NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Note 1. General, Description of Business, Recent Developments and Basis of Presentation
General
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.
Description of Business
Venator operates in
two
segments: Titanium Dioxide and Performance Additives. The Titanium Dioxide segment manufactures and sells primarily TiO
2
, and operates
eight
TiO
2
manufacturing facilities across the globe, predominantly in Europe. The Performance Additives segment manufactures and sells functional additives, color pigments, timber treatment and water treatment chemicals. This segment operates
18
color pigments, functional additives, water treatment and timber treatment manufacturing and processing facilities in Europe, North America, Asia and Australia.
In conjunction with our IPO completed on August 8, 2017, we entered into a separation agreement to effect the separation of the Titanium Dioxide and Performance Additives businesses from Huntsman. This arrangement is referred to herein as the "separation."
Recent Developments
Pori Fire
On January 30, 2017, our TiO
2
manufacturing facility in Pori, Finland experienced fire damage and we continue to repair the facility. The loss was covered by insurance for property damage as well as business interruption losses subject to retained deductibles of
$15 million
and
60 days
, respectively, with an aggregate limit of
$500 million
.
On April 13, we received a final payment from our insurers of
€191 million
, or
$236 million
, bringing our total insurance receipts to
€468 million
, or
$551 million
, which was the limit of our insurance proceeds. We elected to receive the insurance proceeds in Euro in order to match the currency of the related business interruption losses and capital expenditures resulting from the Pori fire. During the first quarter of 2018, we received
€52 million
, or
$62 million
, of insurance proceeds, while
€225 million
, or
$253 million
, was received during 2017.
The fire at our Pori facility did not have a material impact on our 2018 first quarter or our 2017 year to date operating results, as losses incurred were offset by insurance proceeds. Prior to adjustment for insurance proceeds, we recorded a loss of
$31 million
for the write-off of fixed assets and lost inventory in cost of goods sold in our consolidated and combined statements of operations for the year ended December 31, 2017. In addition, we recorded a loss of
$27 million
for cleanup and other non-capital reconstruction costs in cost of goods sold through March 31, 2018, of which
$24 million
was recorded during 2017.
During the first quarter of 2018, we recorded
$46 million
of income related to property damage and business interruption insurance recoveries in cost of goods sold in our consolidated and combined statements of operations to offset property damage and business interruption losses recorded during the period, while
$189 million
was recognized during the year ended December 31, 2017. We recorded
$88 million
and
$68 million
as deferred income in accrued liabilities as of March 31, 2018 and December 31, 2017, respectively, for insurance proceeds received for costs not yet incurred.
Basis of Presentation
Venator’s unaudited condensed consolidated and combined financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP” or “U.S. GAAP”). Prior to the separation, Venator’s operations 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 which are comprised of other businesses and include the Titanium Dioxide and Performance Additives businesses; and (3) variable interest entities in which the Titanium Dioxide and Performance Additives and other businesses are the primary beneficiaries. The unaudited condensed consolidated and combined financial statements include all revenues, costs, assets, liabilities and cash flows directly attributable to Venator, as well as allocations of direct and indirect corporate expenses, which are based upon an allocation method that in the opinion of management is reasonable. Such corporate cost allocation transactions between Venator and Huntsman have been considered to be effectively settled for cash in the unaudited condensed consolidated and combined financial statements at the time the transaction is recorded and the net effect of the settlement of these intercompany transactions is reflected in the unaudited condensed consolidated and combined statements of cash flows as a financing activity. Because the historical unaudited condensed consolidated and combined financial information for the periods indicated reflect the combination of these legal entities under common control, the historical unaudited condensed 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. We report the results of those other businesses as discontinued operations. Please see “
Note 15. Discontinued Operations
.”
For purposes of these unaudited condensed consolidated and combined financial statements, all significant transactions with Huntsman International have been included in group equity. All intercompany transactions within the consolidated and combined business have been eliminated.
Prior to the separation, Huntsman's executive, information technology, environmental, health and safety 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 are allocated based on Venator’s 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
and
$24 million
for the
three months ended March 31, 2018
and
2017
, respectively.
In the
notes to unaudited condensed consolidated and combined financial statements
, all dollar and share amounts in tabulations are in millions unless otherwise indicated.
Note 2. Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted During the Period
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This ASU along with subsequently issued amendments, outline a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers and supersedes most previously issued revenue recognition guidance. Under this guidance, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received. These ASUs are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We adopted these ASUs effective January 1, 2018 and we have elected the modified retrospective approach as the transition method. As a result of the adoption of these amendments, we revised our accounting policy for revenue recognition as detailed in “
Note 3. Revenue
,” and, except for the changes noted in "
Note 3. Revenue
" no material changes have been made to our significant policies disclosed in "Note 1. Description of Business, Recent Developments, Basis of Presentation and Summary of Significant Accounting Policies" of our Annual Report on Form 10-K, filed on February 23, 2018, for the year ended December 31, 2017. The adoption of these ASUs did not have a significant impact on our
unaudited condensed consolidated and combined financial statements
.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. The amendments in this ASU clarify and include specific guidance to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. We adopted the amendments of
this ASU effective January 1, 2018, and the initial adoption of the amendment in this ASU did not impact on our
unaudited condensed consolidated and combined financial statements
.
In March 2017, the FASB issued ASU No. 2017 07,
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. The amendments in this ASU require that an employer report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of income from operations. The amendments in this ASU also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit cost in assets. We adopted the amendments of this ASU effective January 1, 2018, which impacted the presentation of our financial statements. Our historical presentation of service cost components was consistent with the amendments in this ASU. The other components of net periodic pension and postretirement benefit costs are presented within other nonoperating income, whereas we historically presented these within cost of goods sold and selling, general and administrative expenses. As a result of the retrospective adoption of this ASU, cost of goods sold increased by
$2 million
, selling, general and administrative expenses decreased by
$1 million
, and other income increased by
$1 million
within our
unaudited condensed consolidated and combined
statements of operations for the three months ending March 31, 2017.
In August 2017, the FASB issued ASU No. 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
. The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships as well as the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements to increase the understandability of the results of an entity’s intended hedging strategies. The amendments in this ASU also include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted in any interim period after the issuance of this ASU. Transition requirements and elections should be applied to hedging relationships existing on the date of adoption. For cash flow and net investment hedges, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness, and the amended presentation and disclosure guidance is required only prospectively. We adopted the amendments of this ASU effective January 1, 2018, and the initial adoption of the amendment in this ASU did not impact on our
unaudited condensed consolidated and combined financial statements
.
Accounting Pronouncements Pending Adoption in Future Periods
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The amendments in this ASU will increase transparency and comparability among entities by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this ASU will require lessees to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application of the amendments in this ASU is permitted for all entities. Reporting entities are required to recognize and measure leases under these amendments at the beginning of the earliest period presented using a modified retrospective approach. We are currently evaluating the impact of the adoption of the amendments in this ASU on our financial statements and believe, based on our preliminary assessment, that we will record significant additional right-of-use assets and lease obligations.
In February 2018, the 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, and early adoption is permitted. We have not completed our assessment, but we do not anticipate this will have a material impact on our unaudited consolidated and combined statement of comprehensive income (loss).
Note 3. 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. Revenue is recognized when the performance obligations under the terms of our contracts are satisfied. Generally, this occurs at the time of shipping at which point the control of the goods transfers to the customer. Further, in determining whether control has transferred, we consider if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferred goods. Sales, value-added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. We have elected to account for all shipping and handling activities as fulfillment costs. We recognize these costs for shipping and handling when control over products have transferred to the customer as an expense in cost of goods sold. We have also elected to expense commissions when incurred as the amortization period of the commission asset that we would have otherwise recognized is less than one year.
The following table disaggregates our revenue by major geographical region for the
three months ended March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2018
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
North America
|
$
|
71
|
|
|
$
|
77
|
|
|
$
|
148
|
|
Europe
|
241
|
|
|
58
|
|
|
299
|
|
Asia
|
96
|
|
|
27
|
|
|
123
|
|
Other
|
48
|
|
|
4
|
|
|
52
|
|
Total Revenues
|
$
|
456
|
|
|
$
|
166
|
|
|
$
|
622
|
|
The following table disaggregates our revenue by major product line for the
three months ended March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2018
|
|
Titanium Dioxide
|
|
Performance Additives
|
|
Total
|
TiO
2
|
$
|
456
|
|
|
$
|
—
|
|
|
$
|
456
|
|
Color Pigments
|
—
|
|
|
82
|
|
|
82
|
|
Functional Additives
|
—
|
|
|
41
|
|
|
41
|
|
Timber Treatment
|
—
|
|
|
37
|
|
|
37
|
|
Water Treatment
|
—
|
|
|
6
|
|
|
6
|
|
Total Revenues
|
$
|
456
|
|
|
$
|
166
|
|
|
$
|
622
|
|
Substantially all of our revenue is generated through inventory sales in which revenue is recognized at a point in time. 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.
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. The amount recorded against revenue related to expected returns, discounts and rebates was not material for any of our reporting periods.
Note 4. Inventories
Inventories are stated at the lower of cost or market, with cost determined using first-in, first-out and average cost methods for different components of inventory. Inventories at
March 31, 2018
and
December 31, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Raw materials and supplies
|
$
|
157
|
|
|
$
|
149
|
|
Work in process
|
52
|
|
|
46
|
|
Finished goods
|
273
|
|
|
259
|
|
Total
|
$
|
482
|
|
|
$
|
454
|
|
Note 5. Variable Interest Entities
We evaluate our investments and transactions to identify variable interest entities for which we are the primary beneficiary. We hold a variable interest in the following joint ventures for which we are the primary beneficiary:
|
|
•
|
Pacific Iron Products Sdn Bhd is our
50%
-owned joint venture with Coogee Chemicals that manufactures products for Venator. It was determined that the activities that most significantly impact its economic performance are raw material supply, manufacturing and sales. In this joint venture we supply all the raw materials through a fixed cost supply contract, operate the manufacturing facility and market the products of the joint venture to customers. Through a fixed price raw materials supply contract with the joint venture we are exposed to the risk related to the fluctuation of raw material pricing. As a result, we concluded that we are the primary beneficiary.
|
|
|
•
|
Viance, LLC ("Viance") is our
50%
-owned joint venture with Dow Chemical Company. Viance markets timber treatment products for Venator. We have determined that the activity that most significantly impacts Viance’s economic performance is manufacturing. The joint venture sources all of its products through a contract manufacturing arrangement at our Harrisburg, North Carolina facility and we bear a disproportionate amount of working capital risk of loss due to the supply arrangement whereby we control manufacturing on Viance’s behalf. As a result, we concluded that we are the primary beneficiary.
|
Creditors of these entities have no recourse to Venator’s general credit. As the primary beneficiary of these variable interest entities at
March 31, 2018
, the joint ventures’ assets, liabilities and results of operations are included in Venator’s condensed 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 for the
three months ended March 31, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2018
|
|
2017
|
Revenues
|
31
|
|
|
$
|
34
|
|
Income from continuing operations before income taxes
|
4
|
|
|
7
|
|
Net cash provided by operating activities
|
9
|
|
|
7
|
|
Note 6. Restructuring, Impairment, and Plant Closing and Transition Costs
Venator has initiated various restructuring programs in an effort to reduce operating costs and maximize operating efficiency. As of
March 31, 2018
and
December 31, 2017
, accrued restructuring and plant closing and transition costs by type of cost and initiative consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reductions(1)
|
|
Other restructuring costs
|
|
Total(2)
|
Accrued liabilities as of December 31, 2017
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
34
|
|
2018 charges for 2017 and prior initiatives
|
2
|
|
|
4
|
|
|
6
|
|
2018 charges for 2018 initiatives
|
—
|
|
|
—
|
|
|
—
|
|
2018 payments for 2017 and prior initiatives
|
(6
|
)
|
|
(4
|
)
|
|
(10
|
)
|
2018 payments for 2018 initiatives
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency effect on liability balance
|
1
|
|
|
—
|
|
|
1
|
|
Accrued liabilities as of March 31, 2018
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
31
|
|
|
|
(1)
|
The total workforce reduction reserves of
$31 million
relate to the termination of
195
positions, of which
zero
positions had been terminated as of
March 31, 2018
.
|
|
|
(2)
|
Accrued liabilities remaining at
March 31, 2018
and
December 31, 2017
by year of initiatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
2016 initiatives and prior
|
$
|
8
|
|
|
$
|
9
|
|
2017 initiatives
|
23
|
|
|
25
|
|
2018 initiatives
|
—
|
|
|
—
|
|
Total
|
$
|
31
|
|
|
$
|
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 December 31, 2017
|
$
|
30
|
|
|
$
|
4
|
|
|
$
|
34
|
|
2018 charges for 2017 and prior initiatives
|
6
|
|
|
—
|
|
|
6
|
|
2018 charges for 2018 initiatives
|
—
|
|
|
—
|
|
|
—
|
|
2018 payments for 2017 and prior initiatives
|
(9
|
)
|
|
(1
|
)
|
|
(10
|
)
|
2018 payments for 2018 initiatives
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency effect on liability balance
|
1
|
|
|
—
|
|
|
1
|
|
Accrued liabilities as of March 31, 2018
|
$
|
28
|
|
|
$
|
3
|
|
|
$
|
31
|
|
Current portion of restructuring reserves
|
17
|
|
|
3
|
|
|
20
|
|
Long-term portion of restructuring reserve
|
11
|
|
|
—
|
|
|
11
|
|
Details with respect to cash and noncash restructuring charges and impairment of assets for the
three months ended March 31, 2018
and
2017
by initiative are provided below:
|
|
|
|
|
|
Three months ended
|
|
March 31, 2018
|
Cash charges
|
$
|
6
|
|
Accelerated depreciation
|
3
|
|
Total 2018 Restructuring, Impairment and Plant Closing and Transition Costs
|
$
|
9
|
|
|
|
|
|
|
|
Three months ended
|
|
March 31, 2017
|
Cash charges
|
$
|
23
|
|
Other noncash charges
|
3
|
|
Total 2017 Restructuring, Impairment and Plant Closing and Transition Costs
|
$
|
26
|
|
Restructuring Activities
In December 2014, we implemented a comprehensive restructuring program to improve the global competitiveness of our Titanium Dioxide and Performance Additives segments. As part of the program, we are reducing our workforce by approximately
900
positions. In connection with this restructuring program, we recorded restructuring expense of
nil
for the
three months ended March 31, 2018
.
In July 2016, we announced plans to close our Umbogintwini, South Africa TiO
2
manufacturing facility. As part of the program, we recorded restructuring expense of approximately
$1 million
for the
three months ended March 31, 2018
. We expect to incur additional charges of approximately
$13 million
through the end of 2022.
In March 2017, we announced a plan to close the white end finishing and packaging operation of our TiO
2
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. In connection with this closure, we recorded restructuring expense of
$5 million
in the
three months ended March 31, 2018
. We expect to incur additional charges of approximately
$50 million
through the end of 2022.
In September 2017, we announced a plan to close our St. Louis and Easton manufacturing facilities. As part of the program, we recorded restructuring expense of approximately
$3 million
related to accelerated depreciation for the
three months ended March 31, 2018
. We expect to incur
$11 million
of accelerated depreciation through the end of 2018.
Note 7. Debt
Outstanding debt, net of debt issuance costs of
$12 million
, consisted of the following:
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Senior Notes
|
370
|
|
|
370
|
Term Loan Facility
|
366
|
|
|
367
|
Other
|
16
|
|
|
20
|
Total debt
|
752
|
|
|
757
|
Less: short-term debt and current portion of long-term debt
|
9
|
|
|
14
|
Total long-term debt
|
743
|
|
|
743
|
The estimated fair value of the Senior Notes was
$376 million
and
$396 million
as of
March 31, 2018
and
December 31, 2017
, respectively. The estimated fair value of the Term Loan Facility was
$376 million
and
$378 million
as of
March 31, 2018
and
December 31, 2017
, 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 and Term Loan Facility as of
March 31, 2018
and
December 31, 2017
was approximately
5%
each.
Senior Notes
On July 14, 2017, our subsidiaries Venator Finance S.à.r.l. and Venator Materials LLC (the “Issuers”) entered into an indenture in connection with the issuance of the Senior Notes. The Senior Notes are general unsecured senior obligations of the Issuers and are guaranteed on a general unsecured senior basis by Venator and certain of Venator’s subsidiaries. The indenture related to the Senior Notes imposes certain limitations on the ability of Venator and certain of its subsidiaries to, among other things, incur additional indebtedness secured by any principal properties, incur indebtedness of non-guarantor subsidiaries, enter into sale and leaseback transactions with respect to any principal properties and consolidate or merge with or into any other person or lease, sell or transfer all or substantially all of its properties and assets. The Senior Notes bear interest of
5.75%
per year payable semi-annually and will mature on July 15, 2025. The Issuers may redeem the Senior Notes in whole or in part at any time prior to July 15, 2020 at a price equal to
100%
of the principal amount thereof plus accrued and unpaid interest, if any, and an early redemption premium, calculated on an agreed percentage of the outstanding principal amount, providing compensation on a portion of foregone future interest payables. The Senior Notes will be redeemable in whole or in part at any time on or after July 15, 2020 at the redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, up to, but not including, the redemption date. In addition, at any time prior to July 15, 2020, the Issuers may redeem up to
40%
of the aggregate principal amount of the Senior Notes with an amount not greater than the net cash proceeds of certain equity offerings or contributions to Venator’s equity at
105.75%
of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Upon the occurrence of certain change of control events (other than the separation), holders of the Venator Notes will have the right to require that the Issuers purchase all or a portion of such holder’s Senior Notes in cash at a purchase price equal to
101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.
Senior Credit Facilities
On August 8, 2017, we entered into the Senior Credit Facilities that provide for first lien senior secured financing of up to
$675 million
, consisting of:
|
|
•
|
the Term Loan Facility in an aggregate principal amount of
$375 million
, with a maturity of
seven years
; and
|
|
|
•
|
the ABL Facility in an aggregate principal amount of up to
$300 million
, with a maturity of
five years
.
|
The Term Loan Facility will amortize in aggregate annual amounts equal to
1%
of the original principal amount of the Term Loan Facility, payable quarterly commencing in the fourth quarter of 2017.
Availability to borrow under the
$300 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
$300 million
and the borrowing base calculated according to the formula described above minus the aggregate amount of extensions of credit outstanding under the ABL Facility at such time.
Borrowings under the Term Loan Facility bear interest at a rate equal to, at Venator’s option, either (a) a London Interbank Offering Rate (“LIBOR”) based rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs subject to an interest rate floor to be agreed or (b) a base rate determined by reference to the highest of (i) the rate of interest per annum determined from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City, (ii) the federal funds rate plus
0.50%
per annum and (iii) the
one-month adjusted LIBOR
plus
1.00%
per annum, in each case plus an applicable margin to be agreed upon. Borrowings under the ABL Facility bear interest at a variable rate equal to an applicable margin based on the applicable quarterly average excess availability under the ABL Facility plus either a LIBOR or a base rate. The applicable margin percentage is calculated and established once every three calendar months
and varies from
150
to
200
basis points for LIBOR loans depending on the quarterly average excess availability under the ABL Facility for the immediately preceding three month period.
Guarantees
All obligations under the Senior Credit Facilities are guaranteed by Venator and substantially all of our subsidiaries (the “Guarantors”), and are secured by substantially all of the assets of Venator and the Guarantors, in each case subject to certain exceptions. Lien priority as between the Term Loan Facility and the ABL Facility with respect to the collateral will be governed by an intercreditor agreement.
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
unaudited condensed 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 Huntsman
Substantially all Huntsman receivables or payables were eliminated in connection with the separation, other than a payable to Huntsman for a liability pursuant to the Tax Matters Agreement dated August 7, 2017, by and among Venator Materials PLC and Huntsman (the “Tax Matters Agreement”) entered into at the time of the separation which has been presented as “Noncurrent payable to affiliates” on our
unaudited condensed consolidated and combined
balance sheet. See “
Note 9. Income Taxes
” for further discussion.
A/R Programs
Certain of our entities participated in the accounts receivable securitization programs ("A/R Programs") sponsored by Huntsman International. Under the A/R Programs, such entities sold certain of their trade receivables to Huntsman International. Huntsman International granted an undivided interest in these receivables to a special purpose entity, which served as security for the issuance of debt of Huntsman International. On April 21, 2017, Huntsman International amended its accounts receivable securitization facilities, which among other things removed existing receivables sold into the program by Venator and at which time we discontinued our participation in the A/R Programs.
The entities’ allocated losses on the A/R Programs for the three months ended
March 31, 2017
was
$1 million
. The allocation of losses on sale of accounts receivable is based upon the pro-rata portion of total receivables sold into the securitization program as well as other program and interest expenses associated with the A/R Programs.
Note 8. Derivative Instruments and Hedging Activities
To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of certain foreign currency transactions. We do not use derivative financial instruments for trading or speculative purposes.
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 fixing the principle amount at
€169 million
with a fixed annual rate of
3.43%
. These hedges have been designated as cash flow hedges and the critical terms of the cross-currency swap agreements correspond to the underlying hedged item. These swaps mature in July 2022, which is our best estimate of the repayment date of these intercompany loans. The amount and timing of the semi-
annual principle payments under the cross-currency swap also correspond with the terms of the intercompany loans. Gains and losses from these hedges offset the changes in the value of interest and principal payments as a result of changes in foreign exchange rates.
We formally assessed the hedging relationship at the inception of the hedge in order to determine whether the derivatives that are used in the hedging transactions are highly effective in offsetting cash flows of the hedged item and we will continue to assess the relationship on an ongoing basis. We use the hypothetical derivative method in conjunction with regression analysis to measure effectiveness of our cross-currency swap agreement. The portion of the hedge that is ineffective will be recorded in earnings in other income (expense). We did not record any ineffectiveness during
2018
.
The effective portion of the changes in the fair value of the swaps are deferred in other comprehensive loss and subsequently recognized in “other income (expense), net” in the
unaudited condensed 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
$12 million
and
$5 million
at
March 31, 2018
and
December 31, 2017
, respectively, and was recorded as other long-term liabilities on our
unaudited condensed consolidated and combined
balance sheets. We estimate the fair values of our cross currency swaps by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, credit default swap rates and cross-currency basis swap spreads. The cross currency swap has been classified as Level 2 because the fair value is based upon observable market-based inputs or unobservable inputs that are corroborated by market data.
For the
three months ended March 31, 2018
, the change in accumulated other comprehensive loss associated with these cash flow hedging activities was a loss of approximately
$7 million
. As of
March 31, 2018
, accumulated 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
March 31, 2018
and
December 31, 2017
we had approximately
$101 million
and
$109 million
, respectively, notional amount (in U.S. dollar equivalents) outstanding in foreign currency contracts with a term of approximately
one month
. The contracts are valued using observable market rates (Level 2).
Note 9. Income Taxes
Venator uses the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed on a tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets for each jurisdiction. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of Venator and cumulative income or losses during the applicable period. Cumulative losses incurred over the period limits our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable tax jurisdictions could affect the realization of deferred tax assets in those jurisdictions.
We recorded income tax expense of
$20 million
and income tax benefit of
$4 million
for the
three months ended March 31, 2018
and
2017
, respectively. Our tax expense is significantly affected by the mix of income and losses in tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions.
For U.S. federal income tax purposes Huntsman will recognize 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. businesses exceeded the basis of such assets for U.S. federal income tax purposes at the time of the separation. As a result of such gain recognized, the basis of the assets associated with our U.S. businesses has increased. This basis step up gave rise to a deferred tax asset of
$36 million
that we recognized for the year ended
December 31, 2017
.
Pursuant to the Tax Matters Agreement entered into at the time of the separation, we are required to make a future payment to Huntsman for any actual U.S. federal income tax savings we recognize as a result of any such basis increase for tax years through December 31, 2028. It is currently estimated (based on a value of our U.S. businesses derived from the IPO price of our ordinary shares and current tax rates) that the aggregate future payments required by this provision are expected to be approximately
$34 million
. We recognized a noncurrent liability for this amount at
December 31, 2017
. Moreover, any subsequent adjustment asserted by U.S. taxing authorities could increase the amount of gain recognized and the corresponding basis increase, and could result in a higher liability for us under the Tax Matters Agreement.
On December 22, 2017, the U.S. government enacted the Tax Act into law. The Tax Act made broad and complex changes to the U.S. tax code that will impact the Company, including but not limited to (1) a reduction of the U.S. federal corporate income tax rate from 35% to 21%, (2) immediate expensing of certain qualified property, (3) limitations on the deductibility of interest expense and (4) the creation of the base erosion anti-abuse tax, a new minimum tax.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
For the year ended December 31, 2017 we recorded a provisional decrease to our net deferred tax assets of
$3 million
, with a corresponding net deferred tax expense of
$3 million
. While we were able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, return to accrual adjustments including completion of computations and analysis of 2017 expenditures that qualify for immediate expensing.
For the period ended March 31, 2018 we have not made any additional measurement-period adjustments related to deferred taxes during the quarter as we have not yet completed our accounting for the income tax effects of certain elements of the Tax Act. As we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may adjust the provisional amounts. Those adjustments may materially impact our provision for income taxes in the period in which the adjustments are made. We expect to complete our accounting within the prescribed measurement period.
Note 10. Earnings (Loss) Per Share
Basic earnings (loss) per share excludes dilution and is computed by dividing net loss attributable to Venator ordinary shareholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) 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 (loss) per share was based on the ordinary shares that were outstanding at the time of our IPO.
Basic and diluted earnings (loss) per share are determined using the following information:
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
Basic and diluted income (loss) from continuing operations:
|
|
|
|
Income (loss) from continuing operations attributable to Venator Materials PLC ordinary shareholders
|
$
|
78
|
|
|
$
|
(24
|
)
|
Basic and diluted income from discontinued operations:
|
|
|
|
Income from discontinued operations attributable to Venator Materials PLC ordinary shareholders
|
$
|
—
|
|
|
$
|
8
|
|
Basic and diluted net income (loss):
|
|
|
|
Net income (loss) attributable to Venator Materials PLC ordinary shareholders
|
$
|
78
|
|
|
$
|
(16
|
)
|
Denominator:
|
|
|
|
Weighted average shares outstanding
|
106.4
|
|
|
106.3
|
|
Dilutive share-based awards
|
0.4
|
|
|
—
|
|
Total weighted average shares outstanding, including dilutive shares
|
106.8
|
|
|
106.3
|
|
For each of the three months ended March 31, 2018 and 2017, the number of anti-dilutive employee share-based awards excluded from the computation of diluted EPS was not significant.
Note 11. Commitments and Contingencies
Legal Proceedings
Antitrust Matters
In the past, we were named as a defendant in multiple civil antitrust suits alleging that we, our co-defendants and other alleged co-conspirators conspired to fix prices of TiO
2
sold in the U.S. We settled litigation involving both direct purchasers of TiO
2
and purchasers who opted out of the direct purchaser litigation for amounts immaterial to our
unaudited condensed consolidated and combined financial statements
.
We were also named as a defendant in a class action civil antitrust suit filed on March 15, 2013 in the U.S. District Court for the Northern District of California by purchasers of products made from TiO
2
(the “Indirect Purchasers”) making essentially the same allegations as did the direct purchasers. On October 14, 2014, plaintiffs filed their Second Amended Class Action Complaint narrowing the class of plaintiffs to those merchants and consumers of architectural coatings containing TiO
2
. On August 11, 2015, the court granted our motion to dismiss the Indirect Purchasers litigation with leave to amend the complaint. A Third Amended Class Action Complaint was filed on September 29, 2015 further limiting the class to consumers of architectural paints. Plaintiffs have raised state antitrust claims under the laws of
15
states, consumer protection claims under the laws of
nine
states, and unjust enrichment claims under the laws of
16
states. On November 4, 2015, we and our co-defendants filed another motion to dismiss. On June 13, 2016, the court substantially denied the motion to dismiss except as to consumer protection claims in
one
state.
The parties have agreed to settle this matter. The court preliminarily approved the settlement on December 13, 2017 and the final approval hearing is scheduled for August 16, 2018.
The Indirect Purchasers seek to recover injunctive relief, treble damages or the maximum damages allowed by state law, costs of suit and attorneys’ fees. We are not aware of any illegal conduct by us or any of our employees. Nevertheless, we have incurred costs relating to these claims and could incur additional costs in amounts which in the aggregate could be material to us. Because of the overall complexity of these cases, we are unable to reasonably estimate any possible loss or range of loss and we have not made an accrual with respect to these claims.
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 12. Environmental, Health and Safety Matters
Environmental, Health and Safety Capital Expenditures
We may incur future costs for capital improvements and general compliance under EHS laws, including costs to acquire, maintain and repair pollution control equipment. For the
three months ended March 31, 2018
and
2017
, our capital expenditures for EHS matters totaled
$1 million
and
$3 million
, respectively. Because capital expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, our capital expenditures for EHS matters have varied significantly from year to year and we cannot provide assurance that our recent expenditures are indicative of future amounts we may spend related to EHS and other applicable laws.
Environmental Matters
We have incurred and we may in the future incur, liability to investigate and clean up waste or contamination at our current or former facilities or facilities operated by third parties at which we may have disposed of waste or other materials. Similarly, we may incur costs for the cleanup of waste that was disposed of prior to the purchase of our businesses. Under some circumstances, the scope of our liability may extend to damages to natural resources.
Under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and similar state laws, a current or former owner or operator of real property in the U.S. may be liable for remediation costs regardless of whether the release or disposal of hazardous substances was in compliance with law at the time it occurred, and a current owner or operator may be liable regardless of whether it owned or operated the facility at the time of the release. Outside the U.S., analogous contaminated property laws, such as those in effect in France, can hold past owners and/or operators liable for remediation at former facilities. We have not been notified by third parties of claims against us for cleanup liabilities at former facilities or third-party sites, including, but not limited to, sites listed under CERCLA.
Under the Resource Conservation and Recovery Act in the U.S. and similar state laws, we may be required to remediate contamination originating from our properties as a condition to our hazardous waste permit. Some of our manufacturing sites have an extended history of industrial chemical manufacturing and use, including on-site waste disposal and we have made accruals for related remediation activity. We are aware of soil, groundwater or surface contamination from past operations at some of our sites and have made accruals for related remediation activity, and we may find contamination at other sites in the future. Similar laws exist in a number of locations in which we currently operate, or previously operated, manufacturing facilities, such as France and Italy.
Environmental Reserves
We accrue liabilities relating to anticipated environmental cleanup obligations, site reclamation and closure costs, and known penalties. Liabilities are recorded when potential liabilities are either known or considered probable
and can be reasonably estimated. Our liability estimates are calculated using present value techniques as appropriate and are based upon requirements placed upon us by regulators, available facts, existing technology, and past experience. The environmental liabilities do not include amounts recorded as asset retirement obligations. As of
March 31, 2018
and
December 31, 2017
, we had environmental reserves of
$12 million
, each. We may incur losses for environmental remediation.
Note 13. Other Comprehensive Income (Loss)
Other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment(a)
|
|
Pension and other postretirement benefits adjustments net of tax(b)
|
|
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
|
)
|
Other comprehensive income before reclassifications
|
57
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
50
|
|
|
—
|
|
|
50
|
|
Tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amounts reclassified from accumulated other comprehensive loss, gross(c)
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net current-period other comprehensive income
|
57
|
|
|
3
|
|
|
—
|
|
|
(7
|
)
|
|
53
|
|
|
—
|
|
|
53
|
|
Ending balance, March 31, 2018
|
$
|
51
|
|
|
$
|
(264
|
)
|
|
$
|
(5
|
)
|
|
$
|
(12
|
)
|
|
$
|
(230
|
)
|
|
$
|
—
|
|
|
$
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment(d)
|
|
Pension and other postretirement benefits adjustments net of tax(e)
|
|
Other comprehensive income of unconsolidated affiliates
|
|
Total
|
|
Amounts attributable to noncontrolling interests
|
|
Amounts attributable to Venator
|
Beginning balance, January 1, 2017
|
$
|
(112
|
)
|
|
$
|
(306
|
)
|
|
$
|
(5
|
)
|
|
$
|
(423
|
)
|
|
$
|
—
|
|
|
$
|
(423
|
)
|
Adjustments due to discontinued operations
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive (loss) income before reclassifications
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Tax expense
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Amounts reclassified from accumulated other comprehensive loss, gross(c)
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net current-period other comprehensive income
|
5
|
|
|
4
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Ending balance, March 31, 2017
|
$
|
(107
|
)
|
|
$
|
(302
|
)
|
|
$
|
(5
|
)
|
|
$
|
(414
|
)
|
|
$
|
—
|
|
|
$
|
(414
|
)
|
|
|
(a)
|
Amounts are net of tax of
nil
as of
March 31, 2018
and January 1, 2018, each.
|
|
|
(b)
|
Amounts are net of tax of
$52 million
as of
March 31, 2018
and January 1, 2018, each.
|
|
|
(c)
|
See table below for details about the amounts reclassified from accumulated other comprehensive loss.
|
|
|
(d)
|
Amounts include a tax benefit of
$1 million
and
nil
as of
March 31, 2017
and January 1, 2017, respectively.
|
|
|
(e)
|
Amounts are net of tax of
$56 million
at
March 31, 2017
and January 1, 2017, each.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
Affected line item in the statement
|
|
2018
|
|
2017
|
|
where net income is presented
|
Details about Accumulated Other Comprehensive Loss Components(a):
|
|
|
|
|
|
Amortization of pension and other postretirement benefits:
|
|
|
|
|
|
Actuarial loss
|
$
|
3
|
|
|
$
|
4
|
|
|
(b)
|
Prior service credit
|
—
|
|
|
—
|
|
|
(b)
|
Total amortization
|
3
|
|
|
4
|
|
|
Total before tax
|
Income tax benefit
|
—
|
|
|
—
|
|
|
Income tax (expense) benefit
|
Total reclassifications for the period
|
$
|
3
|
|
|
$
|
4
|
|
|
Net of tax
|
|
|
(a)
|
Pension and other postretirement benefit amounts in parentheses indicate credits on our consolidated statements of operations.
|
|
|
(b)
|
These accumulated other comprehensive loss components are included in the computation of net periodic pension costs.
|
Note 14. 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
two
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:
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2018
|
|
2017
|
Revenues:
|
|
|
|
Titanium Dioxide
|
$
|
456
|
|
|
$
|
385
|
|
Performance Additives
|
166
|
|
|
152
|
|
Total
|
$
|
622
|
|
|
$
|
537
|
|
Segment adjusted EBITDA(1)
|
|
|
|
Titanium Dioxide
|
$
|
143
|
|
|
$
|
48
|
|
Performance Additives
|
24
|
|
|
21
|
|
|
167
|
|
|
69
|
|
Corporate and other
|
(10
|
)
|
|
(20
|
)
|
Total
|
$
|
157
|
|
|
$
|
49
|
|
Reconciliation of adjusted EBITDA to net income (loss):
|
|
|
|
Interest expense
|
(13
|
)
|
|
(14
|
)
|
Interest income
|
3
|
|
|
2
|
|
Income tax (expense) benefit - continuing operations
|
(20
|
)
|
|
4
|
|
Depreciation and amortization
|
(34
|
)
|
|
(30
|
)
|
Net income attributable to noncontrolling interests
|
2
|
|
|
3
|
|
Other adjustments:
|
|
|
|
Business acquisition and integration expenses
|
(2
|
)
|
|
—
|
|
Separation expense, net
|
(1
|
)
|
|
—
|
|
Net income of discontinued operations, net of tax
|
—
|
|
|
8
|
|
Amortization of pension and postretirement actuarial losses
|
(3
|
)
|
|
(4
|
)
|
Net plant incident costs
|
—
|
|
|
(5
|
)
|
Restructuring, impairment and plant closing and transition costs
|
(9
|
)
|
|
(26
|
)
|
Net income (loss)
|
$
|
80
|
|
|
$
|
(13
|
)
|
|
|
(1)
|
Adjusted EBITDA is defined as net income (loss) of Venator before interest, income tax from continuing operations, depreciation and amortization and net income attributable to noncontrolling interests, as well as eliminating the following adjustments from net income (loss): (a) business acquisition and integration expenses; (b) separation expense, net; (c) net income of discontinued operations, net of tax; (d) amortization of pension and postretirement actuarial losses; (e) net plant incident costs; and (f) restructuring, impairment, and plant closing and transition costs.
|
Note 15. 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 were 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
unaudited condensed consolidated and combined
financial information for the periods indicated reflect the combination of these legal entities under common control, the historical condensed 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 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:
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2018
|
|
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 of nil and $2, respectively)
|
—
|
|
|
(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
|
|