ended December 31, 2017.
Pursuant to the Tax Matters Agreement dated August 7, 2017, entered into by and among Venator Materials PLC and Huntsman (the "Tax Matters Agreement") at the time of the separation, we are required to make a future payment to Huntsman for any actual U.S. federal income tax savings we recognize as a result of any such basis increase for tax years through December 31, 2028. It is currently estimated (based on a value of our U.S. businesses derived from the IPO price of our ordinary shares and current tax rates) that the aggregate future payments required by this provision are expected to be approximately
$34 million
. As of June 30, 2019 and December 31, 2018, this "Noncurrent payable to affiliates" was
$34 million
, each, on our
unaudited condensed consolidated
balance sheets. Moreover, any subsequent adjustment asserted by U.S. taxing authorities could increase the amount of gain recognized and the corresponding basis increase, and could result in a higher liability for us under the Tax Matters Agreement.
Note 11. Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing net income attributable to Venator ordinary shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflects all potential dilutive ordinary shares outstanding during the period and is computed by dividing net income available to Venator ordinary shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities.
Basic and diluted earnings per share are determined using the following information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Venator Materials PLC ordinary shareholders
|
$
|
21
|
|
|
$
|
196
|
|
|
$
|
18
|
|
|
$
|
274
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
106.6
|
|
|
106.4
|
|
|
106.5
|
|
|
106.4
|
|
|
Dilutive share-based awards
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.4
|
|
|
Total weighted average shares outstanding, including dilutive shares
|
106.6
|
|
|
106.7
|
|
|
106.5
|
|
|
106.8
|
|
For the
three and six
months ended
June 30, 2019
, the number of anti-dilutive employee share-based awards excluded from the computation of diluted earnings per share was
2 million
, each. For the
three and six
months ended
June 30, 2018
, the number of anti-dilutive employee share-based awards excluded from the computation of dilutive earnings per share was
nil
, each.
Note 12. Commitments and Contingencies
Legal Proceedings
Shareholder Litigation
On February 8, 2019 we, certain of our executive officers, Huntsman and certain banks who acted as underwriters in connection with our IPO and secondary offering were named as defendants in a proposed class action civil suit filed in the District Court for the State of Texas, Dallas County (the "Dallas District Court"), by an alleged purchaser of our ordinary shares in connection with our IPO on August 3, 2017 and our secondary offering on December 1, 2017. The plaintiff, Macomb County Employees’ Retirement System, alleges that inaccurate and misleading statements were made regarding the impact to our operations, and prospects for restoration thereof, resulting from the fire that occurred at our Pori, Finland manufacturing facility, among other allegations. Additional complaints making substantially the same allegations were filed in the Dallas District Court by the Firemen's Retirement System of St. Louis on March 4, 2019 and by Oscar Gonzalez on March 13, 2019, with the third case naming two of our directors as additional defendants. A fourth case was filed in the U.S. District Court for the Southern District of New York by the City of Miami General Employees' & Sanitation Employees' Retirement Trust on July 31, 2019, making substantially the same allegations, adding claims under sections 10(b) and 20(a) of the U.S. Exchange Act, and naming all of our directors as additional defendants.
The plaintiffs in these cases seek to determine that the proceedings should be certified as class actions and to obtain alleged compensatory damages, costs, rescission and equitable relief. The cases filed in the Dallas District Court have been consolidated into a single action.
On May 8, 2019, we filed a “special appearance” in the Dallas District Court action contesting the court’s jurisdiction over the Company and a motion to transfer venue to Montgomery County, Texas and on June 7, 2019 we and certain defendants filed motions to dismiss. On July 9, 2019, a hearing was held on the motions, but no ruling has been made following the hearing.
We may be required to indemnify our executive officers and directors, Huntsman, and the banks who acted as underwriters in our IPO and secondary offerings, for losses incurred by them in connection with these matters pursuant to our agreements with such parties. Because of the early stage of this litigation, we are unable to reasonably estimate any possible loss or range of loss and we have not accrued for a loss contingency with regard to these matters.
Tronox Litigation
On April 26, 2019, we acquired intangible assets related to the European paper laminates product line from Tronox. A separate agreement with Tronox entered into on July 14, 2018 requires that Tronox promptly pay us a “break fee” of
$75 million
upon the consummation of Tronox’s merger with The National Titanium Dioxide Company Limited (“Cristal”) once the sale of the European paper laminates business to us was consummated, if the sale of Cristal’s Ashtabula manufacturing complex to us was not completed. The deadline for such payment was May 13, 2019. On April 26, 2019, Tronox publicly stated that it believes it is not obligated to pay the break fee.
On May 14, 2019, we commenced a lawsuit in the Delaware Superior Court against Tronox arising from Tronox's breach of its obligation to pay the break fee. We are seeking a judgment for
$75 million
, plus pre- and post-judgment interest, and reasonable attorneys' fees and costs. On June 17, 2019, Tronox filed an answer denying that it is obligated to pay the break fee and asserting affirmative defenses and counterclaims of approximately
$400 million
, alleging that we failed to negotiate the purchase of the Ashtabula complex in good faith. Because of the early stage of this litigation, we are unable to reasonably estimate any possible gain, loss or range of gain or loss and we have not made any accrual with regard to this matter.
Neste Engineering Services Matter
We are party to an arbitration proceeding initiated by Neste Engineering Services Oy (“NES”) on December 19, 2018 for payment of invoices allegedly due of approximately
€14 million
in connection with the delivery of services by NES to the Company in respect of the Pori site rebuild project. These invoices were accrued in full on our unaudited condensed consolidated balance sheet as of June 30, 2019 and December 31, 2018. We are contesting the validity of these invoices and filed counterclaims against NES on March 8, 2019. The timetable for the arbitration has not yet been set. On July 2, 2019, NES separately instigated a lawsuit in Finland for
€1.6 million
of unpaid invoices, which we also intend to contest.
Other Proceedings
We are a party to various other proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various environmental, products liability and other laws. Except as otherwise disclosed in these
unaudited condensed consolidated
financial statements, we do not believe that the outcome of any of these matters will have a material effect on our financial condition, results of operations or liquidity.
Note 13. Environmental, Health and Safety Matters
Environmental, Health and Safety Capital Expenditures
We may incur future costs for capital improvements and general compliance under EHS laws, including costs to acquire, maintain and repair pollution control equipment. For the
six months ended June 30, 2019
and
2018
, our capital expenditures for EHS matters totaled
$8 million
and
$3 million
, respectively. Because capital expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, our capital expenditures for EHS matters have varied significantly from year to year and we cannot provide assurance that our recent expenditures are indicative of future amounts we may spend related to EHS and other applicable laws.
Environmental Reserves
We accrue liabilities relating to anticipated environmental cleanup obligations, site reclamation and closure costs, and known penalties. Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated. Our liability estimates are calculated using present value techniques as appropriate and are based upon requirements placed upon us by regulators, available facts, existing technology, and past experience. The environmental liabilities do not include amounts recorded as asset retirement obligations. As of
June 30, 2019
and
December 31, 2018
, we had environmental reserves of
$10 million
and
$12 million
, respectively.
Environmental Matters
We have incurred, and we may in the future incur, liability to investigate and clean up waste or contamination at our current or former facilities or facilities operated by third parties at which we may have disposed of waste or other materials. Similarly, we may incur costs for the cleanup of waste that was disposed of prior to the purchase of our businesses. Under some circumstances, the scope of our liability may extend to damages to natural resources.
In the EU, the Environmental Liability Directive (Directive 2004/35/EC) has established a framework based on the "polluter pays" principle for the prevention and remediation of environmental damage, which establishes measures to prevent and remedy environmental damage. The directive defines "environmental damage" as damage to protected species and natural habitats, damage to water and damage to soil. Operators carrying out dangerous activities listed in the Directive are strictly liable for remediation, even if they are not at fault or negligent.
Under EU Directive 2010/75/EU on industrial emissions, permitted facility operators may be liable for significant pollution of soil and groundwater over the lifetime of the activity concerned. We are in the process of plant closures at facilities in the EU and liability to investigate and clean up waste or contamination may arise during the surrender of operators' permits at these locations under the directive and associated legislation such as the Water Framework Directive (Directive 2000/60/EC) and the Groundwater Directive (Directive 2006/118/EC).
Under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and similar state laws, a current or former owner or operator of real property in the U.S. may be liable for remediation costs regardless of whether the release or disposal of hazardous substances was in compliance with law at the time it occurred, and a current owner or operator may be liable regardless of whether it owned or operated the facility at the time of the release. Outside the U.S., analogous contaminated property laws, such as those in effect in France, can hold past owners and/or operators liable for remediation at former facilities. We have not been notified by third parties of claims against us for cleanup liabilities at former facilities or third-party sites, including, but not limited to, sites listed under CERCLA.
Under the Resource Conservation and Recovery Act in the U.S. and similar state laws, we may be required to remediate contamination originating from our properties as a condition to our hazardous waste permit. Some of our manufacturing sites have an extended history of industrial chemical manufacturing and use, including on-site waste disposal and we have made accruals for related remediation activity. We are aware of soil, groundwater or surface contamination from past operations at some of our sites and have made accruals for related remediation activity, and we may find contamination at other sites in the future. Similar laws exist in a number of locations in which we currently operate, or previously operated, manufacturing facilities.
Pori Remediation
In connection with our previously announced intention to close our TiO
2
manufacturing facility in Pori, Finland, we expect to incur environmental costs related to the cleanup of the facility upon its eventual closure, including remediation and closure costs. While we do not currently have enough information to be able to estimate the range of potential costs for the closure of this facility, these costs could be material to our unaudited condensed consolidated financial statements.
Note 14. Other Comprehensive Income
Other comprehensive income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
(a)
|
|
Pension and other postretirement benefits adjustments net of tax
(b)
|
|
Other comprehensive loss of unconsolidated affiliates
|
|
Hedging Instruments
|
|
Total
|
|
Amounts attributable to noncontrolling interests
|
|
Amounts attributable to Venator
|
|
Beginning balance, January 1, 2019
|
$
|
(96
|
)
|
|
$
|
(278
|
)
|
|
$
|
(5
|
)
|
|
$
|
6
|
|
|
$
|
(373
|
)
|
|
$
|
—
|
|
|
$
|
(373
|
)
|
|
Other comprehensive (loss) income before reclassifications, gross
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
5
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
Tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amounts reclassified from accumulated other comprehensive loss, gross
(c)
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
Tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net current-period other comprehensive (loss) income
|
(2
|
)
|
|
8
|
|
|
—
|
|
|
5
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
Ending balance,
June 30, 2019
|
$
|
(98
|
)
|
|
$
|
(270
|
)
|
|
$
|
(5
|
)
|
|
$
|
11
|
|
|
$
|
(362
|
)
|
|
$
|
—
|
|
|
$
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
(d)
|
|
Pension and other postretirement benefits adjustments net of tax
(e)
|
|
Other comprehensive loss of unconsolidated affiliates
|
|
Hedging Instruments
|
|
Total
|
|
Amounts attributable to noncontrolling interests
|
|
Amounts attributable to Venator
|
|
Beginning balance, January 1, 2018
|
$
|
(6
|
)
|
|
$
|
(267
|
)
|
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
|
$
|
(283
|
)
|
|
$
|
—
|
|
|
$
|
(283
|
)
|
|
Other comprehensive (loss) income before reclassifications, gross
|
(58
|
)
|
|
—
|
|
|
—
|
|
|
5
|
|
|
(53
|
)
|
|
—
|
|
|
(53
|
)
|
|
Tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amounts reclassified from accumulated other comprehensive loss, gross
(c)
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
Tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net current-period other (loss)
comprehensive income
|
(58
|
)
|
|
7
|
|
|
—
|
|
|
5
|
|
|
(46
|
)
|
|
—
|
|
|
(46
|
)
|
|
Ending balance,
June 30, 2018
|
$
|
(64
|
)
|
|
$
|
(260
|
)
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
(329
|
)
|
|
$
|
—
|
|
|
$
|
(329
|
)
|
|
|
|
|
(a)
|
Amounts are net of tax of
nil
as of
June 30, 2019
and January 1, 2019, each.
|
|
|
|
|
(b)
|
Amounts are net of tax of
$50 million
as of
June 30, 2019
and January 1, 2019, each.
|
|
|
|
|
(c)
|
See table below for details about the amounts reclassified from accumulated other comprehensive loss.
|
|
|
|
|
(d)
|
Amounts are net of tax of
nil
as of
June 30, 2018
and January 1, 2018, each.
|
|
|
|
|
(e)
|
Amounts are net of tax of
$52 million
as of
June 30, 2018
and January 1, 2018, each.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
Affected line item in the statement where net income is presented
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
Details about Accumulated Other Comprehensive Loss Components
(a)
:
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
7
|
|
|
Other income
|
|
Prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other income
|
|
Total amortization
|
4
|
|
|
4
|
|
|
8
|
|
|
7
|
|
|
Total before tax
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income tax expense
|
|
Total reclassifications for the period
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
7
|
|
|
Net of tax
|
|
|
|
|
(a)
|
Pension and other postretirement benefit amounts in parentheses indicate credits on our unaudited condensed consolidated statements of operations.
|
Note 15. Operating Segment Information
We derive our revenues, earnings and cash flows from the manufacture and sale of TiO
2
, functional additives, color pigments, timber treatment and water treatment chemicals. We have reported our operations through our
two
segments, Titanium Dioxide and Performance Additives, and organized our business and derived our operating segments around differences in product lines.
The major product groups of each reportable operating segment are as follows:
|
|
|
|
|
|
|
Segment
|
|
Product Group
|
|
Titanium Dioxide
|
|
titanium dioxide
|
|
Performance Additives
|
|
functional additives, color pigments, timber treatment and water treatment chemicals
|
Sales between segments are generally recognized at external market prices and are eliminated in consolidation. Adjusted EBITDA is presented as a measure of the financial performance of our global business units and for reporting the results of our operating segments. The revenues and adjusted EBITDA for each of the
two
reportable operating segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Titanium Dioxide
|
$
|
439
|
|
|
$
|
455
|
|
|
$
|
864
|
|
|
$
|
911
|
|
|
Performance Additives
|
139
|
|
|
171
|
|
|
276
|
|
|
337
|
|
|
Total
|
$
|
578
|
|
|
$
|
626
|
|
|
$
|
1,140
|
|
|
$
|
1,248
|
|
|
Adjusted EBITDA
(1)
|
|
|
|
|
|
|
|
|
Titanium Dioxide
|
$
|
55
|
|
|
$
|
147
|
|
|
$
|
116
|
|
|
$
|
290
|
|
|
Performance Additives
|
16
|
|
|
23
|
|
|
31
|
|
|
47
|
|
|
|
71
|
|
|
170
|
|
|
147
|
|
|
337
|
|
|
Corporate and other
|
(10
|
)
|
|
(13
|
)
|
|
(26
|
)
|
|
(23
|
)
|
|
Total
|
61
|
|
|
157
|
|
|
121
|
|
|
314
|
|
|
Reconciliation of adjusted EBITDA to net income:
|
|
|
|
|
|
|
|
|
Interest expense
|
(13
|
)
|
|
(14
|
)
|
|
(27
|
)
|
|
(27
|
)
|
|
Interest income
|
3
|
|
|
4
|
|
|
6
|
|
|
7
|
|
|
Income tax benefit (expense)
|
9
|
|
|
(45
|
)
|
|
8
|
|
|
(65
|
)
|
|
Depreciation and amortization
|
(29
|
)
|
|
(35
|
)
|
|
(55
|
)
|
|
(69
|
)
|
|
Net income attributable to noncontrolling interests
|
1
|
|
|
2
|
|
|
2
|
|
|
4
|
|
|
Other adjustments:
|
|
|
|
|
|
|
|
|
Business acquisition and integration adjustments
(expenses)
|
1
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(4
|
)
|
|
Separation expense, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Loss on disposition of business/assets
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
Certain legal settlements and related expenses
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
Amortization of pension and postretirement actuarial losses
|
(4
|
)
|
|
(4
|
)
|
|
(8
|
)
|
|
(7
|
)
|
|
Net plant incident (costs) credits
|
(6
|
)
|
|
273
|
|
|
(13
|
)
|
|
273
|
|
|
Restructuring, impairment and plant closing and transition costs
|
—
|
|
|
(136
|
)
|
|
(12
|
)
|
|
(145
|
)
|
|
Net income
|
$
|
22
|
|
|
$
|
198
|
|
|
$
|
20
|
|
|
$
|
278
|
|
|
|
|
|
(1)
|
Adjusted EBITDA is defined as net income/loss of Venator before interest expense, interest income, income tax expense/benefit, depreciation and amortization and net income attributable to noncontrolling interests, as well as eliminating the following adjustments: (a) business acquisition and integration expenses/adjustments; (b) separation expense/gain, net; (c) loss/gain on disposition of business/assets; (d) certain legal settlements and related expenses/gains; (e) amortization of pension and postretirement actuarial losses/gains; (f) net plant incident costs/credits; and (g) restructuring, impairment, and plant closing and transition costs/credits.
|