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MarketScreener Homepage  >  Equities  >  Nyse  >  Venator Materials PLC    VNTR   GB00BF3ZNS54

VENATOR MATERIALS PLC

(VNTR)
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VENATOR MATERIALS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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05/06/2020 | 01:03pm EDT
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the related notes included in Item 1
hereto.

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

Executive Summary


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

COVID-19


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

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

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

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

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Recent Trends and Outlook

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

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

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

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

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



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Results of Operations

The following table sets forth our consolidated results of operations for the three months ended March 31, 2020 and 2019:

                                                                                           Three Months Ended
                                                                                               March 31,
(Dollars in millions)                                                                   2020                  2019            % Change
Revenues                                                                            $    532$ 562                   (5  %)
Cost of goods sold                                                                       471                  486                   (3  %)
Operating expenses(4)                                                                     42                   55                  (24  %)
Restructuring, impairment and plant closing and transition costs                           7                   12                  (42  %)
Operating income                                                                          12                    9                   33   %
Interest expense, net                                                                    (10)                 (11)                   9   %
Other income                                                                               4                    1                  300   %
Income (loss) before income taxes                                                          6                   (1)                  NM
Income tax benefit (expense)                                                               2                   (1)                  NM
Net income (loss)                                                                          8                   (2)                  NM
Reconciliation of net income (loss) to adjusted EBITDA:
Interest expense, net                                                                     10                   11                   (9  %)
Income tax (benefit) expense                                                              (2)                   1                   NM
Depreciation and amortization                                                             28                   26                    8   %
Net income attributable to noncontrolling interests                                       (1)                  (1)                   -   %
Other adjustments:
Business acquisition and integration expenses                                              1                    2

Loss on disposition of business/assets                                                     2                    -

Amortization of pension and postretirement actuarial losses                                3                    4
Net plant incident costs                                                                   1                    7
Restructuring, impairment and plant closing and transition costs                           7                   12
Adjusted EBITDA(1)                                                                  $     57$  60

Net cash used in operating activities                                               $    (58)$ (29)                 100   %
Net cash used in investing activities                                                    (27)                 (53)                 (49  %)
Net cash provided by (used in) financing activities                                       56                   (3)                  NM
Capital expenditures                                                                     (31)                 (52)                 (40  %)


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                                                                             Three Months Ended                      Three Months Ended
(Dollars in millions, except per share amounts)                                March 31, 2020                          March 31, 2019

Reconciliation of net income to adjusted net income attributable to Venator Materials PLC ordinary shareholders: Net income (loss)

                                                           $              8                        $              (2)
Net income attributable to noncontrolling interests                                       (1)                                      (1)
Other adjustments:
Business acquisition and integration expenses                                              1                                        2

Loss on disposition of business/assets                                                     2                                        -

Amortization of pension and postretirement actuarial losses                                3                                        4
Net plant incident costs                                                                   1                                        7

Restructuring, impairment and plant closing and transition costs

                                                                                      7                                       12
Income tax adjustments(3)                                                                 (9)                                      (8)
Adjusted net income attributable to Venator Materials PLC
ordinary shareholders(2)                                                    $             12                        $              14

Weighted-average shares-basic                                                          106.7                                    106.5
Weighted-average shares-diluted                                                        106.7                                    106.8

Net income (loss) attributable to Venator Materials PLC
ordinary shareholders per share:
Basic                                                                       $           0.07                        $           (0.03)
Diluted                                                                     $           0.07                        $           (0.03)

Other non-GAAP measures:
Adjusted net income per share(2):
Basic                                                                       $           0.11                        $            0.13
Diluted                                                                     $           0.11                        $            0.13



NM-Not meaningful
(1)Our management uses adjusted EBITDA to assess financial performance. Adjusted
EBITDA is defined as net income/loss before interest income/expense, net, income
tax expense/benefit, depreciation and amortization, and net income attributable
to noncontrolling interests, as well as eliminating the following adjustments:
(a) business acquisition and integration expenses/adjustments; (b) loss/gain on
disposition of business/assets; (c) amortization of pension and postretirement
actuarial losses/gains; (d) net plant incident costs/credits; and
(e) restructuring, impairment, and plant closing and transition costs/credits.
We believe that net income is the performance measure calculated and presented
in accordance with U.S. GAAP that is most directly comparable to adjusted
EBITDA.

We believe adjusted EBITDA is useful to investors in assessing our ongoing
financial performance and provides improved comparability between periods
through the exclusion of certain items that management believes are not
indicative of our operational profitability and that may obscure underlying
business results and trends. However, this measure should not be considered in
isolation or viewed as a substitute for net income or other measures of
performance determined in accordance with U.S. GAAP. Moreover, adjusted EBITDA
as used herein is not necessarily comparable to other similarly titled measures
of other companies due to potential inconsistencies in the methods of
calculation. Our management believes this measure is useful to compare general
operating performance from period to period and to make certain related
management decisions. Adjusted EBITDA is also used by securities analysts,
lenders and others in their evaluation of different companies because it
excludes certain items that can vary widely across different industries or among
companies within the same industry. For example, interest expense can be highly
dependent on a company's capital structure, debt levels and credit ratings.
Therefore, the impact of interest expense on earnings can vary significantly
among companies. In addition, the tax positions of
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companies can vary because of their differing abilities to take advantage of tax
benefits and because of the tax policies of the various jurisdictions in which
they operate. As a result, effective tax rates and tax expense can vary
considerably among companies. Finally, companies employ productive assets of
different ages and utilize different methods of acquiring and depreciating such
assets. This can result in considerable variability in the relative costs of
productive assets and the depreciation and amortization expense among companies.

Nevertheless, our management recognizes that there are limitations associated
with the use of adjusted EBITDA in the evaluation of us as compared to net
income. Our management compensates for the limitations of using adjusted EBITDA
by using this measure to supplement U.S. GAAP results to provide a more complete
understanding of the factors and trends affecting the business rather than U.S.
GAAP results alone.

In addition to the limitations noted above, adjusted EBITDA excludes items that
may be recurring in nature and should not be disregarded in the evaluation of
performance. However, we believe it is useful to exclude such items to provide a
supplemental analysis of current results and trends compared to other periods
because certain excluded items can vary significantly depending on specific
underlying transactions or events, and the 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 attributable to Venator Materials PLC ordinary
shareholders is computed by eliminating the after-tax amounts related to the
following from net income attributable to Venator Materials PLC ordinary
shareholders: (a) business acquisition and integration expenses/adjustments; (b)
loss/gain on disposition of business/assets; (c) amortization of pension and
postretirement actuarial losses/gains; (d) net plant incident costs/credits; and
(e) restructuring, impairment, and plant closing and transition costs/credits.
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 and the related per share amounts, should not be considered in
isolation and should be considered only to supplement analysis of U.S. GAAP
results.

(3)Prior to the second quarter of 2019, the income tax impacts, if any, of each
adjusting item represented a ratable allocation of the total difference between
the unadjusted tax expense and the total adjusted tax expense, computed without
consideration of any adjusting items using a with and without approach.

Beginning in the three and six-month periods ended June 30, 2019, income tax
expense is adjusted by the amount of additional tax expense or benefit that we
would accrue if we used non-GAAP results instead of GAAP results in the
calculation of our tax liability, taking into consideration our tax structure.
We use a normalized effective tax rate of 35%, which reflects the weighted
average tax rate applicable under the various jurisdictions in which we operate.
This non-GAAP tax rate eliminates the effects of non-recurring and period
specific items which are often attributable to restructuring and acquisition
decisions and can vary in size and frequency. This rate is subject to change
over time for various reasons, including changes in the geographic business mix,
valuation allowances, and changes in statutory tax rates.

We eliminate the effect of significant changes to income tax valuation
allowances from our presentation of adjusted net income to allow investors to
better compare our ongoing financial performance from period to period. We do
not adjust for insignificant changes in tax valuation allowances because we do
not believe it provides more meaningful information than is provided under GAAP.
We believe that 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 2, operating expenses includes selling, general and administrative expenses and other operating expense (income), net.

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Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31,
2019

For the three months ended March 31, 2020, net income was $8 million on revenues
of $532 million, compared with net loss of $2 million on revenues of $562
million for the same period in 2019. The increase in net income of $10 million
was the result of the following items:

•Revenues for the three months ended March 31, 2020 decreased by $30 million, or
5%, as compared with the same period in 2019. The decrease was due to a $23
million decrease in revenue in our Titanium Dioxide segment and a $7 million
decrease in revenue in our Performance Additives segment. See "-Segment
Analysis" below.

•Our operating expenses for the three months ended March 31, 2020 decreased by
$13 million, or 24%, as compared with the same period in 2019, primarily related
to a $7 million reduction of personnel related expenses due to costs savings
initiatives, partially in response to COVID-19, and a $3 million decrease from
the effects of foreign exchange rates.

•Restructuring, impairment and plant closing and transition costs for the three
months ended March 31, 2020 decreased to $7 million from $12 million for the
same period in 2019. For more information concerning restructuring and plant
closing activities, see "Note 6. Restructuring, Impairment, and Plant Closing
and Transition Costs" of the notes to unaudited condensed consolidated financial
statements.

•Our income tax benefit for the three months ended March 31, 2020 was $2 million
compared to income tax expense of $1 million for the same period in 2019. Our
income taxes are significantly affected by the mix of income and losses in the
tax jurisdictions in which we operate, as impacted by the presence of valuation
allowances in certain tax jurisdictions. For further information concerning
taxes, see "Note 9. Income Taxes" of the notes to unaudited condensed
consolidated financial statements.

Segment Analysis
                                                                 Three Months Ended                                Percent Change
                                                                     March 31,                                        Favorable
(Dollars in millions)                                        2020                   2019                         (Unfavorable)
Revenues
Titanium Dioxide                                         $    402$   425                (5  %)
Performance Additives                                         130                    137                (5  %)
Total                                                    $    532$   562                (5  %)
Adjusted EBITDA
Titanium Dioxide                                         $     46$    61               (25  %)
Performance Additives                                          22                     15                47   %
                                                               68                     76               (11  %)
Corporate and Other                                           (11)                   (16)               31   %
Total                                                    $     57$    60                (5  %)



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Three Months Ended March 31, 2020 vs. 2019

                                                               Average Selling Price(1)
                                                                              Foreign Currency
                                                       Local Currency        Translation Impact         Mix & Other         Sales Volumes(2)
Period-Over-Period Increase (Decrease)
Titanium Dioxide                                                (1  %)                    (2  %)              (1  %)                   (1  %)
Performance Additives                                            1   %                    (1  %)              (1  %)                   (4  %)




(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 $402 million in the three
months ended March 31, 2020, a decrease of $23 million, or 5%, compared to the
same period in 2019. The decrease was primarily due to a 1% decline in the
average TiO2 selling price, a 2% unfavorable impact from foreign currency
translation, a 1% decrease in sales volumes, and a 1% unfavorable impact due to
mix and other. The decline in the average TiO2 selling price was primarily
attributable to lower global average functional TiO2 price. Sales volumes
declined compared to the prior year period primarily in certain specialty
applications and were partially offset by higher demand for new products and for
plastics applications.

Adjusted EBITDA for the Titanium Dioxide segment was $46 million for the three
months ended March 31, 2020, a decrease of $15 million compared to the same
period in 2019. The decline was primarily a result of a lower average TiO2
selling price, higher ore costs, and a decline in overall TiO2 volumes. This was
partially offset by lower selling, general and administrative costs, a decline
in other raw materials and energy costs and a $3 million benefit from our 2019
Business Improvement Program.

Performance Additives

The Performance Additives segment generated $130 million of revenues in the
three months ended March 31, 2020, a decline of $7 million, or 5%, compared to
the same period in 2019. The decline was primarily due to a 4% decrease in sales
volumes, a 1% unfavorable impact of foreign currency translation and a 1%
unfavorable impact of mix and other, partially offset by a 1% increase in the
average selling price. The decline in sales volumes was primarily a result of
lower demand for certain coatings and construction-related products, and
portfolio optimization in color pigments and timber treatment.

Adjusted EBITDA in the Performance Additives segment was $22 million, an
increase of $7 million for the three months ended March 31, 2020 compared to the
same period in 2019. The increase was primarily due to favorable mix of sales
within the businesses, lower selling, general and administrative costs, lower
raw material, energy and other costs, and a $1 million benefit from our 2019
Business Improvement Program, partially offset by a decline in sales volumes.

Corporate and Other


Corporate and other represents expenses which are not allocated to our segments.
Losses from Corporate and Other were $11 million, or $5 million lower in the
three months ended March 31, 2020 compared to the same period in 2019. This was
primarily as a result of favorable foreign currency translation and lower costs
in various corporate functions.

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Liquidity and Capital Resources

We had cash and cash equivalents of $25 million and $55 million as of March 31,
2020 and December 31, 2019, respectively. We have an ABL Facility with an
available aggregate principal amount of up to $350 million. Availability to
borrow under the ABL Facility is subject to a borrowing base calculation
comprising both accounts receivable and inventory in the U.S., Canada, the U.K.
and Germany and only accounts receivable in France and Spain. Thus, the base
calculation fluctuates and may be further impacted by the lenders' discretionary
ability to impose reserves and availability blocks that might otherwise
incrementally increase borrowing availability. The borrowing base calculation as
of March 31, 2020 is approximately $273 million, of which $191 million is
available to be drawn.

As we cannot predict the duration or scope of the COVID-19 pandemic and its
impact on our customers and suppliers, the potential adverse financial impact to
our results cannot be reasonably estimated, but could be material. 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, which are incremental to ongoing
improvement programs, include implementing additional actions to reduce costs,
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 believe that these steps to improve
cash flow and liquidity will allow us to meet our anticipated funding
requirements for the next twelve months. We may also seek to take advantage of
opportunities to raise capital through additional debt financing, and may, from
time to time, discuss such opportunities with potential credit investors.

Items Impacting Short-Term and Long-Term Liquidity


Our liquidity can be significantly impacted by various factors in addition to
those described below. The following matters had, or are expected to have, a
significant impact on our liquidity:

•Cash invested in our accounts receivable and inventory, net of accounts
payable, as reflected in our unaudited condensed consolidated statements of cash
flows increased by $25 million for the three months ended March 31, 2020 as
compared to the same period in the prior year. We expect our working capital to
be a source of liquidity through 2020 as we take measures to respond to the
impact of the COVID-19 pandemic, which are incremental to efforts already in
place, including managing our production network and inventory levels to align
with customer demand.

•We expect to spend approximately $60 million on capital expenditures during
2020, which reflects a decrease from the expected 2020 capital expenditures of
$80 million to $90 million reported in the fourth quarter of 2019, primarily as
a result of actions we expect to take to preserve liquidity in response to the
impact of the COVID-19 pandemic.

•Our future capital expenditures include certain EHS maintenance and upgrades,
planned periodic maintenance and repairs applicable to major units of
manufacturing facilities; certain cost reduction projects; and the cost to
transfer specialty and differentiated manufacturing from Pori, Finland to other
sites within our manufacturing network. This excludes other Pori site capital
expenditures. We expect to fund this spending with cash on hand as well as cash
provided by operations and borrowings.

•During the three months ended March 31, 2020, we made contributions to our
pension and postretirement benefit plans of $11 million. During the remainder of
2020, we expect to contribute an additional amount of approximately $24 million
to these plans.

•We are involved in a number of cost reduction programs for which we have
established restructuring accruals. As of March 31, 2020, we had $13 million of
accrued restructuring costs of which $7 million is classified as current. We
expect to incur additional restructuring and plant closing costs of
approximately $17 million, including $1 million for noncash charges, and pay
approximately $21 million through the remainder of 2020.
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For further discussion of these plans and the costs involved, see "Note 6.
Restructuring, Impairment, and Plant Closing and Transition Costs" of the notes
to unaudited condensed consolidated financial statements.

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

•On January 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 2020. 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.

•In the first quarter of 2020, we initiated consultations with employee
representatives on a proposal to restructure our manufacturing facility at our
German operations. Until the consultation process is concluded, the
restructuring is not considered probable, and the total potential costs
associated with this contemplated proposal, which are expected to be
significant, cannot be determined. If the consultation process is successfully
concluded, the Company would expect, at that time, to record charges related to
the program including employee severance costs, accelerated depreciation and
other costs associated with restructuring our manufacturing facility. The amount
and timing of the recognition of these charges and the related cash expenditures
will depend on a number of factors, including the timing of the completion of
the consultation process and the negotiated elements of the associated plan. We
expect the cash benefit of this potential restructuring to more than offset cash
expenditures to be incurred for its implementation.

•We have $732 million in aggregate principle outstanding consisting of $371
million of 5.75% Senior Notes due 2025, and a $361 million Term Loan Facility.
We also had $60 million outstanding on our ABL Facility. Through March 31, 2020,
we are in compliance with all applicable financial covenants included in the
terms of our Senior Notes and Senior Credit Facility. In July 2017, the U.K.'sFinancial 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 unaudited condensed
consolidated financial statements. See further discussion under "Financing
Arrangements."

As of March 31, 2020 and December 31, 2019, we had $70 million and $13 million, respectively, classified as current portion of debt.


As of March 31, 2020 and December 31, 2019, we had $14 million and $16 million,
respectively, of cash and cash equivalents held outside of the U.S. and Europe,
including our variable interest entities. As of March 31, 2020, our non-U.K.
subsidiaries have no plan to distribute funds in a manner that would cause them
to be subject to U.K., or other local country taxation. In the first quarter of
2019, a non-U.K. subsidiary distributed $12 million to a U.K. subsidiary subject
to a 5% withholding tax.

Cash Flows for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019


Net cash used in operating activities was $58 million for the three months ended
March 31, 2020, compared to $29 million for the three months ended March 31,
2019. The unfavorable variance in net cash used in operating activities
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for the three months ended March 31, 2020 compared with the same period in 2019
was primarily attributable to a $33 million unfavorable variance in operating
assets and liabilities for 2020 as compared with the same period in 2019,
partially offset by a $10 million increase in net income as described in
"-Results of Operations" above.

Net cash used in investing activities was $27 million for the three months ended
March 31, 2020, compared to $53 million for the three months ended March 31,
2019. The decrease in net cash used in investing activities was primarily
attributable to a decrease in capital expenditures of $21 million primarily as a
result of higher capital expenditures related to our TiO2 manufacturing facility
in Pori, Finland in the prior year period.

Net cash provided by financing activities was $56 million for the three months
ended March 31, 2020, compared to $3 million used in financing activities for
the three months ended March 31, 2019. The increase in net cash provided by
financing activities for the three months ended March 31, 2020 compared with the
same period in 2019 was primarily attributable to $63 million of proceeds from
issuance of short-term debt, partially offset by $5 million increase in net
payments on notes payable.

Changes in Financial Condition


The following information summarizes our working capital as of March 31, 2020
and December 31, 2019:

                                                                                                        Increase
(Dollars in millions)                              March 31, 2020         December 31, 2019            (Decrease)           Percent Change
Cash and cash equivalents                         $          25          $            55            $       (30)                   (55  %)
Accounts receivable, net                                    367                      321                     46                     14   %
Accounts receivable from affiliates                          10                        -                     10                     NM
Inventories                                                 492                      513                    (21)                    (4  %)
Prepaid expenses                                             16                       21                     (5)                   (24  %)
Other current assets                                         58                       67                     (9)                   (13  %)
Total current assets                              $         968          $           977            $        (9)                    (1  %)
Accounts payable                                            284                      334                    (50)                   (15  %)
Accounts payable to affiliates                               17                       17                      -                      -   %
Accrued liabilities                                         104                      116                    (12)                   (10  %)
Current operating lease liability                             8                        8                      -                      -
Current portion of debt                                      70                       13                     57                    438   %
Total current liabilities                         $         483          $           488            $        (5)                    (1  %)
Working capital                                   $         485          $           489            $        (4)                    (1  %)


Our working capital decreased by $4 million as a result of the net impact of the following significant changes:


•Cash and cash equivalents decreased by $30 million primarily due to outflows of
$58 million from operating activities, and $27 million from investing
activities, partially offset by inflows of $56 million provided by financing
activities as described in the statement of cash flows analysis above.
•Accounts receivable increased by $46 million primarily due to seasonally higher
revenues in the first quarter of 2020 compared to the fourth quarter of 2019.
Collections on accounts receivable during the first quarter of 2020 have not
been impacted by COVID-19 although we cannot currently predict the impact that
the pandemic will have in future periods.
•Inventory decreased $21 million reflecting lower levels of finished goods at
March 31, 2020 as compared to the prior year end as a result of seasonality and
efforts across the organization to manage inventory levels.
•Accounts payable decreased by $50 million primarily as a result of an $18
million reduction in capital accruals and the impact of timing of cash payments
versus the receipt of raw materials.
•Accrued liabilities decreased by $12 million primarily due to the timing of
interest and bonus payments during the year.
                                       34

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  Table of     Contents
•Current portion of debt increased by $57 million primarily due to borrowings on
our ABL facility during the first quarter of 2020.

Financing Arrangements

For a discussion of financing arrangements see "Note 7. Debt" of the notes to unaudited condensed consolidated financial statements.

Restructuring, Impairment and Plant Closing and Transition Costs


For a discussion of our restructuring plans and the costs involved, see "Note 6.
Restructuring, Impairment, and Plant Closing and Transition Costs" of the notes
to unaudited condensed consolidated financial statements.

Legal Proceedings

For a discussion of legal proceedings, see "Note 11. Commitments and Contingencies-Legal Matters" of the notes to unaudited condensed consolidated financial statements.

Environmental, Health and Safety Matters


As noted in the 2019 Form 10-K, specifically within "Part I. Item 1.
Business-Environmental, Health and Safety Matters" and "Part I. Item 1A. Risk
Factors," 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 "Note 12. Environmental, Health and Safety
Matters" of the notes to unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, see "Note 2. Recently Issued Accounting Pronouncements" of the notes to unaudited condensed consolidated financial statements.

Critical Accounting Policies


The preparation of financial statements and related disclosures in conformity
with U.S. GAAP requires management to make judgments, estimates and assumptions
that affect the reported amounts in our unaudited condensed consolidated
financial statements. There have been no changes to our critical accounting
policies or estimates. See the Company's critical accounting policies in "Part
2. Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations-Critical Accounting Policies" in the 2019 Form 10-K.

© Edgar Online, source Glimpses


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