UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K10-K/A
(Amendment No. 1)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-38176
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 |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ☐ No ☑
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�� 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. (Check one):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The aggregate market value of the ordinary shares held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter (based on the closing price of $5.29 on June 28, 2019 reported by the New York Stock Exchange) was approximately $287,092,796.
As of March 10,April 27, 2020, the registrant had outstanding 106,735,634106,735,892 ordinary shares, $0.001 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
PortionsNone.
EXPLANATORY NOTE
This Amendment No. 1 to Form 10-K (this “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2019, originally filed with the Securities and Exchange Commission on March 12, 2020 Annual(the “Original Filing”) by Venator Materials PLC (“Venator,” the “Company,” “we,” “us” or “our”). We are filing this Amendment to include in the Original Filing the information required by Part III (Items 10, 11, 12, 13 and 14) of Form 10-K. This information was previously omitted from the Original Filing in reliance on General MeetingInstruction G(3) to Form 10-K, which permits the information in the above-referenced items to be incorporated in the Original Filing by reference from our definitive proxy statement if such statement is filed no later than 120 days after our fiscal year-end. We are filing this Amendment to include Part III information in the Original Filing because our definitive proxy statement will be filed later this year.
Part III (Items 10, 11, 12, 13 and 14) of Shareholders may bethe Original Filing is hereby deleted in its entirety and replaced with the following Part III set forth below, and Item 15 of Part IV of the Original Filing is being amended to add new certificates (filed as exhibits hereto). In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, currently dated certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 31.1 and Exhibit 31.2, respectively. Because no financial statements are included in this Amendment and this Amendment does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted. Further, we are amending the cover page to update the number of ordinary shares outstanding and to remove the statement that information is being incorporated by reference into Part IIIfrom our definitive proxy statement.
Except as described above, no other changes have been made to the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing. The Original Filing continues to speak as of this Form 10-K. Alternatively,the date of the Original Filing, and we may include such information in an amendmenthave not updated the disclosures contained therein to this annual report on Form 10-K.
reflect any events which occurred at a date subsequent to the filing of the Original Filing.
VENATOR MATERIALS PLC AND SUBSIDIARIES
2019 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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, or, as the context requires, the historical Pigments and Additives business of Huntsman, (2) all references to "Huntsman" refer to Huntsman Corporation, our former parent company, and its subsidiaries, (3) all references to the "Titanium Dioxide" segment or business refer to the titanium dioxide ("TiO2") business of Venator, or, as the context requires, the historical Pigments and Additives segment of Huntsman and the related operations and assets, liabilities and obligations, (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, or, as the context requires, the Pigments and Additives segment of Huntsman and the related operations and assets, liabilities and obligations, (5) all references to "other businesses" refer to certain businesses that Huntsman retained in connection with the separation and that are reported as discontinued operations in our consolidated and combined financial statements, (6) we refer to the internal reorganization prior to our initial public offering on August 3, 2017 (the "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, the entry into 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 was completed on August 8, 2017, and (7) the "Rockwood acquisition" refers to Huntsman’s acquisition of the performance and additives and TiO2 businesses of Rockwood Holdings, Inc. ("Rockwood") completed on October 1, 2014.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information set forth in this report contains "forward-looking statements" within the meaning 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. All statements other than historical 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:
•volatile global economic conditions;
•cyclical and volatile TiO2 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;
•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;
•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;
•failure to enforce our intellectual property rights;
•our ability to effectively manage our labor force; and
•the effects of public health crises, such as the COVID-19 coronavirus, 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, such as the COVID-19 coronavirus, cyber-attacks and general instability.
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 the "Part I. Item 1A. Risk Factors."
PART IIII
ITEM 1. BUSINESS10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
OverviewBOARD OF DIRECTORS
WePresented below is information with respect to our six directors as of April 22, 2020. The information presented below for each director includes the specific experience, qualifications, attributes and skills that led us to the conclusion that such director should serve on the Board.There 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 a variety of applications, 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 consistsno family relationships among any of our TiO2 business,directors or executive officers.
Peter R. Huntsman, age 57, was appointed as a director and Performance Additives, which consistsChairman of our functional additives, color pigments, timber treatmentthe Board in the second quarter of 2017. Mr. Huntsman currently serves as Chairman of the Board, President and water treatment businesses. We are a leading global producer in manyChief Executive Officer of our key product lines, including those within TiO2, color pigments and functional additives, a leading North American producer of timber treatment products and a leading European producer of water treatment products. Headquartered in Wynyard, U.K., we employ approximately 4,000 associates worldwide and sell our products in more than 110 countries. We became an independent publicly traded company following our IPO and separation from Huntsman Corporation in August 2017.
We operate in a variety of end markets, including industrial and architectural paints and coatings, plastics, construction materials, paper, printing inks, pharmaceuticals, food, cosmetics, fibers and films and personal care. Within these end markets, our products serve approximately 4,100 customers globally. Our production capabilities allow us to manufacture a broad range of high quality functional TiO2 products as well as specialty and differentiated TiO2 products that provide critical performance for our customers and sell at a premium for certain end-use applications. Our functional additives, color pigments and timber treatment products provide essential properties for our customers’ end-use applications by enhancing the color and appearance of construction materials and delivering performance benefits in other applications such as corrosion and fade resistance, water repellence and flame suppression. We believe that our global footprint and broad product offerings differentiate us from our competitors and allow us to better meet our customers’ needs.
For the year ended December 31, 2019, we had total revenues of $2,130 million. Adjusted EBITDA for the year ended December 31, 2019 was $194 million, which includes $197 million from our Titanium Dioxide segment and $47 million from our Performance Additives segment.
Our Titanium Dioxide and Performance Additives segments have evolved in recent years through certain site closures, reductions in operating costs and new product introductions. We have a well-established position in each of the industries in which we operate. We continue to implement business improvements within our Titanium Dioxide and Performance Additives segments which are expected to provide incremental benefit in our earnings as these programs are achieved.
The table below summarizes the key products, end markets and applications, representative customers, revenues and sales information by segment as of December 31, 2019.
For additional information about our business segments, including related financial information, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 26. Operating Segment Information" and "Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Our Business
Venator manufactures high quality TiO2, functional additives, color pigments, timber treatment and water treatment products. Our broad product range, coupled with our ability to develop and supply specialized products into technically exacting end-use applications, has positioned usserved as a leaderdirector of Huntsman Corporation and its affiliated companies since 1994. Prior to his appointment in the markets we serve. We are a leader in the specialtyJuly 2000 as CEO of Huntsman Corporation, Mr. Huntsman had served as its President and differentiated TiO2 industry segments, which includes products that sell at a premiumChief Operating Officer since 1994. In 1987, after working for Olympus Oil since 1983, Mr. Huntsman joined Huntsman Polypropylene Corporation as Vice President before serving as Senior Vice President and have more stable margins than functional TiO2. WeGeneral Manager. Mr. Huntsman has also have complementary functional additives, color pigments, timber treatment and water treatment
businesses. We have 23 manufacturing facilities operating in nine countries with a total nameplate production capacity of approximately 1.2 million metric tons per year, excluding our plant in Pori, Finland, ongoing closure of which was announced in the third quarter of 2018. Of these facilities, seven are TiO2 manufacturing facilities in Europe, North America and Asia, and 16 are color pigments, functional additives, water treatment and timber treatment manufacturing and processing facilities in Europe, North America, Asia and Australia. For the year ended December 31, 2019, our revenues were $2,130 million.
Titanium Dioxide Segment
TiO2 is derived from titanium-bearing ores and is a white inert pigment that provides whiteness, opacity and brightness to thousands of everyday items, including coatings, plastics, paper, printing inks, fibers, food and personal care products. We own a portfolio of brands, including the TIOXIDE®, HOMBITAN®, HOMBITEC® and ALTIRIS® ranges, the products for which are produced in our seven manufacturing facilities around the globe (excluding our plant in Pori, Finland, ongoing closure of which was announced in the third quarter of 2018). We service over 1,700 customers in most major industries and geographic regions. Our global manufacturing footprint allows us to service the needs of both local and global customers, including AkzoNobel, Ampacet, BASF, Clariant, DSM, Flint, LyondellBasell, PPG, PolyOne, Sherwin-Williams and Sun Chemical. Annual industry demand for TiO2 products tends to correlate with GDP growth rates over time and is seasonal. This seasonality is subject to global, regional, end-use application and other factors.
We are among the largest global TiO2 producers, with nameplate production capacity of approximately 652,000 metric tons per year. We are able to manufacture a broad range of high quality TiO2 products for functional, differentiated and specialty applications. Our specialty and differentiated product grades generally sell at a premium into more specialized applications such as fibers, catalysts, food, pharmaceuticals and cosmetics.
There are two manufacturing processes for the production of TiO2; the sulfate process and the chloride process. We believe that the chloride process accounts for approximately 45% of global production capacity. Most end-use applications can use pigments produced by either process, although there are markets that prefer pigment from a specific manufacturing route—for example, the inks market prefers sulfate products whereas the automotive coatings market prefers chloride products. Regional customers typically favor products that are available locally. The sulfate process produces TiO2 in both the rutile and anatase forms, the latter being used in certain high-value specialty applications. Our production capabilities are distinguished from some of our competitors because of our ability to manufacture high quality TiO2 using both sulfate and chloride manufacturing processes, which gives us the flexibility to tailor our products to meet our customers’ needs. By operating both sulfate and chloride processes, we also have the ability to use a wide range of titanium feedstocks, which enhances the competitiveness of our manufacturing operations, by providing flexibility in the selection of raw materials. This mitigates, to some extent, fluctuations in availability for any particular feedstock and allows us to manage our raw material costs.
Once an intermediate TiO2 pigment has been produced using either the chloride or sulfate process, it is "finished" into a product with specific performance characteristics for particular end-use applications. Co-products from both processes require treatment prior to disposal to comply with environmental regulations. In order to reduce our disposal costs and to increase our cost competitiveness, we have developed and marketed the co-products from the manufacture of titanium dioxide at our facilities. We sell approximately 45% of the co-products generated by our TiO2 business.
We have a broad customer base and have successfully differentiated our business by establishing ourselves as a market leader in a variety of niche end-use applications where the innovation and specialization of our products is rewarded with higher growth prospects and strong customer relationships.
| | | | | | | | | | | | | | | | | | | | |
| | Rutile TiO2
| | Anatase TiO2
| | Nano TiO2
|
Characteristics | | Most common form of TiO2. Harder and more durable crystal
| | Softer, less abrasive pigment, preferred for some specialty applications | | Very small particles of either rutile or anatase TiO2 (typically less than 100nm in diameter)
|
Typical Applications | | Coatings, printing inks, PVC window frames, plastic masterbatches | | Cosmetics, pharmaceuticals, food, polyester fibers, polyamide fibers | | Catalysts and cosmetics |
Performance Additives Segment
Functional Additives. Functional additives are barium and zinc based inorganic chemicals used to make colors more brilliant, coatings shine, plastic more stable and alter the flow properties of paints. We are a leading global manufacturer of zinc
and barium functional additives. The demand dynamics of functional additives are closely aligned with those of functional TiO2 products given the overlap in applications served, including coatings and plastics.
| | | | | | | | |
| | Barium and Zinc Additives |
Characteristics | | Specialty pigments and fillers based on barium and zinc chemistry |
Typical Applications | | Coatings, films, paper and glass fiber reinforced plastics |
Color Pigments. We are a leading global producer of colored inorganic pigments for the construction, coatings, plastics and specialty markets. We are one of three global leaders in the manufacture and processing of liquid, powder and granulated forms of iron oxide color pigments. We also sell complex inorganic colored pigments, carbon black and metal carboxylate driers. The cost effectiveness, weather resistance, chemical and thermal stability and coloring strength of iron oxide make it an ideal colorant for construction materials, such as concrete, brick and roof tile, and for coatings and plastics. We produce a wide range of color pigments and are the world’s second largest manufacturer of technical grade ultramarine blue pigments, which have a unique blue shade and are widely used to correct colors, giving them a desirable clean, blue undertone. These attributes have resulted in ultramarine blue being used world-wide for polymeric applications such as construction plastics, food packaging, automotive polymers, consumer plastics, as well as coatings and cosmetics.
Our products are sold under a portfolio of brands that are targeted to the construction sector such as DAVIS COLORS®, GRANUFIN® and FERROXIDE® and the following brands Holliday Pigments, COPPERAS RED® and MAPICO® focused predominantly on the coatings and plastics sectors.
Our products are also used by manufacturers of colorants, rubber, paper, cosmetics, pet food, digital ink, toner and other industrial uses delivering benefits in other applications such as corrosion protection and catalysis.
Our construction customers value our broad product range and benefit from our custom blending, color matching and color dosing systems. Our coatings customers benefit from a consistent and quality product.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Iron Oxides | | Ultramarines | | Specialty Inorganic
Chemicals | | Driers |
Characteristics | | Powdered, granulated or in liquid form synthesized from a range of feedstocks | | Range of ultramarine blue and violet and also manganese violet pigments | | Complex inorganic pigments and cadmium pigments | | A range of metal carboxylates and driers |
Typical Applications | | Construction, coatings, plastics, cosmetics, inks, catalyst and laminates | | Predominantly used in plastics and also coatings and cosmetics | | Coatings, plastics and inks | | Predominantly coatings |
Copperas, iron and alkali are raw materials for the manufacture of iron oxide pigments. They are used to produce colored pigment particles which are further processed into a finished pigment in powder, liquid, granule or blended powder form. Iron oxide pigment’s cost effectiveness, weather resistance, chemical and thermal stability and coloring strength make it an ideal colorant for construction materials, such as concrete, brick and roof tile, and for coatings such as paints and plastics. We are one of the three largest synthetic color pigments producers which together represent more than 50% of the global market for iron oxide pigments. The remaining market share consists primarily of competitors based in China.
Made from clay, our ultramarine blue pigments are non-toxic, weather resistant and thermally stable. Ultramarine blue pigments are used world-wide for food contact applications and are used extensively in plastics and the paint industry. Our ultramarine pigments are permitted for unrestricted use in certain cosmetics applications. We focus on supplying our customers with technical grade ultramarine blues and violets to high specification markets such as the cosmetics industry.
Timber Treatment and Water Treatment. We manufacture wood protection chemicals used primarily in residential and commercial applications to prolong the service life of wood through protection from decay and fungal or insect attack. Wood that has been treated with our products is primarily sold to consumers through major branded retail outlets.
We manufacture our timber treatment chemicals in the U.S. and market our products primarily in North America through Viance, LLC ("Viance"), our 50%-owned joint venture with Dupont de Nemours, Inc ("DuPont"). Our residential construction products such as ACQ, ECOLIFE™ and Copper Azole are sold for use in decking, fencing and other residential outdoor wood structures. Our industrial construction products such as Chromated Copper Arsenate are sold for use in telephone poles and salt water piers and pilings.
We manufacture our water treatment chemicals in Germany, and these products are used to improve water purity in industrial, commercial and municipal applications. We are one of Europe’s largest suppliers of polyaluminium chloride-based flocculants with approximately 140,000 metric tons of production capacity. Our main markets are municipal and industrial waste water treatment and the paper industry.
Customers, Sales, Marketing and Distribution
Titanium Dioxide Segment
We serve over 1,200 customers through our Titanium Dioxide segment. These customers produce paints and coatings, plastics, paper, printing inks, fibers and films, pharmaceuticals, food and cosmetics.
Our ten largest customers accounted for 23% of the segment’s sales in 2019 and no single TiO2 customer represented more than 10% of our sales in 2019. Approximately 85% of our TiO2 sales are made directly to customers through our own global sales and technical services network. This network enables us to work directly with our customers and develop a deep understanding of our customers’ needs resulting in valuable relationships. The remaining 15% of sales are made through our distribution network. We maximize the reach of our distribution network by utilizing specialty distributors in selected markets.
Larger customers are typically served via our own sales network and these customers often have annual volume targets with associated pricing mechanisms. Smaller customers are served through a combination of our global sales teams and a distribution network, and the route to market decision is often dependent upon customer size and end-use application.
Our focus is on marketing products and services to higher growth and higher value applications. For example, we believe that our Titanium Dioxide segment is well-positioned to benefit from sectors such as fibers and films, catalysts, cosmetics, pharmaceuticals and food, where customers’ needs are complex resulting in fewer companies that have the capability to support them. We maximize reach through specialty distributors in selected markets. Our focused sales effort, technical expertise, strong customer service and local manufacturing presence have allowed us to achieve leading market positions in a number of the countries where we manufacture our products.
Performance Additives Segment
We serve over 2,900 customers through our Performance Additives segment. These customers produce materials for the construction industry, as well as coatings, plastics, pharmaceutical, personal care and catalyst applications.
Our ten largest customers accounted for 19% of the segment’s sales in 2019 and no single Performance Additives customer represented more than 10% of our sales in 2019. Performance Additives segment sales are made directly to customers through our own global sales and technical services network, in addition to utilizing distributors. Our focused sales effort, technical expertise, strong customer service and local manufacturing presence have allowed us to achieve leading market positions in a number of the countries where we manufacture our products. We sell iron oxides primarily through our global sales force whereas our ultramarine sales are predominantly through distributors. We sell the majority of our timber treatment products directly to end customers via our joint venture, Viance.
Manufacturing and Operations
Titanium Dioxide Segment
As of December 31, 2019, our Titanium Dioxide segment had seven manufacturing facilities operating in six countries with a total nameplate production capacity of approximately 652,000 metric tons per year.
Production nameplate capacities of our TiO2 manufacturing facilities are listed below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Annual Capacity (metric tons) | | | | | | | | |
| | | | | North
America | | | | | | |
| Site | | EMEA(1),(3) | | | | APAC(2) | | Total | | Process |
| Greatham, U.K. | | 150,000 | | | | | | | 150,000 | | | Chloride TiO2 |
| | | | | | | | | | |
| Uerdingen, Germany | | 107,000 | | | | | | | 107,000 | | | Sulfate TiO2 |
| Duisburg, Germany | | 100,000 | | | | | | | 100,000 | | | Sulfate TiO2 |
| Huelva, Spain | | 80,000 | | | | | | | 80,000 | | | Sulfate TiO2 |
| Scarlino, Italy | | 80,000 | | | | | | | 80,000 | | | Sulfate TiO2 |
Lake Charles, Louisiana(4) | | | | 75,000 | | | | | 75,000 | | | Chloride TiO2 |
| Teluk Kalung, Malaysia | | | | | | 60,000 | | | 60,000 | | | Sulfate TiO2 |
| Total | | 517,000 | | | 75,000 | | | 60,000 | | | 652,000 | | | |
(1)"EMEA" refers to Europe, the Middle East and Africa.
(2)"APAC" refers to the Asia-Pacific region including India.
(3)Excludes our TiO2 plant in Pori, Finland, ongoing closure of which was announced in the third quarter of 2018.
(4)This facility is owned and operated by Louisiana Pigment Company L.P. ("LPC"), a manufacturing joint venture that is owned 50% by us and 50% by Kronos Worldwide, Inc. ("Kronos"). The capacity shown reflects our 50% interest in LPC.
Performance Additives Segment
As of December 31, 2019, our Performance Additives segment had 16 manufacturing facilities operating in seven countries with a total nameplate production capacity of approximately 525,000 metric tons per year.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Annual Capacity (metric tons) | | | | | | |
| | | | | North America | | | | |
| Product Area | | EMEA | | | | APAC | | Total |
| Functional additives | | 100,000 | | | | | | | 100,000 | |
| Color pigments | | 85,000 | | | 40,000 | | | 20,000 | | | 145,000 | |
| Timber treatment | | | | 140,000 | | | | | 140,000 | |
| Water treatment | | 140,000 | | | | | | | 140,000 | |
| Total | | 325,000 | | | 180,000 | | | 20,000 | | | 525,000 | |
Joint Ventures
LPC is our 50%-owned joint venture with Kronos. We share production offtake and operating costs of the plant with Kronos, though we market our share of the production independently. The operations of the joint venture are under the direction
of a supervisory committee on which each partner has equal representation. Our investment in LPC is accounted for using the equity method.
Viance is our 50%-owned joint venture with DuPont. In the fourth quarter of 2019, it was announced that DuPont and International Flavors and Fragrances, Inc. ("IFF") entered into a definitive agreement for the merger of IFF and DuPont’s Nutrition & Biosciences business. We do not anticipate that this merger will have a material impact on our business. The merger is expected to close by the end of the first quarter of 2021. Upon closure, it is expected that DuPont’s interest in Viance will transfer to IFF. Viance markets our timber treatment products. Our joint venture interest in Viance was acquired as part of the Rockwood acquisition. 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 beneficiaryHuntsman Chemical Corporation and as a result, we consolidate the assets, liabilities and operating resultsSenior Vice President of Viance into our consolidated and combined financial statements.
Pacific Iron Products Sdn Bhd ("PIP") is our 50%-owned joint venture with Coogee Chemicals Pty. Ltd. 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 throughHuntsman Packaging Corporation, a fixed cost supply contract, operate the manufacturing facility and market the productsformer subsidiary 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. We concluded that we are the primary beneficiary andHuntsman Corporation. Mr. Huntsman serves as a result we consolidate the assets, liabilities and operating results of PIP into our consolidated and combined financial statements.
Raw Materials
Titanium Dioxide Segment
The primary raw materials that are used to produce TiO2 are various types of titanium feedstock, which include ilmenite, rutile, titanium slag (chloride slag and sulfate slag) and synthetic rutile. The world market for titanium-bearing ores has a diverse range of suppliers with the four largest accounting for approximately 40% of global supply. The majoritymember of our titanium-bearing ores are sourced from Canada, Africa, Australia and India. Ore accounts for approximately 50% of TiO2 variable manufacturing costs, while utilities (electricity, gas and steam), sulfuric acid and chlorine collectively account for approximately 30% of variable manufacturing costs.
The majority of the titanium-bearing ores market is transacted on short-term contracts, or longer-term volume contracts with market-based pricing re-negotiated several times per year. This form of market-based ore contract provides flexibility and responsiveness in terms of pricing and quantity obligations.
Performance Additives Segmentspecial litigation committee (the “Litigation Committee”).
Our primary raw materialsBoard has concluded Mr. Huntsman should continue to serve as a director for the following reasons, among others: (1) his current position as the Chairman and CEO of a major chemical company provide our Performance Additives segment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Functional
Additives | | Color Pigments | | Timber
Treatment | | Water
Chemicals |
Primary raw materials | | Barium and zinc based inorganics | | Iron oxide particles, scrap iron, copperas, alkali | | DCOIT, copper, monoethanolamine | | Aluminum hydroxide |
The primary raw materials for functional additives production are bariteBoard and zinc. We currently source barite from China, whereour company with invaluable operational, financial, regulatory and governance insights; and (2) his years of experience in the chemical industry and considerable role in the history and management of Huntsman Corporation (including while we have long standing supplier relationships and pricing is negotiated largelywere part of Huntsman Corporation) provide him with extensive background on a purchase by purchase basis. The quality of zinc required for our business, is mainly mined in Australia but can also be sourced from Canada and South America. The majority of our zinc is sourced from two key suppliers with whom we have long standing relationships.
We source our raw material for the majority of our color pigments business from China, the U.S., France and Italy. Key raw materials are iron powder and metal scrap that are sourced from various mid-size and smaller producers primarily on a spot contract basis.
The primary raw materials for our timber treatment business are dichloro-octylisothiazolinone ("DCOIT") and copper. We source the raw materials for the majority of our timber treatment business from China and the U.S. DCOIT is sourced on a long-term contract whereas copper is procured from various mid-size and larger producers primarily on a spot basis.
The primary raw materials for our water treatment business are aluminum hydroxide, hydrochloric acid and nitric acid, which are widely available from a number of sources and typically sourced through long-term contracts. We also use sulfuric acid which we source internally.
Competition
The global markets in which our business operates are highly competitive and vary according to segment.
Titanium Dioxide Segment
Competition for Titanium Dioxide products is based on price, product quality and service. Our key competitors are The Chemours Company, Tronox Holdings plc ("Tronox"), Kronos Worldwide Inc. and Lomon Billions each of which has the ability to service global markets. Unlike our chloride technology, the sulfate based TiO2 technology used by our Titanium Dioxide segment is widely available. Accordingly, barriers to entry, apart from capital availability, may be low. The entrance of new competitors into thechemical industry the ability of existing or future competitors to increase production in low cost markets, and the development of proprietary technology that enables current or future competitors to produce functional grade products at a significantly lower cost, could render our technology uneconomic and reduce our ability to capture improving margins in circumstances where capacity utilization in the industry is increasing.
Competition within the specialty and differentiated TiO2 markets is based on technical expertise in the customers’ applications, customer service, product attributes (such as product form and quality), and price. Product quality is particularly critical in the technically demanding applications in which we focus as inconsistent product quality adversely impacts consistency in the end-product. Our primary competitors within specialty and differentiated TiO2 applications include Fuji Titanium Industry, Kronos Worldwide Inc., ISK, Sakai Chemical Industry Co., Tayca Corporation and Precheza a.s.
Performance Additives Segment
Competition within the functional additives market is primarily based on application know-how, brand recognition, product quality and price. Key competitors for barium-based additives include Solvay S.A., Sakai Chemical Industry Co., Ltd., 20 Microns Ltd., and various Chinese barium producers. Key competitors for zinc-based additives include various Chinese lithopone producers.
Competition within the color pigments market is based on price, product quality, technical capability, brand recognition and innovation. Our primary competitors within color pigments include Lanxess AG, Cathay Pigments Group, Ferro Corporation and Shanghai Yipin Pigments Co., Ltd.
Competition within the timber treatment market is based on price, customer support services, innovative technology, including sustainable solutions and product range. Our primary competitors are Lonza Group and Koppers Inc.
Competition within the water treatment market is based on proximity to customers and price. Our primary competitors are Kemira Oyj and Feralco Group.
Intellectual Property
Proprietary protection of our processes, apparatuses, and other technology and inventions is important to our businesses. When appropriate, we file patent and trademark applications, often on a global basis, for new product development technologies. For example, we have obtained patents and trademark registrations covering relevant jurisdictions for key product platforms related to Functional Pigments and Additives and Active Materials technologies. These platforms are used for solar reflection (ALTIRIS® pigments), to keep colored surfaces cooler when they are exposed to the sun, enhance air purification, improve catalytic processes (HOMBIKAT®) or lead to products that help manage heat in plastic applications or lead to metal deactivation in cables (SACHTOLITH®).
We own a total of approximately 642 issued patents and pending patent applications. Our patent portfolio includes approximately 41 issued U.S. patents, 396 patents issued in countries outside the U.S., and 205 pending patent applications, worldwide. While a presumption of validity exists with respect to issued U.S. patents, we cannot assure that any of our patents will not be challenged, invalidated, circumvented or rendered unenforceable. Furthermore, we cannot assure the issuance of any pending patent application, or that if patents do issue, that these patents will provide meaningful protection against competitors or against competitive technologies. Additionally, our competitors or other third parties may obtain patents that restrict or preclude our ability to lawfully produce or sell our products in a competitive manner. During 2019, we reviewed our patent
portfolio to ensure it was aligned with our commercial interests and determined to abandon a number of patents to reduce the costs of maintaining our patent portfolio. This resulted in a reduction in our patent portfolio of over 300 issued patents.
We also rely upon unpatented proprietary know-how and continuing technological innovation and other trade secrets to develop and maintain our competitive position. There can be no assurance, however, that confidentiality and other agreements into which we enter and have entered will not be breached, that they will provide meaningful protection for our trade secrets or proprietary know-how, or that adequate remedies will be available in the event of an unauthorized use or disclosure of such trade secrets and know-how. In addition, there can be no assurance that others will not obtain knowledge of these trade secrets through independent development or other access by legal means.
In addition to our own patents, patent applications, proprietary trade secrets and know-how, we are a party to certain licensing arrangements and other agreements authorizing us to use trade secrets, know-how and related technology and/or operate within the scope of certain patents owned by other entities. We also have licensed or sub-licensed intellectual property rights to third parties.
Certain of our products are well-known brand namesopportunities and we have approximately 950 global trademark registrationschallenges, and applications. Some of these registrations and applications include filings under the Madrid systemhelp provide continuity for the international registration of marks and may confer rights in multiple countries. However, there can be no assurance that the trademark registrations will provide meaningful protection against the use of similar trademarks by competitors, or that the value of our trademarks will not be diluted. In our Titanium Dioxide segment, we consider our TIOXIDE®, HOMBITAN®, HOMBITEC®, UVTITAN®, HOMBIKAT™, DELTIO® and ALTIRIS® trademarks to be valuable assets. In our Performance Additives segment, we consider BLANC FIXE™, GRANUFIN®, SACHTOLITH®, FERROXIDE®, ECOLIFE™ and NICASAL® trademarks to be valuable assets.
Environmental, Health and Safety Matters
General
We are subject to extensive federal, state, local and international laws, regulations, rules and ordinances relating to occupational health and safety, process safety, pollution, protection of the environment and natural resources, product management and distribution, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In the ordinary course of business, we are subject to frequent environmental inspections and monitoring and occasional investigations by governmental enforcement authorities. In the U.S., these laws include the Resource Conservation and Recovery Act ("RCRA"), the Occupational Safety and Health Act, the Clean Air Act ("CAA"), the Clean Water Act, the Safe Drinking Water Act, and Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), as well as the state counterparts of these statutes.
In the EU, we are subject to numerous environmental, health and safety related provisions. EU regulations are automatically applicable to EU member states from the date they enter into force, while directives become binding upon incorporation into member states' national legislation. Incorporation of directives into national law must take place by the deadline set by the relevant directive, usually within two years. Applicable laws include Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental damage, Directive 2008/98/EC on waste ("Waste Framework Directive"), Directive 1999/31/EC on the landfill of waste, the Seveso-III Directive on prevention of major accident hazards involving dangerous substances, Directive 2000/60/EC known as the EU Water Framework Directive, Directive 2010/75/EU on industrial emissions and Regulation (EC) 1907/2006 on the Registration, Evaluation, Authorisation and Restriction of Chemicals ("REACH"). Additionally, member states operate their own domestic legislation where not prescribed by EU law, including in the core areas of health and safety in the workplace, statutory nuisance and land contamination legislation, which are subject to national jurisdiction.
Following a referendum in June 2016, in which a majority of voters in the U.K. approved an exit from the EU, the U.K. government initiated the process to leave the EU, which resulted in the U.K. leaving the EU on January 31, 2020 (often referred to as "Brexit"). The U.K. is now in a "transition period" until December 31, 2020, during which time EU rules and regulations applicable to U.K. businesses will continue to remain in force. The future effects of Brexit remain unknown and will depend on any agreements the U.K. makes to retain access to the EU or other markets beyond the transitional period. Although a no-deal Brexit was avoided in January 2020, there is no certainty that a similar result will be avoided at the end of 2020. Given the lack of comparable precedent, it is unclear what environmental regulatory implications the withdrawal of the U.K. from the EU will have and how such withdrawal will affect our Company.
In addition, our production facilities require operating permits that are subject to renewal, modification and, in certain circumstances, revocation. Actual or alleged violations of safety laws, environmental laws or permit requirements could result in restrictions or prohibitions on plant operations or product distribution, substantial civil or criminal sanctions, or injunctions limiting or prohibiting our operations altogether. In addition, some environmental laws may impose liability on a strict, joint and several basis. Moreover, changes in environmental regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations and make significant environmental compliance expenditures. Accordingly, environmental or regulatory matters may cause us to incur significant unanticipated losses, costs or liabilities. Information related to EHS matters may also be found in other areas of this report including "Item 1A. Risk Factors," and "Part II, Item 8, Financial Statements and Supplementary Data—Note 23. Commitments and Contingencies—Other Proceedings and Note 24. Environmental, Health and Safety Matters."
We are subject to a wide array of laws governing chemicals, including the regulation of chemical substances and inventories under the Toxic Substances Control Act ("TSCA") in the U.S., and REACH, and the Classification, Labelling and Packaging Regulation ("CLP") regulation in Europe. Analogous regimes exist in other parts of the world, including China, South Korea, and Taiwan. Several other countries, including Turkey and Russia, have announced that they will be introducing similar systems in the future. In addition, a number of countries where we operate, including the U.K., have adopted rules to conform chemical labeling in accordance with the globally harmonized system. Many of these foreign regulatory regimes are in the process of a multi-year implementation period for these rules. For example, the Globally Harmonised System ("GHS") established a uniform system for the classification, labeling and packaging of certain chemical substances and the European Chemicals Agency ("ECHA") is currently in the process of determining if certain chemicals should be proposed to the European Commission to receive a carcinogenic classification.
Certain of our products are being evaluated under CLP regulation and their classification could negatively impact sales. On May 31, 2016, the French Agency for Food, Environmental and Occupational Health and Safety ("ANSES") submitted a proposal to ECHA that would classify TiO2 as a Category 1B Carcinogen presumed to have carcinogenic potential for humans by inhalation. On June 8, 2017, the ECHA's Committee for Risk Assessment ("RAC") announced its preliminary conclusion that certain evidence meets the criteria under CLP to classify TiO2 as a Category 2 Carcinogen (described by the EU regulation as appropriate for "suspected human carcinogens") for humans by inhalation. The RAC published their final opinion on September 14, 2017, which proposed that TiO2 be classified as a Category 2 carcinogen by inhalation. In addition, the RAC proposed a note in their opinion to the effect that coated particles must be evaluated to assess whether a higher category (Category 1B or 1A) should be applied and additional routes of exposure (oral or dermal) should be included. After discussion with Member States and stakeholders, the European Commission concluded without a vote of the Member States that the classification of TiO2 as a Category 2 Carcinogen under the CLP Regulation is an appropriate measure. The European Commission first presented the proposed wording for the Entry of TiO2 in Annex VI to the CLP Regulation on June 12, 2018, and this wording has since been further amended. The latest version was published in the Commission Delegated Regulation on October 4, 2019 and applies to TiO2 in powder form meeting the size criteria in the proposed note. The regulation was sent for scrutiny by the European Parliament and the Council of the EU, and the scrutiny period came to an end on February 4, 2020. The regulation will enter into effect 20 days after its publication in the Official Journal of the European Union and will apply as of October 1, 2021. Member States, however, may choose to apply the regulation at any time after publication.
Adoption of the Category 2 Carcinogen classification will require that many end-use products manufactured with TiO2 be classified and labeled as containing a potentially carcinogenic component, which could negatively impact public perception of products containing TiO2. Such classification will also affect our manufacturing operations by subjecting us to new workplace safety requirements that could significantly increase costs. In addition, any classification, use restriction, or authorization requirement for use imposed by ECHA could trigger heightened regulatory scrutiny in countries outside the EU based on health or safety grounds, which could have a wider adverse impact geographically on market demand for and prices of TiO2 or other products containing TiO2 and increase our compliance obligations outside the EU. Any increased regulatory scrutiny could affect consumer sentiment or limit the marketability of and demand for TiO2 or products containing TiO2, which could have spill-over, restrictive effects under other EU laws, e.g., those affecting medical and pharmaceutical applications, cosmetics, food packaging and food additives. The classification could also require that all waste meeting the powder specifications in the proposed note be handled as hazardous waste, as separately determined by each Member State, which could result in significant impacts on our customers’ products, wastes from our operations and the implementation of Circular Economy efforts within the EU. It is also possible that heightened regulatory scrutiny could lead to claims by our employees or consumers of such products alleging adverse health impacts. Finally, the classification of TiO2 as a Category 2 Carcinogen could lead the ECHA to evaluate other products with similar particle characteristics (such as iron oxides or functional additives) for human carcinogenic potential by inhalation, which may ultimately have similar negative impacts on other products within our portfolio.
Environmental, Health and Safety Systems
We are committed to achieving and maintaining compliance with all applicable EHS legal requirements, and we have developed policies and management systems that are intended to identify the multitude of EHS legal requirements applicable to our operations, enhance compliance with applicable legal requirements, improve the safety of our employees, contractors, community neighbors and customers and minimize the production and emission of wastes and other pollutants. We cannot guarantee, however, that these policies and systems will always be effective or that we will be able to manage EHS legal requirements without incurring substantial costs. Although EHS legal requirements are constantly changing and are frequently difficult to comply with, these EHS management systems are designed to assist us in our compliance goals while also fostering efficiency and improvement and reducing overall risk to us.Venator.
Environmental Remediation
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. Based on available information, we believe that the costs to investigate and remediate known contamination will not have a material effect on our financial statements. At the current time, we are unable to estimate the total cost to remediate contaminated sites.
We are engaged in closure processes at two facilities in the EU and we are undertaking detailed assessments of the environmental status of these facilities as part of the closure processes. The assessment of the environmental status may lead to a requirement for environmental remediation as a part of any closure process. Although the detailed assessment of the environmental status at these facilities is not complete, based on available information, we believe that the costs to investigate and remediate known contamination will not have a material effect on our financial statements.
Under CERCLA and similar laws in other jurisdictions, a current or former owner or operator of real property 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 the EU, 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 RCRA in the U.S. and similar laws in other jurisdictions, 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. We are aware of soil, groundwater or surface contamination from past operations at some of our sites, 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.
During 2018 and 2019, China implemented new laws and regulations covering environmental contamination and created the Ministry for Environment Protection. Based on available information we do not believe that these regulatory changes will have a material effect on our financial statements.
Climate Change
Globally, our operations are increasingly subject to regulations that seek to reduce emissions of greenhouse gases ("GHGs"), such as carbon dioxide and methane, which may be contributing to changes in the earth’s climate. Increasing presence of climate change at the top of the global political and media agenda may lead to further domestic regulations and international agreements and commitments to restrict GHG emissions, all of which can lead to the necessity for increased investment in innovative energy sources and increased capital expenditure. The scope and speed at which climate change may impact business is difficult to predict, but it is likely to become a growing issue.
At the Durban negotiations of the Conference of the Parties to the Kyoto Protocol in 2012, a group of nations, including the EU, agreed to a second commitment period for the Kyoto Protocol, an international treaty that provides for reductions in GHG emissions. More significantly, the EU GHG Emissions Trading System ("ETS"), established pursuant to the Kyoto Protocol. The European Parliament has used a process to formalize "backloading"—the withholding of GHG allowances during the trading period from 2014 to 2016 with additional allowances auctioned during 2019 to 2020—to prop up carbon prices. A sustainable solution to the imbalance between supply and demand requires structural changes to the ETS. The
European Commission has established a market stability reserve as a long term solution to address the current surplus of allowances and improve the system’s resilience. The reserve started operating in 2019.
Stage 4 of the ETS will begin in 2021 and carry on to 2030, and will focus on increasing the pace of emissions cuts by reducing the overall emission allowances at an annual rate of 2.2% from 2021 onwards (compared to the current rate of 1.74%), in order to align with the EU's binding target to reduce domestic GHG emissions by at least 40% below the 1990 level by 2030. It is difficult to estimate at this stage what the cost impact of stage 4 of the ETS will be on our EU based business. The EU has also set a binding target of increasing the share of renewable energy to at least 27% of the EU’s energy consumption by 2030, and additional proposals have been made to increase the target to 35%. At the EU, steps are being taken to stabilize the ETS. The next UN talks on climate change will take place in the U.K. in November 2020.
In addition, at the 2015 United Nations Framework Convention on Climate Change in Paris, the U.S. and nearly 200 other nations entered into an international climate agreement, which entered into effect in November 2016 (the "Paris Agreement"). Although the agreement does not create any binding obligations for nations to limit their GHG emissions, it does include pledges to voluntarily limit or reduce future emissions. In August 2017, the U.S. informed the United Nations that it is withdrawing from the Paris Agreement and submitted its formal withdrawal application in November 2019, which would become effective in August 2020. The Paris Agreement's commitments were non-binding and many states responded to the notification of withdrawal by putting in place their own GHG commitments, notwithstanding the withdrawal.
Efforts to curb GHG emissions in the U.S. are led by the U.S. Environmental Protection Agency’s (the "EPA") GHG regulations and similar programs of certain states. To the extent that our operations are subject to the EPA’s GHG regulations and/or state GHG regulations, we may face increased capital and operating costs associated with new or expanded facilities. Significant expansions of our existing facilities or construction of new facilities may be subject to the CAA’s requirements for pollutants regulated under the Prevention of Significant Deterioration and Title V programs. Some of our facilities are also subject to the EPA’s Mandatory Reporting of Greenhouse Gases rule. Any further regulation, at state or federal level, may increase our operational costs, such as costs to purchase energy, additional capital costs for installation or modification of GHG emitting equipment, and additional costs associated directly with GHG emissions (such as cap and trade systems or carbon taxes).
We are already managing and reporting GHG emissions, to varying degrees, as required by law for our sites in locations subject to U.S. federal and state requirements, Kyoto Protocol obligations and/or ETS requirements. Although these sites are subject to existing GHG legislation, few have experienced or anticipate immediate significant cost increases as a result of these programs. Potential consequences of such restrictions include capital requirements to modify assets to meet GHG emission restrictions and/or increases in energy costs above the level of general inflation, as well as direct compliance costs. Currently, however, it is not possible to estimate the likely financial impact of potential future regulation on any of our sites.
Some scientists have concluded that increasing concentrations of GHGs in the earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other extreme climatic events. If any of those effects were to occur, they could have an adverse effect on our assets, operations and insurance costs. For example, our operations in low lying areas may be at increased risk due to flooding, rising sea levels or disruption of operations from more frequent and severe weather events and operations near forested areas may be at risk of wild fires.
Employees
As of December 31, 2019, we employed approximately 4,000 associates in our operations around the world. We believe our relations with our employees are good.
We place considerable value on the involvement of our associates and ensure that we keep them informed on matters affecting them, the overall organization as well as on the performance of the Company.
We conduct formal and informal meetings with associates, and maintain a Company intranet website with key information and other matters of interest.
We are committed to a policy of recruitment and promotion on the basis of competence and ability without discrimination of any kind. Management actively pursues both the employment of disabled persons whenever a suitable vacancy arises and the continued employment and retraining of associates who become disabled while employed by the Company.
Information about our Executive Officers
The following table sets forth information, as of March 12, 2020, regarding the individuals who are our executive officers.
| | | | | | | | | | | | | | |
Name | | Age | | Position(s) at Venator |
Simon Turner | | 56 | | | President and Chief Executive Officer |
Kurt Ogden | | 51 | | | Executive Vice President and Chief Financial Officer |
Russ Stolle | | 57 | | | Executive Vice President, General Counsel and Chief Compliance Officer |
Mahomed Maiter | | 58 | | | Executive Vice President, Business Operations |
Rob Portsmouth | | 54 | | | Senior Vice President, EHS, Innovation and Technology |
Simon Turner, age 56, has served as President and Chief Executive Officer and as a director of Venator since the second quarter of 2017. Mr. Turner served as Division President, Pigments & Additives, at Huntsman Corporation from November 2008 to August 2017, Senior Vice President, Pigments & Additives, from April 2008 to November 2008, Vice President of Global Sales from September 2004 to April 2008 and General Manager Co-Products and Director Supply Chain and Shared Services from July 1999 to September 2004. Prior to joining Huntsman Corporation, Mr. Turner held various positions with Imperial Chemical Industries PLC ("ICI"(“ICI”).
Kurt OgdenOur Board has concluded Mr. Turner should continue to serve as a director for the following reasons, among others: (1) his extensive experience in the chemical industry enables him to provide valuable business insights; and (2) his wealth of knowledge about our business and his demonstrated track record leading our company and Huntsman Corporation’s Pigments & Additives segment enable him to advise our Board regarding our company’s strategic plans and goals.
Sir Robert J. Margetts, age 73, was named Executive Vice President and Chief Financial Officer of Venatorappointed as a director in February 2019. Prior to then, he served as Venator's Senior Vice President and Chief Financial Officer from the second quarter of 2017. Mr. OgdenSir Robert also serves as a director of Huntsman Corporation, a position he has held since August 2010, and on the boards of a number of privately held companies. Sir Robert served as Deputy Chairman of PJSC Uralkali from 2010 to 2018. In addition to previously serving as a director for several other companies, including Chairman of Legal and General Group PLC and Chairman of BOC Group PLC, Sir Robert also previously worked for ICI, where he also served as the Vice President, Investor RelationsChairman of its Main Board. Sir Robert serves as our Lead Independent Director and Finance of Huntsman from February 2009 until August 2017Vice Chairman and as a member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee (the “Governance Committee”).
Our Board has concluded Sir Robert should continue to serve as a director for the following reasons, among others: (1) his deep knowledge of the chemical industry and years of experience, both globally and particularly in Europe, enable him to provide our Board with advice and expertise regarding the industry and its business cycles; and (2) his global business background and years of leadership, including on other boards, give him the necessary experience to effectively serve as our Vice Chairman and Lead Independent Director Corporate Finance from October 2004and contribute to February 2009. Between 2000 and 2004, hethe Board’s corporate governance responsibilities.
Douglas D. Anderson, age 70, was Executive Director Financial Planning and Analysis with Hillenbrand Industries and Vice President Treasurer with Pliant Corporation. Mr. Ogden began his career with Huntsman Chemical Corporation in 1993 and held various positions with related companies up to 2000. Mr. Ogden isappointed as a Certified Public Accountant.
Russ Stolle was named Executive Vice President, General Counsel and Chief Compliance Officerdirector of Venator in February 2019. PriorAugust 2017. Mr. Anderson holds a PhD from Harvard University. He currently serves as the Dean of the Jon M. Huntsman School of Business at Utah State University, a position he was appointed to then, hein 2006, and is the Jon M. Huntsman Presidential Professor of Leadership. Previously, Mr. Anderson served as Venator's Senior Vice President, General CounselDeputy Counselor to the Secretary, US Treasury, as a director of corporate development for Bendix Corporation, and Chief Compliance Officer fromas managing partner of the second quarterCenter for Executive Development, an executive consulting firm. From 1978 to 1988, he was a member of 2017.the faculty of Harvard Business School. In 2016, he returned to Harvard to teach corporate governance in the MBA program. Mr. Stolle servedAnderson is the Chair of the Audit Committee and a member of the Governance Committee.
Our Board has concluded Mr. Anderson should continue to serve as Senior Vice Presidenta director for the following reasons, among others: (1) his extensive business and Deputy General Counselleadership expertise enables him to provide important insights; and (2) his academic experience as dean
of an important business school provides a valuable perspective in areas related to January 2010, Mr. Stolle servedcorporate governance, compliance and talent management.
Daniele Ferrari, age 59, was appointed as Huntsman’s Senior Vice President, Global Public Affairs and Communications, from November 2002 to October 2006, he served as Huntsman’s Vice President and Deputy General Counsel, from October 2000 to November 2002, he served as Huntsman’s Vice President and Chief Technology Counsel and from April 1994 to October 2000 he served as Huntsman’s Chief Patent and Licensing Counsel. Prior to joining Huntsman in 1994, Mr. Stolle had been an attorney with Texaco Inc. and an associate with the law firm of Baker Botts L.L.P.
Mahomed Maiter was named Executive Vice President, Business Operationsa director of Venator in February 2019. Prior to thenAugust 2017. Mr. Ferrari also serves as a director of Huntsman Corporation. Mr. Ferrari serves as Chief Executive Officer of Versalis S.p.A., a chemical manufacturer, and as Chairman of Matrìca S.p.A., a joint‑venture with Novamont focusing on renewable chemistry, positions he served as Venator's Senior Vice President, White Pigments from the second quarter of 2017. Hehas held since March 2011. Mr. Ferrari has over 34 years of experience in the chemical and pigment industry covering a range of senior commercial, global sales and marketing, business development, manufacturing and business roles. From January 2007 to April 2017, Mr. Maiter served as Vice President Global Sales and Marketing, Vice President Revenue and Vice President Business Development of Huntsman’s Pigments and Additives business. From August 2005 to December 2006, he was Vice President of Huntsman’s European Polymers business. Mr. Maiter started his career in the chemical industry in 1985 when he joined the Tioxide business of ICI in South Africa where he held various operations and manufacturing roles. He relocated to the U.K. in June 1995 to take up a General Manager position in ICI in the Tioxide business and was subsequently appointed to Global Marketing Director and Vice President Commercial.
Rob Portsmouth has served as Senior Vice President, EHS, Innovation and Technology of Venator since January 2019. Dr. Portsmouth previously served as Vice President, Innovation of Venator since April 2017. He has over 2730 years of experience in the chemical industry, having started his career with Royal Dutch Shellincluding as President of Huntsman Corporation’s Performance Products division until January 2011 and in South Africa before joining the Tioxideseveral business ofassignments at ICI in South Africathe UK In addition, Mr. Ferrari is President of PlasticsEurope, an association of plastics manufacturers, and is President and a board member of Cefic. Mr. Ferrari is Chair of the Compensation Committee and a member of the Audit Committee.
Our Board has concluded Mr. Ferrari should continue to serve as a director for the following reasons, among others: (1) his experience in 1996and knowledge of the global chemical industry, particularly in Europe, enables him to provide strategic insight; and (2) his executive leadership experience as CEO of a prominent chemical manufacturer with international business operations gives him valuable insight into and contacts within the international chemical industry.
Kathy D. Patrick, age 59, was appointed as a director in October 2017. Ms. Patrick is currently a partner in the Houston law firm of Gibbs & Bruns LLP, where he held rolesshe began her legal career in manufacturing, operations1986 after graduating from Harvard Law School. Her legal practice is focused on complex commercial litigation, with an emphasis on securities law, creditor recovery litigation, and technical management. Dr. Portsmouth relocatedinstitutional investor litigation. Ms. Patrick has recovered over $20 billion for her clients, including successful settlements for clients in a number of landmark and high-profile corporate disputes. Ms. Patrick is Chair of the Governance Committee and the Litigation Committee, and a member of the Compensation Committee.
Our Board has concluded Ms. Patrick should continue to serve as a director for the following reasons, among others: (1) her legal expertise and extensive experience with complex commercial and securities litigation enable her to provide insight into our legal risks and strategies; and (2) her knowledge of and experience with securities law, corporate governance and related laws enables her to provide strategic insights to the U.K. in 2003 where he served as DirectorBoard and our company.
EXECUTIVE OFFICERS
For information about our executive officers, see Part I, Item 1 of Global Marketingthe Original Filing under the caption “Information about our Executive Officers.”
AUDIT COMMITTEE
The Audit Committee currently consists of Douglas D. Anderson, Daniele Ferrari and DirectorSir Robert J. Margetts.Mr. Anderson is the Chairman of Business Development for Huntsman’s Pigments and Additives business between 2003 and 2017. Dr. Portsmouth received his Doctorate in Chemical Engineering from the UniversityAudit Committee.
Duties
| | | | | |
| • | Sole responsibility for the appointment, retention and termination of our independent registered public accounting firm |
| • | Responsible for the compensation and oversight of the work of our independent registered public accounting firm |
| • | Monitors our independent registered public accounting firm’s qualifications and independence |
| • | Monitors the integrity of our financial statements |
| • | Monitors the performance of our internal audit function and independent registered public accounting firm |
| • | Monitors our compliance with legal and regulatory requirements applicable to financial and disclosure matters |
| • | Monitors financial and enterprise risk exposures to our company |
The Board has determined that each member of Cambridge (U.K.).
Availability of Information for Shareholders
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)the Audit Committee meets the independence requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),and the NYSE Corporate Governance Standards. The Board has also determined that Sir Robert qualifies as an “audit committee financial expert” as defined by the regulations of the SEC. In addition, the Board has determined that all members of the Audit Committee are madefinancially literate and have the accounting and related financial management expertise within the meaning of the NYSE Corporate Governance Standards. No member of the Audit Committee serves on more than two other public company audit committees.
DIRECTOR NOMINATION PROCESS
There have no material changes to the procedures by which shareholders may recommend nominees to the Board since we filed our definitive Proxy Statement for the 2019 Annual General Meeting of Shareholders.
FINANCIAL CODE OF ETHICS AND BUSINESS CONDUCT GUIDELINES
The Board has adopted a Financial Code of Ethics applicable to our principal executive officer, principal financial officer and principal accounting officer or controller. Among other matters, this code is designed to promote:
• honest and ethical conduct;
• avoidance of conflicts of interest;
• full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in our other public communications;
• compliance with applicable governmental laws and regulations and stock exchange rules;
• prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
• accountability for adherence to the code.
In addition, the Board has adopted Business Conduct Guidelines. The Board requires all directors, officers and employees to adhere to these guidelines in addressing the legal and ethical issues encountered in conducting their work. The Financial Code of Ethics and Business Conduct Guidelines are available on our website at www.venatorcorp.com. We will also furnish a copy of the Financial Code of Ethics and Business Conduct Guidelines free of charge to any person who requests one. Requests for copies should be directed to the Corporate Secretary, Titanium House, Hanzard Drive, Wynyard Park, Stockton-on-Tees, TS22 5FD, United Kingdom or to CorporateSecretary@venatorcorp.com. We intend to disclose any amendments to, or waivers from, our codes of ethics that apply to our principal executive officer, principal financial officer and/or controller on our Internet website at www.venatorcorp.com as soon as reasonably practicable after these reports have been electronically filed with, or furnished to,website.
ITEM 11. EXECUTIVE COMPENSATION
2019 SUMMARY COMPENSATION TABLE
The following table details compensation earned in the Securitiesyears ended 2017, 2018 and Exchange Commission (the "SEC"2019 by our Named Executive Officers (:NEOs"). The SEC also maintains an Internet website that contains reports, proxy statements,values reported for 2017 reflect compensation earned from August 1, 2017 (the approximate date of the Separation) through December 31, 2017. Our compensation policies are discussed in “Compensation Discussion and other information regarding issuers that file electronicallyAnalysis” below.
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| Name and Principal Position | Year | Salary | Bonus | Stock Awards(1) | Option Awards(2) | Non‑ Equity Incentive Plan Compensation(3) | Change in Pension Value and Non‑ Qualified Deferred Compensation Earnings(4) | All Other Compensation(5) | Total |
| Simon Turner | 2019 | $848,516 | — | $1,687,500 | $562,500 | $862,813 | — | $150,378 | $4,111,707 |
| President and Chief | 2018 | $937,906 | — | $1,000,000 | $1,000,000 | $380,789 | $4,042,865 | $163,530 | $7,525,089 |
Executive Officer(6) | 2017 | $354,167 | $491,802 | $429,930 | $517,509 | $1,059,333 | $4,456,623 | $66,007 | $7,375,371 |
| Kurt D. Ogden | 2019 | $530,000 | — | $637,500 | $212,500 | $365,992 | — | $276,960 | $2,022,952 |
| Executive Vice President and | 2018 | $522,500 | — | $400,000 | $400,000 | $150,626 | — | $425,713 | $1,898,839 |
| Chief Financial Officer | 2017 | $208,333 | $400,000 | $125,000 | $180,558 | $396,110 | — | $282,278 | $1,592,279 |
| Russ R. Stolle | 2019 | $455,000 | — | $562,500 | $187,500 | $301,460 | — | $289,858 | $1,796,623 |
| Executive Vice President, General Counsel, Chief | 2018 | $448,750 | — | $350,000 | $350,000 | $129,311 | — | $513,756 | $1,791,817 |
| Compliance Officer & Secretary | 2017 | $179,167 | $400,000 | $100,000 | $164,314 | $378,280 | — | $218,934 | $1,440,694 |
| Mahomed Maiter | 2019 | $447,845 | — | $562,500 | $187,500 | $326,180 | $1,265,383 | $111,723 | $2,901,132 |
| Executive Vice President, | 2018 | $455,507 | — | $250,000 | $250,000 | $130,732 | — | $103,209 | $1,058,607 |
Business Operations(6) | 2017 | $166,917 | — | $87,500 | $134,528 | $303,018 | $2,409 | $40,270 | $734,642 |
| Dr. Rob Portsmouth | 2019 | $246,529 | — | $225,000 | $75,000 | $139,297 | $347,717 | $44,720 | $1,078,263 |
Senior Vice President, EHS, Innovation and Technology(6) | | | | | | | | | |
(1)This column reflects the aggregate grant date fair value of awards of restricted stock units and, beginning in 2019, performance units for each NEO computed in accordance with FASB ASC Topic 718, disregarding the estimate of forfeitures. For purposes of restricted stock unit awards, fair value is calculated using the closing price of our stock on the date of grant. With respect to the performance units, the amount shown reflects the full grant date fair value computed in accordance with FASB ASC Topic 718 based on probable achievement of the market conditions, which is consistent with the SEC at http://www.sec.gov. Information containedestimate of aggregate compensation to be recognized over the service period, excluding the effect of estimated forfeitures. For information on or connectedthe valuation assumptions with regard to stock awards, refer to the notes to our website is not incorporated by reference into thisfinancial statements in our annual report on Form 10-K10‑K for the applicable year ended 2017, 2018 and should2019, as filed with the SEC. These amounts reflect the fair value of the reported awards on the date of grant and may not correspond to the actual value that will be considered partrecognized by the NEOs.
(2)This column reflects the aggregate grant date fair value of thisstock options computed in accordance with FASB ASC Topic 718, disregarding the estimate of forfeitures. The fair value of each stock option award is determined on the date of the grant using the Black-Scholes valuation model. For information on the valuation assumptions regarding option awards, refer to the notes to our financial statements in our annual report or any other filing we makeon Form 10‑K for the applicable year ended 2017, 2018 and 2019, as filed with the SEC.
ITEM 1A. RISK FACTORS
We are subject to certain risks These amounts reflect the fair value of the reported awards on the date of grant and hazards duemay not correspond to the natureactual value that will be recognized by the NEOs.
(3)This column reflects the annual Short-Term Incentive Plan ("STIP") awards that were earned during 2019 and paid during the first quarter of 2020. These awards are discussed in further detail under “Compensation Discussion and Analysis—2019 Executive Compensation Decisions—2019 Short-Term Incentive Plan.”
(4)This column reflects the aggregate amount of any change in pension value for each of the business activities we conduct. The risks discussed below,NEOs, to the extent any of which could materiallysuch aggregate change is positive. For 2017 and adversely affect our business, financial condition, cash flows, results of operations and share price, are not2018, the only risks we face. We may experience additional risks and uncertainties not currently known to us or,present value for Mr. Turner increased primarily as a result of developments occurringthe increase in value of his Huntsman pension top-up agreement, which varied based on his salary for the future, conditions that we currently deem to be immaterial may ultimately materiallypreceding 12 months and adversely affect our business, financial condition, cash flows, results of operations and share price.
Risks Related to Our Business
Our industry is affected by global economic factors, including risks associated with volatile economic conditions.
Our financial results are substantially dependent on overall economic conditions globally, and particularly those in the U.S., Europe and Asia. Declining economic conditions globally or in any of these locations—or negative perceptions about economic conditions—could result in a substantial decrease in demand for our products and could adversely affect our business. The timing and extent of any changes to currently prevailing market conditions is uncertain, and supply and demand may be unbalanced at any time. Uncertain economic conditions and market instability make it particularly difficult for us to forecast demand trends. As a consequence, we may not be able to accurately predict future economic conditions or the effect of such conditions on our financial condition or results of operations. In addition, a deterioration in current economic conditions due to many factors or fears including public health crises, such as the impact of the COVID-19 coronavirus, could negatively impact us, our suppliers and customers. We can give no assurances as to the timing, extent or duration of the current or future economic cycles impacting the industries in which we operate.
In addition, a large portion of our revenue and profitability is dependent on the TiO2 industry. TiO2 is used in many "quality of life" products for which demand historically has been linked to global, regional and local gross domestic product and discretionary spending, which can be negatively impacted by regional and world events or economic conditions. Such events are likely to cause a decrease in demand for our products and, as a result, may have an adverse effect on our results of operations and financial condition. The future profitability of our operations, and cash flows generated by those operations, will also be affected by the available supply of our products in the market.
The market for many of our TiO2 products is cyclical and volatile, and we may experience depressed market conditions for such products.
Historically, the market for large volume TiO2 applications, including coatings, paper and plastics, has experienced alternating periods of tight supply, causing prices and margins to increase, followed by periods of lower capacity utilization resulting in declining prices and margins. The volatility this market experiences occursincreased as a result of significant changeshis salary increase in connection with his appointment as CEO of our company, which was fully realized in 2018. Venator assumed Huntsman’s obligation under this agreement in connection with the Separation. Effective November 13, 2019, we terminated the pension top-up agreement with Mr. Turner and agreed to fully satisfy our obligations thereunder by payment to Mr. Turner of an aggregate amount totaling £6,800,000 ($9,588,000), payable in four equal installments. The first installment was paid on December 20, 2019, and each of the next three installments will be paid within 45 days following each of the first three anniversaries of the date of the termination of such agreement. See “—Pension Benefits in 2019” for additional information about the top-up payment agreement and the termination of such agreement during 2019. None of the NEOs had above-market or preferential earnings on nonqualified deferred compensation during 2019. See “—Nonqualified Deferred Compensation in 2019” for additional information.
(5)The methodology used to compute the aggregate incremental cost of perquisites and other personal benefits for each individual NEO is based on the total cost to our company, and such costs are required to be reported under SEC rules when the total costs are equal to or greater than $10,000 in the demandaggregate for products as a consequenceNEO. The table below details the components reported in the “All Other Compensation” column of globalthe Summary Compensation Table for 2019. Amounts in the table were either paid directly by us or were reimbursed by us to the NEOs.
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| Simon Turner(a) | Kurt D. Ogden(b) | Russ R. Stolle(c) | Mahomed Maiter(d) | Dr. Rob Portsmouth(e) |
| Automobile Costs | $14,014 | $31,130 | $25,191 | $16,770 | $13,545 |
| Foreign Assignment Costs & Allowances | — | $74,656 | $53,599 | — | — |
| Foreign Assignment Tax Gross‑Up | — | $26,128 | $16,485 | — | — |
| Housing Allowance | — | $56,564 | $64,645 | — | — |
| Lost Holiday Compensation | — | — | — | $6,883 | — |
| Lost Holiday Compensation Gross-Up | — | — | — | $6,105 | — |
| Long Time Service Award | $1,290 | — | $1,000 | — | — |
| Long Time Service Award Gross-ups | $1,143 | — | $390 | — | — |
| Tax Return Preparation Assistance | — | —- | —- | $2,143 | —- |
| Company Contributions | — | — | — | — | — |
| UK Pension | — | — | — | — | $25,885 |
| Tax Gross Up Global Pension | $6,653 | — | — | $12,645 | $5,290 |
| Excess Pension Payment—Pension Cash | $127,277 | — | — | $67,177 | — |
| Executive Deferral Plan (EDP) | — | $57,481 | $97,548 | — | — |
| 401(k) Plan Match | — | $3,533 | $11,239 | — | — |
| 401(k) Plan Non‑discretionary Contribution | — | $27,467 | $19,761 | — | — |
(b)As a citizen of the US with residence in the UK, we incurred foreign assignment costs on Mr. Ogden’s behalf during 2019 that included: $56,564 in housing allowances and regional economic activitycosts and changes in customers’ requirements. The supply-demand balance is also impacted by capacity additions or reductions,$74,656 for expenses including unplanned outages, that result in changes of utilization rates.home travel, international fees, dependent education/schooling and temporary living. In addition, TiO2 marginswe incurred $26,128 in tax gross-ups and equalization associated with Mr. Ogden’s foreign assignment. As part of his foreign assignment agreement, Mr. Ogden received two company cars for use by himself and his wife. Total costs include lease, maintenance and repairs.
(c) As a citizen of the US with residence in the UK, we incurred foreign assignment costs on Mr. Stolle’s behalf during 2019 that included: $64,645 in housing allowances and costs and $53,599 for expenses including home travel, international allowance & fees, household goods, and tenancy management. In addition, we incurred $16,485 in tax gross-ups and equalization associated with Mr. Stolle’s foreign assignment. As part of his UK foreign assignment agreement, Mr. Stolle received two company cars for use by himself and his wife. Total costs of $24,819 include lease, maintenance, and repairs. In the US, Mr. Stolle had personal use of a company car at a total cost of $372. Mr. Stolle also received a Long Time Service Award in recognition of his years of service plus a gross up.
(d) In lieu of receiving a company car, Mr. Maiter receives a £13,000 ($16,770) car allowance annually. In lieu of taking the full time off allowed by the UK statutory annual leave, Mr. Maiter received a Lost Holiday Compensation payment of £5,336 plus a £4,732.42 gross up for days not taken during 2019.
(e) In lieu of receiving a company car, Dr. Portsmouth receives a £10,500 ($13,545) car allowance annually.
(6) For reporting purposes, the values for Messrs. Turner and Maiter and Dr. Portsmouth in 2019 have been converted using an exchange rate of 1 GBP to 1.29 USD, being the exchange rate as of February 11, 2019 (which is the internal date used to estimate pro forma elements of compensation). Values for 2017 and 2018 for Messrs. Turner and Maiter were calculated based on applicable exchange rates in the years in which such compensation was first reported and have not been recast to conform to the 2019 GBP exchange rate.
GRANTS OF PLAN-BASED AWARDS IN 2019
The following table provides information about annual STIP awards granted through our annual STIP award program and long-term incentive awards granted through the Stock Incentive Plan to the NEOs in 2019.
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| Date of Award | Estimated Future Payouts Under Non‑Equity Incentive Plan Awards(1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | All Other Stock | All Other Option | Exercise or Base Price of | Grant Date Fair Value of Stock and Option |
| Name | (Venator Grant Date) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Awards(3) (#) | Awards(4) (#) | Option Awards(5) ($/Sh) | Awards(6) ($) |
| Simon Turner | | $0 | $848,516 | $1,697,032 | - | - | - | —- | — | — | —- |
| 2/13/19 | — | — | — | 24,457 | 97,826 | 195,652 | -— | — | — | 562,500 |
| 2/13/19 | — | — | — | — | — | — | 195,652 | — | — | 1,125,000 |
| 2/13/19 | — | — | — | — | — | — | — | 223,214 | $5.75 | 562,500 |
| Kurt D. Ogden | | $0 | $371,000 | $742,000 | — | — | — | — | — | — | —- |
| 2/13/19 | — | — | — | 9,239 | 36,957 | 73,913 | — | — | — | 212,500 |
| 2/13/19 | — | — | — | — | — | — | 73,913 | — | — | 425,000 |
| 2/13/19 | — | — | — | — | — | — | — | 84,325 | $5.75 | 212,500 |
| Russ R. Stolle | | $0 | $318,500 | $637,000 | — | — | — | — | — | — | —- |
| 2/13/19 | — | — | — | 8,152 | 32,609 | 65,217 | — | — | — | 187,500 |
| 2/13/19 | — | — | — | — | — | — | 65,217 | — | — | 375,000 |
| 2/13/19 | — | — | — | — | — | — | — | 74,405 | $5.75 | 187,500 |
| Mahomed Maiter | | $0 | $318,500 | $637,000 | — | — | — | — | — | —- | —- |
| 2/13/19 | — | — | — | 8,152 | 32,609 | 65,217 | — | — | —- | 187,500 |
| 2/13/19 | — | — | — | — | — | — | 65,217 | — | —- | 375,000 |
| 2/13/19 | — | — | — | — | — | — | — | 74,405 | $5.75 | 187,500 |
| Dr. Rob Portsmouth | | $0 | $151,988 | $303,976 | — | — | — | — | — | —- | —- |
| 2/13/19 | — | — | — | 3,261 | 13,043 | 26,087 | — | — | —- | 75,000 |
| 2/13/19 | — | — | — | — | — | — | 26,087 | — | - | 150,000 |
| 2/13/19 | — | — | — | — | — | — | —- | 29,762 | $5.75 | 75,000 |
(1)
(1)These columns show annual STIP award opportunities for our NEOs under our annual STIP award program set by the Compensation Committee in 2019. See the chart and accompanying narrative disclosure in “Compensation Discussion and Analysis—2019 Executive Compensation Decisions—2019 Annual STIP Award” for additional information with respect to these amounts. The amounts actually earned by each of the NEOs pursuant to our annual STIP award program for 2019 are impacted by significant changesreported in major input costs such as energy, titanium bearing oresthe “Non‑Equity Incentive Plan Compensation” column of the Summary Compensation Table.
(2)These columns show performance units granted under the Stock Incentive Plan to the NEOs in 2019. The performance units vest on December 31, 2021, subject to the achievement of relative TSR performance metrics for the preceding three-year period. Amounts reported in the (a) “Threshold” column reflect the threshold number of performance units (i.e., 50% of target) that may be earned for a certain minimum level of performance, (b) “Target” column reflects the target number of performance share units, or 100%, that may be earned and other feedstocks. Demand(c) “Maximum” column reflect the maximum number of performance units that may be earned (i.e., 200% of target), in each case, based on relative TSR achievement against applicable performance metrics. If performance is below the threshold, no performance units are earned. If our absolute TSR for TiO2 dependsthe performance period is negative, the number of performance units that will be vested at the end of the performance period is capped at the target number of performance units. See “Compensation Discussion and Analysis—2019 Executive Compensation Decisions—Long-Term Equity Compensation” for additional information with respect to these awards.
(3)This column shows the number of restricted stock units granted under the Stock Incentive Plan to the NEOs in part2019. The restricted stock units vest ratably in three equal annual installments beginning on the first anniversary of the grant date. See “Compensation Discussion and Analysis—2019 Executive Compensation Decisions—Long-Term Equity Compensation” for additional information with respect to these awards.
(4)This column shows the number of nonqualified options granted under the Stock Incentive Plan to the NEOs in 2019. The option awards become exercisable and vest ratably in three equal annual installments beginning on the first anniversary of the grant date. See “Compensation Discussion and Analysis—2019 Executive Compensation Decisions—Long-Term Equity Compensation” for additional information with respect to these awards.
(5)The exercise price of the nonqualified options disclosed in this column is equal to the closing price of our ordinary shares on the NYSE on the date of grant.
(6)This column shows the full grant date fair value of the awards as of the Venator grant date computed in accordance with FASB ASC Topic 718. For purposes of restricted stock unit awards, fair value is calculated using the closing price of our stock on the date of grant. With respect to the performance units, the amount shown reflects the full grant date fair value computed in accordance with FASB ASC Topic 718 based on probable achievement of the market conditions, which is consistent with the estimate of aggregate compensation to be recognized over the service period, excluding the effect of estimated forfeitures. For information on the valuation assumptions with regard to stock awards, refer to the notes to our financial statements in our annual report on Form 10‑K for the applicable year ended 2017, 2018 and 2019, as filed with the SEC.
NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE
Information regarding the elements of our executive compensation program for 2019 is provided below under “Compensation Discussion and Analysis.” The following is a discussion of material factors necessary to obtain an understanding of information disclosed under “—2019 Summary Compensation Table” and “Grants of Plan-Based Awards in 2019” that is not otherwise discussed in the Compensation Discussion and Analysis.
Company Car. We provide executive officers with leased vehicles for business use, which executives may also use for personal transportation. Executive officers are responsible for the taxes on imputed income associated with the personal use of these vehicles. In lieu of receiving a company car, Mr. Maiter and Dr. Portsmouth each receive a monthly car allowance.
Foreign Assignment. In connection with the Separation, we entered into agreements (the “Relocation Agreements”) with Messrs. Ogden and Stolle to address their relocation from the Woodlands, Texas to Wynyard, UK This relocation assignment for each of the executives began on August 1, 2017 and is expected to last for approximately three years, but may be extended thereafter. Under the Relocation Agreements, each executive’s initial base salary will be adjusted to account for cost of living and taxation differences between the US and the UK and will be subject to the normal salary review process. Each of Messrs. Ogden and Stolle will also be eligible to receive the following benefits during the relocation assignment: an international location allowance of 5% of gross annual salary; tax return preparation assistance; assistance in transferring personal affects to and from the UK; a relocation allowance of 10% of gross annual salary at the beginning of the relocation assignment and a similar 10% relocation allowance upon return to the US (which relocation allowance will be forfeited if the executive resigns before completing the initial relocation assignment); paid travel (or an allowance in lieu thereof) for the executives (and for their family members who are relocating to the UK) to the US up to three times per year for Mr. Stolle and one time for Mr. Ogden; and paid travel for three round trip tickets to the UK for any of the executives’ children residing in the US who are under the age of 26 and attending college full-time. While in the UK, each executive will be provided with housing and construction industries. These industries are cyclicalthe use of two company cars, and we will reimburse educational expenses for Mr. Ogden’s school-aged accompanying children. Each Relocation Agreement may be terminated by either party by providing no less than three months prior written notice. Additionally, we may terminate either executive’s relocation assignment immediately for any of the following reasons: (i) we determine that the executive is unable to perform the essential functions of his jobs, (ii) the executive violates our Business Conduct Guidelines and serious disciplinary action results, or (iii) by any reason of personal illness, the executive is unable to carry out his duties for an time in nature and have historically been impacted by economic downturns. Relative changesexcess of six months during any period of 12 months.
Company Contributions Relating to Retirement/Savings Plans. Certain items reflected within the “All Other Compensation” column of the Summary Compensation Table include amounts that we paid to executives or contributed to a plan on the executives’ behalf that relate to retirement or other savings plans, as further described in the selling pricessections titled “—Pension Benefits in 2019” and “—Nonqualified Deferred Compensation in 2019” below.
Air Travel Allowance. Pursuant to our Global Travel, Entertainment, and Business-Related Expense Policy, we offered all employees the opportunity to receive an air travel allowance to encourage cost savings to us. When an employee is authorized to fly business class but chooses to fly coach class, we pay the employee an amount equal to half the difference between the lowest cost business class ticket and the fare paid up to a maximum of $2,000. We discontinued this allowance effective September 2019.
Lost Holiday Compensation. In lieu of taking the full time off allowed by the UK statutory annual leave, payment was provided for our products are onedays not taken during the calendar year.
Long Time Service Award. Company scheme available to eligible employees in the UK providing a monetary payment in recognition of years of service. For example, every ten years of service.
OUTSTANDING EQUITY AWARDS AT 2019 YEAR-END
The following table provides information on the outstanding stock options, restricted stock units and performance units held by the NEOs as of December 31, 2019. The market value of the main factorsrestricted unit awards is based on the closing market price of our stock on December 31, 2019, which was $3.83.
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| | Option Awards | | | | | Stock Awards | | | |
| Date of Award | Original Grant Date of | Number of Securities Underlying Unexercised Options(1) | | Option | Option | Number of Shares or Unit of | Market Value of Shares or Units of | Equity Incentive Plan Awards: Number of Unearned | Equity Incentive Plan Awards: Market Value of Unearned |
| Name | (Venator Grant Date) | Converted Awards | Exercisable (#) | Unexercisable (#) | Exercise Price | Expiration Date | Stock that Have Not Vested(2) (#) | Stock That Have Not Vested(3) ($) | Shares that Have Not Vested(4) (#) | Shares that Have Not Vested(5) ($) |
| Simon Turner | 2/13/2019 | — | — | 223,214 | 5.75 | 2/13/2029 | 195,652 | 749,347 | 97,826 | 374,674 |
| 2/14/2018 | — | 36,470 | 72,939 | 21.86 | 2/14/2028 | 30,497 | 116,804 | — | — |
| 9/27/2017 | — | 27,663 | 13,831 | 22.83 | 9/27/2027 | 5,840 | 22,367 | — | — |
| 8/16/2017 | 2/1/2017 | 38,331 | 19,165 | 15.81 | 2/1/2027 | 8,438 | 32,318 | — | — |
| 8/16/2017 | 2/3/2016 | 54,268 | — | 6.67 | 2/3/2026 | — | — | — | — |
| 8/16/2017 | 2/4/2015 | 11,145 | — | 17.13 | 2/4/2025 | — | — | — | — |
| Kurt D. Ogden | 2/13/2019 | — | — | 84,325 | 5.75 | 2/13/2029 | 73,913 | 283,087 | 36,957 | 141,545 |
| 2/14/2018 | — | 14,589 | 29,175 | 21.86 | 2/14/2028 | 12,198 | 46,718 | — | — |
| 9/27/2017 | — | 8,645 | 4,322 | 22.83 | 9/27/2027 | 1,824 | 6,986 | — | — |
| 8/16/2017 | 2/1/2017 | 11,980 | 5,988 | 15.81 | 2/1/2027 | 2,636 | 10,096 | — | — |
| 8/16/2017 | 2/3/2016 | 34,491 | — | 6.67 | 2/3/2026 | — | — | — | — |
| 8/16/2017 | 2/4/2015 | 5,463 | — | 17.13 | 2/4/2025 | — | — | — | — |
| Russ R. Stolle | 2/13/2019 | — | — | 74,405 | 5.75 | 2/13/2029 | 65,217 | 249,781 | 32,609 | 124,892 |
| 2/14/2018 | — | 12,765 | 25,528 | 21.86 | 2/14/2028 | 10,673 | 40,878 | — | — |
| 9/27/2017 | — | 6,916 | 3,457 | 22.83 | 9/27/2027 | 1,459 | 5,588 | — | — |
| 8/16/2017 | 2/1/2017 | 14,375 | 7,186 | 15.81 | 2/1/2027 | 3,164 | 12,118 | — | — |
| 8/16/2017 | 2/3/2016 | 39,797 | — | 6.67 | 2/3/2026 | — | — | — | — |
| 8/16/2017 | 2/4/2015 | 5,244 | — | 17.13 | 2/4/2025 | — | — | — | — |
| Mahomed Maiter | 2/13/2019 | — | — | 74,405 | 5.75 | 2/13/2029 | 65,217 | 249,781 | 32,609 | 124,892 |
| 2/14/2018 | — | 9,118 | 18,234 | 21.86 | 2/14/2028 | 7,623 | 29,196 | — | — |
| 9/27/2017 | — | 6,052 | 3,025 | 22.83 | 9/27/2027 | 1,277 | 4,891 | — | — |
| 8/16/2017 | 2/1/2017 | 9,584 | 4,790 | 15.81 | 2/1/2027 | 2,109 | 8,077 | — | — |
| 8/16/2017 | 2/3/2016 | 30,149 | — | 6.67 | 2/3/2026 | — | — | — | — |
| 8/16/2017 | 2/4/2015 | 4,370 | — | 17.13 | 2/4/2025 | — | — | — | — |
| Dr. Rob Portsmouth | 2/13/2019 | — | — | 29,762 | 5.75 | 2/13/2029 | 26,087 | 99,913 | 13,043 | 49,955 |
| 2/14/2018 | — | 3,192 | 6,381 | 21.86 | 2/14/2028 | 2,668 | 10,218 | — | — |
| 8/16/2017 | 2/1/2017 | 5,990 | 2,994 | 15.81 | 2/1/2027 | 1,318 | 5,048 | — | — |
| 8/16/2017 | 2/3/2016 | 18,843 | — | 6.67 | 2/3/2026 | — | — | — | — |
| 8/16/2017 | 2/4/2015 | 2,731 | — | 17.13 | 2/4/2025 | — | — | — | — |
(1)Option awards vest and become exercisable ratably in three equal annual installments on the first three anniversaries of each respective grant date. As of December 31, 2019, (i) outstanding option awards expiring February 4, 2025 and February 3, 2026 are 100% vested; (ii) outstanding option awards expiring on February 1, 2027 vested as to 331/3% on February 1, 2018, and vest as to 662/3% on February 1, 2019 and as to 100% on February 1, 2020 (iii) outstanding option awards expiring on September 27, 2027 vested as to 331/3% on September 27, 2018, and vest as to 662/3% on September 27, 2019 and as to 100% on September 27, 2020; (iv) outstanding option awards expiring on February 14, 2028 vest as to 331/3% on February 14, 2019, as to 662/3% on February 14, 2020 and as to 100% on February 14, 2021; and (v) outstanding option awards expiring on February 13, 2029 vested as to 331/3% on February 13, 2020, and vest as to 662/3% on February 13, 2021 and as to 100% on February 13, 2022.
(2)Restricted stock unit awards vest and lapse their associated restrictions ratably in three equal annual installments on the first three anniversaries of each respective grant date. Restricted stock awards have generally been granted on the same day as option awards and vest on the same schedule as footnoted for option awards above. As of December 31, 2019: (i) outstanding restricted stock unit awards originally granted February 1, 2017 vested as to 331/3% on February 1, 2018, and vested as to 662/3% on February 1, 2019 and as to 100% on February 1, 2020; (ii) outstanding restricted stock unit awards granted on September 27, 2017 vested as to 331/3% on September 27, 2018, and vested as to 662/3% on September 27, 2019 and as to 100% on September 27, 2020; (iii) outstanding restricted stock unit awards granted on February 14, 2018 vested as to 331/3% on February 14, 2019, as
to 662/3% on February 14, 2020 and as to 100% on February 14, 2021; and (iv) outstanding restricted stock unit awards granted on February 13, 2019 vest as to 331/3% on February 13, 2020, as to 662/3% on February 13, 2021 and as to 100% on February 13, 2022.
(3)The market value of unvested restricted stock units reported in this column is calculated by multiplying $3.83, the closing market price of our stock on December 31, 2019, by the number of unvested restricted stock units as of December 31, 2019 for each restricted stock unit grant listed above.
(4)The performance units granted on February 13, 2019 have a performance period of three years through December 31, 2021, subject to the achievement of relative TSR performance metrics and continued service. At threshold performance, 50% of the performance units will be earned, at target performance, 100% of the performance units will be earned, and at maximum performance, 200% of the performance units will be earned. If our absolute TSR for the performance period is negative, the number of performance units that affectwill be vested at the end of the performance period is capped at the target number of performance units. See “Compensation Discussion and Analysis—2019 Executive Compensation Decisions—Long-Term Equity Compensation” for additional information with respect to these awards. Amounts in this table with respect to the 2019 grant reflect an estimated payout of the target number of shares.
(5) The market value of unvested performance units reported in this column is calculated by multiplying $3.83, the closing market price of our stock on December 31, 2019, by the target number of unvested performance units as of December 31, 2019 based on the level of achievement with respect to the applicable performance metrics.
STOCK VESTED DURING 2019
The following table presents information regarding the vesting of restricted stock units for each applicable NEO during 2019. None of our profitability. In addition, pricing may affect customer inventory levels as customers may from time to time accelerate purchases of TiO2 in advance of anticipated price increases or defer purchases of TiO2 in advance of anticipated price decreases.NEOs exercised any stock options during 2019.
| | | | | | | | |
| Stock Awards(1) | |
| Name | Number of Shares Vested in 2019 | Value Realized on Vesting |
| Simon Turner | 41,532 | $201,917 |
| Kurt D. Ogden | 16,283 | $80,368 |
| Russ R. Stolle | 16,563 | $81,729 |
| Mahomed Maiter | 12,203 | $59,618 |
| Dr. Rob Portsmouth | 5,780 | $29,128 |
(1)The cyclicality and volatilityfollowing tabular disclosure provides information regarding the market value of the TiO2 industry resultsunderlying shares on the vesting date and the number of shares that were withheld in significant fluctuations in profits and cash flow from periodconnection with each transaction to period and over the business cycle. For example, after a period of increasing average selling prices for functional and differentiated TiO2, which lasted until the first half of 2018, we experienced a decline in average selling prices from the secondsatisfy tax obligations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Restricted Stock Units Vested | | Shares Withheld for Tax Obligation | | Net Shares Issued | |
| Name | Grant Date | Vest Date | Closing Price on Vest Date | (#) | Value Realized | (#) | Value Paid | (#) | Market Value |
| Simon Turner | 2/14/2018 | 2/14/2019 | $5.87 | 15,249 | $89,512 | 7,168 | $42,076 | 8,081 | $47,435 |
| 9/27/2017 | 9/27/2019 | $2.48 | 5,840 | $14,483 | 2,745 | $6,808 | 3,095 | $7,676 |
| 8/16/2017 | 2/1/2019 | $4.79 | 12,005 | $57,504 | 5,643 | $27,030 | 6,362 | $30,474 |
| 8/16/2017 | 2/1/2019 | $4.79 | 8,438 | $40,418 | 3,966 | $18,997 | 4,472 | $21,421 |
| Kurt D. Ogden | 2/14/2018 | 2/14/2019 | $5.87 | 6,100 | $35,807 | 1,486 | $8,723 | 4,614 | $27,084 |
| 9/27/2017 | 9/27/2019 | $2.48 | 1,825 | $4,526 | 445 | $1,104 | 1,380 | $3,422 |
| 8/16/2017 | 2/1/2019 | $4.79 | 5,721 | $27,404 | 1,394 | $6,677 | 4,327 | $20,726 |
| 8/16/2017 | 2/1/2019 | $4.79 | 2,637 | $12,631 | 643 | $3,080 | 1,994 | $9,551 |
| Russ R. Stolle | 2/14/2018 | 2/14/2019 | $5.87 | 5,338 | $31,334 | 1,300 | $7,631 | 4,038 | $23,703 |
| 9/27/2017 | 9/27/2019 | $2.48 | 1,460 | $3,621 | 356 | $883 | 1,104 | $2,738 |
| 8/16/2017 | 2/1/2019 | $4.79 | 6,601 | $31,619 | 1,608 | $7,702 | 4,993 | $23,916 |
| 8/16/2017 | 2/1/2019 | $4.79 | 3,164 | $15,156 | 771 | $3,693 | 2,393 | $11,462 |
| Mahomed Maiter | 2/14/2018 | 2/14/2019 | $5.87 | 3,813 | $22,382 | 1,793 | $10,525 | 2,020 | $11,857 |
| 9/27/2017 | 9/27/2019 | $2.48 | 1,278 | $3,169 | 601 | $1,490 | 677 | $1,679 |
| 8/16/2017 | 2/1/2019 | $4.79 | 5,002 | $23,960 | 2,351 | $11,261 | 2,651 | $12,698 |
| 8/16/2017 | 2/1/2019 | $4.79 | 2,110 | $10,107 | 992 | $4,752 | 1,118 | $5,355 |
| Dr. Rob Portsmouth | 2/14/2018 | 2/14/2019 | $5.87 | 1,335 | $7,836 | 628 | $3,686 | 707 | $4,150 |
| 8/16/2017 | 2/1/2019 | $4.79 | 3,126 | $14,974 | 1,470 | $7,041 | 1,656 | $7,932 |
| 8/16/2017 | 2/1/2019 | $4.79 | 1,319 | $6,318 | 620 | $2,970 | 699 | $3,348 |
half
PENSION BENEFITS IN 2019
The table below sets forth information on the pension plans we maintain for the NEOs, each of which is more fully described in the narrative following the table. The amounts reported in the table below equal the present value of the accumulated benefit at December 31, 2019 for the applicable NEO under each plan based upon the assumptions described below.
| | | | | | | | | | | | | | |
| Name | Plan Name | Number of Years of Credited Service(1) | Present Value of Accumulated Benefit(2) | Payments During Last Fiscal Year |
| | (#) | ($) | ($) |
| Simon Turner | Tioxide Pension Fund (UK) | 30 | $1,750,911 | — |
| Huntsman Global Pension Scheme | | $1,339,150 | — |
| Huntsman Global Pension Scheme | | $6,579,000(3) | $2,193,000(4) |
| Mahomed Maiter | Huntsman Global Pension Scheme | 35 | $1,929,601 | — |
| Huntsman Global Pension Scheme | | $3,543,074 | — |
| Rob Portsmouth | Huntsman Global Pension Scheme | 25 | $2,069,864 | — |
(1)The number of years of service credited to the NEO is determined using the same pension plan measurement date used for financial statement reporting purposes. These assumptions are discussed in “Note 21. Employee Benefit Plans” to our consolidated financial statements included in our 2019 10‑K.
(2)The actuarial present value of the accumulated benefits is determined using the same pension plan measurement date and assumptions as used for financial reporting purposes. These assumptions are discussed in “Note 21. Employee Benefit Plans” to our consolidated financial statements included in our 2019 10‑K. For purposes of performing these calculations, a normal retirement (earliest unreduced) age of 60 was utilized. All accrued benefits are assumed payable at the plan’s earliest unreduced retirement age. Benefit values reported in this table have been projected out to assume payment at the normal retirement age then have been discounted back to a present value as of December 31, 2019.
(3)Represents remaining £5,100,000 payable to Mr. Turner pursuant to the termination of the top-up payment agreement in November 2019, as further described below.
(4)Reflects the first £1,700,000 payment of four installments resulting from the termination of the pension top-up agreement.
While at Huntsman Corporation, Messrs. Turner and Maiter participated in defined benefit pension arrangements through the tax-qualified Tioxide Pension Fund and Messrs. Turner and Maiter and Dr. Portsmouth participated in the Huntsman Global Pension Scheme. The Tioxide Pension Fund was a traditional defined benefit pension plan with a normal retirement age of 62. Defined benefit pension arrangements for the Tioxide Pension Fund were closed to new associates on December 31, 2010 and existing participants were frozen as to future service and compensation for purposes of benefit determinations under the plan, and on January 1, 2011, arrangements were shifted to participation in a defined contribution plan maintained by Huntsman. The Tioxide Pension Fund was largely maintained to provide benefits for employees in the Pigments and Additives segment of Huntsman Corporation. Sponsorship of the plan was therefore transferred to us in connection with the Separation. We will continue to maintain the Tioxide Pension Fund for accounts that existed as of the Separation, but the plan will remain frozen to new participants and existing participants will not continue to accrue service and compensation for purposes of benefit calculations under the plan. The Huntsman Global Pension Scheme is a non‑registered defined benefit pension plan for service prior to January 1, 2011, which was designed to restore benefits that could not be provided in a registered plan due to pension or tax regulations or due to international assignments. At the beginning of 2018, Huntsman Corporation transferred sponsorship of the plan to Venator.
Messrs. Turner and throughout 2019. Maiter have each met their lifetime pension contribution limits and will not receive any additional contributions from us into their plan accounts. As an alternative to active participation in qualified pension plans, we provide Messrs. Turner and Maiter monthly cash payments that are approximately equivalent to amounts that they would have been eligible to receive as active plan participants, although the amounts are not directly calculated pursuant to the terms of the pension plan documents. This cash amount is included within the “All Other Compensation” column of the Summary Compensation Table and is not deemed to be part of a pension benefit provided to either Messrs. Turner or Maiter.
During 2012, Huntsman entered into a pension top-up agreement with Mr. Turner that was put in place to make up for benefits lost due to regulatory restrictions in the UK and which was intended to provide additional benefits based on Mr. Turner’s uncapped final salary. The present value for Mr. Turner under this pension top-up agreement varied based on his salary for the preceding 12 months and then-current actuarial and other assumptions. Our abilitycompany assumed this agreement in connection with the Separation. The benefits payable pursuant to successfully implement price increases dependsthe pension top-up agreement were calculated, determined and paid under the same terms and conditions as the applicable pension plans, therefore the pension top-up arrangement has been reported as a pension plan benefit within the table above.
Effective November 13, 2019, we terminated the pension top-up agreement with Mr. Turner pursuant to an amendment to Mr. Turner's Terms and Conditions of Employment with our affiliate that employs Mr. Turner (the "Top-Up Amendment"). Prior to the termination of the arrangement pursuant to the Top-Up Amendment, the present value of Mr. Turner's accumulated benefit
under the pension top-up agreement had continued to increase beyond the $15,821,394 disclosed in Venator’s 2019 proxy statement. Mr. Turner was fully vested in all benefits provided under the pension top-up agreement prior to its termination.
Pursuant to the Top-Up Amendment, the pension top-up agreement was terminated and our obligations under the pension top-up agreement will be fully satisfied by payment to Mr. Turner of an aggregate amount totaling £6,800,000 ($9,588,000), the approximate value of the pension top-up obligation at the date of Venator’s separation from Huntsman, payable in four equal annual installments. The first installment was paid on December 20, 2019, and each of the next three installments will be paid within 45 days following each of the first three anniversaries of the date of the Top-Up Amendment. In the event of Mr. Turner's termination for any reason prior to November 13, 2022, we may elect, in our discretion, to accelerate the payment of any remaining unpaid installments or to continue to pay such installments on the current economic factors regionally and globally, including industry operating rates. A continued declineoriginally scheduled payment dates. All remaining unpaid installments will be paid to Mr. Turner (or his estate) within 45 days following a change in selling prices,control or the inability to successfully implement price increases in future periods could negatively impact our business, results of operations and/or financial condition.
The industries in which we compete are highly competitive, and we may not be able to compete effectively with our competitors that have greater financial resources or those that are vertically integrated, which could have a material adverse effect on our business, results of operations and financial condition.
The industries in which we operate are highly competitive. Among our competitors are companies that are vertically-integrated (those that have their own raw material resources). Changes in the competitive landscape could make it difficult for us to retain our competitive position in various products and markets throughout the world. Our competitors with their own raw material resources may have a competitive advantage during periods of higher or rising raw material prices. In addition, some of the companies with whom we compete may be able to produce products more economically than we can. Furthermore, some of our competitors have greater financial resources, which may enable them to invest significant capital into their businesses, including expenditures for research and development, or debottlenecking or other capacity expansions.
The global TiO2 market is highly competitive, with the top producers accounting for a significant portion of the world’s production capacity. Competition is based on a number of factors, such as price, product quality and service. Some of our competitors may be able to drive down prices for our products if their costs are lower than our costs. In addition, our TiO2 business competes with numerous regional producers, including producers in China, who have significantly expanded their sulfate production capacity during the past several years and more recently commenced the commercial production of TiO2 via chloride technology. The risk of our customers substituting our products with those made by Chinese producers could increase as the Chinese producers improve their quality levels and increase production capacity. Further, consolidation of our competitors or customers may result in reduced demand for our products or make it more difficult for us to compete with our competitors. The occurrence of any of these events could result in reduced earnings or operating losses.
While we are engaged in a range of research and development programs to develop new products and processes, to improve and refine existing products and processes, and to develop new applications for existing products, the failure to develop new products, processes or applications could make us less competitive. Moreover, if any of our current or future competitors develops proprietary technology that enables them to produce products at a significantly lower cost, our technology could be rendered uneconomical or obsolete.
In addition, certain of our competitors in various countries in which we do business, including China, may be owned by or affiliated with members of local governments and political entities. These competitors may get special treatment with respect to regulatory compliance and product registration, while certain of our products, including those based on new technologies, may be delayed or even prevented from entering into the local market.
Certain of our businesses use technology that is widely available. Accordingly, barriers to entry, apart from capital availability, may be low in certain product segments of our business. The entrance of new competitors into the industry may reduce our ability to maintain margins or capture improving margins in circumstances where capacity utilization in the industry is increasing. Increased competition in any of our businesses could compel us to reduce the prices of our products, which could result in reduced margins and loss of market share and have a material adverse effect on our business, results of operations, financial condition and liquidity.
Our indebtedness is substantial and a significant portion of our indebtedness is subject to variable interest rates. Our indebtedness may make us more vulnerable to economic downturns and may limit our ability to respond to market conditions, to obtain additional financing or to refinance our debt. We may also incur more debt in the future.
As of December 31, 2019, Mr. Turner had approximately 30 years of service in the UK and Mr. Maiter had approximately 35 years of service in the UK Each is fully vested in benefits from the Tioxide Pension Fund and the Huntsman Global Pension Scheme.
NONQUALIFIED DEFERRED COMPENSATION IN 2019
For 2019, we had $375 million aggregate principalprovided executive officers based in the United States the opportunity to participate in two defined contribution savings plans: (1) the 401(k) Plan; and (2) the Venator Executive Elective Deferral Plan (“EDP”). The 401(k) Plan is a tax-qualified broad-based employee savings plan; employee contributions up to 100% of base salary and annual STIP awards are permitted up to dollar limits established annually by the IRS.
The EDP was adopted on February 13, 2018 to replace and continue the terms of the interim 2017 Supplemental Savings Program established to provide eligible executives retirement benefits based on those previously provided to them by Huntsman prior to the company’s separation from Huntsman. Those benefits were previously provided to the executives under (i) Huntsman’s 401(k) plan (including matching and nondiscretionary employer contributions) to the extent such contributions to the 401(k) plan were subject to legal limits on the amount of Senior Notes outstanding, borrowingscontributions that can be allocated to an individual in a single year, and (ii) Huntsman’s Cash Balance Plan (a tax qualified pension plan) and its Supplemental Executive Retirement Plan (a supplemental non-qualified pension plan)..
The interim 2017 Supplemental Savings Plan was a nonqualified salary deferral plan adopted by us in connection with the Separation to preserve the benefits made available to Messrs. Stolle and Ogden pursuant to plans sponsored by Huntsman Corporation. Based on the December 2018 deconsolidation of $367 millionVenator by Huntsman Corporation, the interim 2017 Supplemental Savings Plan was terminated and the value of the 2017 Supplemental Savings Plan was distributed to Messrs. Stolle and Ogden in 2019 as set forth in the table below. No executive or company contributions were made under the interim 2017 Supplemental Savings Plan in 2018 or 2019.
The table below provides information on the nonqualified deferred compensation of the NEOs in 2019 under the Venator EDP.
| | | | | | | | | | | | | | | | | |
| Name | Executive Contributions in Last FY (1) | Venator Contributions in Last FY (2) | Aggregate Earnings in Last FY (3) | Aggregate Withdrawals/ Distributions (4) | Aggregate Balance at Last FYE (5) |
| Kurt D. Ogden | $129,151 | $57,481 | $64,905 | $66,239 | $411,756 |
| Russ R. Stolle | $5,172 | $97,548 | $31,333 | $68,233 | $279,500 |
(1)These contributions represent deferrals under the EDP and are included in the Salary column (or Non-Equity Incentive Plan Compensation column where applicable) of the Summary Compensation Table for 2019 set forth above.
(2)These amounts represent company contributions to the EDP and are included in the “All other compensation” column of the Summary Compensation Table for 2019 set forth above.
(3)No above market or preferential earnings are provided under our Term Loan Facility and no borrowingsnonqualified defined contribution plans because the investment choices available under our ABL Facility, with $252 millionsuch plans are identical to the investment choices available in the 401(k) Plan, which is a qualified plan. Consequently, none of the earnings reported in this table are included in the Summary Compensation Table set forth above.
(4)Amounts reflected in this column represent distributions made under the interim 2017 Supplemental Savings Plan in 2019 upon its termination.
(5)Amounts reflected in this column for each NEO who participates in the plans were reported as compensation to the executive officer in the Summary Compensation Table in prior years as follows: Mr. Ogden—$116,002, Mr. Stolle—$185,114.
Participants may change their investment options at any time by contacting the plan record keeper. The table below lists the investment funds available borrowing. Our debt levelto participants in the 401(k) Plan and the factEDP. The table also provides the rate of return for each fund for 2019. All funds and rates of return are the same for each defined contribution plan.
| | | | | | | | |
| Investment Funds | Ticker Symbol | 2019 Performance |
| American Beacon Large Cap Value Institutional | AADEX | 29.67% |
| T. Rowe Price New America Growth | PRWAX | 35.03% |
| Vanguard 500 Index Fund Admiral Shares | VFIAX | 31.46% |
| Fidelity Low Priced Stock K | FLPKX | 25.81% |
| PRIMECAP Odyssey Aggressive Growth | POAGX | 23.50% |
| Vanguard Mid‑Cap Index Fund Admiral Shares | VIMAX | 31.03% |
| Vanguard Selected Value Fund Investor Shares | VASVX | 29.54% |
| American Beacon Small Cap Value Institutional | AVFIX | 23.51% |
| Janus Henderson Venture Fund | JVTIX | 30.87% |
| Vanguard Small‑Cap Index Fund Admiral Shares | VSMAX | 27.37% |
| First Eagle Overseas Fund Class A | SGOVX | 17.61% |
| Fidelity International Discovery K | FIDKX | 27.64% |
| Vanguard Total International Stock Index Admiral | VTIAX | 21.51% |
| American Century Real Estate I | REAIX | 30.94% |
| Vanguard Target Retirement 2020 Fund Investor Shares | VTWNX | 17.63% |
| Vanguard Target Retirement 2030 Fund Investor Shares | VTHRX | 21.07% |
| Vanguard Target Retirement 2040 Fund Investor Shares | VFORX | 23.86% |
| Vanguard Target Retirement 2050 Fund Investor Shares | VFIFX | 24.98% |
| Vanguard Target Retirement 2060 Fund Investor Shares | VTTSX | 24.96% |
| Vanguard Target Retirement Income Fund Investor Shares | VTINX | 13.16% |
| Vanguard Retirement Savings Trust | n/a | 2.35% |
| American Century Inflation Adjusted Bond Fund R5 Class | AIANX | 8.07% |
| PIMCO Total Return Institutional | PTTRX | 8.26% |
| Vanguard Total Bond Market Index Fund Admiral Shares | VBTLX | 8.71% |
| Fidelity Government Money Market Fund | SPAXX | 1.84% |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
Our NEOs may receive compensation in connection with a termination of employment or change of control or upon death or disability pursuant to the terms of the following arrangements:
• the Executive Severance Plan;
• the Stock Incentive Plan;
• employment agreements with certain of our NEOs; and
• other existing plans and arrangements in which our NEOs participate.
Executive Severance Plan. We adopted the Venator Materials Executive Severance Plan in connection with our Separation to provide severance and change of control benefits to executive officers in connection with a termination of the executive’s employment by us without “Reasonable Cause,” or by the executive for “Good Reason,” (both terms of which are defined below). In November 2017, we amended and restated the Executive Severance Plan to provide market severance benefits to our executive officers and to be more inclusive for our participants outside of the United States. All our NEOs are covered by the Executive Severance Plan.
The Executive Severance Plan provides our executive officers with cash payments upon a qualifying termination event equal to two times the executive’s base compensation plus an amount equal to the executive’s “Pro Rata Bonus for Termination Year.” The portion of the payment related to base compensation will be paid within 60 days of an executive’s termination, and the portion of the payment related to the pro rata bonus will be paid in ordinary course under the applicable plan as payments are made to the remaining participating employee population, unless otherwise required by applicable law. In the event that a significant percentageparticipant is eligible to receive severance benefits pursuant to a separate plan or arrangement, whether by contract with us or through a regulatory entitlement, the participant will not be eligible for severance benefits pursuant to the Executive Severance
Plan unless the participant waives all rights to the benefits under that separate severance plan, arrangement or entitlement. Conversely, the participant can elect not to participate in the Executive Severance Plan and continue to be eligible for benefits under such a separate severance plan, arrangement or entitlement. In connection with the amendment and restatement of the plan, Mr. Turner waived his rights to a 12‑month notice of termination benefit in favor of eligibility under the Executive Severance Plan.
Pursuant to the Executive Severance Plan:
• “Reasonable Cause” means: (1) the grossly negligent, fraudulent, dishonest or willful violation of any law, the material violation of any of our significant policies that materially and adversely affects us or other circumstances where we would be entitled, under the executive’s contract, if any, to terminate the executive’s employment, or (2) the failure of the participant to substantially perform his duties.
• “Good Reason” means a voluntary termination of employment by the executive as a result of us or one of our affiliates (1) making a materially detrimental reduction or change to the job responsibilities or in the base salary for a participant, or (2) within a period of 12 months following a Change in Control (as defined within clause (b) of the Change of Control definition for our Stock Incentive Plan), changing the participant’s place of work by more than 50 miles, in either case which has not been remedied by us or our affiliate within 30 days of the receipt of notice of the event by the participant.
• “Pro Rata Bonus for Termination Year” means a pro rata portion (by calendar days) of the annualized bonus under the applicable bonus program in effect at the time of the executive’s termination where the annualized bonus is calculated in accordance with our actual performance for the full calendar year during which the executive’s termination occurs.
The Executive Severance Plan also provides for outplacement services for a period of 12 months following the executive’s termination or until the executive obtains substantially comparable employment.
The Executive Severance Plan provides for the continuation of medical benefits for United States participants for up to two years following termination (which will be in the form of a lump sum cash flowpayment equal to the Consolidated Omnibus Budget Reconciliation Act, or COBRA, premium at the time of departure multiplied by the severance period multiplied by 150%).
Stock Incentive Plan Awards. Long-term incentive awards granted under the Stock Incentive Plan provide for accelerated vesting upon a Change of Control or certain other events, including certain terminations of employment of service, at the discretion of our Compensation Committee. The performance unit award agreements provide that, upon a termination of employment due to death or disability or upon the occurrence of a change of control (within the meaning of Section 409A of the Code), the Compensation Committee may, in its discretion, waive any remaining restrictions on the performance units, in whole or in part, and deem the applicable performance period to end immediately prior to the date of death, disability or the occurrence of the change of control, in which case the satisfaction of the applicable relative TSR performance metrics will be based upon actual performance as of the end of the revised performance period. Any such provision made by the Compensation Committee could benefit all participants in our Stock Incentive Plan, including the NEOs. If there is a Change of Control, the Compensation Committee may, in its discretion, provide for:
• assumption by the successor company of an award, or the substitution thereof for similar options, rights or awards covering the stock of the successor company;
• acceleration of the vesting of all or any portion of an award;
• changing the period of time during which vested awards may be exercised (for example, but not by way of limitation, by requiring that unexercised, vested awards terminate upon consummation of the change of control);
• payment of substantially equivalent value in exchange for the cancellation of an award; and/or
• issuance of substitute awards of substantially equivalent value.
Our Stock Incentive Plan defines a “Change of Control” as follows: (a) with respect to an award that is subject to section 409A of the Code, the occurrence of any event which constitutes a change of control under section 409A of the Code, including any regulations promulgated pursuant thereto; or (b) with respect to all other awards, (i) the acquisition by any person, other than us, one of our affiliates or one of our employee benefit plans, of beneficial ownership, directly or indirectly, of our securities representing 20% or more of our combined voting power of our then outstanding securities entitled to vote generally in the election of directors; or (ii) the consummation of a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were our shareholders immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 20% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities in substantially the same proportions as their ownership immediately prior to such
event; or (iii) the sale or disposition of all or substantially all our assets (other than any such sale or disposition involving solely us and one or more persons that are “affiliates” of us; or (iv) a change in the composition of our board of directors, as a result of which fewer than a majority of the directors are “Incumbent Directors” (defined below); or (v) the approval by our board of directors or our shareholders of a complete or substantially complete liquidation or dissolution; or (c) with respect to all awards: (i) a court‑sanctioned compromise or arrangement between us and our shareholders under section 899 of the Act, resulting in a Change of Control under that act; (ii) the obtaining by any person of control of the company as the result of making a general offer to (A) acquire all our issued ordinary share capital, which is made on a condition that, if it is satisfied, such acquiring person or persons, as applicable, will have control of us, or (B) acquire all of our shares which are of the same class as the ordinary shares; (iii) any person becoming bound or entitled under Sections 979 to 982 or Sections 983 to 985 of the Act (or similar law of another jurisdiction) to acquire shares of the same class as the ordinary shares. An “Incumbent Director” means directors who either (A) are directors of us as of the effective date of the Stock Incentive Plan, or (B) are elected, or nominated for election, thereafter to the board of directors with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination, but “Incumbent Director” shall not include an individual whose election or nomination is in connection with (i) an actual or threatened election contest or an actual or threatened solicitation of proxies or consents by or on behalf of a person other than the board of directors or (ii) a plan or agreement to replace a majority of the then Incumbent Directors.
Employment Agreements. In December 2018, we entered into the Employment Agreements with certain of our executive officers, including Messrs. Turner, Ogden, Stolle and Maiter. Each Employment Agreement provides that a breach of such Employment Agreement by our company or our affiliates shall be deemed to be a sufficient cause for a “Termination for Good Reason” under the Severance Plan. In addition, upon a “Termination for Good Reason” under the Executive Severance Plan following a Change of Control, any Replacement Awards granted to an executive will become fully vested in accordance with the Stock Incentive Plan.
Pursuant to the Stock Incentive Plan, an award will meet the conditions of a “Replacement Award” if: (1) it is of the same type as the replaced award (or a different type acceptable to the Compensation Committee); (2) it has an intrinsic value at least equal to the value of the replaced award; (3) it relates to publicly traded equity securities of our company or our successor in the Change of Control or another entity that is affiliated with our company or our successor following the Change of Control; (4) its terms and conditions comply with the terms of the Stock Incentive Plan; and (5) its other terms and conditions are not less favorable to the participant than the terms and conditions of the replaced award (including the provisions that would apply in the event of a subsequent Change of Control). The determination of whether the conditions of the Stock Incentive Plan are satisfied will be made by the Compensation Committee, as constituted immediately before the Change of Control, in its sole discretion.
Other Arrangements. As more fully described under “—Pension Benefits in 2019” and “—Nonqualified Deferred Compensation in 2019” above, certain of our executives are entitled to payments pursuant to the terms and conditions of our retirement savings plans and deferred compensation plans upon a termination of employment.
In addition, pursuant to our Retiree Welfare Plan, certain eligible employees are entitled to health, medical, dental and vision benefits if they choose to separate from our company for any reason prior to age 65. US employees who were eligible under Huntsman’s Retiree Welfare Plan at the time of the Separation were deemed eligible for our Retiree Welfare Plan, including Messrs. Stolle and Ogden. We may cancel the Retirement Welfare Plan at any time. Due to Mr. Stolle having achieved a combined age and years of service of at least 80 at Huntsman and therefore vesting in retirement benefits while at Huntsman, we entered into a separate agreement with him that provides him with an additional cash benefit if we terminate the Retiree Welfare Plan or reduce the benefits available under the plan.
Quantification of Potential Payments and Benefits. The table below reflects the compensation that may be payable to or on behalf of each NEO upon an involuntary termination or a change of control. The amounts shown assume that such termination or change of control was effective as of December 31, 2019. All equity acceleration values have been calculated using the closing price of our stock on December 31, 2019 of $3.83. The actual amounts we will be required to make payments on our debt, could have important consequencesdisburse can only be determined at the time of the applicable circumstance.
| | | | | | | | | | | | | | | | | |
| Payment Type | Simon Turner | Kurt D. Ogden | Russ R. Stolle | Mahomed Maiter | Dr. Rob Portsmouth |
| INVOLUNTARY TERMINATION—WITHOUT CAUSE OR FOR GOOD REASON | | | | | |
| Cash Severance | $1,697,032 | $1,060,000 | $910,000 | $910,000 | $506,626 |
Health & Welfare (1) | $5,402 | $95,485 | $95,485 | $5,402 | $5,402 |
Outplacement Services (2) | $5,200 | $5,200 | $5,200 | $5,200 | $5,200 |
Pension (3) | $88,033 (4) | — | — | $153,063 (5) | $61,074( 6) |
| TOTAL TERMINATION BENEFITS | $1,795,667 | $1,160,685 | $1,010,685 | $1,073,665 | $578,302 |
| CHANGE OF CONTROL | | | | | |
| Accelerated Equity Awards | $1,295,509(7) | $488,432(8) | $433,257(9) | $416,838(10) | $165,134(11) |
| TOTAL TERMINATION BENEFITS | $1,295,509 | $488,432 | $433,257 | $416,838 | $165,134 |
| DEATH | | | | | |
Accelerated Equity Awards (12) | $374,674 | $141,545 | $124,892 | $124,892 | $49,955 |
Pension (3) | $88,033 | — | — | $167,369 | $61,074 (13) |
| TOTAL TERMINATION BENEFITS | $462,707 | $141,545 | $124,892 | $292,261 | $111,029 |
DISABILITY (14) | | | | | |
Accelerated Equity Awards (12) | $374,674 | $141,545 | $124,892 | $124,892 | $49,955 |
| Pension | $80,198 | — | — | $152,728 | $60,174 |
| TOTAL TERMINATION BENEFITS | $454,872 | $141,545 | $124,892 | $277,620 | $111,029 |
| RETIREMENT | | | | | |
Pension (3) | $88,033 | — | — | $153,063 | $61,074 |
| TOTAL TERMINATION BENEFITS | $88,033 | — | — | $153,063 | $61,074 |
(1)In the case of an involuntary termination without Reasonable Cause or for our business, including but not limitedGood Reason, calculated by multiplying 150% of the employer and employee monthly premiums payable with respect to the following:health care coverage elected by the executive as of December 31, 2019, by 24. We assumed a monthly premium 50% larger than current premiums to reflect annual increases in premium costs in order to ensure that the amounts reported above include the total amount for which we are potentially responsible with respect to such coverage.
•(3)Retirement benefits are annual life pension amounts. The earliest this benefit can be realized is age 56 for Mr. Turner at which time it would be actuarially reduced to $80,198. The earliest this benefit can be realized is age 59 for Mr. Maiter at which time it would be actuarially reduced to $167,034. The earliest this benefit can be realized is age 54 for Mr. Portsmouth at which time it would be actuarially reduced to $48,248.
(4)The accrued retirement benefit for Mr. Turner comprises $49,882 from the Tioxide Pension Fund and $38,152 from the Huntsman Global Pension Scheme. Mr. Turner may elect a lump sum benefit of $1,715,184 calculated as eight times salary up to the current earnings cap. Mr. Turner’s spouse is entitled to an annual benefit of $44,016, which is calculated as 50% of Mr. Turner’s accrued retirement benefit before tax gross up.
(5)The accrued retirement benefit for Mr. Maiter comprises $53,968 from the Tioxide Pension Fund and $99,095 from the Huntsman Global Pension Scheme. Mr. Turner may elect a lump sum benefit of $3,667,264 calculated as eight times uncapped salary. Mr. Maiter’s spouse is entitled to an annual benefit of $76,532, which is calculated as 50% of Mr. Maiter’s accrued retirement benefit before tax gross up.
(6)Dr. Portsmouth may elect a lump sum benefit of $2,026,512 calculated as eight times uncapped salary. Dr. Portsmouth’s spouse is entitled to an annual benefit of $61,074 which is calculated as 50% of Dr. Portsmouth’s accrued retirement benefit before tax gross up.
(7)Except as provided in his Employment Agreement, any acceleration of vesting of long-term incentive awards held by Mr. Turner upon a change of control requires the approval of the Compensation Committee, which we may be more vulnerableassume for purposes of this table would have occurred on December 31, 2019. An acceleration of Mr. Turner’s 240,427 unvested restricted stock units would have an estimated value of $920,835 and 97,826 target unvested performance units would have an estimated value of $374,674. In addition, an acceleration of Mr. Turner’s 329,149 unvested options would have an estimated value of $0 on December 31, 2019.
(8)Except as provided in his Employment Agreement, any acceleration of vesting of long-term incentive awards held by Mr. Ogden upon a change of control requires the approval of the Compensation Committee, which we assume for purposes of this table would have occurred on December 31, 2019. An acceleration of Mr. Ogden’s 90,571 unvested restricted stock units would have an estimated value of $346,887 and 36,957 target unvested performance units would have an estimated value of $141,545. In addition, an acceleration of Mr. Ogden’s 123,810 unvested options would have an estimated value of $0 on December 31, 2019.
(9)Except as provided in his Employment Agreement, any acceleration of vesting of long-term incentive awards held by Mr. Stolle upon a change of control requires the approval of the Compensation Committee, which we assume for purposes of this table would have occurred on December 31, 2019. An acceleration of Mr. Stolle’s 80,513 unvested restricted stock units would have an estimated value of $308,365 and 32,609 target unvested performance units would have an estimated value of $124,892. In addition, an acceleration of Mr. Stolle’s 110,576 unvested options would have an estimated value of $0 on December 31, 2019.
(10)Except as provided in his employment agreement, any acceleration of vesting of long-term incentive awards held by Mr. Maiter upon a change of control requires the approval of the Compensation Committee, which we assume for purposes of this table would have occurred on December 31, 2019. An acceleration of Mr. Maiter’s 76,226 unvested restricted stock units would have an estimated value of $291,945.58 and 32,609 target unvested performance units would have an estimated value of $124,892. In addition, an acceleration of Mr. Maiter’s 100,454 unvested options would have an estimated value of $0 on December 31, 2019.
(11)Any acceleration of vesting of long-term incentive awards upon a change of control held by Dr. Portsmouth requires the approval of the Compensation Committee, which we assume for purposes of this table would have occurred on December 31, 2019. An acceleration of Dr. Portsmouth’s 30,073 unvested restricted stock units would have an estimated value of $115,180 and 13,043 target unvested performance units would have an estimated value of $49,955. In addition, an acceleration of Dr. Portsmouth’s 39,137 unvested options would have an estimated value of $0 on December 31, 2019.
(12)Any acceleration of vesting of performance units held by the NEOs upon death or disability requires the approval of the Compensation Committee, which we assume for purposes of this table would have occurred on December 31, 2019. Represents the value of accelerated vesting of target unvested performance units held by the NEOs.
(13)Dr. Portsmouth is entitled to business, industryan additional lump sum death benefit of $1,773,198 calculated as seven times salary if his death is work-related.
(14)The disability benefit for Messrs. Maiter and Turner is reduced in line with the early retirement reduction factors as per their pension agreements and before tax gross up for Mr. Turner.
COMPENSATION DISCUSSION AND ANALYSIS
INTRODUCTION
This Compensation Discussion and Analysis, or economic downturns, making it more difficultCD&A, provides information regarding how we paid our executives in 2019. This CD&A presents information for the following named executive officers, or “NEOs”:
| | | | | |
| Name | Title |
| Simon Turner | President and Chief Executive Officer, also referred to as our “CEO” |
| Kurt D. Ogden | Executive Vice President and Chief Financial Officer |
| Russ R. Stolle | Executive Vice President, General Counsel, Chief Compliance Officer and Secretary |
| Mahomed Maiter | Executive Vice President, Business Operations |
| Dr. Rob Portsmouth | Senior Vice President, EHS, Innovation and Technology |
The primary objective of our executive compensation program is the alignment of the compensation of our NEOs with shareholder value creation. In support of this objective, our executive compensation program is designed to: (i) align pay with performance; (ii) attract, motivate and retain executives critical to our long-term success by providing a competitive compensation structure; (iii) align our executives’ interests with those of our shareholders; (iv) encourage long-term focus; and (v) discourage excessive risk-taking.
ELEMENTS OF VENATOR’S EXECUTIVE COMPENSATION PROGRAM
Additional information about our executive compensation program is provided below, along with a discussion of how various compensation elements align with our compensation objectives.
TOTAL DIRECT COMPENSATION
We provide our executive officers with a mix of pay that reflects our belief that executive officers should have elements of their compensation tied to both short- and long-term performance. The Compensation Committee strives to align the relative proportion of each element of total direct compensation (i.e., base salary, target short-term incentive and target long-term value) with the competitive market and our objectives, as well as to preserve the flexibility to respond to market conditions;the continually changing global environment in which we operate. While the Compensation Committee reviews the competitiveness of each NEO’s total direct compensation, it does not target specific percentiles among peer companies when setting compensation levels. Rather, the Compensation Committee considers peer group data among several factors in setting pay levels. Other factors include each executive’s individual performance, level of responsibility, knowledge, time in the position, experience and internal equity among executives with similar experience and job responsibilities.
•cash flow availableGenerally, as employees move to higher levels of responsibility with greater ability to influence our financial results, the percentage of performance-based pay will increase. Total direct compensation received by our NEOs comprises the following elements:
| | | | | | | | |
| Compensation Element | | Description and Purpose of the Element |
| Annual Cash Compensation | Base Salary | Fixed portion of total direct compensation. Generally reflects the officer’s responsibilities, tenure, job performance and the market for the executive’s services. |
| Short‑Term Incentive Plan Award | Variable portion of total direct compensation. Supports achievement by executives of business critical short‑term performance goals, with cash payouts based on performance against pre‑established annual goals. These goals may include a subjective evaluation of individual performance including success in areas significant to us as a whole or to a particular business unit or function. |
| Long‑Term Equity‑Based Compensation | Restricted Stock Units | Variable portion of total direct compensation. Supports a long‑term focus by executives, as the value is tied to the price of our ordinary shares with awards vesting over a three-year period. The three-year vesting period also provides a strong retention incentive. |
| Stock Options | Variable portion of total direct compensation. Supports a long‑term focus to maximize stock price, as value is tied to stock appreciation. The ten‑year exercise period discourages profit‑taking by executives in the short term. Also provides a strong retention incentive by vesting over a three‑year period. |
| Performance Units | Variable portion of total direct compensation. Granted to focus executives on creating shareholder value by increasing TSR performance relative to peers over a three‑year period in 2019. 2020 grants reward both increasing TSR (relative to peers) and strong RONA performance over a three‑year period. |
A detailed discussion of 2019 target total direct compensation awarded to our NEOs and graphical illustrations of the proportionate amount of performance-based compensation, is set forth below in “—2019 Executive Compensation Decisions.”
OTHER ELEMENTS OF COMPENSATION
In addition to the elements of target total direct compensation described above, our executive compensation program includes other purposes, including the growthelements of compensation that are designed primarily to attract, motivate and retain executives critical to our business, may be reduced;long‑term success and to provide a competitive compensation structure overall.
| | | | | |
| Element | Description and Purpose of the Element |
| Health and Welfare Benefits | We provide our NEOs with health and welfare benefits that are intended to be part of a competitive total compensation package with benefits comparable to those provided to employees and executives at other companies in the chemical industry and the general market. Our NEOs participate in our health and welfare programs on the same basis as our other employees. |
| Retirement and Savings Plans | We provide our NEOs with retirement and savings plan benefits that are intended to be part of a competitive total compensation package with benefits comparable to those provided to employees and executives at other companies in the chemical industry and the general market. Employees in foreign jurisdictions participate in the retirement and savings plans mandated by applicable law. We also provide executive officers in the US the opportunity to participate in defined contribution savings plans, such as our salary deferral plan (the “401(k) Plan”), and a supplemental deferred compensation plan.
For an explanation of the major features of our retirement and savings plans and the other amounts payable to our NEOs, see “Executive Compensation—Pension Benefits in 2019” and “—Nonqualified Deferred Compensation in 2019.” |
| Perquisites | We provide certain personal benefits and perquisites to our NEOs to assist with meeting the demands of their positions comparable, and in connection with international assignments. The benefits are competitive to those provided to executives at other companies in the chemical industry and the general market.
For a description of these perquisites and the amounts paid to our NEOs in 2019, see “Executive Compensation—2019 Summary Compensation Table” and “—Narrative Disclosure to Summary Compensation Table and Grants of Plan‑Based Awards Table.” |
| Employment Agreements | In 2018, we entered into employment agreements with certain of our NEOs that are intended to provide protections comparable to those provided to employees and executives at other companies in the chemical industry and the general market. The terms of Mr. Turner’s employment agreement were amended in 2019 as discussed above under “Executive Compensation—Pension Benefits in 2019.”
Terms of the employment agreements with the named executive officers are reflected above under “—2019 Executive Compensation Decisions—Employment Agreements” and “Executive Compensation—Potential Payments and Rights upon Termination or Change in Control—Employment Agreements.” |
| Severance Arrangements | We provide market competitive payments and benefits to our executive officers upon certain severance events through the Amended and Restated Executive Severance Plan (the “Executive Severance Plan”) and employment agreements. These arrangements assist in the retention of our executive officers by providing protection against certain termination events.
Terms of the Executive Severance Plan are reflected above under “Executive Compensation—Potential Payments and Rights upon Termination or Change in Control—Employment Agreements.” |
•our ability to refinance or obtain additional financing may be constrained, particularly during periods when the capital markets are unsettled;2019 EXECUTIVE COMPENSATION DECISIONS
•our competitors with lower debt levels may have a competitive advantage relative to us; and 2019 BASE SALARY
•part of our debt is subject to variable interest rates, which makes us more vulnerable to increases in interest rates (for example, assuming all commitments were available and all loans under the ABL Facility were fully drawn, a 1% increase in interest rates, without giving effect to interest rate hedges or other offsetting items, would increase our annual interest expense by approximately $4 million).
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations.
In addition, the availability and cost of creditBase salaries for our businesses may be significantly affected by credit ratings. The credit rating agencies periodically review our ratings, considering factors such as our capital structure, earnings profile,NEOs are intended to reflect the scope of their responsibilities, performance, skills and the condition of our industry and the credit markets generally. Credit ratings are subject to revision or withdrawal at any time by the assigning rating organization.A drop in our credit ratings could adversely impact our business, cash flows, results of operations, financial condition, liquidity and our ability to obtain additional financing or to refinance our debt.
Any negative rating action could adversely affect our ability to access capital at rates and on terms that are attractive. A negative rating action could also adversely impact our business relationships with suppliers and operating partners, who may be less willing to extend credit or offer us similarly favorable terms as secured in the past under such circumstances.The result of such impacts may be material and could adversely affect our cash flows, results of operations and financial condition.
We may need additional capital in the future and may not be able to obtain it on favorable terms.
Our TiO2 business is capital intensive, and our success depends to a significant degree on our ability to develop and market innovative products and to maintain and update our facilities and process technology. We may require additional capital in the future to finance our growth and development, implement further marketing and sales activities, fund ongoing research and development activities, fund the ongoing closure of our Pori, Finland manufacturing facility and meet general working capital needs. Our capital requirements will depend on many factors, including acceptance of, and demand for, our products, the extent to which we invest in new technology and research and development projects, and the status and timing of these developments,experience as well as general availabilitycompetitive market practices. In 2019, Mr. Maiter and Dr. Portsmouth received increases based on their increased responsibilities and the Compensation Committee’s review of capital from debt and/analogous or equity markets. Additional financing may not be available when needed on terms favorable to us, or at all. Further, the termssimilar roles within our Peer Group, as defined below. The Compensation Committee determined that each of the separation agreement,other NEOs’ salaries were competitively aligned with our debt or other agreements limitPeer Group. To the extent increased, base salaries for 2019 were effective as of April 1, 2019 as follows:
| | | | | | | | | | | |
| Officer | 2018 Base Salary (in US Dollars) | 2019 Base Salary (in US Dollars) | %Increase (based on local currency) |
Simon Turner(1) | $848,516 | $848,516 | n/a |
| Kurt D. Ogden | $530,000 | $530,000 | n/a |
| Russ R. Stolle | $455,000 | $455,000 | n/a |
Mahomed Maiter(2) | $416,158 | $455,000 | 9.3% |
Dr. Rob Portsmouth(3) | $226,173 | $253,313 | 12.0% |
(1) Mr. Turner’s base salary was set on July 1, 2017 at GBP is £657,764 and remained unchanged for 2018 and 2019. The value for Mr. Turner in 2018 and 2019 was converted using an exchange rate of 1 GBP to 1.29 USD, being the exchange rate as of February 11, 2019 (which is the internal date used to estimate pro forma elements of compensation).
(2) Mr. Maiter’s base salary in GBP is £352,713, which was increased from GBP £322,603 in 2018. The value for Mr. Maiter in 2019 was converted using an exchange rate of 1 GBP to 1.29 USD, being the exchange rate as of February 11, 2019 (which is the internal date used to estimate pro forma elements of compensation).
(3) Dr. Portsmouth’s base salary in GBP is £196,367, which was increased from GBP £175,328 in 2018. The value for Dr. Portsmouth in 2019 was converted using an exchange rate of 1 GBP to 1.29 USD, being the exchange rate as of February 11, 2019 (which is the internal date used to estimate pro forma elements of compensation).
2019 ANNUAL SHORT-TERM INCENTIVE PLAN (STIP)
Our annual STIP awards are designed to reward our ability to incur additional indebtedness or issue additional equity. If we are unable to obtain adequate funds on acceptable terms, we may be unable to develop or enhance our products, take advantageexecutive officers for achievement of future opportunities or respond to competitive pressures, which could harm our business.
If we are unable to generate sufficient cash flow from our operations, our business, financial conditionannual performance goals set by the Compensation Committee. The Compensation Committee establishes annual STIP targets for the NEOs expressed as a percentage of their base salaries. The following table summarizes the STIP targets and results of operations may be materially and adversely affected.
We are responsiblemaximum annual STIP award levels for obtaining and maintaining sufficient working capital, funding our capital expenditure requirements and servicing our own debt. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital, pension obligations, capital expenditures, restructuring activities or the transfereach of our existing manufacturing operationsNEOs for 2019.
| | | | | | | | |
| Officer | Target % of Base Salary | Maximum % of Base Salary |
| Simon Turner | 100% | 200% |
| Kurt D. Ogden | 70% | 140% |
| Russ R. Stolle | 70% | 140% |
| Mahomed Maiter | 70% | 140% |
| Dr. Rob Portsmouth | 60% | 120% |
The target and maximum STIP award guideline amount for the NEOs were set to other parts ofgenerally align with competitive levels relative to comparable executive positions in our business. Our ability to generate cash is subject in part to general economic, financial, competitive, legislative, regulatoryPeer Group and other factors that are beyond our control. If we are unable to generate sufficient cash or repay or refinance our debt as it becomes due, we may be forced to take disadvantageous actions, including reducing spending on marketing and new product innovation, reducing financing in the future for working capital, capital expenditureschemical and general corporate purposes, selling assets or dedicating an unsustainable levelindustrial companies. Potential payouts of individual annual STIP awards depend upon both company performance and individual contributions to our cash flow from operations tosuccess, with the payment of principaltarget and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired.maximum award amounts serving as guidelines for ultimate payouts.
Our customers, prospective customers, suppliers or other companies with whom we conduct business may need assurances that our financial stability is sufficient to satisfy their requirements for doing or continuing to do business with them.
Some2019 Performance Measures and Goals. The Compensation Committee selects financial and strategic performance measures that must be achieved for payment of our customers, prospective customers, suppliers or other companies with whom we conduct business may need assurances that our financial stability is sufficient to satisfy their requirements for doing or continuing to do business with them, and may require us to provide additional credit support, such as letters of credit or other financial guarantees. Any failure of parties to be satisfied with our financial stability could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Disruptions in production at our manufacturing facilities may have a material adverse impact on our business, results of operations and/or financial condition.
Manufacturing facilities in our industry are subject to planned and unplanned production shutdowns, turnarounds, outages and other disruptions. Any serious disruption at any of our facilities could impair our ability to use our facilities and have a material adverse impact on our revenues and increase our costs and expenses. Alternative facilities with sufficient capacity may not be available, may cost substantially more or may take significant time to increase production or qualify with our customers, any of which could negatively impact our business, results of operations and/or financial condition. Long-term production disruptions may cause our customers to seek alternative supply which could further adversely affect our profitability. Unplanned production disruptions may occur for external reasons including natural disasters, weather, disease, strikes, power outages, telecommunication or utility failures, transportation interruption, government regulation, flood, political unrest, public crises, war or terrorism, or internal reasons, such as fire, unplanned maintenance or other manufacturing problems. Any such production disruption could have a material impact on our cash flows, results of operations and financial condition.
In addition, we rely on a number of vendors, suppliers and, in some cases, sole-source suppliers, service providers, toll manufacturers and collaborations with other industry participants to provide us with chemicals, feedstocks and other raw materials, along with energy sources and, in certain cases, facilities that we need to operate our business. If the business of these third parties is disrupted, some of these companies could be forced to reduce their output, shut down their operations or file for bankruptcy protection. If this were to occur, it could adversely affect their ability to provide us with the raw materials, energy sources or facilities that we need, which could materially disrupt our operations, including the production of certain of our products. Moreover, it could be difficult to find replacements for certain of our business partners without incurring significant delays or cost increases. All of these risks could have a material adverse effect on our business, results of operations, financial condition and liquidity.
While we maintain business recovery plansindividual STIP awards. The Compensation Committee chooses performance measures that are intendedimportant to allow us to recover from natural disasters or other events that could disrupt our business, we cannot provide assurances that our plans would fully protect us from the effects of all such disasters or from events that might increase in frequency or intensity due to climate change. In addition, insurance may not adequately compensate us for any losses incurred as a result of natural or other disasters. In areas prone to frequent natural or other disasters, insurance may become increasingly expensive or not available at all. Furthermore, some potential climate-driven losses, particularly flooding due to sea-level rises, may pose long-term risks to our physical facilities such that operations cannot be restored in their current locations.
The classification of TiO2 as a Category 2 Carcinogen in the EU, or any increased regulatory scrutiny, could decrease demand for our products and subject us to manufacturing and waste disposal regulations that could significantly increase our costs.
The EU has adopted the Globally Harmonised System of the United Nations for a uniform system for the classification, labelling and packaging of chemical substances in Regulation (EC) No 1272/2008. Pursuant to the CLP, an EU Member State can propose a classification for a substance to the European Chemicals Agency, which upon review by the RAC, can be submitted to the European Commission for adoption by regulation. On May 31, 2016, the French Agency for Food, Environmental and Occupational Health and Safety submitted a proposal to ECHA that would classify TiO2 as a Category 1B Carcinogen presumed to have carcinogenic potential for humans by inhalation. On June 8, 2017, the RAC announced its preliminary conclusion that certain evidence meets the criteria under CLP to classify TiO2 as a Category 2 Carcinogen (described by the EU regulation as appropriate for "suspected human carcinogens") for humans by inhalation. The RAC published their final opinion on September 14, 2017, which proposed that TiO2 be classified as a Category 2 carcinogen by inhalation. In addition, the RAC proposed a note in their opinion to the effect that coated particles must be evaluated to assess whether a higher category (Category 1B or 1A) should be applied and additional routes of exposure (oral or dermal) should be included. After discussion with Member States and stakeholders, the European Commission concluded without a vote of the Member States that the classification of TiO2 as a Category 2 Carcinogen under the CLP Regulation is an appropriate measure. The European Commission first presented the proposed wording for the Entry of TiO2 in Annex VI to the CLP Regulation on June 12, 2018, and this wording has since been further amended. The latest version was published in the draft Commission Delegated Regulation on October 4, 2019 and applies to TiO2 in powder form meeting the size criteria in the RAC note to their
opinion. The regulation was sent for scrutiny by the European Parliament and the Council of the EU, and the scrutiny period came to an end on February 4, 2020. The regulation will enter into force 20 days after its publication in the Official Journal of the European Union and will apply as of October 1, 2021. Member States, however, may choose to apply the regulation at any time after publication.
Adoption of the Category 2 Carcinogen classification will require that many end-use products manufactured with TiO2 be classified and labeled as containing a potentially carcinogenic component, which could negatively impact public perception of products containing TiO2. Such classification will also affect our manufacturing operations by subjecting us to new workplace safety requirements that could significantly increase costs. In addition, any classification, use restriction, or authorization requirement for use imposed by ECHA could trigger heightened regulatory scrutiny in countries outside the EU based on health or safety grounds, which could have a wider adverse impact geographically on market demand for and prices of TiO2 or other products containing TiO2 and increase our compliance obligations outside the EU. Any increased regulatory scrutiny could affect consumer sentiment or limit the marketability of and demand for TiO2 or products containing TiO2, which could have spill-over, restrictive effects under other EU laws, e.g., those affecting medical and pharmaceutical applications, cosmetics, food packaging and food additives. The classification could also require that all waste meeting the powder specifications in the proposed note be handled as hazardous waste, as separately determined by each Member State, which could result in significant impacts on our customers’ products, wastes from our operations and contribute to the implementationcreation of Circular Economy efforts withinshareholder value. The following table provides detail regarding the EU. It is also possible that heightened regulatory scrutiny could lead to claims by employees or consumers of such products alleging adverse health impacts. Finally, the classification of TiO2 as a Category 2 Carcinogen could lead the ECHA to evaluate other products with similar particle characteristics (such as iron oxides or functional additives) for human carcinogenic potential by inhalation, which may ultimately have similar negative impacts on other products within our portfolio.
Sales of TiO2 in the EU represented 44% of our revenuesselected performance measures for the year ended December 31, 2019.2019 annual STIP awards and the corresponding weightings for each:
Restrictions on disposal of waste | | | | | | | | | | | |
| Performance Measure | Weighting | What It Is | Why We Use It |
Corporate free cash flow(1) | 30% | Cash from operating and investing activities, as defined on our US GAAP cash flow statements, before cash used or received from acquisition and disposition activities and separation costs. | Important measure of the financial performance of our company and has a significant impact on our strategic planning, liquidity and the ability to reduce our leverage through cash repayments on outstanding debt. |
Corporate adjusted EBITDA(2) | 20% | An indicator of general economic performance that is not affected by debt restructurings, fluctuations in interest rates or effective tax rates, or levels of depreciation and amortization. | Primary metric by which our shareholders measure our financial performance, thus aligning the interests of management with the interests of our shareholders. |
| Business Improvement Program | 15% | Programs undertaken by our company to improve operational efficiency, optimize product mix and reduce fix costs. | Operational efficiency is important to providing improvements to our financial performance. |
| EHS compliance | 15% | A measure of compliance with injury reduction and process safety objectives. | Discourages risk‑taking for short‑term profits to the detriment of the well‑being of our employees and the communities in which we operate as well as the long‑term interests of our shareholders. |
| Personal Performance | 20% | Culture and compliance, governance and corporate processes, individual contribution and other. | Allows the Compensation Committee the ability to reward NEOs for outstanding performance in 2019 not captured in the above objectives. |
(1) Free cash flow is calculated as cash flows provided by (used in) operating activities from our manufacturing processes could result in higher costscontinuing operations and negatively impact our ability to operate our manufacturing facilities.
A variety of materials are generated by our manufacturing processes, some of which are saleable as products or byproducts and others of which are not and must be reused or disposed of as waste. Storage, transportation, reuse and disposal of waste are generally regulated by governmental authorities in the jurisdictions in which we operate. If existing arrangements for reuse or disposal of waste cease to be available to us, as a result of new rules, regulations or interpretations thereof, exhaustion of reclamation activities, landfill closures, or otherwise, we will need to find new arrangements for reuse or disposal, which could result in increased costs to us and negatively impact our consolidated and combined financial statements. For example, gypsum is generated by our TiO2 manufacturing facilities that use the sulfate process, such as those at Scarlino, Italy and Teluk Kalong, Malaysia. The gypsum from our Scarlino facility is currently used in the reclamation ofinvesting activities. See Appendix B for additional information regarding free cash flow and a nearby former quarry and our existing permit allows continued use of the quarry for approximately a further 10 months. We are currently seeking an extension for the continued use of the remaining reclamation capacity. We are also currently pursuing replacement options for sale, reuse and/or disposal of gypsum produced at the Scarlino facility. Such options generally require governmental approval and there can be no assurance that such approvals will be received in a timely manner or at all. Any classification of waste material produced at our facilities as hazardous is likelyreconciliation to have an adverse impact on obtaining such approvals. Failure to find viable new disposal arrangements for these materials, including those originating at our Scarlino, Italy site, could significantly impact our manufacturing operations, up to and including the temporary or permanent closure of related manufacturing facilities.
In addition, in connection with the classification in the European Union of TiO2 as a Category 2 Carcinogen, Member States could require that all wastes in a powder form meeting the specifications in the RAC note be classified as hazardous waste. This could result in significant changes to how wastes from our operations in the EU (including at our Scarlino, Italy site and elsewhere) are handled, including additional or more stringent manufacturing regulations, labelling requirements, transportation logistics, and other requirements regarding the ability to reuse or sell byproducts, or otherwise dispose of such materials. Any such regulations could have a significant impact on our manufacturing operations and results of operations.
Significant price volatility or interruptions in supply of raw materials and energy may result in increased costs that we may be unable to pass on to our customers, which could reduce our profitability.
Our manufacturing processes consume significant amounts of raw materials and energy, the costs of which are subject to worldwide supply and demand as well as other factors beyond our control. Variations in the cost for raw materials and energy, which primarily reflects market prices for oil and natural gas, may significantly affect our operating results from period to period. We purchase a substantial portion of our raw materials from third-party suppliers and the cost of these raw materials
represents a substantial portion of our operating expenses. The prices of the raw materials that we purchase from third parties are cyclical and volatile. Our supply agreements with our TiO2 feedstock suppliers provide us limited protection against price volatility as they mostly provide for market-based pricing. Contracts tend to be multi-year volume based with negotiated or formula driven short interval pricing. To the extent we do not have fixed price contracts with respect to specific raw materials, we have no control over the costs of raw materials and such costs may fluctuate widely for a variety of reasons, including changes in availability, major capacity additions or reductions, or significant facility operating problems. While we attempt to match cost increases with corresponding product price increases, we are not always able to raise product prices immediately or at all. Moreover, the outcome of these efforts is largely determined by existing competitive and economic conditions. Timing differences between raw material prices, which may change daily, and contract product prices, which in many cases are negotiated only monthly or less often, also have had and may continue to have a negative effect on our cash flow. Any raw materials or energy cost increase that we are not able to pass
(2) Corporate adjusted EBITDA is calculated by eliminating the following from EBITDA: (a) business acquisition and integration expenses/adjustments; (b) separation expense/gain, net; (c) US income tax reform; (d) net income/loss of discontinued operations, net of tax; (e) loss/gain on to our customers could have a material adverse effect on our business, resultsdisposition of operations, financial conditionbusiness/assets; (f) certain legal settlements and liquidity.
There are several raw materials for which there are only a limited numberrelated expenses/gains; (g) amortization of suppliers or a single supplier. For example, certain types of titanium-containing feedstocks suitable for use in our TiO2 facilities are available from a limited number of suppliers around the world. To mitigate potential supply constraints, we enter into supply agreements with particular suppliers, evaluate alternative sources of supply and evaluate alternative technologies to avoid reliance on limited or sole-source suppliers. Where supply relationships are concentrated, particular attention is paid by the parties to ensure strategic intentions are aligned to facilitate long term planning. If certain of our suppliers are unable to meet their obligations under present supply agreements, we may be forced to pay higher prices to obtain the necessary raw materials from other sources and we may not be able to increase prices for our finished products to recoup the higher raw materials costs. Any interruption in the supply of raw materials could increase our costs or decrease our revenues, which could reduce our cash flow. The inability of a supplier to meet our raw material needs could have a material adverse effect on our financial statements and results of operations.
The number of sources for and availability of certain raw materials is also specific to the particular geographical region in which a facility is located. Political and economic instability in the countries from which we purchase our raw material supplies could adversely affect their availability. In addition, if raw materials become unavailable within a geographic area from which they are now sourced, then we may not be able to obtain suitable or cost-effective substitutes. We may also experience higher operating costs such as energy costs, which could affect our profitability. We may not always be able to increase our selling prices to offset the impact of any higher productions costs or reduced production levels, which could reduce our earnings and decrease our liquidity.
If we are unable to successfully implement business improvements, we may not realize the benefits we anticipate from such programs or may incur additional and/or unexpected costs in order to realize them.
We continue to be intensely focused on strengthening our business and improving our cash flow. We commenced our 2019 Business Improvement Program in the fourth quarter of 2018 following the completion of our prior program. This cost and operational improvement program is designed to generate additional EBITDA benefits through an improvement in TiO2 manufacturing efficiencies, a reduction in selling, general and administrative and manufacturing expenses and other operational improvements in our Performance Additives segment. We intend to complete all the actions necessary to deliver on our target by the end of 2020.
Cost savings expectations are inherently difficult to predict and are necessarily speculative in nature, and we cannot provide assurance that we will achieve expected or any actual cost savings. A variety of factors could cause us not to realize some or all of the expected cost savings, including, among others, delays in the anticipated timing of activities related to our cost savings programs, lack of sustainability in cost savings over time, unexpected costs associated with operating our business, our ability to reduce headcount and our ability to achieve the efficiencies contemplated by the cost savings initiative. We may be unable to realize all of these cost savings within the expected timeframe, or at all, and we may incur additional or unexpected costs in order to realize them. These cost savings are based upon a number of assumptions and estimates that are in turn based on our analysis of the various factors which currently, and could in the future, impact our business. These assumptions and estimates are inherently uncertain and subject to significant business, operational, economic and competitive uncertainties and contingencies. Certain of the assumptions relate to business decisions that are subject to change, including, among others, our anticipated business strategies, our marketing strategies, our product development strategies and our ability to anticipate and react to business trends. Other assumptions relate to risks and uncertainties beyond our control, including, among others, the economic environment in which we operate, environmental regulation and other developments in our industry as well as capital markets conditions from time to time. The actual results of implementing the various cost savings initiatives may differ materially from the estimates set out in this report if any of these assumptions prove incorrect. Moreover, our continued efforts to implement these cost savings may divert management attention from the rest of our business and may preclude us from seeking attractive new product opportunities, any of which may materially and adversely affect our business.
We may be unsuccessful in our announced intentions to close the Pori, Finland site and transfer specialty and differentiated production to other sites within our manufacturing network within the anticipated timeframe and costs and we may not experience the full anticipated benefits of our transfer program.
On January 30, 2017, our TiO2 manufacturing facility in Pori, Finland, experienced fire damage. The Pori facility had a nameplate capacity of 130,000 metric tons per year, which represented approximately 17% of our total TiO2 nameplate capacity and approximately 2% of total global TiO2 demand. Prior to the fire, 60% of the site capacity produced specialty products which, on average, contributed greater than 75% of the site EBITDA from January 1, 2015 through January 30, 2017.
On September 12, 2018, following our review of the Pori facility and options within our manufacturing network, and as a result of unanticipated cost escalation and extended timeline associated with reconstruction, we announced that we intend to close our Pori, Finland, TiO2 manufacturing facility and transfer the specialty and differentiated product grades to other sites. We expect to continue to wind down the limited operations at the Pori facility through the transition period. We are exploring ways to optimize the remaining transfer of our business from Pori, which may result in a lower total expected capital outlay and a lower associated EBITDA benefit than originally estimated.
Restoring at sites elsewhere in our network the production of these products formerly produced at Pori is important to our competitive position and business strategy. A variety of factors could cause us not to realize some or all of the anticipated benefits, economic or otherwise, including, among others, delays in anticipated timing and unexpected costs in the wind-down and closing of the Pori, Finland facility, delays in transferring certain technology and the production of select product grades to other manufacturing facilities or the inability of the transferred products to meet required product specifications. In addition, we may be unable to realize the anticipated benefits within our expected timeframe, or at all. Certain risks and uncertainties may be beyond our control, including, among others, the economic environment in which we operate, changing regulations and other developments in our industry. Even if we are able to transition production on the anticipated schedule, we may lose customers that have in the meantime found alternative suppliers elsewhere. If any of these factors occur, they could have an adverse effect on our market position and operating results.
Costs from current and future restructurings and site closures may exceed our estimates and adversely affect our financial condition, results of operations, cash flows or business reputation.
We have implemented various restructuring initiatives to improve our operating efficiency, which have included in some instances the planned or completed closure of sites within our manufacturing network, including manufacturing sites in Pori, Finland and Calais, France. In addition, we may announce additional restructuring programs and site closures in the future. Restructurings and site closures are complex and involve multiple aspects including environmental, government, regulatory and workforce matters. We can provide no assurance that costs and timeframes associated with restructurings or site closures will be in line with our estimates or that we will achieve targeted costs savings. In certain circumstances, costs and timeframes could materially exceed our estimates. Any material increase in restructuring or plant closure costs or timeframes could have a material impact on our consolidated and combined financial statements.
Our efforts to transform our businesses may require significant investments; if our strategies are unsuccessful, our business, results of operations and/or financial condition may be materially adversely affected.
We intend to continuously evaluate opportunities for growth and change. These initiatives may involve making acquisitions, entering into partnerships and joint ventures, divesting assets, restructuring our existing assets and operations, creating new financial structures and building new facilities—any of which could require a significant investment and subject us to new kinds of risks. We may incur indebtedness to finance these opportunities. We could also issue our ordinary shares or securities of our subsidiaries to finance such initiatives. If our strategies for growth and change are not successful, we could face increased financial pressure, such as increased cash flow demands, reduced liquidity and diminished access to financial markets, and the equity value of our businesses could be diluted.
The implementation of strategies for growth and change may create additional risks, including:
•diversion of management time and attention away from existing operations;
•requiring capital investment that could otherwise be used for the operation and growth of our existing businesses;
•disruptions to important business relationships;
•increased operating costs;
•limitations imposed by various governmental entities;
•use of limited investment and other baskets under our debt covenants;
•difficulties realizing projected synergies;
•difficulties due to lack of or limited prior experience in any new markets we may enter; and
•difficulty integrating acquired businesses or products with our existing businesses.
Our inability to mitigate these risks or other problems encountered in connection with our strategies for growth and change could have a material adverse effect on our business, results of operations and financial condition. In addition, we may fail to fully achieve the savings or growth projected for current or future initiatives notwithstanding the expenditure of substantial resources in pursuit thereof.
Our pension and postretirement benefit plan obligations are currently underfunded,actuarial losses/gains; (h) net plant incident costs/credits; and under certain circumstances we may have to significantly increase the level of cash funding to some or all of these plans, which would reduce the cash available for our business.
We have unfunded obligations under our pension(i) restructuring, impairment, and postretirement benefit plans including certain unfunded pension obligations we assumed upon the consummation of the Rockwood acquisition. The funded status of our pension plans is dependent upon many factors, including returns on invested assets, the level of certain market interest ratesplant closing and the discount rate used to determine pension obligations. Unfavorable returns on plan assets or unfavorable changes in applicable laws or regulations, or in the application of laws or regulations to us by pension regulators or trustees, could materially change the timingtransition costs/credits. A presentation and amount of required plan funding, which would reduce the cash available for our business. Also, a decrease in the discount rate used to determine pension obligations could result in an increase in the valuation of pension obligations, which could affect the reported funding status of our pension plans and future contributions, as well as the periodic pension cost in subsequent fiscal years. In addition, we have undertaken restructuring initiatives and site closures at locations within our manufacturing network. Restructuring initiatives and site closures could impact our funding obligations as a result of funding rules specificreconciliation to the jurisdiction in which the restructuring initiative or site closure occurs. Asmost directly comparable GAAP financial measures is contained on pages 47-48 of December 31, 2019, our unfunded deficit under our defined benefit plans was $166 million, the majority of which related to funding obligations for our pension plans in Finland and Germany. If current or future restructuring initiatives or site closures were to cause or require an acceleration of our funding obligations under our pension and post-retirement benefit plans, it could have an adverse impact on our business, financial condition, results of operations and cash flows.
With respect to our domestic pension and postretirement benefit plans, the Pension Benefit Guaranty Corporation ("PBGC") has the authority to terminate an underfunded tax-qualified pension plan under limited circumstances in accordance with the Employee Retirement Income Security Act of 1974, as amended. In the event our tax-qualified pension plans are terminated by the PBGC, we could be liable to the PBGC for the entire amount of the underfunding.
With respect to our foreign pension and postretirement benefit plans, the effects of underfunding depend on the country in which the pension and postretirement benefit plan is established. For example, in the U.K. and Germany, semi-public pension protection programs have the authority, in certain circumstances, to assume responsibility for underfunded pension schemes, including the right to recover the amount of the underfunding from us.
Our results of operations may be adversely affected by fluctuations in currency exchange rates and tax rates and changes in tax laws in the jurisdictions in which we operate.
We conduct a majority of our business operations outside the U.S. Sales to customers outside the U.S. contributed 77% of our revenue in 2019. Our operations are subject to international business risks, including the need to convert currencies received for our products into currencies in which we purchase raw materials or pay for services, which could result in a gain or loss depending on fluctuations in exchange rates. We transact business in many foreign currencies, including the euro, the British pound sterling, the Malaysian ringgit and the Chinese renminbi. We translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during the reporting period or the exchange rate at the end of that period. During times of a strengthening U.S. dollar, our reported international sales and earnings may be reduced because the local currency may translate into fewer U.S. dollars. Because we currently have significant operations located outside the U.S., we are exposed to fluctuations in global currency rates which may result in gains or losses on our financial statements.
We are subject to income taxation in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. In addition, our effective tax rates could be affected by numerous factors, such as intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we are subject to lower statutory rates and higher than anticipated in jurisdictions where we are subject to
higher statutory rates, the applicability of special tax regimes, losses incurred in jurisdictions in which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies, changes to our existing businesses and operations, acquisitions (including integrations) and investments and how they are financed, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations.
We are also currently subject to audit in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.
In addition, generally accepted accounting principles in the United States ("U.S. GAAP" or "GAAP") has required us to place valuation allowances against our net operating losses and other deferred tax assets in a significant number of tax jurisdictions. These valuation allowances result from analysis of positive and negative evidence supporting the realization of tax benefits. Negative evidence includes a cumulative history of pre-tax operating losses in specific tax jurisdictions. Changes in valuation allowances have resulted in material fluctuations in our effective tax rate. Economic conditions may dictate the continued imposition of current valuation allowances and, potentially, the establishment of new valuation allowances and releases of existing valuation allowances. While significant valuation allowances remain, our effective tax rate will likely continue to experience significant fluctuations. Furthermore, certain foreign jurisdictions may take actions to delay our ability to collect value-added tax refunds.
We are subject to risks relating to our information technology systems, and any failure to adequately protect our critical information technology systems could materially affect our operations.
We rely on information technology systems across our operations, including for management, supply chain and financial information and various other processes and transactions. Our ability to effectively manage our business depends on the security, reliability and capacity of these systems. Information technology system failures, network disruptions or breaches of security could disrupt our operations, cause delays or cancellations of customer orders or impede the manufacture or shipment of products, processing of transactions or reporting of financial results. Cyberattacks are a growing problem. We are the subject of cyberattacks that may be intended to capture business information, access our customers’ information or harm our reputation as a company. We expect that there will continue to be cyberattacks and our defenses might not always be effective. The processes used by attackers are evolving in sophistication and increasing in frequency. Cyberattacks or other problem with our systems may result in the disclosure of proprietary information about our business or confidential information concerning our customers or employees, which could result in significant damage to our business and our reputation.
We have put in place security measures designed to protect against the misappropriation or corruption of our systems, intentional or unintentional disclosure of confidential information, or disruption of our operations. Current employees have, and former employees may have, access to a significant amount of information regarding our operations which could be disclosed to our competitors or otherwise used to harm us. Moreover, our operations in certain locations, such as China, may be particularly vulnerable to security attacks or other problems. Any breach of our security measures could result in unauthorized access to and misappropriation of our information, corruption of data or disruption of operations or transactions, any of which could have a material adverse effect on our business.
In addition, we could be required to expend significant additional amounts to respond to information technology issues or to protect against threatened or actual security breaches. We may not be able to implement measures that will protect against the significant risks to our information technology systems.
The impact of changing laws or regulations or the manner of interpretation or enforcement of existing laws or regulations could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.
New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could increase our cost of doing business and restrict our ability to operate our business or execute our strategies. This risk includes, among other things, the possible taxation under U.S. law of certain income from foreign operations, the possible taxation under foreign laws of certain income we report in other jurisdictions, and regulations related to the protection of private information of our employees and customers. In addition, compliance with laws and regulations is complicated by our substantial global footprint, which will require significant and additional resources to ensure compliance with applicable laws and regulations in the various countries where we conduct business.
Our global operations expose us to trade and economic sanctions and other restrictions imposed by the U.S., the EU and other governments and organizations. The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the Foreign Corrupt Practices Act (the "FCPA") and other federal statutes and regulations, including those established by the Office of Foreign Assets Control ("OFAC"). Under these laws and regulations, as well as other anti-corruption laws, anti-money-laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations could adversely impact our business, results of operations and financial condition.
Although we have implemented policies and procedures in these areas, we cannot assure you that our policies and procedures are sufficient or that directors, officers, employees, representatives, manufacturers, supplier and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, OFAC restrictions or other export control, anti-corruption, anti-money-laundering and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Our substantial global operations subject us to risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations.
We expect sales from international markets to continue to represent a large portion of our sales in the future. Also, a significant portion of our manufacturing capacity is located outside of the U.S. Accordingly, our business is subject to risks related to the differing legal, political, cultural, social and regulatory requirements and economic conditions of many jurisdictions.
Certain legal and political risks are also inherent in the operation of a company with our global scope. For example, it may be more difficult for us to enforce our agreements or collect receivables through foreign legal systems.
There is a risk that foreign governments may nationalize private enterprises in certain countries where we operate. In certain countries or regions, terrorist activities and the response to such activities may threaten our operations more than in the U.S. Social and cultural norms in certain countries may not support compliance with our corporate policies including those that require compliance with substantive laws and regulations. Also, changes in general economic and political conditions in countries where we operate are a risk to our financial performance and future growth.
As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to our multinational operations will not have an adverse effect on our business, financial condition or results of operations.
If we are unable to innovate and successfully introduce new products, or new technologies or processes, our profitability could be adversely affected.
Our industries and the end-use markets into which we sell our products experience periodic technological change and product improvement. Our future growth will depend on our ability to gauge the direction of commercial and technological progress in key end-use markets and on our ability to fund and successfully develop, manufacture and market products in such changing end-use markets. We must continue to identify, develop and market innovative products or enhance existing products on a timely basis to maintain our profit margins and our competitive position. We may be unable to develop new products or technology, either alone or with third parties, or license intellectual property rights from third parties on a commercially competitive basis. If we fail to keep pace with the evolving technological innovations in our end-use markets on a competitive basis, including with respect to innovation or the development of alternative uses for, or application of, our products, our financial condition and results of operations could be adversely affected. We cannot predict whether technological innovations will, in the future, result in a lower demand for our products or affect the competitiveness of our business. We may be required to invest significant resources to adapt to changing technologies, markets, competitive environments and laws and regulations. We cannot anticipate market acceptance of new products or future products. In addition, we may not achieve our expected
benefits associated with new products developed to meet new laws or regulations if the implementation of such laws or regulations is delayed.
We are subject to many environmental, health and safety laws and regulations that may result in unanticipated costs or liabilities, which could reduce our profitability.
Our properties and operations, including our global manufacturing facilities, are subject to a broad array of EHS requirements, including extensive federal, state, local, foreign and international laws, regulations, rules and ordinances relating to pollution, protection of the environment and human health and safety, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. There has been a global upward trend in the number and complexity of current and proposed EHS laws and regulations, including those relating to the chemicals used and generated in our operations and included in our products. The costs to comply with these EHS laws and regulations, as well as internal voluntary programs and goals, are significant and will continue to be significant in the foreseeable future.
Our facilities are dependent on environmental permits to operate. These operating permits are subject to modification, renewal and revocation, which could have a material adverse effect on our operations and our financial condition. In addition, third parties may contest our ability to receive or renew certain permits that we need to operate, which can lengthen the application process or even prevent us from obtaining necessary permits. Moreover, actual or alleged violations of permit requirements could result in restrictions or prohibitions on our operations and facilities.
In addition, we expect to incur significant capital expenditures and operating costs in order to comply with existing and future EHS laws and regulations. Capital expenditures and operating costs relating to EHS matters are subject to evolving requirements, and the timing and amount of such expenditures and costs will depend on the timing of the promulgation of the requirements as well as the enforcement of specific standards.
We are also liable for the costs of investigating and cleaning up environmental contamination on or from our currently-owned and operated properties. We also may be liable for environmental contamination on or from our formerly-owned and operated properties, and on or from third-party sites to which we sent hazardous substances or waste materials for disposal. In many circumstances, EHS laws and regulations impose joint, several, and/or strict liability for contamination, and therefore we may be held liable for cleaning up contamination at currently owned properties even if the contamination was caused by former owners, or at third-party sites even if our original disposal activities were in accordance with all then existing regulatory requirements. Moreover, certain of our facilities are in close proximity to other industrial manufacturing sites. In these locations, the source of contamination resulting from discharges into the environment may not be clear. We could potentially be held responsible for such liabilities even if the contamination did not originate from our sites, and we may have to incur significant costs to respond to any remedies imposed, or to defend any actions initiated, by environmental agencies.
Changes in EHS laws and regulations, violations of EHS law or regulations that result in civil or criminal sanctions, the revocation or modification of EHS permits, the bringing of investigations or enforcement proceedings against us by governmental agencies, the bringing of private claims alleging environmental damages against us, the discovery of contamination on our current or former properties or at third-party disposal sites, could reduce our profitability or have a material adverse effect on our operations and financial condition.
Our products, raw materials and operations are subject to chemical control laws in countries in which they are manufactured, transported or sold.
We are subject to a wide array of laws governing chemicals, including the regulation of chemical substances and inventories under TSCA in the U.S. and REACH and the CLP regulations in Europe. Analogous regimes exist in other parts of the world, including China, South Korea, and Taiwan. In addition, a number of countries where we operate, including the U.K., have adopted rules to conform chemical labeling in accordance with the GHS. Many of these foreign regulatory regimes are in the process of a multi-year implementation period for these rules.
Additional new laws and regulations may be enacted or adopted by various regulatory agencies globally. For example, in the U.S., the EPA finalized revisions to its Risk Management Program in January 2017. The revisions include new requirements for certain facilities to perform hazard analyses, third-party auditing, incident investigations and root cause analyses, emergency response exercises, and to publicly share chemical and process information. The EPA proposed to delay the effective date of the rule to February 2019; however, a ruling by the U.S. Court of Appeals for the D.C. Circuit on September 21, 2018 made the Risk Management Program rule amendment effective immediately. The U.S. Occupational Safety and Health Administration had previously announced that it was considering changes to its Process Safety Management standards that parallel EPA’s Risk Management Program; but additional action appears unlikely at this time. In addition, TSCA
reform legislation was enacted in June 2016, and the EPA has begun the process of issuing new chemical control regulations. EPA issued several final rules in 2017 under the revised TSCA related to existing chemicals, including the following: (i) a rule to establish EPA’s process and criteria for identifying chemicals for risk evaluation; (ii) a rule to establish EPA’s process for evaluating high priority chemicals and their uses to determine whether or not they present an unreasonable risk to health or the environment; and (iii) a rule to require industry reporting of chemicals manufactured or processed in the U.S. over the past 10 years. The EPA has also released its framework for approving new chemicals and new uses of existing chemicals. Under the framework, a new chemical or use presents an unreasonable risk if it exceeds set standards. Such a finding could result in either the issuance of rules restricting the use of the chemical being evaluated or in the need for additional testing. The costs of compliance with any new laws or regulations cannot be estimated until the manner in which they will be implemented has been more precisely defined.
Furthermore, governmental, regulatory and societal demands for increasing levels of product safety and environmental protection could result in increased pressure for more stringent regulatory control with respect to the chemical industry. In addition, these concerns could influence public perceptions regarding our products, raw materials and operations, the viability of certain products or raw materials, our reputation, the cost to comply with regulations, and the ability to attract and retain employees. Moreover, changes in product safety and environmental protection regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, product safety and environmental matters may cause us to incur significant unanticipated losses, costs or liabilities, which could reduce our profitability.
We use a variety of substances from third parties in the manufacture, processing and handling of our products, and it is possible that a substance could be classified as harmful, which could negatively impact our ability to sell or market our products. For example, pursuant to the CLP, chemical substances and mixtures cannot be placed on the EU market unless they comply with the CLP’s requirements regarding classification, labelling and packaging. In 2019, new scientific data became available on Trimethylolpropane ("TMP"), and in December 2019 an EU supplier of this substance informed us that the REACH consortium responsible for TMP had self-classified TMP to be a suspected reproductive toxicant (Category 2). We manufacture and sell numerous types of TiO2 pigments and other products worldwide, some of which are treated with and/or contain TMP. We are currently assessing the impact that this classification will have on our business in Europe and other regions.
We could incur significant expenditures in order to comply with existing or future EHS laws. Capital expenditures and costs relating to EHS matters will be subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose requirements on our operations. Capital expenditures and costs beyond those currently anticipated may therefore be required under existing or future EHS laws.
Our operations are increasingly subject to climate change regulations that seek to reduce emissions of greenhouse gases.
Globally, our operations are increasingly subject to regulations that seek to reduce emissions of greenhouse gases, such as carbon dioxide and methane, which may be contributing to changes in the earth’s climate. At the Durban negotiations of the Conference of the Parties to the Kyoto Protocol in 2012, a limited group of nations, including the EU, agreed to a second commitment period for the Kyoto Protocol, an international treaty that provides for reductions in GHG emissions. More significantly, the EU GHG ETS, established pursuant to the Kyoto Protocol to reduce GHG emissions in the EU, continues in its third phase. The European Parliament has used a process to formalize "backloading"—the withholding of GHG allowances during the trading period from 2014 to 2016 with additional allowances auctioned during 2019 to 2020—to prop up carbon prices. As backloading is only a temporary measure, a sustainable solution to the imbalance between supply and demand requires structural changes to the ETS. The European Commission proposes to establish a market stability reserve to address the current surplus of allowances and improve the system’s resilience. The reserve will start operating in 2019. In addition, the EU has announced the binding target to reduce domestic GHG emissions by at least 40% below the 1990 level by 2030. The EU has set a binding target of increasing the share of renewable energy to at least 27% of the EU’s energy consumption by 2030, and additional proposals have been made to increase the target to 35%.
In addition, at the 2015 United Nations Framework Convention on Climate Change in Paris, the U.S. and nearly 200 other nations entered into the Paris Agreement, which entered into effect in November 2016. Although the agreement does not create any binding obligations for nations to limit their GHG emissions, it does include pledges to voluntarily limit or reduce future emissions. However, in August 2017 the U.S. informed the United Nations that it is withdrawing from the Paris Agreement. The Paris Agreement provides for a four year exit process.
Federal climate change legislation in the U.S. appears unlikely in the near-term. As a result, domestic efforts to curb GHG emissions will continue to be led by the EPA's GHG regulations and similar programs of certain states. To the extent that our US operations are subject to the EPA’s GHG regulations and/or state GHG regulations, we may face increased capital and
operating costs associated with new or expanded facilities. Significant expansions of our existing facilities or construction of new facilities may be subject to the CAA’s requirements for pollutants regulated under the Prevention of Significant Deterioration and Title V programs. Some of our facilities are also subject to the EPA’s Mandatory Reporting of Greenhouse Gases rule, and any further regulation may increase our operational costs.
We are already managing and reporting GHG emissions, to varying degrees, as required by law for our sites in locations subject to U.S. federal and state requirements, Kyoto Protocol obligations and/or ETS requirements. These sites are subject to existing GHG legislation, and it is possible that GHG emission restrictions may increase over time and result in significant cost increases. Potential consequences of such restrictions include capital requirements to modify assets to meet GHG emission restrictions and/or increases in energy costs above the level of general inflation, as well as direct compliance costs. Currently, however, it is not possible to estimate the likely financial impact of potential future regulation on any of our sites.
Finally, some scientists have concluded that increasing concentrations of GHGs in the earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other extreme climatic events. If any of those effects were to occur, they could have an adverse effect on our assets and operations. For example, we have numerous operations in low lying areas that may be at increased risk due to flooding, rising sea levels or disruption of operations from more frequent and severe weather events.
Our operations, financial condition and liquidity could be adversely affected by legal claims against us.
We face risks arising from various legal actions, including matters relating to antitrust, product liability, third party liability, intellectual property and environmental claims. It is possible that judgments could be rendered against us in these cases or others for which we could be uninsured or not covered by indemnity, or which may be beyond the amounts that we currently have reserved or anticipate incurring for such matters. Over the past few years, antitrust claims have been made against TiO2 companies, including us. In this type of litigation, the plaintiffs generally seek treble damages, which may be significant. An adverse outcome in any claim could be material and significantly impact our operations, financial condition and liquidity. In addition, we are subject to various claims and litigation in the ordinary course of business. For more information, see "Item 3. Legal Proceedings below."
Differences in views with our joint venture participants may cause our joint ventures not to operate according to their business plans, which may adversely affect our results of operations.
We currently participate in a number of joint ventures, including our joint venture in Lake Charles, Louisiana with Kronos and our Harrisburg, North Carolina joint venture with DuPont, and may enter into additional joint ventures in the future. The nature of a joint venture requires us to share control with unaffiliated third parties. Differences in views among joint venture participants may result in delayed decisions or failure to agree on major decisions. If these differences cause the joint ventures to deviate from their business plans or to fail to achieve their desired operating performance, our results of operations could be adversely affected.
Economic conditions and regulatory changes following the U.K.’s exit from the EU could adversely impact our operations, operating results and financial condition.
As a result of Brexit, the U.K. is now in a transition period until December 31, 2020, during which time EU rules and regulations applicable to U.K. businesses will continue to remain in force. As negotiations on a potential trade deal between the U.K. and the EU continue during the transition period, we anticipate that there will continue to be an impact to economic conditions in the U.K., and to trading between the U.K. and the EU. The future effects of Brexit remain unknown and will depend on any agreements the U.K. makes to retain access to the EU or other markets beyond the transitional period. Although a no-deal Brexit was avoided in January 2020, there is no certainty that a similar result will be avoided at the end of 2020. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the withdrawal of the U.K. from the EU will have and how such withdrawal will affect our Company.
We derive a significant portion of our revenues from sales outside the U.S., including 40% from continental Europe and 5% from the U.K. in 2019. The consequences of Brexit, together with the continuing uncertainty regarding the terms on which the U.K. will interact with the EU after the transition period, could introduce significant volatility into global financial markets and adversely impact the markets in which we and our customers operate. Brexit could also create uncertainty with respect to the legal and regulatory requirements to which we and our customers in the U.K. are subject and lead to divergent national laws and regulations as the U.K. determines which EU laws to replace or replicate, including U.K. competition law. In
the event that the U.K. does not have a trade deal agreed with EU at the end of the transition period, the following issues could impact our operations:
•in the event of new customs operations being implemented, there is a strong likelihood of border delays both within and outside of the U.K.;
•duties becoming payable on goods traded between the U.K. and the EU, together with customs, excise and indirect tax;
•procedures currently applicable to goods traded between the EU and non-EU countries changing;
•limited transportation availability for a period, particularly if there are delays at borders between the U.K. and EU;
•new product registration requirements being applicable; and
•other unforeseen financial, legal, tax and trade implications.
While we are not experiencing any immediate adverse impact on our financial condition as a direct result of Brexit, adverse consequences such as deterioration in economic conditions, volatility in currency exchange rates or adverse changes in regulation could have a negative impact on our future operations, operating results and financial condition.
General business conditions are vulnerable to the effects of public health crises, such as the COVID-19 coronavirus, which could materially disrupt our business.
We are vulnerable to the global economic effects of epidemics and other public health crises, such as the novel strain of COVID-19 coronavirus reported to have first surfaced in Wuhan, China in 2019. Due to the recent outbreak of the COVID-19 coronavirus, there has been, and may continue to be, turmoil in financial markets, restricted travel, quarantines of those who may have been exposed and a curtailment of global business activities, which could negatively impact our business, results of operations and/or financial condition. Disruptions in our operations or supply chain, whether as a result of restricted travel, quarantine requirements or otherwise, could also negatively impact our revenues. If not timely resolved, the impact of the COVID-19 coronavirus could have a material adverse effect on our business.
Some of our historical financial information may not be representative of the results we would have achieved as a stand-alone public company and may not be a reliable indicator of our future results.
Our historical financial information prior to the separation included in this report were derived from Huntsman’s accounting records. Our historical financial information for the year ended December 31, 2017 includes periods during which we were a wholly-owned subsidiary of Huntsman. These periods also included output from our Pori facility, which is in the process of being closed after being damaged in a fire. Prior to the separation, Huntsman did not account for us, and we were not operated, as a separate, stand-alone company and such information presented may not reflect what our financial position, results of operations or cash flows would have been had we been a separate, stand-alone entity during such periods or those that we will achieve in the future. The costs to operate our business as a separate public entity differ from the historical cost allocations from Huntsman reflected in our financial statements.
For additional information about our past financial performance and the basis of presentation of our financial statements, see our consolidated and combined financial statements and related notes.
The markets for many of our products have seasonally affected sales patterns.
The demand for TiO2 and certain of our other products during a given year is subject to seasonal fluctuations. Because TiO2 is widely used in paint and other coatings, demand is higher in the painting seasons of spring and summer in the Northern Hemisphere. We may be adversely affected by anticipated or unanticipated changes in regional weather conditions. For example, poor weather conditions in a region can lead to an abbreviated painting season, which can depress consumer sales of paint products that use TiO2, which could have a negative effect on our cash position.
Our operations involve risks that may increase our operating costs, which could reduce our profitability.
Although we take precautions to enhance the safety of our operations and minimize the risk of disruptions, our operations are subject to hazards inherent in the manufacturing and marketing of chemical and other products. These hazards include: chemical spills, pipeline leaks and ruptures, storage tank leaks, discharges or releases of toxic or hazardous substances or gases and other hazards incident to the manufacturing, processing, handling, transportation and storage of dangerous chemicals. We are also potentially subject to other hazards, including natural disasters and severe weather; explosions and fires; transportation problems, including interruptions, spills and leaks; mechanical failures; unscheduled downtimes; labor difficulties; remediation complications; and other risks. In addition, some equipment and operations at our facilities are owned or controlled by third parties who may not be fully integrated into our safety programs and over whom we are able to exercise
limited control. Many potential hazards can cause bodily injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties and liabilities. Furthermore, we are subject to present and future claims with respect to workplace exposure, exposure of contractors on our premises as well as other persons located nearby, workers’ compensation and other matters.
We maintain property, business interruption, products liability and casualty insurance policies which we believe are in accordance with customary industry practices, as well as insurance policies covering other types of risks, including pollution legal liability insurance, but we are not fully insured against all potential hazards and risks incident to our business. Each of these insurance policies is subject to customary exclusions, deductibles and coverage limits, in accordance with industry standards and practices. As a result of market conditions, our loss history and other factors, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. If an incident were to occur or we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our business, results of operations, financial condition and liquidity. Please see "—Disruptions in production at our manufacturing facilities may have a material adverse impact on our business, results of operations and/or financial condition."
Significant developments from the recent and potential changes in U.S. and international trade policies could have a material adverse effect on our business.
The U.S. government has announced and, in some cases, implemented a new approach to trade policy, including renegotiating, or potentially terminating, certain existing bilateral or multi-lateral trade agreements, as well as implementing the imposition of additional tariffs on certain foreign goods, including finished products and raw materials such as steel and aluminum. These tariffs and potential tariffs have resulted or may result in increased prices for goods and materials imported into the U.S. and, in some cases may result or have resulted in price increases for U.S. sourced goods and materials. Changes in U.S. trade policy have resulted and could result in additional reactions from U.S. trading partners, including adopting responsive trade policy making it more difficult or costly for us to export U.S. products to other countries. These measures could also result in increased costs for products imported into the U.S. or may cause us to adjust our worldwide supply chain. Either of these could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold.
Various countries, and regions, including, without limitation, China and Europe, have announced plans or intentions to impose or have imposed tariffs on a wide range of U.S. products in retaliation for new U.S. tariffs. These actions could, in turn, result in additional tariffs being adopted by the U.S. These conditions and future actions could have a significant adverse effect on world trade and the world economy. To the extent that trade tariffs and other restrictions imposed by the United States increase the price of, or limit the amount of, raw materials and products imported into the United States, the costs of our raw materials may be adversely affected and the demand from our products may be diminished, which could adversely affect our revenues and profitability.
In addition, there have been recent changes to trade agreements, such as the replacement of the North American Free Trade Agreement with the United States-Mexico-Canada Agreement. We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impacts on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition and results of operations.
Failure to maintain effective internal controls could adversely affect our ability to meet our reporting requirements.
The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. One key aspect of the Sarbanes-Oxley Act is that we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal controls, beginning with our annual report on Form 10-K for the fiscal year endingended December 31, 2018. 2019 (the “2019 10-K”), as filed with the US Securities and Exchange Commission (the “SEC”) on March 12, 2020.
The Compensation Committee established threshold, target and maximum performance goals for each of the financial performance measures as follows:
| | | | | | | | | | | |
| 2019(in millions) | | |
| Performance Measure | Threshold Goal | Target Goal | Maximum Goal |
| Corporate free cash flow | ($145) | ($121) | ($95) |
| Corporate adjusted EBITDA | $143 | $190 | $220 |
| Business improvements | $12 | $15 | $20 |
The Compensation Committee also established threshold, target and maximum goals for each of the EHS performance measures as follows:
| | | | | | | | | | | | | | |
| | 2019 | | |
| Performance Measure | How Measured | Threshold Goal | Target Goal | Maximum Goal |
| Total Recordable Injury Rate | Company‑wide achievement of injury reduction objectives | 0.63 | 0.53 | 0.43 |
| Company‑wide achievement of injury reduction objectives | Company‑wide achievement of process safety objectives | 0.16 | 0.1 | 0.08 |
Performance goals are set at aggressive levels requiring significant effort to achieve. For 2019, certain of these goals were set lower than in 2018 due to the cyclical nature of the business and our company’s forecast of a downturn in the industry and lower year-over-year results as a consequence. Achievement levels between threshold and target result in award payouts from 0% to 100% of target. Achievement levels between target and maximum result in award payouts from 100% to 200% of target for all NEOs.
2019 Performance. The 2019 targets were designed to require significant effort to achieve, yet to be realistic enough to incentivize our executive officers’ performance. For 2019, actual performance and performance as a percentage of targets were as follows:
| | | | | | | | | | | |
| Performance Criteria | 2019 Target Goal (dollars in millions) | 2019 Result (dollars in millions) | Earned Payout as a % of Target |
| Corporate free cash flow | ($121) | $(121) | 30.0% |
| Corporate adjusted EBITDA | $190 | $188 | 19.2% |
| Business Improvement Program | $15 | $15 | 15.0% |
| Total Recordable Injury Rate | 0.53 | 0.53 | 7.5% |
| Company‑wide achievement of injury reduction objectives | 0.1 | 0.16 | 0.0% |
| Personal Performance | N/A | N/A | N/A |
| TOTAL | | | 71.7% |
Personal Performance. The Committee reviewed each NEO’s performance during 2019 to determine the payout under the personal performance criteria:
| | | | | | | | |
| Officer | Criteria Considered | Earned Payout as a % of Target |
| Simon Turner | Successful leadership of the executive leadership team; successfully delivered business improvement program targets ahead of schedule; successfully completed internal restructuring; credit facility expansion | 30% |
| Kurt D. Ogden | Successful expansion of senior credit facility; restructured and strengthened department, delivered cost savings; accurate quarterly guidance | 27% |
| Russ R. Stolle | Strengthened compliance activities; restructured legal and human resources departments; delivered cost savings and pension efficiencies; successful litigation management | 23% |
| Mahomed Maiter | Reorganized operations and delivered business improvement savings ahead of schedule; led Pori closure progress resulting in successful restructuring and cost savings; successful leadership in strategic initiatives | 30% |
| Dr. Rob Portsmouth | Delivered process safety program improvements; successful regulatory advocacy; delivered new product sales; led culture program | 20% |
2019 Annual STIP Award Payouts. The earned payout as a percentage of target reflects the sum of the results of our performance relative to the targets set for each performance measure, as described above. The CEO presents the Compensation Committee with recommendations for the annual cash incentive awards for each of the other executive officers, including the other NEOs. The Compensation Committee reviews the CEO’s recommendations, as well as the CEO’s performance, and makes such adjustments as it deems appropriate in its determination of the award payouts. For 2019, the Compensation Committee made no adjustments to the final award payouts determined in accordance with the corporate and performance criteria described above.
Based on the results discussed above, the Compensation Committee awarded 2019 STIP awards in accordance with the following formula:
| | | | | | | | | | | | | | | | | | | | | | | |
| Officer | NEO Base Salary | | Target % of Base Salary | | Earned Payout as a % of Target | | STIP Award Earned |
Simon Turner(1) | $848,516 | x | 100% | x | 101.7% | = | $862,516 |
| Kurt D. Ogden | $530,000 | x | 70% | x | 98.7% | = | $365,992 |
| Russ R. Stolle | $455,000 | x | 70% | x | 94.7% | = | $301,460 |
Mahomed Maiter(1) | $455,000 | x | 70% | x | 101.7% | = | $326,180 |
Dr. Rob Portsmouth(1) | $253,313 | x | 60% | x | 91.7% | = | $139,296 |
(1) Mr. Turner’s STIP award was £668,617, Mr. Maiter’s STIP award was £252,853 and Dr. Portsmouth’s STIP award was £107,982. The values for Messrs. Turner and Maiter and Dr. Portsmouth in 2019 have been converted using an exchange rate of 1 GBP to 1.29 USD, being the exchange rate as of February 11, 2019 (which is the internal date used to estimate pro forma elements of compensation).
LONG-TERM EQUITY COMPENSATION
For 2019, the Compensation Committee approved for each NEO a target long-term equity compensation value intended to position each executive officer within competitive levels. Each NEO’s target award value was allocated 50% to restricted stock units, 25% to stock options and 25% to performance units, and the amount allocated was converted to a number of shares based on the grant date fair value as follows:
| | | | | | | | | | | | | | | | | |
| Officer | Target Award Amounts | Stock Options | Restricted Stock Units | Target Performance Units | Total Shares |
| Simon Turner | $2,250,000 | 223,214 | 195,652 | 97,826 | 516,692 |
| Kurt D. Ogden | $850,000 | 84,325 | 73,913 | 36,957 | 195,195 |
| Russ R. Stolle | $750,000 | 74,405 | 65,217 | 32,609 | 172,231 |
| Mahomed Maiter | $750,000 | 74,405 | 65,217 | 32,609 | 172,231 |
| Dr. Rob Portsmouth | $300,000 | 29,762 | 26,087 | 13,043 | 68,892 |
For purposes of restricted stock unit awards, grant date fair value is calculated using the closing price of our stock on the date of grant. The grant date fair value of the stock option awards is determined on the date of the grant using the Black-Scholes valuation model. With respect to the performance units, the amount shown reflects the full grant date fair value computed in accordance with FASB ASC Topic 718 based on probable achievement of the market conditions, which is consistent with the estimate of aggregate compensation to be recognized over the service period, excluding the effect of estimated forfeitures
The restricted stock units and stock option awards granted in 2019 are subject to a three-year ratable annual vesting schedule that requires service for a continuous three-year period to become fully vested, except as otherwise provided in the Stock Incentive Plan, long-term incentive award agreements and the employment agreements described below.
The performance unit awards granted in 2019 vest and lapse their associated restrictions on December 31, 2021, subject to the achievement of relative TSR performance metrics during the performance period from January 1, 2019 to December 31, 2021 and subject to continued service. Performance units are paid based on relative payout as follows:
| | | | | |
| Percentile Rank Relative TSR | Payout Percentage of Target Number of Shares |
| 90th percentile or better | 200% |
| 75th percentile or better | 175% |
| 50th percentile or better | 100% |
| 25th percentile or better | 50% |
| Less than 25th percentile | 0% |
If our absolute TSR is negative during the performance period, the Compensation Committee may exercise discretion to reduce the number of performance units that are earned. The performance unit awards are settled in stock upon vesting.
The peer group used to determine relative TSR performance (the "2019 Performance Peers") is the same as the Peer Group described below, excluding non-chemical companies (Ensco plc, Mallinckrodt plc and Noble Corporation plc).
Additional details regarding these 2019 grants are provided under “Executive Compensation—Grants of Plan-Based Awards in 2019” below. Subject to the NEOs’ Employment Agreements described below, none of the awards granted in 2019 provide for automatic accelerated vesting upon termination of employment or the occurrence of a change of control. See “Executive Compensation—Potential Payments upon Termination or Change in Control” below for more information.
EMPLOYMENT AGREEMENTS
In December 2018, we entered into employment agreements with Messrs. Turner, Ogden, Stolle, Maiter and Portsmouth (the “Employment Agreements”). The Compensation Committee approved the Employment Agreements, which supersede any prior agreements other than as specifically incorporated therein. The Employment Agreements reflect a continuation of the base salary then in effect and annual reviews for increase thereof, continued participation in the STIP, annual long-term incentive awards having a grant value of at least the value of such employee’s 2018 long-term incentive award grant, and continued severance benefits under the Executive Severance Plan. The Employment Agreements also provide that the officers will be entitled to participate in the various benefits plans available to other employees. Executive officer compensation will continue to be subject to annual review by the Compensation Committee. In addition, the Employment Agreements contain confidentiality, non-solicitation and non-compete provisions.
As additional terms, the Employment Agreements provide that in the event that we terminate the Stock Incentive Plan, the employee is entitled to receive, during each year of employment with our company and in lieu of stock awards under the Stock Incentive Plan, an annual grant of performance units or similar long term incentive compensation having a grant value of at least the value of such employee’s 2018 long-term incentive award grant, and vesting over three years. In addition, the Employment Agreements provide that under the Severance Plan, upon a “Termination for Good Reason” following a Change of
Control (as defined in the Stock Incentive Plan), Replacement Awards (as defined in the Stock Incentive Plan), which may be issued to replace existing equity awards in connection with a Change of Control, shall become fully vested. In addition, each Employment Agreement provides that a breach of such Employment Agreement by our company or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that areaffiliates shall be deemed to be material weaknesses,a sufficient cause for a “Termination for Good Reason” under the Severance Plan. Terms of the Employment Agreements are reflected above under “Executive Compensation—Potential Payments and Rights upon Termination or Change in Control—Employment Agreements.”
Effective November 13, 2019, we amended Mr. Turner’s Employment Agreement as described in “Executive Compensation —Pension Benefits in 2019” below.
HOW WE DETERMINE EXECUTIVE COMPENSATION
The Compensation Committee in coordination with the Compensation Committee’s compensation consultant, our CEO and our Executive Vice President and General Counsel participate in the annual review of the executive compensation program. This review includes an evaluation of our performance, corporate goals and objectives relevant to compensation, and compensation payable under various circumstances, including upon retirement or a change of control. In making its decisions regarding each executive officer’s compensation, our Compensation Committee considers the nature and scope of all elements of the executive’s total compensation package, the executive’s responsibilities and his or her effectiveness in supporting our key strategic, operational and financial goals. This review includes an evaluation of each executive officer’s historical pay and career development, individual and corporate performance, competitive practices and trends, and other compensation issues.
ROLES OF THE COMPENSATION COMMITTEE, EXECUTIVE MANAGEMENT AND THE COMPENSATION CONSULTANT
The Compensation Committee, executive management and Meridian Compensation Partners, LLC (“Meridian”) each play a key role in the Compensation Committee’s annual review, evaluation and approval of our executive compensation programs, as detailed below.
| | | | | |
| Compensation Committee | • Articulates our compensation philosophy, establishes our executive compensation program and implements policies and plans covering our executive officers • Reviews, evaluates and approves the compensation structure and level for our executive officers • Reviews and approves each element of compensation annually for our CEO • Evaluates each executive officer’s performance, including through reports from other members of executive management (other than with respect to our CEO) and, in many cases, makes personal observations in determining individual compensation decisions |
| Executive Management | • Our CEO articulates our strategic direction and works with the Compensation Committee to identify and set appropriate targets for executive officers (other than himself) • Our CEO is assisted by our Executive Vice President and General Counsel, who provides advice on the design and development of our compensation programs, the interpretation of compensation data and the effects of adjustments and modifications to our compensation programs • Our CEO makes recommendations to the Compensation Committee regarding each element of compensation for each of our executive officers (other than the CEO) • Our CEO also provides the Compensation Committee with his evaluation with respect to each executive officer’s performance (other than the performance of the CEO) during the prior year • Our finance, human resources and legal departments also assist our CEO by advising on various considerations relevant to these programs |
| Compensation Consultant | • Advises the Compensation Committee in its oversight role, advises executive management in the executive compensation design process and provides independent compensation data and analysis to facilitate the annual review of our compensation programs • Evaluates levels of executive officer and director compensation as compared to general market compensation data and peer data (as discussed below) • Evaluates proposed compensation programs or changes to existing programs, providing information on current executive compensation trends and updates on applicable legislative, technical and governance matters. |
CONSIDERATION OF PEER COMPENSATION
To assist in its determination of the 2019 target total direct compensation levels for our executive officers, the Compensation Committee considered information included in a compensation benchmarking review prepared by Meridian. The benchmarking review provided competitive market data for each element of compensation, as well as information regarding incentive plan designs and pay practices for executives in similar positions among a selected peer group of companies as set forth below (the “Peer Group”). Information in the market review served as a reference in the Compensation Committee’s overall assessment of the competitiveness of our executive compensation program.
The Peer Group consists primarily of companies against whom we compete in the global chemical industry for business opportunities and executive talent. Criteria used to select the Peer Group companies include financial measures (i.e., revenue, market capitalization, net income) and the chemical industry segment in which we operate. The Peer Group includes chemical companies based in the United States, the United Kingdom and Europe, as well as other non‑chemical UK‑based companies with primary stock listings on the NYSE. The Compensation Committee believes that this group of uniquely situated companies contributes to a meaningful benchmark for executive compensation because we face the same governance framework and related issues. For the benchmarking review for 2019, our Peer Group comprised the following 18 companies, which were unchanged from the peer group used for the 2018 benchmarking review:
| | | | | | | | |
| • Albemarle Corp | • Croda International pl | • Noble Corporation pl |
| • Ashland Global Holdings Inc | • Ensco pl | • RPM International Inc |
| • Axalta Coating Systems Ltd | • Ferro Corp | • Sika A |
| • Cabot Corp | • Johnson Mathey pl | • Tronox Ltd |
| • Celanese Corp | • Lonza Group A | • Wacker Chemie A |
| • Chemours Co | • Mallinckrodt pl | • WR Grace & Co. |
As a supplement to competitive market data from the Peer Group, and to assess benchmark data for positions for which pay information is not publicly disclosed, the Compensation Committee also considered competitive market data across a broader group of chemical and general industrial companies. The primary source of this data was the Aon New Bridge Street Compensation Database. The Compensation Committee considers competitive ranges among our Peer Group and the broader industry groups and does not use the benchmark data to target specific percentiles within these groups. Our Compensation Committee believes the combination of these perspectives and points of reference offers an appropriate basis for assessing the competitiveness of the compensation for our NEOs. With respect to the survey data considered by the Compensation Committee, the identities of the individual companies are not provided to the Compensation Committee and the Compensation Committee did not receive individual compensation information for the companies included in the survey.
For 2020 executive compensation decisions, the Compensation Committee made changes to the peer group with a focus on reducing the median revenue of the peers and including more comparable chemical companies. Changes included the removal of nine companies (Sika AG, Mallinckrodt plc, Celanese Corporation, Wacker Chemie, Johnson Matthey, Lonza Group, RPM International, Valaris plc and Noble Corporation) and the addition of two companies (Element Solutions, Minerals Technologies). The 2020 peer group consists of the following eleven companies:
| | | | | | | | |
| • Albemarle Corp | • Chemours Co | • Mineral Technologies Inc |
| • Ashland Global Holdings Inc | • Croda International pl | • Tronox Ltd |
| • Axalta Coating Systems Ltd | • Element Solutions Inc | • WR Grace & Co. |
| • Cabot Corp | • Ferro Corp | |
INDEPENDENCE OF COMPENSATION ADVISERS
In September 2017, the Venator Compensation Committee engaged Meridian as its independent executive compensation consultant. Meridian is an independent compensation consulting firm and does not provide any services to us outside of matters pertaining to executive officer and director compensation. Meridian reports directly to the Compensation Committee, which is responsible for determining the scope of services performed by Meridian and the directions given to Meridian regarding the performance of such services. Meridian attends Compensation Committee meetings as requested by the Compensation Committee.
The Compensation Committee determined that the services provided by Meridian to the Compensation Committee during 2019 did not give rise to any conflicts of interest. The Compensation Committee made this determination by assessing the independence of Meridian under the six independence factors adopted by the SEC and incorporated into the NYSE Corporate Governance Listing Standards. Further, in making this assessment, the Compensation Committee considered Meridian’s written correspondence to the Compensation Committee that affirmed the independence of Meridian and the partners, consultants and employees who provide services to the Compensation Committee on executive and director compensation matters.
COMPENSATION POLICIES AND PRACTICES
SHARE OWNERSHIP GUIDELINES
Our Director and Executive Share Ownership Guidelines (the “Guidelines”) are designed to align our directors’ and executives’ interests with our shareholders’ interests and to encourage directors and executives to make decisions that will be in our long-term best interests—through all industry cycles and market conditions. The Guidelines require non-employee directors and executive officers to achieve and maintain ownership of our shares equal to five times base salary for the CEO, three times base salary for all other executive officers and five times the annual cash retainer for directors. The share ownership requirement is based on the participant’s base salary or annual retainer (as applicable) and the closing share price on June 30 of each calendar year (the “Measurement Date”). Participants have five years from each participant’s initial Measurement Date to achieve the ownership requirement. Once the guideline is achieved, a participant will not be deemed to have failed to achieve the guideline as a result of a subsequent decline in the market price of Venator’s ordinary shares. Only Mr. Huntsman and Ms. Patrick have achieved the ownership requirement.
During any year in which a participant is not in compliance with the ownership requirement, the participant is required to retain at least 50% of net shares delivered through Venator’s stock incentive plans (“net shares” means the shares remaining after deducting shares for the payment of taxes and, in the case of stock options, after deducting shares for payment of the exercise price of stock options). Any shares acquired by a participant prior to becoming subject to the Guidelines are not subject to the retention restriction. There are exceptions to the retention requirement for estate planning, gifts to charity, education and the purchase of a participant’s primary residence. In addition, hardship exemptions may be made in rare instances. A copy of the Guidelines is available on our website at www.venatorcorp.com.
CLAWBACK POLICY
Pursuant to our Incentive Repayment (Clawback) Policy for executive officers, subject to certain exceptions, our company may recover performance-based compensation that was based on achievement of quantitative performance targets if an executive officer engaged in fraud or intentional illegal conduct resulting in a financial restatement.
POLICY ON HEDGING AND PLEDGING AND PROHIBITED TRANSACTIONS
Our Insider Trading Policy prohibits employees, non-employee directors and related persons from entering into hedging transactions that are intended to offset, in whole or in part, the economic risks associated with the ownership of our company’s ordinary shares. Types of hedging transactions prohibited under the Insider Trading Policy include, but are not limited to, short sales and trading in exchange traded derivative instruments, such as puts, calls, spreads, straddles and any other derivative instruments that may be used to offset the economic risks associated with ownership of our company’s ordinary shares. In addition, our Insider Trading Policy prohibits pledging our company’s securities as collateral for a loan and holding securities in a margin account where such securities could be pledged as collateral.
COMPENSATION POLICIES AND PRACTICES AS THEY RELATE TO RISK MANAGEMENT
The Compensation Committee believes that our compensation programs are appropriately designed to provide a level of incentives that does not encourage our executive officers and employees to take unnecessary risks in managing their business operations or functions and in carrying out their employment responsibilities. Specifically:
• a substantial portion of our executive officers’ compensation is performance-based, consistent with our approach to executive compensation;
• our annual STIP award program is designed to reward annual financial and/or strategic performance in areas considered critical to our short and long-term success and features a cap on the maximum amount that can be earned in any single year;
• our long-term incentive awards are directly aligned with long-term shareholder interests through their link to our stock price and multi-year ratable vesting schedules and, starting in 2019, total shareholder return relative to other companies; and
• our executive share ownership guidelines further provide a long-term focus by requiring our executives to personally hold significant levels of our stock.
The Compensation Committee believes that the various elements of our executive compensation program sufficiently incentivize our executives to act based on the sustained long-term growth and performance of our company.
ACCOUNTING AND TAX TREATMENT OF THE ELEMENTS OF COMPENSATION
The financial reporting and income tax consequences to us of individual compensation elements are important considerations for the Compensation Committee when it is analyzing the overall level of compensation and the mix of compensation among individual elements. Overall, the Compensation Committee seeks to balance its objective of ensuring an effective compensation program for our NEOs with the desire to maximize the immediate deductibility of compensation to the extent practicable and consistent with our overall compensation philosophies.
The Board and the Compensation Committee reserve the right to provide compensation to our executives that is not deductible, including but not limited to when necessary to comply with contractual commitments, or to maintain the flexibility needed to attract talent, promote retention or recognize and reward desired performance.
We account for stock-based awards, including stock options, restricted stock unit awards and performance unit awards, in accordance with FASB ASC Topic 718 (formerly Statement of Financial Accounting Standards No. 123R).
Section 162(m) of the United State Internal Revenue Code (the "Code") generally disallows a U.S. tax deduction to public corporations for compensation greater than $1 million paid for any fiscal year to certain executive officers. However, prior to the enactment of tax legislation in December 2017 (the "Tax Act"), certain types of performance-based compensation were exempt from the $1 million deduction limit if specific requirements were met. Under the Tax Act, this special exemption for performance-based compensation is no longer available with respect to taxable years beginning after December 31, 2017. Pursuant to the Tax Act, for taxable years beginning after December 31, 2017, Section 162(m) of the Code was expanded to cover all named executive officers. Any executive officer whose compensation is subject to Section 162(m) of the Code in any taxable year beginning after December 31, 2016 will have compensation subject to Section 162(m) of the Code for all future years, including years after the executive terminates employment or dies.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed Venator Materials PLC’s Compensation Discussion and Analysis for the fiscal year ended December 31, 2019, as set forth above, with Venator’s management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
Looking to 2020, the Compensation Committee is closely monitoring the current COVID-19 pandemic, which our Company, like all businesses across the globe, is facing, and considering any potential impacts it may have on our compensation programs. Due to the significant uncertainties arising from the ongoing COVID-19 pandemic and its potential impacts to our business, the Compensation Committee may choose to exercise its discretion to adjust elements of compensation as allowed under applicable plans, in order to ensure our executive team is appropriately incentivized as they navigate this global crisis and continue to drive the Company’s strategic objectives.
COMPENSATION COMMITTEE,
Daniele Ferrari, Chair
Kathy D. Patrick
Sir Robert J. Margetts
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Daniele Ferrari, Sir Robert J. Margetts and Kathy D. Patrick each served on the Compensation Committee during 2019. None of the members who served on the Compensation Committee during 2019 has at any time been an officer or employee of our company or any of its subsidiaries nor had any substantial business dealings with our company or any of its subsidiaries. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Board or the Compensation Committee of our company.
CEO PAY RATIO
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Simon Turner, our CEO.
For 2019, our last completed fiscal year:
•the median of the annual total compensation of all employees of our company (excluding Simon Turner, our CEO) was $60,791;
•the annual total compensation of Simon Turner, our CEO, as reported in the 2019 Summary Compensation Table included in this Annual Report on Form 10-K, was $4,456,770; and
•based on this information, for 2019 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was reasonably estimated to be 75 to 1.
With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2019 Summary Compensation Table included in this Annual Report on Form 10-K and incorporated by reference under Item 11 of Part III of our 2019 Form 10‑K.
Median Employee
SEC rules allow us to identify our median employee once every three years unless there has been a change in our employee population or employee compensation arrangements that we reasonably believe would result in a significant change in pay to our employees or our median employee. We identified our median employee as of December 31, 2018 and there have been no significant changes requiring us to recalculate the median employee. Accordingly, our 2019 CEO pay ratio is calculated utilizing the same median employee identified in 2018. In determining that it was still appropriate to utilize our 2018 median employee for this disclosure, we considered the changes to our global employee population and compensation programs during 2019, as well as the absence of a material change in that employee’s job description or compensation during 2019.
We determined that, as of December 31, 2018, our total global workforce consisted of approximately 4,744 individuals working at our parent company and consolidated subsidiaries, with approximately 13% of these individuals located in the Americas, 77% located in Europe and the Middle East and 10% located in Asia Pacific.
We used a consistently applied compensation measure to identify our median employee by comparing the actual non-discretionary compensation (inclusive of salaries and wages) reflected in our global data system of record that aligns with payroll records as reported to local tax authorities for 2017.
We do not widely distribute annual equity awards to our employees, therefore such awards were excluded from our compensation measure.
•For the purpose of identifying the median employee, the amount of non-discretionary compensation for our non-US employees was converted to US dollars using exchange rates as of December 31, 2018.
•For purpose of calculating the 2019 ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees, we requested the annual total compensation of our previously identified median employee as of December 31, 2019 and converted to US dollars using exchange rates as of December 31, 2019.
We identified our median employee by consistently applying this compensation measure to all employees included in our analysis.
For purposes of the year ended December 31, 2019, we combined all of the elements of our median employee’s compensation for the year ended December 31, 2019 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $60,791. The difference between such employee’s salary and wages and the employee’s annual total compensation represents:
•$1,882 representing the annual employer contribution for the whole unionized workforce pension plan; and
•$761 employer provided life and health insurance as determined by the age, the salary and the risks of the job of each employee.
DIRECTOR COMPENSATION
Our Corporate Governance Guidelines provide for compensation for our non-employee directors services, in recognition of their time and skills. Directors who are also our officers or employees do not receive additional compensation for serving on the Board. Annual compensation for our non-employee directors comprises cash and stock-based equity compensation. Cash compensation paid to our non-employee directors comprises annual retainers and supplemental retainers for chairs and members of Board committees (detailed in footnote (2) to the Director Compensation Table below). Stock-based equity compensation for 2019 consisted of awards granted under the Venator Materials PLC 2017 Stock Incentive Plan (the “Stock Incentive Plan”) in the form of share units.
Maintaining a market-based compensation program for our non-employee directors enables our company to attract qualified members to serve on the Board. With the assistance of Meridian, the Compensation Committee’s independent compensation consultant, the Compensation Committee will periodically review our non-employee director compensation practices and compare them to the practices of our peers as well as against the practices of public company boards generally, to ensure our practices are aligned with market practices.
We offer non-employee directors in the US the opportunity to participate in the Venator Outside Directors Elective Deferral Plan. This is an unfunded nonqualified deferred compensation plan established primarily for the purpose of providing our non-employee directors with the ability to defer the receipt of director fees. The investment choices available under this plan are identical to the investment choices available under our 401(k) plan, which are described in greater detail above under “Compensation Discussion and Analysis—Elements of Venator’s Executive Compensation Program—Other Elements of Compensation.” Benefits under the plan are payable in cash distributable either in a lump sum or in installments over a period of 3 years, 5 years or 10 years, with payments beginning within 60 days after the director ceases to be a member of our Board. For 2019, Ms. Patrick was the only non-employee director who elected to participate in this plan, deferring all 2019 fees.
The Compensation Committee believes that our total director compensation package is competitive with market practices and is fair and appropriate in light of the responsibilities and obligations of our non-employee directors. Details of our non-employee director compensation program appear below.
DIRECTOR COMPENSATION TABLE
Total 2019 compensation for our non-employee directors is shown in the following table:
| | | | | | | | | | | |
Name(1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3) | Total ($) |
| Peter R. Huntsman | $100,000 | $120,000 | $220,000 |
| Sir Robert J. Margetts | $120,000 | $120,000 | $240,000 |
| Douglas D. Anderson | $105,000 | $120,000 | $225,000 |
| Daniele Ferrari | $100,000 | $120,000 | $220,000 |
| Kathy D. Patrick | $95,000 | $120,000 | $215,000 |
(1) Simon Turner, our CEO, served as a director of our company in 2019 but is not included in this table since he was also our employee during 2019 and did not receive any additional compensation for service as a director. His total compensation for service as CEO is shown in the 2019 Summary Compensation Table on page 34.
(2) For 2019, non-employee directors received the following cash retainers:
| | | | | | | | | | | | | | | | | | | | |
| Director* | Annual Retainer | Audit Committee | Compensation Committee | Governance Committee | Chairman | Lead Independent Director |
| Peter R. Huntsman | $60,000 | — | — | — | $40,000 | — |
| Sir Robert J. Margetts | $60,000 | $15,000 | $10,000 | $10,000 | — | $25,000 |
| Douglas D. Anderson | $60,000 | $35,000 | — | $10,000 | — | — |
| Daniele Ferrari | $60,000 | $15,000 | $25,000 | — | — | — |
| Kathy D. Patrick | $60,000 | — | $10,000 | $25,000 | — | — |
* Non-employee directors receive annual retainers of $60,000, an additional $15,000 annual retainer for service on the Audit Committee and a $10,000 annual retainer for service on each other committee. In addition, non-employee directors receive an additional retainer for service as committee chair of $20,000 for the Audit Committee and $15,000 for each of the other committees. In addition, the chairman of the board receives an annual retainer of $40,000 and the lead independent director receives an annual retainer of $25,000. No annual retainer is paid for service on the Litigation Committee. All directors are reimbursed for reasonable out-of-pocket expenses incurred for attending meetings of the Board or its committees and for other reasonable expenses related to the performance of their duties as directors.
(3) This column represents the aggregate grant date fair value of fully vested share unit awards granted in 2019, computed in accordance with Financial Accounting Standards Board, Accounting Standards Codification, Topic 718 (“FASB ASC Topic 718”). On February 13, 2019, each non-employee director received a share unit award of 20,870 shares based on the grant date fair value of $5.75 per share. The shares underlying share unit awards are vested on the date of grant, but the shares are not deliverable until a director’s termination of service. Therefore, none of our directors held outstanding unvested equity awards as of December 31, 2019. See “Note 18. Share-Based Compensation Plan” to our consolidated financial statements in the 2019 10‑K for additional detail regarding assumptions underlying the value of these equity awards.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding beneficial ownership of our ordinary shares could declineas of April 22, 2020 by:
•each person who we know owns beneficially more than 5% of our ordinary shares;
•each of our directors and nominees;
•each of our NEOs; and
•all of our executive officers and directors as a group.
Under the regulations of the SEC, shares are generally deemed to be “beneficially owned” by a person if the person directly or indirectly has or shares voting power or investment power (including the power to dispose) over the shares, whether or not the person has any pecuniary interest in the shares, or if the person has the right to acquire voting power or investment power of the shares within 60 days, including through the exercise of any option, warrant or right. In accordance with the regulations of the SEC, in computing the number of ordinary shares beneficially owned by a person and the percentage ownership of such person, we coulddeemed to be outstanding all ordinary shares subject to regulatory penaltiesoptions or investigationsother rights held by the New York Stock Exchange ("NYSE"),person that are currently
exercisable or exercisable within 60 days of April 22, 2020. We did not deem such shares outstanding, however, for the purpose of determining the shareholders entitled to notice of or to vote at the Annual Meeting.
| | | | | | | | |
| Ordinary shares Beneficially Owned(1) | |
| Name of Beneficial Owner | Shares | Percent(2) |
| 5% OR MORE BENEFICIAL OWNERS: | | |
Huntsman Corporation(3) | 52,118,568 | 48.8% |
Adage Capital Partners, L.P.(4) | 9,156,202 | 8.6% |
| DIRECTORS AND EXECUTIVE OFFICERS | | |
Peter R. Huntsman(5) | 80,325 | * |
Sir Robert J. Margetts(5) | 70,325 | * |
| Douglas D. Anderson(5) | 75,625 | * |
Daniele Ferrari(5) | 70,325 | * |
Kathy D. Patrick(6) | 165,379 | * |
Simon Turner(7) | 454,101 | * |
Kurt Ogden(8) | 182,383 | * |
Russ Stolle(9) | 174,534 | * |
Mahomed Maiter(10) | 124,584 | * |
Dr. Robert L. Portsmouth(11) | 58,937 | |
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (11 persons)(12) | 1,463,104 | 1.4% |
* Less than 1%
1.The address of each beneficial owner is c/o Venator Materials PLC, Titanium House, Hanzard Drive, Wynyard Park, Stockton-on-Tees, TS22 5FD, United Kingdom and such beneficial owner has sole voting and dispositive power over such shares.
2.Based upon an aggregate of 106,735,892 ordinary shares outstanding on April 22, 2020.
3.As reported in Schedule 13G/A filed with the SEC or other regulatory authorities,on January 28, 2019. Represents ordinary shares held of record by Huntsman (Holdings) Netherlands, B.V., which would require additional financialis a subsidiary owned by (i) Huntsman International LLC (“Huntsman International”), which is a direct wholly-owned subsidiary of Huntsman Corporation, and management resources.(ii) Huntsman International Financial LLC, which is a direct wholly-owned subsidiary of Huntsman International. The address of Huntsman Corporation is 10003 Woodloch Forest Drive, The Woodlands, Texas, 77380.
4.As reported in Schedule 13G filed with the SEC on February 12, 2020. Based on such 13G filing, Adage Capital Partners, L.P. has sole voting power over 0 shares, shared voting power over 9,156,202 shares, sole dispositive power over 0 shares and shared dispositive power over 9,156,202 shares. The address of Adage Capital Partners, L.P. is 200 Clarendon Street, 52nd floor, Boston, Massachusetts 02116.
5.Includes 70,325 vested share units, the shares underlying which will be deliverable upon termination of service.
6.Includes 70,379 vested share units, the shares underlying which will be deliverable upon termination of service.
7.Includes options to purchase 297,917 shares of common stock that are exercisable within 60 days of April 22, 2020.
8.Includes options to purchase 123,853 shares of common stock that are exercisable within 60 days of April 22, 2020.
9.Includes options to purchase 123,849 shares of common stock that are exercisable within 60 days of April 22, 2020.
10.Includes options to purchase 97,982 shares of common stock that are exercisable within 60 days of April 22, 2020.
11.Includes options to purchase 46,862 shares of common stock that are exercisable within 60 days of April 22, 2020.
12.Includes options to purchase a total of 695,264 shares of common stock that are exercisable within 60 days of April 22, 2020, and a total of 351,679 vested share units, the shares underlying which will be delivered to the applicable holder upon termination of service.
Effective internal controls are necessaryEQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding our equity compensation plans as of December 31, 2019.
| | | | | | | | | | | |
| Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (A) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (B) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) (C) |
| Plan Category | (#) (1) | ($) | (#) |
Equity compensation plans approved by security holders as of December 31, 2019(2) | 3,004,175 | $14.12 | 9,452,039 |
| Equity compensation plans not approved by security holders: | — | — | — |
1.Includes 1,831,029 outstanding options and 1,173,146 undelivered full value awards (including 798,060 unvested restricted stock units and 158,129 vested share units). If performance units were delivered at target, this figure would include 216,957 undeliverable full value awards.
2.The Stock Incentive Plan allows for usthe issuance of up to provide reasonable assurance with respect12,750,000 ordinary shares to employees and consultants of our financial reportscompany and its subsidiaries and to effectively prevent fraud. Internal controls over financial reporting may not prevent or detect misstatements becausemembers of inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our operating results could be misreported. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If we fail to maintain the effectiveness of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on our share price.Board.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
POLICIES AND PROCEDURES
The processBoard has adopted a Related Party Transactions Policy, which includes the procedures for review, approval and monitoring of implementing internal controls in connection withtransactions involving our operation as a stand-alone company requires significant attention from management and we cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Difficulties encountered in their implementation could harm our results of operations“related persons” (directors, executive officers, shareholders owning five percent or cause us to fail to meet our reporting obligations. If we fail to obtain the quality of administrative services necessary to operate effectively or incur greater costs in obtaining these services, our profitability, financial condition and results of operations may be materially and adversely affected.
Our results of operations could be adversely affected by our indemnification of Huntsman and other commitments and contingencies.
In the ordinary course of business, we may make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses, and issue guarantees of third-party obligations. Additionally, we are required to indemnify Huntsman for uncapped amounts with regard to liabilities allocated to, or assumed by us under each of the separation agreement, the employee matters agreement and the tax matters agreement. These indemnification obligations to date have included defense costs associated with certain litigation matters as well as certain damages awards, settlements, and penalties. As we are required to make payments, such payments could be significant and could exceed the amounts we have accrued with respect thereto, adversely affecting our results of operations. In addition, in the event that Huntsman seeks indemnification for adverse trial rulings or outcomes, these indemnification claims could materially adversely affect our financial condition. Disputes between Huntsman and us may also arise with respect to indemnification matters including disputes based on matters of law or contract interpretation. If and to the extent these disputes arise, they could materially adversely affect us.
Financial difficulties and related problems experienced by our customers, vendors, suppliers and other business partners could have a material adverse effect on our business.
During periods of economic disruption, more of our customers than normal may experience financial difficulties, including bankruptcies, restructurings and liquidations, which could affect our business by reducing sales, increasing our risk in extending trade credit to customers and reducing our profitability. A significant adverse change in a customer relationship or in a customer’s financial position could cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer’s receivables or limit our ability to collect accounts receivable from that customer.
Construction projects are subject to numerous regulatory, environmental, legal and economic risks. We cannot assure you that any such project will be completed in a timely fashion or at all or that we will realize the anticipated benefits of any such project.
Additions to or modifications of our existing facilities and the construction of new facilities involve numerous regulatory, environmental, legal and economic uncertainties, many of which are beyond our control. Expansion and construction projects may require preconstruction permitting or environmental reviews, as well as the expenditure of significant amounts of capital. These projects may not be completed on schedule, at the budgeted cost or at all. If our projects are delayed materially or our capital expenditures for such projects increase significantly, our results of operations and cash flows could be adversely affected. Even if these projects are completed, there can be no assurance that we will realize the anticipated benefits of such projects.
Our flexibility in managing our labor force may be adversely affected by existing or new labor and employment laws and policies in the jurisdictions in which we operate, many of which are more onerous than those of the U.S.; and some of our labor force has substantial workers’ council or trade union participation, which creates a risk of disruption from labor disputes.
The global nature of our business presents difficulties in hiring and maintaining a workforce in certain countries. The majority of our employees are located outside the U.S. In many of these countries, including the U.K., Italy, Germany, France, Spain, Finland and Malaysia, labor and employment laws may be more onerous than in the U.S. and, in many cases, grant significant job protection to employees, including rights on termination of employment.
We are required to consult with, and seek the consent or advice of, various employee groups or works councils that represent our employees for any changes to our activities or employee benefits. This requirement could have a significant impact on our flexibility in managing costs and responding to market changes.
Conflicts, military actions, terrorist attacks, public health crises, including the occurrence of a contagious disease or illness, such as the COVID-19 coronavirus, cyber-attacks and general instability, particularly in certain energy-producing nations, along with increased security regulations related to our industry, could adversely affect our business.
Conflicts, military actions, terrorist attacks and public health crises have precipitated economic instability and turmoil in financial markets. Instability and turmoil, particularly in energy-producing nations, may result in raw material cost increases. The uncertainty and economic disruption resulting from hostilities, military action, acts of terrorism, public health crises, or cyber-attacks may impact any or all of our facilities and operations or those of our suppliers or customers. Accordingly, any conflict, military action, terrorist attack, public health crises, or cyber-attack that impacts us or any of our suppliers or customers, could have a material adverse effect on our business, results of operations, financial condition and liquidity.
In addition, a number of governments have instituted regulations attempting to increase the security of chemical plants and the transportation of hazardous chemicals, which could result in higher operating costs and could have a material adverse effect on our financial condition and liquidity.
Increasing regulatory focus on privacy issues and expanding laws could impact our business and expose us to increased liability.
As a global company, we are subject to global privacy and data security laws, regulations, and codes of conduct that apply to our various business units. These laws and regulations may be inconsistent across jurisdictions and are subject to evolving and differing (sometimes conflicting) interpretations. Government regulators, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This increased scrutiny may result in new interpretations of existing laws, thereby further impacting our business. Globally, new and emerging laws, such as the General Data Protection Regulation ("GDPR") in Europe, state laws in the U.S. on privacy, data and related technologies as well as industry self-regulatory codes create new compliance obligations and expand the scope of potential liability, either jointly or severally with our customers and suppliers. While we have invested in readiness to comply with applicable requirements, these new and emerging laws, regulations and codes may affect our ability to reach current and prospective customers, to respond to customer requests under the laws, and to implement our business effectively. Any perception of our practices, products or services as a violation of privacy rights may subject us to public criticism, reputational harm, or investigations or claims by regulators, industry groups or other third parties, all of which could disrupt our business and expose us to increased liability.
Transferring personal information across international borders is becoming increasingly complex. For example, European data transfers outside the European Economic Area are highly regulated. The mechanisms that we and many other companies rely upon for European data transfers (e.g. Privacy Shield and Model Clauses) are being contested in the European court system. We are closely monitoring developments related to requirements for transferring personal data outside the EU and other countries that have similar trans-border data flow requirements. These requirements may result in an increase in the obligations required to provide our services in the EU or in sanctions and fines for non-compliance. If the mechanisms for transferring personal information from certain countries or areas, including Europe to the United States should be found invalid or if other countries implement more restrictive regulations for cross-border data transfers (or not permit data to leave the country of origin), such developments could harm our business, financial condition and results of operations.
Our business is dependent on our intellectual property. If we are unable to enforce our intellectual property rights and prevent use of our intellectual property by third parties, our ability to compete may be adversely affected. Further, third parties may claim that we infringe on their intellectual property rights, and resulting litigation may be costly.
Protection of our proprietary processes, apparatuses and other technology is important to our business. We rely on patent protection, as well as a combination of copyright and trade secret laws to protect and prevent others from duplicating our proprietary processes, apparatuses and technology. While a presumption of validity exists with respect to patents issued to us in the U.S., there can be no assurance that any of our patents will not be challenged, invalidated, circumvented or rendered
unenforceable. Such means may afford only limited protection of our intellectual property and may not; (i) prevent our competitors from duplicating our processes or technology; (ii) prevent our competitors from gaining access to our proprietary information and technology; or (iii) permit us to gain or maintain a competitive advantage. In addition, our competitors or other third parties may obtain patents that restrict or preclude our ability to lawfully produce or sell our products in a competitive manner, which could have a material adverse effect on our business, results of operations, financial condition and liquidity.
We rely upon trade secrets and other confidential and proprietary know-how and continuing technological innovation to develop and maintain our competitive position. While it is our policy to enter into agreements imposing nondisclosure and confidentiality obligations upon our employees and third parties to protect our intellectual property, these confidentiality obligations may be breached, may not provide meaningful protection for our trade secrets or proprietary know-how, or adequate remedies may not be available in the event of an unauthorized access, use or disclosure of our trade secrets and know-how. In addition, others could obtain knowledge of our trade secrets through independent development or other access by legal means.
We may not be able to effectively protect our intellectual property rights from misappropriation or infringement in countries where effective patent, trademark, trade secret and other intellectual property laws and judicial systems may be unavailable, or may not protect our proprietary rights to the same extent as U.S. law. The lack of adequate legal protections of intellectual property or failure of legal remedies for related actions could have a material adverse effect on our business, results of operations, financial condition and liquidity.
As such, our commercial success will depend in part on not infringing, misappropriating or violating the intellectual property rights of others. From time to time, we may be subject to legal proceedings and claims, including claims of alleged infringement of trademarks, copyrights, patents and other intellectual property rights held by third parties. In the future, third parties may sue us for alleged infringement of their proprietary or intellectual property rights. We may not be aware of whether our products do or will infringe existing or future patents or the intellectual property rights of others. Any litigation in this regard, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources as well as harm to our brand, any of which could adversely affect our business, financial condition and results of operations. If the party claiming infringement were to prevail, we could be forced to discontinue the use of the related trademark, technology or design and/or pay significant damages unless we enter into royalty or licensing arrangements with the prevailing party or are able to redesign our products to avoid infringement. Any such license may not be available on reasonable terms, if at all, and there can be no assurance that we would be able to redesign our products in a way that would not infringe the intellectual property rights of others. We have already obtained licenses that give us rights to third-party intellectual property that is necessary or useful to our business. These license agreements covering our products impose various royalty and other obligations on us. One or more of our licensors may allege that we have breached our license agreement with them, and accordingly seek to terminate our license. In addition, any payments we are required to make and any injunction we are required to comply with as a result of such infringement could harm our reputation and financial results.
Risks Related to Our Relationship with Huntsman
Huntsman owns 49% of our ordinary shares, or their respective immediate family members). The policy covers any transaction involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest.
The Compensation Committee reviews and approves any compensation paid to family members of directors and executive officers. All other related person transactions must be approved by the Audit Committee, which approves the transaction only if it determines that the transaction is in, or is not inconsistent with, our interests. In evaluating the transaction, the Audit Committee considers all relevant factors, including as applicable (1) the benefit to us in entering into the transaction; (2) the alternatives to entering into a related person transaction; and (3) whether the transaction is on terms comparable to those available to third parties. If a director is involved in the transaction, he or she is recused from all discussions and decisions about the transaction. The transaction must be approved in advance of its interests may conflictconsummation. The Audit Committee periodically monitors the transaction to ensure that there are no changed circumstances that would render it advisable, or not inconsistent with yours.such circumstances, to amend or terminate the transaction and reviews the transaction annually to determine whether it continues to be in our interests.
The Audit Committee approved all transactions described below, in accordance with the Related Party Transactions Policy, and continues to monitor arrangements described below consistent with the Related Party Transactions Policy.
TRANSACTIONS
Our Relationship with Huntsman Corporation
Prior to the Separation, all of our outstanding ordinary shares were indirectly owned by Huntsman Corporation. Currently, Huntsman Corporation, through Huntsman (Holdings) Netherlands B.V.,a wholly owned subsidiary, owns approximately 49% of our outstanding ordinary shares. Accordingly,
This section provides a summary description of agreements entered into between Huntsman can exert significant influence overCorporation and us in connection with the Separation and our business objectivesrelationship with Huntsman Corporation in 2019. This description of the agreements between Huntsman Corporation and policies, includingwe is a summary and, with respect to each such agreement, is qualified by reference to the compositionterms of the agreement, each of which has been filed with the SEC. We urge you to read the full text of these agreements. We entered into these agreements with Huntsman Corporation immediately prior to the completion of the Separation; accordingly, we entered into these agreements with Huntsman Corporation in the context of our board of directors and any action requiring the approval of our shareholders, suchrelationship as the adoption of amendments to our articles of association, and the approval of mergers or a sale of substantially all of our assets. This concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or impossible without the supportwholly‑owned subsidiary of Huntsman Corporation. Huntsman Corporation determined the terms of these agreements, which may be more or less favorable to us than if they had been negotiated with unaffiliated third parties.
Separation Agreement
The separation agreement between Huntsman Corporation and could discourage others from making tender offers, which could prevent shareholders from receiving a premiumour company governs the treatment of all aspects relating to indemnification (other than for their shares. Huntsman’s interests may conflict with your interests as a shareholder. For additional information about our relationships with Huntsman, see "Part III. Item 13. Certain Relationshipstax matters) and Related Party Transactions,insurance, and Director Independence."
We have agreedgenerally provides for cross‑indemnities principally designed to indemnify Huntsmanplace financial responsibility for certainthe obligations and liabilities including those related to the operation of our business while it was still owned bywith us and financial responsibility for the obligations and liabilities of the remaining Huntsman and whileCorporation businesses with Huntsman will indemnify us for certain liabilities, such indemnities may not be adequate.
Pursuant to theCorporation. The separation agreement also establishes procedures for handling claims subject to indemnification and related matters. We and Huntsman Corporation also generally released each other agreements withfrom all claims and liabilities between Huntsman we agreed to indemnify Huntsman for certain liabilities, including those related toCorporation and its subsidiaries on the operation ofone hand and us and our business while it was still owned by Huntsman, in each case for uncapped amounts. Indemnity payments that we may be required to provide Huntsman may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for liabilities that Huntsman has agreed to retain. Further, there can be no assurance thatsubsidiaries on the indemnity from Huntsman for its retained liabilities will be sufficient to protect us
against the full amount of such liabilities, or that Huntsman will be able to fully satisfy its indemnification obligations to us. Moreover, even if we ultimately succeed in recovering from Huntsman any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves.
We could have significant tax liabilities for periods during which Huntsman operated our business.
For any tax periods (or portions thereof)other hand arising prior to the separation and our IPO, weSeparation, including in connection with the activities to implement the Separation (other than claims arising under the transaction agreements), including the indemnification provisions described above or one or more of our subsidiaries will be includedas expressly provided otherwise in consolidated, combined, unitary or similar tax reporting groupsthe transaction agreements.
Transition Services Agreement
We also entered into a transition services agreement with Huntsman (including Huntsman’s consolidated groupCorporation pursuant to which Huntsman Corporation provided us with certain services and functions for U.S. federal income tax purposes). Applicable laws (including U.S. federal income tax laws) often providea limited time following the Separation. These services initially included administrative, payroll, human resources, data processing, EHS, financial audit support, financial transaction support, marketing support and other support services, information technology systems and various other corporate services. The services provided covered all necessary services that each member of such a tax reporting group is liable for the group’s entire tax obligation. Thus,were provided by Huntsman Corporation to us prior to the extent Huntsman or other membersSeparation.
The services began following the Separation and covered a period of a tax reporting groupup to 24 months. We were allowed to terminate individual services early as we became able to operate our businesses without those services and phased out all of whichthese services in August 2019. During 2019, we or one of our subsidiaries was a member fails to make any tax payments required by law, we could be liable for the shortfall. Huntsman will indemnify us for any taxes attributablepaid $324,796 to Huntsman Corporation in connection with transition services they provided to us.
Tax Matters Agreement
The tax matters agreement governs the respective rights, responsibilities, and the internal reorganizationobligations of Huntsman Corporation and separation transactions that we or one of our subsidiaries are required to pay as a result of our (or one of our subsidiaries’) membership in such a tax reporting group with Huntsman. We will also be responsible for any increase in Huntsman’s tax liability for any period in which we or any of our subsidiaries are combined or consolidated with Huntsman to the extent attributable to our business (including any increase resulting from audit adjustments). Furthermore,us with respect to periods priortax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and other matters regarding taxes.
In general, pursuant to the separation in which one or more of Huntsman’s subsidiariestax matters agreement:
•We are included in a consolidated, combined, unitary or similar tax reporting group with us, and if one or more of Huntsman’s subsidiaries receives an adjustment that increases taxable income, such adjustment may result in the utilization of Venator tax attributes. The use of such Venator attributes would be free of charge to Huntsman and would result in the reduction of our deferred tax assets along with an increase in deferred tax expense in cases where no valuation allowance has been recognized against such deferred tax assets.
In addition, we will also be responsible for any taxes due with respect to tax returns that include only us and/or our subsidiaries. Huntsman Corporation is responsible for any taxes due with respect to tax returns that include only Huntsman Corporation and/or its subsidiaries (excluding us and our subsidiaries). We are responsible for, tax periods (or portions thereof)and indemnify Huntsman Corporation for, taxes attributable to the operations of our businesses prior to the separationinternal reorganization and the Separation reflected on a tax return filed by Huntsman Corporation.
•We and Huntsman Corporation agreed to cooperate in the preparation of tax returns, refund claims and conducting tax audits concerning matters covered by the agreement.
•We and Huntsman Corporation were assigned responsibilities for administrative matters, such as the filing of tax returns, payment of taxes due, retention of records and conduct of audits, examinations, and similar proceedings. Huntsman Corporation generally controls tax returns that include both its businesses and our IPO.businesses and any disputes relating to such tax returns.
Further, by virtue of Huntsman’s ownership and•Huntsman Corporation is responsible for any sales, use, transfer, registration, documentary, stamp or similar taxes applicable to, or resulting from, the tax matters agreement, Huntsman effectively controls allinternal reorganization or the sale of our tax decisionsshares in connection with any tax reporting group tax returns in which we (or any of our subsidiaries) are included. The tax matters agreement provides that Huntsman has sole authority to respond to and conduct all tax proceedings (including tax audits) and to prepare and file all such reporting group tax returns in which we or one of our subsidiaries are included on our behalf (including the making of any tax elections). This arrangement may result in conflicts of interest between Huntsman and us. See "Part III. Item 13. Certain Relationships and Related Party Transactions, and Director Independence."Separation.
In addition, for U.S.US federal income tax purposes Huntsman recognized a gain as a result of the internal restructuring and IPO to the extent the fair market value of the assets associated with our U.S.US businesses exceeded the basis of such assets for U.S.US 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.US businesses increased. This basis step-up gave rise to a deferred tax asset of $77 million that we recognized for the quarter ended September 30, 2017. Due to the 2017 Tax Act’s reduction of the U.S.US federal corporate income tax rate from 35% to 21%, the basis step-up gives 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 entered into at the time of the separation, we are required to make a future payment to Huntsman for any actual U.S.US federal income tax savings we recognize as a result of any such basis increase for tax years through December 31, 2028. For the quarter ended September 30, 2017 we estimated (based on a value of our U.S.US businesses derived from the IPO price of our ordinary shares and current tax rates) that the aggregate future payments required by this provision were expected to be approximately $73 million. Due to the 2017 Tax Act’s reduction of the U.S.US federal corporate income tax rate, we recognized that the aggregate future payments required by this provision are expected to be approximately $34 million. We have recognized a noncurrent liability for this amount as of December 31, 2017 and 2018. During 2019, we reduced the liability to $30 million due to a decrease in the expectation of future payments. Any subsequent adjustment asserted
by U.S.US 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.
See "Part II. Item 8. Financial Statements and Supplementary Data—Note 20. Income Taxes" of this report for the amount of our known contingent tax liabilities. We currently have no reason to believe that we have any unrecorded outstanding tax liabilities from prior years; however, due to the inherent complexity of tax law, the many countries in which we operate, and the unpredictable nature of tax authorities, we believe there is inherent uncertainty.
The amount of tax for which we are liable for taxable periods preceding the separation may be impacted by elections Huntsman makes on our behalf.
Under the tax matters agreement, Huntsman has the right to make all elections for taxable periods preceding the separation and our IPO. As a result, the amount of tax for which we are liable for taxable periods preceding the separation and our IPO may be impacted by elections Huntsman makes on our behalf.
We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ordinary shares.
A foreign corporation will be treated as a "passive foreign investment company," or "PFIC," for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation’s assets for any taxable year produce or are held for the production of those types of "passive income." For purposes of these tests, "passive income" includes dividends, interest and gains from the sale or exchange of investment property and rents and royalties other than certain rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, but does not include income derived from the performance of services. U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests in the PFIC.
Based on the composition of our assets, income and a review of our activities we do not believe that we currently are a PFIC, and we do not expect to become a PFIC in future taxable years. However, our status as a PFIC in any taxable year will depend on our assets, income and activities in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable years, and it is possible that the IRS would not agree with our conclusion, or the U.S. tax laws could change significantly.
The IRS may not agree that we are a foreign corporation for U.S. federal tax purposes.
For U.S. federal tax purposes, a corporation is generally considered to be a tax resident of the jurisdiction of its organization or incorporation. Because we are incorporated under the laws of the U.K., we would be classified as a foreign corporation under these rules. Section 7874 of the U.S. Internal Revenue Code of 1986, as amended (the "Code") provides an exception to this general rule under which a foreign incorporated entity may, in certain circumstances, be classified as a U.S. corporation for U.S. federal income tax purposes.
As part of the internal reorganization, we acquired assets, including stock of U.S. subsidiaries and assets previously held by U.S. corporations, from affiliates of Huntsman. Under Section 7874, we could be treated as a U.S. corporation for U.S. federal income tax purposes if Huntsman International is treated as receiving at least 80% (by either vote or value) of our shares by reason of holding shares in any U.S. subsidiary acquired by us or with respect to our acquisition of substantially all of the assets of any U.S. subsidiary, in each case, in the internal reorganization.
It is currently not expected that Section 7874 will cause us or any of our affiliates to be treated as a U.S. corporation for U.S. tax purposes. However, the law and Treasury Regulations promulgated under Section 7874 are relatively new, complex and somewhat unclear, and there is limited guidance regarding the application of Section 7874. Moreover, the rules for applying Section 7874 are dependent upon the subjective valuation of certain of our U.S. assets and non-U.S. assets.
Accordingly, there can be no assurance that the IRS will not challenge our status or the status of any of our foreign affiliates as a foreign corporation under Section 7874 or that such challenge would not be sustained by a court. If the IRS were to successfully challenge such status under Section 7874, we and our affiliates could be subject to substantial additional U.S. federal income tax liability. In addition, we and certain of our foreign affiliates are expected, regardless of any application of Section 7874, to be treated as tax residents of countries other than the U.S. Consequently, if we or any such affiliate is treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874, we or such affiliate could be liable for both U.S. and non-U.S. taxes.
Certain members of our board of directors and management may have actual or potential conflicts of interest because of their ownership of shares of common stock of Huntsman and the overlap of three members of our board with the board of directors of Huntsman.
Certain members of our board of directors and management own common stock of Huntsman or options to purchase common stock of Huntsman because of their current or prior relationships with Huntsman, which could create, or appear to create, potential conflicts of interest when our directors and executive officers are faced with decisions that could have different implications for Huntsman and us.
In addition, the board of directors of each of us and Huntsman have three members in common, including Peter R. Huntsman, Sir Robert J. Margetts and Daniele Ferrari, which could create actual or potential conflicts of interest.
So long as Huntsman beneficially owns ordinary shares representing a significant percentage of the votes entitled to be cast by the holders of our outstanding ordinary shares, Huntsman can exert significant influence over our board of directors. Accordingly, we may not be able to resolve potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.
As a result of these actual or potential conflicts of interest, we may be precluded from pursuing certain growth initiatives.
Risks Related to Our Ordinary Shares
The market price of our ordinary shares could become more volatile and investments could lose value.
The market price of our ordinary shares and the number of shares traded each day has experienced significant fluctuations and may continue to fluctuate significantly. The market price for our ordinary shares may be affected by a number of factors, including those described above in "—Risks Related to Our Business" and the following:
•the failure of securities analysts to cover our ordinary shares or changes in financial estimates by analysts;
•our inability to meet the financial estimates of analysts who follow our ordinary shares;
•our strategic actions;
•our announcements of significant contracts, acquisitions, joint ventures or capital commitments;
•general economic and stock market conditions;
•changes in conditions or trends in our industry, markets or customers;
•future sales of our ordinary shares or other securities; and
•investor perceptions of the investment opportunity associated with our ordinary shares relative to other investment alternatives.
As a result of these factors, holders of our ordinary shares may not be able to resell their shares at or above the price at which they purchased them or may not be able to resell them at all. These broad market and industry factors may materially reduce the market price of our ordinary shares, regardless of our operating performance.
A number of our shares are or will be eligible for future sale, which may cause the market price of our ordinary shares to decline.
Any sales of substantial amounts of our ordinary shares in the public market or the perception that such sales might occur may cause the market price of our ordinary shares to decline and impede our ability to raise capital through the issuance of equity securities. Subject to our agreements with Huntsman described in "Part III. Item 13. Certain Relationships and Related Party Transactions, and Director Independence," we are not restricted from issuing additional ordinary shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares or any substantially similar securities.Registration Rights Agreement
In connection with the IPO and the separation,Separation, we and Huntsman entered into a Registration Rights Agreement pursuantwith Huntsman International LLC and Huntsman (Holdings) Netherlands B.V., a wholly-owned subsidiary of Huntsman International (together, the “Initial Holders”). Pursuant to whichthe Registration Rights Agreement, we agreed uponto register the request of Huntsman, to use our best efforts to effect the registration under applicable securities laws of the dispositionsale of our ordinary shares retainedowned by Huntsman. Huntsman has advised us that it intends to continue to monetize its retained ownership stake in Venator. Subject to prevailing market and other conditions, this future monetization may be effected in additional follow-on capital markets transactions or block transactions that permit an orderly distribution of Huntsman's retained shares.the Initial Holders under certain circumstances.
Demand Rights
The rights of our shareholders may differ fromInitial Holders (or their permitted transferees) have the rights typically offeredright to shareholdersrequire us by written notice to prepare and file a registration statement registering the offer and sale of a U.S. corporation organized in Delaware and these differences may make ourcertain number of the ordinary shares less attractivethey own. Generally, we are required to investors.
We are incorporated underprovide notice of the laws of England and Wales. The rights ofrequest to certain other holders of our ordinary shares are governed by English law, including the provisions of the Companies Act 2006, and by our articles of association. These rights differwho may, in certain respects fromcircumstances, participate in the rightsregistration. Subject to certain exceptions, we are not obligated to effect a demand registration within 90 days after the closing of shareholders in typical U.S. corporations organized in Delaware, including with respectany underwritten offering of ordinary shares. Further, we are not obligated to preemptive rights, distributioneffect more than a total of dividends, limitation on derivative suits, and certain heightened shareholder approval requirements.
U.S. investors may have difficulty enforcing civil liabilities against us, our directors or members of senior management.eight demand registrations.
We are incorporated underalso not obligated to effect any demand registration in which the laws of England and Wales. The U.S. andanticipated aggregate offering price for our ordinary shares included in such offering is less than $25 million. To the U.K. do not currently haveextent we are eligible to effect a treaty providingregistration on Form S‑3, any such demand registration may be for a shelf registration statement. We are required to use reasonable best efforts to maintain the recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. The enforceabilityeffectiveness of any judgmentsuch registration statement until the earlier of (i) 180 days (or five years in the case of a U.S. federal or state court in the U.K. will depend on the laws and any treaties in effect at the time, including conflicts of laws principles (such as those bearing on the question of whether a U.K. court would recognize the basis on which a U.S. court had purported to exercise jurisdiction over a defendant). In this context, there is doubt as to the enforceability in the U.K. of civil liabilities based solely on the federal securities laws of the U.S. In addition, awards for punitive damages in actions brought in the U.S. or elsewhere may be unenforceable in the U.K. An award for monetary damages under the U.S. securities laws would likely be considered punitive if it did not seek to compensate the claimant for loss or damage suffered and was intended to punish the defendant.
Provisions in our articles of association are intended to have anti-takeover effects that could discourage an acquisition of us by others, and may prevent attempts by shareholders to replace or remove our current management.
Certain provisions in our articles of association are intended to have the effect of delaying or preventing a change in control or changes in our management. For example, our articles of association include provisions that establish an advance notice procedure for shareholder resolutions to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors. U.K. law also prohibits the passing of written shareholder resolutions by public companies. In addition, our articles of association provide that, in general, from andshelf registration statement) after the firsteffective date thereof or (ii) the date on which all ordinary shares covered by such registration statement have been sold (subject to certain extensions).
In addition, Huntsman ceasesCorporation (or its permitted transferees) has the right to beneficially own at least 15% of our outstanding voting shares, we may not engage in a business combination with an interested shareholder for a period of three years after the time of the transaction in which the person became an interested shareholder. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management, even if these events would be beneficial for our shareholders.
The U.K. City Code on Takeovers and Mergers, or the Takeover Code, may apply to us.
The Takeover Code applies to, among other things, an offer for a public company whose registered office is in the U.K. (or the Channel Islands or the Isle of Man) and whose securities are not admitted to trading on a regulated market in the U.K. (or the Channel Islands or the Isle of Man) if the company is considered by the Panel on Takeovers and Mergers, or the Takeover Panel, to have its place of central management and control in the U.K. (or the Channel Islands or the Isle of Man). This is known as the "residency test." Under the Takeover Code, the Takeover Panel will determine whether we have our place of central management and control in the U.K. by looking at various factors, including the structure of our board of directors, the functions of the directors and where they are resident.
If at the time of a takeover offer, the Takeover Panel determines that we have our place of central management and control in the U.K., we would berequire us, subject to certain limitations, to effect a numberdistribution of rules and restrictions, including but not limited to the following: (i) our ability to enter into deal protection arrangements with a bidder would be extremely limited; (ii) we might not, without the approval of our shareholders, be able to perform certain actions that could have the effect of frustrating an offer, such as issuing sharesany or carrying out acquisitions or disposals; and (iii) we would be obliged to provide equality of information to all bona fide competing bidders.
Huntsman owns approximately 49% of our voting share capital, and therefore may trigger the "mandatory offer" regime under Rule 9 of the Takeover Code. The application of the mandatory offer regime would mean that to the extent that the Takeover Code applies to Venator, except with the consent of the Takeover Panel, Huntsman would not be able to increase its interest in Venator’s voting share capital without being obliged to make a mandatory offer for all of the outstandingordinary shares in Venatorit or they own by means of an underwritten offering.
Piggyback Rights
Subject to certain exceptions, if at any time we propose to register an offering of ordinary shares or conduct an underwritten offering, whether or not already owned by Huntsman. In addition: (i) any shareholder holding less than 30%for our own account, then we must notify the Initial Holders (or their permitted transferees) of our voting share capital would not be ablesuch proposal to increase their interestallow them to 30% or above without being obliged to makeinclude a Rule 9 mandatory offer for the remaining shares in Venator not already held by such shareholder; and (ii) any shareholder already holding between 30% and 50% of our voting share capital would not be able to increase their interest without being obliged to make a mandatory offer, in each case without the consentspecified number of the U.K. Takeover Panel.ordinary shares they own in that registration statement or underwritten offering, as applicable.
A majority of our current board of directors resides outsideConditions and Limitations; Expenses
These registration rights are subject to certain conditions and limitations, including the right of the U.K.,underwriters to limit the Channel Islands and the Islenumber of Man. The Takeover Panel has confirmed that, based upon the non-U.K. residency ofshares to be included in a majority of our current board of directors, our current management structureregistration and our intended plans for our current directorsright to delay or withdraw a registration statement under certain circumstances. We will generally pay all registration and management, for the purposesoffering expenses of the Takeover Code, we are currently considered to have our place of central managementInitial Holders, other than underwriting discounts and control outside the U.K., the Channel Islands or the Isle of Man. Therefore, the Takeover Code does not currently apply to us. It is possible that in the future circumstances could change that may cause the Takeover Code to apply to us.
Pre-emption rights for U.S. and other non-U.K. holders of shares may be unavailable.
In the case of certain increases in our issued share capital, under English law, existing holders of shares are entitled to pre-emption rights to subscribe for such shares, unless shareholders dis-apply such rights by a special resolution at a shareholders’ meeting. These pre-emption rights have been dis-applied for a period of five years by our shareholderscommissions, in connection with our IPOobligations under the Registration Rights Agreement, regardless of whether a registration statement is filed or becomes effective.
BOARD INDEPENDENCE
It is important to us that investors have confidence that an individual serving as an independent director does not have any relationship with our company that impairs his or her independence. Under NYSE corporate governance rules, the Board must have a majority of independent directors. For a director to qualify as independent, the Board must affirmatively determine that the director has no material relationship with our company, either directly or as a partner, shareholder or officer of an organization that has a relationship with our company. To assist in making independence determinations, the Board has adopted independence criteria which can be found on our website at www.venatorcorp.com. Under these criteria, a director is not independent if:
•The director is, or has been within the last three years, an employee of our company or an employee of any of our subsidiaries, or an immediate family member is, or has been within the last three years, an executive officer of our company.
•The director has received, or has an immediate family member who has received, during any 12‑month period within the last three years, more than $120,000 in direct compensation from us (other than director and we intend to propose equivalent resolutions in the future once the initial period of dis-application has expired. We cannot assure prospective U.S. investors that any exemption from the registration requirements of the Securities Act or applicable non-U.S. securities laws would be available to enable U.S.committee fees and pension or other non-U.K. holders to exercise such pre-emption rights or, if available, that we will utilize any such exemption.
We doforms of deferred compensation for prior service, which compensation is not intend to pay dividends on our ordinary shares, and our debt agreements place certain restrictions on our ability to do so. Consequently, our shareholders' only opportunity to achieve a return on investment is if the price of our ordinary shares appreciates.
We do not plan to declare dividends on our ordinary shares in the foreseeable future. Additionally, our debt agreements place certain restrictions on our ability to pay cash dividends. Consequently, unless we revise our dividend policy, our shareholders' only opportunity to achieve a return on investment in us will be if they sell their ordinary shares at a price greater than they paidcontingent upon continued service). Compensation received by an immediate family member for it.
Transfers of our shares may be subject to stamp duty or stamp duty reserve tax in the U.K., which would increase the cost of dealing in our shares.
Stamp duty or stamp duty reserve tax ("SDRT"), are imposed in the U.K. on certain transfers of chargeable securities (which include shares in companies incorporated in the U.K.) at a rate of 0.5% of the consideration paid for the transfer. Certain issues or transfers of shares to depositories or into clearance systems may be charged at a higher rate of 1.5%.
Our shareholders are strongly encouraged to hold shares in book entry form through the facilities of The Depository Trust Company ("DTC"). Transfers of shares held in book entry form through DTC currently do not attract a charge to stamp duty or SDRT in the U.K. A transfer of title in the shares from within the DTC system out of DTC and any subsequent transfers that occur entirely outside the DTC system, will attract a charge to stamp duty at a rate of 0.5% of any consideration, which is payable by the transferee of the shares. Any such duty must be paid (and the relevant transfer document, if any, stamped by HM Revenue & Customs ("HMRC")) before the transfer can be registered in the books of Venator. However, if those shares are redeposited into DTC, the redeposit will attract stamp duty or SDRT at the rate of 1.5% to be paid by the transferor.
In connection with our IPO, we put in place arrangements to require that shares held in certificated form cannot be transferred into the DTC system until the transferor of the shares has first delivered the shares to a depositary specified by us so that SDRT may be collected in connection with the initial delivery to the depositary. Any such shares will be evidenced by a receipt issued by the depositary. Before the transfer can be registered in our books, the transferor will also be required to put the depositary in funds to settle the resultant liability to SDRT, which will be charged at a rate of 1.5% of the value of the shares.
If our shares are not eligible for deposit and clearing within the facilities of DTC, then transactions in our securities may be disrupted.
The facilities of DTC are a widely-used mechanism that allow for rapid electronic transfers of securities between the participants in the DTC system, which include many large banks and brokerage firms. Our ordinary shares are currently eligible for deposit and clearing within the DTC system. We have entered into arrangements with DTC whereby we agreed to indemnify DTC for any SDRT that may be assessed upon it as a result of its service as a depository and clearing agencyan employee (other than as an executive officer) of ours is not considered for our shares. However, DTC generally has discretion to cease to act as a depository and clearing agency for the shares. While we would pursue alternative arrangements to preserve our listing and maintain trading, any such disruption could have a material adverse effect on the market pricepurposes of our ordinary shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own or lease chemical manufacturing and research facilities in the locations indicated in the list below which we believe are adequate for our short-term and anticipated long-term needs. We own or lease office space and storage facilitiesthis standard.
throughout•The (1) director or an immediate family member is a current partner of a firm that is our internal or external auditor; (2) director is a current employee of such a firm; (3) director has an immediate family member who is a current employee of such a firm and who personally works on our company’s audit; or (4) director or an immediate family member was within the world. Our headquarterslast three years a partner or employee of such a firm and principalpersonally worked on our audit within that time.
•The director or an immediate family member is, or has been within the last three years, employed as an executive offices are locatedofficer of another company where any of our present executive officers at the Wynyard location, with the address of Titanium House, Hanzard Drive, Wynyard Park, Stockton-On-Tees, TS22 5FD, United Kingdom.same time serves or served on that company’s compensation committee.
•The followingdirector is a list of our principal ownedcurrent employee, or leased properties where manufacturing, research and main office facilities are located.
| | | | | | | | | | | | | | |
Location(2)
| | Business
Segment(4)
| | Description of Facility |
Duisburg, Germany | | Various | | TiO2, Functional Additives, Water Treatment Manufacturing and Research Facility and Administrative Offices
|
Greatham, U.K. | | TiO2
| | TiO2 Manufacturing Facility
|
Huelva, Spain | | TiO2
| | TiO2 Manufacturing Facility
|
Lake Charles, Louisiana(3)
| | TiO2
| | TiO2 Manufacturing Facility
|
Pori, Finland(5)
| | TiO2
| | TiO2 Manufacturing Facility
|
Scarlino, Italy | | TiO2
| | TiO2 Manufacturing Facility
|
Teluk Kalung, Malaysia(1)
| | TiO2
| | TiO2 Manufacturing Facility
|
Uerdingen, Germany(1)
| | TiO2
| | TiO2 Manufacturing Facility
|
Augusta, Georgia | | Additives | | Color Pigments Manufacturing Facility |
Birtley, U.K. | | Additives | | Color Pigments Manufacturing Facility |
Comines, France | | Additives | | Color Pigments Manufacturing Facility |
Dandenong, Australia(1)
| | Additives | | Color Pigments Manufacturing Facility |
Freeport, Texas | | Additives | | Timber Treatments Manufacturing Facility |
Harrisburg, North Carolina | | Additives | | Timber Treatments Manufacturing Facility |
Ibbenbueren, Germany(1)
| | Additives | | Water Treatment Manufacturing Facility |
Kidsgrove, U.K. | | Additives | | Color Pigments Manufacturing Facility |
Los Angeles, California | | Additives | | Color Pigments Manufacturing Facility |
Schwarzheide, Germany(1)
| | Additives | | Water Treatment Manufacturing Facility |
Sudbury, U.K. | | Additives | | Color Pigments Manufacturing Facility |
Taicang, China | | Additives | | Color Pigments Manufacturing Facility |
Turin, Italy | | Additives | | Color Pigments Manufacturing Facility |
Walluf, Germany(1)
| | Additives | | Color Pigments Manufacturing Facility |
Everberg, Belgium | | Various | | Shared Services Center and Administrative Offices |
Kuala Lumpur, Malaysia(1)
| | Various | | Shared Services Center and Administrative Offices |
The Woodlands, Texas(1)
| | Various | | Administrative Offices |
Wynyard, U.K.(1)
| | Various | | Headquarters & Administrative Offices, Research Facility and Shared Services Center |
(1)Leased land and/or building.
(2)Excludes plant in Umbogintwini, South Africa, which was closed in the fourth quarter of 2016, plants in St. Louis, Missouri and Calais, France which were closed in 2017, and plants in Easton, Pennsylvania and Beltsville, Maryland, which were closed in 2018.
(3)Owned by LPC, our unconsolidated manufacturing joint venture which is owned 50% by us and 50% by Kronos.
(4)Solely for the purposes of this column, "TiO2" and "Additives" represent the Titanium Dioxide and Performance Additives segments, respectively.
(5)The Pori, Finland plant closure was announced in the third quarter of 2018 and is ongoing.
ITEM 3. 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. 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)immediate family member of the U.S. Exchange Act, and naming alldirector is a current executive officer, of our directors as additional defendants. A fifth case, filed by Bonnie Yoon Bishopa company that has made payments to, or received payments from, us for property or services in the U.S. District Court for the Southern District of New York, was voluntarily dismissed without prejudice on October 7, 2019.A sixth case was filedan amount which, 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.
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, In re Venator Materials PLC Securities Litigation. 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 action filed a consolidated class action complaint.
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 October 3, 2019, a hearing was held on our motion to dismiss under the Texas Citizens Participation Act, which was subsequently denied.On October 22, 2019, we and other defendants filed a Petition for Writ of Mandamus in the Court of Appeals for the Fifth District of Texas seeking relief from the Dallas District Court’s denial of defendants’ Rule 91a motions to dismiss. On November 22, 2019, we also filed a notice of appeal regarding the denial of our motion to dismiss under the Texas Citizens Participation Act.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 those 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.
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. Becauseany of the early stagelast three fiscal years, exceeds the greater of this litigation, we are unable$1.0 million or 2% of such other company’s consolidated gross revenues.
•The director is an executive officer of any charitable or non-profit organization to reasonably estimate any possible loss or range of loss andwhich we have not accrued for a loss contingency with regard to these matters.
Tronox Litigation
On April 26, 2019, we acquired intangible assets related tomade, within the European paper laminates business from Tronox. A separate agreement with Tronox entered into on July 14, 2018 requirespreceding three years, contributions in any single fiscal year that Tronox promptly pay us a "break fee"exceeded the greater of $75$1.0 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.
Huelva, Spain EHS Matters
On April 28, 2019, a release of acidic effluent occurred at our Huelva facility in Spain impacting an adjacent watercourse and soils. Remediation work has been undertaken following the incident. We are fully cooperating with the regulatory authorities investigating this matter. Because of the early stage of this investigation we are unable to reasonably estimate any sanction that may be imposed by the local regulator, Junta de Andalucia, however we believe that such sanctions could exceed $100,000.
On June 20, 2019, a release of nitrous oxide gas occurred at our Huelva facility in Spain. The gas cloud quickly dissipated but temporarily created an off-site visual impact. We are fully cooperating with the regulatory authorities investigating this matter. Because of the early stage of this investigation we are unable to reasonably estimate any sanction that may be imposed by Junta de Andalucia, however we believe that such sanctions could exceed $100,000.
Other Proceedings
See "Part II. Item 8. Financial Statements and Supplementary Data—Note 23. Commitments and Contingencies" of this report.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our ordinary shares, $0.001 par value per share, are listed on the NYSE under the symbol "VNTR." As of March 10, 2020, there were three shareholders of record and the closing price of our ordinary shares on the New York Stock Exchange was $2.38 per share.
Dividend Policy
For the foreseeable future, we do not expect to pay dividends. However, we anticipate that our board of directors will consider the payment of dividends from time to time to return a portion of our profits to our shareholders when we experience adequate levels of profitability and associated reduced debt leverage. If our board of directors determines to pay any dividend in the future, there can be no assurance that we will continue to pay such dividends or the amount2% of such dividends.charitable or non-profit organization’s consolidated gross revenues.
Securities AuthorizedWith the assistance of company legal counsel, the Governance Committee has reviewed the applicable legal and NYSE standards for Issuance Under Equity Compensation Plans
See "Part III. Item 11. Executive Compensation" of this report for information relating to our equity compensation plans.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data should be read in conjunction with "Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Part II. Item 8. Financial Statements and Supplementary Data" of this report.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Statements of Operations Data: | | | | | | | | | | |
| Revenues | | $ | 2,130 | | | $ | 2,265 | | | $ | 2,209 | | | $ | 2,139 | | | $ | 2,162 | |
| (Loss) income from continuing operations | | (170) | | | (157) | | | 136 | | | (85) | | | (362) | |
| (Loss) income per share from continuing operations attributable to Venator ordinary shareholders | | $ | (1.64) | | | $ | (1.53) | | | $ | 1.19 | | | $ | (0.89) | | | $ | (3.47) | |
| Balance Sheet Data (at year end): | | | | | | | | | | |
| Total assets | | $ | 2,265 | | | $ | 2,485 | | | $ | 2,847 | | | $ | 2,661 | | | $ | 3,413 | |
| Total long-term liabilities | | 1,104 | | | 1,087 | | | 1,083 | | | 1,309 | | | 1,477 | |
Total assets from continuing operations(1) | | 2,265 | | | 2,485 | | | 2,847 | | | 2,535 | | | 3,205 | |
Total long-term liabilities from continuing operations(2) | | 1,104 | | | 1,087 | | | 1,083 | | | 1,231 | | | 1,359 | |
(1)Defined as total assets less current assets of discontinued operations and noncurrent assets of discontinued operations.
(2)Defined as total long-term liabilities less noncurrent liabilities of discontinued operations.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the information under the headings "Note Regarding Forward-Looking Statements," "Part I. Item 1A. Risk Factors," "Part II. Item 6. Selected Financial Data" and "Part I. Item 1. Business,"independence, as well as our independence criteria. Each year, the audited consolidatedGovernance Committee reviews: (i) a summary of the answers to annual questionnaires completed by each of the directors (and, if applicable, any nominees for director); and combined financial statements and the related notes thereto. The following MD&A gives effect(ii) to the recast as described in "Part II. Item 8. Financial Statementsextent applicable, a report of transactions and Supplementary Data—Note 17. Discontinued Operations" of this report.
Recent Trends and Outlook
In 2020, we expect results in our Titanium Dioxide segment to reflect: (i) modest industry demand growth; (ii) TiO2 pricing to reflect regional supply and demand balances and increased competitionrelationships between each director (and, if applicable, any nominee for certain products; (iii) a soft economic environment, primarily in China and Europe, including the direct and indirect effects of China-U.S. trade negotiations, COVID-19 coronavirus and Brexit; (iv) manageable raw material (primarily ore), energy and other cost increases; (v) volume trends to reflect historical seasonal patterns (vi) increased sales of new and recently introduced TiO2 products; and (vii) additional benefit through cost and operational improvement actions as part of our 2019 Business Improvement Program and other cost and operational improvement actions. We are exploring ways to optimize the remaining transfer of our business from Pori, which may result in a lower total expected capital outlay and a lower associated EBITDA benefit than originally estimated.
In our Performance Additives segment, we expect business trends to be driven by: (i) a seasonal improvement in sales volumes compared to the fourth quarter of 2019; (ii) a soft economic environment, primarily in China and Europe, including the effects of China-U.S. trade negotiations, COVID-19 coronavirus and Brexit; (iii) challenging demand environment for certain products primarily in the automotive, plastic and construction end-use applications; (iv) raw material and cost increases; (v) benefits from portfolio optimization actions; (vi) additional benefit through cost and operational improvement actions including our 2019 Business Improvement Program.
In the fourth quarter of 2018, we commenced our 2019 Business Improvement Program and are underway with the implementation, having realized $20 million of savings in 2019. 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 expect the program will be fully implemented in 2020, ending the year at the full run-rate level.
In 2020, we expect total capital expenditures to be $80 million to $90 million. This includes capital expenditures relating to the transfer of our specialty and differentiated technology from our Pori, Finland manufacturing site to other sites in our manufacturing network.
We expect our corporate and other costs will be approximately $55 million in 2020.
Results of Operations
The following table sets forth our consolidated and combined results of operations for the years ended December 31, 2019, 2018 and 2017. For a discussion of the 2017 results of operations, see "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" in the 2018 Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | | | Percent Change
Year Ended | | |
| (Dollars in millions) | 2019 | | | 2018 | | | 2017 | | | 2019 vs. 2018 | | 2018 vs. 2017 |
| Revenues | $ | 2,130 | | | $ | 2,265 | | | $ | 2,209 | | | (6) | % | | 3 | % |
| Cost of goods sold | 1,892 | | | 1,550 | | | 1,744 | | | 22 | % | | (11) | % |
Operating expenses(4) | 192 | | | 218 | | | 226 | | | (12) | % | | (4) | % |
| Restructuring, impairment and plant closing and transition costs | 33 | | | 628 | | | 52 | | | (95) | % | | 1,108 | % |
| Operating income (loss) | 13 | | | (131) | | | 187 | | | NM | | | NM | |
| Interest expense, net | (41) | | | (40) | | | (40) | | | 3 | % | | — | % |
| Other income | 8 | | | 6 | | | 39 | | | 33 | % | | (85) | % |
| (Loss) income from continuing operations before income taxes | (20) | | | (165) | | | 186 | | | (88) | % | | NM | |
| Income tax (expense) benefit from continuing operations | (150) | | | 8 | | | (50) | | | NM | | | NM | |
| (Loss) income from continuing operations | (170) | | | (157) | | | 136 | | | 8 | % | | NM | |
| Income from discontinued operations, net of tax | — | | | — | | | 8 | | | NM | | | (100) | % |
| Net (loss) income | (170) | | | (157) | | | 144 | | | 8 | % | | NM | |
| Reconciliation of net loss to adjusted EBITDA: | | | | | | | | | |
| Interest expense, net | 41 | | | 40 | | | 40 | | | 3 | % | | — | % |
| Income tax expense (benefit) from continuing operations | 150 | | | (8) | | | 50 | | | NM | | | NM | |
| Depreciation and amortization | 110 | | | 132 | | | 127 | | | (17) | % | | 4 | % |
| Net income attributable to noncontrolling interests | (5) | | | (6) | | | (10) | | | (17) | % | | (40) | % |
| Other adjustments: | | | | | | | | | |
| Business acquisition and integration (credits) expense | (1) | | | 20 | | | 5 | | | | | |
| Separation (gain) expense, net | (3) | | | 2 | | | 7 | | | | | |
| U.S. income tax reform | — | | | — | | | (34) | | | | | |
| Net income of discontinued operations, net of tax | — | | | — | | | (8) | | | | | |
| Loss on disposition of businesses/assets | 1 | | | 2 | | | — | | | | | |
| Certain legal settlements and related expenses | 4 | | | — | | | 1 | | | | | |
| Amortization of pension and postretirement actuarial losses | 14 | | | 15 | | | 17 | | | | | |
| Net plant incident costs (credits) | 20 | | | (232) | | | 4 | | | | | |
| Restructuring, impairment and plant closing and transition costs | 33 | | | 628 | | | 52 | | | | | |
Adjusted EBITDA(1) | $ | 194 | | | $ | 436 | | | $ | 395 | | | (56) | % | | 10 | % |
| | | | | | | | | |
| Net cash provided by operating activities from continuing operations | 33 | | | 282 | | | 337 | | | (88) | % | | (16) | % |
| Net cash used in investing activities from continuing operations | (150) | | | (321) | | | (11) | | | (53) | % | | 2,818 | % |
| Net cash provided by (used in) financing activities from continuing operations | 7 | | | (18) | | | (123) | | | NM | | | (85) | % |
| Capital expenditures | (152) | | | (326) | | | (197) | | | (53) | % | | 65 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | Year Ended
December 31, 2019 | | | | | | Year Ended
December 31, 2018 | | | | | | Year Ended
December 31, 2017 |
| | | | | | | | | | | | | | | | | |
| Reconciliation of net (loss) income to adjusted net income (loss) attributable to Venator Materials PLC ordinary shareholders: | | | | | | | | | | | | | | | | | |
| Net (loss) income | | | | | $ | (170) | | | | | | | $ | (157) | | | | | | | $ | 144 | |
| Net income attributable to noncontrolling interests | | | | | (5) | | | | | | | (6) | | | | | | | (10) | |
| Other adjustments: | | | | | | | | | | | | | | | | | |
| Business acquisition and integration (credits) expenses | | | | | (1) | | | | | | | 20 | | | | | | | 5 | |
| Separation (gain) expense, net | | | | | (3) | | | | | | | 2 | | | | | | | 7 | |
| U.S. income tax reform | | | | | — | | | | | | | — | | | | | | | (34) | |
| | | | | | | | | | | | | | | | | |
| Net income of discontinued operations | | | | | — | | | | | | | — | | | | | | | (11) | |
| Loss on disposition of businesses/assets | | | | | 1 | | | | | | | 2 | | | | | | | — | |
| Certain legal settlements and related expenses | | | | | 4 | | | | | | | — | | | | | | | 1 | |
| Amortization of pension and postretirement actuarial losses | | | | | 14 | | | | | | | 15 | | | | | | | 17 | |
| Net plant incident costs (credits) | | | | | 20 | | | | | | | (232) | | | | | | | 4 | |
| Restructuring, impairment and plant closing and transition costs | | | | | 33 | | | | | | | 628 | | | | | | | 52 | |
Income tax adjustments(3) | | | | | 133 | | | | | | | (37) | | | | | | | 11 | |
Adjusted net income attributable to Venator Materials PLC ordinary shareholders(2) | | | | | $ | 26 | | | | | | | $ | 235 | | | | | | | $ | 186 | |
| Weighted-average shares-basic | | | | | 106.5 | | | | | | | 106.4 | | | | | | | 106.3 | |
| Weighted-average shares-diluted | | | | | 106.5 | | | | | | | 106.7 | | | | | | | 106.7 | |
| Net loss attributable to Venator Materials PLC ordinary shareholders per share: | | | | | | | | | | | | | | | | | |
| Basic | | | | | $ | (1.64) | | | | | | | $ | (1.53) | | | | | | | $ | 1.26 | |
| Diluted | | | | | $ | (1.64) | | | | | | | $ | (1.53) | | | | | | | $ | 1.26 | |
| Other non-GAAP measures: | | | | | | | | | | | | | | | | | |
Adjusted net income attributable to Venator Materials PLC ordinary shareholders per share:(2) | | | | | | | | | | | | | | | | | |
| Basic | | | | | $ | 0.24 | | | | | | | $ | 2.21 | | | | | | | $ | 1.75 | |
| Diluted | | | | | $ | 0.24 | | | | | | | $ | 2.20 | | | | | | | $ | 1.74 | |
NM—Not meaningful
(1)Our management uses adjusted EBITDA to assess financial performance. Adjusted EBITDA is defined as net income/loss before interest income/expense, net, 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) U.S. income tax reform; (d) net income/loss of discontinued operations, net of tax; (e) loss/gain on disposition of business/assets; (f) certain legal settlements and related expenses/gains; (g) amortization of pension and postretirement actuarial losses/gains; (h) net plant incident costs/credits; and (i) restructuring, impairment, and plant closing and transition costs/credits. We believe that net income is the performance measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to adjusted EBITDA.
We believe adjusted EBITDA is useful to investors in assessing our ongoing financial performance and provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of our operational profitability and that may obscure underlying business results and trends. However, this measure should not be considered in isolationdirector) or viewed as a substitute for net income or other measures of performance determined in accordance with U.S. GAAP. Moreover, adjusted EBITDA as used herein is not necessarily comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation. Our management believes this measure is useful to compare general operating performance from period to period and to make certain related management decisions. Adjusted EBITDA is also used by securities analysts, lenders and others in their evaluation of different companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be highly dependent on a company’s capital structure, debt levels and
credit ratings. Therefore, the impact of interest expense on earnings can vary significantly among companies. In addition, the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. As a result, effective tax rates and tax expense can vary considerably among companies. Finally, companies employ productive assets of different ages and utilize different methods of acquiring and depreciating such assets. This can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
Nevertheless, our management recognizes that there are limitations associated with the use of adjusted EBITDA in the evaluation of us as compared to net income. Our management compensates for the limitations of using adjusted EBITDA by using this measure to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business rather than U.S. GAAP results alone.
In addition to the limitations noted above, adjusted EBITDA excludes items that may be recurring in nature and should not be disregarded in the evaluation of performance. However, we believe it is useful to exclude such items to provide a supplemental analysis of current results and trends compared to other periods because certain excluded items can vary significantly depending on specific underlying transactions or events, and the variabilityany of such items may not relate specifically to ongoing operating resultsdirector’s family members, and our company, our senior management or trends and certain excluded items, while potentially recurring in future periods, may not be indicative of future results. For example, while amortization of pension and postretirement actuarial losses is a recurring item, it is not indicative of ongoing operating results and trends or future results.
(2)Adjusted net income attributable to Venator Materials PLC ordinary shareholders is computed by eliminating the after-tax amounts related to the following from net income/loss attributable to Venator Materials PLC ordinary shareholders: (a) business acquisition and integration expenses/adjustments; (b) separation expense/gain, net; (c) U.S. income tax reform; (d) net income/loss of discontinued operations, net of tax; (e) loss/gain on disposition of business/assets; (f) certain legal settlements and related expenses/gains; (g) amortization of pension and postretirement actuarial losses/gains; (h) net plant incident costs/credits; and (i) restructuring, impairment, and plant closing and transition costs/credits. Basic adjusted net income per share excludes dilution and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period. Adjusted diluted net income per share reflects all potential dilutive ordinary shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities.
Adjusted net income and adjusted net income per share amounts are presented solely as supplemental information. These measures exclude similar non-cash item as adjusted EBITDA in order to assist our investors in comparing our performance from period to period and as such, bear similar risks as adjusted EBITDA as documented in footnote (1) above. For that reason, adjusted net income and the related per share amounts, should not be considered in isolation and should be considered only to supplement analysis of U.S. GAAP results.
(3)Prior to the second quarter of 2019, the income tax impacts, if any, of each adjusting item represented a ratable allocation of the total difference between the unadjusted tax expense and the total adjusted tax expense, computed without consideration of any adjusting items using a with and without approach.
Beginning in the three and six-month periods ended June 30, 2019, income tax expense is adjusted by the amount of additional tax expense or benefit that we would accrue if we used non-GAAP results instead of GAAP results in the calculation of our tax liability, taking into consideration our tax structure. We use a normalized effective tax rate of 35%, which reflects the weighted average tax rate applicable under the various jurisdictions in which we operate. This non-GAAP tax rate eliminates the effects of non-recurring and period specific items which are often attributable to restructuring and acquisition decisions and can vary in size and frequency. This rate is subject to change over time for various reasons, including changes in the geographic business mix, valuation allowances, and changes in statutory tax rates.
We eliminate the effect of significant changes to income tax valuation allowances from our presentation of adjusted net income to allow investors to better compare our ongoing financial performance from period to period. We do not adjust for insignificant changes in tax valuation allowances because we do not believe it provides more meaningful information than is provided under GAAP. We believe that this approach enables a clearer understanding of the long term impact of our tax structure on post tax earnings.
(4)As presented within Item 7, operating expenses include selling, general and administrative expenses and other operating expense/income.
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
For the year ended December 31, 2019, net loss was $170 million on revenues of $2,130 million, compared with a net loss of $157 million on revenues of $2,265 million for the same period in 2018. The increase of $13 million in net loss was the result of the following items:
•Revenues for the year ended December 31, 2019 decreased by $135 million, or 6%, as compared with the same period in 2018. The decrease was due to a $52 million, or 3%, decrease in revenue in our Titanium Dioxide segment and an $83 million, or 14%, decrease in revenue in our Performance Additives segment. See "—Segment Analysis" below.
•Our operating expenses for the year ended December 31, 2019 decreased by $26 million, or 12%, as compared to the same period in 2018, primarily as a result lower overhead costs, lower depreciation expense, and a decrease in Pori related expenses, partially offset by the impact of $14 million of carbon credit sales in 2018 and the negative impact of foreign exchange.
•Restructuring, impairment and plant closing and transition costs for the year ended December 31, 2019 decreased to $33 million from $628 million for the same period in 2018. For more information concerning restructuring activities, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 13. Restructuring, Impairment and Plant Closing and Transition Costs" of this report.
•Other income for the year ended December 31, 2019 increased by $2 million primarily as a result of the recognition of $4 million related to the change in the expected future payment to Huntsman pursuant to the tax matters agreement entered into as part of our separation partially offset by a net decrease in pension related expense.
•Income tax expense for the year ended December 31, 2019 was $150 million compared to $8 million of income tax benefit for the same period in 2018. Our income tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions. In 2019, we recorded a full valuation allowance against net deferred tax assets of $162 million. For further information concerning taxes, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 20. Income Taxes" of this report.
Segment Analysis
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended
December 31, | | | | Percent
Change
Favorable
(Unfavorable) |
| (in millions) | | 2019 | | 2018 | | |
| Revenues | | | | | | |
| Titanium Dioxide | | $ | 1,614 | | | $ | 1,666 | | | (3) | % |
| Performance Additives | | 516 | | | 599 | | | (14) | % |
| Total | | $ | 2,130 | | | $ | 2,265 | | | (6) | % |
| Adjusted EBITDA | | | | | | |
| Titanium Dioxide | | $ | 197 | | | $ | 417 | | | (53) | % |
| Performance Additives | | 47 | | | 62 | | | (24) | % |
| | 244 | | | 479 | | | (49) | % |
| Corporate and other | | (50) | | | (43) | | | (16) | % |
| Total | | $ | 194 | | | $ | 436 | | | (56) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 vs. 2018 | | | | | | |
| | Average Selling Price(1) | | | | | | |
| | Local
Currency | | Foreign
Currency
Translation
Impact | | Mix &
Other | | Sales Volumes(2) |
| Period-Over-Period Increase (Decrease) | | | | | | | |
| Titanium Dioxide | (7) | % | | (3) | % | | — | % | | 7 | % |
| Performance Additives | — | % | | (2) | % | | — | % | | (12) | % |
NM—Not meaningful
(1)Excludes revenues from tolling arrangements, by-products and raw materials.
(2)Excludes sales volumes of by-products and raw materials.
Titanium Dioxide
The Titanium Dioxide segment generated revenues of $1,614 million in the twelve months ended December 31, 2019, a decrease of $52 million, or 3%, compared to the same period in 2018. The decrease was primarily due to a 7% decline in the average TiO2 selling price and a 3% unfavorable impact of foreign currency translation, partially offset by a 7% increase in sales volumes. The decline in the average TiO2 selling price was primarily a result of lower functional TiO2 prices in Europe and Asia and more stable prices in North America. The average specialty TiO2 price was stable compared to the prior year. Sales volumes increased due to sales of new products, increased product availability and improved demand for our products.
Adjusted EBITDA for the Titanium Dioxide segment was $197 million, a decline of $220 million in the twelve months ended December 31, 2019 compared to the same period in 2018. This decrease is primarily a result of lower TiO2 margins due to a lower average TiO2 selling price, reduced contribution from specialty TiO2, higher raw material costs, $14 million of carbon credits sold in the twelve months ended December 31, 2018 and $41 million of lost earnings attributable to our Pori, Finland TiO2 manufacturing facility, which were reimbursed through insurance proceeds in the comparable period of 2018. This decrease was partially offset by higher sales volumes, a $13 million benefit from our 2019 Business Improvement Program and a $9 million benefit due to a change in plant utilization rates, which increased our overhead absorption and corresponding inventory valuation at certain facilities.
Performance Additives
The Performance Additives segment generated revenues of $516 million in the twelve months ended December 31, 2019, a decline of $83 million, or 14%, compared to the same period in 2018. This decrease was a result of a 12% decline in volumes and a 2% unfavorable impact of foreign currency translation. The average selling price was stable compared to the prior year. The decline in volumes was primarily attributable to soft demand in automotive coatings, plastics and electronics applications, lower sales into construction-related applications, including the effect of portfolio optimization and a discontinuation of sales of a product to a timber treatment customer.
Adjusted EBITDA in the Performance Additives segment was $47 million, a decrease of $15 million, or 24%, for the twelve months ended December 31, 2019 compared to the same period in 2018. This decrease was primarily a result of lower sales volumes and product mix, partially offset by lower raw material and selling, general and administrative costs, a $5 million benefit from our 2019 Business Improvement Program and a $2 million benefit due to a change in plant utilization which increased our overhead absorption rates at certain facilities.
Corporate and other
Corporate and other represents expenses which are not allocated to our segments. Losses from Corporate and other were $50 million, or $7 million higher for the twelve months ended December 31, 2019 than the same period in 2018 due to a $9 million unfavorable impact of foreign currency exchange rates partially offset by a $2 million benefit from our 2019 Business Improvement Program.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
For the year ended December 31, 2018, net loss was $157 million on revenues of $2,265 million, compared with a net income of $144 million on revenues of $2,209 million for the same period in 2017. The decrease of $301 million in net income was the result of the following items:
•Revenues for the year ended December 31, 2018 increased by $56 million, or 3%, as compared with the same period in 2017. The increase was due to a $62 million, or 4%, increase in revenue in our Titanium Dioxide segment primarily due to an increase in average selling price, partially offset by a $6 million, or 1%, decrease in revenue in our Performance Additives segment due primarily to decreases in volumes. See "—Segment Analysis" below.
•Our operating expenses for the year ended December 31, 2018 decreased by $8 million, or 4%, as compared to the same period in 2017, primarily resulting from reduced overhead costs.
•Restructuring, impairment and plant closing and transition costs for the year ended December 31, 2018 increased to $628 million from $52 million for the same period in 2017. For more information concerning restructuring activities, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 13. Restructuring, Impairment and Plant Closing and Transition Costs" of this report.
•Other income for the year ended December 31, 2018 decreased by $33 million primarily as a result of the recognition of income in 2017 related to the change in the future payment to Huntsman pursuant to the tax matters agreement
entered into as part of our separation. The change in future expected payment was due to the 2017 Tax Act’s reduction of the U.S. federal corporate income tax rate from 35% to 21%.
•Our income tax benefit for the year ended December 31, 2018 was $8 million compared to $50 million of income tax expense for the same period in 2017. Our income tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions. For further information concerning taxes, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 20. Income Taxes" of this report.
Segment Analysis
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended
December 31, | | | | Percent
Change
Favorable
(Unfavorable) |
| (in millions) | | 2018 | | 2017 | | |
| Revenues | | | | | | |
| Titanium Dioxide | | $ | 1,666 | | | $ | 1,604 | | | 4 | % |
| Performance Additives | | 599 | | | 605 | | | (1) | % |
| Total | | $ | 2,265 | | | $ | 2,209 | | | 3 | % |
| Segment adjusted EBITDA | | | | | | |
| Titanium Dioxide | | $ | 417 | | | $ | 387 | | | 8 | % |
| Performance Additives | | 62 | | | 72 | | | (14) | % |
| | 479 | | | 459 | | | 4 | % |
| Corporate and other | | (43) | | | (64) | | | 33 | % |
| Total | | $ | 436 | | | $ | 395 | | | 10 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 vs. 2017 | | | | | | |
| | Average Selling Price(1) | | | | | | |
| | Local
Currency | | Foreign
Currency
Translation
Impact | | Mix &
Other | | Sales Volumes(2) |
| Period-Over-Period Increase (Decrease) | | | | | | | |
| Titanium Dioxide | 13 | % | | 3 | % | | 1 | % | | (13) | % |
| Performance Additives | 3 | % | | 2 | % | | (2) | % | | (4) | % |
NM—Not meaningful
(1)Excludes revenues from tolling arrangements, by-products and raw materials.
(2)Excludes sales volumes of by-products and raw materials.
Titanium Dioxide
The Titanium Dioxide segment generated revenues of $1,666 million in the twelve months ended December 31, 2018, an increase of $62 million, or 4%, compared to the same period in 2017. The increase was primarily due to a 13% increase in average selling price, a 3% favorable impact from foreign currency translation, and a 1% increase due to mix and other, offset by a 13% decrease in volumes. The increase in selling prices compared to the prior year reflects more favorable business conditions allowing for an increase in prices globally. Sales volumes decreased primarily due to customer destocking and lower availability of certain specialty product grades due, in part, to extended planned maintenance turnarounds, reduced operating rates at our Pori, Finland manufacturing facility and other plant closures as part of our restructuring programs. Excluding the impact of the fire at our Pori plant and the impact of plants closed as part of our restructuring programs, sales volumes decreased by 9% compared to the prior year.
Adjusted EBITDA for the Titanium Dioxide segment increased by $30 million for the year ended December 31, 2018 compared to the same period in 2017. This increase is primarily a result of improvements in pricing, $19 million of benefits as a result of our 2017 business improvement program, and the sale of $14 million of energy credits in 2018, offset by the impact of
higher raw materials and energy costs and the impact of insurance proceeds received in 2017 to reimburse lost earnings from our Pori, Finland facility.
Performance Additives
The Performance Additives segment generated $599 million of revenue in the twelve months ended December 31, 2018, a decline of $6 million, or 1%, compared to the same period in 2017 resulting from a 4% decrease in volumes and a 2% decrease due to the unfavorable impact of sales mix and other partially offset by a 3% increase in pricing and a 2% improvement from the favorable impact of foreign currency translation. The decline in volumes was primarily as a result of customer destocking in Functional Additives, the discontinuation of sales of certain Timber Treatment products to a large customer, and plant shutdowns in the second quarter of 2018 as part of our restructuring plans, while the increase in selling prices is as a result of price increases for certain products within Functional Additives, Color Pigments and Timber Treatment to offset higher raw material and energy costs.
Adjusted EBITDA in the Performance Additives segment decreased by $10 million, or 14%, for the twelve months ended December 31, 2018 compared to the same period in 2017, primarily due to higher raw materials and energy costs, offset by higher average selling prices and $8 million of benefits from our 2017 business improvement program.
Corporate and other
Corporate and other represents expenses which are not allocated to our segments. Losses from Corporate and other were $43 million, or $21 million lower for the twelve months ended December 31, 2018 than the same period in 2017 as our costs to operate as a standalone company are lower than those costs historically allocated to us from Huntsman.
Liquidity and Capital Resources
We had cash and cash equivalents of $55 million and $165 million as of December 31, 2019 and 2018, respectively. We expect to have adequate liquidity to meet our obligations over the next 12 months. We believe our future obligations, including needs for capital expenditures will be met by available cash generated from operations and borrowings.
Our financing arrangements include $375 million of Senior Notes issued by our subsidiaries Venator Finance S.à r.l. and Venator Materials LLC (the "Issuers"), and borrowings of $375 million under the Term Loan Facility. We have a related-party note payable to Huntsman for a liability pursuant to the tax matters agreement entered into at the time of the separation which has been presented as Noncurrent payable to affiliate within the consolidated balance sheets.
In addition to the Senior Notes and the Term Loan Facility, we have an ABL Facility. Availability to borrow under the ABL Facility is subject to a borrowing base calculation comprising both accounts receivable and inventory in the U.S., Canada, the U.K. and Germany and only accounts receivable in France and Spain. Thus, the base calculation may 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. The borrowing base calculation as of December 31, 2019 is in excess of $273 million, of which $252 million is available to be drawn, as a result of $21 million of letters of credit issued and outstanding at December 31, 2019.
Items Impacting Short-Term and Long-Term Liquidity
Our liquidity can be significantly impacted by various factors. The following matters had, or are expected to have, a significant impact on our liquidity:
•Cash inflows from our accounts receivable and inventory, net of accounts payable, increased by $119 million for the year ended December 31, 2019 as reflected in our consolidated and combined statements of cash flows. For 2020, we expect to spend $80 million to $90 million on capital expenditures. Our future expenditures include certain EHS maintenance and upgrades; periodic maintenance and repairs applicable to major units of manufacturing facilities; certain cost reduction projects; and the cost to transfer our specialty and differentiated manufacturing from Pori, Finland to other sites within our manufacturing network. We expect to fund this spending with cash on hand as well as cash provided by operations and borrowings.
•During the year ended December 31, 2019, we made contributions to our pension and postretirement benefit plans of $40 million. During the first quarter of 2020, we expect to contribute an additional amount of approximately $7 million to these plans.
•We are involved in a number of cost reduction programs for which we have established restructuring accruals. As of December 31, 2019, we had $16 million of accrued restructuring costs of which $9 million is classified as current. We expect to incur approximately $19 million and pay approximately $30 million of restructuring and plant closing costs during 2020. For further discussion of these plans and the costs involved, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 13. Restructuring, Impairment and Plant Closing and Transition Costs" of this report.
•In the fourth quarter of 2018, we commenced our 2019 Business Improvement Program and are underway with the implementation, having realized $20 million of savings in 2019. 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 expect the program will be fully implemented in 2020, ending the year at the full run-rate level.
•On January 30, 2017, our TiO2 manufacturing facility in Pori, Finland, experienced fire damage. On September 12, 2018, following our review of the Pori facility and options within our manufacturing network, and as a result of unanticipated cost escalation and extended timeline associated with reconstruction, we announced that we intend to close our Pori, Finland, TiO2 manufacturing facility and transfer certain specialty and differentiated products to other sites. We expect to continue to wind down the limited operations at the Pori facility through the transition period. We are exploring ways to optimize the remaining transfer of our business from Pori, which may result in a lower total expected capital outlay and a lower associated EBITDA benefit than originally estimated.
•In the first quarter of 2020, we initiated consultations with employee representatives on a proposal to restructure our manufacturing facility in Duisburg, Germany. Until the consultation process is concluded, the restructuring is not considered probable, and the total potential costs associated with this contemplated proposal, which are expected to be significant, cannot be determined. If the consultation process is successfully concluded, the Company would expect, at that time, to record charges related to the program including employee severance costs, accelerated depreciation and other costs associated with restructuring our manufacturing facility. The amount and timing of the recognition of these charges and the related cash expenditures will depend on a number of factors, including the timing of the completion of the consultation process and the negotiated elements of the associated plan.
•We have $732 million in aggregate principal outstanding, net of debt issuance costs of $14 million, under $371 million, 5.75% of Senior Notes due 2025, and a $361 million Term Loan Facility. As of December 31, 2019 and 2018, we had $13 million and $8 million, respectively, classified as current portion of debt. See further discussion under "Financing Arrangements."
As of December 31, 2019 and 2018, we had $16 million and $36 million, respectively, of cash and cash equivalents held outside of the U.S. and Europe. In the first quarter of 2019, a non-U.K. subsidiary distributed $12 million to a U.K. subsidiary subject to a 5% withholding tax. As of December 31, 2019, our non-U.K. subsidiaries have no plan to distribute earnings in a manner that would cause them to be subject to material U.K., U.S., or other local country taxation. For the years ended December 31, 2018 and 2017, our non-U.K. subsidiaries made no distribution of earnings that caused them to be subject to material U.K., U.S., or other local country taxation.
Cash Flows for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Net cash provided by operating activities was $33 million for the twelve months ended December 31, 2019, compared to net cash provided by operating activities of $282 million for the twelve months ended December 31, 2018. The decrease in net cash provided by operating activities for the twelve months ended December 31, 2019 compared with the same period of 2018 was primarily attributable to changes in net income. The $13 million increase in net loss, as described in "—Results of Operations" above, was offset by changes in non-cash elements of net income comprised primarily of a $583 million decrease in non-cash restructuring and impairment charges and a $158 million increase in income tax expense primarily as the result of the recognition of a full valuation allowance against the deferred tax assets held at our German businesses. The increase in net loss, after giving effect to the non-cash restructuring and impairment charges and the increase in income tax expense, was partially offset by an increase in cash flows due to changes in assets and liabilities of approximately $205 million.
Net cash used in investing activities was $150 million for the twelve months ended December 31, 2019, compared to net cash used in investing activities of $321 million for the twelve months ended December 31, 2018. The decrease in net cash used in investing activities for the twelve months ended December 31, 2019 compared with the same period of 2018 was primarily attributable to a $174 million decrease in capital expenditures as a result of the unreimbursed Pori capital expenditures in 2018.
Net cash provided by financing activities was $7 million for the twelve months ended December 31, 2019, compared to net cash used in financing activities of $18 million for the twelve months ended December 31, 2018. The increase in net cash provided by financing activities for the twelve months ended December 31, 2019 compared with the same period of 2018 was primarily attributable to $15 million in proceeds from the termination of cross-currency swap contracts in 2019 and $13 million favorable variance in net borrowings/repayments on notes payable.
Cash Flows for the Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Net cash provided by operating activities from continuing operations was $282 million for the twelve months ended December 31, 2018 while net cash provided by operating activities from continuing operations was $337 million for the twelve months ended December 31, 2017. The decrease in net cash provided by operating activities from continuing operations for the twelve months ended December 31, 2018 compared with the same period of 2017 was primarily attributable to the $301 million decrease in net income described in "—Results of Operations" above, a $263 million unfavorable variance in changes in assets and liabilities, and an unfavorable decrease in deferred income taxes of $38 million, partially offset by an increase in noncash restructuring and impairment charges of $584 million.
Net cash used in investing activities from continuing operations was $321 million for the twelve months ended December 31, 2018, compared to net cash used in investing activities from continuing operations of $11 million for the twelve months ended December 31, 2017. The increase in net cash used in investing activities from continuing operations for the twelve months ended December 31, 2018 compared with the same period of 2017 was primarily attributable to a $205 million increase in capital expenditures, net of insurance proceeds for recovery of property damage, and a decrease in net payments from affiliates of $121 million year over year, partially offset by a change of $10 million related to cash received and cash invested in unconsolidated affiliates.
Net cash used in financing activities from continuing operations was $18 million for the twelve months ended December 31, 2018, compared to net cash used in financing activities from continuing operations of $123 million for the twelve months ended December 31, 2017. The decrease in net cash used in financing activities from continuing operations for the twelve months ended December 31, 2018 compared with the same period of 2017 was primarily attributable to the $832 million final settlement and repayment of affiliate balances at separation reflected in our 2017 cash outflows from financing activities, offset by a decrease in proceeds received from the issuance of the Senior Notes and Senior Credit facilities net of the payment of debt issuance costs of $732 million in 2017.
Changes in Financial Condition
The following information summarizes our working capital as of December 31, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | December 31, 2019 | | December 31, 2018 | | Increase (Decrease) | | Percent Change |
| Cash and cash equivalents | $ | 55 | | | $ | 165 | | | $ | (110) | | | (67) | % |
| Accounts and notes receivable, net | 321 | | | 351 | | | (30) | | | (9) | % |
| | | | | | | |
| Inventories | 513 | | | 538 | | | (25) | | | (5) | % |
| Prepaid expenses | 21 | | | 20 | | | 1 | | | 5 | % |
| Other current assets | 67 | | | 51 | | | 16 | | | 31 | % |
| Total current assets | 977 | | | 1,125 | | | (148) | | | (13) | % |
| Accounts payable | 334 | | | 382 | | | (48) | | | (13) | % |
| Accounts payable to affiliates | 17 | | | 18 | | | (1) | | | (6) | % |
| Accrued liabilities | 116 | | | 135 | | | (19) | | | (14) | % |
| Current operating lease liability | 8 | | | | — | | | | 8 | | | NM | |
| Current portion of debt | 13 | | | 8 | | | 5 | | | 63 | % |
| Total current liabilities | 488 | | | 543 | | | (55) | | | (10) | % |
| Working capital | $ | 489 | | | $ | 582 | | | $ | (93) | | | (16) | % |
NM—Not meaningful
Our working capital decreased by $93 million as a result of the net impact of the following significant changes:
•Cash and cash equivalents decreased by $110 million primarily due to cash outflows of $150 million from investing activities, partially offset by inflows of $33 million from operating activities and $7 million from financing activities.
•Accounts receivable decreased by $30 million primarily due to lower sales year over year.
•Inventories decreased by $25 million primarily due to lower levels of finished goods at December 31, 2019 as compared to the prior year as a result of seasonality and efforts across the organization to manage inventory levels partially offset by an $11 million increase in inventory due to a change in plant utilization rates which increased our overhead absorption and corresponding inventory valuation at certain facilities in 2019.
•Accrued liabilities decreased by $19 million primarily due to a reduction of $9 million of accrued restructuring costs and $7 million of current portion of ARO costs.
The following information summarizes our working capital as of December 31, 2018 and 2017:
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | December 31, 2018 | | December 31, 2017 | | Increase (Decrease) | | Percent Change |
| Cash and cash equivalents | $ | 165 | | | $ | 238 | | | $ | (73) | | | (31) | % |
| Accounts and notes receivable, net | 351 | | | 380 | | | (29) | | | (8) | % |
| Accounts receivable from affiliates | — | | | 12 | | | (12) | | | (100) | % |
| Inventories | 538 | | | 454 | | | 84 | | | 19 | % |
| Prepaid expenses | 20 | | | 19 | | | 1 | | | 5 | % |
| Other current assets | 51 | | | 66 | | | (15) | | | (23) | % |
| Total current assets from continuing operations | 1,125 | | | 1,169 | | | (44) | | | (4) | % |
| Accounts payable | 382 | | | 385 | | | (3) | | | (1) | % |
| Accounts payable to affiliates | 18 | | | 16 | | | 2 | | | 13 | % |
| Accrued liabilities | 135 | | | 244 | | | (109) | | | (45) | % |
| Current portion of debt | 8 | | | 14 | | | (6) | | | (43) | % |
| Total current liabilities from continuing operations | 543 | | | 659 | | | (116) | | | (18) | % |
| Working capital | $ | 582 | | | $ | 510 | | | $ | 72 | | | 14 | % |
Our working capital increased by $72 million as a result of the net impact of the following significant changes:
•Cash and cash equivalents decreased by $73 million primarily due to cash outflows of $321 million from investing activities from continuing operations and outflows of $18 million from financing activities from continuing operations partially offset by cash inflows of $282 million from operating activities from continuing operations.
•Accounts receivable decreased by $29 million primarily due to lower sales year over year.
•Inventories increased by $84 million primarily due to customer destocking during the year ended December 31, 2018.
•Accrued liabilities decreased by $109 million primarily due to the decreased capital accruals for the Pori, Finland plant rebuild.
Financing Arrangements
For a discussion of financing arrangements, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 16. Debt" of this report.
Cross-Currency Swap
For a discussion of cross-currency swaps, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 18. Derivative Instruments and Hedging Activities" of this report.
Contractual Obligations and Commercial Commitments
Our obligations under long-term debt (including the current portion), lease agreements and other contractual commitments from continuing operations as of December 31, 2019 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
Long-term debt, including current portion(1) | $ | 4 | | | $ | 8 | | | $ | 355 | | | $ | 375 | | | $ | 742 | |
Interest(2) | 39 | | | 75 | | | 67 | | | 22 | | | 203 | |
| Finance leases | 2 | | | 3 | | | 2 | | | 6 | | | 13 | |
| Operating leases | 11 | | | 16 | | | 9 | | | 39 | | | 75 | |
Purchase commitments(3) | 100 | | | 183 | | | 22 | | | 38 | | | 343 | |
Total(4)(5) | $ | 156 | | | $ | 285 | | | $ | 455 | | | $ | 480 | | | $ | 1,376 | |
(1)For more information, see "—Financing Arrangements."
(2)Interest calculated using actual and forecasted interest rates as of December 31, 2019 and contractual maturity dates.
(3)We have various purchase commitments extending through 2029 for materials, supplies and services entered into in the ordinary course of business. Included in the purchase commitments table above are contracts which require minimum volume purchases that extend beyond one year or are renewable annually and have been renewed for 2019. Certain contracts allow for changes in minimum required purchase volumes in the event of a temporary or permanent shutdown of a facility.independent registered public accounting firm. To the extent the contract requires a minimum notice period,that such notice period has been included in the above table. The contractual purchase price for substantially all of these contracts is variable based upon market prices, subject to annual negotiations. We have estimated our contractual obligations by using the terms of our current pricing for each contract. We also have a limited number of contracts which require a minimum payment even if no volume is purchased. We believe that all of our purchase obligations will be utilized in our normal operations. For each of the years ended December 31, 2019, 2018 and 2017, we made minimum payments of $1 million, nil and $2 million, respectively, under such take or pay contracts without taking the product.
(4)Totalsrelationships do not include commitments pertainingchange from year to our pension and other postretirement obligations. Our estimated future contributions to our pension and postretirement plans are as follows:year, the Governance Committee is informed that there have been no changes in such relationships.
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | 2020 | | 2021-2022 | | 2023-2024 | | Annual Average
of Next 5 Years |
| Pension plans | $ | 43 | | | $ | 80 | | | $ | 21 | | | $ | 5 | |
| Other postretirement obligations | — | | | — | | | — | | | — | |
(5)The above table does not reflect expected tax payments and unrecognized tax benefits dueBased on its review, the Governance Committee delivered a report to the inability to make reasonably reliable estimates of the timing and amount of payments. For additional discussion on unrecognized tax benefits, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 20. Income Taxes" of this report.
Off-Balance-Sheet Arrangements
We are required to provide standby letters of credit primarily to collateralize our obligation to third parties for pension liabilities and commercial obligations in the ordinary course of business. Although the letters of credit are off-balance sheet, the obligations to which they relate are reflected as liabilities on the consolidated balance sheets. For a discussion of letters of credit, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 16. Debt" of this report.
Restructuring, Impairment and Plant Closing and Transition Costs
For further discussion of these and other restructuring plansfull Board and the costs involved, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 13. Restructuring, Impairment and Plant Closing and Transition Costs" of this report.
Legal Proceedings
For a discussion of legal proceedings, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 23. Commitments and Contingencies—Legal Matters" of this report.
Environmental, Health and Safety Matters
As noted in "Part I. Item 1. Business—Environmental, Health and Safety Matters" and "Part I. Item 1A. Risk Factors" of this report, we are subject to extensive environmental regulations, which may impose significant additional costs on our operations in the future. While we do not expect any of these enactments or proposals to have a material adverse effect on us in
the near term, we cannot predict the longer-term effect of any of these regulations or proposals on our future financial condition. For a discussion of EHS matters, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 24. Environmental, Health and Safety Matters" of this report.
Recently Issued Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 2. Recently Issued Accounting Pronouncements" of this report.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in our consolidated and combined financial statements. Our significant accounting policies are summarized in "Part II. Item 8. Financial Statements and Supplementary Data—Note 1. Description Of Business, Recent Developments and Summary Of Significant Accounting Policies" of this report. Summarized below are our critical accounting policies:
Employee Benefit Programs
We sponsor several contributory and non-contributory defined benefit plans, covering employees primarily in the U.S., the U.K., Germany and Finland, but also covering employees in a number of other countries. We fund the material plans through trust arrangements (or local equivalents) where the assets are held separately from us. We also sponsor unfunded postretirement plans which provide medical and, in some cases, life insurance benefits covering certain employees in the U.S. and Canada. Amounts recorded in our consolidated and combined financial statements are recorded based upon actuarial valuations performed by various third-party actuaries. Inherent in these valuations are numerous assumptions regarding expected long-term rates of return on plan assets, discount rates, compensation increases, mortality rates and health care cost trends. We evaluate these assumptions at least annually.
The discount rate is used to determine the present value of future benefit payments at the end of the year. For our U.S. and non-U.S. plans, the discount rates wereBoard made its independence determinations based on the results of matching expected plan benefit payments with cash flows from a hypothetical yield curve constructed with high-quality corporate bond yields.
The following weighted-average discount rate assumptions were used for the defined benefit and other postretirement plans for the year:
| | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 | | December 31, 2017 |
| Defined benefit plans | | | | | |
| Projected benefit obligation | 1.60 | % | | 2.38 | % | | 2.21 | % |
| Net periodic pension cost | 2.38 | % | | 2.21 | % | | 1.86 | % |
| Other postretirement benefit plans | | | | | |
| Projected benefit obligation | 3.27 | % | | 3.50 | % | | 3.38 | % |
| Net periodic pension cost | 3.51 | % | | 3.30 | % | | 3.72 | % |
The expected return on plan assets is determined based on asset allocations, historical portfolio results, historical asset correlations and management's expected long-term return for each asset class. The expected rate of return on U.S. plan assets was 7.75% in 2019 and 2018, each,Governance Committee’s report and the expected rate of return on non-U.S. plans was 5.18% and 5.21% for 2019 and 2018, respectively.
The expected increase in the compensation levels assumption reflects our long-term actual experience and future expectations.
Management, with the advice of actuaries, uses judgment to make assumptions on which our employee pension and postretirement benefit plan obligations and expenses are based. The effect of a 1% change in three key assumptions is summarized as follows (dollars in millions):
| | | | | | | | | | | | | | |
| Assumptions | | Statement of Operations(1) | | Balance Sheet Impact(2) |
| Discount rate | | | | |
| 1% increase | | $ | (12) | | | $ | (169) | |
| 1% decrease | | 18 | | | 200 | |
| Expected long-term rates of return on plan assets | | | | |
| 1% increase | | (8) | | | — | |
| 1% decrease | | 8 | | | — | |
| Rate of compensation increase | | | | |
| 1% increase | | 2 | | | 12 | |
| 1% decrease | | (2) | | | (9) | |
(1)Estimated (decrease) increase on 2019 net periodic benefit cost
(2)Estimated (decrease) increase on December 31, 2019 pension and postretirement liabilities and accumulated other comprehensive loss
Income Taxes
We use 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 businesses and cumulative income or losses during the applicable period. Cumulative losses incurred over the period limit our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable jurisdictions could affect the realization of deferred tax assets in those jurisdictions. As of December 31, 2019, we had total valuation allowances of $585 million. See "Part II. Item 8. Financial Statements and Supplementary Data—Note 20. Income Taxes" of this report for more information regarding our valuation allowances.
As of December 31, 2019, our non-U.K. subsidiaries have no plan to distribute earnings in a manner that would cause them to be subject to U.K., U.S., or other local country taxation.
Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The application of income tax law is inherently complex. We are required to determine if an income tax position meets the criteria of more-likely-than-not to be realized based on the merits of the position under tax law, in order to recognize an income tax benefit. This requires us to make significant judgments regarding the merits of income tax positions and the application of income tax law. Additionally, if a tax position meets the recognition criteria of more-likely-than-not we are required to make judgments and apply assumptions in order to measure the amount of the tax benefits to recognize. These judgments are based on the probability of the amount of tax benefits that would be realized if the tax position was challenged by the taxing authorities. Interpretations and guidance surrounding income tax laws and regulations change over time. As a consequence, changes in assumptions and judgments can materially affect amounts recognized in our consolidated and combined financial statements.
Long-Lived Assets
The useful lives of our property, plant and equipment are estimated based upon our historical experience, engineering estimates and industry information and are reviewed when economic events indicate that we may not be able to recover the carrying value of the assets. The estimated lives of our property range from 3 to 50 years and depreciation is recorded on the straight-line method. Inherent in our estimates of useful lives is the assumption that periodic maintenance and an appropriate level of annual capital expenditures will be performed. Without on-going capital improvements and maintenance, the productivity and cost efficiency declines and the useful lives of our assets would be shorter.
Management uses judgment to estimate the useful lives of our long-lived assets. At December 31, 2019, if the estimated useful lives of our property, plant and equipment had either been one year greater or one year less than their recorded lives, then depreciation expense for 2019 would have been approximately $11 million less or $14 million greater, respectively.
We are required to evaluate the carrying value of our long-lived tangible and intangible assets whenever events indicate that such carrying value may not be recoverable in the future or when management’s plans change regarding those assets, such as idling or closing a plant. We evaluate impairment by comparing undiscounted cash flows of the related asset groups that are largely independent of the cash flows of other asset groups to their carrying values. Key assumptions in determining the future cash flows include the useful life, technology, competitive pressures, raw material pricing and regulations. In connection with our asset evaluation policy, we reviewed all of our long-lived assets for indicators that the carrying value may not be recoverable.
Restructuring and Plant Closing and Transition Costs
We recorded restructuring charges in recent periods in connection with closing certain plant locations, workforce reductions and other cost savings programs in each of our business segments. These charges are recorded when management has committed to a plan and incurred a liability related to the plan. Estimates for plant closing costs include the write-off of the carrying value of the plant, any necessary environmental and/or regulatory costs, contract termination and demolition costs. Estimates for workforce reductions and other costs savings are recorded based upon estimates of the number of positions to be terminated, termination benefits to be provided and other information, as necessary. Management evaluates the estimates on a quarterly basis and will adjust the reserve when information indicates that the estimate is above or below the currently recorded estimate. For further discussion of our restructuring activities, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 13. Restructuring, Impairment and Plant Closing and Transition Costs" of this report.
Contingent Loss Accruals
Environmental remediation costs for our facilities are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. Estimates of environmental reserves require evaluating government regulation, available technology, site-specific information and remediation alternatives. We accrue an amount equal to our best estimate of the costs to remediate based upon the availablesupporting information. The extent of environmental impacts may not be fully known and the processes and costs of remediation may change as new information is obtained or technology for remediation is improved. Our process for estimating the expected cost for remediation considers the information available, technology that can be utilized and estimates of the extent of environmental damage. Adjustments to our estimates are made periodically based upon additional information received as remediation progresses. As of December 31, 2019 and 2018, we had recognized a liability of $9 million and $12 million, respectively, related to these environmental matters. For further information, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 24. Environmental, Health and Safety Matters" of this report.
We are subject to legal proceedings and claims arising out of our business operations. We routinely assess the likelihood of any adverse outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known claim. We have an active risk management program consisting of numerous insurance policies secured from many carriers. These policies often provide coverage that is intended to minimize the financial impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For further information, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 23. Commitments and Contingencies—Legal Proceedings" of this report.
Variable Interest Entities—Primary Beneficiary
We evaluate each of our variable interest entities on an on-going basis to determine whether we are the primary beneficiary. Management assesses, on an on-going basis, the nature of our relationship to the variable interest entity, including the amount of control that we exercise over the entity as well as the amount of risk that we bear and rewards we receive in regard to the entity, to determine if we are the primary beneficiary of that variable interest entity. Management judgment is required to assess whether these attributes are significant. The factors management considers when determining if we have the power to direct the activities that most significantly impact each of our variable interest entity’s economic performance include supply arrangements, manufacturing arrangements, marketing arrangements and sales arrangements. We consolidate all variable interest entities for which we have concluded that we are the primary beneficiary. For the years ended December 31, 2019, 2018 and 2017, the percentage of revenues from our consolidated variable interest entities in relation to total revenues that will ultimately be attributable to Venator is 4.4%, 5.2% and 5.7%, respectively. For further information, see "Part II. Item 8. Financial Statements and Supplementary Data—Note 9. Variable Interest Entities" of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, such as changes in interest rates and foreign exchange rates. We manage these risks through normal operating and financing activities and, when appropriate, through the use of derivative instruments. We do not invest in derivative instruments for speculative purposes.
Interest Rate Risk
We are exposed to interest rate risk through the structure of our debt portfolio which includes a mix of fixed and floating rates. Actions taken to reduce interest rate risk include managing the mix and rate characteristics of various interest-bearing liabilities.
The carrying value of our floating rate debt is $361 million at December 31, 2019. A hypothetical 1% increase in interest rates on our floating rate debt as of December 31, 2019 would increase our interest expense by approximately $4 million on an annualized basis.
Foreign Exchange Rate Risk
We are exposed to market risks associated with foreign exchange risk. Our cash flows and earnings are subject to fluctuations due to exchange rate variation. Our revenues and expenses are denominated in various foreign currencies. We enter into foreign currency derivative instruments to minimize the short-term impact of movements in foreign currency rates. Where practicable, we generally net multicurrency cash balances among our subsidiaries to help reduce exposure to foreign currency exchange rates. Certain other exposures may be managed from time to time through financial market transactions, principally through the purchase of spot or forward foreign exchange contracts (generally with maturities of three months or less). We do not hedge our foreign currency exposures in a manner that would eliminate the effect of changes in exchange rates on our cash flows and earnings. At December 31, 2019 and 2018 we had $75 million and $89 million notional amount (in U.S. dollar equivalents) outstanding in foreign currency contracts with a term of approximately one month.
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 principle 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 swaps entered into in 2017, resulting in cash proceeds of $15 million. Concurrently, we entered into three new fixed to fixed cross-currency 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 July 2024, which is the best estimate of the repayment date on the intercompany notes.
During 2019, the changes in accumulated other comprehensive loss associated with these cash flow hedging activities was a gain of $6 million.
During 2020, the amount of accumulated other comprehensive loss at December 31, 2019 related to hedging transactions that is expected to be reclassified to earnings is immaterial. The actual amount that will be reclassified to earnings over the next twelve months may vary from this amount due to changing market conditions.
Commodity Price Risk
A portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Accordingly, product margins and the level of our profitability tend to fluctuate with the changes in the business cycle. We try to protect against such instability through various business strategies. These include provisions in sales contracts allowing us to pass on higher raw material costs through timely price increases and formula price contracts to transfer or share commodity price risk. We did not have any commodity derivative instruments in place as of December 31, 2019 and 2018.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VENATOR MATERIALS PLC AND SUBSIDIARIES
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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Audited Consolidated and Combined Financial Statements | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Venator Materials PLC.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Venator Materials PLC and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated and combined statements of operations, comprehensive (loss) income, equity, and cash flows, for each of the two years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to adoption of FASB ASC Topic 842, Leases, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte LLP
Leeds, United Kingdom
March 12, 2020
We have served as the Company's auditor since 2018.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Venator Materials PLC
Opinion on the Financial Statements
We have audited the accompanying consolidated and combined statements of operations, comprehensive income, equity, and cash flows of Venator Materials PLC and subsidiaries (the "Company") for the year ended December 31, 2017, and the related notes listed in the Index for Item 8 and Schedule II – Valuation and Qualifying Accounts included in Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
Emphasis of a Matter
As discussed in Note 1 to the financial statements, the financial statements include allocations of direct and indirect corporate expenses from Huntsman Corporation through the date of separation and are presented on a stand-alone basis as if Venator's operations had been conducted independently from Huntsman Corporation; however, prior to Separation, Venator did not operate as a separate, stand-alone entity for the period presented and, as such, the financial statements may not be fully indicative of Venator's results of operations and cash flows as an unaffiliated company from Huntsman Corporation.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 2018
We began serving as the Company’s auditor in 2016. In 2018, we became the predecessor auditor.
VENATOR MATERIALS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| (In millions, except par value) | December 31, 2019 | | December 31, 2018 |
| ASSETS | | | |
| Current assets: | | | |
Cash and cash equivalents(a) | $ | 55 | | | $ | 165 | |
| Accounts receivable (net of allowance for doubtful accounts of $4 and $5, respectively) | 321 | | | 351 | |
| | | |
Inventories(a) | 513 | | | 538 | |
| Prepaid expenses | 21 | | | 20 | |
| Other current assets | 67 | | | 51 | |
| | | |
| Total current assets | 977 | | | 1,125 | |
Property, plant and equipment, net(a) | 989 | | | 994 | |
Operating lease right-of-use assets(a) | 43 | | | — | |
Intangible assets, net(a) | 21 | | | 16 | |
Investment in unconsolidated affiliates(a) | 92 | | | 83 | |
| Deferred income taxes | 33 | | | 178 | |
| | | |
| Other noncurrent assets | 110 | | | 89 | |
| | | |
| Total assets | $ | 2,265 | | | $ | 2,485 | |
| LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | |
Accounts payable(a) | $ | 334 | | | $ | 382 | |
| Accounts payable to affiliates | 17 | | | 18 | |
Accrued liabilities(a) | 116 | | | 135 | |
Current operating lease liability(a) | 8 | | | — | |
Current portion of debt(a) | 13 | | | 8 | |
| | | |
| Total current liabilities | 488 | | | 543 | |
| Long-term debt | 737 | | | 740 | |
| | | |
| | | |
Operating lease liability(a) | 37 | | | — | |
| Other noncurrent liabilities | 300 | | | 313 | |
| Noncurrent payable to affiliates | 30 | | | 34 | |
| | | |
| Total liabilities | 1,592 | | | 1,630 | |
| Commitments and contingencies (Notes 23 and 24) | | | |
| Equity | | | |
| | | |
| Ordinary shares $0.001 par value, 200 shares authorized, each, 107 and 106 issued and outstanding, respectively | — | | | — | |
| Additional paid-in capital | 1,322 | | | 1,316 | |
| Retained deficit | (271) | | | (96) | |
| Accumulated other comprehensive loss | (385) | | | (373) | |
| Total Venator Materials PLC shareholders' equity | 666 | | | 847 | |
| Noncontrolling interest in subsidiaries | 7 | | | 8 | |
| Total equity | 673 | | | 855 | |
| Total liabilities and equity | $ | 2,265 | | | $ | 2,485 | |
(a) At December 31, 2019 and December 31, 2018, the following amounts from consolidated variable interest entities are included in the respective balance sheet captions above: $2 and $5 of cash and cash equivalents; $4 and $5 of accounts receivable, net; $2 and $1 of inventories; $5 each of property, plant and equipment, net; $1 and nil of operating lease right-of-use assets; $11 and $14 of intangible assets, net; $1 each of accounts payable; $3 and $4 of accrued liabilities; $1 and nil of operating lease liabilities; and nil and $2 of current portion of debt. See "Note 9. Variable Interest Entities."
See notes to consolidated and combined financial statements.
VENATOR MATERIALS PLC AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| (Dollars in millions, except per share amounts) | 2019 | | 2018 | | 2017 |
| Trade sales, services and fees, net | $ | 2,130 | | | $ | 2,265 | | | $ | 2,209 | |
| Cost of goods sold | 1,892 | | | 1,550 | | | 1,744 | |
| Operating expenses: | | | | | |
| Selling, general and administrative (includes corporate allocations from Huntsman of nil, nil and $62, respectively) | 182 | | | 212 | | | 216 | |
| Restructuring, impairment and plant closing and transition costs | 33 | | | 628 | | | 52 | |
| Other operating expense, net | 10 | | | 6 | | | 10 | |
| Total operating expenses | 225 | | | 846 | | | 278 | |
| Operating income (loss) | 13 | | | (131) | | | 187 | |
| Interest expense | (53) | | | (53) | | | (100) | |
| Interest income | 12 | | | 13 | | | 60 | |
| Other income, net | 8 | | | 6 | | | 39 | |
| (Loss) income from continuing operations before income taxes | (20) | | | (165) | | | 186 | |
| Income tax (expense) benefit | (150) | | | 8 | | | (50) | |
| (Loss) income from continuing operations | (170) | | | (157) | | | 136 | |
| Income from discontinued operations, net of tax | — | | | — | | | 8 | |
| Net (loss) income | (170) | | | (157) | | | 144 | |
| Net income attributable to noncontrolling interests | (5) | | | (6) | | | (10) | |
| Net (loss) income attributable to Venator | $ | (175) | | | $ | (163) | | | $ | 134 | |
| | | | | |
| Basic (losses) earnings per share: | | | | | |
| (Loss) income from continuing operations attributable to Venator Materials PLC ordinary shareholders | $ | (1.64) | | | $ | (1.53) | | | $ | 1.19 | |
| Income from discontinued operations attributable to Venator Materials PLC ordinary shareholders | — | | | — | | | 0.07 | |
| Net (loss) income attributable to Venator Materials PLC ordinary shareholders | $ | (1.64) | | | $ | (1.53) | | | $ | 1.26 | |
| | | | | |
| Diluted (losses) earnings per share: | | | | | |
| (Loss) income from continuing operations attributable to Venator Materials PLC ordinary shareholders | $ | (1.64) | | | $ | (1.53) | | | $ | 1.18 | |
| Income from discontinued operations attributable to Venator Materials PLC ordinary shareholders | — | | | — | | | 0.08 | |
| Net (loss) income attributable to Venator Materials PLC ordinary shareholders | $ | (1.64) | | | $ | (1.53) | | | $ | 1.26 | |
See notes to consolidated and combined financial statements.
VENATOR MATERIALS PLC AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| (Dollars in millions) | 2019 | | 2018 | | 2017 |
| Net (loss) income | $ | (170) | | | $ | (157) | | | $ | 144 | |
| Other comprehensive (loss) income, net of tax: | | | | | |
| Foreign currency translation adjustment | (1) | | | (90) | | | 106 | |
| Pension and other postretirement benefits adjustments | (17) | | | (11) | | | 39 | |
| Hedging instruments | 6 | | | 11 | | | (5) | |
| Other comprehensive (loss) income, net of tax | (12) | | | (90) | | | 140 | |
| Comprehensive (loss) income | (182) | | | (247) | | | 284 | |
| Comprehensive income attributable to noncontrolling interest | (5) | | | (6) | | | (10) | |
| Comprehensive (loss) income attributable to Venator | $ | (187) | | | $ | (253) | | | $ | 274 | |
See notes to consolidated and combined financial statements.
VENATOR MATERIALS PLC AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Venator Materials PLC Equity | | | | | | | | | | | | | | |
| Ordinary Shares | | | | Parent's Net
Investment
and
Advances | | Additional
Paid-In
Capital | | Retained (Deficit)
Earnings | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling
Interest in
Subsidiaries | | Total |
| (Dollars in millions) | Shares | | Amount | | | | | | | | | | | | |
| Balance, January 1, 2017 | — | | | $ | — | | | $ | 588 | | | $ | — | | | $ | — | | | $ | (423) | | | $ | 12 | | | $ | 177 | |
| Net income | — | | | — | | | 67 | | | — | | | 67 | | | — | | | 10 | | | 144 | |
| Net changes in other comprehensive loss | — | | | — | | | — | | | — | | | — | | | 140 | | | — | | | 140 | |
| Dividends paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (12) | | | (12) | |
| Net changes in parent’s net investment and advances | — | | | — | | | 653 | | | — | | | — | | | — | | | — | | | 653 | |
| Conversion of parent's net investment and advances to paid-in capital | 106 | | | — | | | (1,308) | | | 1,308 | | | — | | | — | | | — | | | — | |
| Activity related to stock plans | — | | | — | | | — | | | 3 | | | — | | | — | | | — | | | 3 | |
| Balance, December 31, 2017 | 106 | | | $ | — | | | $ | — | | | $ | 1,311 | | | $ | 67 | | | $ | (283) | | | $ | 10 | | | $ | 1,105 | |
| Net (loss) income | — | | | — | | | — | | | — | | | (163) | | | — | | | 6 | | | (157) | |
| Net changes in other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (90) | | | — | | | (90) | |
| Dividends paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (8) | | | (8) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Activity related to stock plans | — | | | — | | | — | | | 5 | | | — | | | — | | | — | | | 5 | |
| Balance, December 31, 2018 | 106 | | | $ | — | | | $ | — | | | $ | 1,316 | | | $ | (96) | | | $ | (373) | | | $ | 8 | | | $ | 855 | |
| Net (loss) income | — | | | — | | | — | | | — | | | (175) | | | — | | | 5 | | | (170) | |
| Net changes in other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (12) | | | — | | | (12) | |
| Dividends paid to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (6) | | | (6) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Activity related to stock plans | 1 | | | — | | | — | | | 6 | | | — | | | — | | | — | | | 6 | |
| Balance, December 31, 2019 | 107 | | | $ | — | | | $ | — | | | $ | 1,322 | | | $ | (271) | | | $ | (385) | | | $ | 7 | | | $ | 673 | |
See notes to consolidated and combined financial statements.
VENATOR MATERIALS PLC AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| (Dollars in millions) | 2019 | | 2018 | | 2017 |
| Operating Activities: | | | | | |
| Net (loss) income | $ | (170) | | | $ | (157) | | | $ | 144 | |
| Income from discontinued operations, net of tax | — | | | — | | | (8) | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 110 | | | 132 | | | 127 | |
| Deferred income taxes | 143 | | | (19) | | | 19 | |
| Loss on disposal of assets | — | | | — | | | 1 | |
| Noncash restructuring and impairment charges | 8 | | | 591 | | | 7 | |
| Insurance proceeds for business interruption, net of gain on recovery | — | | | — | | | 21 | |
| Noncash interest | 3 | | | 1 | | | 18 | |
| Noncash loss (gain) on foreign currency transactions | 4 | | | (6) | | | 1 | |
| Other, net | 2 | | | 9 | | | 13 | |
| Changes in assets and liabilities: | | | | | |
| Accounts receivable | 22 | | | 25 | | | (24) | |
| Inventories | 21 | | | (103) | | | 8 | |
| Prepaid expenses | (1) | | | (1) | | | (2) | |
| Other current assets | (3) | | | (13) | | | (1) | |
| Other noncurrent assets | (33) | | | (49) | | | 9 | |
| Accounts payable | (29) | | | (27) | | | 51 | |
| Accrued liabilities | (12) | | | (96) | | | 13 | |
| Other noncurrent liabilities | (32) | | | (5) | | | (60) | |
| Net cash provided by operating activities from continuing operations | 33 | | | 282 | | | 337 | |
| Net cash provided by operating activities from discontinued operations | — | | | — | | | 1 | |
| Net cash provided by operating activities | 33 | | | 282 | | | 338 | |
| Investing Activities: | | | | | |
| Capital expenditures | (152) | | | (326) | | | (197) | |
| Insurance proceeds for recovery of property damage | — | | | — | | | 76 | |
| Cash received from unconsolidated affiliates | 41 | | | 34 | | | 44 | |
| Investment in unconsolidated affiliates | (50) | | | (30) | | | (50) | |
| Cash received from notes receivable | 12 | | | | — | | | | — | |
| Repayment of government grant | — | | | — | | | (5) | |
| Net payments from affiliates | — | | | — | | | 121 | |
| Other, net | (1) | | | 1 | | | — | |
| Net cash used in investing activities from continuing operations | (150) | | | (321) | | | (11) | |
| Net cash used in investing activities from discontinued operations | — | | | — | | | (1) | |
| Net cash used in investing activities | (150) | | | (321) | | | (12) | |
| Financing Activities: | | | | | |
| (Payments on) proceeds from short-term debt | (2) | | | — | | | 1 | |
| Net borrowing (repayments) on notes payable | 7 | | | (6) | | | — | |
| Principal payments on long-term debt | (6) | | | (4) | | | (12) | |
| Proceeds from issuance of long-term debt | — | | | — | | | 750 | |
| Proceeds from the termination of cross-currency swap contracts | 15 | | | — | | | — | |
| Dividends paid to noncontrolling interests | (6) | | | (8) | | | (12) | |
| | | | | | | | | | | | | | | | | |
| Net repayments from affiliate accounts payable | — | | | — | | | (100) | |
| Final settlement of affiliate balances at separation | — | | | — | | | (732) | |
| Debt issuance costs paid | (1) | | | — | | | (18) | |
| | | | | |
| Net cash provided by (used in) financing activities from continuing operations | 7 | | | (18) | | | (123) | |
| Net cash used in financing activities from discontinued operations | — | | | — | | | — | |
| Net cash provided by (used in) financing activities | 7 | | | (18) | | | (123) | |
| Effect of exchange rate changes on cash | — | | | (16) | | | 5 | |
| (Decrease) increase in cash and cash equivalents, including discontinued operations | (110) | | | (73) | | | 208 | |
| Cash and cash equivalents at beginning of period, including discontinued operations | 165 | | | 238 | | | 30 | |
| Cash and cash equivalents at end of period | $ | 55 | | | $ | 165 | | | $ | 238 | |
| Supplemental cash flow information: | | | | | |
| Cash paid for interest | $ | 41 | | | $ | 46 | | | $ | 28 | |
| Cash paid for income taxes | 8 | | | 34 | | | 21 | |
| Noncash investing and financing activities: | | | | | |
| The amount of capital expenditures in accounts payable | $ | 46 | | | $ | 70 | | | $ | 39 | |
| Received noncash settlements of notes receivable from affiliates | — | | | — | | | 57 | |
| Settled noncash long-term debt to affiliates | — | | | — | | | 792 | |
See notes to consolidated and combined financial statements.
VENATOR MATERIALS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Note 1. Description Of Business, Recent Developments and Summary Of Significant Accounting Policies
Description of Business
For convenience in this report, the terms "our," "us," "we" or "Venator" may be used to refer to Venator Materials PLC and, unless the context otherwise requires, its subsidiaries.
Venator became an independent publicly traded company following our IPO and separation from Huntsman Corporation in August 2017. Venator operates in 2 segments: Titanium Dioxide and Performance Additives. The Titanium Dioxide segment primarily manufactures and sells TiO2, and operates 7 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
Venator’s consolidated and combined financial statements have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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.
Prior to our separation, Huntsman performed certain administrative and other services for Venator. These expenses were incurred by Huntsman and allocated to Venator based on either specific services provided or based on Venator’s total revenues, total assets, and total employees in proportion to those of Huntsman. Management believes that such expense allocations were reasonable. Corporate allocations include allocated selling, general, and administrative expenses of $62 million for the year ended December 31, 2017.
In the notes to consolidated and combined financial statements, all dollar and share amounts in tabulations are in millions of dollars and shares, respectively, unless otherwise indicated.
Summary of Significant Accounting Policies
Asset Retirement Obligations
Venator accrues for asset retirement obligations, which consist primarily of asbestos abatement costs, demolition and removal costs, leasehold remediation costs and landfill closure costs, in the period in which the obligations are incurred. Asset retirement obligations are initially recorded at estimated fair value. When the related liability is initially recorded, Venator capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its estimated settlement value and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, Venator will recognize a gain or loss for any difference between the settlement amount and the liability recorded. See "Note 14. Asset Retirement Obligations."
Carrying Value of Long-Lived Assets
Venator reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability is based upon current and anticipated undiscounted cash flows, and Venator recognizes an impairment when such estimated cash flows are less than the carrying value of the asset. Measurement of the amount of impairment, if any, is based upon the difference between carrying value and fair value. Fair value is generally estimated by discounting estimated future cash flows using a discount rate commensurate with the risks involved.
Cash and Cash Equivalents
Venator considers cash in bank accounts and short-term highly liquid investments with remaining maturities of three months or less at the date of purchase to be cash and cash equivalents.
Prior to the separation, Venator participated in Huntsman International’s cash pooling program. The cash pooling program was an intercompany borrowing arrangement designed to reduce Venator’s dependence on external short-term borrowing. See "Note 16. Debt."
Cost of Goods Sold
Venator classifies the costs of manufacturing and distributing its products as cost of goods sold. Manufacturing costs include variable costs, primarily raw materials and energy, and fixed expenses directly associated with production. Manufacturing costs include, among other things, plant site operating costs and overhead costs (including depreciation), production planning and logistics costs, repair and maintenance costs, plant site purchasing costs, and engineering and technical support costs. Distribution, freight, and warehousing costs are also included in cost of goods sold.
Derivative Transactions and Hedging Activities
All derivatives are recorded on Venator’s consolidated balance sheets at fair value. Gains and losses on derivative instruments designated as cash flow hedges are recorded in accumulated other comprehensive income (loss) and recognized in income (expense) when the hedged item impacts earnings. See "Note 18. Derivative Instruments and Hedging Activities."
Environmental Expenditures
Environmental-related restoration and remediation costs are recorded as liabilities when site restoration and environmental remediation and cleanup obligations are either known or considered probable and the related costs can be reasonably estimated. Other environmental expenditures that are principally maintenance or preventative in nature are recorded when expended and incurred and are expensed or capitalized as appropriate. See "Note 24. Environmental, Health and Safety Matters."
Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, amounts receivable from affiliates, accounts payable, current portion of amounts payable to affiliates, and accrued liabilities approximate their fair value because of the immediate or short-term maturity of these financial instruments. The fair value of non-qualified employee benefit plan investments is estimated using prevailing market prices. The estimated fair values of Venator’s long-term debt are based on quoted market prices for the identical liability when traded as an asset in an active market.
Foreign Currency Translation
Venator is domiciled in the U.K. which uses the British pound sterling, however, we report in U.S. dollars. The accounts of Venator’s operating subsidiaries outside of the U.S. consider the functional currency to be the currency of the economic environment in which they operate. Accordingly, assets and liabilities are translated at rates prevailing at the balance sheet date. Revenues, expenses, gains and losses are translated at a weighted average rate for the period. Cumulative translation adjustments are recorded to equity as a component of accumulated other comprehensive loss.
Foreign currency transaction gains and losses are recorded in other expense (income), net in the consolidated and combined statements of operations and were net losses of $4 million, net gains of $6 million, and net losses of $1 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively.
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. Venator evaluates 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, Venator considers the cyclicality of Venator and cumulative income or losses during the applicable period. Cumulative losses incurred over the period limits Venator’s ability to consider other subjective evidence such as Venator’s projections for the future. Changes in expected future income in applicable tax jurisdictions could affect the realization of deferred tax assets in those jurisdictions.
Venator is comprised of operations in various tax jurisdictions. Prior to the separation, Venator’s operations were included in Huntsman’s financial results in different legal forms, including but not limited to wholly-owned subsidiaries for which Venator was the sole business, components of legal entities in which Venator operated in conjunction with other Huntsman businesses and variable interest entities in which Venator is the primary beneficiary.
The consolidated and combined financial statements have been prepared from Huntsman’s historical accounting records through the separation and are presented on a stand-alone basis as if Venator’s operations had been conducted separately from Huntsman; however, Venator did not operate as a separate, stand-alone entity for the periods presented prior to the separation and, as such, the tax results and attributes presented prior to the separation in these consolidated and combined financial statements would not be indicative of the income tax expense or benefit, income tax related assets and liabilities and cash taxes had Venator been a stand-alone company.
Prior to the separation, the consolidated and combined financial statements were prepared under the anticipated legal structure of Venator such that the historical results of legal entities are presented as follows: The historical tax results of legal entities which file separate tax returns in their respective tax jurisdictions and which need no restructuring before being contributed are included without adjustment, including the inclusion of any currently held subsidiaries. The historical tax results of legal entities in which Venator operated in conjunction with other Huntsman businesses for which new legal entities were formed for Venator operations are presented on a stand-alone basis as if their operations had been conducted separately from Huntsman and any adjustments to current taxes payable have been treated as adjustments to parent’s net investment and advances. The historical tax results of legal entities in which Venator operated in conjunction with other Huntsman businesses for which the Huntsman business were transferred out have been presented without adjustment, including the historical results of the Huntsman businesses which are unrelated to Venator operating businesses.
Prior to the separation, pursuant to tax-sharing agreements, subsidiaries of Huntsman were charged or credited, in general, with an amount of income taxes as if they filed separate income tax returns. Adjustments to current income taxes payable by Venator have been treated as adjustments to parent’s net investment and advances.
Prior to the separation, Venator included the U.S. Titanium Dioxide and Performance Additives subsidiaries of Huntsman International which were treated for U.S. tax purposes as divisions of Huntsman International. Huntsman International was included in the U.S. consolidated tax return of its parent, Huntsman. The U.S. tax expense, deferred tax assets, and deferred tax liabilities in these financial statements do not necessarily reflect the tax expense, deferred tax assets, or deferred tax liabilities that would have resulted had Venator not been operated as a U.S. income tax branch structure in combination with Huntsman. A 2% U.S. state income tax rate (net of federal benefit) was estimated for Venator based upon the estimated apportionment factors and actual income tax rates in state tax jurisdictions where it had nexus. U.S. foreign tax credits relating to taxes paid by non-U.S. business entities were generated and utilized by Huntsman. On a separate entity basis, these foreign tax credits would not have been generated or utilized, therefore, no additional allocation of Huntsman foreign tax credits was necessary. Additionally, Huntsman had no U.S. net operating loss carryforward amounts ("NOLs") or similar attributes to allocate. Venator believes this methodology is reasonable and complies with Staff Accounting Bulletin Topic 1B, Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity.
Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The application of income tax law is inherently complex. Venator is required to determine if an income tax position meets the criteria of more-likely-than-not to be realized based on the merits of the position under tax law, in order to recognize an income tax benefit. This requires Venator to make significant judgments regarding the merits of income tax positions and the application of income tax law. Additionally, if a tax position meets the recognition criteria of more-likely-than-not, Venator is required to make judgments and apply assumptions in order to measure the amount of the tax benefits to recognize. The judgments are based on the probability of the amount of tax benefits that would be realized if the tax position was challenged by the taxing authorities. Interpretations and guidance surrounding income tax laws and regulations change over time. As a consequence, changes in assumptions and judgments can materially affect amounts recognized in the consolidated and combined financial statements. See "Note 20. Income Taxes."
Intangible Assets
Intangible assets are stated at cost (fair value at the time of acquisition) and are amortized using the straight-line method over the estimated useful lives or the life of the related agreement as follows:
| | | | | | | | |
Patents, trademarks and technology | | 5 - 30 years |
Other intangibles | | 5 - 15 years |
Inventories
Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out and average costs methods for different components of inventory.
Legal Costs
Venator expenses legal costs, including those legal costs incurred in connection with a loss contingency, as incurred.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives or lease term as follows:
| | | | | | | | |
Buildings and leasehold improvements | | 5 - 50 years |
Plant and equipment | | 3 - 30 years |
Normal maintenance and repairs of plant and equipment are charged to expense as incurred. Renewals, betterments, and major repairs that significantly extend the useful life of the assets are capitalized and the assets replaced, if any, are retired.
Research and Development
Research and development costs are expensed as incurred and recorded in selling, general and administrative expense. Research and development costs charged to expense were $15 million, $17 million and $16 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively.
Revenue Recognition
Venator generates substantially all of its revenues through sales of inventory in the open market and via long-term supply agreements. Revenue is recognized when the performance obligations under the terms of our contracts are satisfied, at which point the control of the goods transfers to the customer, there is a present right to payment and legal title, and the risks and rewards of ownership have transferred to the customer. Revenues is measured as the amount of consideration we expect to receive in exchange for transferred goods.
Share-based Compensation
We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which the employee is required to provide services in exchange for the award.
Reclassification
Certain amounts in the consolidated and combined financial statements for 2017 have been reclassified to conform with the current presentation. These reclassifications were to record results of operations of other businesses of Huntsman to discontinued operations. See "Note 17. Discontinued Operations."
Earnings (Losses) Per Share
Basic earnings (losses) per share excludes dilution and is computed by dividing net income (loss) attributable to Venator Materials PLC ordinary shareholders by the weighted average number of shares outstanding during the period. Diluted earnings (losses) per share reflects all potential dilutive ordinary shares outstanding during the period and is computed by dividing net income (loss) attributable to Venator Materials PLC 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.
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 consolidated and combined 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 consolidated and combined statements 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 and combined 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 and combined 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. We have 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 we do not recognize ROU assets and related lease obligations with lease terms of 12 months or less from the commencement date. 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 consolidated balance sheet. Finance leases ROU assets are included in property, plant and equipment, net, while finance lease liabilities are included in long-term debt. 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 92 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.
The components of lease expense were as follows:
| | | | | | | |
Lease Cost | Year Ended December 31, 2019 | | |
Operating lease cost | $ | 12 | | | |
Finance lease cost: | | | |
Amortization of right-of-use assets | 1 | | | |
Interest on lease liabilities | 1 | | | |
Short-term lease cost | 1 | | | |
| | | |
Supplemental balance sheet information related to leases was as follows:
| | | | | |
Leases | As of December 31, 2019 |
Assets | |
Operating Lease Right-of-Use Assets | $ | 43 | |
| |
Finance Lease Right-of-Use Assets, at cost | $ | 14 | |
Accumulated Depreciation | (5) | |
Finance Lease Right-of-Use Assets, net | $ | 9 | |
| |
Liabilities | |
Operating Lease Obligation | |
Current | $ | 8 | |
Non-Current | 37 | |
Total Operating Lease Liabilities | $ | 45 | |
| |
Finance Lease Obligation | |
Current | $ | 2 | |
Non-Current | 8 | |
Total Finance Lease Liabilities | $ | 10 | |
Cash paid for amounts included in the present value of operating lease liabilities were as follows:
| | | | | | | |
Cash Flow Information | Year Ended December 31, 2019 | | |
Operating cash flows from operating leases | $ | 12 | | | |
Operating cash flows from finance leases | 1 | | | |
Financing cash flows from finance leases | 1 | | | |
| | | | | |
Lease Term and Discount Rate | As of December 31, 2019 |
Weighted average remaining lease term (years) | |
Operating leases | 14.0 |
Finance leases | 5.9 |
Weighted average discount rate | |
Operating leases | 7.2 | % |
Financing leases | 5.2 | % |
Maturities of lease liabilities were as follows:
| | | | | | | | | | | | | | | | | |
| December 31, | Operating Leases | | Finance Leases | | Total |
| 2020 | $ | 11 | | | $ | 2 | | | $ | 13 | |
| 2021 | 9 | | | 2 | | | 11 | |
| 2022 | 7 | | | 1 | | | 8 | |
| 2023 | 5 | | | 1 | | | 6 | |
| 2024 | 4 | | | 1 | | | 5 | |
| After 2024 | 39 | | | 6 | | | 45 | |
| Total lease payments | $ | 75 | | | $ | 13 | | | $ | 88 | |
| Less: Interest | 30 | | | 3 | | | 33 | |
| Present value of lease liabilities | $ | 45 | | | $ | 10 | | | $ | 55 | |
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 and capital 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 account for revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers, which became effective January 1, 2018. As part of the adoption of ASC 606, we applied the new standard on a modified retrospective basis analyzing open contracts as of January 1, 2018. However, no cumulative effect adjustment to retained earnings was necessary as no revenue recognition differences were identified when comparing the revenue recognition criteria under ASC 606 to previous requirements.
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 years ended December 31, 2019, 2018 and 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | | | | | | | 2018 | | | | | | | | | 2017 | | | | | | | |
| Titanium Dioxide | | | Performance Additives | | | Total | | | Titanium Dioxide | | | Performance Additives | | | Total | | | Titanium Dioxide | | | Performance Additives | | | Total | |
| Europe | $ | 786 | | | $ | 182 | | | $ | 968 | | | $ | 828 | | | $ | 206 | | | $ | 1,034 | | | $ | 794 | | | $ | 194 | | | $ | 988 | |
| North America | 320 | | | | 226 | | | | 546 | | | | 296 | | | | 277 | | | | 573 | | | | 281 | | | | 301 | | | | 582 | | |
| Asia | 343 | | | | 87 | | | | 430 | | | | 368 | | | | 98 | | | | 466 | | | | 349 | | | | 97 | | | | 446 | | |
| Other | 165 | | | | 21 | | | | 186 | | | | 174 | | | | 18 | | | | 192 | | | | 180 | | | | 13 | | | | 193 | | |
| Total Revenues | $ | 1,614 | | | $ | 516 | | | $ | 2,130 | | | $ | 1,666 | | | $ | 599 | | | $ | 2,265 | | | $ | 1,604 | | | $ | 605 | | | $ | 2,209 | |
The following table disaggregates our revenue by major product line for the years ended December 31, 2019, 2018 and 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | | | | | | | 2018 | | | | | | | | | 2017 | | | | | | | |
| Titanium Dioxide | | | Performance Additives | | | Total | | | Titanium Dioxide | | | Performance Additives | | | Total | | | Titanium Dioxide | | | Performance Additives | | | Total | |
TiO2 | $ | 1,614 | | | $ | — | | | $ | 1,614 | | | $ | 1,666 | | | $ | — | | | $ | 1,666 | | | $ | 1,604 | | | $ | — | | | $ | 1,604 | |
| Color Pigments | — | | | | 258 | | | | 258 | | | | — | | | | 294 | | | | 294 | | | | — | | | | 302 | | | | 302 | | |
| Functional Additives | — | | | | 118 | | | | 118 | | | | — | | | | 140 | | | | 140 | | | | — | | | | 130 | | | | 130 | | |
| Timber Treatment | — | | | | 118 | | | | 118 | | | | — | | | | 142 | | | | 142 | | | | — | | | | 151 | | | | 151 | | |
| Water Treatment | — | | | | 22 | | | | 22 | | | | — | | | | 23 | | | | 23 | | | | — | | | | 22 | | | | 22 | | |
| Total Revenues | $ | 1,614 | | | $ | 516 | | | $ | 2,130 | | | $ | 1,666 | | | $ | 599 | | | $ | 2,265 | | | $ | 1,604 | | | $ | 605 | | | $ | 2,209 | |
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 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 a certain volume is 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. Earnings (Losses) Per Share
Basic earnings (losses) per share excludes dilution and is computed by dividing net (loss) income attributable to Venator ordinary shareholders by the weighted average number of shares outstanding during the period. Diluted earnings (losses) per share reflects all potential dilutive ordinary shares outstanding during the period and is computed by dividing net income (loss) 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. For the periods prior to our IPO, the average number of ordinary shares outstanding used to calculate basic and diluted earnings (losses) per share was based on the ordinary shares that were outstanding at the time of our IPO.
Basic and diluted earnings (losses) per share is determined using the following information:
| | | | | | | | | | | | | | | | | |
| | For the years ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Numerator: | | | | | |
| Basic and diluted (loss) income from continuing operations: | | | | | |
| (Loss) income from continuing operations attributable to Venator Materials PLC ordinary shareholders | $ | (175) | | | $ | (163) | | | $ | 126 | |
| Basic and diluted income from discontinued operations: | | | | | |
| Income from discontinued operations attributable to Venator Materials PLC ordinary shareholders | $ | — | | | $ | — | | | $ | 8 | |
| Basic and diluted net (loss) income: | | | | | |
| Net (loss) income attributable to Venator Materials PLC ordinary shareholders | $ | (175) | | | $ | (163) | | | $ | 134 | |
| Denominator: | | | | | |
| Weighted average shares outstanding | 106.5 | | | 106.4 | | | 106.3 | |
| Dilutive share-based awards | — | | | 0.3 | | | 0.4 | |
| Total weighted average shares outstanding, including dilutive shares | 106.5 | | | 106.7 | | | 106.7 | |
The number of anti-dilutive employee share-based awards excluded from the computation of diluted EPS was 2 million for the year ended December 31, 2019, 1 million for the year ended December 31, 2018 and not significant for the year ended December 31, 2017.
Note 6. 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 December 31, 2019 and December 31, 2018 consisted of the following:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Raw materials and supplies | $ | 166 | | | $ | 165 | |
| Work in process | 49 | | | 56 | |
| Finished goods | 298 | | | 317 | |
| Total | $ | 513 | | | $ | 538 | |
Note 7. Property, Plant and Equipment
The cost and accumulated depreciation of property, plant and equipment at December 31, 2019 and December 31, 2018 were as follows:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Land and land improvements | $ | 97 | | | $ | 98 | |
| Buildings | 241 | | | 236 | |
| Plant and equipment | 1,974 | | | 1,926 | |
| Construction in progress | 180 | | | 144 | |
| Total | 2,492 | | | 2,404 | |
| Less accumulated depreciation | (1,503) | | | (1,410) | |
| Property, plant, and equipment—net | $ | 989 | | | $ | 994 | |
Depreciation expense for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 was $106 million, $129 million and $124 million, respectively.
Note 8. Investment In Unconsolidated Affiliates
Investments in companies in which we exercise significant influence, but do not control, are accounted for using the equity method.
Tioxide Americas Inc., a wholly-owned subsidiary of Venator, has a 50% interest in LPC. Located in Lake Charles, Louisiana, LPC is a joint venture that produces TiO2 for the exclusive benefit of each of the joint venture partners. In accordance with the joint venture agreement, this plant operates on a break-even basis. This investment is accounted for using the equity method and totaled $92 million and $83 million at December 31, 2019 and December 31, 2018, respectively.
Note 9. 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 is our 50%-owned joint venture with DuPont. Viance markets timber treatment products for Venator. Our joint venture interest in Viance was acquired as part of the Rockwood acquisition. It was determined that the activity that most significantly impacts its 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 and began consolidating Viance upon the Rockwood acquisition on October 1, 2014.
Creditors of these entities have no recourse to Venator’s general credit. As the primary beneficiary of these variable interest entities at December 31, 2019, the joint ventures’ assets, liabilities and results of operations are included in Venator’s consolidated and combined financial statements.
The revenues, income from continuing operations before income taxes and net cash provided by operating activities for our variable interest entities are as follows:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Revenues | $ | 93 | | | $ | 117 | | | $ | 127 | |
| Income from continuing operations before income taxes | 10 | | | 13 | | | 21 | |
| Net cash provided by operating activities | 12 | | | 16 | | | 25 | |
Note 10. Intangible Assets
The cost and accumulated amortization of intangible assets at December 31, 2019 and December 31, 2018 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | | | | | December 31, 2018 | | | | |
| | Carrying
Amount | | Accumulated
Amortization | | Net | | Carrying
Amount | | Accumulated
Amortization | | Net |
| Patents, trademarks and technology | $ | 27 | | | $ | 10 | | | $ | 17 | | | $ | 18 | | | $ | 9 | | | $ | 9 | |
| Other intangibles | 14 | | | 10 | | | 4 | | | 14 | | | 7 | | | 7 | |
| Total | $ | 41 | | | $ | 20 | | | $ | 21 | | | $ | 32 | | | $ | 16 | | | $ | 16 | |
Amortization expense was $4 million, $3 million and $3 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively.
Our estimated future amortization expense for intangible assets over the next five years is as follows:
| | | | | | | | |
| Year ending December 31, | | Amount |
| 2020 | | $ | 4 | |
| 2021 | | 5 | |
| 2022 | | 4 | |
| 2023 | | 4 | |
| 2024 | | 1 | |
Note 11. Other Noncurrent Assets
Other noncurrent assets at December 31, 2019 and December 31, 2018 consisted of the following:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Pension assets | 79 | | | 46 | |
| Spare parts inventory | $ | 27 | | | $ | 25 | |
| Debt issuance costs | 4 | | | 4 | |
| Notes receivable | — | | | 10 | |
| Other | — | | | 4 | |
| Total | $ | 110 | | | $ | 89 | |
Note 12. Accrued Liabilities
Accrued liabilities at December 31, 2019 and December 31, 2018 consisted of the following:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Payroll and benefits | $ | 49 | | | $ | 49 | |
| Rebate accrual | 19 | | | 19 | |
| Restructuring and plant closing costs | 9 | | | 18 | |
| | | |
| Asset retirement obligation | 3 | | | 10 | |
| Pension liabilities | 1 | | | 1 | |
| Taxes other than income taxes | — | | | 2 | |
| | | |
| Other miscellaneous accruals | 35 | | | 36 | |
| Total | $ | 116 | | | $ | 135 | |
Note 13. 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 $5 million for the year ended December 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 $1 million, $3 million and $4 million for the years ended December 31, 2019, 2018 and 2017, 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 $8 million, $15 million and $34 million for the years ended December 31, 2019, 2018 and 2017, respectively, all of which related to plant shutdown costs. We expect to incur additional plant shutdown costs of approximately $13 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 $17 million for the year ended December 31, 2019, of which $20 million of accelerated depreciation, $6 million related to plant shutdown costs, and $5 million related to employee benefits was partly offset by a gain of $14 million related to early settlement of contractual obligations. This restructuring expense consists of $11 million of cash expense and a net noncash expense of $6 million. We expect to incur additional charges of approximately $101 million through the end of 2024, of which $15 million relates to accelerated depreciation, $82 million relates to plant shut down costs, $2 million relates to other employee costs and $2 million related to the write off of other assets. Future charges consist of $17 million of noncash costs and $84 million of cash costs.
We recorded restructuring expense of $465 million for the year ended December 31, 2018, of which $417 million was related to accelerated depreciation, $39 million was related to employee benefits, and $9 million was related to the write-off of other assets. This restructuring expense consisted of $39 million of cash and $426 million related of noncash charges.
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, $16 million and $7 million for the years ended December 31, 2019, 2018 and 2017, respectively. 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 and $129 million for the years ended December 31, 2019 and 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 $2 million and nil for the year ended December 31, 2019 and 2018, respectively, 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 December 31, 2019, December 31, 2018 and December 31, 2017, accrued restructuring and plant closing costs by type of cost and initiative consisted of the following:
| | | | | | | | | | | | | | | | | | | |
| | Workforce reductions(1) | | Other
restructuring
costs | | Total(2) | | |
| Accrued liabilities as of January 1, 2017 | $ | 21 | | | $ | — | | | $ | 21 | | | |
| 2017 charges for 2016 and prior initiatives | — | | | 8 | | | 8 | | | |
| 2017 charges for 2017 initiatives | 33 | | | 4 | | | 37 | | | |
| Reversal of reserves no longer required | (1) | | | — | | | (1) | | | |
| 2017 payments for 2016 and prior initiatives | (12) | | | (8) | | | (20) | | | |
| 2017 payments for 2017 initiatives | (8) | | | (4) | | | (12) | | | |
| Foreign currency effect on liability balance | 1 | | | — | | | 1 | | | |
| Accrued liabilities as of December 31, 2017 | $ | 34 | | | $ | — | | | $ | 34 | | | |
| 2018 charges for 2017 and prior initiatives | 2 | | | 16 | | | 18 | | | |
| 2018 charges for 2018 initiatives | 17 | | | 2 | | | 19 | | | |
| Reversal of reserves no longer required | — | | | — | | | — | | | |
| 2018 payments for 2017 and prior initiatives | (17) | | | (16) | | | (33) | | | |
| 2018 payments for 2018 initiatives | (2) | | | (2) | | | (4) | | | |
| Foreign currency effect on liability balance | (2) | | | — | | | (2) | | | |
| Accrued liabilities as of December 31, 2018 | $ | 32 | | | $ | — | | | $ | 32 | | | |
| 2019 charges for 2018 and prior initiatives | 7 | | | 13 | | | 20 | | | |
| 2019 charges for 2019 initiatives | 5 | | | — | | | 5 | | | |
| | | | | | | |
| 2019 payments for 2018 and prior initiatives | (24) | | | (12) | | | (36) | | | |
| 2019 payments for 2019 initiatives | (5) | | | — | | | (5) | | | |
| | | | | | | |
| Accrued liabilities as of December 31, 2019 | $ | 15 | | | $ | 1 | | | $ | 16 | | | |
(1)The total workforce reduction reserves of $15 million relate to the termination of 315 positions, of which 134 positions had been terminated but not yet paid as of December 31, 2019.
(2)Accrued liabilities remaining at December 31, 2019, December 31, 2018 and December 31, 2017 by year of initiatives were as follows:
| | | | | | | | | | | | | | | | | |
| | December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| 2017 initiatives and prior | $ | 7 | | | $ | 18 | | | $ | 34 | |
| 2018 initiatives | 9 | | | 14 | | | — | |
| 2019 initiatives | — | | | — | | | — | |
| Total | $ | 16 | | | $ | 32 | | | $ | 34 | |
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 January 1, 2017 | $ | 12 | | | $ | 9 | | | $ | 21 | |
| 2017 charges for 2016 and prior initiatives | 4 | | | 4 | | | 8 | |
| 2017 charges for 2017 initiatives | 34 | | | 3 | | | 37 | |
| Reversal of reserves no longer required | (1) | | | — | | | (1) | |
| 2017 payments for 2016 and prior initiatives | (9) | | | (11) | | | (20) | |
| 2017 payments for 2017 initiatives | (10) | | | (2) | | | (12) | |
| Foreign currency effect on liability balance | — | | | 1 | | | 1 | |
| Accrued liabilities as of December 31, 2017 | $ | 30 | | | $ | 4 | | | $ | 34 | |
| 2018 charges for 2017 and prior initiatives | 18 | | | — | | | 18 | |
| 2018 charges for 2018 initiative | 15 | | | 4 | | | 19 | |
| Reversal of reserves no longer required | — | | | — | | | — | |
| 2018 payments for 2017 and prior initiatives | (28) | | | (5) | | | (33) | |
| 2018 payments for 2018 initiatives | (1) | | | (3) | | | (4) | |
| Foreign currency effect on liability balance | (2) | | | — | | | (2) | |
| Accrued liabilities as of December 31, 2018 | $ | 32 | | | $ | — | | | $ | 32 | |
| 2019 charges for 2018 and prior initiatives | 20 | | | — | | | 20 | |
| 2019 charges for 2019 initiative | 5 | | | — | | | 5 | |
| | | | | |
| 2019 payments for 2018 and prior initiatives | (36) | | | — | | | (36) | |
| 2019 payments for 2019 initiatives | (5) | | | — | | | (5) | |
| | | | | |
| Accrued liabilities as of December 31, 2019 | $ | 16 | | | $ | — | | | $ | 16 | |
| Current portion of restructuring reserves | $ | 9 | | | $ | — | | | $ | 9 | |
| Long-term portion of restructuring reserve | $ | 7 | | | $ | — | | | $ | 7 | |
Restructuring, Impairment and Plant Closing and Transition Costs
Details with respect to cash and noncash restructuring charges for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 are provided below:
| | | | | |
Cash charges | $ | 25 | |
| |
Early Settlement of contractual obligations | (14) | |
Accelerated depreciation | 22 | |
| |
| |
Total 2019 Restructuring, Impairment of Plant Closing and Transition Costs | $ | 33 | |
| |
Cash charges | $ | 37 | |
Pension-related charges | 25 | |
Accelerated depreciation | 556 | |
| |
Other non-cash charges | 10 | |
Total 2018 Restructuring, Impairment of Plant Closing and Transition Costs | $ | 628 | |
| |
Cash charges | $ | 45 | |
| |
Accelerated depreciation | 3 | |
Impairment of assets | 3 | |
Other non-cash charges | 1 | |
Total 2017 Restructuring, Impairment and Plant Closing and Transition Costs | $ | 52 | |
Note 14. Asset Retirement Obligations
Asset retirement obligations consist primarily of asbestos abatement costs, demolition and removal costs, leasehold remediation costs and landfill closure costs. Venator is legally required to perform capping and closure and post-closure care on the landfills and asbestos abatement on certain of its premises. For each asset retirement obligation, Venator recognized the estimated fair value of a liability and capitalized the cost as part of the cost basis of the related asset.
The following table describes changes to Venator’s asset retirement obligation liabilities:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Asset retirement obligations at beginning of year | $ | 37 | | | $ | 45 | |
| Accretion expense | 1 | | | 2 | |
| Liabilities incurred | 1 | | | — | |
| Liabilities settled | (7) | | | (8) | |
| Foreign currency effect on reserve balance | — | | | (2) | |
| Asset retirement obligations at end of year | $ | 32 | | | $ | 37 | |
Note 15. Other Noncurrent Liabilities
Other noncurrent liabilities at December 31, 2019 and December 31, 2018 consisted of the following:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Pension liabilities | $ | 244 | | | $ | 253 | |
| Asset retirement obligations | 29 | | | 27 | |
| Environmental reserves | 8 | | | 11 | |
| Restructuring and plant closing costs | 7 | | | 14 | |
| Employee benefit accrual | 3 | | | 4 | |
| Other postretirement benefits | 3 | | | 3 | |
| Other | 6 | | | 1 | |
| Total | $ | 300 | | | $ | 313 | |
Note 16. Debt
Outstanding debt, excluding finance leases and net of issuance costs of $14 million and $13 million as of December 31, 2019 and December 31, 2018, respectively, consisted of the following:
| | | | | | | | | | | |
| December 31, | | |
| | 2019 | | 2018 |
| Senior notes | $ | 371 | | | $ | 370 | |
| Term loan facility | 361 | | | 365 | |
| Other | 8 | | | 3 | |
| Total debt | $ | 740 | | | $ | 738 | |
| Less: short-term debt and current portion of long-term debt | 11 | | | 7 | |
| | | |
| | | |
| Total long-term debt | $ | 729 | | | $ | 731 | |
The estimated fair value of the Senior Notes was $346 million and $300 million as of December 31, 2019 and December 31, 2018, respectively. The estimated fair value of the Term Loan Facility was $365 million and $355 million as of December 31, 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).
The weighted average interest rate on our outstanding balances under the Senior Notes, Term Loan Facility and cross-currency swaps as of December 31, 2019 is approximately 5%.
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 Senior 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 under 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. The borrowing base calculation as of December 31, 2019 is in excess of $273 million, of which $252 million is available to be drawn, as a result of $21 million of letters of credit issued and outstanding at December 31, 2019.
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.
Letters of Credit
As of December 31, 2019 we had $70 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 $21 million issued from our secured ABL facility.
Cash Pooling Program
Prior to the separation, Venator addressed cash flow needs by participating in a cash pooling program with Huntsman. Cash pooling transactions were recorded as either amounts receivable from affiliates or amounts payable to affiliates and are presented as "Net advances to affiliates" and "Net borrowings on affiliate accounts payable" in the investing and financing sections, respectively, in the consolidated and combined statements of cash flows. Interest income was earned if an affiliate was a net lender to the cash pool and paid if an affiliate was a net borrower from the cash pool based on a variable interest rate determined historically by Huntsman. Venator exited the cash pooling program prior to the separation and all receivables and payables generated through the cash pooling program were settled in connection with the separation.
Notes Receivable and Payable of Venator to Subsidiaries of Huntsman International
Substantially all Huntsman receivables or payable were eliminated in connection with the separation, other than a payable to Huntsman for a liability pursuant to the tax matters agreement entered into at the time of the separation, which has been presented as "Noncurrent payable to affiliates" on our consolidated balance sheets. See "Note 20. Income Taxes" for further discussion.
Maturities
The scheduled maturities of our debt (excluding debt to affiliates) by year as of December 31, 2019 are as follows:
| | | | | | | | |
| Year ended December 31, | | Amount |
| 2020 | | $ | 4 | |
| 2021 | | 4 | |
| 2022 | | 4 | |
| 2023 | | 4 | |
| 2024 | | 351 | |
| Thereafter | | 375 | |
| Total | | $ | 742 | |
Note 17. Discontinued Operations
The Titanium Dioxide, Performance Additives and other businesses were included in Huntsman’s financial results in different legal forms, including, but not limited to: (1) wholly-owned subsidiaries for which the Titanium Dioxide and Performance Additives businesses were the sole businesses; (2) legal entities that are comprised of other businesses and include the Titanium Dioxide and/or Performance Additives businesses; and (3) variable interest entities in which the Titanium Dioxide, Performance Additives and other businesses are the primary beneficiaries. Because the historical consolidated and combined financial information for the periods indicated reflect the combination of these legal entities under common control, the historical consolidated and combined financial information includes the results of operations of other Huntsman businesses that are not a part of our operations after the separation. The legal entity structure of Huntsman was reorganized during the fourth quarter of 2016 and the second quarter of 2017 such that the other businesses would not be included in Venator’s legal entity structure and as such, the discontinued operations presented below reflect financial results of the other businesses through the date of such reorganization.
The following table summarizes the operations data for discontinued operations:
| | | | | | | | | |
| | | | | Year ended December 31, 2017 |
| | | | | |
Revenues: | | | | | |
Trade sales, services and fees, net | | | | | $ | 15 | |
Related party sales | | | | | 17 | |
Total revenues | | | | | 32 | |
Cost of goods sold | | | | | 26 | |
Operating expenses: | | | | | |
Selling, general, and administrative (includes corporate allocations from Huntsman of $1) | | | | | (7) | |
Restructuring, impairment and plant closing costs | | | | | 1 | |
Other income, net | | | | | 1 | |
Total operating expenses | | | | | (5) | |
Income from discontinued operations before tax | | | | | 11 | |
Income tax expense | | | | | (3) | |
Net income from discontinued operations | | | | | $ | 8 | |
Note 18. 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 3 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 mature in July 2022, which was the best estimate of the repayment date of the intercompany loans.
In August 2019, we terminated the 3 cross-currency interest rate swaps entered into in 2017, resulting in cash proceeds of $15 million. Concurrently, we entered into 3 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 loss and subsequently recognized in other income in the audited consolidated and combined statements 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 a liability of $3 million and an asset of $6 million at December 31, 2019 and December 31, 2018, respectively, and was recorded as other long-term liabilities and other long-term assets on our consolidated balance sheets, respectively. 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.
During 2019 and 2018 the changes in accumulated other comprehensive loss associated with these cash flow hedging activities was a gain of $6 million and $11 million, respectively. As of December 31, 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 risk associated with the risks of foreign currency exposure. At December 31, 2019 and December 31, 2018 we had $75 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 19. Share-Based Compensation Plan
On August 1, 2017, our compensation committee and board of directors adopted the Venator Materials 2017 Stock Incentive Plan (the "LTIP") to provide for the granting of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, phantom shares, performance awards and other stock-based awards to our employees, directors and consultants and to employees and consultants of our subsidiaries, provided that incentive stock options may be granted solely to employees. The terms of the grants are fixed at the grant date. As of December 31, 2019, we were authorized to grant up to 12.8 million shares under the LTIP. As of December 31, 2019, we had 9.5 million shares remaining under the LTIP available for grant. Stock option awards have a maximum contractual term of 10 years and generally must have an exercise price at least equal to the market price of Venator’s ordinary shares on the date the stock option award is granted. Share-based awards generally vest over a three-year period; certain performance awards vest over a two-year period and awards to Venator’s directors vest on the grant date.
Awards granted by Huntsman prior to the separation (referred to as "Huntsman awards"), which consisted of stock options, restricted stock, performance awards and phantom shares, were generally treated as follows in connection with the separation:
•All vested Huntsman awards remained as Huntsman awards.
•After the separation, unvested Huntsman awards were converted to Venator awards. Huntsman stock options were converted to Venator stock options and Huntsman restricted stock, performance awards and phantom shares were converted to Venator restricted stock units.
•39 employees were affected by the conversion.
•Each Huntsman award was converted to approximately 1.33 Venator awards.
•The converted awards are generally subject to the same vesting, expiration and other terms and conditions as applied to the underlying Huntsman awards immediately prior to the separation.
The compensation cost from continuing operations under the Huntsman Stock Incentive Plan ("Huntsman Plan") allocated to Venator was nil, nil and $2 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively. The allocation was determined annually based upon the outstanding number of shares of each type of award granted to individuals employed by Venator. After the separation, we incurred $7 million, $6 million and $3 million in compensation cost related to the converted awards and new awards granted under the LTIP for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively. The total income tax benefit recognized in the consolidated and combined statement of operations for stock-based compensation arrangements was $1 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, each.
Stock Options
Huntsman Plan
Under the Huntsman Plan, the fair value of each stock option award was estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities were based on the historical volatility of Huntsman’s common stock through the grant date. The expected term of stock options granted was estimated based on the contractual term of the instruments and employees’ expected exercise and post-vesting employment
termination behavior. The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions noted below represent the weighted averages of the assumptions utilized for all stock options granted during the year until the separation.
| | | | | | | | | | | |
| | Year ended December 31, | | |
| | 2017 | | 2016 |
| Dividend yield | 2.4 | % | | 5.6 | % |
| Expected volatility | 56.9 | % | | 57.9 | % |
| Risk-free interest rate | 2.0 | % | | 1.4 | % |
| Expected life of stock options granted during the period | 5.9 years | | 5.9 years |
Converted Awards
After the separation, the unvested Huntsman stock option awards were converted to Venator stock option awards. On the date of conversion, the fair value of the stock option awards was revalued using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities were based on the historical volatility of Huntsman’s common stock through the conversion date. The expected term of stock options converted was estimated based on the safe harbor approach calculated as the vesting period plus remaining contractual term divided by two. The risk-free rate for periods within the expected life of the option was based on the U.S. Treasury yield curve in effect at the time of conversion. The assumptions noted below represent the weighted averages of assumptions utilized for all unvested stock options that were converted after the separation.
| | | | | | | | | | | |
| | Year ended December 31, | | |
| | 2017 | | 2016 |
| Dividend yield | — | | | — | |
| Expected volatility | 39.6 | % | | 39.2 | % |
| Risk-free interest rate | 1.9 | % | | 1.8 | % |
| Expected life of stock options granted during the period | 5.5 years | | 4.7 years |
New Grants
After the separation, stock option awards were granted under the LTIP. The fair value of the stock option awards were estimated using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities were based on the historical volatility of Huntsman’s common stock through the grant date. The expected term of stock options granted was estimated on the safe harbor approach calculated as the vesting period plus remaining contractual term divided by two. The risk-free rate for the periods within the expected life of the option was based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions noted below represent the weighted average of assumptions utilized for stock options granted during 2019, 2018 and 2017 under the LTIP.
| | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | | | | | |
| | 2019 | | 2018 | | 2017 | | |
| Dividend yield | — | | | — | | | — | | | |
| Expected volatility | 41.8 | % | | 38.8 | % | | 41.0 | % | | |
| Risk-free interest rate | 2.6 | % | | 2.8 | % | | 2.0 | % | | |
| Expected life of stock options granted during the period | 6.0 years | | 6.0 years | | 6.0 years | | |
The table below presents the changes in stock option awards for our ordinary shares from December 31, 2018 through December 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term | | Aggregate
Intrinsic
Value |
| | (in thousands) | | | | (in years) | | (in millions) |
| Outstanding at December 31, 2018 | 1,003 | | | $ | 16.10 | | | | | | | | |
| Granted | 980 | | | 5.75 | | | | | | |
| Exercised | — | | | — | | | | | | |
| Forfeited | (57) | | | 15.46 | | | | | | |
| Expired | (95) | | | 11.30 | | | | | | |
| Outstanding at December 31, 2019 | 1,831 | | | 10.83 | | | 8.5 | | $ | — | |
| Exercisable at December 31, 2019 | 554 | | | 13.91 | | | 7.8 | | — | |
Intrinsic value is the difference between the market value of our common stock and the exercise price of each stock option multiplied by the number of stock options outstanding for those stock options where the market value exceeds their exercise price. During the years ended December 31, 2019, December 31, 2018 and December 31, 2017, the total intrinsic value of stock options exercised was nil, each.
The weighted-average grant-date fair value of stock options granted during December 31, 2019, December 31, 2018 and December 31, 2017 was $2.52, $9.12 and $7.68 per option, respectively. As of December 31, 2019, there was $3 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the LTIP and Huntsman Plans. That cost is expected to be recognized over a weighted-average period of 1.7 years.
Restricted Stock Units
Huntsman Plan
Nonvested shares granted under the Huntsman Plan consisted of restricted stock and performance shares, which are accounted for as equity awards, and phantom stock, which is accounted for as a liability award because it can be settled in either stock or cash.
The fair value of each performance share unit award was estimated using a Monte Carlo simulation model that uses various assumptions, including an expected volatility rate and a risk-free interest rate. For the year ended December 31, 2016, the weighted-average expected volatility rate was 39.3% and the weighted average risk-free interest rate was 0.9%. For the performance awards granted during the year ended December 31, 2016, the number of shares earned varies based upon Huntsman achieving certain performance criteria over two-year and three-year performance periods. The performance criteria are total stockholder return of Huntsman’s common stock relative to the total stockholder return of a specified industry peer-group for the two-year and three-year performance periods.
Converted Awards
After the separation, the unvested Huntsman restricted stock, performance awards and phantom shares were converted to Venator restricted stock units. On the date of conversion, the fair value of the restricted stock and phantom share awards was revalued based on Venator’s closing share price, and the performance awards were revalued using the Monte Carlo valuation.
New Grants
After the separation, restricted stock and performance unit awards were granted under the LTIP. The fair value of the restricted stock is based on the closing share price on the date of grant. The fair value of each performance unit award was estimated using a Monte Carlo simulation model that uses various assumptions, including an expected volatility rate and a risk-free interest rate. For the year ended December 31, 2019, the weighted-average expected volatility rate was 42.5% and the weighted-average risk-free interest rate was 2.5%. For the performance unit awards granted during the year ended December 31, 2019, the number of shares earned varies based on the Company achieving certain performance criteria over a three-year performance period. The performance criteria are total stockholder return of our common stock relative to the total stockholder
return of a specified industry peer-group for the three-year performance period. NaN performance unit awards were granted during the year ended December 31, 2018.
The table below presents the changes in nonvested awards for our ordinary shares from December 31, 2018 through December 31, 2019.
| | | | | | | | | | | |
| | Shares | | Weighted
Average
Grant-Date
Fair Value |
| | (in thousands) | | |
| Nonvested at December 31, 2018 | 448 | | | $ | 18.71 | |
| Granted | 968 | | | 6.48 | |
Vested(1) | (216) | | | 16.15 | |
| Forfeited | (27) | | | 16.03 | |
| Nonvested at December 31, 2019 | 1,173 | | | 9.16 | |
(1)As of December 31, 2019, a total of 158,129 restricted stock units were vested but not yet issued. These shares have not been reflected as vested shares in the table because, in accordance with the restricted stock unit agreements, these shares are not issued for vested restricted stock until termination of employment.
As of December 31, 2019, there was $6 million of total unrecognized compensation cost related to nonvested share compensation arrangements granted under the LTIP and the Huntsman Plan. That cost is expected to be recognized over a weighted-average period of 1.8 years.
Note 20. Income Taxes
Our income tax basis of presentation is summarized in "Note 1. Description Of Business, Recent Developments and Summary Of Significant Accounting Policies."
The components of income (loss) before income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| U.K. | $ | (1) | | | $ | 80 | | | $ | 76 | |
| Non-U.K. | (19) | | | (245) | | | 110 | |
| Total | $ | (20) | | | $ | (165) | | | $ | 186 | |
A summary of the provisions for current and deferred income taxes is as follows:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Income tax expense (benefit): | | | | | |
| U.K. | | | | | |
| Current | $ | — | | | $ | 2 | | | $ | — | |
| Deferred | — | | | — | | | — | |
| Non-U.K. | | | | | |
| Current | 7 | | | 9 | | | 30 | |
| Deferred | 143 | | | (19) | | | 20 | |
| Total | $ | 150 | | | $ | (8) | | | $ | 50 | |
The reconciliation of the differences between the U.K. income taxes at the U.K. statutory rate to Venator’s provision for income taxes is as follows:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| (Loss) income from continuing operations before income taxes | $ | (20) | | | $ | (165) | | | $ | 186 | |
| Expected tax (benefit) expense at U.K. statutory rate of 19%, 19% and 20%, respectively | $ | (4) | | | $ | (31) | | | $ | 35 | |
| Change resulting from: | | | | | |
| Non-U.K. tax rate differentials | (4) | | | (7) | | | (1) | |
| Other non-U.K. tax effects, including nondeductible expenses, tax effect of rate changes and transfer pricing adjustments | — | | | (5) | | | — | |
| Unrealized currency exchange gains and losses | — | | | — | | | 7 | |
| Tax authority audits and dispute resolutions | — | | | — | | | 1 | |
| Change in valuation allowance | 158 | | | 39 | | | 3 | |
| Effects of U.S. tax reform | — | | | — | | | 3 | |
| Other, net | — | | | (4) | | | 2 | |
| Total income tax expense (benefit) | $ | 150 | | | $ | (8) | | | $ | 50 | |
Venator operates in over 20 non-U.K. tax jurisdictions with no specific country earning a predominant amount of its off-shore earnings. Some of these countries have income tax rates that are approximately the same as the U.K. statutory rate, while other countries have rates that are higher or lower than the U.K. statutory rate. Losses earned in countries with higher average statutory rates than the U.K., resulted in higher tax benefit of $4 million and $7 million, respectively, for the years ended December 31, 2019 and 2018. Income earned in countries with lower average statutory rates than the U.K., resulted in lower tax expense of $1 million, for the year ended December 31, 2017, reflected in the reconciliation above.
Components of deferred income tax assets and liabilities at December 31, 2019 and December 31, 2018 were as follows:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Deferred income tax assets: | | | |
| Net operating loss carryforwards | $ | 519 | | | $ | 313 | |
| Pension and other employee compensation | 53 | | | 48 | |
| Property, plant and equipment | 34 | | | 28 | |
| Other, net | 77 | | | 49 | |
| Total | $ | 683 | | | $ | 438 | |
| Total deferred income tax liabilities: | | | |
| Property, plant and equipment | $ | (35) | | | $ | (32) | |
| Pension and other employee compensation | (13) | | | (4) | |
| Lease liability | (13) | | | — | |
| Other, net | (4) | | | (4) | |
| Total | $ | (65) | | | $ | (40) | |
| Net deferred tax assets before valuation allowance | $ | 618 | | | $ | 398 | |
| Valuation allowance | (585) | | | (220) | |
| Net deferred tax assets | $ | 33 | | | $ | 178 | |
| Non-current deferred tax assets | 33 | | | 178 | |
| Non-current deferred tax liabilities | — | | | — | |
| Net deferred tax assets | $ | 33 | | | $ | 178 | |
Venator has NOLs of $2,107 million in various jurisdictions, principally located in Finland, France, Germany, Italy, Luxembourg, Spain, South Africa, U.S. and the U.K., all of which have no expiration dates except for $226 million which expires on December 31, 2028 and is subject to a valuation allowance.
Included in the $2,107 million of gross NOLs is $864 million attributable to our Luxembourg entity. As of December 31, 2019, due to the uncertainty surrounding the realization of the benefits of these losses, there is a full valuation allowance of $197 million against these net tax effected NOLs.
Venator has total net deferred tax assets, before valuation allowance, of $618 million, including $519 million of tax-effected NOLs. After taking into account deferred tax liabilities, Venator has recognized valuation allowance on net deferred tax assets of $585 million, including valuation allowances in the following countries: Finland, France, Germany, Hong Kong, Italy, Luxembourg (as discussed above), South Africa, Spain and the U.K. Venator also has net deferred tax assets of $33 million, not subject to valuation allowances, primarily in Malaysia, and the U.S.
Valuation allowances are reviewed each period on a tax jurisdiction by 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. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of businesses and cumulative income or losses during the applicable period. Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions and result in additional valuation allowances in future periods.
Based on management’s ongoing analysis of positive and negative evidence within our German business we have concluded at December 31, 2019 there is insufficient positive evidence to overcome a history of losses. As a result, we believe it is more likely than not that deferred tax assets will not be realized and we have recognized a full valuation allowance against net deferred tax assets of $162 million. In future periods we will continue to evaluate whether sufficient objective positive evidence of future taxable income exists, which would provide a basis for the recognition of deferred tax assets without a valuation allowance.
The following is a reconciliation of the unrecognized tax benefits:
| | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Unrecognized tax benefits as of January 1, | $ | 17 | | | $ | 23 | | | $ | 20 | |
| Gross increases and decreases- tax positions taken during prior period | 1 | | | 2 | | | — | |
| Gross increases and decreases—tax positions taken during the current period | — | | | — | | | 1 | |
| Decreases related to settlements of amounts due to tax authorities | — | | | — | | | — | |
| Reductions resulting from the lapse of statutes of limitation | (2) | | | (7) | | | — | |
| Foreign currency movements | — | | | (1) | | | 2 | |
| Unrecognized tax benefits as of December 31, | $ | 16 | | | $ | 17 | | | $ | 23 | |
As of December 31, 2019, December 31, 2018 and December 31, 2017, the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $1 million, $14 million and $13 million, respectively.
In accordance with Venator’s accounting policy, it recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense, which were insignificant for each of the years ended December 31, 2019, 2018 and 2017.
Venator conducts business globally and, as a result, files income tax returns in the U.S. federal, various U.S. state and various non-U.S. jurisdictions. The following table summarizes the tax years that remain subject to examination by major tax jurisdictions:
| | | | | | | | |
Tax Jurisdiction | | Open Tax Years |
France | | 2016 and later |
Germany | | 2011 and later |
Italy | | 2014 and later |
Malaysia | | 2014 and later |
Spain | | 2015 and later |
United Kingdom | | 2015 and later |
United States federal | | 2016 and later |
Certain of Venator’s U.S. and non-U.S. income tax returns are currently under various stages of audit by applicable tax authorities and the amounts ultimately agreed upon in resolution of the issues raised may differ materially from the amounts accrued.
Venator estimates that it is reasonably possible that no change of its unrecognized tax benefits could occur within 12 months of the reporting date.
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,this review, the basisBoard has determined that Sir Robert, Messrs. Anderson and Ferrari and Ms. Patrick, who currently constitute a majority of the assets associated with our U.S. businesses was increased. This basis step-up gave rise to a deferred tax asset of $77 million that we recognized forBoard, are independent. These independent directors currently comprise, in full, the quarter ended September 30, 2017. Due to the 2017 Tax Act’s reductionmembership of the U.S. federal corporate income tax rate from 35% to 21%, the deferred tax asset associated with the basis step-up was reduced to $36 million asAudit, Compensation and Governance committees of the date of enactment, reflected as part of the $3 million Effects of U.S. tax reform in the effective tax rate reconciliation above. Pursuant to the tax matters agreement entered into at the time of the separation, we are required to make a future payment toBoard.
Mr. 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. For the quarter ended September 30, 2017 we 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 were expectedis not yet considered to be approximately $73 million. Due toindependent because he was the 2017 Tax Act’s reduction of the U.S. federal corporate income tax rate, we estimated that the aggregate future payments required by this provision were expected to be approximately $34 million and we recognized a noncurrent liability for this amount as of December 31, 2017 and 2018. During 2019 we reduced the liability to $30 million due to a decrease in the expectation of future payments. 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.
In the first quarter of 2019 a non-U.K. subsidiary distributed $12 million to a U.K. subsidiary subject to 5% withholding tax. As of December 31, 2019, our non-U.K. subsidiaries have no plan to distribute earnings in a manner that would cause them to be subject to material U.K., U.S., or other local country taxation.
Note 21. Employee Benefit Plans
Defined Benefit and Other Postretirement Benefit Plans
Venator sponsors defined benefit plans in a number of countries outside of the U.S. in which employees of Venator participate. The availability of these plans and their specific design provisions are consistent with local competitive practices and regulations.
The disclosures for the defined benefit and other postretirement benefit plans within the U.S. are combined with the disclosures of the plans outside of the U.S. Of the total projected benefit obligations for Venator as of December 31, 2019 and December 31, 2018, the amount related to the U.S. benefit plans was $11 million and $10 million, respectively, or 1% each. Of the total fair value of plan assets for Venator, the amount related to the U.S. benefit plans for December 31, 2019 and December 31, 2018 was $8 million and $7 million, respectively, or 1% each.
The following table sets forth the funded status of the plans for Venator and the amounts recognized in the consolidated balance sheets at December 31, 2019 and December 31, 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit
Plans | | | | Other
Postretirement
Benefit Plans | | |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Change in benefit obligation | | | | | | | |
| Benefit obligation at beginning of year | $ | 1,021 | | | $ | 1,136 | | | $ | 3 | | | $ | 3 | |
| Service cost | 3 | | | 5 | | | — | | | — | |
| Interest cost | 24 | | | 25 | | | — | | | — | |
| Actuarial loss (gain) | 108 | | | (60) | | | 1 | | | — | |
| | | | | | | |
| Gross benefits paid | (52) | | | (58) | | | (1) | | | — | |
| Plan amendments | — | | | 6 | | | — | | | — | |
| Exchange rates | 17 | | | (56) | | | — | | | — | |
| Curtailments | (21) | | | 23 | | | — | | | — | |
| | | | | | | |
| Benefit obligation at end of year | $ | 1,100 | | | $ | 1,021 | | | $ | 3 | | | $ | 3 | |
| Accumulated benefit obligation at end of year | 1,076 | | | 983 | | | | | |
| Change in plan assets | | | | | | | |
| Fair value of plan assets at beginning of year | $ | 813 | | | $ | 906 | | | $ | — | | | $ | — | |
| Actual return on plan assets | 108 | | | (34) | | | — | | | — | |
| Employer contribution | 40 | | | 47 | | | — | | | — | |
| Gross benefits paid | (52) | | | (58) | | | — | | | — | |
| | | | | | | |
| Exchange rates | 24 | | | (48) | | | — | | | — | |
| Other | 1 | | | — | | | — | | | — | |
| Fair value of plan assets at end of year | $ | 934 | | | $ | 813 | | | $ | — | | | $ | — | |
| Funded status | | | | | | | |
| Fair value of plan assets | $ | 934 | | | $ | 813 | | | $ | — | | | $ | — | |
| Benefit obligation | (1,100) | | | (1,021) | | | (3) | | | (3) | |
| Accrued benefit cost | $ | (166) | | | $ | (208) | | | $ | (3) | | | $ | (3) | |
| Amounts recognized in balance sheet: | | | | | | | |
| Noncurrent asset | $ | 79 | | | $ | 46 | | | $ | — | | | $ | — | |
| Current liability | (1) | | | (1) | | | — | | | — | |
| Noncurrent liability | (244) | | | (253) | | | (3) | | | (3) | |
| Total | $ | (166) | | | $ | (208) | | | $ | (3) | | | $ | (3) | |
| Amounts recognized in accumulated other comprehensive loss: | | | | | | | |
| Net actuarial loss (gain) | $ | 321 | | | $ | 302 | | | $ | (3) | | | $ | (4) | |
| Prior service cost (credit) | 5 | | | 11 | | | — | | | (1) | |
| Total | $ | 326 | | | $ | 313 | | | $ | (3) | | | $ | (5) | |
The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during the next fiscal year are as follows:
| | | | | | | | | | | |
| Defined
Benefit Plans | | Other
Postretirement
Benefit Plans |
Actuarial loss | $ | 13 | | | $ | — | |
Prior service cost | 1 | | | — | |
Total | $ | 14 | | | $ | — | |
Components of net periodic benefit costs for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 were as follows:
| | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | | |
| | 2019 | | 2018 | | 2017 |
| Service cost | $ | 3 | | | $ | 5 | | | $ | 5 | |
| Interest cost | 24 | | | 25 | | | 25 | |
| Expected return on plan assets | (42) | | | (47) | | | (43) | |
| Amortization of actuarial loss | 14 | | | 15 | | | 16 | |
| Amortization of prior service cost | 1 | | | 3 | | | 1 | |
| | | | | |
| Curtailments | (9) | | | 23 | | | (4) | |
| Net periodic benefit cost | $ | (9) | | | $ | 24 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| | Other Postretirement Benefit Plans | | | | |
| | 2019 | | 2018 | | 2017 |
| | | | | |
| | | | | |
| Amortization of actuarial loss | $ | — | | | $ | — | | | $ | 1 | |
| Amortization of prior service credit | — | | | — | | | (3) | |
| Curtailments | (1) | | | — | | | — | |
| Net periodic benefit cost | $ | (1) | | | $ | — | | | $ | (2) | |
The amounts recognized in net periodic benefit cost and other comprehensive loss for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 were as follows:
| | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | | |
| | 2019 | | 2018 | | 2017 |
| Current year actuarial gain (loss) | $ | 21 | | | $ | 45 | | | $ | (24) | |
| Amortization of actuarial loss | (14) | | | (15) | | | (16) | |
| Current year prior service cost | — | | | 5 | | | — | |
| Amortization of prior service cost | (1) | | | (3) | | | (1) | |
| Curtailments | 9 | | | (23) | | | 4 | |
| Other | — | | | — | | | (3) | |
| Total recognized in other comprehensive loss | 15 | | | 9 | | | (40) | |
| | | | | |
| | | | | |
| Net periodic benefit cost | (9) | | | 24 | | | — | |
| Total recognized in net periodic benefit cost and other comprehensive loss | $ | 6 | | | $ | 33 | | | $ | (40) | |
| | | | | | | | | | | | | | | | | |
| | Other Postretirement Benefit Plans | | | | |
| | 2019 | | 2018 | | 2017 |
| Current year actuarial loss | $ | 1 | | | $ | — | | | $ | (1) | |
| Amortization of actuarial loss | — | | | — | | | (1) | |
| | | | | |
| Amortization of prior service credit | — | | | — | | | 3 | |
| Curtailments | 1 | | | — | | | — | |
| Total recognized in other comprehensive loss | 2 | | | — | | | 1 | |
| Net periodic benefit cost | (1) | | | — | | | (2) | |
| Total recognized in net periodic benefit cost and other comprehensive loss | $ | 1 | | | $ | — | | | $ | (1) | |
The following weighted-average assumptions were used to determine the projected benefit obligation at the measurement date and the net periodic pension cost for the year:
| | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | | |
| | 2019 | | 2018 | | 2017 |
| Projected benefit obligation: | | | | | |
| Discount rate | 1.60 | % | | 2.38 | % | | 2.21 | % |
| Rate of compensation increase | 2.56 | % | | 3.69 | % | | 3.74 | % |
| Net periodic pension cost: | | | | | |
| Discount rate | 2.38 | % | | 2.21 | % | | 1.86 | % |
| Rate of compensation increase | 3.69 | % | | 3.74 | % | | 3.53 | % |
| Expected return on plan assets | 5.23 | % | | 5.23 | % | | 5.71 | % |
| | | | | | | | | | | | | | | | | |
| | Other Postretirement Benefit Plans | | | | |
| | 2019 | | 2018 | | 2017 |
| Projected benefit obligation: | | | | | |
| Discount rate | 3.27 | % | | 3.50 | % | | 3.38 | % |
| Net periodic pension cost: | | | | | |
| Discount rate | 3.51 | % | | 3.30 | % | | 3.72 | % |
| Rate of compensation increase | 4.35 | % | | — | % | | — | % |
At December 31, 2019 and December 31, 2018, the health care trend rate used to measure the expected increase in the cost of benefits was assumed to be 5.80% and 4.90%, respectively, decreasing to 4.53% after 2030. Assumed health care cost trend rates can have a significant effect on the amounts reported for the postretirement benefit plans. A one-percent point change in assumed health care cost trend rates would not have a significant effect.
The projected benefit obligation and fair value of plan assets for the defined benefit plans with projected benefit obligations in excess of plan assets as were as follows:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Projected benefit obligation | $ | 407 | | | $ | 385 | |
| Fair value of plan assets | 162 | | | 131 | |
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the defined benefit plans with an accumulated benefit obligation in excess of plan assets as of December 31, 2019 and December 31, 2018 were as follows:
| | | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 |
| Projected benefit obligation | $ | 386 | | | $ | 385 | |
| Accumulated benefit obligation | 383 | | | 375 | |
| Fair value of plan assets | 142 | | | 131 | |
Expected future contributions and benefit payments are as follows:
| | | | | | | | | | | |
| | Defined
Benefit Plans | | Other
Postretirement
Benefit Plans |
| 2020 expected employer contributions: | | | |
| To plan trusts | $ | 43 | | | $ | — | |
| Expected benefit payments: | | | |
| 2020 | 54 | | | — | |
| 2021 | 43 | | | — | |
| 2022 | 44 | | | — | |
| 2023 | 47 | | | — | |
| 2024 | 48 | | | — | |
| 2025 - 2029 | 241 | | | 1 | |
Our investment strategy with respect to pension assets is to pursue an investment plan that, over the long term, is expected to protect the funded status of the plan, enhance the real purchasing power of plan assets and not threaten the plan’s ability to meet currently committed obligations. Additionally, our investment strategy is to achieve returns on plan assets, subject to a prudent level of portfolio risk. Plan assets are invested in a broad range of investments. These investments are diversified in terms of domestic and international equities, both growth and value funds, including small, mid and large capitalization equities; short-term and long-term debt securities; real estate; and cash and cash equivalents. The investments are further diversified within each asset category. The portfolio diversification provides protection against a single investment or asset category having a disproportionate impact on the aggregate performance of the plan assets.
Our pension plan assets are managed by outside investment managers. The investment managers value our plan assets using quoted market prices, other observable inputs or unobservable inputs. For certain assets, the investment managers obtain third-party appraisals at least annually, which use valuation techniques and inputs specific to the applicable property, market or geographic location. We have established target allocations for each asset category. Venator’s pension plan assets are periodically rebalanced based upon our target allocations.
The fair value of plan assets for the pension plans was $934 million and $813 million at December 31, 2019 and December 31, 2018, respectively. The following plan assets are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Category | | December 31, 2019 | | Fair Value
Amounts Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Pension plans: | | | | | | | | |
| Equities | | $ | 196 | | | $ | 179 | | | $ | 17 | | | $ | — | |
| Fixed income | | 692 | | | 42 | | | 643 | | | 7 | |
| Real estate/other | | 40 | | | — | | | 14 | | | 26 | |
| Cash and cash equivalents | | 6 | | | 6 | | | — | | | — | |
| Total pension plan assets | | $ | 934 | | | $ | 227 | | | $ | 674 | | | $ | 33 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Asset Category | December 31, 2018 | | Fair Value
Amounts Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Pension plans: | | | | | | | |
| Equities | $ | 213 | | | $ | 202 | | | $ | 11 | | | $ | — | |
| Fixed income | 547 | | | 39 | | | 501 | | | 7 | |
| Real estate/other | 34 | | | — | | | 6 | | | 28 | |
| Cash and cash equivalents | 19 | | | 19 | | | — | | | — | |
| Total pension plan assets | $ | 813 | | | $ | 260 | | | $ | 518 | | | $ | 35 | |
| | | | | | | | | | | |
| | Real Estate/Other
Year ended December 31, | | |
| | 2019 | | 2018 |
| Fair Value Measurements of Plan Assets Using Significant Unobservable Inputs (Level 3) | | | |
| Balance at the beginning of the period | $ | 28 | | | $ | 30 | |
| Return on pension plan assets | (1) | | | (1) | |
| Purchases, sales and settlements | (1) | | | (1) | |
| Transfers (out of) into Level 3 | — | | | — | |
| Disposals | — | | | — | |
| Balance at the end of the period | $ | 26 | | | $ | 28 | |
| | | | | | | | | | | |
| | Fixed Income
Year ended December 31, | | |
| | 2019 | | 2018 |
| Fair Value Measurements of Plan Assets Using Significant Unobservable Inputs (Level 3) | | | |
| Balance at the beginning of the period | $ | 7 | | | $ | 7 | |
| Return on pension plan assets | — | | | — | |
| Purchases, sales and settlements | — | | | — | |
| Transfers (out of) into Level 3 | — | | | — | |
| Balance at the end of the period | $ | 7 | | | $ | 7 | |
Based upon historical returns, the expectations of our investment committee and outside advisors, the expected long-term rate of return on the pension assets is estimated to be between 5.71% and 5.23%. The asset allocation for our pension plans at December 31, 2019 and December 31, 2018 and the target allocation for 2019, by asset category, are as follows:
| | | | | | | | | | | | | | | | | |
| Asset category | Target allocation 2020 | | Allocated at December 31, 2019 | | Allocated at December 31, 2018 |
| Pension plans: | | | | | |
| Equities | 20 | % | | | 19 | % | | 26 | % |
| Fixed income | 72 | % | | | 73 | % | | 64 | % |
| Real estate/other | 1 | % | | | 1 | % | | 1 | % |
| Cash | 7 | % | | | 7 | % | | 9 | % |
| Total pension plans | 100 | % | | 100 | % | | 100 | % |
Equity securities in Venator’s pension plans did not include any equity securitieschief executive officer of Huntsman Corporation or Venator and its affiliates atduring the end of 2019.
U.S. Benefit Plans
Venator’s U.S. employees participated intime our Company was a trusteed, non-contributory defined benefit pension plan (the "Plan") that covered substantially allbusiness division of Huntsman International’s full-time U.S. employees. In July 2004, the Plan formula for employees not covered by a collective bargaining agreement was converted to a cash balance design. For represented employees, participation in the cash balance design was subject to the terms of negotiated contracts. For participating employees, benefits accrued under the prior formula were converted to opening cash balance accounts. The new cash balance benefit formula provides annual pay credits from 4% to 12% of eligible pay, depending on age and service, plus accrued interest. Participants in the plan as of July 1, 2004 were eligible for additional annual pay credits from 1% to 8%, depending on their age and service as of that date, for up to 5 years. Beginning July 1, 2014, the Huntsman Defined Benefit Pension Plan was closed to new, non-union entrants and as of April 1, 2015, it was closed to new union entrants. After closure, new hires were provided with a defined contribution plan with a non-discretionary employer contribution of 6% of pay and a company match of up to 4% of pay, for a total company contribution of up to 10% of pay. In connection with the separation, Venator adopted a non-contributory defined benefit pension plan for union entrants prior to April 2015.
Our eligible employees (who were employed by Huntsman prior to August 1, 2015) also participate in an unfunded postretirement benefit plan, which provides medical and life insurance benefits. This plan is sponsored by Venator.
Our U.S. employees participate in a postretirement benefit plan that provides a fully insured Medicare Part D plan including prescription drug benefits affected by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"). Venator has not determined whether the medical benefits provided by these postretirement benefit plans are actuarially equivalent to those provided by the Act. Venator does not collect a subsidy, and our net periodic postretirement benefits cost, and related benefit obligation, do not reflect an amount associated with the subsidy.
Non-U.S. Defined Contribution Plans
We have defined contribution plans in a variety of non-U.S. locations. Venator’s combined expense for these defined contribution plans for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 was $9 million, $8 million and $8 million, respectively, primarily related to the U.K. Pension Plan.
All U.K. associates are eligible to participate in the Huntsman U.K. Pension Plan, a contract-based arrangement with a third party. Company contributions vary by business during a 5 year transition period. Plan participants elect to make voluntary contributions to this plan up to a specified amount of their compensation. We contribute a matching amount not to exceed 12% of the participant’s salary for new hires and 15% of the participant’s salary for all other participants.
U.S. Defined Contribution Plans
Huntsman provided a money purchase pension plan covering substantially all of its domestic employees who were hired prior to January 1, 2004. Employer contributions were made based on a percentage of employees’ earnings (ranging up to 8%). During 2014, Huntsman closed this plan to non-union participants and in 2015 Huntsman closed this plan to union associates. We continue to provide equivalent benefits to those who were covered under this plan into their salary deferral accounts.
We also have a salary deferral plan covering substantially all U.S. employees. Plan participants may elect to make voluntary contributions to this plan up to a specified amount of their compensation. New hires are provided a defined contribution plan with a non-discretionary employer contribution of 6% of pay and a company match of up to 4% of pay, for a total company contribution of up to 10% of pay.
Along with the introduction of the cash balance formula within the defined benefit pension plan, the money purchase pension plan was closed to new hires. At the same time, the employer match in the salary deferral plan was increased, for new hires, to a 100% match, not to exceed 4% of the participant’s compensation.
Our total combined expense for the above defined contribution plans was $2 million, $3 million and $3 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively.
Note 22. Related Party Transactions
Transactions with Huntsman
We are party to a variety of transactions and agreements with Huntsman, our former parent and largest shareholder.
Prior to the separation, Huntsman’s executive, information technology, EHS and certain other corporate departments performed certain administrative and other services for Venator. Additionally, Huntsman performed certain site services for Venator. Expenses incurred by Huntsman and allocated to Venator were determined based on specific services provided or were allocated based on our total revenues, total assets, and total employees in proportion to those of Huntsman. Management believes that such expense allocations are reasonable. Corporate allocations include allocated selling, general, and administrative expenses of nil, nil and $62 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively.
On August 11, 2017, we entered into a separation agreement with Huntsman to effect the separation and to provide a framework for the relationship with Huntsman. This agreement governs the relationship between Venator and Huntsman subsequent to the completion of the separation and provides for the allocation between Venator and Huntsman of assets, liabilities and obligations attributable to periodsCorporation prior to the separation. Because these agreements were entered intoSeparation in the
context of a related party transaction, the terms may not be comparable to terms that would be obtained in a transaction between unaffiliated parties.
See description of our financing arrangements with Huntsman before and after the separation in "Note 16. Debt" and "Note 18. Derivative Instruments and Hedging Activities." See description of our arrangement with Huntsman as part of the separation in "Note 20. Income Taxes."
Other Related Party Transactions
We also conduct transactions in the normal course of business with parties under common ownership. Sales of raw materials to LPC as part of a sourcing arrangement were $87 million, $65 million and $64 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively. Proceeds from this arrangement are recorded as a reduction of cost of goods sold in Venator’s consolidated and combined statements of operations. Related to this same arrangement, purchases of finished goods from LPC were $177 million, $167 million and $158 million for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively. The related accounts receivable from affiliates and accounts payable to affiliates as of December 31, 2019 and December 31, 2018 are recognized in the consolidated balance sheets.
Note 23. Commitments and Contingencies
Purchase Commitments
We have various purchase commitments extending through 2029 for materials, supplies and services entered into in the ordinary course of business. Included in the purchase commitments table below are contracts which require minimum volume purchases that extend beyond one year or are renewable annually and have been renewed for 2020. Certain contracts allow for changes in minimum required purchase volumes in the event of a temporary or permanent shutdown of a facility. To the extent the contract requires a minimum notice period; such notice period has been included in the table below. The contractual purchase prices for substantially all of these contracts are variable based upon market prices, subject to annual negotiations. We have estimated our contractual obligations by using the terms of our current pricing for each contract. We also have a limited number of contracts which require a minimum payment even if no volume is purchased. We believe that all of our purchase obligations will be utilized in our normal operations. For the years ended December 31, 2019, December 31, 2018 and December 31, 2017, we made minimum payments under such take or pay contracts without taking the product of $1 million, nil and $2 million, respectively. Total purchase commitments as of December 31, 2019 were as follows:
| | | | | | | | |
| Year ended December 31, | | Amount |
| 2020 | | $ | 100 | |
| 2021 | | 98 | |
| 2022 | | 85 | |
| 2023 | | 11 | |
| 2024 | | 11 | |
| Thereafter | | 38 | |
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. 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. A fifth case, filed by Bonnie Yoon Bishop in the U.S. District Court for the Southern District of New York, was voluntarily dismissed without prejudice on October 7, 2019.A sixth case 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.
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, In re Venator Materials PLC Securities Litigation. 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 action filed a consolidated class action complaint.
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 October 3, 2019, a hearing was held on our motion to dismiss under the Texas Citizens Participation Act, which was subsequently denied.On October 22, 2019, we and other defendants filed a Petition for Writ of Mandamus in the Court of Appeals for the Fifth District of Texas seeking relief from the Dallas District Court’s denial of defendants’ Rule 91a motions to dismiss. On November 22, 2019, we also filed a notice of appeal regarding the denial of our motion to dismiss under the Texas Citizens Participation Act.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 those 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.
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 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 itMr. Turner 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. The timetable for arbitration has been provisionally set with a hearing date to occur in early fourth quarter 2021. On July 2, 2019, NES separately instigated a lawsuit in Finland for €1.6 million of unpaid invoices. We are
contesting the Finnish lawsuit and filed our defense on October 31, 2019. A hearing is anticipated in the fourth quarter of 2020. We are fully accrued for these invoices and they are reflected in our consolidated balance sheets as of December 31, 2019.
Calais Pipeline Matter
The Region Hauts-de-France (the "Region") has issued 2 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 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 has set a hearing date on the matter for March 17, 2020. We do not believe a loss is probable and have not made an accrual with respect 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 consolidated and combined 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 24. 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 years ended December 31, 2019, December 31, 2018 and December 31, 2017, our capital expenditures for EHS matters totaled $35 million, $9 million and $10 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 December 31, 2019 and December 31, 2018, we had environmental reserves of $9 million and $12 million, respectively. We may incur additional losses for environmental remediation.
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 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 the EU, 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, such as France and Italy.
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, the environmental assessment and related discussions with the Finnish environmental authorities are ongoing, and these costs could be material toan independent director because he is employed by our consolidated and combined financial statements.company.
Note 25. Other Comprehensive Loss
Other comprehensive loss consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign currency translation adjustment(1) | | Pension and other postretirement benefits adjustments, net of tax(2) | | Other
comprehensive
income 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) | |
| | | | | | | | | | | | | |
| Tax expense | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other comprehensive (loss) income before reclassifications | (90) | | | (27) | | | — | | | 11 | | | (106) | | | — | | | (106) | |
| Tax expense | — | | | (2) | | | — | | | — | | | (2) | | | — | | | (2) | |
Amounts reclassified from accumulated other comprehensive loss, gross(3) | — | | | 18 | | | — | | | — | | | 18 | | | — | | | 18 | |
| Tax expense | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Net current-period other comprehensive (loss) income | (90) | | | (11) | | | — | | | 11 | | | (90) | | | — | | | (90) | |
| Ending balance, December 31, 2018 | (96) | | | (278) | | | (5) | | | 6 | | | (373) | | | — | | | (373) | |
| | | | | | | | | | | | | |
| Tax expense | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other comprehensive (loss) income before reclassifications | (1) | | | (32) | | | — | | | 6 | | | (27) | | | — | | | (27) | |
| Tax expense | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Amounts reclassified from accumulated other comprehensive loss, gross(3) | — | | | 15 | | | — | | | — | | | 15 | | | — | | | 15 | |
| Tax expense | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Net current-period other comprehensive (loss) income | (1) | | | (17) | | | — | | | 6 | | | (12) | | | — | | | (12) | |
| Ending balance, December 31, 2019 | $ | (97) | | | $ | (295) | | | $ | (5) | | | $ | 12 | | | $ | (385) | | | $ | — | | | $ | (385) | |
(1)Amounts are net of tax of nil each as of January 1, 2018, December 31, 2018 and December 31, 2019.
(2)Amounts are net of tax of $52 million, $50 million and $50 million as of January 1, 2018, December 31, 2018 and December 31, 2019, respectively.
(3)See table below for details about the amounts reclassified from accumulated other comprehensive loss.
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | Affected line item in the statement
where net income is presented |
| | 2019 | | 2018 | | |
| Details about Accumulated Other Comprehensive Loss Components: | | | | | |
| Amortization of pension and other postretirement benefits: | | | | | |
| Actuarial loss | $ | 14 | | | $ | 15 | | | (a) |
| Prior service cost | 1 | | | 3 | | | (a) |
| Total before tax | 15 | | | 18 | | | |
| Income tax expense | — | | | — | | | Income tax (expense) benefit |
| Total reclassifications for the period, net of tax | $ | 15 | | | $ | 18 | | | |
(a)These accumulated other comprehensive loss components are included in the computation of net periodic pension costs. See "Note 21. Employee Benefit Plans."
Note 26. Operating Segment Information
We derive our revenues, earnings and cash flows from the manufacture and sale of a wide variety of commodity chemical products. We have reported our operations through our 2 segments, Titanium Dioxide and Performance Additives, and organized our business and derived our operating segments around differences in product lines. We have historically conducted other business within components of legal entities we operated in conjunction with Huntsman businesses, and such businesses are included within the corporate and other line item below.
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:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Revenues: | | | | | |
| Titanium Dioxide | $ | 1,614 | | | $ | 1,666 | | | $ | 1,604 | |
| Performance Additives | 516 | | | 599 | | | 605 | |
| Total | $ | 2,130 | | | $ | 2,265 | | | $ | 2,209 | |
Adjusted EBITDA(1): | | | | | |
| Titanium Dioxide | $ | 197 | | | $ | 417 | | | $ | 387 | |
| Performance Additives | 47 | | | 62 | | | 72 | |
| 244 | | | 479 | | | 459 | |
| Corporate and other | (50) | | | (43) | | | (64) | |
| Total | $ | 194 | | | $ | 436 | | | $ | 395 | |
| Reconciliation of adjusted EBITDA to net (loss) income: | | | | | |
| Interest expense | (53) | | | (53) | | | (100) | |
| Interest income | 12 | | | 13 | | | 60 | |
| Income tax (expense) benefit—continuing operations | (150) | | | 8 | | | (50) | |
| Depreciation and amortization | (110) | | | (132) | | | (127) | |
| Net income attributable to noncontrolling interests | 5 | | | 6 | | | 10 | |
| Other adjustments: | | | | | |
| Business acquisition and integration expenses | 1 | | | (20) | | | (5) | |
| Separation gain (expense), net | 3 | | | (2) | | | (7) | |
| U.S. income tax reform | — | | | — | | | 34 | |
| Net income of discontinued operations, net of tax | — | | | — | | | 8 | |
| (Loss) gain on disposition of business/assets | (1) | | | (2) | | | — | |
| Certain legal settlements and related expenses | (4) | | | — | | | (1) | |
| Amortization of pension and postretirement actuarial losses | (14) | | | (15) | | | (17) | |
| Net plant incident (costs) credits | (20) | | | 232 | | | (4) | |
| Restructuring, impairment and plant closing and transition costs | (33) | | | (628) | | | (52) | |
| Net (loss) income | $ | (170) | | | $ | (157) | | | $ | 144 | |
| Depreciation and Amortization: | | | | | |
| Titanium Dioxide | $ | 79 | | | $ | 93 | | | $ | 85 | |
| Performance Additives | 27 | | | 27 | | | 36 | |
| Corporate and other | 4 | | | 12 | | | 6 | |
| Total | $ | 110 | | | $ | 132 | | | $ | 127 | |
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Capital Expenditures: | | | | | |
| Titanium Dioxide | $ | 133 | | | $ | 301 | | | $ | 178 | |
| Performance Additives | 18 | | | 24 | | | 17 | |
| Corporate and other | 1 | | | 1 | | | 2 | |
| Total | $ | 152 | | | $ | 326 | | | $ | 197 | |
| Total Assets: | | | | | |
| Titanium Dioxide | $ | 1,670 | | | $ | 1,631 | | | | |
| Performance Additives | 540 | | | 592 | | | | |
| Corporate and other | 55 | | | 262 | | | | |
| Total | $ | 2,265 | | | $ | 2,485 | | | | |
(1)Adjusted EBITDA is defined as net (loss) income 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) U.S. income tax reform; (d) net income of discontinued operation, net of tax; (e) loss/gain on disposition of business/assets; (f) certain legal settlements and related expenses/gains; (g) amortization of pension and postretirement actuarial losses/gains; (h) net plant incident costs/credits; and (i) restructuring, impairment, and plant closing and transition costs/credits.
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, | | | | |
| By Geographic Area | | 2019 | | 2018 | | 2017 |
Revenues(1): | | | | | | |
| United States | | $ | 500 | | | $ | 518 | | | $ | 526 | |
| Germany | | 234 | | | 257 | | | 230 | |
| China | | 126 | | | 131 | | | 112 | |
| Italy | | 111 | | | 126 | | | 126 | |
| United Kingdom | | 110 | | | 116 | | | 114 | |
| Spain | | 92 | | | 96 | | | 86 | |
| France | | 78 | | | 89 | | | 94 | |
| India | | 62 | | | 65 | | | 63 | |
| | | | | | |
| Other nations | | 817 | | | 867 | | | 858 | |
| Total | | $ | 2,130 | | | $ | 2,265 | | | $ | 2,209 | |
| Long Lived Assets: | | | | | | |
| Germany | | $ | 279 | | | $ | 263 | | | | |
| United Kingdom | | 189 | | | 180 | | | | |
| Italy | | 163 | | | 164 | | | | |
| United States | | 104 | | | 111 | | | | |
| Finland | | 46 | | | 69 | | | | |
| Other nations | | 208 | | | 207 | | | | |
| Total | | $ | 989 | | | $ | 994 | | | | |
(1)Geographic information for revenues is based upon countries into which product is sold.
Note 27. Selected Unaudited Quarterly Financial Data
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| Revenue | $ | 562 | | | $ | 578 | | | $ | 526 | | | $ | 464 | |
| Cost of goods sold | 486 | | | 511 | | | 464 | | | 431 | |
| Restructuring, impairment and plant closing and transition costs | 12 | | | — | | | 12 | | | 9 | |
| | | | | | | |
| Net (loss) income | (2) | | | 22 | | | (17) | | | (173) | |
| Net (loss) income attributable to Venator | (3) | | | 21 | | | (19) | | | (174) | |
| Basic income (loss) per share: | | | | | | | |
| | | | | | | |
| Net (loss) income attributable to Venator Materials PLC ordinary shareholders | (0.03) | | | 0.20 | | | (0.18) | | | (1.63) | |
| Diluted income (loss) per share: | | | | | | | |
| | | | | | | |
| Net (loss) income per share attributable to Venator Materials PLC ordinary shareholders | (0.03) | | | 0.20 | | | (0.18) | | | (1.63) | |
| 2018 | | | | | | | |
| Revenue | 622 | | | 626 | | | 533 | | | 484 | |
| Cost of goods sold | 454 | | | 193 | | | 463 | | | 440 | |
| Restructuring, impairment and plant closing and transition costs | 9 | | | 136 | | | 428 | | | 55 | |
| Income (loss) from continuing operations | 80 | | | 198 | | | (366) | | | (69) | |
| Net income (loss) | 80 | | | 198 | | | (366) | | | (69) | |
| Net income (loss) attributable to Venator | 78 | | | 196 | | | (368) | | | (69) | |
| Basic (loss) income per share: | | | | | | | |
| | | | | | | |
| Net income (loss) per share attributable to Venator Materials PLC ordinary shareholders | 0.73 | | | 1.84 | | | (3.46) | | | (0.65) | |
| Diluted (loss) income per share: | | | | | | | |
| | | | | | | |
| Net income (loss) per share attributable to Venator Materials PLC ordinary shareholders | 0.73 | | | 1.84 | | | (3.46) | | | (0.65) | |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by rule 13-a 15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of December 31, 2019, our disclosure controls and procedures were effective, in that they ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the three months ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control framework and processes are designed to provide reasonable assurance to management and our Board of Directors regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company;
•provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our Company are being made only in accordance with authorizations of management and our Board of Directors;
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements; and
•provide reasonable assurance as to the detection of fraud.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changing conditions, effectiveness of internal control over financial reporting may vary over time.
Our management assessed the effectiveness of our internal control over financial reporting and concluded that, as of December 31, 2019, such internal control is effective. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) (“COSO”).
Our independent registered public accountants, Deloitte LLP, with direct access to our Board of Directors through our Audit Committee, have audited our consolidated and combined financial statements and have issued an attestation report on internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Venator Materials PLC.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Venator Materials PLC and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated March 12, 2020 expressed an unqualified opinion on those financial statements.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to adoption of FASB ASC Topic 842, Leases, using the modified retrospective approach.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte LLP
Leeds, United Kingdom
March 12, 2020
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to our Directors (including identification of our Audit Committee’s financial expert(s)) and executive officers will be disclosed in the definitive Proxy Statement for our Annual General Meeting of Shareholders and may be incorporated herein by reference. Alternatively, we may include such information in an amendment to this Annual report on Form 10-K. See also the information regarding executive officers of the registrant set forth in "Part I. Item 1. Business" under the caption "Executive Officers of the Registrant" in reliance on General Instruction G to Form 10-K.
Code of Ethics
Our Company has adopted a code of ethics, as defined by Item 406(b) of Regulation S-K under the Exchange Act, that applies to our principal executive officer, principal financial officer and principal accounting officer or controller. A copy of the code of ethics is posted on our website, at www.venatorcorp.com. We intend to disclose any amendments to, or waivers from, our code of ethics on our website.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation and our equity compensation plans will be disclosed in the definitive Proxy Statement for our Annual General Meeting of Shareholders and may be incorporated herein by reference. Alternatively, we may include such information in an amendment to this Annual report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to beneficial ownership of our ordinary shares by each Director and all Directors and officers of our Company as a group will be disclosed in the definitive Proxy Statement for our Annual General Meeting of Shareholders and may be incorporated herein by reference. Alternatively, we may include such information in an amendment to this Annual report on Form 10-K.
Information relating to any person who beneficially owns in excess of 5 percent of the total outstanding shares of our ordinary shares will be disclosed in the definitive Proxy Statement for our Annual General Meeting of Shareholders and may be incorporated herein by reference. Alternatively, we may include such information in an amendment to this Annual report on Form 10-K.
Information with respect to compensation plans under which equity securities are authorized for issuance will be disclosed in the definitive Proxy Statement for our Annual General Meeting of Shareholders and may be incorporated herein by reference. Alternatively, we may include such information in an amendment to this Annual report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to certain relationships and related transactions will be disclosed in the definitive Proxy Statement for our Annual General Meeting of Shareholders and may be incorporated herein by reference. Alternatively, we may include such information in an amendment to this Annual report on Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
InformationFEES BILLED BY DELOITTE LLP, DELOITTE & TOUCHE LLP AND AFFILIATES
The following table shows the aggregate fees billed by Deloitte LLP and DTTL member firms in 2019 and 2018 for the services indicated (dollars in thousands):
| | | | | | | | |
| 2018 | 2019 |
Audit Fees (1) | $2,875 | $2,912 |
Audit-Related Fees (2) | $620 | $906 |
Tax Fees (3) | $724 | $155 |
All Other Fees (4) | — | $239 |
| Total | $4,219 | $4,212 |
(1) Includes fees associated with respectannual integrated audits of Venator Materials PLC, reviews of Quarterly Reports on Form 10‑Q and statutory audits required internationally.
(2) Includes fees associated with services related to principal accountantnon-statutory audits and agreed upon procedures.
(3) Includes fees associated with tax compliance, tax advice and tax planning services including, but not limited to, international tax compliance and advice, federal and state tax advice, and assistance with the disclosurepreparation of foreign and domestic tax returns.
(4) Includes fees associated with vendor due diligence services.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has adopted by resolution policies and procedures regarding pre-approval of the performance by Deloitte LLP and its affiliates of certain audit and non-audit services. Deloitte LLP and its affiliates may not perform any service enumerated in Section 201(a) of the Sarbanes-Oxley Act of 2002, except as may otherwise be provided by law or regulation.
Deloitte LLP and its affiliates may not perform any service unless the approval of the Audit Committee’s pre-approval policiesCommittee is obtained prior to the performance of the services, except as may otherwise be provided by law or regulation. The Audit Committee has pre-approved the performance by Deloitte LLP and procedures are contained inits affiliates of certain audit and accounting services, certain tax services, and, if fees do not exceed $200,000 per individual project, certain other tax services and audit-related services. The Audit Committee has delegated to the definitive Proxy Statement for our Annual General Meetingcommittee chair the power to pre-approve services outside of Shareholders andthose described, provided that no services may be incorporated hereinapproved that are prohibited pursuant to Section 201(a) of the Sarbanes-Oxley Act of 2002 or that appear reasonably likely to compromise the independence of Deloitte LLP. Any pre-approval granted by reference. Alternatively, we may includethe chair is reviewed by the Audit Committee at its next regularly scheduled meeting. In addition, the Audit Committee receives a report annually detailing the prior year’s expenditures, consistent with the SEC’s accountant fee disclosure requirements.
In accordance with these procedures, the Audit Committee approved all audit and permissible non-audit services prior to such information in an amendment to this Annual report on Form 10-K.services being provided by Deloitte LLP and its affiliates.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Part IV of the Original Filing is hereby amended solely to add the following exhibits required to be filed in connection with this Amendment.
(a)Documents filed with this report.
(1) Consolidated and Combined Financial Statements
i. All financial statements of the Company as set forth under Item 8 of this annual report on Form 10-K
(1)Financial Statement Schedules
i. Schedule II – Valuation and Qualifying Accounts
(1)Exhibits – The exhibits to this report are listed on the Exhibit Index below.
EXHIBIT INDEX
Each exhibit identified below is filed as a part of this annual report. Exhibits designated with an "*" are filed as an exhibit to this annual report on Form 10‑K10-K and exhibits designated with an "**" are furnished as an exhibit to this annual report on Form 10-K. Exhibits designated with a "+" are identified as management contracts or compensatory plans or arrangements. Exhibits previously filed as indicated below are incorporated by reference.
| | | | | | | | |
Exhibit
No. | | Description |
3.131.1* | | |
4.1 | | |
4.2 | | |
4.3 | | |
4.4 | | |
4.5 | | |
4.6* | | |
10.1 | | |
10.2 | | |
10.3+ | | |
10.4 | | |
10.5 | | |
10.6+ | | |
| | | | | | | | |
10.7+ | | |
10.8+ | | |
10.9+ | | |
10.10+ | | |
10.11+ | | |
10.12+ | | |
10.13+ | | |
10.14+ | | |
10.15+ | | |
10.16+ | | |
10.17+ | | |
10.18+ | | |
10.19+ | | |
10.20 | | |
10.21+ | | |
10.22+ | | |
10.23+ | | |
10.24+ | | |
10.25+ | | |
10.26+ | | |
| | | | | | | | |
10.27 | | First Incremental Amendment to Revolving Credit Agreement, dated as of June 20, 2019, by and among Venator Materials PLC, the borrowers and guarantors party thereto, the incremental lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-38176) filed with the Commission on June 24, 2019). |
10.28+* | | |
21.1* | | |
23.1* | | |
23.2* | | |
31.1* | | |
| 31.2* | | |
32.1* | | |
32.2* | | |
101.INS* | | XBRL Instance Document |
101.SCH* | | XBRL Taxonomy Extension Schema Document |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | XBRL Taxonomy Definition Linkbase Document |
101.LAB* | | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
104* | | The cover page to this Annual Report on Form 10-K, formatted in XBRL |
VENATOR MATERIALS PLC AND SUBSIDIARIES
Schedule II—Valuation and Qualifying Accounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Additions | | | | | | |
| Description | | Balance at
beginning
of period | | Charges
to cost
and expenses | | Charged
to other
accounts | | Deductions | | Balance at
end of period |
| Allowance for doubtful accounts: | | | | | | | | | | |
| Year ended December 31, 2019 | | $ | 5 | | | $ | — | | | $ | — | | | $ | (1) | | | $ | 4 | |
| Year ended December 31, 2018 | | 5 | | | 1 | | | — | | | (1) | | | 5 | |
| Year ended December 31, 2017 | | 4 | | | 1 | | | — | | | — | | | 5 | |
******
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
Dated: March 12,April 29, 2020 | | |
| | |
| VENATOR MATERIALS PLC | |
| | |
| By: | /s/ KURT D. OGDEN |
| | Kurt D. Ogden |
| | Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Venator Materials PLC in the capacities indicated on the dates indicated.
| | | | | | | | | | | | | | |
| /s/ Simon Turner | | President and Chief Executive Officer, and Director (Principal Executive Officer) | | March 12,April 29, 2020 |
| Simon Turner | | | | |
| | | | |
| /s/ Kurt D. Ogden | | Executive Vice President and Chief Financial Officer (Principal Financial Officer), and Venator’s Authorized Representative in the United States | | March 12,April 29, 2020 |
| Kurt D. Ogden | | | | |
| | | | |
| /s/ Stephen Ibbotson | | Vice President and Corporate Controller (Principal Accounting Officer) | | March 12,April 29, 2020 |
| Stephen Ibbotson | | | | |
| | | | |
| /s/ Peter R. Huntsman | | Director | | March 12,April 29, 2020 |
| Peter R. Huntsman | | | | |
| | | | |
| /s/ Sir Robert J. Margetts | | Director | | March 12,April 29, 2020 |
| Sir Robert J. Margetts | | | | |
| | | | |
| /s/ Douglas D. Anderson | | Director | | March 12,April 29, 2020 |
| Douglas D. Anderson | | | | |
| | | | |
| /s/ Daniele Ferrari | | Director | | March 12,April 29, 2020 |
| Daniele Ferrari | | | | |
| | | | |
| /s/ Kathy D. Patrick | | Director | | March 12,April 29, 2020 |
| Kathy D. Patrick | | | | |
