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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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08/04/2020 | 11:08am 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 have had an adverse effect on our business and the markets in which we operate, the full extent of which cannot 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, requiring temperature checks at our manufacturing sites, removing
contractors from site, increasing cleaning and sanitizing measures, implementing
social distancing protocols, requiring work-from-home arrangements for certain
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 at each
relevant location 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 seeking alternative
arrangements in case our primary suppliers are impacted by the COVID-19
pandemic.

During the three months ended June 30, 2020, COVID-19 had a material impact on
demand for our products as sales were impacted by 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 future
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 Developments

On May 22, 2020, we completed an offering of $225 million in aggregate principal
amount of Senior Secured Notes due on July 1, 2025 at 98% of their face value.
The Senior Secured Notes are obligations of our wholly owned subsidiaries,
Venator Finance S.à r.l. and Venator Materials LLC and bear interest of 9.5% per
year payable semi-annually in arrears. The Senior Secured Notes are guaranteed
on a senior secured basis by Venator and each of Venator's restricted
subsidiaries (other than the Issuers and certain other excluded subsidiaries)
that is a guarantor under Venator's Term Loan Facility. In the future, the
Senior Secured Notes will also be guaranteed on a senior secured basis by each
of Venator's restricted subsidiaries (other than the Issuers and certain other
excluded subsidiaries) that is a guarantor under Venator's ABL Facility. The
Senior Secured Notes are secured on a first-priority basis by liens on all of
the assets that secure the Term Loan Facility on a first-priority basis and will
be secured on a second-priority basis in all inventory, accounts receivable,
deposit accounts, securities accounts, certain related assets and other current
assets that secure the ABL Facility on a first-priority basis and the Term Loan
Facility on a second-priority basis, in each case, other than certain excluded
assets.

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 the
COVID-19 pandemic resulting in decreased demand for our products; (ii)
geopolitical events including Brexit and ongoing trade negotiations between the
U.S. and China; (iii) the phased reopening of economies, the pace and timing of
which will differ by region and country, and its impact on our mix of sales;
(iv) variability in demand for our products based on end-use application; (v)
TiO2 pricing to reflect regional supply and demand balances, increased
competition in certain regions for certain of our products and our
customer-tailored approach; (vi) a manageable increase in the average cost of
our mix of ore feedstocks; (vii) lower raw material and energy costs, excluding
ore feedstocks; (viii) reduced operating rates at our manufacturing facilities;
(ix) additional benefit from our 2019 Business Improvement Program; and (x)
benefits 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
the COVID-19 pandemic resulting in decreased demand for our products; (ii)
geopolitical events including Brexit and ongoing trade negotiations between the
U.S. and China; (iii) the phased reopening of economies, the pace and timing of
which will differ by region and country, and its impact on our mix of sales;
(iv) a soft but improving demand environment for certain products, primarily
those in the automotive, coatings, and certain construction end-use
applications; (v) reduced operating rates at our manufacturing facilities; (vi)
portfolio optimization actions; (vii) additional benefit from our 2019 Business
Improvement Program; and (viii) benefits 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 $28 million of savings through the second quarter of
2020, $4 million of which was achieved in the second 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 the first quarter of 2020, and in response to the expected adverse impact of
the COVID-19 pandemic, we implemented a range of measures to reduce our costs.
These measures include reducing employee compensation, including a reduction in
salaries, changes and reductions to bonus schemes and employee furloughs, and
reduced spending on other discretionary items. In the second quarter of 2020, we
delivered $7 million of savings related to these actions.

In 2020, total capital expenditures are expected to be approximately $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
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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 $45 million in 2020.



Results of Operations

The following table sets forth our consolidated results of operations for the three and six months ended June 30, 2020 and 2019:

                                                      Three Months Ended                                                            Six Months Ended
                                                           June 30,                                                                     June 30,
(Dollars in millions)                              2020                  2019            % Change            2020               2019                % Change
Revenues                                       $    456$ 578                 (21  %)       $ 988$      1,140                  (13  %)
Cost of goods sold                                  411                  511                 (20  %)         882                   997                  (12  %)
Operating expenses(4)                                46                   45                   2  %           88                   100                  (12  %)
Restructuring, impairment and plant closing
and transition costs                                  5                    -                      NM          12                    12                    -  %
Operating (loss) income                              (6)                  22                      NM           6                    31                  (81  %)
Interest expense, net                               (12)                 (10)                (20  %)         (22)                  (21)                  (5  %)
Other income                                          3                    1                 200  %            7                     2                  250  %
(Loss) income before income taxes                   (15)                  13                      NM          (9)                   12                       NM
Income tax (expense) benefit                         (2)                   9                      NM           -                     8                 (100  %)
Net (loss) income                                   (17)                  22                      NM          (9)                   20                       NM
Reconciliation of net (loss) income to
adjusted EBITDA:
Interest expense, net                                12                   10                  20  %           22                    21                    5  %
Income tax expense (benefit)                          2                   (9)                     NM           -                    (8)                (100  %)
Depreciation and amortization                        28                   29                  (3  %)          56                    55                    2  %
Net income attributable to noncontrolling
interests                                            (2)                  (1)               (100  %)          (3)                   (2)                 (50  %)
Other adjustments:
Business acquisition and integration
(adjustments) expenses                                -                   (1)                                  1                     1

Loss on disposition of business/assets                -                    -                                   2                     -
Certain legal expenses/settlements                    3                    1                                   3                     1
Amortization of pension and postretirement
actuarial losses                                      4                    4                                   7                     8
Net plant incident costs                              2                    6                                   3                    13
Restructuring, impairment and plant closing
and transition costs                                  5                    -                                  12                    12
Adjusted EBITDA(1)                             $     37$  61$  94$        121

Net cash used in operating activities                                                                      $ (20)$        (50)                 (60  %)
Net cash used in investing activities                                                                        (47)                  (82)                 (43  %)
Net cash provided by financing activities                                                                    200                    17                1,076  %
Capital expenditures                                                                                         (47)                  (83)                 (43  %)


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                                                                                Three Months Ended                     Three Months Ended
(Dollars in millions, except per share amounts)                                   June 30, 2020                           June 30, 2019

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

                                                              $             (17)                     $             22
Net income attributable to noncontrolling interests                                           (2)                                   (1)
Other adjustments:
Business acquisition and integration adjustments                                               -                                    (1)

Certain legal expenses/settlements                                                             3                                     1
Amortization of pension and postretirement actuarial losses                                    4                                     4
Net plant incident costs                                                                       2                                     6
Restructuring, impairment and plant closing and transition costs                               5                                     -
Income tax adjustments(3)                                                                      2                                   (17)
Adjusted net (loss) income attributable to Venator Materials PLC
ordinary shareholders(2)                                                       $              (3)                     $             14

Weighted-average shares-basic                                                              106.7                                 106.6
Weighted-average shares-diluted                                                            106.7                                 106.6

Net (loss) income attributable to Venator Materials PLC ordinary
shareholders per share:
Basic                                                                          $           (0.18)                     $           0.20
Diluted                                                                        $           (0.18)                     $           0.20

Other non-GAAP measures:
Adjusted net (loss) income per share(2):
Basic                                                                          $           (0.03)                     $           0.13
Diluted                                                                        $           (0.03)                     $           0.13




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                                                                                 Six Months Ended                       Six Months Ended
(Dollars in millions, except per share amounts)                                    June 30, 2020                          June 30, 2019

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

                                                              $            (9)                        $           20
Net income attributable to noncontrolling interests                                         (3)                                    (2)
Other adjustments:
Business acquisition and integration expenses                                                1                                      1

Loss on disposition of business/assets                                                       2                                      -
Certain legal expenses/settlements                                                           3                                      1
Amortization of pension and postretirement actuarial losses                                  7                                      8
Net plant incident costs                                                                     3                                     13
Restructuring, impairment and plant closing and transition costs                            12                                     12
Income tax adjustments(3)                                                      $            (7)                        $          (25)
Adjusted net income attributable to Venator Materials PLC ordinary
shareholders(2)                                                                $             9                         $           28

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

Net (loss) income attributable to Venator Materials PLC ordinary
shareholders per share:
Basic                                                                                    (0.11)                                  0.17
Diluted                                                                                  (0.11)                                  0.17

Other non-GAAP measures:
Adjusted net income per share(2):
Basic                                                                                     0.08                                   0.26
Diluted                                                                                   0.08                                   0.26



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) certain legal expenses/settlements; (d)
amortization of pension and postretirement actuarial losses/gains; (e) net plant
incident costs/credits; and (f) 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
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impact of interest expense on earnings can vary significantly among companies.
In addition, the tax positions of companies can vary because of their differing
abilities to take advantage of tax benefits and because of the tax policies of
the various jurisdictions in which they operate. As a result, effective tax
rates and tax expense can vary considerably among companies. Finally, companies
employ productive assets of different ages and utilize different methods of
acquiring and depreciating such assets. This can result in considerable
variability in the relative costs of productive assets and the depreciation and
amortization expense among companies.

Nevertheless, our management recognizes that there are limitations associated
with the use of adjusted EBITDA in the evaluation of us as compared to net
income. Our management compensates for the limitations of using adjusted EBITDA
by using it 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) certain legal
expenses/settlements; (d) amortization of pension and postretirement actuarial
losses/gains; (e) net plant incident costs/credits; and (f) 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.

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(4)As presented within Item 2, operating expenses includes selling, general and
administrative expenses and other operating expense (income), net.

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019


For the three months ended June 30, 2020, net loss was $17 million on revenues
of $456 million, compared with net income of $22 million on revenues of $578
million for the same period in 2019. The decrease in net income of $39 million
was the result of the following items:

•Revenues for the three months ended June 30, 2020 decreased by $122 million, or
21%, as compared with the same period in 2019. The decrease was due to a $101
million decrease in revenue in our Titanium Dioxide segment and a $21 million
decrease in revenue in our Performance Additives segment. See "-Segment
Analysis" below.

•Our operating expenses for the three months ended June 30, 2020 increased by $1
million, or 2%, as compared with the same period in 2019, primarily related to a
$2 million increase in other operating expenses and $4 million negative impact
of foreign exchange rates partially offset by $5 million reduction of personnel
related expense due to cost savings initiatives, partially in response to
COVID-19.

•Restructuring, impairment and plant closing and transition costs for the three
months ended June 30, 2020 increased to $5 million from nil 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 expense for the three months ended June 30, 2020 was $2 million
compared to income tax benefit of $9 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
                                                                      June 30,                                        Favorable
(Dollars in millions)                                        2020                   2019                         (Unfavorable)
Revenues
Titanium Dioxide                                         $    338$   439               (23  %)
Performance Additives                                         118                    139               (15  %)
Total                                                    $    456$   578               (21  %)
Adjusted EBITDA
Titanium Dioxide                                         $     35$    55               (36  %)
Performance Additives                                          13                     16               (19  %)
                                                               48                     71               (32  %)
Corporate and other                                           (11)                   (10)              (10  %)
Total                                                    $     37$    61               (39  %)



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Three Months Ended June 30, 2020 vs. 2019

                                                             Average Selling Price(1)
                                                         Local            Foreign Currency
                                                        Currency         Translation Impact         Mix & Other         Sales Volumes(2)
Period-Over-Period Increase (Decrease)
Titanium Dioxide                                              -  %                    (1  %)              (1  %)                  (21  %)
Performance Additives                                         3  %                    (1  %)              (1  %)                  (16  %)




(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 $338 million for the three
months ended June 30, 2020, a decrease of $101 million, or 23%, compared to the
same period in 2019. The decrease was primarily due to a 21% decline in TiO2
sales volumes, a 1% unfavorable impact from foreign currency translation and a
1% unfavorable impact due to mix and other. TiO2 sales volumes declined across
all product categories and regions, most notably in Europe, primarily due to
lower demand as a result of the impact of COVID-19. The average TiO2 selling
price remained stable compared to the prior year period and the first quarter of
2020.

Adjusted EBITDA for the Titanium Dioxide segment was $35 million for the three
months ended June 30, 2020, a decrease of $20 million compared to the same
period in 2019. The decline was primarily a result of a decline in overall TiO2
sales volumes. This was partially offset by a reduction in costs, primarily
related to actions taken in response to the COVID-19 pandemic, and a benefit of
more than $3 million from our 2019 Business Improvement Program.

Performance Additives


The Performance Additives segment generated revenues of $118 million for the
three months ended June 30, 2020, a decline of $21 million, or 15%, compared to
the same period in 2019. The decline was primarily attributable to a 16%
decrease in sales volumes, a 1% unfavorable impact of mix and other and a 1%
unfavorable impact of foreign currency translation, partially offset by a 3%
increase in the average selling price. The decline in sales volumes was
primarily a result of lower demand in our color pigments and functional
additives businesses due to the impact of the COVID-19 pandemic. The average
selling price increased primarily as a result of favorable mix within our color
pigments and timber treatment businesses.

Adjusted EBITDA for the Performance Additives segment was $13 million for the
three months ended June 30, 2020, a decrease of $3 million compared to the same
period in 2019. The decrease was primarily attributable to a decline in sales
volumes due to the impact of COVID-19, partially offset by a reduction in costs,
primarily related to actions taken in response to the COVID-19 pandemic, and a
benefit of less than $1 million from our 2019 Business Improvement Program.

Corporate and other


Corporate and other represents expenses which are not allocated to our segments.
Losses from Corporate and other were $11 million in the three months ended June
30, 2020, or $1 million higher compared to the same period in 2019. This was
primarily a result of unfavorable foreign currency translation. We expect
Corporate and other to be approximately $45 million for the full year 2020.
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Table of Contents Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019


For the six months ended June 30, 2020, net loss was $9 million on revenues of
$988 million, compared with net income of $20 million on revenues of $1,140
million for the same period in 2019. The decrease of $29 million in net income
was the result of the following items:

•Revenues for the six months ended June 30, 2020 decreased by $152 million, or
13%, as compared with the same period in 2019. The decrease was due to a $124
million, or 14%, decline in revenue in our Titanium Dioxide segment and a $28
million, or 10%, decline in revenue in our Performance Additives segment,
primarily due to lower sales volumes. See "-Segment Analysis" below.

•Our operating expenses for the six months ended June 30, 2020 decreased by $12
million, or 12%, as compared with the same period in 2019, primarily related to
a $14 million savings from personnel related expense due to cost savings
initiatives, partially in response to COVID-19, partially offset by a $1 million
increase in other operating expenses in 2020 and $1 million unfavorable impact
of foreign exchange rates.

•Restructuring, impairment and plant closing and transition costs for the six
months ended June 30, 2020 was $12 million compared to $12 million for the same
period in 2019. For more information concerning restructuring activities, see
"Note 6. Restructuring, Impairment, and Plant Closing and Transition Costs" of
the notes to unaudited condensed consolidated financial statements.

•Our income tax expense for the six months ended June 30, 2020 was nil compared
to income tax benefit of $8 million for the same period in 2019. Our income tax
expense is significantly affected by the mix of income and losses in the tax
jurisdictions in which we operated, 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.
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Segment Analysis
                                                                Six Months Ended                              Percent Change
                                                                    June 30,                                     Favorable
(Dollars in millions)                                        2020              2019                         (Unfavorable)
Revenues
Titanium Dioxide                                          $    740$   864               (14  %)
Performance Additives                                          248              276               (10  %)
Total                                                     $    988$ 1,140               (13  %)
Segment adjusted EBITDA
Titanium Dioxide                                          $     81$   116               (30  %)
Performance Additives                                           35               31                13  %
                                                               116              147               (21  %)
Corporate and other                                            (22)             (26)               15  %
Total                                                     $     94$   121               (22  %)



                                                                               Six Months Ended June 30, 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  %)                    (1  %)              (1  %)                  (11  %)
Performance Additives                                             2  %                     (1  %)              (1  %)                  (10  %)




(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 $740 million for the six
months ended June 30, 2020, a decrease of $124 million, or 14%, compared to the
same period in 2019. The decrease was primarily attributable to an 11% decline
in TiO2 sales volumes, a 1% decrease in the average TiO2 selling price, a 1%
unfavorable impact of foreign currency translation and a 1% unfavorable impact
due to mix and other. The decline in TiO2 sales volumes was primarily a result
of the impact of the COVID-19 pandemic on demand in the second quarter of 2020.
The decline in demand was broadly across all regions and for functional,
differentiated and specialty TiO2 products, and partially offset by higher
demand for new products and for plastics applications. The average TiO2 selling
price was approximately stable compared to the prior year period.

Adjusted EBITDA for the Titanium Dioxide segment was $81 million for the six
months ended June 30, 2020, a decrease of $35 million, or 30%, compared to the
same period in 2019. The decline was primarily a result of a decline in overall
TiO2 sales volumes as a result of the impact of COVID-19 and higher ore costs.
This was partially offset by an improvement in other costs, including selling,
general and administrative costs, primarily related to actions taken in response
to the COVID-19 pandemic, a decline in other raw material costs, and a benefit
of approximately $7 million from our 2019 Business Improvement Program.

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Performance Additives

The Performance Additives segment generated revenue of $248 million for the six
months ended June 30, 2020, a decline of $28 million, or 10%, compared to the
same period in 2019. The decline was primarily due to a 10% decrease in sales
volumes, a 1% unfavorable impact of mix and other and a 1% unfavorable impact of
foreign currency translation, partially offset by a 2% increase in the average
selling price. The decline in sales volumes was primarily a result of lower
demand for color pigments and functional additives products due to the impact of
COVID-19 on demand for construction, coatings and automotive end-use
applications. The average selling price increased primarily as a result of
favorable mix within our color pigments and timber treatment businesses.

Adjusted EBITDA in the Performance Additives segment was $35 million, an
increase of $4 million, or 13%, for the six months ended June 30, 2020 compared
to the same period in 2019. The increase was primarily attributable to an
improvement in manufacturing costs, including raw materials and energy costs,
and selling general and administrative costs primarily related to actions taken
in response to the COVID-19 pandemic and a benefit of approximately $1 million
from our 2019 Business Improvement Program, and partially offset by a decline in
sales volumes due to the impact of COVID-19.

Corporate and other


Corporate and other represents expenses which are not allocated to our segments.
Losses from Corporate and other were $22 million, or $4 million lower for the
six months ended June 30, 2020 than the same period in 2019. This was primarily
a result of lower costs in various corporate functions and a benefit of $1
million from our 2019 Business Improvement Program.

Liquidity and Capital Resources


We had cash and cash equivalents of $188 million and $55 million as of June 30,
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 June 30, 2020 is approximately $289 million, of which $265 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 may also seek to take advantage of
opportunities to raise or refinance capital through debt financing, and may,
from time to time, discuss such opportunities with potential lenders or
investors.

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 decreased by $33 million for the six months ended June 30, 2020 as
compared to the same period in the prior year. We expect our working capital to
be a source of liquidity in 2020 as we take measures to respond to the impact of
the COVID-19 pandemic, which are
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•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 six months ended June 30, 2020, we made contributions to our pension
and postretirement benefit plans of $12 million. During the remainder of 2020,
we expect to contribute an additional amount of approximately $23 million to
these plans.

•We are involved in a number of cost reduction programs for which we have
established restructuring accruals. As of June 30, 2020, we had $12 million of
accrued restructuring costs of which $6 million is classified as current. We
expect to incur additional restructuring and plant closing costs of
approximately $10 million, including $1 million for noncash charges, and pay
approximately $16 million through the remainder of 2020. 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 $28 million of savings through the second quarter of
2020, $4 million of which was achieved in the second 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 the first quarter of 2020, and in response to the expected adverse impact of
the COVID-19 pandemic, we implemented a range of measures to reduce our costs.
These measures include reducing employee compensation, including a reduction in
salaries, changes and reductions to bonus schemes and employee furloughs, and
reduced spending on other discretionary items. In the second quarter of 2020, we
delivered $7 million of savings related to these actions.

•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
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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 $945 million in debt outstanding under our $371 million Term Loan
Facility, $214 million of 9.5% Senior Secured Notes due 2025 and $360 million of
5.75% Senior Unsecured Notes due 2025. Through June 30, 2020, we are in
compliance with all applicable financial covenants included in the terms of our
Senior Credit Facility, Senior Secured Notes and Senior Unsecured Notes. 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 June 30, 2020 and December 31, 2019, we had $7 million and $13 million, respectively, classified as current portion of debt.


As of June 30, 2020 and December 31, 2019, we had $12 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 June 30, 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 Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019


Net cash used in operating activities was $20 million for the six months ended
June 30, 2020, compared to $50 million for the six months ended June 30, 2019.
The favorable variance in net cash used in operating activities for the six
months ended June 30, 2020 compared with the same period in 2019 was primarily
attributable to a $41 million favorable variance in operating assets and
liabilities and a $9 million favorable variance in deferred income taxes for
2020 as compared with the same period in 2019, partially offset by a $29 million
decrease in net income as described in "-Results of Operations" above.

Net cash used in investing activities was $47 million for the six months ended
June 30, 2020, compared to $82 million for the six months ended June 30, 2019.
The decrease in net cash used in investing activities was primarily attributable
to a decrease in capital expenditures of $36 million.

Net cash provided by financing activities was $200 million for the six months
ended June 30, 2020, compared to $17 million provided by financing activities
for the six months ended June 30, 2019. The increase in net cash provided by
financing activities for the six months ended June 30, 2020 compared with the
same period in 2019 was primarily attributable to $221 million of proceeds from
issuance of long-term debt, partially offset by $24 million decrease in net
borrowings under the ABL Facility.

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Changes in Financial Condition

The following information summarizes our working capital as of June 30, 2020 and
December 31, 2019:

                                                                                                       Increase
(Dollars in millions)                              June 30, 2020         December 31, 2019            (Decrease)          Percent Change
Cash and cash equivalents                         $        188          $            55            $       133                   242  %
Accounts receivable, net                                   319                      321                     (2)                   (1  %)
Accounts receivable from affiliates                         13                        -                     13                        NM
Inventories                                                487                      513                    (26)                   (5  %)
Prepaid expenses                                            10                       21                    (11)                  (52  %)
Other current assets                                        58                       67                     (9)                  (13  %)
Total current assets                              $      1,075          $           977            $        98                    10  %
Accounts payable                                           242                      334                    (92)                  (28  %)
Accounts payable to affiliates                              15                       17                     (2)                  (12  %)
Accrued liabilities                                         99                      116                    (17)                  (15  %)
Current operating lease liability                            8                        8                      -                     -
Current portion of debt                                      7                       13                     (6)                  (46  %)
Total current liabilities                         $        371          $           488            $      (117)                  (24  %)
Working capital                                   $        704          $           489            $       215                    44  %


Our working capital decreased by $215 million as a result of the net impact of the following significant changes:


•Cash and cash equivalents increased by $133 million primarily due to inflows of
$200 million provided by financing activities, partially offset by outflows of
$20 million from operating activities and $47 million from investing activities
as described in the statement of cash flows analysis above.
•Accounts receivable decreased by $2 million, or less than 1%, from December 31,
2019 to June 30, 2020. Collections on accounts receivable during the first half
of 2020 have not been materially impacted by COVID-19 although we cannot
currently predict the impact that the pandemic will have in future periods.
•Inventory decreased $26 million at June 30, 2020 as compared to the prior year
end reflecting a decrease in raw materials as we manage our inventory levels to
respond to reductions in customer demand during the COVID-19 pandemic.
•Accounts payable decreased by $94 million primarily as a result of $25 million
less in capital accruals and the impact of timing of cash payments versus the
receipt of raw materials.
•Accrued liabilities decreased by $17 million primarily due to a decrease in
accrued compensation costs.
•Current portion of debt decreased by $6 million primarily due to net payments
on notes payable during the first half 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.

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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.

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