Venator Materials (VNTRF) 6-K2023 Q1 Current report (foreign)

Forward-looking statements are based on certain assumptions and expectations of future events which may not be accurate or realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond our control. Important factors that may materially affect such forward-looking statements and projections include those risks and uncertainties described from time to time in the documents we file with the U.S. Securities and Exchange Commission (the “SEC”), including under “Part I. Item 3.D. Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2022 and "Part II. Item 1A. Risk Factors" in this Report on Form 6-K.

All forward-looking statements, including, without limitation, management’s examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements whether because of new information, future events or otherwise, except as required by securities and other applicable law.

Our unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP" or "U.S. GAAP") and in management’s opinion reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, comprehensive loss, financial condition and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 20-F for the year ended December 31, 2022 for our Company.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In the notes to the unaudited condensed consolidated financial statements, all dollar and share amounts in tabulations, except per share amounts, are in millions unless otherwise indicated.

The Company failed to deliver an unqualified opinion without an explanatory paragraph regarding going concern in connection with the audited financial statements for the year ended December 31, 2022 to the lenders under its Term Loan Facility and ABL Facility by March 31, 2023, as was required by the respective Term Loan Facility and ABL Facility credit agreements. This resulted in a “default” under the respective ABL Facility and Term Facility credit agreements. The failure to timely cure such default, which cure was required no later than April 30, 2023, constituted an “event of default” under our Senior Credit Facilities and as a result thereof our lenders may accelerate the repayment of the outstanding borrowings under our facilities and exercise other rights and remedies that they have under applicable laws. Prior to filing the Chapter 11 Cases (as defined below), which gave us the benefit of the automatic stay (see “Note 11. Commitments and Contingencies—Effect of Automatic Stay upon filing under Chapter 11 of the Bankruptcy Code”), we entered into Forbearance Agreements with respect to the Term Loan Facility and the ABL Facility, dated April 30, 2023, pursuant to which our lenders party thereto agreed to forbear from exercising any rights or remedies with respect to certain events of default until the earlier of May 8, 2023 or the occurrence of certain events of termination, subject to the terms and conditions thereof (the “Forbearance Agreements”). Following further discussions, the forbearance was extended another week and the Forbearance Agreements expired on May 14, 2023.

On May 14, 2023 (the “Petition Date”), the Company and certain of its subsidiaries (collectively, the “Debtors” or “Company Parties”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the

The Debtors continue to operate their business and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. To ensure the Company Parties’ ability to continue operating in the ordinary course of business and minimize the effect of the Recapitalization (as defined below) on the Company Parties’ customers and employees, the Company Parties filed with the Bankruptcy Court motions seeking a variety of “first-day” relief, including authority to pay employee wages and benefits, and pay vendors and suppliers for all goods and services, each of which was approved by the Bankruptcy Court. In addition, the Bankruptcy Court approved debtor-in-possession financing in the form of the DIP Facility (as defined and described below) on an interim basis ("Interim DIP Order").

On May 13, 2023, the Debtors entered into a Restructuring Support Agreement (the “Restructuring Support Agreement” or “RSA”) with certain prepetition creditors (the “Consenting Creditors”). The Consenting Creditors represent holders of an overwhelming majority of the aggregate principal amount of the Company’s funded debt obligations under various debt agreements.

In accordance with the Restructuring Support Agreement, the Consenting Creditors agreed, among other things, to:

The Restructuring Support Agreement provides that the Company and certain of its subsidiaries (the “DIP Parties”) enter into a DIP Credit Agreement (the “DIP Credit Agreement”) with Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent of the lenders, and the Term Loan Lenders, Senior Secured Noteholders, and Senior Unsecured Noteholders (in each case as defined in the term sheet attached to the Restructuring Support Agreement (the “DIP Term Sheet”) and in each case in its capacity under the DIP Facility, including its registered assigns, the “DIP Lender,” and together the “DIP Lenders”). Subject to the satisfaction of certain customary conditions, the DIP Lenders have agreed to provide the DIP Parties with a senior secured super-priority, priming debtor-in-possession credit facility (the “DIP Facility”):

The DIP Facility also provides for the roll-up of the Prepetition ABL Facility (as defined in the DIP Term Sheet) into the DIP Facility.

The DIP Facility includes conditions precedent, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. The proceeds of all or a portion of the proposed DIP Facility may be used, subject to and upon entry into the DIP Orders, as applicable, (i) for the Debtors’ working capital needs, including to fund the costs of the administration of the Chapter 11 Cases and to pay adequate protection payments as authorized by the Bankruptcy Court in the Interim DIP Order and the Final DIP Order, in each case in a manner consistent with the DIP Budget (as defined in the DIP Term Sheet), (ii) to pay professional fees and expenses, and (iii) to pay obligations arising from or related to the Carve Out (as defined in the Interim DIP Order). The DIP Credit Agreement provides for customary chapter 11 maturity triggers, including, the earliest to occur of (i) the date falling four months after the commencement of the Chapter 11 Cases, subject to three one-month extensions at the sole discretion of the Majority Lenders (as defined in the DIP Term Sheet), (ii) the Plan Effective Date, (iii) the date of prepayment in cash in full by the Debtors of all DIP Obligations (as defined in the DIP Term Sheet) and termination of all of the DIP Commitments (as defined in the DIP Term Sheet) in accordance with the terms of the DIP Facility, (iv) the date of termination of the DIP Commitments and acceleration of any outstanding extensions of credit following the occurrence and during the continuance of an Event of Default (as defined in the DIP Term Sheet) under the DIP Facility (subject to any applicable cure or noticing periods set forth in the DIP Orders), and (v) the date upon which the Debtors sell all or substantially all of their assets.

The foregoing description of the DIP Facility does not purport to be complete and is qualified in its entirety by reference to the DIP Term Sheet included in the Restructuring Support Agreement, filed as an Exhibit 10.2 to this Report on Form 6-K.

The Plan provides that, on the Plan Effective Date, the Reorganized Debtors will enter into the Exit ABL Facility (as defined in the DIP Term Sheet) and may enter into an exit term loan facility (the “Exit Term Loan Facility”), if the Required Consenting Creditors (as defined in the Restructuring Support Agreement) and the Company agree that such Exit Term Loan Facility is necessary and advisable, each on the terms set forth in the exit financing documents (the “Exit Financing Documents”). Upon confirmation of the Plan, the Exit ABL Facilities and the Exit Financing Documents, as applicable, will be deemed approved, and all transactions contemplated thereby, and all actions to be taken, undertakings to be made, and obligations to be incurred by the Reorganized Debtors in connection therewith, including the payment of all fees, indemnities, expenses, and other payments provided for therein and authorization of the Reorganized Debtors to enter into and execute the Exit Financing Documents and such other documents as may be required to effectuate the treatment afforded by the Exit Facilities.

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Based on our current projections, we expect to continue to incur negative cash flows for the twelve-month period following the date of the filing of this Report on Form 6-K and we believe that our current level of liquidity is not sufficient to fund ongoing operations. We also expect our cash flows to be impacted by recent and future downgrades in our credit ratings, upon which we expect our suppliers to reduce our credit terms or require other assurances, such as prepaying for future deliveries, which will further impact our liquidity.

In connection with our recapitalization efforts, we filed the Chapter 11 Cases on May 14, 2023. The filing of the Chapter 11 Cases constituted an event of default that allowed the respective lenders to accelerate all of our debt obligations under the Term Loan Facility, ABL Facility, the Senior Secured Notes and the Senior Unsecured Notes. As a result, we continue to classify all debt obligations as a current liability in the condensed consolidated balance sheet as of March 31, 2023. Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against or on behalf of the Company Parties, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company Parties’ property. For more information on the automatic stay, including of any events of default, during the pendency of the Chapter 11 Cases, see “Effect of Automatic Stay upon filing under Chapter 11 of the Bankruptcy Code” under Note 11 “Commitments and Contingencies.”

These conditions and events raise substantial doubt about our ability to continue as a going concern.

The unaudited condensed consolidated financial statements included in this Report on Form 6-K do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainty of us being able to continue as a going concern. For additional discussion on our debt obligations, see Note 7 "Debt."

During the three months ended March 31, 2023, we sold emissions allowances in the amount of $44 million. These are included in cash flows from operating activities on our condensed consolidated statement of cash flows.

There were no accounting pronouncements that we adopted during the first quarter of 2023.

Recently issued accounting pronouncements that become effective subsequent to March 31, 2023 will either not have a material impact on us or are not applicable to us.

We generate substantially all of our revenues through sales of inventory in the open market and via long-term supply agreements. At contract inception, we assess the goods promised in our contracts and identify a performance obligation for each promise to transfer to the customer a distinct good. In substantially all cases, a contract has a single performance obligation to deliver a promised good to the customer. Revenue is recognized when the performance obligations under the terms of our contracts are satisfied. Generally, this occurs at the time of shipping, at which point the control of the goods transfers to the customer. Further, in determining whether control has transferred, we consider if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferred goods. Sales, value added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. We have elected to account for all shipping and handling activities as fulfillment costs. We recognize these costs for shipping and handling when control over products have transferred to the customer as an expense in cost of goods sold. We have also elected to expense commissions when incurred as the amortization period of the commission asset that we would have otherwise recognized is less than one year.

The following table disaggregates our revenues by major geographical region for the three months ended March 31, 2023 and 2022:

The following table disaggregates our revenues by major product line for the three months ended March 31, 2023 and 2022:

The amount of consideration we receive and revenue we recognize is based upon the terms stated in the sales contract, which may contain variable consideration such as discounts or rebates. We also give our customers a limited right to return products that have been damaged, do not satisfy their specifications, or for other specific reasons. Payment terms on product sales to our customers typically range from 30 days to 90 days. Although certain exceptions exist where standard payment terms are exceeded, these instances are infrequent and do not exceed one year. Discounts are allowed for some customers for early payment or if certain volume commitments are met. As our standard payment terms are less than one year, we have elected to not assess whether a contract has a significant financing component. In order to estimate the applicable variable consideration at the time of revenue recognition, we use historical and current trend information to estimate the amount of discounts, rebates, or returns to which customers are likely to be entitled. Historically, actual discount or rebate adjustments relative to those estimated and accrued at the point of which revenue is recognized have not materially differed.

We evaluate our investments and transactions to identify variable interest entities for which we are the primary beneficiary. We hold a variable interest in the following joint ventures for which we are the primary beneficiary:

Creditors of these entities have no recourse to Venator’s general credit. As the primary beneficiary of these variable interest entities at March 31, 2023, the joint ventures’ assets, liabilities and results of operations are included in Venator’s unaudited condensed consolidated financial statements.

Venator has initiated various restructuring programs in an effort to reduce operating costs and maximize operating efficiency.

In the fourth quarter of 2022, we implemented a plan to reduce selling, general and administrative expenses across all of our businesses. As part of the program, we recorded cash restructuring expense of less than $1 million for the three months ended March 31, 2023.

In March 2017, we implemented a plan to close the white-end finishing and packaging operation of our titanium dioxide manufacturing facility at our Calais, France site. The announced plan followed the 2015 closure of the black-end manufacturing operations and resulted in the closure of the entire facility. As part of the program, we recorded restructuring and plant closure expense of $1 million for the three months ended March 31, 2023 and March 31, 2022, each, all of which related to plant shutdown costs. We expect to incur additional cash plant shutdown costs for our Calais, France facility of approximately $7 million through 2024.

In September 2018, we implemented a plan to close our Pori, Finland titanium dioxide manufacturing facility. We recorded $2 million of restructuring and plant closing costs for the three months ended March 31, 2023, all of which was related to cash plant shutdown costs.

We recorded restructuring expense related to our Pori, Finland manufacturing facility of $9 million for the three months ended March 31, 2022, of which approximately $5 million was restructuring expense related to the plan and $4 million was non-restructuring plant shutdown costs. Restructuring expense for the three months ended March 31, 2022 was comprised of $3 million related to cash plant shutdown costs and $2 million related to accelerated depreciation.

We expect to incur additional charges related to our Pori facility of approximately $25 million through the end of 2025, of which $1 million relates to accelerated depreciation, $21 million relates to plant shut down costs, $2 million relates to other employee costs and $1 million relates to the write off of other assets. Future charges consist of $2 million of noncash costs and $23 million of cash costs.

The filing of the Chapter 11 Cases constituted an event of default that allowed the respective lenders to accelerate substantially all of our debt obligations. As a result, we have classified all debt obligations as a current liability in the condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022, respectively. Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against or on behalf of the Company Parties, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company Parties’ property. See "Note 1. Description of Business, Recent Developments and Going Concern" for further discussion of our going concern evaluation.

The aggregate principal outstanding under our ABL Facility was $88 million and $80 million as of March 31, 2023 and December 31, 2022, respectively, at an interest rate of approximately 4.2% on our outstanding balances. It is not practical to determine the fair value of the ABL Facility.

Subject to the Chapter 11 Cases, our Senior Credit Facilities provide for first lien senior secured financing of up to $705 million, consisting of:

The Term Loan Facility amortizes in aggregate annual amounts equal to 1% of the original principal amount of the Term Loan Facility and is paid quarterly.

Prior to the filing of the Chapter 11 Cases, availability to borrow under the ABL Facility was 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. The borrowing base calculation as of March 31, 2023, after taking account of $45 million reserved for letters of credit available to be issued by one of our lenders, was approximately $163 million of which $43 million was available to be drawn as a result of approximately $85 million of drawn debt and $35 million of letters of credit issued and outstanding. However, as a result of the Amendment, we are unable to utilize $40 million of the ABL facility availability. See "Note 1. Description of Business, Recent Developments, and Going Concern" for further discussion of our borrowing base and the related going concern evaluation.

On March 30, 2023, we entered into Amendment No. 1 to the Amended and Restated Revolving Credit Agreement (the “Amendment”). The Amendment was entered into to permit the consummation of the Iron Oxide Sale and amend certain provisions of the Existing ABL Credit Agreement, including the replacement of the LIBOR-based reference interest rate with a reference rate based on the Secured Overnight Financing Rate.

Borrowings under the Term Loan Facility bear interest at a rate equal to, at Venator’s option, either (a) a LIBOR based rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs subject to an interest rate floor to be agreed or (b) a base rate determined by reference to the highest of (i) the rate of interest per annum determined from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City, (ii) the federal funds rate plus 0.50% per annum and (iii) the one-month adjusted LIBOR plus 1.00% per annum, in each case plus an applicable margin to be agreed upon. Borrowings under the ABL Facility bear interest at a variable rate equal to an applicable margin based on the applicable quarterly average excess availability under the ABL Facility plus either a LIBOR or a base rate. The applicable margin percentage is calculated and established once every three calendar months and varies from 150 to 200 basis points for LIBOR loans depending on the quarterly average excess availability under the ABL Facility for the immediately preceding three-month period. The Senior Credit Facilities contain covenants that are usual and customary for facilities of this type, including events of default and financial, affirmative and negative covenants. In addition, the ABL Facility contains a springing financial covenant that requires the Company and its restricted subsidiaries to maintain a consolidated fixed charge coverage ratio of at least 1:1 for certain periods of time, if borrowing availability is less than a specified threshold. The Senior Credit Facilities contain customary change of control provisions, the breach of which entitle the lenders to take various actions, including the acceleration of amounts due under the facility.

On April 30, 2023, the Company and the applicable lenders executed Forbearance Agreements with respect to the Term Loan Facility and the ABL Facility, pursuant to which lenders party to Term Loan Facility and the ABL Facility agreed to forbear from exercising any rights or remedies with respect to certain events of default until May 8, 2023, subject to the terms and conditions provided therein. Following further discussions, the forbearance was extended another week and The Forbearance Agreements expired on May14, 2023.

On May 22, 2020, we completed an offering of $225 million in aggregate principal amount of senior secured notes (the "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 (the "Issuers") 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 and 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

Our Senior Unsecured Notes are general unsecured senior obligations of the Issuers and are guaranteed on a general unsecured senior basis by Venator and certain of Venator’s subsidiaries. The indenture related to the Senior Unsecured Notes imposes certain limitations on the ability of Venator and certain of its subsidiaries to, among other things, incur additional indebtedness secured by any principal properties, incur indebtedness of non-guarantor subsidiaries, enter into certain sale and leaseback transactions with respect to any principal properties and consolidate or merge with or into any other person or lease, or sell or transfer all or substantially all of its properties and assets. The Senior Unsecured Notes bear interest of 5.75% per year payable semi-annually and will mature on July 15, 2025. The Senior Unsecured Notes will be redeemable in whole or in part at any time at the redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, up to, but not including, the redemption date. Upon the occurrence of certain change of control events (other than the separation), holders of the Venator Senior Unsecured Notes will have the right to require that the Issuers purchase all or a portion of such holder’s Senior Unsecured Notes in cash at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.

All obligations under the Senior Credit Facilities are guaranteed by Venator and substantially all of our subsidiaries (the "Guarantors"), and are secured by substantially all of the assets of Venator and the Guarantors, in each case subject to certain exceptions. Lien priority as between the Term Loan Facility and the ABL Facility with respect to the collateral will be governed by an intercreditor agreement.

As of March 31, 2023 we had $86 million of issued and outstanding letters of credit and bank guarantees to third parties. Of this amount, $6 million were issued by various banks on an unsecured basis with the remaining $80 million issued from our secured ABL Facility.

In the third quarter of 2022 we entered into an agreement to finance the premiums for some of our corporate insurance programs. The premium finance agreement includes an initial amount of $23 million and interest is payable at 4.4% per annum. Payment of principle and interest is due in monthly installments with the final amount payable in June 2023. Approximately $6 million was outstanding at March 31, 2023 and is included in "current portion of debt" on our condensed consolidated balance sheet.

To reduce cash flow volatility from foreign currency fluctuations, we may enter into forward and swap contracts to hedge portions of cash flows of certain foreign currency transactions. We do not use derivative financial instruments for trading or speculative purposes.

In September 2022, we entered into three new cross-currency interest rate swaps which notionally exchanged $200 million at a fixed rate of 5.75% for €207 million on which a weighted average rate of 4.30% is payable. The cross-

We formally assessed the hedging relationship at the inception of the fair value hedge in order to determine whether the derivatives that are used in the hedging transactions are highly effective in offsetting changes in fair value attributable to the hedged item and we will continue to assess the relationship on an ongoing basis. We used the spot method to measure effectiveness of our cross-currency swap agreement, comparing the quarterly change in the spot exchange rates on the USD notional amount underlying the cross-currency swap designated hereunder and the quarterly change in spot exchange rates on the USD debt. Fair value changes attributable to the change in spot foreign currency rates are recognized in foreign exchange gain (loss), and reported in Other operating expense, net in our condensed consolidated statement of operations, along with the offsetting gains and losses of the related hedged item. We have elected to exclude the forward interest rate differential from the assessment of hedge effectiveness in the fair value hedge and account for it as an excluded component. The changes in fair value of the excluded component of the cross-currency swaps are recorded in Other comprehensive income (loss).

The fair value of these hedges were liabilities of $23 million and $19 million at March 31, 2023 and December 31, 2022, and are recorded as other noncurrent liabilities on our unaudited condensed consolidated balance sheets. We estimate the fair values of our cross-currency swaps by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, credit default swap rates and cross-currency basis swap spreads. The cross-currency swaps have been classified as Level 2 because the fair value is based upon observable market-based inputs or unobservable inputs that are corroborated by market data.

Venator uses the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed on a tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets for each jurisdiction. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of Venator and cumulative income or losses during the applicable period. Cumulative losses incurred over the period limits our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable tax jurisdictions could affect the realization of deferred tax assets in those jurisdictions.

We recorded income tax expense of $1 million and nil for the three months ended March 31, 2023 and 2022, respectively. Our tax expense is significantly affected by the mix of income and losses in tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions.

We expect to release an uncertain tax position of approximately $12 million related to the settlement of an ongoing tax audit, anticipated to occur before December 31, 2023. A full valuation allowance is recognised against the deferred tax assets related to the position, so as a result, no impact to tax expense will occur.

At December 31, 2022, we concluded that there was insufficient positive evidence in our Spanish business to overcome negative evidence. As a result we recognized a full valuation allowance against Spanish net deferred tax assets of $50 million.

Based on management’s ongoing analysis of positive and negative evidence within our Malaysia business we concluded at September 30, 2022 that there was insufficient positive evidence to overcome a history of losses. As a result, we recognized a full valuation allowance against Malaysian net deferred tax assets of $9 million.

For U.S. federal income tax purposes Huntsman recognized a gain as a result of the IPO and the separation to the extent the fair market value of the assets associated with our U.S. businesses exceeded the basis of such assets for U.S. federal income tax purposes at the time of the separation. As a result of such gain recognized, the basis of the assets associated with our U.S. businesses was increased. Pursuant to the tax matters agreement entered into at the time of the separation, we are required to make a future payment to Huntsman for any actual U.S. federal income tax savings we recognize as a result of any such basis increase for tax years through December 31, 2028. As of each of March 31, 2023 and December 31, 2022 our total liability was $21 million. Any subsequent adjustment asserted by U.S. taxing authorities could change the amount of gain recognized with a corresponding basis and liability adjustment for us under the tax matters agreement.

Basic earnings per share excludes dilution and is computed by dividing net income attributable to Venator ordinary shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflects all potential dilutive ordinary shares outstanding during the period and is computed by dividing net income available to Venator ordinary shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities.

For the three months ended March 31, 2023, the number of anti-dilutive employee share-based awards excluded from the computation of diluted earnings per share was 3 million. For the three months ended March 31, 2022, the number of anti-dilutive employee share-based awards excluded from the computation of dilutive earnings per share was 4 million.

Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against or on behalf of the Company Parties. Subject to certain exceptions under the Bankruptcy Code, the filing of the Company Parties’ Chapter 11 Cases automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the Company Parties or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Company Parties’ bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers. See "Note 1. Description of Business, Recent Developments and Going Concern" for further discussion of the Chapter 11 Cases and our going concern evaluation.

Four new title perception demands were issued by the Region dated November 30, 2022, requiring payment of a total of €12 million. Venator filed a claim with the Administrative Court in Lille on January 27, 2023 requesting an order that the new demands be set aside, which will suspend enforcement of the demands.

A settlement was agreed between Venator and the Region on 25 April 2023, subject to certain conditions which we anticipate will be met during the next twelve months, pursuant to which Venator has agreed to transfer the Calais site to the Region and to make a payment to the Region of €2 million, to be paid in two installments.

We have accrued $2 million related to this matter.

In the second quarter of 2021, we requested regional approval for a project for the use of gypsum in a specified on-site area on our Scarlino site. Following a review with relevant regional representatives, we submitted a revised request for regional approval in the first quarter of 2022. Following its determination that a preliminary (or screening) environmental impact assessment would be required, in November 2022 the Tuscany Region issued a further decree requiring a full environmental impact assessment before the project can be approved. We submitted the additional requested information to the Region during the first quarter of 2023, but the Region has not yet approved the project.

We continue to work with the Region to secure approvals for both temporary gypsum storage and permanent landfill capacity. However, we do not intend to restart the facility unless we receive from the Region satisfactory approvals for the temporary storage of gypsum and commitments to approve projects for longer-term permanent landfill capacity. Without such approvals and commitments, we may permanently close the site and subsequently incur associated site closure costs.

In January 2023, we concluded, due to our inability to obtain required approvals from regulatory authorities for various options for gypsum disposal thus far and our assessment of the likelihood of obtaining these approvals prior to the end of the first quarter, that the useful life of the Scarlino property, plant and equipment should be reduced to the end of the second quarter of 2023. We incurred incremental depreciation expense of $33 million during the first quarter of 2023 as a result of this change in useful life.

In September 2022, Venator was the successful bidder in an auction to purchase the La Vallina quarry in Tuscany. Venator successfully completed the purchase of the quarry on January 19, 2023. If we restart our Scarlino facility and we subsequently receive the required approvals from regional authorities to operate the quarry as a landfill, at a future point the La Vallina quarry could be used as a landfill to provide longer-term disposal capacity for gypsum we produce at the Scarlino site.

Under the agreement, we were required to purchase a minimum annual quantity, subject to a mechanism for making up shortfalls. The minimum annual quantity could be reduced (even to zero) in the event of a "Force Majeure Event." We declared that the fire at our Pori facility in January 2017 was a Force Majeure Event under the agreement, reducing the minimum annual quantity to the actual quantity purchased. Gasum alleged that this Force Majeure Event subsequently ceased to apply after an initial period following the fire and that we were thereafter again obliged to purchase the minimum annual quantities and filed arbitration proceedings seeking declaratory relief to require us to "take or pay" for the minimum annual quantities of natural gas. On August 6, 2021, the arbitration tribunal issued its decision in the matter, ruling that we were obligated to continue to purchase the minimum annual quantity under the supply agreement until termination of the supply agreement, which subsequently occurred on August 31, 2022.

We dispute that any sums are yet due and outstanding other than a €3 million termination fee as of October 13, 2022. In the current arbitration proceeding, the arbitral panel has been appointed, and a case management conference took place on May 15, 2023. The hearing is scheduled for late March 2024.

We have accrued $36 million related to this matter of which $17 million is current and has been included in accrued liabilities on our consolidated balance sheet at March 31, 2023.

Under EU Directive 2010/75/EU on industrial emissions, permitted facility operators may be liable for significant pollution of soil and groundwater over the lifetime of the activity concerned. We are in the process of plant closures at facilities in the EU and liability to investigate and clean up waste or contamination may arise during the surrender of operators' permits at these locations under the directive and associated legislation such as the Water Framework Directive (Directive 2000/60/EC) and the Groundwater Directive (Directive 2006/118/EC).

Recent developments in climate change related policy and regulations include the Green Deal in the EU, mandatory TCFD disclosures in the U.K. and the U.K. commitment to becoming carbon neutral by 2050. Other nations have made or indicated a desire to make similar policy changes and commitments, including the Corporate Governance Improvement and Investor Protection Act in the U.S. We have also adopted sustainability targets, which include a target to reduce Scope 1 and Scope 2 greenhouse gas emissions by 50% by 2030 (based on 2016 baseline data) and we are developing a decarbonization strategy for our operating facilities. Legislative changes could also affect us in a number of ways including potential requirements to decarbonize manufacturing processes and increased costs of GHG allowances. We are currently monitoring these developments closely while investigating appropriate climate change strategies to enable us to comply with the new regulations and conform to new disclosure requirements, including TCFD. We expect that our facilities will be subject to additional regulation related to climate change and climate change itself may also have some impact on our operations. However, these impacts are currently uncertain and we cannot predict the nature and scope of these impacts.

We derive our revenues, earnings and cash flows from the manufacture and sale of a wide variety of chemical products. We have reported our operations through our two segments, Titanium Dioxide and Performance Additives, and organized our business and derived our operating segments around differences in product lines.

The following discussion and analysis should be read in conjunction with the information under the heading "Note Regarding Forward-Looking Statements", "Part II. Item 1A. Risk Factors" of this Report on Form 6-K, as well as with our unaudited condensed consolidated financial statements and the related notes included in Item 1 hereto.

The Company failed to deliver an unqualified opinion without an explanatory paragraph regarding going concern in connection with the audited financial statements for the year ended December 31, 2022 to the lenders under its Term Loan Facility and ABL Facility by March 31, 2023, as was required by the respective Term Loan Facility and ABL Facility credit agreements. This resulted in a “default” under the respective ABL Facility and Term Facility credit agreements. The failure to timely cure such default, which cure was required no later than April 30, 2023, constituted an “event of default” under our Senior Credit Facilities and as a result thereof our lenders may accelerate the repayment of the outstanding borrowings under our facilities and exercise other rights and remedies that they have under applicable laws. Prior to filing the Chapter 11 Cases (as defined below), which gave us the benefit of the automatic stay (see “Legal Proceedings—Effect of Automatic Stay upon filing under Chapter 11 of the Bankruptcy Code”), we entered into Forbearance Agreements with respect to the Term Loan Facility and the ABL Facility, dated April 30, 2023, pursuant to which our lenders party thereto agreed to forbear from exercising any rights or remedies with respect to certain events of default until the earlier of May 8, 2023 or the occurrence of certain events of termination, subject to the terms and conditions thereof (the “Forbearance Agreements”). Following further discussions, the forbearance was extended another week and the Forbearance Agreements expired on May 14, 2023.

On November 1, 2022, the Company received notice from NYSE Regulation, Inc. ("NYSE Regulation") that the Company was no longer in compliance with the continued listing standard set forth in Section 802.01C of the Listed Company Manual of the NYSE because the average closing price of the Company’s ordinary shares was less than $1.00 per share over a consecutive 30 trading-day period. On May 15, 2023, the Company was notified by the staff of NYSE Regulation that it had suspended trading in the Company's ordinary shares on the NYSE and determined to commence proceedings to delist the Company’s ordinary shares from the NYSE. NYSE Regulation reached its decision that the Company is no longer suitable for listing pursuant to NYSE Listed Company Manual Section 802.01D after the Company filed the Chapter 11 Cases referenced above.

We have experienced inflationary impacts across our businesses, driven by the impact of the COVID-19 pandemic, the war in Ukraine and resulting economic sanctions, and general macroeconomic factors. These factors have increased our manufacturing costs, particularly in Europe. The government lockdowns and restrictions imposed by China in response to COVID-19 have resulted in slower economic growth in China and decreased demand for titanium dioxide in the Chinese market, leading Chinese titanium dioxide manufacturers to export more product to other markets in which we compete. These are some of the events and conditions that raise substantial doubt about our ability to continue as a going concern as discussed in Liquidity and Capital Resources below.

On February 24, 2022, Russian forces launched a significant military action against Ukraine, which resulted in conflict and disruption in the region. Additionally, in response to this action, the United Kingdom, much of Europe and the United States have imposed numerous economic sanctions against Russia and related persons and entities. We suspended sales of products into Russia, which has not had a material impact on our financial statements. We do not have physical assets in Russia or Ukraine and we do not expect the conflict in Ukraine to have a direct material impact on our business. This conflict has exacerbated existing cost inflation and supply chain issues, most notably in Europe, where we experienced significant increases in energy costs during 2022 due in large part to reduced availability of Russian natural gas. While we have seen some relief in the price of energy in recent months, costs of natural gas and electricity remain inflated from historical levels, and we expect them to remain elevated in the near term. The impacts of this evolving situation and its effect on global economies in future periods are difficult to predict and depend on factors outside our control, including the extent of further military action by Russia, the potential escalation of the conflict and the impacts of these actions on demand, supply chains, and the global economy.

In the second quarter of 2021, we requested regional approval for a project for the use of gypsum in a specified on-site area on our Scarlino site. Following a review with relevant regional representatives, we submitted a revised request for regional approval in the first quarter of 2022. Following its determination that a preliminary (or screening)

We continue to work with the Region to secure approvals for both temporary gypsum storage and permanent landfill capacity. However, we do not intend to restart the facility unless we receive from the Region satisfactory approvals for the temporary storage of gypsum and commitments to approve projects for longer-term permanent landfill capacity. Without such approvals and commitments, we may permanently close the site and subsequently incur associated site closure costs.

In January 2023, we concluded, due to our inability to obtain required approvals from regulatory authorities for various options for gypsum disposal thus far and our assessment of the likelihood of obtaining these approvals prior to the end of the first quarter, that the useful life of the Scarlino property, plant and equipment should be reduced to the end of the second quarter of 2023. We incurred incremental depreciation expense of $33 million during the first quarter of 2023 as a result of this change in useful life.

In September 2022, Venator was the successful bidder in an auction to purchase the La Vallina quarry in Tuscany. Venator successfully completed the purchase of the quarry on January 19, 2023. If we restart our Scarlino facility and we subsequently receive the required approvals from regional authorities to operate the quarry as a landfill, at a future point the La Vallina quarry could be used as a landfill to provide longer-term disposal capacity for gypsum we produce at the Scarlino site.

On March 31, 2023, we completed the sale of our Iron Oxide business to Cathay Industries. We received cash proceeds of $127 million net of working capital adjustments, taxes, fees and other closing cash adjustments and recognized a gain on sale in the first quarter of 2023 of approximately $12 million, which is included in Other operating expense, net in our unaudited condensed consolidated statements of operations.