Venator Materials (VNTRF) Risk Factors

We are subject to a wide array of laws governing chemicals, including the regulation of chemical substances and inventories under the Toxic Substances Control Act ("TSCA") in the U.S. and the Registration, Evaluation, Authorisation and Restriction of Chemicals ("REACH") and the EU's classification and labelling ("CLP") regulations in Europe and the U.K. Analogous regimes exist or are being developed in other parts of the world, including China, South Korea, Turkey, Russia and Taiwan. In addition, a number of countries where we operate, including the U.K., have adopted rules to conform chemical labeling in accordance with the Globally Harmonized System of Classification and Labeling of Chemicals ("GHS"). Many of these regulatory regimes are in the process of a multi-year implementation period for these rules. In addition to the regulatory review of new substances, there has been a more recent focus under the laws in the E.U., US, and other countries, to review the safety of substances which have been marketed for many years, particularly for chemicals that are being marketed in formulations which include the benefits of nanotechnology, or containing nanoparticles (e.g. under TSCA in the U.S. and REACH and the Food Additives Regulation in the EU). TSCA reform legislation was enacted in the U.S. in June 2016, and the U.S. Environmental Protection Agency (the "EPA") has begun the process of issuing new chemical control regulations authorized by and, in many areas, required by the legislation. The EPA issued several final rules under the revised TSCA related to existing chemicals, including the following: (i) a rule to establish the EPA's process and criteria for identifying chemicals for risk evaluation; (ii) a rule to establish the EPA's process for evaluating high priority chemicals and their uses to determine whether or not they present an unreasonable risk to health or the environment; and (iii) a rule to require industry reporting of chemicals manufactured or processed in the U.S. over the past 10 years. The EPA has also released its framework for approving new chemicals and new uses of existing chemicals based on whether they present an unreasonable risk to health or the environment. Such a finding could result in either the issuance of rules restricting the use of the chemical being evaluated or in the need for additional testing. These rules and the EPA's risk determination for certain chemicals have been the subject of litigation and administrative review, and the costs of compliance with these regulations or relating to any new restriction or additional testing requirements that may be imposed cannot be estimated until the manner in which they will be implemented has been more precisely defined. Governmental, regulatory and societal demands for increasing levels of product safety and environmental protection could result in increased pressure for more stringent regulatory control with respect to the chemical industry. In addition, these concerns could influence public perceptions regarding our products, raw materials and operations, the viability of certain products or raw materials, our reputation, the cost to comply with regulations, and the ability to attract and retain employees. Moreover, changes in product safety and environmental protection regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, product safety and environmental matters may cause us to incur significant unanticipated losses, costs or liabilities, which could reduce our profitability. We use a variety of substances from third parties in the manufacture, processing and handling of our products, and it is possible that a substance could be classified as harmful, which could negatively impact our ability to sell or market our products. For example, pursuant to the CLP, chemical substances and mixtures cannot be placed on the EU market unless they comply with the CLP's requirements regarding classification, labelling and packaging. In 2019, new scientific data became available on Trimethylolpropane ("TMP"), and in December 2019 an EU supplier of this substance informed us that the REACH consortium responsible for TMP had self-classified TMP to be a suspected reproductive toxicant (Category 2). In 2022, Finland also notified ECHA of its intention to have TMP classified in reprotoxic category 1B. It is likely that Finland will submit its dossier to ECHA in 2023, which will be evaluated by ECHA's Risk Advisory Committee. We manufacture and sell numerous types of TiO2 pigments and other products worldwide, some of which are treated with and/or contain TMP. We have taken action to comply with this regulation and continue to review the impact of this classification on our business in Europe and other regions. Capital expenditures and costs relating to EHS matters will be subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose requirements on our operations. Capital expenditures and costs beyond those currently anticipated may therefore be required under existing or future EHS laws.

Pursuant to the separation agreement and other agreements with Huntsman, we agreed to indemnify Huntsman for certain liabilities, including those related to the operation of our business while it was still owned by Huntsman, in each case for uncapped amounts. Indemnity payments that we may be required to provide Huntsman may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for liabilities that Huntsman has agreed to retain. Further, there can be no assurance that the indemnity from Huntsman for its retained liabilities will be sufficient to protect us against the full amount of such liabilities, or that Huntsman will be able to fully satisfy its indemnification obligations to us. Moreover, even if we ultimately succeed in recovering from Huntsman any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves.

A corporation organized or incorporated outside the U.S. generally will be classified as a passive foreign investment company ("PFIC") for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules with respect to the income and assets of certain subsidiaries, either: (1) at least 75% of its gross income is classified as "passive income" (as defined in the Code) or (2) at least 50% of the average value of its total assets (which, assuming our stock is publicly-traded for the year being tested, would be measured by the fair market value of our assets) is attributable to assets that produce "passive income"or are held for the production of "passive income." U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to certain distributions they receive from the PFIC, and the gain, if any, they derive from the sale, exchange or other taxable disposition of their interests in the PFIC. Based on our market capitalization and the composition of our assets, income and operations, we do not believe that we currently are a PFIC, and we do not expect to become a PFIC in future taxable years. However, our status as a PFIC in any taxable year will depend on our assets, income and activities in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable years, and it is possible that the U.S. Internal Revenue Service ("IRS") may take a contrary position with respect to our determination in any particular year. See "Part I, Item 10. Material U.S. Federal Income Tax Considerations for U.S. Holders-Passive Foreign Investment Company Considerations."

We are currently managing and reporting GHG emissions, to varying degrees, at our sites worldwide. These locations are subject to a number of existing GHG-related laws and regulations. Potential consequences of such restrictions include capital requirements to modify assets to meet GHG emission restrictions and/or increases in energy costs above the level of general inflation, as well as direct compliance costs. Currently, however, it is not possible to estimate the likely financial impact of potential future regulation on any of our sites. Recent developments in climate change-related policy and regulations include the Green Deal in the EU, mandatory Task Force on Climate-Related Financial Disclosures ("TCFD") disclosures in the U.K., the U.K. commitment to becoming carbon neutral by 2050, and similar policy changes and commitments in other nations worldwide including the announcement that the U.S. is rejoining the Paris Agreement. These changes could affect us in a number of ways including potential requirements to decarbonize manufacturing processes and increased costs of carbon emissions credits. For example, during 2021 we became a net purchaser of carbon emissions credits in the EU and the U.K. As with other jurisdictions, our operations in the U.S. may become subject to increasing climate change regulations and we are currently monitoring these developments closely whilst investigating appropriate climate change strategies to enable us to comply with the new regulations and conform to new disclosure requirements such as TCFD. Increasing concentrations of GHGs in the earth's atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other extreme climatic events. The severity of the changes varies in accordance with the models used to predict the changes, however, they could have adverse effects on our assets and operations. For example, we have a number of operations in low lying areas that may be at increased risk due to flooding, rising sea levels or disruption of operations from more frequent and severe weather events. These potential effects are also included in our investigation into appropriate climate change strategies.

Manufacturing facilities in our industry are subject to planned and unplanned production shutdowns, turnarounds, outages and other disruptions. Any disruption at our facilities could impair our ability to use our facilities and have a material adverse impact on our revenues, increase our costs and expenses and negatively impact liquidity. Alternative facilities with sufficient capacity may not be available, may cost substantially more or may take significant time to increase production or qualify with our customers, any of which could negatively impact our business, results of operations, financial condition, and liquidity. Unplanned production disruptions may occur for external reasons including natural disasters, weather, disease, strikes, power outages, telecommunication or utility failures, transportation interruption, government regulation, flood, political unrest, public crises, war or terrorism, or internal reasons, such as fire, unplanned maintenance or other manufacturing problems. Any such production disruption could have a material impact on our cash flows, results of operations and financial condition. We may also lose market share during a disruption in production due to customers who are forced to purchase products elsewhere or develop alternatives to our products and no longer purchase products from us after production is restored. In addition, we rely on a number of vendors, suppliers and, in some cases, sole-source suppliers, service providers, toll manufacturers and collaborations with other industry participants to provide us with chemicals, feedstocks and other raw materials, along with energy sources and, in certain cases, facilities that we need to operate our business. If the business of these third parties is disrupted, some of these companies could be forced to reduce their output, shut down their operations or file for bankruptcy protection. If this were to occur, it could adversely affect their ability to provide us with the raw materials, energy sources or facilities that we need, which could materially disrupt our operations, including the production of certain of our products. Moreover, it could be difficult to find replacements for certain of our business partners without incurring significant delays or cost increases. Further, our ore feedstocks have a limited global supply and a change in the global supply landscape as a result of the closure of a mine could impact us even if we do not source our supply from that facility. All of these risks could have a material adverse effect on our business, results of operations, financial condition and liquidity. While we maintain business recovery plans that are intended to allow us to recover from natural disasters or other events that could disrupt our business, we cannot provide assurances that our plans would fully protect us from the effects of all such disasters or from events that might increase in frequency or intensity due to climate change. In addition, insurance may not adequately compensate us for any losses incurred as a result of natural or other disasters. In areas prone to frequent natural or other disasters, insurance may become increasingly expensive or not available at all. Furthermore, some potential climate-driven losses, particularly flooding due to sea-level rises, may pose long-term risks to our physical facilities such that operations cannot be restored in their current locations.

The global nature of our business presents difficulties in hiring and maintaining a workforce in certain countries. The majority of our employees are located outside the U.S. In many of these countries, including the U.K., Italy, Germany, France, Spain, Finland and Malaysia, labor and employment laws may be more onerous than in the U.S. and, in many cases, grant significant job protection to employees, including rights on termination of employment. We are required to consult with, and seek the consent or advice of, various employee groups or works councils that represent our employees for any changes to our activities or employee benefits. This requirement could have a significant impact on our flexibility in managing costs and responding to market changes and could further increase the risk of completing our cost savings plans.

We incur substantial costs for raw materials, energy and shipping. These costs are subject to worldwide supply and demand as well as other factors beyond our control and we have experienced significant increases in all of these costs in recent years. Volatility in the cost for raw materials and energy have significantly affected our operating results. We purchase a substantial portion of our raw materials from third-party suppliers and the cost of these raw materials represents a substantial portion of our costs of goods sold. The prices of the raw materials that we purchase from third parties are cyclical and volatile. Our supply agreements with our TiO2 feedstock suppliers provide us limited protection against price volatility as they mostly provide for market-based pricing. Contracts have historically been multi-year volume based with negotiated or formula driven short interval pricing and we have seen the terms of these contracts become less favorable with certain suppliers in response to the volatility in the post-COVID environment. Furthermore, we anticipate that substantial doubt about our ability to continue as a going concern will further impact these contracts and our relationships with these suppliers. To the extent we do not have fixed price contracts with respect to specific raw materials, we have no control over the costs of raw materials and such costs may fluctuate widely for a variety of reasons, including changes in availability, major capacity additions or reductions, or significant facility operating problems. While we attempt to match cost increases with corresponding product price increases, we are not always able to raise product prices immediately or at all. Moreover, the outcome of these efforts is largely determined by existing competitive and economic conditions. Timing differences between raw material prices, which may change daily, and contract product prices, which in many cases are negotiated only monthly or less often, also have had and may continue to have a negative effect on our cash flow. Any raw materials or energy cost increase that we are not able to pass on to our customers could have a material adverse effect on our business, results of operations, financial condition and liquidity. There are several raw materials for which there are only a limited number of suppliers or a single supplier. For example, certain types of titanium-containing feedstocks suitable for use in our TiO2 facilities are available from a limited number of suppliers around the world. To mitigate potential supply constraints, we enter into supply agreements with particular suppliers, evaluate alternative sources of supply and evaluate alternative technologies to avoid reliance on limited or sole-source suppliers. Where supply relationships are concentrated, particular attention is paid by the parties to ensure strategic intentions are aligned to facilitate long term planning. If certain of our suppliers are unable to meet their obligations under present supply agreements, we may be forced to pay higher prices to obtain the necessary raw materials from other sources and we may not be able to increase prices for our finished products to recoup the higher raw materials costs. Any interruption in the supply of raw materials could increase our costs or decrease our revenues, which could reduce our cash flow and have a material adverse effect on our financial statements, results of operations and liquidity. The number of sources for and availability of certain raw materials is also specific to the particular geographical region in which a facility is located. Political and economic instability in the countries from which we purchase our raw material supplies could adversely affect their availability. In addition, if raw materials become unavailable within a geographic area from which they are now sourced, then we may not be able to obtain suitable or cost-effective substitutes. We may also experience higher operating costs such as energy costs, which could affect our profitability. For example, we are currently experiencing the impact of a substantial increase in energy costs in Europe. We may not always be able to increase our selling prices to offset the impact of any higher productions costs or reduced production levels, which could reduce our earnings and decrease our liquidity.

Our financial results are substantially dependent on overall economic conditions globally, and particularly those in the U.S., Europe and Asia. Volatility in global market conditions, whether it is declining economic conditions globally or in any of these locations, or robust economic conditions contributing to sudden increases in inflation, could adversely affect our businesses. We experienced global inflationary pressures during 2021 and 2022, particularly in Europe where our raw materials and energy costs have seen significant price increases. We cannot predict whether European raw material and energy costs will continue to rise or experience volatility. During downturns and periods of volatile demand, such as we have recently experienced, our revenues are reduced, and we typically experience greater pricing pressure and shifts in product demand and mix. Greater substitution of product imports from China may also occur which further impacts demand for our products. Uncertain and volatile economic, political, public health or business conditions in any of the regions in which we operate can impact demand for our products. Volatile global market conditions and periods of declining demand can cause material adverse changes in our results of operations and financial condition, including as described below. We have experienced or are currently experiencing many of the impacts listed below and can give no assurances as to when, or if, these conditions and impacts will improve or whether they will continue to deteriorate. The impacts include: - a decline in demand for our products, which has an immediate impact on our revenues;- lower utilization of our manufacturing facilities, including stopping production at certain facilities, as a result of measures taken to respond to such conditions, which results in lower fixed cost absorption;- negative impacts on our workforce as associates respond to perceived volatility as we moderate our production facilities to line up with demand;- potential impairment charges or changes to the useful lives of our manufacturing equipment or other long-lived assets, to the extent that any downturn indicates that the carrying amount of the asset may not be recoverable or that such assets have diminished useful lives;- greater challenges in forecasting results of operations, making business decisions, and identifying and prioritizing business risks;- higher financing costs which could impact our ability to invest in our business and refinance existing debt;- changes to our credit rating as a result of our financial results which could further impact our ability to access the capital markets;- unfavorable credit terms with suppliers as they may require shorter terms or cash up front to respond to global market volatility, our unfavorable financial results or credit ratings, or their own need to generate cash flows;- higher raw materials, freight and energy costs as a result of global inflation, or inflation in the regions in which we operate; and - inability to increase our pricing sufficiently to cover the increases in costs due to inflation or other factors. Further, during periods of economic disruption, more of our customers than normal may experience financial difficulties, including bankruptcies, restructurings and liquidations, which could affect our business by reducing sales, increasing our risk in extending trade credit to customers and reducing our profitability. A significant adverse change in a customer relationship or in a customer's financial position could cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer's receivables or limit our ability to collect accounts receivable from that customer.

We are vulnerable to the effects of conflicts, military actions, terrorist attacks and public health crises. As has been the case with COVID-19, such effects have precipitated economic instability and turmoil in financial markets. Instability and turmoil, particularly in energy-producing nations, may result in raw material cost increases. The uncertainty and economic disruption resulting from hostilities, military action, acts of terrorism, public health crises or cyber-attacks may impact any or all of our facilities and operations or those of our suppliers or customers. Accordingly, any conflict, military action, terrorist attack, public health crises or cyber-attack that impacts us or any of our suppliers or customers, could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, a number of governments have instituted regulations attempting to increase the security of chemical plants and the transportation of hazardous chemicals, which could result in higher operating costs and could have a material adverse effect on our financial condition and liquidity.

We have developed and publicized, and expect to continue to establish, goals, targets, and other objectives related to sustainability matters. Our efforts to establish, accomplish, and accurately report on these goals, targets, and objectives could expose us to operational, reputational, financial, legal, and other risks. Our ability to achieve any stated goal, target, or objective is and will be subject to numerous factors and conditions, many of which are outside of our control, such as evolving regulatory or quasi-regulatory sustainability standards, differing requirements throughout the world and the pace of technological change. Achievement of these goals and initiatives may also be impacted by our plans to mitigate concerns around our ability to continue as a going concern as resources that would have been previously committed to sustainability initiatives may be diverted towards our mitigation plans. We may face increased scrutiny from shareholders, other stakeholders and regulators related to our sustainability activities, including the goals, targets, and objectives that we announce, and our methodologies and timelines for pursuing them. If our sustainability practices do not meet shareholder or other stakeholder expectations and standards, which continue to evolve, our reputation, ability to attract or retain employees, and attractiveness as an investment, business partner, or as an acquiror could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets, and objectives, to comply with ethical, environmental, or other standards, regulations, or expectations, or to satisfy various reporting standards with respect to these matters, within the timelines that we anticipate or at all, could have the same negative impacts, as well as expose us to government enforcement actions and litigation. Even if we achieve the goals, targets, and objectives we set, we may not realize all of the benefits anticipated at the time they were established.

Some of our customers, prospective customers, suppliers or other companies with whom we conduct business may require assurances as a condition to do business with them. These assurances may be in the form of letters of credit, financial guarantees, reduction in payment terms, or prepayments of goods or services, all of which will have a direct impact on our liquidity. Our inability to provide such assurances may result in the loss of customers or suppliers and could have a material adverse effect on our business, financial condition, results of operations and cash flows.