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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

☑   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020
OR
☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-38176
_________________________________
VNTR-20200331_G1.JPG
Venator Materials PLC
(Exact name of registrant as specified in its charter)
_________________________________
England and Wales 98-1373159
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Titanium House, Hanzard Drive, Wynyard Park,
Stockton-On-Tees, TS22 5FD, United Kingdom
+44 (0) 1740 608 001
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Ordinary Shares, $0.001 par value per share VNTR New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company," in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
_________________________________
As of April 30, 2020, the registrant had outstanding 106,735,892 ordinary shares, $0.001 par value per share.




Table of Contents

TABLE OF CONTENTS
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1


GENERAL

Except when the context otherwise requires or where otherwise indicated, (1) all references to "Venator," the "Company," "we," "us" and "our" refer to Venator Materials PLC and its subsidiaries, (2) all references to "Huntsman" refer to Huntsman Corporation and its subsidiaries, (3) all references to the "Titanium Dioxide" segment or business refer to the titanium dioxide ("TiO2") business of Venator, (4) all references to the "Performance Additives" segment or business refer to the functional additives, color pigments, timber treatment and water treatment businesses of Venator, and (5) we refer to the internal reorganization prior to our initial public offering ("IPO"), the separation transactions initiated to separate the Venator business from Huntsman’s other businesses, including the entry into and effectiveness of the separation agreement and ancillary agreements, and the financing arrangements and debt, comprising the senior secured term loan facility (the "Term Loan Facility"), the asset-based revolving facility (the "ABL Facility" and, together with the Term Loan Facility, the "Senior Credit Facilities") and the 5.75% senior notes due 2025 (the "Senior Notes"), including the use of the net proceeds of the Senior Credit Facilities and the Senior Notes, which were used to repay intercompany debt we owed to Huntsman and to pay related fees and expenses, as the "separation," which occurred on August 8, 2017.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 (the "Exchange Act"). All statements other than historical or current factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, margins, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other projected financial measures; management’s plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, construction cost estimates, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions, divestitures, spin-offs or other distributions, strategic opportunities, securities offerings, share repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; legal proceedings, environmental, health and safety ("EHS") matters, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic and capital markets conditions; the timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that we intend or believe will or may occur in the future. In some cases, forward-looking statements can be identified by terminology such as "believes," "expects," "may," "will," "should," "anticipates," "estimates" or "intends" or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.

Forward-looking statements are based on certain assumptions and expectations of future events which may not be accurate or realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond our control. Important factors that may materially affect such forward-looking statements and projections include:
 
the impacts and duration of the global outbreak of the Coronavirus Disease 2019 ("COVID-19") pandemic on the global economy and all aspects of our business including our employees, customers, suppliers, partners' results of operations, financial condition and liquidity;
volatile global economic conditions;
cyclical and volatile product applications;
highly competitive industries and the need to innovate and develop new products;
industry production capacity and operating rates;
high levels of indebtedness;
our ability to maintain sufficient working capital to fund our operations and capital expenditures, and service our debt;
our ability to obtain future capital on favorable terms;
planned and unplanned production shutdowns, turnarounds, outages and other disruptions at our or our suppliers' manufacturing facilities;
2


any changes to the prices at which we purchase raw materials and energy, any interruptions in supply of raw materials and energy, or any changes in regulations impacting raw materials and our supply chain;
increased manufacturing, labeling and waste disposal regulations associated with some of our products, including the classification of TiO2 as a carcinogen in the European Union ("EU") or any increased regulatory scrutiny;
our ability to successfully grow and transform our business including by way of acquisitions, divestments and restructuring activities;
our ability to successfully transfer production of certain specialty and differentiated products formerly produced at our Pori, Finland manufacturing facility to other sites within our manufacturing network;
our ability to develop new products or successfully transfer production of existing products within our manufacturing network;
fluctuations in currency exchange rates and tax rates;
our ability to adequately protect our critical information technology systems;
impacts on the markets for our products and the broader global economy from the imposition of tariffs by the U.S. and other countries;
our ability to realize financial and operational benefits from our business improvement plans and initiatives;
changes to laws, regulations or the interpretation thereof;
differences in views with our joint venture participants;
EHS laws and regulations;
our ability to successfully defend legal claims against us, or to pursue legal claims against third parties;
economic conditions and regulatory changes following the exit of the United Kingdom (the "U.K.") from the EU;
seasonal sales patterns in our product markets;
our ability to comply with expanding data privacy regulations;
failure to maintain effective internal controls over financial reporting and disclosure;
our indemnification of Huntsman and other commitments and contingencies;
financial difficulties and related problems experienced by our customers, vendors, suppliers and other business partners;
the effects of public health crises on the global economy, our business, employees, supply chain and customers;
conflicts, military actions, terrorist attacks, public health crises, including the occurrence of a contagious disease or illness, cyber-attacks and general instability;
failure to enforce our intellectual property rights; and
our ability to effectively manage our labor force.

All forward-looking statements, including, without limitation, management’s examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements whether because of new information, future events or otherwise, except as required by securities and other applicable law.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks set forth in "Part II. Item 1A. Risk Factors."


3


PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

VENATOR MATERIALS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except par value) March 31, 2020 December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents(a)
$ 25    $ 55   
Accounts receivable (net of allowance for doubtful accounts of $4, each)(a)
367    321   
Accounts receivable from affiliates 10    —   
Inventories(a)
492    513   
Prepaid expenses 16    21   
Other current assets 58    67   
Total current assets 968    977   
Property, plant and equipment, net(a)
948    989   
Operating lease right-of-use assets, net(a)
40    43   
Intangible assets, net(a)
20    21   
Investment in unconsolidated affiliates 94    92   
Deferred income taxes 35    33   
Other noncurrent assets 118    110   
Total assets $ 2,223    $ 2,265   
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable(a)
$ 284    $ 334   
Accounts payable to affiliates 17    17   
Accrued liabilities(a)
104    116   
Current operating lease liability(a)
   
Current portion of debt(a)
70    13   
Total current liabilities 483    488   
Long-term debt 736    737   
Operating lease liability(a)
34    37   
Other noncurrent liabilities 281    300   
Noncurrent payable to affiliates 30    30   
Total liabilities 1,564    1,592   
Commitments and contingencies (Notes 11 and 12)
Equity
Ordinary shares $0.001 par value, 200 shares authorized, each, 107 issued and outstanding, each
—    —   
Additional paid-in capital 1,324    1,322   
Retained deficit (264)   (271)  
Accumulated other comprehensive loss (408)   (385)  
Total Venator Materials PLC shareholders' equity 652    666   
Noncontrolling interest in subsidiaries    
Total equity 659    673   
Total liabilities and equity $ 2,223    $ 2,265   

(a) At March 31, 2020 and December 31, 2019, the following amounts from consolidated variable interest entities are included in the respective balance sheet captions above: $6 and $2 of cash and cash equivalents; $5 and $4 of accounts receivable, net; $2 each of inventories; $5 each of property, plant and equipment, net; $1 each of operating lease right-of-use assets; $11 each of intangible assets, net; $1 each of accounts payable; $2 and $3 of accrued liabilities; $1 each of operating lease liabilities; and $2 and nil of current portion of debt. See "Note 5. Variable Interest Entities."

See notes to unaudited condensed consolidated financial statements.
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VENATOR MATERIALS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
(Dollars in millions, except per share amounts) 2020 2019
Trade sales, services and fees, net $ 532    $ 562   
Cost of goods sold 471    486   
Operating expenses:
Selling, general and administrative
42    47   
Restructuring, impairment, and plant closing and transition costs   12   
Other operating expense, net —     
Total operating expenses 49    67   
Operating income 12     
Interest expense (13)   (14)  
Interest income    
Other income    
Income (loss) before income taxes   (1)  
Income tax benefit (expense)   (1)  
Net income (loss)   (2)  
Net income attributable to noncontrolling interests (1)   (1)  
Net income (loss) attributable to Venator $   $ (3)  
Per Share Data:
Earnings (loss) attributable to Venator Materials PLC ordinary shareholders, basic $ 0.07    $ (0.03)  
Earnings (loss) attributable to Venator Materials PLC ordinary shareholders, diluted $ 0.07    $ (0.03)  

See notes to unaudited condensed consolidated financial statements.
5


VENATOR MATERIALS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three months ended
March 31,
(Dollars in millions) 2020 2019
Net income (loss) $   $ (2)  
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment
(36)   11   
Pension and other postretirement benefits adjustments
   
Hedging instruments
10     
Total other comprehensive (loss) income, net of tax (23)   19   
Comprehensive (loss) income (15)   17   
Comprehensive income attributable to noncontrolling interest (1)   (1)  
Comprehensive (loss) income attributable to Venator $ (16)   $ 16   

See notes to unaudited condensed consolidated financial statements.
6


VENATOR MATERIALS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
Total Venator Materials PLC Equity
Ordinary Shares Additional Paid-in Capital Retained Deficit Accumulated Other Comprehensive Loss Noncontrolling Interest in Subsidiaries Total
(In millions) Shares Amount
Balance, January 1, 2020 107 $ —    $ 1,322    $ (271)   $ (385)   $   $ 673   
Net income
—    —      —       
Other comprehensive loss, net of tax
—    —    —    (23)   —    (23)  
Dividends paid to noncontrolling interests
—    —    —    —    (1)   (1)  
Activity related to stock plans
—      —    —    —     
Balance, March 31, 2020 107 $ —    $ 1,324    $ (264)   $ (408)   $   $ 659   

Total Venator Materials PLC Equity
Ordinary Shares Additional Paid-in Capital Retained Deficit Accumulated Other Comprehensive Loss Noncontrolling Interest in Subsidiaries Total
(In millions) Shares Amount
Balance, January 1, 2019 106 $ —    $ 1,316    $ (96)   $ (373)   $   $ 855   
Net (loss) income
—    —    (3)   —      (2)  
Other comprehensive income, net of tax
—    —    —    19    —    19   
Dividends paid to noncontrolling interests
—    —    —    —    (1)   (1)  
Activity related to stock plans
1 —      —    —    —     
Balance, March 31, 2019 107 $ —    $ 1,317    $ (99)   $ (354)   $   $ 872   

See notes to unaudited condensed consolidated financial statements.
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VENATOR MATERIALS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
(Dollars in millions) 2020 2019
Operating Activities:
Net income (loss) $   $ (2)  
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 28    26   
Deferred income taxes (3)   (1)  
Noncash restructuring and impairment charges    
Noncash loss on foreign currency transactions    
Other, net    
Changes in operating assets and liabilities:
Accounts receivable (62)   (61)  
Inventories   35   
Prepaid expenses    
Other current assets   (2)  
Other noncurrent assets (5)   —   
Accounts payable (20)   (22)  
Accrued liabilities (11)   (8)  
Other noncurrent liabilities (13)   (9)  
Net cash used in operating activities (58)   (29)  
Investing Activities:
Capital expenditures (31)   (52)  
Cash received from unconsolidated affiliates 14     
Investment in unconsolidated affiliates (16)   (7)  
Cash received from notes receivable   —   
Net cash used in investing activities (27)   (53)  
Financing Activities:
Net proceeds from short-term debt 63    —   
Net payments on notes payable (5)   —   
Repayment of third-party debt (1)   (2)  
Dividends paid to noncontrolling interests (1)   (1)  
Net cash provided by (used in) financing activities 56    (3)  
Effect of exchange rate changes on cash (1)   —   
Net change in cash and cash equivalents (30)   (85)  
Cash and cash equivalents at beginning of period 55    165   
Cash and cash equivalents at end of period $ 25    $ 80   
Supplemental cash flow information:
Cash paid for interest $ 14    $ 18   
Cash paid for income taxes —     
Supplemental disclosure of noncash activities:
Capital expenditures included in accounts payable as of March 31, 2020 and 2019, respectively
$ 28    $ 36   

See notes to unaudited condensed consolidated financial statements.
8


VENATOR MATERIALS PLC AND SUBSIDIARIES
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 TiO2, and operates seven TiO2 manufacturing facilities across the globe, excluding our plant in Pori, Finland, ongoing closure of which was announced in the third quarter of 2018. 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 condition 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, 2019 for our Company.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.

COVID-19

In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. We are closely monitoring the impacts of COVID-19 on our business, and although the COVID-19 pandemic did not have a material impact on our financial results for the three months ended March 31, 2020, we expect that the COVID-19 pandemic will have negative impacts on our future results of operations, financial condition and liquidity. The duration and severity of the outbreak and its long-term impacts on our business cannot be fully determined at this time.

Note 2. Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted During the Period

Effective January 1, 2020, we adopted Accounting Standards Update ("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 for financial assets, including trade receivables, held at the reporting date, based on historical experience, current conditions, and reasonable and supportable information. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

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Accounting Pronouncements Pending Adoption in Future Periods

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. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The amendments in this ASU temporarily simplify the accounting for contract modifications, including hedging relationships, due to the transition from London Interbank Offering Rate ("LIBOR") and other interbank offered rates to alternative reference interest rates. For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met. Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met. This standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference interest rates on our financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). The amendments in this ASU remove certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other areas of ASC Topic 740. This standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Certain adjustments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings in the period of adoption. We are currently evaluating the impact of this ASU on our financial statements and related disclosures.

Note 3. 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 distinct good. 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.

10


The following table disaggregates our revenues by major geographical region for the three months ended March 31, 2020 and 2019:
Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Titanium Dioxide Performance Additives Total Titanium Dioxide Performance Additives Total
Europe $ 206    $ 50    $ 256    $ 213    $ 55    $ 268   
North America 76    57    133    77    57    134   
Asia 77    20    97    92    21    113   
Other 43      46    43      47   
Total Revenues $ 402    $ 130    $ 532    $ 425    $ 137    $ 562   

The following table disaggregates our revenues by major product line for the three months ended March 31, 2020 and 2019:
Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Titanium Dioxide Performance Additives Total Titanium Dioxide Performance Additives Total
TiO2
$ 402    $ —    $ 402    $ 425    $ —    $ 425   
Color Pigments —    62    62    —    70    70   
Functional Additives —    33    33    —    32    32   
Timber Treatment —    29    29    —    29    29   
Water Treatment —        —       
Total Revenues $ 402    $ 130    $ 532    $ 425    $ 137    $ 562   
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 4. 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 March 31, 2020 and December 31, 2019 consisted of the following:
March 31, 2020 December 31, 2019
Raw materials and supplies $ 158    $ 166   
Work in process 49    49   
Finished goods 285    298   
Total $ 492    $ 513   


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Note 5. 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 March 31, 2020, 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 months ended March 31, 2020 and 2019 are as follows:
Three months ended
March 31,
2020 2019
Revenues $ 23    $ 22   
Income before income taxes    
Net cash provided by operating activities    



Note 6. 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 nil for the three months ended March 31, 2020 and $3 million for the three months ended March 31, 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 nil for the three months ended March 31, 2020 and $1 million for the three months ended March 31, 2019, all of which related to plant shutdown costs. We expect further charges as part of this program to be immaterial.

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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 $2 million for the three months ended March 31, 2020 and $1 million for the three months ended March 31, 2019, all of which related to plant shutdown costs. We expect to incur additional plant shutdown costs of approximately $15 million through 2023.

In September 2018, we implemented a plan to close our Pori, Finland titanium dioxide manufacturing facility. As part of the program, we recorded restructuring expense of $4 million for the three months ended March 31, 2020, of which $1 million was related to accelerated depreciation, $1 million related to employee benefits, and $2 million related to plant shutdown costs. This restructuring expense consists of a noncash expense of $1 million and $3 million of cash expense. We recorded restructuring expense of approximately $6 million for the three months ended March 31, 2019, of which $3 million was related to accelerated depreciation, $2 million was related to employee benefits, and $1 million was related to plant shut down costs. This restructuring expense consisted of $3 million of cash and $3 million of noncash charges. We expect to incur additional charges of approximately $95 million through the end of 2024, of which $8 million relates to accelerated depreciation, $83 million relates to plant shut down costs, $2 million relates to other employee costs and $2 million relates to the write off of other assets. Future charges consist of $10 million of noncash costs and $85 million of cash costs.

Performance Additives Segment

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 nil for the three months ended March 31, 2020 and $1 million for the three months ended March 31, 2019, all of which related to accelerated depreciation. We do not expect to incur any additional charges as part of this program.

Accrued Restructuring and Plant Closing and Transition Costs

As of March 31, 2020 and December 31, 2019, 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, 2019 $ 15    $   $ 16   
2020 charges for 2019 and prior initiatives      
2020 charges for 2020 initiatives —    —    —   
2020 payments for 2019 and prior initiatives (6)   (3)   (9)  
2020 payments for 2020 initiatives —    —    —   
Foreign currency effect on liability balance —    —    —   
Accrued liabilities as of March 31, 2020 $ 12    $   $ 13   

(1)The total workforce reduction reserves of $12 million relate to the termination of 171 positions, of which nine positions have been terminated but require future payment as of March 31, 2020.
(2)Accrued liabilities remaining at March 31, 2020 and December 31, 2019 by year of initiatives were as follows:
March 31, 2020 December 31, 2019
2018 initiatives and prior $ 13    $ 16   
2019 initiatives —    —   
2020 initiatives —    —   
Total $ 13    $ 16   

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Details with respect to our reserves for restructuring, impairment and plant closing and transition costs are provided below by segment and initiative:
Titanium
Dioxide
Performance
Additives
Total
Accrued liabilities as of December 31, 2019 $ 16    $ —    $ 16   
2020 charges for 2019 and prior initiatives      
2020 charges for 2020 initiative —    —    —   
2020 payments for 2019 and prior initiatives (8)   (1)   (9)  
2020 payments for 2020 initiatives —    —    —   
Accrued liabilities as of March 31, 2020 $ 13    $ —    $ 13   
Current portion of restructuring reserves $   $ —    $  
Long-term portion of restructuring reserve $   $ —    $  

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 months ended March 31, 2020 and 2019 by initiative are provided below:
Three months ended
March 31,
2020 2019
Cash charges $   $  
Accelerated depreciation    
Total Restructuring, Impairment and Plant Closing and Transition Costs $   $ 12   

Note 7. Debt

Outstanding debt, net of issuance costs of $14 million, each, as of March 31, 2020 and December 31, 2019, consisted of the following:
March 31, 2020 December 31, 2019
Senior Notes $ 371    $ 371   
Term Loan Facility 361    361
Other 74    18
Total debt 806    750
Less: short-term debt and current portion of long-term debt 70    13
Long-term debt $ 736    $ 737   

The estimated fair value of the Senior Notes was $292 million and $346 million as of March 31, 2020 and December 31, 2019, respectively. The estimated fair value of the Term Loan Facility was $317 million and $365 million as of March 31, 2020 and December 31, 2019, respectively. The estimated fair values of the Senior Notes and the Term Loan Facility are based upon quoted market prices (Level 1).

The aggregate principal outstanding under our ABL Facility was $60 million and nil as of March 31, 2020 and December 31, 2019, respectively.

The weighted average interest rate on our outstanding balances under the Senior Notes and Term Loan Facility as of March 31, 2020 was approximately 4%.

Senior Notes 

Our Senior Notes are general unsecured senior obligations of our subsidiaries Venator Finance S.à.r.l. and Venator Materials LLC (the "Issuers") and are guaranteed on a general unsecured senior basis by Venator and certain of
14


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

Our Senior Credit Facilities 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 U.S., Canada, the U.K., Germany and accounts receivable in France and Spain, that fluctuate from time to time 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 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.
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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.

Letters of Credit
As of March 31, 2020 we had $71 million issued and outstanding letters of credit and bank guarantees to third parties. Of this amount, $49 million were issued by various banks on an unsecured basis with the remaining $22 million issued from our secured ABL facility.

Note 8. 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 exchanging a notional amount of $200 million at a fixed rate of 5.75% for €169 million with a fixed annual rate of 3.43%. These hedges were designated as cash flow hedges and the critical terms of the cross-currency swap agreements correspond to the underlying hedged item. These swaps had a maturity date of July 2022, which was the best estimate of the repayment date of the intercompany loans.

In August 2019, we terminated the three cross-currency interest rate swaps entered into in 2017, resulting in cash proceeds of $15 million. Concurrently, we entered into three new cross-currency interest rate swaps which notionally exchanged $200 million at a fixed rate of 5.75% for €181 million on which a weighted average rate of 3.73% is payable. The cross-currency swaps have been designated as cash flow hedges of a fixed rate U.S. Dollar intercompany loan and the economic effect is to eliminate uncertainty on the U.S. Dollar cash flows. The cross-currency swaps are set to mature in July 2024, which is the best estimate of the repayment date on the intercompany loan.

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 an asset of $8 million and a liability of $3 million at March 31, 2020 and December 31, 2019, 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.
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For the three months ended March 31, 2020 and 2019, the change in accumulated other comprehensive loss associated with these cash flow hedging activities was a gain of $11 million and $4 million, respectively. As of March 31, 2020, we do not expect to reclassify any accumulated other comprehensive loss 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 March 31, 2020 and December 31, 2019, we had $64 million and $75 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 9. 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 $2 million and income tax expense of $1 million for the three months ended March 31, 2020 and 2019, 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 $30 million. As of March 31, 2020 and December 31, 2019, this "Noncurrent payable to affiliates" was $30 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.

On March 27, 2020, President Trump signed into U.S. tax law the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, eliminating NOL limitations, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations. The CARES Act did not have a material impact to our income tax provision for the three months ended March 31, 2020.
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Note 10. 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
March 31,
2020 2019
Numerator:
Net income (loss) attributable to Venator Materials PLC ordinary shareholders
$   $ (3)  
Denominator:
Weighted average shares outstanding 106.7    106.5   
Dilutive share-based awards —    0.3   
Total weighted average shares outstanding, including dilutive shares 106.7    106.8   


For the three months ended March 31, 2020, the number of anti-dilutive employee share-based awards excluded from the computation of diluted earnings per share was 3 million. For the three months ended March 31, 2019, the number of anti-dilutive employee share-based awards excluded from the computation of dilutive earnings per share was 1 million.

Note 11. 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 November 30, 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. The cases filed in the Dallas District Court were consolidated into a single action, In re Venator Materials PLC Securities Litigation.

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 certain of these motions, which were subsequently denied. On January 21, 2020, the Court of Appeals for the Fifth District of Texas reversed the Dallas District Court’s order that denied the special appearances of Venator and certain other defendants, and rendered judgment dismissing the claims against Venator and certain other defendants for lack of jurisdiction. The Court of Appeals also remanded the case for the Dallas District Court to enter an order transferring the claims against Huntsman to the Montgomery County District Court. On March 19, 2020, plaintiffs from the Dallas District Court case filed suit in New York State Court (New York County) against Venator and the other defendants dismissed from the Dallas District Court case, making substantially the same allegations as were filed in the Dallas District Court.

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An additional case was filed on July 31, 2019, in the U.S. District Court for the Southern District of New York by the City of Miami General Employees' & Sanitation Employees' Retirement Trust, 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. A case also was filed in the U.S. District Court for the Southern District of Texas by the Cambria County Employees Retirement System on September 13, 2019, making substantially the same allegations as those made by the plaintiff in the case pending in the Southern District of New York. On October 29, 2019, the U.S. District Court for the Southern District of New York entered an order transferring the case brought by the city of Miami General Employees' & Sanitation Employees' Retirement Trust to the U.S. District Court for the Southern District of Texas, where it was consolidated into a single action with the case brought by the Cambria County Employees' Retirement Trust and is now known as In re: Venator Materials PLC Securities Litigation. On January 17, 2020, plaintiffs in the consolidated federal action filed a consolidated class action complaint. On February 18, 2020, all defendants joined in a motion to dismiss the consolidated complaint, which plaintiffs have opposed, and for which oral argument has been scheduled for May 14, 2020.

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. 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. Discovery is ongoing in this matter. 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. We are contesting the validity of these invoices and filed counterclaims against NES on March 8, 2019. In the arbitration proceeding, our defense and counterclaim were filed on April 17, 2020.

On July 2, 2019, NES separately instigated a lawsuit in Finland for €1.6 million of unpaid invoices, which we are contesting. We are fully accrued for these invoices and they are reflected in our unaudited condensed consolidated balance sheet as of March 31, 2020.

Calais Pipeline Matter

The Region Hauts-de-France (the “Region”) has issued two duplicate title perception demands against us requiring repayment of €12 million. This sum was previously paid to us by the Region under a settlement agreement, pursuant to which we were required to move an effluent pipeline at our Calais site. We filed claims with the Administrative Court in Lille, France on February 14, 2018 and April 12, 2018, requesting orders that the demands be set
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aside, which suspended enforcement of the demands. On July 12, 2018, the court set aside the first demand. The second demand remains suspended, but in dispute. The parties have lodged various arguments and responses regarding the second demand with the court. The court hearing for this matter has been postponed due to court closures in France resulting from the COVID-19 pandemic.

Gasum Arbitration

We entered into a natural gas supply agreement with Skangass Oy (now Gasum LNG Oy) in 2015 to supply natural gas to our Pori, Finland manufacturing facility. The initial fixed term of the agreement was ten years. We are entitled to terminate the agreement upon closure of the facility by giving 12 months’ notice of the closure. Upon such termination, a compensation fee would be payable to Gasum.

The agreement requires us to purchase a minimum annual quantity, subject to a mechanism for making up shortfalls. The minimum annual quantity can be reduced (even to zero) in the event of a “Force Majeure Event". We declared that the fire at our Pori facility in January 2017 was a Force Majeure Event under the agreement, reducing the minimum annual quantity to the actual quantity purchased. Gasum alleges that this Force Majeure Event subsequently ceased to apply, and that we were thereafter again obliged to purchase the original minimum annual quantity.

Gasum continues to supply natural gas to the Pori facility. On April 17, 2020, Gasum filed arbitration proceedings seeking declaratory relief to require us to take or pay the original minimum annual quantities of natural gas. In their request, Gasum estimated that the monetary value of declaratory relief to be approximately €27 million should we close the Pori facility by the end of 2022. Because of the early stage of this proceeding, 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 this matter.

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 12. 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 three months ended March 31, 2020 and March 31, 2019, our capital expenditures for EHS matters totaled $6 million and $4 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. A number of our EHS capital expenditures will be subject to extended timelines as a result of the COVID-19 pandemic. Changes to timelines may be related to regulatory orders or guidelines that cause suppliers or contractors to cease or slow down operational activities, including as a result of changes to social distancing rules, among other factors. The impacts may vary significantly between different jurisdictions.

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 March 31, 2020 and December 31, 2019, we had environmental reserves of $8 million and $9 million, respectively.
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Environmental Matters

We have incurred, and we may in the future incur, liabilities 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 TiO2 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.

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Note 13. 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, 2020
$ (97)   $ (295)   $ (5)   $ 12    $ (385)   $ —    $ (385)  
Other comprehensive (loss) income before reclassifications, gross
(36)   —    —    11    (25)   —    (25)  
Tax expense —    —    —    (1)   (1)   —    (1)  
Amounts reclassified from accumulated other comprehensive loss, gross(c)
—      —    —      —     
Tax expense —    —    —    —    —    —    —   
Net current-period other comprehensive (loss) income
(36)     —    10    (23)   —    (23)  
Ending balance,
  March 31, 2020
$ (133)   $ (292)   $ (5)   $ 22    $ (408)   $ —    $ (408)  

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, 2019
$ (96)   $ (278)   $ (5)   $   $ (373)   $ —    $ (373)  
Other comprehensive income before reclassifications, gross
11    —    —      15    —    15   
Tax expense —    —    —    —    —    —    —   
Amounts reclassified from accumulated other comprehensive loss, gross(c)
—      —    —      —     
Tax expense —    —    —    —    —    —    —   
Net current-period other comprehensive income
11      —      19    —    19   
Ending balance,
  March 31, 2019
$ (85)   $ (274)   $ (5)   $ 10    $ (354)   $ —    $ (354)  

(a)Amounts are net of tax of nil as of March 31, 2020 and January 1, 2020, each.
(b)Amounts are net of tax of $50 million as of March 31, 2020 and January 1, 2020, 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 March 31, 2019 and January 1, 2019, each.
(e)Amounts are net of tax of $50 million as of March 31, 2019 and January 1, 2019, each.

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Three months ended
March 31,
Affected line item in the statement where net income is presented
2020 2019
Details about Accumulated Other Comprehensive Loss Components(a):
Amortization of pension and other postretirement benefits:
Actuarial loss $   $   Other income
Prior service credit —    —    Other income
Total before tax    
Income tax expense —    —    Income tax benefit (expense)
Total reclassifications for the period, net of tax $   $  

(a)Pension and other postretirement benefit amounts in parentheses indicate credits on our unaudited condensed consolidated statements of operations.

Note 14. Operating Segment Information

We derive our revenues, earnings and cash flows from the manufacture and sale of TiO2, 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

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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
March 31,
2020 2019
Revenues:
Titanium Dioxide $ 402    $ 425   
Performance Additives 130    137   
Total $ 532    $ 562   
Adjusted EBITDA(1)
Titanium Dioxide $ 46    $ 61   
Performance Additives 22    15   
68    76   
Corporate and Other (11)   (16)  
Total 57    60   
Reconciliation of adjusted EBITDA to net income:
Interest expense (13)   (14)  
Interest income    
Income tax benefit (expense)   (1)  
Depreciation and amortization (28)   (26)  
Net income attributable to noncontrolling interests    
Other adjustments:
Business acquisition and integration expenses (1)   (2)  
Loss on disposition of business/assets (2)   —   
Amortization of pension and postretirement actuarial losses (3)   (4)  
Net plant incident costs (1)   (7)  
Restructuring, impairment and plant closing and transition costs (7)   (12)  
Net income (loss) $   $ (2)  

(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) loss/gain on disposition of business/assets; (c) amortization of pension and postretirement actuarial losses/gains; (d) net plant incident costs/credits; and (e) restructuring, impairment, and plant closing and transition costs/credits.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included in Item 1 hereto.

This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in any forward-looking statement because of various factors, including those described in the section titled "Note Regarding Forward-Looking Statements" and "Part II. Item 1A. Risk Factors."

Executive Summary

We are a leading global manufacturer and marketer of chemical products that improve the quality of life for downstream consumers and promote a sustainable future. Our products comprise a broad range of innovative chemicals and formulations that bring color and vibrancy to buildings, protect and extend product life, and reduce energy consumption. We market our products globally to a diversified group of industrial customers through two segments: Titanium Dioxide, which consists of our TiO2 business, and Performance Additives, which consists of our functional additives, color pigments, timber treatment and water treatment businesses. We are a leading global producer in many of our key product lines, including TiO2, color pigments and functional additives, a leading North American producer of timber treatment products and a leading European producer of water treatment products.

COVID-19

The COVID-19 pandemic and related economic repercussions have created significant disruption to the global economy and will likely have an adverse effect on our business and the markets in which we operate, the extent of which cannot fully be determined at this time.

We have a team focused on managing our business through the pandemic and we have enacted rigorous safety measures across our organization, including stopping non-essential business travel, increasing the personal protective equipment requirements at our manufacturing sites, removing contractors from site, increasing cleaning and sanitizing measures, implementing social distancing protocols, requiring work-from-home arrangements for those employees who do not need to be physically present and reducing the amount of employees working at a site at any given time. We expect to continue these measures until we determine that COVID-19 is adequately contained for purposes of safeguarding our employees and our business. We may take further actions as government authorities require or recommend, or as we determine to be in the best interest of our employees, customers, partners and suppliers.

We have not yet experienced significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic. However, certain of our suppliers have faced difficulties maintaining operations due to government-ordered restrictions and shelter-in-place mandates. While we have thus far been able to identify alternative sourcing arrangements without disrupting our supply chain, financial hardship on our suppliers caused by the COVID-19 pandemic could cause material disruptions in our raw material supply. We are proactively managing our supplier network by maintaining close contact and ensuring alternative arrangements are available in case our primary suppliers are impacted by the COVID-19 pandemic.

While the COVID-19 pandemic has not had a material impact on demand for our products for the three months ended March 31, 2020, we anticipate a decline in orders across our business during the second quarter of 2020 as orders begin to reflect the impact of government ordered restrictions on our customers. We cannot currently predict the duration and severity of impacts to our business from the global economic slowdown caused by the COVID-19 pandemic. Because of this, we cannot reasonably estimate with any degree of certainty the future adverse impact the COVID-19 pandemic may have on our results of operations, financial position, or liquidity; however, the impact could be material. See further discussion of the potential impact to our liquidity under "Liquidity and Capital Resources." See "Part II. Item 1A. Risk Factors" for further details of the risks that the COVID-19 pandemic may present to our business.

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Recent Trends and Outlook

We expect near-term business trends in our Titanium Dioxide segment to be driven by the following factors: (i) the global economic environment impacted by geopolitical events such as the global COVID-19 pandemic (with regional variations), trade negotiations between the U.S. and China and Brexit; (ii) demand for our products will be adversely impacted by the COVID-19 pandemic and the global economic environment; (iii) TiO2 pricing to reflect regional supply and demand balances, increased competition in certain regions for certain of our products and our customer-tailored approach; (iv) a manageable increase in the average cost of our mix of ore feedstocks requirements; (v) lower raw materials and energy costs excluding feedstocks; (vi) an additional benefit from our 2019 Business Improvement Program; and (vii) a benefit from additional cost and operational improvement actions, including those we have taken in response to the COVID-19 pandemic.

In our Performance Additives segment, we expect near-term business trends to be driven by the following factors: (i) the global economic environment impacted by geopolitical events such as the global COVID-19 pandemic (with regional variations), trade negotiations between the U.S. and China and Brexit; (ii) demand for our products will be adversely impacted by the COVID-19 pandemic and the global economic environment; (iii) a weaker demand environment for certain products, primarily in the automotive, coatings, and construction end-use applications; (iv) manageable raw material cost increases and lower energy costs; (v) an additional benefit from our 2019 Business Improvement Program; and (vi) a benefit from additional cost and operational improvement actions, including those we have taken in response to COVID-19.

In the fourth quarter of 2018, we commenced our 2019 Business Improvement Program and have delivered $24 million of savings through the first quarter of 2020, $4 million of which was achieved in the first quarter of 2020. We continue to expect that when fully implemented, this cost and operational improvement program will provide approximately $40 million of annual adjusted EBITDA benefit compared to year-end 2018. We currently expect to end the year at the full run-rate level; however, the timing, constituent elements and expected benefit may be adjusted in response to the COVID-19 pandemic. We continue to evaluate the impact of COVID-19 on our 2019 Business Improvement Program.

In 2020, total capital expenditures are expected to be $60 million. We do not expect any material capital expenditures relating to the transfer of our specialty and differentiated business from our Pori, Finland manufacturing site to other sites in our manufacturing network during 2020. We intend to optimize the remaining transfer of our specialty and differentiated business from our Pori, Finland TiO2 manufacturing facility, but the timing of this transfer will be elongated, due in part to the COVID-19 pandemic, and may result in a lower total expected capital outlay and a lower associated adjusted EBITDA benefit than originally estimated.

We expect our corporate and other costs will be approximately $50 million in 2020.


26


Results of Operations

The following table sets forth our consolidated results of operations for the three months ended March 31, 2020 and 2019:
Three Months Ended
March 31,
(Dollars in millions) 2020 2019 % Change
Revenues $ 532    $ 562    (5  %)
Cost of goods sold 471    486    (3  %)
Operating expenses(4)
42    55    (24  %)
Restructuring, impairment and plant closing and transition costs
  12    (42  %)
Operating income 12      33  %
Interest expense, net (10)   (11)   %
Other income     300  %
Income (loss) before income taxes
  (1)   NM   
Income tax benefit (expense)   (1)   NM   
Net income (loss)   (2)   NM   
Reconciliation of net income (loss) to adjusted EBITDA:
Interest expense, net 10    11    (9  %)
Income tax (benefit) expense (2)     NM   
Depreciation and amortization 28    26    %
Net income attributable to noncontrolling interests (1)   (1)   —  %
Other adjustments:
Business acquisition and integration expenses
   
Loss on disposition of business/assets
  —   
Amortization of pension and postretirement actuarial losses
   
Net plant incident costs
   
Restructuring, impairment and plant closing and transition costs
  12   
Adjusted EBITDA(1)
$ 57    $ 60   
Net cash used in operating activities $ (58)   $ (29)   100  %
Net cash used in investing activities (27)   (53)   (49  %)
Net cash provided by (used in) financing activities 56    (3)   NM   
Capital expenditures (31)   (52)   (40  %)
27



Three Months Ended Three Months Ended
(Dollars in millions, except per share amounts) March 31, 2020 March 31, 2019
Reconciliation of net income to adjusted net income attributable to Venator Materials PLC ordinary shareholders:
Net income (loss) $   $ (2)  
Net income attributable to noncontrolling interests (1)   (1)  
Other adjustments:
Business acquisition and integration expenses    
Loss on disposition of business/assets
  —   
Amortization of pension and postretirement actuarial losses
   
Net plant incident costs    
Restructuring, impairment and plant closing and transition costs
  12   
Income tax adjustments(3)
(9)   (8)  
Adjusted net income attributable to Venator Materials PLC ordinary shareholders(2)