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," as well as the audited consolidated financial statements and the related notes thereto. The following MD&A gives effect to the recast as described in "Part II. Item 8. Financial Statements" of this report. COVID-19 The COVID-19 pandemic has created significant disruptions to the global economy and has had an adverse effect on our business and the markets in which we operate. As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders and business shutdowns. As a result of restrictions and other impacts of the COVID-19 pandemic, demand for many of our products has declined as sales volumes have decreased 8% in 2020 compared to the prior year period. We have manufacturing and other operations that are important to our company in areas significantly affected by the outbreak and have implemented measures to respond to the impacts of the pandemic, particularly inEurope , which is our largest market and in which we have important manufacturing facilities. We are actively managing our business through the pandemic and have enacted rigorous safety measures across our organization in response to the pandemic, including stopping non-essential business travel, increasing personal protective equipment requirements at our manufacturing sites, removing non-essential contractors from our sites, increasing cleaning and sanitizing measures, implementing social distancing protocols, requiring work-from-home arrangements as appropriate and reducing the amount of employees working at a site at any given time. We continue to evaluate the appropriate measures to have in place to safeguard our employees and our business and we may take further actions as government authorities require or recommend, or as we determine to be in the best interest of our employees, customers, partners and suppliers. We have not experienced significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic. However, at times during the pandemic, certain of our suppliers have faced difficulties maintaining operations due to government-ordered restrictions and shelter-in-place mandates. While we have been able to identify alternative sourcing arrangements without disrupting our supply chain, financial hardship on our suppliers caused by the COVID-19 pandemic could cause disruptions in our raw material supply. We are proactively managing our supplier network by maintaining close contact and seeking alternative arrangements in case our primary suppliers are impacted by the COVID-19 pandemic. We are actively managing the business to improve cash flow and ensure adequate liquidity, which we believe will help us emerge from this environment a stronger and more resilient company. Such measures include our COVID-19 response program, our 2020 Business Improvement Program, managing our production network to align with customer demand, managing our inventories and reducing planned capital expenditures. In addition, various governments in the countries and localities in which we operate have established economic relief and stimulus programs to support their economies during the COVID-19 pandemic. We are participating in certain smaller-value programs and we continue to assess the potential for the impact that other programs may have on our liquidity as they become available. We may also seek to take advantage of opportunities to raise or refinance capital through debt financing, and may, from time to time, discuss such opportunities with potential lenders or investors. We cannot currently predict the duration and severity of impacts to our business from the global economic slowdown caused by the COVID-19 pandemic. Because of this, we cannot reasonably estimate with any degree of certainty the future adverse impact the COVID-19 pandemic may have on our results of operations, financial position, or liquidity. See "Part I. Item 1A. Risk Factors" for further details of the risks that the COVID-19 pandemic may present to our business. 46 --------------------------------------------------------------------------------
Table of Contents Recent Developments German Restructuring In the fourth quarter of 2020, our Board of Directors approved a plan to implement a restructuring program at our manufacturing facilities in Duisburg,Germany as part of our 2020 Business Improvement Program. As a result of this program, we recognized restructuring expense of approximately$30 million in the fourth quarter of 2020 of which$10 million was related to cash costs primarily consisting of employee benefits, and approximately$20 million of non-cash costs which are primarily related to accelerated depreciation. We expect to incur additional future costs through 2022 of approximately$23 million which we expect to be cash costs consisting of$19 million of employee benefit costs and$4 million of plant shutdown costs. SK Capital Share Acquisition OnDecember 23, 2020 , funds advised bySK Capital Partners, L.P. ("SK Capital ") purchased approximately 42.4 million shares, representing just under 40% of Venator's outstanding shares, from Huntsman, including a 30-month option for the purchase of the remaining approximately 9.7 million Venator shares Huntsman holds.
Recent Trends and Outlook
The COVID-19 pandemic introduced a period of decline in demand for our products across our business beginning in the second quarter of 2020. We began to see signs of economic recovery from the COVID-19 pandemic during the third and fourth quarters across our business. We anticipate continued recovery throughout 2021 as COVID-19 vaccinations progress globally and governments begin to roll back restrictions and protective measures that influence the markets in which we operate. The speed of recovery will depend, however, on industry-specific factors as further outlined below. We expect the following in our Titanium Dioxide segment: (i) a two-speed recovery in volumes as our specialty products experience a longer recovery than demand for our functional products as our specialty business continues to be more sensitive to the impacts of COVID-19; (ii) TiO2 pricing to reflect regional supply and demand balances, increased competition in certain regions for certain of our products and our customer-tailored approach; (iii) rising cost of ore feedstocks and energy; and (iv) benefit from our 2020 Business Improvement Program which includes our program to restructure our German manufacturing facilities. We expect the following in our Performance Additives segment: (i) Sequential increase in volumes across the segment due to normal seasonal demand trends and continued recovery from COVID-19; (ii) Product portfolio optimization actions; and (iii) benefit from our 2020 Business Improvement Program which includes our program to restructure our German manufacturing facilities. During 2020, in response to the adverse impact of the COVID-19 pandemic, we implemented our COVID-19 response program to reduce our costs, including non-recurring personnel cost reductions and operational cost savings at our manufacturing facilities. Personnel cost management actions included a temporary reduction in salaries, changes and reductions to bonus schemes and employee furloughs, as well as reduced spending on other discretionary items. We realized approximately$27 million of non-recurring savings from our COVID-19 response program in 2020 which will be replaced by savings from our 2020 Business Improvement Program.
In the fourth quarter of 2018, we commenced our
During the third quarter of 2020, we announced our 2020 Business Improvement Program that will save approximately$55 million compared to 2019. This program is in addition to our 2019 Business Improvement Program and replaces our non-recurring COVID-19 cost savings initiatives delivered in 2020. We expect that this program will be fully implemented by the end of 2022. We realized approximately$16 million of savings during 2020.
In 2021, we expect total capital expenditures to be approximately
We expect our corporate and other costs will be approximately
47
--------------------------------------------------------------------------------
Table of Contents Results of Operations The following table sets forth our consolidated results of operations for the years endedDecember 31, 2020 , 2019 and 2018. For a discussion of the 2018 results of operations, see "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations" in the 2018 Form 10-K. Percent Change Year Ended December 31, Year Ended 2019 vs. (Dollars in millions) 2020 2019 2018 2020 vs. 2019 2018 Revenues$ 1,938 $ 2,130 $ 2,265 (9) % (6) % Cost of goods sold 1,778 1,892 1,550 (6) % 22 % Operating expenses(4) 170 192 218 (11) % (12) %
Restructuring, impairment and plant closing and transition costs
58 33 628 76 % (95) % Operating (loss) income (68) 13 (131) NM NM Interest expense, net (52) (41) (40) 27 % 3 % Other income 27 8 6 238 % 33 % Loss before income taxes (93) (20) (165) 365 % (88) % Income tax (expense) benefit (12) (150) 8 (92) % NM Net loss (105) (170) (157) (38) % 8 % Reconciliation of net loss to adjusted EBITDA: Interest expense, net 52 41 40 27 % 3 % Income tax expense (benefit) 12 150 (8) (92) % NM Depreciation and amortization 114 110 132 4 % (17) % Net income attributable to noncontrolling interests (7) (5) (6) 40 % (17) % Other adjustments: Business acquisition and integration expense (credits) 1 (1) 20 Separation (gain) expense, net (10) (3) 2 (Gain) loss on disposition of businesses/assets (5) 1 2 Certain legal expenses/settlements 6 4 -
Amortization of pension and postretirement actuarial losses 13
14 15 Net plant incident costs (credits) 7 20 (232) Restructuring, impairment and plant closing and transition costs 58 33 628 Adjusted EBITDA(1)$ 136 $ 194 $ 436 (30) % (56) % Net cash provided by operating activities 34 33 282 3 % (88) % Net cash used in investing activities (64) (150) (321) (57) % (53) % Net cash provided by (used in) financing activities 192 7 (18) 2,643 % NM Capital expenditures (69) (152) (326) (55) % (53) % 48
--------------------------------------------------------------------------------
Table of Contents Year Ended Year Ended Year Ended December 31, December 31, December 31, (Dollars in millions) 2020 2019 2018
Reconciliation of net loss to adjusted net (loss)
attributable to
$ (105) $ (170) $ (157) Net income attributable to noncontrolling interests (7) (5) (6) Other adjustments: Business acquisition and integration expense (credits) 1 (1) 20 Separation (gain) expense, net (10) (3) 2 (Gain) loss on disposition of businesses/assets (5) 1 2 Certain legal expenses/settlements 6 4 - Amortization of pension and postretirement actuarial losses 13 14 15 Net plant incident costs (credits), net 7 20 (232)
Restructuring, impairment and plant closing and transition costs
58 33 628 Income tax adjustments(3) 20 133 (37)
Adjusted net (loss) income attributable to
$ (22) $ 26 $ 235 Weighted-average shares-basic 106.7 106.5 106.4 Weighted-average shares-diluted 106.7 106.5 106.7 Net loss attributable toVenator Materials PLC ordinary shareholders per share: Basic$ (1.05) $ (1.64) $ (1.53) Diluted$ (1.05) $ (1.64) $ (1.53) Other non-GAAP measures: Adjusted net (loss) income per share:(2) Basic$ (0.21) $ 0.24 $ 2.21 Diluted$ (0.21) $ 0.24 $ 2.20 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 expense/credits; (b) separation gain/expense; (c) loss/gain on disposition of businesses/assets; (d) certain legal expenses/settlements; (e) amortization of pension and postretirement actuarial losses/gains; (f) net plant incident costs/credits; and (g) restructuring, impairment, and plant closing and transition costs/credits. We believe that net income is the performance measure calculated and presented in accordance with generally accepted accounting principles inthe United States ("U.S. GAAP" or "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 isolation or viewed as a substitute for net income or other measures of performance determined in accordance withU.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 49 -------------------------------------------------------------------------------- Table of Contents 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 supplementU.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business rather thanU.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 variability of such items may not relate specifically to ongoing operating results or trends and certain excluded items, while potentially recurring in future periods, may not be indicative of future results. (2)Adjusted net income/loss attributable toVenator Materials PLC ordinary shareholders is computed by eliminating the after-tax amounts related to the following from net income/loss attributable toVenator Materials PLC ordinary shareholders: (a) business acquisition and integration expenses/credits; (b) separation gain/expense; (c) loss/gain on disposition of businesses/assets; (d) certain legal expenses/settlements; (e) amortization of pension and postretirement actuarial losses/gains; (f) net plant incident costs/credits; and (g) restructuring, impairment, and plant closing and transition costs/credits. 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/loss and adjusted net income/loss per share amounts are presented solely as supplemental information. These measures exclude similar noncash items 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/loss and the related per share amounts, should not be considered in isolation and should be considered only to supplement analysis ofU.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 endedJune 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 our revised 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 EndedDecember 31, 2020 Compared to the Year EndedDecember 31, 2019 For the year endedDecember 31, 2020 , net loss was$105 million on revenues of$1,938 million , compared with a net loss of$170 million on revenues of$2,130 million for the same period in 2019. The decrease of$65 million in net loss was the result of the following items: 50 -------------------------------------------------------------------------------- Table of Contents •Revenues for the year endedDecember 31, 2020 decreased by$192 million , or 9%, as compared with the same period in 2019. The decrease was due to a$183 million , or 11%, decrease in revenue in our Titanium Dioxide segment and a$9 million , or 2%, decrease in revenue in our Performance Additives segment. See "-Segment Analysis" below. •Our operating expenses for the year endedDecember 31, 2020 decreased by$22 million , or 11%, as compared to the same period in 2019, primarily due to$21 million of savings from selling, general administrative expense due to cost savings from our COVID-19 response program and a$6 million gain from the sale of our property in Umbogintwini,South Africa during the third quarter of 2020, partially offset by approximately$7 million of legal expenses related to certain litigation. •Restructuring, impairment and plant closing and transition costs for the year endedDecember 31, 2020 increased to$58 million from$33 million for the same period in 2019. 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 endedDecember 31, 2020 increased by$19 million primarily as a result of the change in the related party payable to Huntsman pursuant to the tax matters agreement entered into as part of our separation and a reduction in pension expenses as compared to 2019. For further information concerning the payable to Huntsman under the tax matters agreement, see "Part II. Item 8. Financial Statements and Supplementary Data-Note 19. Income Taxes" of this report. •Income tax expense for the year endedDecember 31, 2020 was$12 million compared to$150 million for the same period in 2019. 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 certain net deferred tax assets of$162 million . For further information concerning taxes, see "Part II. Item 8. Financial Statements and Supplementary Data-Note 19. Income Taxes" of this report. Segment Analysis Percent Year Ended Change December 31, Favorable (in millions) 2020 2019 (Unfavorable) Revenues Titanium Dioxide$ 1,431 $ 1,614 (11) % Performance Additives 507 516 (2) % Total$ 1,938 $ 2,130 (9) % Adjusted EBITDA Titanium Dioxide$ 127 $ 197 (36) % Performance Additives 55 47 17 % 182 244 (25) % Corporate and other (46) (50) 8 % Total$ 136 $ 194 (30) % Year Ended December 31, 2020 vs. 2019 Average Selling Price(1) Foreign Currency Local Translation Mix & Sales Currency Impact Other Volumes(2) Period-Over-Period Increase (Decrease) Titanium Dioxide (2) % - % - % (9) % Performance Additives 3 % - % - % (5) %
(1)Excludes revenues from tolling arrangements, by-products and raw materials. (2)Excludes sales volumes of by-products and raw materials. Titanium Dioxide
51 -------------------------------------------------------------------------------- Table of Contents The Titanium Dioxide segment generated revenues of$1,431 million in the twelve months endedDecember 31, 2020 , a decrease of$183 million , or 11%, compared to the same period in 2019. The decrease was primarily due to a 9% decrease in sales volumes, and a 2% decline in the average TiO2 selling price. The decline in the average TiO2 volumes was primarily a result of the impact of the COVID-19 pandemic on demand beginning in the second quarter of 2020 and as a result of the impact of hurricanes in theGulf of Mexico during the third and fourth quarters of 2020. Adjusted EBITDA for the Titanium Dioxide segment was$127 million , a decline of$70 million , or 36%, in the twelve months endedDecember 31, 2020 compared to the same period in 2019. This decrease is primarily a result of lower revenue, lower plant utilization resulting in higher production costs of approximately$14 million compared to 2019, higher ore costs, a noncash benefit due to recognition of changes in pension obligation and the impact of a benefit in 2019 due to a change in plant utilization rates. These unfavorable impacts on our adjusted EBITDA were partially offset by benefits from our Business Improvement Programs of approximately$20 million , approximately$19 million of savings from our COVID-19 response program and the impact of lower energy prices in 2020 compared to the prior year period. Performance Additives The Performance Additives segment generated revenues of$507 million in the twelve months endedDecember 31, 2020 , a decline of$9 million , or 2% compared to the same period in 2019. This decrease was a result of a 5% decline in volumes partially offset by a 3% improvement in average selling price. The decline in sales volumes was primarily a result of lower demand for color pigments and functional additives products due to the impact of COVID-19 on demand for construction, coatings and automotive end-use applications, partially offset by fourth quarter recoveries in color pigments and functional additives. Volumes in our timber treatment business improved compared to 2019. The average selling price increased primarily as a result of favorable mix within our color pigments and timber treatment businesses. Adjusted EBITDA in the Performance Additives segment was$55 million , an increase of$8 million , or 17%, for the twelve months endedDecember 31, 2020 compared to the same period in 2019. The increase in adjusted EBITDA is primarily related to a$10 million benefit from our Business Improvement Programs, a$2 million benefit from our COVID-19 response program, and improved EBITDA in our timber treatment business resulting from volume growth, partially offset by decrease in revenue year over year as a result of the impact of COVID-19 and lower plant utilization resulting in higher production costs in our functional additives business of approximately$4 million compared to the prior year. Corporate and other Corporate and other represents expenses which are not allocated to our segments. Losses from Corporate and other were$46 million , or$4 million lower for the twelve months endedDecember 31, 2020 than the same period in 2019 due to savings from our Business Improvement Programs and savings from our COVID-19 response program, partially offset by other increases in corporate selling, general and administrative costs compared to 2019. Year EndedDecember 31, 2019 Compared to the Year EndedDecember 31, 2018 For the year endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 52 -------------------------------------------------------------------------------- Table of Contents 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 certain net deferred tax assets of$162 million . For further information concerning taxes, see "Part II. Item 8. Financial Statements and Supplementary Data-Note 19. Income Taxes" of this report. Segment Analysis Percent Year Ended Change December 31, Favorable (in millions) 2019 2018 (Unfavorable) Revenues Titanium Dioxide$ 1,614 $ 1,666 (3) % Performance Additives 516 599 (14) % Total$ 2,130 $ 2,265 (6) % Segment 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
Average Selling Price(1) Foreign Currency Local Translation Mix & Sales Currency Impact Other Volumes(2) Period-Over-Period Increase (Decrease) Titanium Dioxide (7) % (3) % - % 7 % Performance Additives - % (2) % - % (12) %
(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 endedDecember 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 inEurope andAsia and more stable prices inNorth 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 endedDecember 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 endedDecember 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
53 -------------------------------------------------------------------------------- Table of Contents The Performance Additives segment generated revenues of$516 million in the twelve months endedDecember 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 endedDecember 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 endedDecember 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. Liquidity and Capital Resources We had cash and cash equivalents of$220 million and$55 million as ofDecember 31, 2020 and 2019, 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 cash on hand. Our financing arrangements include borrowings of$375 million under the Term Loan Facility,$225 million of Senior Secured Notes, and$375 million of Senior Unsecured Notes, issued by our subsidiaries Venator Finance S.à r.l. andVenator Materials LLC (the "Issuers"). 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 of which$17 million has been presented as Noncurrent payable to affiliate and$3 million is included within accounts payable to affiliates on our consolidated balance sheets. In addition to the Term Loan Facility, Senior Secured Notes and Senior Unsecured Notes, 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 theU.S. ,Canada , theU.K. andGermany and accounts receivable inFrance andSpain . 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 ofDecember 31, 2020 is approximately$281 million , of which$251 million is available to be drawn, as a result of$30 million of letters of credit issued and outstanding atDecember 31, 2020 . 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, as reflected in our consolidated statements of cash flows increased by$25 million for the year endedDecember 31, 2020 as compared to the same period in the prior year. We expect our working capital to be a use of liquidity in 2021. •In 2021, we expect total capital expenditures to be approximately$75 million to$85 million . This includes maintenance capital expenditures and the cost of implementing business improvement projects •During the year endedDecember 31, 2020 , we made contributions to our pension and postretirement benefit plans of$38 million . During the first quarter of 2021, we expect to contribute an additional amount of approximately$10 million to these plans.
•We are involved in a number of cost reduction programs for which we have established restructuring accruals including the program at our Duisburg Germany manufacturing facility which was approved in the fourth quarter of
54 -------------------------------------------------------------------------------- Table of Contents 2020. As ofDecember 31, 2020 , we had a total of$19 million of accrued restructuring costs of which$10 million is classified as current. We expect to pay approximately$34 million for restructuring and plant closing costs during 2021. 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. •During 2020, in response to the adverse impact of the COVID-19 pandemic, we implemented our COVID-19 response program to reduce our costs, including non-recurring personnel cost reductions and operational cost savings at our manufacturing facilities. Personnel cost management actions included a temporary reduction in salaries, changes and reductions to bonus schemes and employee furloughs, as well as reduced spending on other discretionary items. We realized approximately$27 million of non-recurring savings from our COVID-19 response program in 2020 which will be replaced by savings from our 2020 Business Improvement Program. •During the third quarter of 2020, we announced our 2020 Business Improvement Program that will save approximately$55 million compared to 2019. This program is in addition to our 2019 Business Improvement Program and replaces our non-recurring COVID-19 cost savings initiatives delivered in 2020. We expect that this program will be fully implemented by the end of 2022. We achieved$16 million of savings attributable to the 2020 Business Improvement Program and$14 million from the 2019 Business Improvement Program for the year endedDecember 31, 2020 . •OnJanuary 30, 2017 , our TiO2 manufacturing facility in Pori,Finland , experienced fire damage. We are in the process of closing our Pori,Finland , TiO2 manufacturing facility and transferring our specialty and differentiated business to other sites in our manufacturing network. We intend to operate the Pori facility at reduced production rates through the transition period, subject to economic and other factors. We do not expect any material capital expenditures relating to the transfer during 2021. We intend to optimize the remaining transfer of our specialty and differentiated business from our Pori,Finland manufacturing site to other sites in our manufacturing network, but the timing of this transfer will be elongated, due in part to the COVID-19 pandemic, and may result in a lower total expected capital outlay and a lower associated adjusted EBITDA benefit than originally estimated. •We have$946 million in debt outstanding under our$359 million Term Loan Facility,$215 million of 9.5% Senior Secured Notes due 2025 and$372 million of 5.75% of Senior Unsecured Notes due 2025. ThroughDecember 31, 2020 , we are in compliance with all applicable financial covenants included in the terms of our Senior Credit Facility, Senior Secured Notes and Senior Unsecured Notes. InJuly 2017 , theU.K.'s Financial Conduct Authority , which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. We are currently evaluating the potential effect of the eventual replacement of LIBOR on our financial statements. Accounting guidance has been recently issued to ease the transition to alternative reference rates from a financial reporting perspective. See "Note 2. Recently Issued Accounting Pronouncements" of the notes to consolidated financial statements. See further discussion under "Financing Arrangements."
As of
As ofDecember 31, 2020 and 2019, we had$15 million and$16 million , respectively, of cash and cash equivalents held outside of theU.S. andEurope , including our variable interest entities. As ofDecember 31, 2020 , our non-U.K. subsidiaries have no plan to distribute funds in a manner that would cause them to be subject toU.K. ,U.S. , or other local country taxation. For the year endedDecember 31, 2020 , our non-U.K. subsidiaries made no distribution of earnings that caused them to be subject to materialU.K. ,U.S. , or other local country taxation. In the first quarter of 2019, a non-U.K. subsidiary distributed$12 million to aU.K. subsidiary subject to a 5% withholding tax. Cash Flows for the Year EndedDecember 31, 2020 Compared to the Year EndedDecember 31, 2019 Net cash provided by operating activities was$34 million for the twelve months endedDecember 31, 2020 , compared to net cash provided by operating activities of$33 million for the twelve months endedDecember 31, 2019 . The increase in net cash provided by operating activities for the twelve months endedDecember 31, 2020 compared with the same period of 2019 was primarily attributable to an increase in cash flows due to changes in assets and liabilities of approximately$53 million , partially offset by a$52 million decrease in cash inflows from net income. The decrease in cash flows from net income is as a result of a$65 million decrease in net loss, as described in "-Results of Operations" above, partially offset by changes in non-cash elements of net income comprised primarily of a$141 million decrease in deferred income taxes, primarily as the result of the recognition of a full valuation allowance against the net deferred tax assets held at our German businesses during 2019 reduced by the impact of a$27 million increase in noncash restructuring and impairment charges. 55 -------------------------------------------------------------------------------- Table of Contents Net cash used in investing activities was$64 million for the twelve months endedDecember 31, 2020 , compared to net cash used in investing activities of$150 million for the twelve months endedDecember 31, 2019 . The decrease in net cash used in investing activities was primarily attributable to a$83 million decrease in capital expenditures as we took measures to preserve cash in response to the impact of the COVID-19 pandemic. Net cash provided by financing activities was$192 million for the twelve months endedDecember 31, 2020 , compared to net cash provided by financing activities of$7 million for the twelve months endedDecember 31, 2019 . The increase in net cash provided by financing activities for the twelve months endedDecember 31, 2020 compared with the same period of 2019 was primarily attributable to$221 million proceeds from the issuance of long-term debt during the second quarter of 2020 partially offset by the impacts of$15 million in proceeds from the termination of cross-currency swap contracts in 2019 and$14 million unfavorable variance in net borrowings/repayments on notes payable. Cash Flows for the Year EndedDecember 31, 2019 Compared to the Year EndedDecember 31, 2018 Net cash provided by operating activities was$33 million for the twelve months endedDecember 31, 2019 , compared to net cash provided by operating activities of$282 million for the twelve months endedDecember 31, 2018 . The decrease in net cash provided by operating activities for the twelve months endedDecember 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 endedDecember 31, 2019 , compared to net cash used in investing activities of$321 million for the twelve months endedDecember 31, 2018 . The decrease in net cash used in investing activities for the twelve months endedDecember 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 endedDecember 31, 2019 , compared to net cash used in financing activities of$18 million for the twelve months endedDecember 31, 2018 . The increase in net cash provided by financing activities for the twelve months endedDecember 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$13 million favorable variance in net borrowings/repayments on notes payable.
Changes in Financial Condition
The following information summarizes our working capital as ofDecember 31, 2020 and 2019: December 31, December 31, Increase (Dollars in millions) 2020 2019 (Decrease) Percent Change Cash and cash equivalents$ 220 $ 55$ 165 300 % Accounts and notes receivable, net 324 321 3 1 % Inventories 440 513 (73) (14) % Prepaid expenses 24 21 3 14 % Other current assets 49 67 (18) (27) % Total current assets 1,057 977 80 8 % Accounts payable 240 334 (94) (28) % Accounts payable to affiliates 22 17 5 29 % Accrued liabilities 118 116 2 2 % Current operating lease liability 8 8 - - % Current portion of debt 7 13 (6) (46) % Total current liabilities 395 488 (93) (19) % Working capital$ 662 $ 489 $ 173 35 % 56
--------------------------------------------------------------------------------
Table of Contents
Our working capital increased by$173 million as a result of the net impact of the following significant changes: •Cash and cash equivalents increased by$165 million primarily due to cash inflows of$192 million from financing activities and, inflows of$34 million from operating activities and partially offset by outflows of$64 million from investing activities. •Inventories decreased by$73 million primarily due to lower levels of raw materials and finished goods atDecember 31, 2020 as compared to the prior year as a result of efforts to manage our inventory levels to respond to reductions in customer demand during the COVID-19 pandemic. •Accounts payable decreased by$94 million as a result of a reduction in capital accruals and reductions in inventory during 2020. The following information summarizes our working capital as ofDecember 31, 2019 and 2018: December 31, December 31, Increase (Dollars in millions) 2019 2018 (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 from continuing operations 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 from continuing operations 488 543 (55) (10) % Working capital$ 489 $ 582 $ (93) (16) %
Our working capital decreased by
•Cash and cash equivalents decreased by$110 million primarily due to cash outflows of$150 million from investing activities, partially offset by cash 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 atDecember 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.
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 17. Derivative Instruments and Hedging Activities" of this report.
Contractual Obligations and Commercial Commitments
57 -------------------------------------------------------------------------------- Table of Contents Our obligations under long-term debt (including the current portion), lease agreements and other contractual commitments as ofDecember 31, 2020 are summarized below: (Dollars in millions) 2021 2022-2023 2024-2025 After 2025 Total
Long-term debt, including current portion(1)
$ 951 $ -$ 965 Interest(2) 56 104 91 - 251 Finance leases 2 3 2 5 12 Operating leases 11 14 9 37 71 Purchase commitments(3) 124 145 36 13 318 Total(4)(5)$ 199 $ 274 $ 1,089 $ 55 $ 1,617 (1)For more information, see "-Financing Arrangements." (2)Interest calculated using actual and forecasted interest rates as ofDecember 31, 2020 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 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 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 endedDecember 31, 2020 , 2019 and 2018, we made minimum payments of nil,$1 million and nil, respectively, under such take or pay contracts without taking the product. (4)Totals do not include commitments pertaining to our pension and other postretirement obligations. Our estimated future contributions to our pension and postretirement plans are as follows: Annual Average (Dollars in millions) 2021 2022-2023
2024-2025 of Next 5 Years
Pension plans$ 56 $ 90 $ 92 $ 48 Other postretirement obligations - - - - (5)The above table does not reflect expected tax payments and unrecognized tax benefits due 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 19. 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 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.
Legal Proceedings For a discussion of legal proceedings, see "Part II. Item 8. Financial Statements and Supplementary Data-Note 22. Commitments and Contingencies-Legal Matters" of this report. 58 -------------------------------------------------------------------------------- Table of Contents 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 23. 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 withU.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in our consolidated 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 theU.S. , theU.K. ,Germany andFinland , 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 theU.S. andCanada . Amounts recorded in our consolidated 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 ourU.S. and non-U.S. plans, the discount rates were 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, 2020 December 31, 2019 December 31, 2018 Defined benefit plans Projected benefit obligation 1.09 % 1.60 % 2.38 % Net periodic pension cost 1.60 % 2.38 % 2.21 % Other postretirement benefit plans Projected benefit obligation 2.46 % 3.27 % 3.50 % Net periodic pension cost 3.27 % 3.51 % 3.30 % 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 onU.S. plan assets was 7.75% in 2020 and 2019, each, and the expected rate of return on non-U.S. plans was 4.99% and 5.18% for 2020 and 2019, respectively.
The expected increase in the compensation levels assumption reflects our long-term actual experience and future expectations.
59 -------------------------------------------------------------------------------- Table of Contents 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): Statement of Balance Sheet Assumptions Operations(1) Impact(2) Discount rate 1% increase $ (8) $ (177) 1% decrease 20 220 Expected long-term rates of return on plan assets 1% increase (9) - 1% decrease 9 - Rate of compensation increase 1% increase 2 9 1% decrease (1) (7)
(1)Estimated (decrease) increase on 2020 net periodic benefit cost
(2)Estimated (decrease) increase on
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 ofDecember 31, 2020 , we had total valuation allowances of$708 million . See "Part II. Item 8. Financial Statements and Supplementary Data-Note 19. Income Taxes" of this report for more information regarding our valuation allowances. As ofDecember 31, 2020 , our non-U.K. subsidiaries have no plan to distribute earnings in a manner that would cause them to be subject toU.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 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. 60 -------------------------------------------------------------------------------- Table of Contents Management uses judgment to estimate the useful lives of our long-lived assets. AtDecember 31, 2020 , 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 2020 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 liabilities 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 available 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 ofDecember 31, 2020 and 2019, we had recognized a liability of$8 million and$9 million , respectively, related to these environmental matters. For further information, see "Part II. Item 8. Financial Statements and Supplementary Data-Note 23. 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 22. 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 endedDecember 31, 2020 , 2019 and 2018, the percentage of revenues from our consolidated variable interest entities in relation to total revenues that will ultimately be attributable to Venator is 5.4%, 4.4% and 5.2%, respectively. For further information, see "Part II. Item 8. Financial Statements and Supplementary Data-Note 9. Variable Interest Entities" of this report. 61
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source